EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
2.1 Stock Purchase Agreement, dated December 3, 1997, by and
between ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
(collectively "Sellers") and MFRI, Inc. ("Buyer")
EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT dated December 3, 1997 is by and between
▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ ("▇▇▇"), ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ("▇▇▇▇▇"), ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
("▇▇▇▇▇▇▇▇) and MFRI INC., a Delaware corporation ("Buyer").
RECITALS
A. TDC Filter Manufacturing, Inc., a Delaware corporation (the
"Company"), is engaged in the business of manufacturing and selling pleated
air filtration products (the "Business").
B. ▇▇▇ and ▇▇▇▇▇, as joint tenants with right of survivorship and
not as tenants in common, and ▇▇▇▇▇▇▇▇ (collectively the "Sellers") are the
owners of all the issued and outstanding shares of capital stock of the
Company and ▇▇▇ is the owner of the real estate commonly known as
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, which is the location of the
Company's facilities, and the parking lot across the street (such real
estate and parking lot being referred to collectively as the "Real
Estate").
C. Buyer desires to purchase all the outstanding shares of capital
stock of the Company from Sellers, and Sellers desire to sell such shares
to Buyer, all on the terms and conditions hereinafter provided.
D. Buyer desires to purchase the Real Estate from ▇▇▇, and ▇▇▇
desires to sell the Real Estate to Buyer, all on the terms and conditions
provided in the Real Estate Sales Contract (as hereinafter defined).
E. Buyer desires that the Company be protected and indemnified from
all liabilities other than the Continuing Liabilities (as hereinafter
defined), and Sellers are willing to provide such protection and
indemnification, to the extent and on the terms and conditions hereinafter
provided.
AGREEMENTS
In consideration of the mutual covenants and agreements of the parties
and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
ARTICLE 1.
PURCHASE AND SALE OF SHARES AND REAL ESTATE
A. SHARES. At the Closing (as hereinafter defined), Sellers shall
sell, assign and transfer to Buyer all of the outstanding shares of capital
stock of the Company (the "Shares"), and Buyer shall purchase the Shares
from Sellers, for the price and in accordance with the provisions of this
Agreement.
B. REAL ESTATE. At the Closing, ▇▇▇ shall sell the Real Estate to
Buyer, and Buyer shall purchase the Real Estate from ▇▇▇, on the terms and
conditions set forth in the Real Estate Sales Contract of even date hereof
(the "Real Estate Sales Contract"), which ▇▇▇ and Buyer are executing
concurrently with the execution and delivery of this Agreement.
ARTICLE 2.
CLOSING
A. CLOSING. The closing ("Closing") of the purchase and sale of the
Shares and Real Estate shall take place at the offices of ▇▇▇▇▇▇▇ & ▇▇▇▇▇,
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ concurrently
with the execution and delivery of this Agreement. The date on which the
Closing occurs is referred to in this Agreement as the "Closing Date".
B. EFFECTIVE TIME. The effective time of the Closing shall be the
close of business on the Closing Date.
ARTICLE 3.
PURCHASE PRICE AND PAYMENT TERMS
A. PURCHASE PRICE.
1. The purchase price for the Shares ("Purchase Price") is
$8,200,000, reduced by the Capital Debt (as hereinafter defined), which
Buyer shall pay in full at the Closing ("Estimated Share Price"), subject
to post-closing adjustments pursuant to Sections 3.3, 3.4, 3.5 and 3.6 of
this Agreement (the "Cash Purchase Price"), and options to purchase 75,000
shares of Buyer at the Fair Market Value (as defined herein) thereof, such
options (the "Options") to be in the form attached as Exhibit "A" to the
Disclosure Schedules (as hereinafter defined). As used herein, "Disclosure
Schedules" mean the Disclosure Schedules being executed and exchanged by
the parties concurrently with the execution and delivery of this Agreement.
As used herein, "Fair Market Value" means the average of the high and low
sales prices of a share of common stock of Buyer on the National Market
tier of the Nasdaq Stock Market ("Nasdaq") as reported in THE WALL STREET
JOURNAL for the five (5) preceding trading days on which the common stock
of Buyer is traded immediately prior to the Closing Date.
2. As used in this Agreement, "Capital Debt" means the amount
required to prepay in full on the Closing Date the indebtedness of the
Company for borrowed money set forth on Section 3.1 of the Disclosure
Schedules, including all interest and prepayment premiums thereon.
3. Any payments made to or by Sellers pursuant to this
Agreement shall be made 94% to or by ▇▇▇ and ▇▇▇▇▇ and 6% to or by
▇▇▇▇▇▇▇▇, including but not limited to payments from the General Escrow
Deposit, but excluding payments with respect to the Tax Escrow Deposit as
described herein which shall be made by ▇▇▇ and ▇▇▇▇▇. The Options shall
be issued 94% to ▇▇▇ and ▇▇▇▇▇ and 6% to ▇▇▇▇▇▇▇▇.
B. MANNER OF PAYMENT OF CASH PURCHASE PRICE. At the Closing, Buyer
shall pay the Estimated Share Price to Sellers as follows:
1. $750,000 (the "General Escrow Deposit") shall be paid by wire
transfer to Chicago Title and Trust Company, as escrow agent (the
"General Escrow Agent"), to be held by the General Escrow Agent
pursuant to the Escrow Agreement in the form attached as Exhibit "B"
to the Disclosure Schedules (the "General Escrow Agreement"), which
the parties shall execute and deliver at the Closing;
2. $200,000 (the "Tax Escrow Deposit") shall be paid by wire
transfer to American National Bank and Trust Company of Chicago, as
escrow agent (the "Tax Escrow Agent"), to be held by the Tax Escrow
Agent pursuant to the Escrow Agreement in the form attached as
Exhibit "C" to the Disclosure Schedules (the "Tax Escrow Agreement"),
which the parties shall execute and deliver at the Closing; and
3. the balance shall be paid to Sellers by wire transfer of
immediately available funds to such bank account as Sellers shall
designate by written directions given to Buyer by Sellers.
In addition, Buyer shall cause the Company to prepay the principal of and
all unpaid accrued interest on all Capital Debt in full at the Closing,
other than the indebtedness to the Town of Cicero, and shall deliver to
Sellers the release of their personal guaranty of any of the Capital Debt.
C. WORKING CAPITAL ADJUSTMENT.
1. The Cash Purchase Price shall be subject to increase or
decrease after the Closing for Working Capital Adjustment. "Working
Capital Adjustment" means the sum of (i) the amount by which Primary
Working Capital (as hereinafter defined) is more or less than $600,652
("Target Working Capital"), with the Cash Purchase Price being increased by
any excess above $600,652 or decreased by any deficiency, and (ii) the
amount by which all Current Liabilities (as hereinafter defined) which are
not included in Primary Working Capital are not current as of the Closing
Date in accordance with their respective terms or applicable legal
requirements. As used in this Agreement, "Primary Working Capital" means
the sum of cash, accounts receivable and inventory less accounts payable,
determined as of the close of business on the Closing Date in accordance
with the same accounting principles which were used for purposes of
preparing the Reference Balance Sheet (as hereinafter defined). As used in
this Agreement, "Current Liabilities" means those liabilities of the
Company as of the close of business on the Closing Date, which are
classified as current liabilities in accordance with generally accepted
accounting principles.
2. Within sixty (60) days after the Closing Date, Buyer shall
prepare and deliver to Sellers Buyer's determination of the Working Capital
Adjustment, together with a reconciliation of the amounts used in
determining the Working Capital Adjustment to the amounts used in the
Closing Balance Sheet (as defined in Section 3.4(c)). Sellers shall have
the right to object to any amount included in Buyer's determination of the
Working Capital Adjustment; PROVIDED, that Sellers may not object if such
amounts were determined in accordance with the same accounting principles
used in preparing the Reference Balance Sheet. If Sellers do not object to
Buyer's determination of the Working Capital Adjustment within thirty (30)
days after delivery of such determination to Sellers, then Buyer's
determination of the Working Capital Adjustment shall be final, binding and
conclusive on the parties. If Sellers object to any amount included in
Buyer's determination of the Working Capital Adjustment, they shall do so
by notifying Buyer thereof in writing within thirty (30) days after
delivery of Buyer's determination to Sellers, which notice shall specify
the grounds for such objection in reasonable detail. The parties shall
endeavor to resolve promptly the matters to which Sellers objected. If the
parties are unable to resolve Sellers' objections within thirty (30) days
after Sellers notified Buyer of their objections, the matters in dispute
shall be submitted to the Dispute Accountants (as hereinafter defined) for
resolution, and the resolution by the Dispute Accountants shall be final,
binding and conclusive on the parties. As used herein, "Dispute
Accountants" shall mean a firm of independent certified public accountants
of recognized standing in the Chicago area agreed upon by the parties, or
if the parties are unable to agree on such firm within 14 days after the
expiration of the thirty (30) day period referred to above, such a firm
selected by Deloitte & Touche and ▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇ Ltd., or if such a
firm has not been selected by Deloitte & Touche and ▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇
Ltd. within 14 days after either party requests them to do so, such a firm
selected by the Court of Chancery upon application by either of the parties
to do so. The Dispute Accountants shall be jointly instructed by Buyer and
Sellers to determine the disputed amounts in accordance with the procedures
delineated in this Section and report their conclusions to the parties as
promptly as possible after the submission of such disputed amounts. The
Dispute Accountants shall have no right, authority or discretion to employ
any accounting standard or principles except for those called for pursuant
to this Section. The fees and disbursements of the Dispute Accountants
shall be allocated between Buyer and Sellers in the manner provided in the
last paragraph of Section 3.4.
3. If the Primary Working Capital as finally determined
pursuant to this Section is less than the Target Working Capital, the
amount of such difference shall be referred to herein as the "Working
Capital Deficiency". If the Primary Working Capital as finally determined
pursuant to this Section is more than the Target Working Capital, the
amount of such difference shall be referred to as the "Working Capital
Surplus". The amount of Current Liabilities that were not included in
Primary Working Capital and which are not current as of the Closing Date in
accordance with their respective terms or applicable legal requirements as
finally determined pursuant to this Section is referred to herein as the
"Non-Primary Working Capital Deficiency".
D. NET WORTH ADJUSTMENT.
1. The Estimated Share Price shall be subject to increase or
decrease after the Closing for the difference between the Reference Net
Worth (as hereinafter defined) and the Closing Net Worth (as hereinafter
defined). As used herein, "Reference Net Worth" means $812,806, being the
amount by which the assets of the Company exceeded its liabilities as of
September 30, 1997, as set forth in the balance sheet of the Company
attached as Exhibit "D" to the Disclosure Schedules (the "Reference Balance
Sheet"). As used in this Agreement, "Closing Net Worth" means the
difference between the assets and the liabilities of the Company as set
forth in the Closing Balance Sheet (as hereinafter defined) as finally
determined pursuant to this Section 3.4.
2. A complete physical count of the inventory of the Company
was taken on October 31, 1997 by the Company, and was observed by
Deloitte & Touche (the "Accountants") and Buyer. Such inventory count
shall be adjusted for all transactions affecting inventory which occurred
after October 31, 1997 through and including the Closing Date. The
inventory, so counted and adjusted shall be valued at the lower of cost or
market consistent with the pricing practices previously employed by the
Company, subject to a reserve for obsolete and unusable Inventory of
$15,000. In valuing such inventory, the uniform cost capitalization added
to inventory shall be $30,000. Raw materials and finished inventory which
existed as such at September 30, 1997 shall not be valued in excess of the
book value thereof used for purposes of preparing the Reference Balance
Sheet.
3. Within sixty (60) days after the Closing Date, Buyer shall
prepare and deliver to Sellers a balance sheet of the Company as of the
close of business on the Closing Date audited by the Accountants ("Closing
Balance Sheet"), showing as assets the assets of the Company and as
liabilities only the Continuing Liabilities (as defined in Section 11.3)
and the Capital Debt, with such assets and liabilities determined from the
books and records of the Company in accordance with GAAP (as hereinafter
defined), applied consistently with the manner used in preparing the
March 31 Balance Sheet (as defined in Section 4.10) except (i) where
inconsistent with GAAP, or (ii) as otherwise specifically provided in this
Section or in Section 3.4(c) of the Disclosure Schedules. For purposes of
preparing the Closing Balance Sheet, (i) intangible assets shall be valued
at the amount thereof included in the Reference Balance Sheet, less
amortization consistent with the Company's past practices, (ii) no reserve
shall be established for doubtful collection of accounts receivable in view
of Sellers' guaranty of the collectibility thereof set forth in
Section 6.2, (iii) no reserve shall be established for warranty costs in
view of Sellers' covenants with respect to such costs set forth in
Section 6.3, (iv) the reserve for unpaid accrued vacation shall be
established in accordance with GAAP, (v) no value shall be given to any
fixed asset that was included in determining the Reference Balance Sheet
that is not present as of the Closing, (vi) no value shall be attributed to
any net operating loss carry forward available to the Company, and (vii) no
effect shall be given to any capital contribution made to the Company by
Buyer on the Closing Date or to any payment of liabilities of the Company
made by Buyer on the Closing Date pursuant to this Agreement and such
liabilities shall be treated as if they were outstanding. As used in this
Agreement, "GAAP" means generally accepted accounting principles.
Sellers shall cooperate fully with the Accountants in their audit of
the Closing Balance Sheet and shall cause ▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇ Ltd. to
cooperate with the Accountants with access to work papers in its possession
that are Company prepared, for purposes of auditing the Closing Balance
Sheet. For those accounts requiring historical information, ▇▇▇▇▇▇, ▇▇▇▇ &
▇▇▇▇▇ Ltd. will provide work papers to the extent those files exist.
4. Buyer shall pay the fees and expenses of the Accountants for
auditing the Closing Balance Sheet.
5. Sellers shall have the right to object to any amount shown
on the Closing Balance Sheet; PROVIDED that Sellers may not object to the
principles used in determining the amounts shown on the Closing Balance
Sheet if such principles are GAAP applied consistently with those used in
preparing the March 31 Balance Sheet or are consistent with the exceptions
to GAAP set forth in this Section or in Schedule 3.4(c) of the Disclosure
Schedules. If Sellers do not object to the amounts shown on the Closing
Balance Sheet within thirty (30) days after delivery of the Closing Balance
Sheet to Sellers, then the amounts shown on such Closing Balance Sheet
shall be final, binding and conclusive on the parties. If Sellers object
to any amount shown on the Closing Balance Sheet, they shall do so by
notifying Buyer thereof in writing within thirty (30) days after delivery
of the Closing Balance Sheet to Sellers, which notice shall specify the
grounds for such objection in reasonable detail. The parties shall
endeavor to resolve promptly the matters to which Sellers objected. If the
parties are unable to resolve Sellers' objections within thirty (30) days
after Sellers notified Buyer of its objections, the matters in dispute
shall be submitted to the Chicago, Illinois offices of a mutually
acceptable independent accounting firm not previously engaged by either
party ("Dispute Accountants") for resolution, and the resolution by such
firm of independent certified public accountants of such matters shall be
final, binding and conclusive on the parties. The Dispute Accountants
shall be jointly instructed by Buyer and Sellers to determine the disputed
amounts in order to carry out the intent of this Agreement in accordance
with the procedures delineated in this Agreement, and report their
conclusions to the parties as promptly as possible after the submission of
such disputed amounts. The Dispute Accountants shall have no right,
authority or discretion to employ any accounting standard or principles
except for those called for pursuant to this Agreement.
Nothing herein shall be construed (i) to authorize or permit the
Dispute Accountants to arbitrate or determine any question or matter
whatever under or in connection with this Agreement except the
determination of what adjustments, if any, must be made in the Closing
Balance Sheet in order for the appropriate determination to be made in
accordance with the provisions of this Section, or (ii) to require the
Dispute Accountants to follow rules of the American Arbitration Association
or of any other body in making such determination.
The fees and disbursements of the Dispute Accountants shall be
allocated between Buyer and Sellers in the same proportion as which the
difference between the ultimate determination of the disputed items by the
Dispute Accountants and Buyer's and Sellers' respective positions on such
disputed items bear to each other. For example, if (a) Sellers believe the
Closing Balance Sheet should reflect an adjustment of an item by a positive
$100,000, (b) Buyer claims no adjustment should be made, and (c) the
Dispute Accountants determine that the adjustment is a positive $25,000,
then the fees and expenses of the Dispute Accountant shall be borne 75% by
Sellers and 25% by Buyer.
If the Closing Net Worth exceeds the Reference Net Worth, the amount
of such difference shall be referred to herein as the "Closing Net Worth
Surplus." If the Closing Net Worth is less than the Reference Net Worth,
the amount of such difference shall be referred to herein as the "Closing
Net Worth Deficiency."
E. ADJUSTMENT TO CASH PURCHASE PRICE.
1. If (i) the sum of the Working Capital Surplus (if
applicable) and the Closing Net Worth Surplus (if applicable) exceeds
(ii) the sum of the Working Capital Deficiency (if applicable), the Closing
Net Worth Deficiency (if applicable) and the Non-Primary Working Capital
Deficiency, if any, Buyer shall pay an amount equal to such excess to
Sellers within five (5) business days after the Working Capital Adjustment
and Closing Net Worth have been finally determined, by wire transfer of
immediately available funds to the bank account designated by Sellers
pursuant to Section 3.2(b).
2. If (i) the sum of the Working Capital Deficiency (if
applicable), the Closing Net Worth Deficiency (if applicable) and the
Non-Primary Working Capital Deficiency, if any, exceeds (ii) the sum of the
Working Capital Surplus (if applicable) and the Closing Net Worth Surplus,
the parties shall deliver to the General Escrow Agent, within five (5)
business days after the Working Capital Adjustment and Closing Net Worth
have been finally determined, their written direction to release to Buyer
an amount equal to the lesser of (i) the amount of the deficiency, or
(ii) the amount of the General Escrow Deposit then held in escrow.
F. CAPITAL DEBT ADJUSTMENT. American National Bank and Trust
Company of Chicago (the "Bank") may increase the amount of principal,
interest and prepayment premiums owed to it by the Company as of the
Closing Date for a period of thirty (30) days after the Closing. The
amount of such adjustment shall increase the amount of the Capital Debt
which, had it been known on the Closing Date, would have reduced the amount
of the Purchase Price. ▇▇▇ and ▇▇▇▇▇ therefore agree to refund to Buyer an
amount of the Purchase Price equal to such adjustment within five (5)
business days after receipt of a copy of the Bank's statement of such
adjustment.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers hereby represent and warrant to Buyer as follows:
A. ORGANIZATION. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware. The Company has all requisite corporate power and authority to
own, lease and operate its properties and the Business as presently
conducted.
B. QUALIFICATION. The Company is qualified to do business as a
foreign corporation and is in good standing under the laws of the States of
Illinois. Except as set forth in Section 4.2 of the Disclosure Schedules,
the Company is not required to qualify to transact business as a foreign
corporation in any other jurisdiction.
C. DUE EXECUTION. This Agreement has been duly executed and
delivered by Sellers and constitutes the legal, valid and binding
obligation of Sellers, enforceable against Sellers in accordance with its
terms, except to the extent that enforceability may be limited by
applicable bankruptcy, insolvency or similar laws affecting the enforcement
of creditors' rights generally and subject to general principles of equity
(regardless of whether such enforcement is considered in a proceeding in
equity or at law).
D. NO CONFLICT. Except as set forth in Section 4.4 of the
Disclosure Schedules, neither the execution and delivery of this Agreement
by Sellers nor the consummation of the transactions contemplated hereby
will conflict with or result in a breach of any of the provisions of, or
constitute a default under, the Certificate of Incorporation or By-laws of
the Company, each as amended to date, or any material agreement, mortgage,
indenture, lease or other instrument to which either of the Sellers or the
Company is a party or by which either of the Sellers or the Company or any
of their property is bound, or result in the violation of any law, rule,
regulation, order, judgment or decree to which either of the Sellers or the
Company or any of their property is subject.
E. CONSENTS. To the knowledge of Sellers, no consent, approval or
authorization of, or declaration or filing with, any governmental authority
is required on the part of Sellers or the Company in connection with the
execution, delivery or performance of this Agreement. To the knowledge of
Sellers, except as disclosed in Section 4.5 of the Disclosure Schedules, no
approval, consent or authorization of any lender, lessor, bondholder,
customer or other person is required on the part of Sellers or the Company
in order for Sellers to consummate the transactions contemplated hereby.
F. CAPITALIZATION OF THE COMPANY. The entire authorized capital
stock of the Company consists of 200 shares of common stock, no par value,
of which only the ten shares constituting the Shares are presently issued
and outstanding. All of the Shares are owned by Sellers and have been duly
authorized and are validly issued, fully paid and nonassessable. There is
no agreement, voting trust or other agreement or understanding to which
either of the Sellers is a party or by which either of them is bound
relating to the voting of the Shares.
G. OWNERSHIP OF SHARES. Sellers are the sole owner of the Shares,
both of record and beneficially. Sellers owns the Shares free and clear of
any pledge, option, security interest, encumbrance or restriction
whatsoever. There are no authorized or outstanding options, warrants,
rights, contracts, calls, puts, rights to subscribe, conversion rights or
other agreements or commitments to which either of the Sellers or the
Company is a party or which are binding on either of the Sellers or the
Company providing for the issuance, disposition or acquisition of any of
the capital stock of the Company. There are no authorized or outstanding
stock appreciation rights, phantom stock or similar rights with respect to
the Company to which the Company is a party.
H. NO SUBSIDIARIES. Except as set forth on Section 4.8 of the
Disclosure Schedules, the Company does not own any shares of or equity
interest in any corporation, partnership, limited liability company, joint
venture, association (excluding memberships in trade associations) or other
entity.
I. CORPORATE RECORDS AND ACTION. Sellers have previously furnished
to Buyer a copy of the Certificate of Incorporation and all amendments
thereto of the Company, and prior to the Closing shall furnish to Buyer a
copy of the foregoing, certified as being true, correct and complete by the
Secretary of State of Delaware. Sellers have previously furnished to Buyer
a complete copy of the By-laws and all amendments thereto of the Company,
and prior to the Closing shall furnish to Buyer a copy of such By-laws and
all amendments thereto, certified by the Secretary of the Company. Sellers
have previously made available to Buyer the complete minute books of the
Company. All corporate actions taken by the shareholders, Board of
Directors or any committee of the Board of Directors of the Company are
fairly and accurately summarized in all material respects in the minute
books of the Company. Sellers have previously made available to Buyer the
stock ledger books of the Company. All issuances, cancellations, transfers
and exchanges of capital stock of the Company are reflected in its stock
ledger books.
J. FINANCIAL STATEMENTS. The unaudited financial statements of the
Company (including the balance sheet as of March 31, 1997 (the "March 31
Balance Sheet") and statements of profit and loss) for the fiscal year
ended March 31, 1997 and for the six month period ended September 30, 1997
("Financial Statements"), copies of which are attached as Section 4.10 of
the Disclosure Schedules, have been prepared in accordance with and on a
basis consistent with prior financial statements of the Company. The
Financial Statements present fairly in all material respects the financial
position and results of operations of the Company as of the dates and for
the periods indicated, subject to the absence of footnotes and, as to
interim statements, to normal year-end adjustments. No material change has
been made to the accounting principles used by the Company for preparing
the Financial Statements since March 31, 1997 except to reflect the
separation of United Air Filter Inc., a Delaware corporation formerly known
as TDC-UAC, Inc. ("UAF") from the Company.
K. UNDISCLOSED LIABILITIES. Except for the Capital Debt and as set
forth in Schedule 4.11 to the Disclosure Schedules, the Company has no
liabilities (whether absolute or contingent, liquidated or unliquidated and
whether due or to become due), except for (a) liabilities incurred in the
ordinary course of the Business which are set forth in the Reference
Balance Sheet, (b) liabilities incurred in the ordinary course of Business
after September 30, 1997 to the Closing Date, (c) liabilities for income
taxes and sales taxes which are included in Excluded Liabilities (as
hereinafter defined), and (d) other liabilities not exceeding $10,000 in
the aggregate. Except as set forth in Section 4.11 of the Disclosure
Schedules or as reflected in the Reference Balance Sheet, the Company is
not liable upon or with respect to or obligated in any other way to provide
funds in respect of, or to guaranty or assume in any manner, any debt,
obligation or dividend of any other person or entity.
L. EVENTS SUBSEQUENT TO MARCH 31, 1997. Since March 31, 1997, the
Business has been conducted in the ordinary and usual course of business,
consistent with past practices. Except to the extent set forth in
Section 4.12 of the Disclosure Schedules or as contemplated by this
Agreement, since March 31, 1997, there has not been:
1. any increase in the rate of compensation or benefits payable
or to become payable to any of the officers, employees or agents of
the Company or any commitment to pay any bonus or additional
compensation to any of the officers, employees or agents of the
Company, except the year end bonuses accrued on the March 31 Balance
Sheet;
2. any change in any accounting procedures or practices employed
by the Company except as relates to the separation of UAF from the
Company;
3. any material adverse change to the assets or the financial
condition or business of the Company;
4. any cancellation or waiver of any claim or right of the
Company of substantial value of any of the Company's assets, except in
the ordinary course of business;
5. any sale, transfer, distribution or other disposal of any of
the Company's assets, except in the ordinary course of business;
6. any amendment to or establishment of any bonus, incentive,
compensation, deferred compensation, profit sharing, retirement,
pension, group insurance or other employee benefit plan or any
employment or consulting agreement relating to the Business or any of
the employees thereof other than in connection with the separation of
UAF from the Company;
7. any transaction or contract entered into or amended or
terminated by the Company with respect to the Business, except normal
transactions or contracts consistent in nature and scope with prior
transactions and entered into in the ordinary course of business in
arm's length transactions;
8. any acceleration, termination, cancellation or adverse
modification of any material agreement, contract, lease or license to
which the Company is a party or by which it is bound;
9. any dividend, payment or other distribution with respect to
any of the capital stock of the Company;
10. any redemption or purchase of (i) any capital stock of the
Company, or (ii) any option to purchase capital stock of the Company;
11. any issuance of any capital stock of the Company or of any
options, phantom options, warrants or other rights to purchase such
shares; or
12. any other material transaction other than in the ordinary
course of business consistent with past practices.
For purposes of Section 4.12(c), a material adverse change to the Company's
assets shall be deemed to have occurred if the change individually reduced
the value of the Company's assets by $25,000 or more or if such changes in
the aggregate reduced the value of the Company's assets by $50,000 or more,
and a material adverse change to the financial condition or business of the
Company shall be deemed to have occurred if such change individually
involved $25,000 or more or if such changes in the aggregate involved
$50,000 or more; provided that information shown in the Reference Balance
Sheet shall not be deemed to be a material adverse change.
M. TAXES.
1. Except as disclosed in Schedule 4.13 to the Disclosure
Schedules, the Company has filed all returns relating to Federal and
Illinois Taxes (as hereinafter defined) which the Company was required by
law to file prior to the date of this representation (collectively the "Tax
Returns"). All Taxes shown as due on such returns have been paid. As used
herein, "Taxes" mean any federal, state, local or foreign income, gross
receipts, franchise, payroll, employment, excise, unemployment, real
property, personal property, sales, use, value added, alternative,
estimated or other tax of any kind whatsoever, including any interest,
penalty or addition thereto.
2. Proper and accurate amounts have been withheld by or on
behalf of the Company with respect to all compensation paid to employees of
the Company for all periods ending on or before the Closing Date. All
deposits required with respect to compensation paid to employees of the
Company have been made in material compliance with applicable laws.
3. Sellers have previously made available to Buyer copies of
all federal income tax returns filed by the Company in the past three
years.
4. Except as disclosed in Section 4.13 of the Disclosure
Schedules, the Company has not waived any statute of limitations in respect
of Taxes or agreed to any extension of time with respect to a Tax
assessment of deficiency.
5. Except as disclosed in Section 4.13 of the Disclosure
Schedules, none of the Tax Returns have been audited or are currently the
subject of an audit by a governmental agency. Except as set forth on
Section 4.13 of the Disclosure Schedules, the Company has not received any
notice of a deficiency or proposed deficiency in any of the Taxes paid by
the Company.
N. TITLE. The Company has good and marketable title to its assets,
free and clear of all mortgages, claims, liens, security interests, charges
and encumbrances, except as set forth in Section 4.14 of the Disclosure
Schedules. The Company's inventory includes only items to which the
Company has title. The Company does not own and has not in the past owned
any real property. The only real property leased by the Company is the
Real Estate and the real property set forth in Section 4.14 of the
Disclosure Schedules.
O. CONDITION OF ASSETS. The personal property owned and leased by
the Company is in good operating condition and repair, ordinary wear and
tear excepted, and routine maintenance has been performed thereon.
P. INVENTORY. The inventory set forth in the March 31 Balance Sheet
and in the Reference Balance Sheet fairly reflects in all material respects
the inventory (including raw materials, work in process, and finished
goods) owned by the Company on the respective dates thereof, is valued at
the lower of cost, including material, labor and overhead, or market value
and on a first-in first-out basis, determined in accordance with and on a
basis consistent with prior financial statements of the Company. The
materials, supplies, merchandise and other inventory (as defined in the
Uniform Commercial Code as in effect in Illinois) of the Company are
located at the Real Estate and at no other location, except as otherwise
set forth in Section 4.16 of the Disclosure Schedules.
Q. WARRANTIES. Except as set forth in Section 4.17 of the
Disclosure Schedules, the Company has not expressly warranted its products
for a period longer than twelve months after shipment to the customer.
R. INTELLECTUAL PROPERTY.
1. Section 4.18 of the Disclosure Schedules correctly sets
forth all issued patents, patent applications pending, patent applications
in process, trademarks, trademark registrations, trademark registration
applications, material copyrights, service marks, service ▇▇▇▇ registration
applications, material logos and material trade names used in or relating
to the conduct of the Business during the past three years (collectively,
the "Intellectual Property"), and indicates whether such Intellectual
Property is owned by or licensed to the Company.
2. There are no interference, opposition or cancellation
proceedings or infringement suits pending or, to the knowledge of Sellers
(as defined in Section 4.35), threatened with respect to any Intellectual
Property, except to the extent disclosed in Sections 4.18 and 4.20 of the
Disclosure Schedules. To the knowledge of Sellers, no person or entity is
infringing any of the Intellectual Property.
3. To Sellers' knowledge, none of the Intellectual Property
infringes on the rights of any other person or entity, except as set forth
in Section 4.18 of the Disclosure Schedules.
4. Except as disclosed in Section 4.18 of the Disclosure
Schedules, no action or proceeding is now pending, or to the knowledge of
Sellers, threatened against the Company alleging that the manufacture or
sale of the products manufactured or sold by the Company violates or
infringes any patent or other proprietary right of any other person or
entity.
S. CONTRACTS.
1. Section 4.19 of the Disclosure Schedules lists all of the
written or oral leases, contracts and commitments to which the Company is
bound (except (i) purchase orders from customers and to suppliers that were
placed in the ordinary course of business, (ii) contracts involving less
than $20,000, and (iii) contracts and commitments cancelable at will or on
written notice of 30 days or less without penalty). Each of such contracts
and commitments is valid and in full force and effect and constitutes the
legal, valid and binding obligation of the Company. Sellers have no reason
to believe that such contracts and commitments are not the legal, valid and
binding obligations of the other parties thereto.
2. The Company, and to the knowledge of Sellers, each other
party thereto, is not in default under any such contract or commitment.
3. Except as set forth in Section 4.19 of the Disclosure
Schedules, the Company is not a party to or bound by any agreement which
would prohibit it from conducting business anywhere in the world.
4. Except as set forth in Section 4.19 of the Disclosure
Schedules, the Company is not a party to any employment agreement.
5. Sellers have made available to Buyer true and correct copies
of all written contracts and commitments required to be disclosed in this
Section 4.19.
T. LITIGATION. Except as disclosed in Section 4.20 of the
Disclosure Schedules, (a) the Company is not a party to any pending or, to
the knowledge of Sellers, threatened action, suit, claim, proceeding or
investigation, and (b) the Company is not subject to any order, judgment or
decree.
U. PRODUCT LIABILITY. No material claims or demands have been made
against the Company alleging injury to individuals or property as a result
of the ownership, possession or use of any product produced, licensed or
sold by the Company.
V. INSURANCE. The Company maintains and has maintained such
insurance as is required by law and such other insurance, in amounts and
insuring against hazards and other liabilities, as is customarily
maintained by companies similarly situated. The Company does not maintain
any insurance on the life of any of the Sellers, other than group insurance
on ▇▇▇ and ▇▇▇▇▇▇▇▇ as employees.
W. COMPLIANCE WITH LAWS. Except as set forth in Section 4.23 of the
Disclosure Schedules, the Company is in compliance in all material respects
with all laws, rules and regulations applicable to it where the failure to
so comply could involve expenses, fines, penalties, remediation costs and
other charges of $10,000 or more in the aggregate. The Company has not
received any notice of a violation by it of any laws, rules or regulations
which remains uncured on the Closing Date.
X. LICENSES AND PERMITS. Except as set forth in Section 4.24 of the
Disclosure Schedules, all licenses and permits and other governmental
authorizations required in order for the Company to conduct the Business as
presently conducted are in full force and effect and, to the knowledge of
the Sellers, will remain in full force and effect immediately after the
Closing. No material violation exists in respect of any such license or
permit. No material proceeding is pending, or to the knowledge of Sellers,
threatened to revoke or limit any such license or permit.
Y. SPECIFIC ENVIRONMENTAL WARRANTIES.
1. No environmental audits, assessments or occupational health
studies or analyses of any groundwater, soil, air or asbestos samples have
been taken from any facility now or in the past leased by the Company
undertaken by, or at the direction of, the Company, any employees or
counsel to the Company or, to the knowledge of Sellers, any governmental
agency, except the Phase I Environmental Site Assessment as of June 6, 1996
(with enclosures), Environmental Soil Investigation Report dated July 1,
1996, and the Phase I Environmental Site Assessment dated October 29, 1997,
all as prepared by ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Associates, Inc., true and correct copies
of which have been provided to Buyer.
2. Section 4.25 of the Disclosure Schedules identifies all
Occupational Safety and Health Administration claims made against the
Company in the past two years.
3. Except as set forth in Section 4.25 of the Disclosure
Schedules or in compliance with applicable Environmental Laws, no Hazardous
Materials (as hereinafter defined), asbestos or asbestos containing
materials ("ACMs") are, or to the knowledge of Sellers have been, located
in or about the Real Estate or any other real property leased by the
Company or have been released by the Company or any of its subsidiaries
into the environment, or discharged, treated, managed, recycled, placed or
disposed of by the Company or any of its subsidiaries or, to the knowledge
of Sellers, anyone else, at, on or under the Real Estate, and no Hazardous
Materials or ACMs formerly located on the Real Estate have been disposed of
at any off-site waste disposal.
4. Except as set forth in Section 4.25 of the Disclosure
Schedules, no portion of the Real Estate is being used, or to the knowledge
of Sellers, has been used, for the disposal, storage, recycling, treatment,
processing or other handling of Hazardous Materials except in compliance
with applicable Environmental Laws.
5. Except as set forth in Section 4.25 of the Disclosure
Schedules, to the knowledge of Sellers, no underground storage tanks are
located under the Real Estate.
6. Except as permitted by applicable Environmental Law, neither
the Company nor any of its subsidiaries is disposing of, or has in the past
disposed of, any Hazardous Materials into the plumbing or septic tank on
the Real Estate or any other real property leased by the Company.
7. The Company is and has been operating in compliance in all
material respects with all applicable Environmental Laws (as hereinafter
defined).
8. Except as set forth in Section 4.25 of the Disclosure
Schedules, to the knowledge of Sellers, no investigation, administrative
order or notice, consent, order and agreement, litigation, settlement or
environmental claim or lien with respect to Hazardous Materials is
proposed, threatened or in existence with respect to the Real Estate or any
other real property leased by the Company, or with respect to any off-site
waste disposal to which waste of the Company has been taken.
9. Except as set forth in Section 4.25 of the Disclosure
Schedules, none of the Sellers nor the Company has received any summons,
citation or written notice from any person, entity or governmental agency
whomsoever concerning any violation or alleged violation of Environmental
Laws or the storage, dumping or discharge of any Hazardous Materials
arising out of or with respect to the Real Estate, any other real property
leased by the Company, or the Company or the operations of the Business.
The following terms shall have the following meanings for purposes of
this Section:
a. The term "Environmental Laws" shall mean the Federal Air
Pollution Control Act, Water Pollution Act, Resource Conservation
and Recovery Act, Solid Waste Disposal Act, Toxic Substances
Control Act and Comprehensive Environmental Response,
Compensation and Liability Act, the Occupational Health and
Safety Act and any other Federal, state or local laws,
regulations or other requirements regulating the environment.
b. The term "Hazardous Material(s)" shall mean any
hazardous, toxic, radioactive, ignitable, corrosive or reactive
substance, pollutant, contaminant, waste or other material
regulated under Environmental Laws; ACM's; and oil and petroleum
products and natural gas, natural gas liquids, liquified natural
gas, and synthetic gas usable for fuel.
Z. LABOR RELATIONS. The Company is not a party to or bound by any
collective bargaining agreement. To the knowledge of the Sellers, there is
no current union organizational activity with respect to the employees of
the Company and there has not been any such activity in the past twelve
months. The Company is in material compliance with all employment laws,
including requirements to prepare and maintain Forms I-9 with respect to
the immigration status of all its employees. No allegation, charge or
complaint of age, disability, sex or race discrimination or similar charge
has been made or, to the knowledge of Sellers, threatened against the
Company.
27. EMPLOYEE BENEFIT PLANS. Each "employee welfare benefit plan" and
each "employee pension benefit plan" as such terms are defined,
respectively, in Sections 3(1) and 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), that the Company maintains or
contributes to, or has maintained or contributed to during the past five
years, is listed and described in Section 4.27 of the Disclosure Schedules.
The employee welfare benefit plans and the employee pension benefit plans
identified in Section 4.27 of the Disclosure Schedules are referred to in
this Section 4.27 as the "Welfare Plans" and the "Pension Plans",
respectively, and as the "Benefit Plans", collectively. The Pension Plans
that are intended to qualify under section 401(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), are referred to in this Section 4.27
as "Qualified Plans" and are identified as such in Section 4.27 of the
Disclosure Schedules. A copy of each Benefit Plan, any trust agreement and
any insurance contract with respect to each Benefit Plan, the latest
summary plan description, annual report, actuarial report, and financial
report, if any, with respect to each Benefit Plan, and such other
information requested by Buyer with respect to any Benefit Plan has been
made available to Buyer. Each Benefit Plan, if any, that is not written is
identified as such and is comprehensively described in Section 4.27 of the
Disclosure Schedules. Except as disclosed in Section 4.27 to the
Disclosure Schedules:
1. ERISA & CODE COMPLIANCE. Each Benefit Plan is and has been,
at all times, administered in all material respects in compliance with
the requirements of ERISA and the Code. All tax returns, information
returns, and reports required to be filed with respect to each Benefit
Plan pursuant to ERISA or the Code have been accurately, timely, and
properly filed as required under ERISA or the Code in all material
respects. All notices, statements, reports and other disclosure
required to be given or made to participants and beneficiaries under
each Benefit Plan pursuant to ERISA or the Code have been accurately,
timely, and properly given or made as required under ERISA or the Code
in all material respects.
2. QUALIFIED PLANS. Each Qualified Plan has met in form the
requirements of section 401(a) and, if applicable, sections 401(k) and
(m) of the Code, as in effect on and after the initial effective date
of such plan, and each Qualified Plan has a currently effective
favorable determination letter from the Internal Revenue Service with
respect to its tax-qualified status. Each Qualified Plan is and has
been, at all times, administered and operated in compliance with the
requirements of section 401(a) and, if applicable, sections 401(k) and
(m) of the Code except for failure to comply that are "insignificant"
as defined in the Internal Revenue Services Administrative Policy
Regarding Self-Correction. The Company does not have, or expect to
have, any liability, directly or indirectly, for any "accumulated
funding deficiency" (as such term is defined in Section 302 of ERISA
or Section 412 of the Code), whether or not waived, with respect to
any Qualified Plan or any other employee pension benefit plan. No
Qualified Plan is a defined benefit plan as defined in section 414 of
the Code.
3. WELFARE PLANS. Each Welfare Plan that is intended to meet the
requirements for tax-favored treatment under Subchapter B of Chapter 1
of the Code meets and has, at all times, met those requirements. To
the knowledge of Sellers, no Welfare Plan has provided a disqualified
benefit within the meaning of section 4976 of the Code. Each Welfare
Plan that is subject to the health benefit continuation requirements
of Section 601 ET SEQ. of ERISA or section 4980B of the Code ("COBRA
Requirements") satisfies and, at all times, has satisfied the COBRA
Requirements. No Welfare Plan provides and the Company has no
liability for any post-retirement medical or life insurance benefits,
except pursuant to the COBRA Requirements. The Company has not
contributed and has no obligation to contribute to a "welfare benefit
fund" within the meaning of Section 419(e) of the Code.
4. PROHIBITED TRANSACTIONS. No person has engaged in any
transaction with respect to any Benefit Plan that is prohibited under
Sections 406 or 407 of ERISA or section 4975 of the Code nor have
there been any breaches of fiduciary duty under ERISA that in either
case could subject the Company, or any person indemnified by the
Company to any liability, including liability for any civil penalty
under Section 502(i) or 502(l) of ERISA or excise tax under Section
4975 of the Code.
5. PBGC LIABILITY. The Company has no, nor expects to have any,
liability, directly or indirectly, to the Pension Benefit Guaranty
Corporation with respect to any employee pension benefit plan.
6. MULTIEMPLOYER PLANS. The Company has not contributed and has
no obligation to contribute to any "multiemployer plan", as such term
is defined in Section 3(37) of ERISA or Section 4001(a)(3) of ERISA,
or to a plan described in Section 413(e) of the Code or Section 4063
of ERISA.
7. OTHER CLAIMS. Except for routine claims for benefits arising
in the ordinary course of the administration of the Benefit Plans,
there are no pending or threatened claims, investigations, or audits
for benefits under a Benefit Plan or of violations of the requirements
of ERISA or the Code, nor, to the best of Sellers' knowledge, is there
any reasonable basis for any such claim, investigation, or audit.
8. RIGHT TO AMEND. The right of the Company to amend or
terminate each Benefit Plan as set forth in the documents disclosed
pursuant to this Section 4.27 has not been restricted or qualified by
any other agreement or communication to employees that has not been so
disclosed.
9. CONTROLLED GROUP. No other trade or business that has or had
employees is or has been treated, together with the Company, as a
single employer under Section 414(b) or 414(c) of the Code or Section
4001(b)(1) of ERISA, except UAF, a wholly-owned subsidiary of the
Company.
10. CONTRIBUTIONS DEDUCTIBLE. All contributions, transfers and
payments in respect of any Benefit Plan that have been deducted by the
Company under the Code were properly deductible.
11. PENDING MATTERS. There is no pending or threatened
assessment, complaint, proceeding, or investigation of any kind in any
court or government agency with respect to any Benefit Plan, nor, to
the best of Sellers' knowledge, is there any basis for one.
12. PAYMENTS MADE. All (i) insurance premiums required with
respect to, (ii) benefits, expenses, and other amounts due and payable
under, and (iii) contributions, transfers, or payments required to be
made to or with respect to, any Benefit Plan have been paid, made or
accrued on a timely basis or any penalty or interest payment due for
late payment has been paid or accrued in the Company's financial
statements. The Company has no further obligation to fund benefits
under the Company's Simplified Employee Pension Plan.
13. INSURANCE CONTRACTS. With respect to any insurance policy
providing for benefits under any Benefit Plan, (i) any liability of
the Company, in the nature of a retroactive or retrospective rate
adjustment, loss sharing arrangement, or other actual or continuing
liability, including any such liability if such insurance policy was
terminated on the date hereof, does not exceed $10,000, and (ii) no
insurance company issuing any such policy is in receivership,
conservatorship, liquidation or similar proceeding and, to the best of
the Company's knowledge, no such proceedings with respect to any
insurer are imminent.
14. NON-ACCELERATION. The execution and performance of this
Agreement will not (i) constitute a stated triggering event under any
Benefit Plan that will result in any payment (whether of severance pay
or otherwise) becoming due from the Company to any officer, employee
or former employee (or dependents of such employee), or
(ii) accelerate the time of payment or vesting, or increase the amount
of compensation due to any employee, officer or director of the
Company, except for vesting of benefits under a Pension Plan that may
occur if any such Pension Plan is terminated or partially terminated.
15. NO COMMITMENTS. The Company has taken no action directly or
indirectly to obligate the Company to institute any plan, program,
arrangement or agreement for the benefit of employees or former
employees of the Company other than the Benefit Plans, nor has the
Company taken any action directly or indirectly to obligate the
Company to amend any Benefit Plan, other than amendments required to
ensure the continued qualification of a Pension Plan under
Section 401(a) of the Code.
16. EMPLOYEES COVERED. No Benefit Plan provides benefits to any
individual who is not a current or former employee of the Company or
UAF, or the dependents or other beneficiaries of any such current or
former employee. The Company is not obligated to provide group health
insurance to any former employees, except as required by COBRA or as
disclosed on the Closing Balance Sheet.
28. EMPLOYEE POLICIES. A copy of the employee handbook of the
Company currently in effect has been made available to Buyer. Such
handbook fairly and accurately summarizes, in all material respects, all
employee policies, vacation policies and payroll practices of the Company.
Except as set forth in Section 4.28 of the Disclosure Schedules, all
employees of the Company are employees at will. The Company is not
obligated to pay severance to any employee it may terminate except as set
forth in Section 4.28 of the Disclosure Schedules.
29. BANK ACCOUNTS. Section 4.29 of the Disclosure Schedules sets
forth a complete list of each financial institution in which the Company or
any employee benefit plan of the Company administered by the Company has an
account or safe deposit box, together with a list of all assets held in
such box as of the date set forth in Section 4.29 of the Disclosure
Schedules, the number of each such account or box and the names of all
persons authorized to draw thereon, to give instructions with respect
thereto or to have access thereto.
30. POWERS OF ATTORNEY. Except as set forth in Section 4.30 of the
Disclosure Schedules, there are no outstanding powers of attorney executed
on behalf of the Company.
31. CUSTOMERS AND SUPPLIERS. Except as set forth in Section 4.31 of
the Disclosure Schedules, since the date of the Reference Balance Sheet
there has not been any termination, cancellation or material limitation,
modification or change in the business relationship of the Company with any
of the ten largest customers in terms of purchases from the Company or the
ten largest suppliers in terms of purchases by the Company. Section 4.31
of the Disclosure Schedules lists any written notice received by the
Company since the date of the Reference Balance Sheet from any customer
having purchases from the Company in excess of $20,000 per year indicating
any intention to curtail, suspend or terminate such customer's business
relationship or indicating any failure of any product or service sold or
provided by the Company to meet customer specifications. Section 4.31 of
the Disclosure Schedule lists any written notice received by the Company
since the date of the Reference Balance Sheet from any supplier from which
the Company purchases in excess of $20,000 per year indicating any
intention to curtail, suspend or terminate such supplier's business
relationship with the Company or to materially adversely change the terms
of sales to the Company.
32. CONFLICTS OF INTEREST. Neither of the Sellers nor, to the
knowledge of the Sellers, any relative of either of the Sellers (a) has any
material direct or indirect interest in any entity which does any material
business with the Company, or (b) has any material contractual relationship
with the Company other than such relationship as attaches to being a
shareholder, director, officer and employee of the Company and the
relationship of Sellers to UAF as a result of the UAF Sale (as defined in
Section 7.8).
33. CERTAIN FEES. Neither the Company nor either of the Sellers has
retained any broker in connection with this transaction. Sellers shall be
responsible for the payment of and shall hold Buyer harmless from any
liability for any brokerage fees, commissions or finders' fees incurred to
any person or entity which was retained by either of the Sellers, the
Company or any affiliate of the Company in connection with the transactions
contemplated hereby.
34. FULL DISCLOSURE. To the knowledge of Sellers, the
representations and warranties of Sellers contained in this Agreement do
not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements contained herein or
therein, in light of the circumstances under which they were made, not
misleading.
35. DEFINITION OF KNOWLEDGE. As used in this Agreement, the phrase
"to the knowledge of Sellers", or words of similar import, means the
knowledge of Sellers, after due inquiry, and includes any fact, matter or
circumstances which any such individuals, as an ordinary and prudent
business person employed in the same capacity in a business of the same
type and size as the Company, should have known.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Sellers as follows:
A. ORGANIZATION. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
Buyer has all requisite corporate power and authority to own, lease and
operate its properties and business as presently conducted and to enter
into and perform its obligations hereunder.
B. CORPORATE AUTHORITY. The execution, delivery and performance of
this Agreement by Buyer and the consummation by Buyer of the transactions
contemplated hereby have been duly authorized by all requisite corporate
action on the part of Buyer. This Agreement has been duly executed and
delivered by Buyer and constitutes the legal, valid and binding obligation
of Buyer, enforceable against Buyer in accordance with its terms, except to
the extent that enforceability may be limited by applicable bankruptcy,
insolvency or similar laws affecting the enforcement of creditors' rights
generally and subject to general principles of equity.
C. NO CONFLICT. Neither the execution and delivery of this
Agreement by Buyer nor the consummation of the transactions contemplated
hereby will conflict with or result in a breach of any of the provisions
of, or constitute a default under, the charter or by-laws of Buyer, as
amended to date, or, giving effect to any valid waivers obtained with
respect thereto, any agreement, mortgage, indenture, lease or other
instrument to which Buyer is a party or by which Buyer or its property is
bound, or result in the violation of any law, rule, regulation, order,
judgment or decree to which Buyer or its property is subject.
D. LITIGATION; CONSENTS. There is no action, suit, proceeding or,
to Buyer's knowledge, formal governmental inquiry or investigation pending
against Buyer which seeks to restrain or prohibit or otherwise challenges
the consummation, legality or validity of the transactions contemplated
hereby. No consent, approval or authorization of, or declaration or filing
with any governmental authority is required on the part of Buyer in
connection with the execution, delivery or performance of this Agreement by
Buyer. No approval, consent or authorization of any lender, lessor or
other person is required in order for Buyer to consummate the transactions
contemplated hereby which has not been obtained prior to the Closing Date.
E. INVESTMENT REPRESENTATION. Buyer is acquiring the Shares for its
own account, for investment purposes only, and not with a view to the
distribution thereof except that the Shares will be contributed shortly
after the Closing to a wholly-owned subsidiary of Buyer. Purchaser is an
"accredited investor" as defined in Rule 501(a) promulgated under the
Securities Act of 1933, as amended (the "Securities Act"). Buyer
acknowledges that the Shares have not been registered under the Securities
Act or any state securities or "Blue Sky" laws.
F. MFRI SHARES. Buyer has taken all corporate action necessary to
permit it to issue the Options and the shares of common stock of Buyer
issuable upon exercise of the Options (the "MFRI Shares"). The MFRI Shares
will, when issued, be duly authorized, validly issued, fully paid and
nonassessable, and no stockholder of Buyer will have any preemptive right
of subscription or purchase in respect thereof.
G. CERTAIN FEES. Buyer has not retained any broker in connection
with this transaction. Buyer shall be responsible for the payment of and
shall hold Seller harmless from any liability for any brokerage fees,
commissions or finders' fees incurred to any person or entity which was
retained by Buyer or any affiliate of Buyer in connection with the
transactions contemplated hereby.
ARTICLE 6.
ESCROWS
A. ESCROW AGREEMENTS.
1. Concurrently with the execution and delivery of this
Agreement, the parties are entering into the General Escrow Agreement with
the Escrow Agent pursuant to which Sellers and Buyer have agreed that
$750,000 of the Cash Purchase Price shall be deposited into escrow
("General Escrow Deposit") with the General Escrow Agent at the Closing, to
be held by the General Escrow Agent upon the joint order of the parties.
The parties shall direct the General Escrow Agent to release the amount
held in escrow in accordance with the provisions of this Article 6.
2. Concurrently with the execution and delivery of this
Agreement, the parties are entering into the Tax Escrow Agreement with the
Tax Escrow Agent pursuant to which Sellers and Buyer have agreed that
$200,000 of the Cash Purchase Price shall be deposited into escrow (the
"Tax Escrow Deposit") with the Tax Escrow Agent at the Closing, to be held
by the Tax Escrow Agent upon the joint order of the parties. The parties
shall direct the Tax Escrow Agent to release the amount held in escrow in
accordance with the provisions of this Article 6.
B. ACCOUNTS RECEIVABLE.
1. If the accounts receivable of the Company as of the Closing
Date ("Company Receivables") are not collected in full by the date which is
180 days after the Closing Date (the "Outside A/R Date"), Buyer shall so
notify Sellers within ten (10) business days after the Outside A/R Date,
setting forth, for each account, the amount of the Net Uncollected Company
Receivables (as hereinafter defined). As used herein, "Net Uncollected
Company Receivables" mean the face amount of the Company Receivables not
collected by the Company or Buyer by the Outside A/R Date including as
uncollected the Approved A/R Settlements (as defined in Section 7.3).
2. If Sellers disagree with Buyer's report of the Net
Uncollected Company Receivables, Sellers shall notify Buyer of their
disagreement within ten (10) business days after Sellers' receipt of such
Buyer's notice. The failure of Sellers to notify Buyer of such
disagreement within said ten (10) business day period shall mean that
Buyer's determination of the Net Uncollected Company Receivables has been
accepted by Sellers. The parties shall attempt in good faith to resolve
any dispute with respect to the Net Uncollected Company Receivables
determined by Buyer. If the parties are unable to resolve the amount of
the Net Uncollected Company Receivables within thirty (30) days after
receipt by Seller of such notice from Buyer, the dispute shall be submitted
to the Dispute Accountants for resolution. The determination by the
Dispute Accountants shall be made in accordance with the provisions of
Section 3.4(e) and the fees of the Dispute Accountants shall be paid by the
parties as provided in Section 3.4(e).
3. Within five (5) business days after the amount of the Net
Uncollected Company Receivables has been agreed upon or otherwise
determined pursuant to Section 6.2(b), the parties shall direct the General
Escrow Agent in writing to transfer to Buyer the lesser of (i) the amount
of the Net Uncollected Company Receivables, and (ii) the amount of the
General Escrow Deposit then remaining in escrow. Upon delivery of such
written instructions to the General Escrow Agent, Buyer shall, or cause the
Company to, assign Net Uncollected Company Receivables to Sellers having an
aggregate unpaid balance equal to the lesser of (i) the aggregate Net
Uncollected Company Receivables (exclusive of the Approved A/R
Settlements), or (ii) the amount of the General Escrow Deposit then
remaining in escrow, and Sellers shall be entitled to pursue all remedies
available to them at law or in equity in order to collect such Company
Receivables. Sellers shall assume all liabilities to pay any commissions
with respect to such Net Uncollected Company Receivables assigned to
Sellers, which commissions shall automatically become Excluded Liabilities
instead of Continuing Liabilities upon the assignment of such Net
Uncollected Company Receivables to Sellers.
4. For purposes of determining whether a Company Receivable
remains unpaid, amounts collected by the Company from a customer shall be
applied in payment of the invoice designated by such customer or, in the
absence of such designation, as such customer directs, or in the absence of
such direction, first to the oldest Company Receivables and then to
accounts receivable of the Company arising after the Closing Date.
C. WARRANTY COSTS.
1. During the 270 day period following the Closing Date, Buyer
shall notify Sellers on a monthly basis of warranty claims (excluding
product liability claims and the Goal Line Warranty (as herein defined))
made with respect to the Company's products sold and shipped prior to the
Closing Date (each, a "Warranty Claim") that were made against the Company
during the preceding month, stating in reasonable detail the nature of the
Warranty Claim and the Warranty Costs (as hereinafter defined) Buyer
reasonably estimates will be incurred with respect to such Warranty Claims,
and also stating the Warranty Costs that the Company incurred during such
month for Warranty Claims included in prior notices to Sellers. As used
herein, "Warranty Costs" mean all costs incurred by the Company with
respect to a Warranty Claim, including without limiting the generality of
the foregoing, all labor charges (determined using the burdened labor rate
Buyer uses for its accounting records) in traveling to the site in
question, inspecting, analyzing and repairing any defects, all reasonable
travel expenses, and all material used in effecting any repair or
replacement.
2. A warranty that is not legally enforceable against the
Company shall not be the basis for a Warranty Claim hereunder, and Warranty
Costs shall not include any amounts expended by the Company with respect to
any request for repair or replacement by a customer that is not covered by
a legally enforceable warranty given by the Company. For purposes of this
Section, a Warranty Claim not made within twelve months of the installation
of the applicable product shall be deemed not to be legally enforceable.
If Buyer is in doubt as to whether a request by a customer is covered by
such a legally enforceable warranty, Buyer shall notify Sellers of the
request and of Buyer's determination as to whether some or all of such
claim is covered by a legally enforceable warranty. If Sellers do not
notify Buyer of their disagreement with Buyer's determination within ten
(10) business days after their receipt of Buyer's notice, Sellers shall be
deemed to have accepted Buyer's determination. The parties shall cooperate
in good faith to determine and agree upon as promptly as practicable the
extent of such customer's claim which is covered by a legally enforceable
warranty.
3. Buyer shall notify Sellers promptly after the receipt of any
Warranty Claim as to which Buyer estimates in good faith that the Warranty
Costs will exceed $2,500. Buyer and Sellers shall cooperate in good faith
to determine and agree upon as promptly as practicable the best method of
fulfilling such claim; however, in the event the parties are unable to
agree, such dispute shall be resolved in accordance with Article 12 of this
Agreement. Sellers acknowledge that it is often not possible to estimate
Warranty Costs accurately, and that there may be instances in which Buyer
estimated that the Warranty Costs would be less than $2,500 and the actual
Warranty Costs exceeded such amount. In such case, the entire Warranty
Costs, including the excess over $2,500 shall be included in Warranty Costs
provided that Buyer shall notify Sellers of such cost overrun as promptly
as practicable.
4. Within 240 days after the Closing Date, Buyer shall notify
Sellers in writing of all Warranty Costs incurred and expected to be
incurred with respect to Warranty Claims. During the next 30 days, Buyer
may update such notice to add additional Warranty Costs which Buyer has
incurred and reasonably expects to incur. If Sellers disagree with Buyer's
determination of the amount of any Warranty Costs, Sellers shall so notify
Buyer within ten (10) business days after Sellers' receipt of notice of
such Warranty Costs. If Sellers fail to notify Buyer of such a
disagreement, Buyer's determination thereof shall be final, binding and
conclusive on the parties. The parties shall attempt in good faith to
resolve any dispute with respect to the amount of the Warranty Costs. If
the parties are unable to agree on the amount of the Warranty Costs within
ten (10) business days after Sellers notified Buyer of Sellers'
disagreement with Buyer's determination of the amount of the Warranty
Costs, the dispute shall be submitted to the Dispute Accountants for
determination. The determination by said accounting firm of the amount of
the Warranty Costs shall be made in accordance with the provisions of
Section 3.4(e).
5. Within five (5) business days after the amount of all
Warranty Costs have been agreed upon or otherwise determined pursuant to
paragraph (d) of this Section, the parties shall direct the General Escrow
Agent in writing to transfer to Buyer the lesser of (i) the amount of such
Warranty Costs, and (ii) the amount of the General Escrow Deposit then
remaining in escrow.
6. The Company has provided a special two-year warranty to Goal
Line with respect to filters shipped in October, 1997 (the "Goal Line
Warranty"). The Goal Line Warranty provides that the Company will refund
the full purchase price of $20,392 to Goal Line in the event a performance
failure in the products occurs within three months after installation and
that a fraction of the purchase price will be refunded if a defect occurs
after the first three months of the two-year warranty period of which the
numerator is the number of months which have elapsed since installation and
the denominator is 24. Sellers shall remain responsible for the payment of
any Warranty Costs incurred with respect to the Goal Line Warranty
notwithstanding the fact that a claim thereunder is made more than 270 days
after the Closing Date. If a claim is made under the Goal Line Warranty
prior to its expiration, Buyer shall notify Sellers in writing and, within
ten (10) business days after such notice, the parties shall direct the
General Escrow Agent in writing to transfer to Buyer the lesser of (i) the
Warranty Costs for the Goal Line Warranty, and (ii) the amount of the
General Escrow Deposit then remaining in escrow.
If no claim has been made under the Goal Line Warranty within 270 days
after the Closing Date, an amount of the General Escrow Deposit equal to
the maximum exposure under the Goal Line Warranty shall be retained in the
General Escrow Deposit until the first to occur of the payment to Buyer
pursuant to this Section or the lapse of the Goal Line Warranty without a
claim having been made thereunder.
D. LITIGATION RESERVE. Pursuant to Section 7.12, Sellers are
assuming all obligations with respect to the Pending Claims (as defined in
Section 7.12). Sellers shall use their best efforts to obtain the
dismissal with prejudice or settlement (at Sellers' cost and expense) of
(a) the pending litigation captioned ▇▇▇▇▇▇▇ V. TDC AND ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
pending in the Circuit Court of ▇▇▇▇ County, Case ▇▇. ▇▇ ▇ ▇▇▇▇▇ ("▇▇▇▇▇▇▇
Litigation"), and (b) any claims of ▇▇▇▇▇▇ ▇▇▇▇▇▇ against the Company (the
"Hunter Claim") within 270 days after the Closing Date. The Hunter Claim
is referred to as the "Secured Claim". Sellers shall deliver executed
settlement agreements or court-stamped dismissals with prejudice to Buyer
promptly after the same are executed or entered. If Sellers have not
delivered to Buyer a settlement agreement or court-stamped dismissal with
prejudice for the Secured Claim within 270 days after the Closing Date,
then $40,000 shall be retained in the General Escrow Deposit for the
Secured Claim. At such time as the Secured Claim becomes resolved at
Sellers' cost and expense and evidence thereof is provided to Buyer, the
parties shall direct the Escrow Agent to pay to Buyer from the General
Escrow Deposit an amount equal to the amount reserved for such Secured
Claim pursuant to this Section 6.4. The obligation to release such reserve
shall not apply to any Secured Claim which becomes a Third Party Claim
pursuant to Section 7.12.
E. SALES AND USE TAXES.
1. The parties recognize the possibility that the Company may
not have filed sales tax returns and use tax returns ("Sales Tax Returns")
in all the states where such filings were required or paid all sales and
use tax owed by the Company with respect to sales made on or prior to the
Closing Date (collectively "Prior Period Sales Taxes"). After the Closing,
Buyer shall determine those jurisdictions in which Sales Tax Returns shall
be filed by the Company and shall inform ▇▇▇ of such determination. ▇▇▇
shall determine whether the Company shall seek to file Sales Tax Returns in
such jurisdictions for periods ending on or prior to the Closing Date on a
voluntary basis or whether the Company shall file such Sales Tax Returns
for such periods solely upon request of the applicable taxing authority.
Buyer or the Company shall retain, at its expense, the services of
Deloitte & Touche to assist Buyer, the Company and ▇▇▇ in evaluating
alternative strategies for dealing with Prior Period Sales Taxes. Buyer or
the Company shall bear the costs of preparing all Sales Tax Returns for
periods ending on or prior to the Closing.
2. With respect to any Prior Period Sales Taxes and interest
and penalties thereon (collectively, "Prior Period Sales Tax Payments"),
the first $150,000 (including the $100,000 accrued for such Prior Period
Sales Taxes on the Closing Balance Sheet) of Prior Period Sales Tax
Payments made by the Company shall be for the account of the Company. To
the extent that the Company makes any Prior Period Sales Tax Payments in
excess of $150,000, fifty percent (50%) of such payments in excess of
$150,000 shall be for the account of the Company and fifty percent (50%) of
such payments in excess of $150,000 shall be for the account of Sellers.
The amount of Prior Period Sales Tax Payments paid by the Company for the
account of Sellers shall be referred to herein as the "Sellers Prior'
Period Sales Tax Payments." If the Company becomes obligated to pay any
Sellers' Prior Period Sales Tax Payments, Buyer shall so notify ▇▇▇.
Within five (5) business days after such notice, Buyer and ▇▇▇ shall direct
the General Escrow Agent to release to Buyer an amount equal to the lesser
of (i) such Sellers' Prior Period Sales Tax Payments, or (ii) the amount of
the General Escrow Deposit then remaining in escrow.
3. At the Partial Release Date (as hereinafter defined), an
amount equal to the lesser of (i) $50,000 less draws made against the
General Escrow Deposit pursuant to Section 6.5(b), or (ii) the amount of
the General Escrow Deposit then remaining in escrow shall be retained in
escrow under the General Escrow Agreement as a reserve against Prior Period
Sales Taxes. At least every six months thereafter, ▇▇▇ and Buyer shall
determine whether any of such reserve can be released from the escrow to
Sellers in view of the expiration of the statute of limitations with
respect to the Prior Period Sales Tax obligation and their reasonable
assessment of the potential exposure for Prior Period Sales Taxes for open
years. If the parties agree that such amount may be released to Sellers,
the parties shall execute a written direction to the General Escrow Agent
to pay such amount from the General Escrow Deposit within five (5) business
days after such determination has been made.
F. INCOME TAX FOR PRIOR PERIODS.
1. Sellers shall be responsible for preparing and filing at
their expense the income tax returns of the Company and its subsidiary, UAF
for the stub period beginning April 1, 1997 through and including the
Closing Date (the "Stub Income Tax Returns"). The Stub Income Tax Returns
shall be prepared and provided to the Company within sixty (60) days after
the Closing Date and the amount of Tax due pursuant thereto shall be paid
to the Company by the Sellers, to the extent the amount of the Tax due
exceeds the amount reserved therefor in the Closing Balance Sheet. In the
event that the Company shall disagree with any Stub Income Tax Returns
provided to it by Sellers, the parties shall use their best efforts to
resolve any such differences. In the event of a difference in the opinions
of the tax accountants for the Sellers and the Company relating to the Stub
Income Tax Returns, such dispute shall be submitted to the Dispute
Accountants pursuant to the provisions of Section 3.4 hereof.
2. Sellers and Buyer have heretofore acknowledged that certain
items on income tax returns for periods ending on or prior to the Closing
Date may by challenged by the Internal Revenue Service ("Seller Items").
Items which may be challenged by the Internal Revenue Service which do not
relate to Seller Items are referred to herein as the "Company Items." To
the extent any amended return, adjustment or settlement relates to a
Company Item, such return, adjustment or settlement shall be made only with
the consent of the Company. If there is a dispute between the tax
accountants for the Company and the Sellers with respect to such Company
Item, such dispute shall be referred to and resolved by the Dispute
Accountants pursuant to Section 3.4 hereof.
3. If the Federal or State income tax returns filed by the
Company for any period ending on or prior to the Closing Date ("Prior
Period Income Tax Returns") are audited by the Internal Revenue Service and
such audit involves Seller Items, Buyer shall promptly notify Sellers of
such audit. Sellers shall assume responsibility to manage the response,
negotiation and resolution of such audit diligently and in good faith and
shall be responsible for all out-of-pocket expenses, such as legal and
accounting fees, with respect to the Seller Items of such audit. Buyer
shall cause the Company to cooperate with Sellers in connection with the
audit of the Prior Period Income Tax Returns which involve Seller Items.
The Company may participate in responding to such audit at its own cost and
expense as long as Sellers are diligently responding to such audit. If
Sellers fail to respond diligently and in good faith to such audit and such
failure continues unremedied for thirty (30) days after written notice is
given by Buyer to Sellers (or such shorter period as is required to avoid
prejudicing the Company), the Company may respond to such audit at the cost
and expense of Sellers.
4. If the taxable income of Buyer or the Company is increased
for any period ending on or prior to the Closing Date relating to Company
Items as a result of any notice of deficiency or other determination of the
Internal Revenue Service, Illinois Department of Revenue, the State of
Indiana, or any other applicable jurisdiction, Taxes on such amounts,
including interest and penalties thereon (collectively, the "Prior Period
Company Income Taxes") the parties shall, within three (3) business days
after receipt of such notice or other determination, direct the General
Escrow Agent to release to Buyer an amount equal to the lesser of (i) such
Prior Period Company Income Taxes, or (ii) the amount of the General Escrow
Deposit then remaining in escrow.
5. If the taxable income of Buyer or the Company is increased
for any period on or prior to the Closing Date relating to Seller Items as
a result of any notice of deficiency or other determination of the Internal
Revenue Service, Illinois Department of Revenue, the State of Indiana, or
any other applicable jurisdiction, Taxes on such amounts, including
interest and penalties (collectively, the "Prior Period Seller Income
Taxes") shall, without limitation, be the responsibility of ▇▇▇ and ▇▇▇▇▇
as follows:
a. first, to the extent that the Company has a net
operating loss (the "Net Available Operating Loss")
that is solely allocable to UAF which can be used by
the Company to offset any gain recognized by the
Company with respect to any Seller Items pursuant to
Regulation 1502-2IT(b) under the Code, such Prior
Period Seller Income Taxes shall be paid by the Company
up to an amount equal to any such Net Available
Operating Loss;
b. second, to the extent that the Prior Period Seller
Income Taxes exceed the Net Available Operating Loss,
the parties shall, within three (3) business days after
receipt of such notice or determination, direct the Tax
Escrow Agent to release to Buyer an amount equal to the
lesser of such excess of Prior Period Seller Income
Taxes over the Net Available Operating Loss or the
amount of the Tax Escrow Deposit then remaining in
escrow;
c. third, to the extent that Prior Period Company Income
Taxes remain unpaid after application of amounts in the
Tax Deposit Escrow, the Company shall be entitled to
exercise its right of setoff, first against any amounts
payable under Ted's Noncompetition Agreement and,
second, against amounts payable, to the extent
permitted by law, under Ted's Employment Agreement; and
d. fourth, to the extent that the foregoing items (i)
through (iii) are insufficient to pay any Prior Period
Seller Income Taxes, ▇▇▇ and ▇▇▇▇▇ shall promptly, and
in no event more than five (5) business days after
written notice, wire transfer immediately available
funds in an amount equal to all such Prior Period
Seller Income Taxes that have not been satisfied
pursuant to the provisions of items (i) through (iii)
above.
6. At least every six months after the Closing Date, ▇▇▇ and
Buyer shall determine whether any amount in the Tax Escrow Deposit can be
released from the escrow to Sellers in view of the expiration of the
statute of limitations with respect to the Prior Period Income Tax Returns
and their reasonable assessment of the potential exposure for Prior Period
Seller Income Taxes for open years. If the parties agree that an amount
may be released to Sellers, the parties shall execute a written direction
to the Tax Escrow Agent to pay such amount from the Tax Escrow Deposit
within five (5) business days after such determination has been made. At
such time as the statute of limitations for all Prior Period Seller Income
Taxes has expired, all audits of Prior Period Income Taxes have been closed
and the Prior Period Seller Income Taxes resulting from such audits have
been paid from the Tax Escrow Deposit, the parties shall direct the Tax
Escrow Agent to disburse the principal amount remaining in the Tax Escrow
Deposit to Sellers.
7. The parties agree that in preparing the Stub Income Tax
Returns, resolving any audit of Prior Period Income Tax Returns and
preparing income tax returns of the Company for periods after the Closing,
no election made by the Company or any of its subsidiaries in Prior Period
Income Tax Returns shall be changed or revoked and no change in the timing
of the deduction or recognition of any item of expense or income taken into
account in computing liability for income Taxes shall be made which would
result in an increase in income Taxes owed for periods ending on or prior
to the Closing Date and a decrease in income Taxes owed for periods after
the Closing Date without the written consent of ▇▇▇ and the Company unless
such change is required by law or a determination of the IRS.
G. [INTENTIONALLY OMITTED]
H. OTHER DISBURSEMENTS. The parties shall also direct the General
Escrow Agent to disburse the General Escrow Deposit in accordance with
Sections 3.5 and 12.5 of this Agreement.
I. DIRECTIONS TO DISBURSE INTEREST. Interest earned on the General
Escrow Deposit or the Tax Escrow Deposit shall be paid to Sellers at the
time the final disbursement of such Escrow is made. The parties shall
include a direction to that effect at the time the parties direct the
applicable Escrow Agent to make the final disbursement of the such Escrow
Deposit.
J. RELEASE OF CASH FROM GENERAL ESCROW DEPOSIT.
1. On the date which is 270 days after the Closing Date
("Partial Release Date"), the parties shall direct the General Escrow Agent
in writing to release to Sellers the Excess Cash (as hereinafter defined).
As used in this Agreement, "Excess Cash" shall mean the amount by which the
General Escrow Deposit then held by the General Escrow Agent exceeds the
Unresolved and Unpaid Claims (as hereinafter defined). As used in this
Agreement, "Unresolved and Unpaid Claims" shall mean the sum of (i) any
amount payable pursuant to Section 3.5, Net Uncollected Company
Receivables, Warranty Costs and Escrow Claims (as defined in Section 11.5)
of which Buyer has notified Sellers in accordance with this Article or
Article 3 or 11 hereof, in each case to the extent the amount thereof
remains unresolved as of the date of determination or the amount thereof
has been resolved but as to which cash has not been transferred to Buyer,
(ii) the amount required to be reserved for the Secured Claim pursuant to
Section 6.4, and (iii) $50,000 as the reserve for Prior Period Sales Taxes
provided for in Section 6.5.
2. Thereafter, as disputes as to amounts payable under
Section 3.5, Warranty Costs and Escrow Claims are resolved, Secured Claim
is settled or otherwise resolved and paid, or the reserve for Prior Period
Sales Taxes reduced as provided in Section 6.5(c) and any Excess Cash
exists, the parties shall direct the General Escrow Agent in writing to
release the Excess Cash to Sellers.
K. SPECIFIC PERFORMANCE. If any party fails to perform its
obligations under this Article, the other parties shall be entitled to
specific performance in addition to any other rights and remedies available
at law or in equity.
ARTICLE 7.
ADDITIONAL COVENANTS AND AGREEMENTS
A. BOOKS AND RECORDS. Possession of the books, records and files of
the Company shall be delivered to Buyer at Closing. The Company will store
and retain all its business records in accordance with Buyer's written
record retention policy unless Sellers notify Buyer that such policy is not
acceptable within ten (10) business days after Sellers' receipt of such
policy, in which case, at the time the Company would otherwise destroy a
record pursuant to such policy, Buyer shall make such records available to
Sellers at the location of such records at the time for removal by Sellers,
at Sellers' sole expense, at any time during normal business hours. If
Sellers do not notify Buyer that they wish to remove such records within
ninety (90) days after the time the Company would otherwise destroy such
records, the Company may destroy such records. During any period that the
Company retains such records, Buyer shall give Sellers and their authorized
representatives reasonable access to such records during normal business
hours upon reasonable notice and shall permit Sellers and their authorized
representatives to copy any such records, all at Sellers' sole expense.
B. FINANCIAL INFORMATION. Sellers shall provide the Accountants
with access to such financial information of the Company in the possession
of Sellers or Sellers' accountants as Buyer may reasonably require for
timely execution of audits of the financial statements of the Company as
may be required of Buyer under the rules and regulations promulgated by the
Securities and Exchange Commission, and shall cooperate with Buyer and its
accountants, at Buyer's sole cost and expense, and make such customary
representations as Buyer's accountant may request in connection with the
audit of such financial statements.
C. COLLECTION OF COMPANY RECEIVABLES. Buyer shall use its
reasonable commercial efforts to collect the Company Receivables and the
required sales and use taxes associated with the Company Receivables and to
obtain exemption certificates where required; provided that Buyer shall not
be required to initiate litigation or to submit a Company Receivable to a
collection agency. Buyer shall furnish to Sellers on a monthly basis an
aged list of the uncollected Company Receivables owned by the Company as of
the end of the immediately preceding month. Buyer's policy on giving
credits with respect to the Company Receivables owned by the Company shall
be applied consistently with the policy which Buyer and its subsidiaries
use to collect their own accounts receivable.
Buyer shall not give any credit against, or settle any dispute
regarding, a Company Receivable without Sellers' prior consent (which
consent shall not be unreasonably withheld or delayed) if the proposed
credit or settlement involves more than $1,000. The aggregate amount of
credits against and settlements of a Company Receivable made by Buyer which
either did not require Sellers' consent, or which required Sellers' consent
and as to which such consent was obtained, are referred to in this
Agreement as the "Approved A/R Settlements."
D. PAYMENT OF CAPITAL DEBT. At the Closing:
1. Sellers shall deliver to Buyer a letter from the Bank
stating the amount required to be paid to the Bank to pay in full the
principal and interest of, and all prepayment penalties and other charges
with respect to, all indebtedness of the Company to the Bank (the "Bank
Indebtedness");
2. Sellers shall deliver to Buyer pay-off letters from all the
holders of the notes payable by the Company to each of ▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
and Oakmont Industries (the "Notes Payable") and shall cause such holders
to deliver to Buyer the original of such Notes Payable;
3. Buyer shall cause the Company to pay in full all unpaid
principal and accrued interest on the Bank Indebtedness and the Notes
Payable; and
4. Buyer shall cause the Bank to deliver to Sellers the release
of their personal guaranties of any of the Bank Debt.
E. PUBLICITY. Neither Buyer, Sellers nor the Company shall announce
or disclose publicly the terms or provisions hereof without the prior
written approval of the other party, except such disclosure as may be
required under securities law or common law (subject to giving the other
party notice as promptly as possible of the intention to make such
disclosure and providing the other party an opportunity to review and
comment on the wording of such disclosure), and disclosure to its
attorneys, accountants, lenders and those employees who need to know such
information in order for the parties to fulfill their obligations
hereunder.
F. EMPLOYMENT AND NON-COMPETITION AGREEMENTS. At the Closing, Buyer
and each of ▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ shall enter into the Employment
Agreements in the forms attached as Exhibits "E" and "F" to the Disclosure
Schedules, respectively (the "Employment Agreements") and each of ▇▇▇ and
▇▇▇▇▇▇▇▇ shall execute and deliver to Buyer the Non-Competition Agreement
in the form attached as Exhibit "G" to the Disclosure Schedules (the
"Non-Competition Agreements").
G. RESIGNATION AND RELEASE. At the Closing, each of the Sellers
shall execute and deliver to buyer the Mutual Release Agreement in the form
attached as Exhibit "H" to the Disclosure Schedules (the "Mutual Release
Agreement").
H. SALE OF UAF. Prior to the Closing, Sellers shall cause the
Company to sell to ▇▇▇ all the outstanding shares of capital stock of UAF
in a taxable transaction (the "UAF Sale") for a purchase price of $1,000
pursuant to that certain Sale Agreement dated as of the date hereof between
the Company and ▇▇▇ attached as Exhibit "J" to the Disclosure Schedules.
From and after the UAF Sale, all employees of UAF shall cease to
participate in any Benefit Plans of the Company. Sellers and UAF, jointly
and severally, shall reimburse the Company for any costs incurred by the
Company after the UAF Sale as a result of any claim made by any of the
employees of UAF under any of the Benefit Plans to the extent not fully
funded by the Closing or reflected on the Closing Balance Sheet.
I. [INTENTIONALLY OMITTED]
J. UAF LEASE. At the Closing, the existing sublease between the
Company and UAF shall be terminated and Buyer shall cause Midwesco Filter
Resources, Inc., a Delaware corporation ("Midwesco"), and ▇▇▇ shall cause
UAF to, enter into the Lease between Midwesco and UAF in the form attached
as Exhibit "K" to the Disclosure Schedules (the "UAF Lease").
K. SERVICE AGREEMENT. At the Closing, Buyer shall cause the Company
to, and ▇▇▇ shall cause UAF to, enter into the Service Agreement between
the Company and UAF in the form attached as Exhibit "L" to the Disclosure
Schedules (the "Service Agreement").
L. ASSUMPTION OF DEFENSE. From and after the Closing, Sellers shall
indemnify, defend and hold the Company, Buyer and their respective
officers, directors, employees and agents harmless of and from any and all
liability, loss, damages, costs and expense incurred by any of the
indemnified persons or entities with respect to our arising out of:
1. the pending litigation captioned ▇▇▇▇▇▇▇ V. TDC AND ▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇ pending in the Circuit Court of ▇▇▇▇ County, Case ▇▇. ▇▇ ▇ ▇▇▇▇▇;
2. any claims of ▇▇▇▇▇ ▇▇▇▇▇▇▇ against the Company;
3. any claims of ▇▇▇▇▇▇ ▇▇▇▇▇▇ against the Company;
4. any claims of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ relating to his employment or
the termination of his employment by the Company or UAF;
5. any claims of ▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇▇ against UAF or its
predecessor;
6. the claims set forth in the proceeding captioned ▇▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇ V. TDC FILTER MANUFACTURING, INC. before the Fair Labor Standards
Division, Chicago, Illinois;
(the "Pending Claims"). Sellers shall have sole and exclusive
responsibility for defending the Pending Claims at their cost and expense.
Sellers shall defend the Pending Claims diligently and in good faith.
Sellers may not settle the Pending Claims except solely for money damages
which settlement shall provide for a full and unconditional release of the
Company from all liability with respect to the Pending Claim so settled.
Buyer shall cause the Company to cooperate in the defense of the Pending
Claims; PROVIDED that such cooperation shall not unreasonably interfere
with the performance of employees' duties to the Company and PROVIDED
further that all out-of-pocket expenses incurred by the Company's employees
shall be paid by Sellers. The Company may participate in such defense at
its own cost and expense as long as Sellers are diligently defending the
pending Claims. Sellers shall keep Buyers informed of the status of the
Pending Claims. If Sellers fail to diligently defend the Pending Claims
and such failure continues for thirty (30) days after notice thereof is
given by Buyer to Sellers (or such shorter period as is required to avoid
prejudicing the Company's defense), the Company may defend the Pending
Claims at the cost and expense of Sellers, and such Pending Claims shall
thereafter be treated as a Third Party Claim under Article 11. Sellers
shall promptly pay any judgment or award rendered in any Pending Claim
except to the extent such judgment or award is stayed by appeal. If
Sellers fail to pay such judgment or award when due, Buyer may pay the same
and seek reimbursement from Sellers therefor, including interest as
provided in Section 11.10. Notwithstanding anything to the contrary herein
contained, ▇▇▇ and ▇▇▇▇▇ shall bear all of the Sellers' responsibilities
hereunder with respect to the ▇▇▇▇▇▇▇ Litigation and ▇▇▇▇▇▇▇▇ shall have no
liability with respect thereto.
M. VACATION OF CONSENT JUDGMENT. Sellers shall use reasonable
commercial efforts to assist the Company after the Closing in causing the
vacation of the Consent Judgment entered against the Company in the
proceeding captioned BHA GROUP, INC. V. TDC FILTER MANUFACTURING, INC.,
Case No. 97-0798-CV-W-2, pending in the United States District Court for
the Western District of Missouri (the "BHA Proceeding"); provided that
Sellers shall not be required to expend any out-of-pocket expenses in
connection therewith.
▇. ▇▇▇▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇. Buyer shall cause the Company to pay to
▇▇▇▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇ Company ("H&V") $500,000 in payment of valid invoices
of H&V to the Company on the Closing Date by wire transfer of immediately
available funds to such account as shall be designated by H&V, and to bring
the Company's account with H&V (other than the portion thereof attributable
to UAF) current within 30 days after the Closing. At the Closing, Buyer
shall deliver an irrevocable standby letter of credit issued by ▇▇▇▇▇▇
Trust & Savings Bank for the balance of the Company's account with H&V
which shall authorize H&V to draw thereon if such amount is not paid to H&V
by Buyer or the Company within 30 days after the Closing. ▇▇▇ shall pay to
H&V at the Closing the portion of the Company's account attributable to UAF
and all interest charged by H&V to the Company.
O. NAME CHANGE OF TDC FILTER LIMITED. ▇▇▇ represents and warrants
that a certificate of dissolution has been filed with the Secretary of
State of Delaware for TDC Filter Limited, a Delaware corporation.
P. [INTENTIONALLY OMITTED]
Q. FORM 1099B. The Form 1099B prepared by Buyer with respect to the
amount of the Purchase Price paid to Sellers shall not include any amount
paid with respect to the Capital Debt or the Demand Note or any Negative
Net Worth Adjustment or negative Working Capital Adjustment.
R. BULK SALES. Buyer hereby waives all compliance by Sellers and
the Company with any applicable bulk sales laws.
ARTICLE 8.
CERTAIN SECURITIES LAW MATTERS
A. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Sellers acknowledge
that Buyer is issuing the Options in partial payment of the Purchase Price
in a sale exempt from registration under the Securities ▇▇▇ ▇▇▇▇, as
amended (the "Securities Act"), and that Buyer's willingness to issue the
Options to Sellers is based upon the representation and warranties of
Sellers contained herein. Sellers represent, warrant and agree that:
1. The following documents ("MFRI Documents") have been delivered
to Sellers in connection with the offering of the Options to Sellers:
a. Annual Report to Stockholders of Buyer for fiscal year ended
January 31, 1997.
b. Proxy Statement for the 1997 Annual Meeting of Buyer's
Stockholders held June 27, 1997.
c. Annual Report on Form 10-K of Buyer for the fiscal year ended
January 31, 1997.
d. Quarterly Reports on Form 10-Q of Buyer for the quarters
ended April 30, 1997 and July 31, 1997.
2. The Options to be received by Sellers pursuant to this
Agreement will be owned of record and beneficially by Sellers.
3. Sellers (i) are acquiring their respective Options and the
shares issuable thereunder for investment, for their own account and
not with a view to distribution or resale, (ii) are not holding all or
any portion of their respective Options for any other person, and
(iii) agree not to engage in any Transaction (as defined herein) with
respect to all or any part of the MFRI Shares issued upon exercise of
their respective Options unless such MFRI Shares have been registered
under the Securities Act and applicable state securities laws in a
manner to permit such proposed Transaction or such proposed
Transaction is exempt from the registration requirements of the
Securities Act and such state laws in the opinion of ▇▇▇▇, ▇▇▇▇ &
▇▇▇▇▇, or other counsel for Sellers; provided such counsel is
reasonably satisfactory to Buyer and in any event such opinion is in
form and substance reasonably satisfactory to Buyer and Buyer's
counsel. For purposes of this Agreement, "Transaction" shall mean any
offer, sale, gift, disposition, attempted disposition, liquidating
distribution, dividend or distribution in kind, transfer, assignment,
delivery, pledge, hypothecation, allocation, or creation or attempted
creation of any present or future interest, right, claim or privilege
in or to any of MFRI Shares.
4. Sellers, individually or in combination with their investment
representatives, have such knowledge and experience in financial and
business matters in general and in particular with respect to this
type of investment that they are capable of evaluating the merits and
risks of an investment in Buyer.
5. Sellers have carefully read the MFRI Documents. Buyer has
made available to Sellers or their attorneys and/or accountants all
other documents that Sellers have requested relating to an investment
in Buyer and Buyer has provided answers to all of their questions
concerning the offering and an investment in Buyer. In evaluating the
suitability of an investment in Buyer, Sellers have not relied upon
any representations or other information (whether oral or written)
other than as set forth in the MFRI Documents or as contained in any
documents or answers to questions so furnished to Sellers by Buyer.
6. Sellers acknowledge that an investment in Buyer involves
certain risks.
7. No projections or forecasts of the operating results of Buyer
have been furnished to Sellers.
8. Sellers acknowledges that neither the Options nor the MFRI
Shares have been registered under the Securities Act or applicable
state securities laws, and the MFRI Shares cannot be transferred in
any Transaction unless subsequently registered under the Securities
Act and such state laws or unless, in the opinion of counsel
satisfactory to Buyer, an exemption from such registration is
available; Rule 144, adopted under the Securities Act and governing
the possible disposition to the public of the MFRI Shares, is not
currently available and will only be available to Sellers after
exercise of their respective Options and completion of the holding
period specified in such Rule and compliance with the other terms and
conditions of Rule 144 as in effect from time to time.
9. No federal or state agency or any other third party has been
provided with or made any finding or determination as to (i) the
adequacy or accuracy of the information set forth in the MFRI
Documents, or (ii) the fairness of the terms and provisions of the
transactions contemplated by this Agreement.
10. The MFRI Documents supersede any description of Buyer and all
other information relating to Buyer (other than that set forth in this
Agreement) that Sellers may have received in any prior communication.
11. The Options are not transferable (except upon death) and the
Options and the certificates representing the MFRI Shares shall bear
the following legend:
"[THIS OPTION HAS] [THE SHARES REPRESENTED BY THIS CERTIFICATE
HAVE] not been registered under the Securities Act of 1933 or
any state law. Transactions in [THIS OPTION] [SHARES
REPRESENTED BY THIS CERTIFICATE] may not be effected unless, in
the opinion of counsel reasonably satisfactory to the issuer,
registered under said Securities Act and such state laws or an
exemption from such registration is available."
12. ▇▇▇ and ▇▇▇▇▇ are accredited investors as defined in
Rule 501(a) promulgated under the Securities Act.
B. [INTENTIONALLY OMITTED]
C. REGISTRATION RIGHTS AGREEMENT. At the Closing, Buyer and Sellers
shall enter into the Registration Rights Agreement in the form attached as
Exhibit "M" to the Disclosure Schedules (the "Registration Rights
Agreement").
ARTICLE 9.
ACTION TO BE TAKEN IMMEDIATELY
PRIOR TO AND AT CLOSING
A. [INTENTIONALLY OMITTED]
B. ACTION TO BE TAKEN BY SELLERS. At the Closing, Sellers shall
deliver to Buyer the following:
1. the certificates evidencing the Shares, duly endorsed or
accompanied by duly executed stock powers assigning the Shares to
Buyer;
2. executed counterparts of the General Escrow Agreement and the
Tax Escrow Agreement;
3. Employment Agreements executed by ▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇;
4. Non-Competition Agreements executed by Sellers;
5. Mutual Release executed by Sellers;
6. such evidence as Buyer shall reasonably require to evidence
the purchase of the shares of UAF by ▇▇▇ and the terms of such
purchase;
7. the UAF Lease, executed by UAF;
8. the Service Agreement, executed by UAF and the Company;
9. a pay-off letter from the Bank as to the amount required to
pay the Bank Indebtedness in full;
10. pay-off letters from the holders of each of the Notes Payable
and the originals of such Notes Payable;
11. letter from the Town of Cicero consenting to the sale of the
Shares and stating the balance owed by the Company under the Loan
Agreement between the Company and the Town of Cicero as of the Closing
Date and stating that no defaults exist under such Loan Agreement;
12. the Registration Rights Agreement, executed by Sellers;
13. certificates of good standing of the Company issued by the
Secretary of States of Delaware and Illinois;
14. the opinion of ▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇, counsel to Sellers and the
Company, dated the Closing Date, addressed to Buyer and substantially
to the effect that:
a. The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and is
duly qualified to transact business as a foreign corporation in and
is in good standing under the laws of the State of Illinois;
b. The Company has all requisite corporate power and authority
to own, lease and operate its properties and the business as
presently conducted and to enter into and perform its obligations
hereunder;
c. The authorized capital stock of the Company consists of 200
shares of common stock, and based upon such firm's review of the
Company's minute book and stock ledger, 10 shares of such common
stock are issued and outstanding, all of which are owned of record by
Sellers;
d. All the issued and outstanding shares of UAF that were
previously owned by the Company are registered in the name of ▇▇▇;
and
e. This Agreement has been duly executed and delivered by
Sellers and constitutes the legal, valid and binding obligation of
Sellers, enforceable against Sellers in accordance with its terms,
except to the extent that enforceability may be limited by applicable
bankruptcy, insolvency or similar laws affecting the enforcement of
creditors' rights generally and subject to general principles of
equity;
15. evidence of the release of all claims of ▇▇▇▇▇ ▇▇▇▇▇▇▇
against the Company; and
16. evidence of the filing of a certificate of dissolution for
TDC Filter Limited.
C. ACTION TO BE TAKEN BY BUYER. At the Closing, Buyer shall deliver
to Sellers the following:
1. the Options;
2. executed counterparts of the General Escrow Agreement and the
Tax Escrow Agreement;
3. executed counterparts of the Employment Agreements;
4. executed counterparts of the Non-Competition Agreements;
5. such documents as are required to be executed by Buyer
pursuant to the Real Estate Sales Contract;
6. executed counterparts of the Registration Rights Agreement;
7. the UAF Lease, executed Midwesco Filter Resources, Inc.;
8. the Service Agreement, executed by the Company;
9. the Landlord Waiver and Notification between the Bank and
Buyer required in conjunction with the Bank's financing of UAF;
10. a certified copy of the resolutions duly adopted by the Board
of Directors of Buyer authorizing the transactions contemplated
hereby;
11. the opinion of ▇▇▇▇▇▇▇ & ▇▇▇▇▇, counsel to Buyer, dated the
Closing Date and addressed to Sellers, to the effect that:
a. Buyer is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and is duly
qualified to transact business as a foreign corporation and is in
good standing under the laws of the State of Illinois;
b. Buyer has all requisite corporate power and authority to own,
lease and operate its properties and business as presently conducted
and to enter into and perform its obligations hereunder;
c. The execution, delivery and performance of this Agreement by
Buyer and the consummation by Buyer of the transactions contemplated
hereby have been duly authorized by all requisite corporate action on
the part of Buyer;
d. This Agreement has been duly executed and delivered by Buyer
and constitutes the legal, valid and binding obligation of Buyer,
enforceable against Buyer in accordance with its terms, except to the
extent that enforceability may be limited by applicable bankruptcy,
insolvency or similar laws affecting the enforcement of creditors'
rights generally and subject to general principles of equity;
e. Buyer has taken all corporate action necessary to permit it
to issue the Options pursuant to this Agreement;
f. The MFRI Shares will, when issued, be duly authorized,
validly issued, fully paid and nonassessable, and no stockholder of
Buyer will have any preemptive right of subscription or purchase in
respect thereof.
D. PAYMENTS BY BUYER AND SELLERS. Upon delivery of the documents
pursuant to Sections 9.1 and 9.2, Buyer shall pay the Estimated Share Price
in accordance with Section 3.2, and Buyer shall cause Company to pay off
the Capital Debt (other than the loan from the Town of Cicero) in
accordance with Section 7.4.
E. FORM OF DOCUMENTS. All documents to be furnished at Closing
shall be in form and substance reasonably satisfactory to Buyer and Sellers
and their respective counsel.
F. FURTHER ASSURANCES. At any time on or after the Closing, the
parties hereto shall each perform such acts, execute and deliver such
instruments, assignments, endorsements and other documents and do all such
other things consistent with the terms of this Agreement as may be
reasonably necessary to accomplish the transactions contemplated in this
Agreement or otherwise carry out the purpose of this Agreement.
ARTICLE 10.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
The representations and warranties contained in this Agreement shall
survive for a period of three (3) years after the Closing Date and shall
not survive thereafter; provided, however, that (a) the representations and
warranties of Sellers related to securities and tax matters shall survive
until the expiration of the respective statute of limitations with respect
thereto applicable under the relevant securities laws or applicable to
governmental authorities collecting or administering such taxes,
(b) representations and warranties of Sellers with respect to title to the
Shares and the Real Estate shall survive the Closing without any limitation
as to time. The applicable period of survival of each such representation
and warranty is referred to herein as the "Survival Period". Any claim or
cause of action based upon or arising out of a breach of a representation
or warranty made hereunder or in any other document delivered pursuant
hereto must be made within the Survival Period or the party against which
such claim is made shall have no liability with respect thereto. Any claim
or cause of action based upon or arising out of a breach of such a
representation or warranty which is made within the Survival Period
applicable thereto shall survive the expiration of such Survival Period.
Nothing contained in this Article, however, shall affect the
obligations of Sellers or Buyer to perform the agreements and covenants to
be performed by any of them hereunder or in connection herewith either on
or after the Closing Date, which agreements and covenants shall survive the
Closing until such time as the same have been performed in full.
ARTICLE 11.
INDEMNIFICATION
A. INDEMNIFICATION BY SELLERS OF BUYER. Sellers shall indemnify,
defend, and hold Buyer and Buyer's directors, officers, shareholders,
employees and agents harmless from and against any and all costs, expenses,
losses, damages or liabilities (including, without limitation, reasonable
attorneys' fees) incurred by Buyer or any of Buyer's directors, officers,
shareholders, employees or agents with respect to or in connection with the
following (but only to the extent not taken into consideration in
determining the Working Capital Adjustment, the Closing Net Worth, the Net
Uncollected Receivables or Warranty Costs):
1. the existence of any fact, circumstance, situation or
condition constituting a breach or violation of any of the
representations, warranties, covenants or agreements of Sellers
contained in this Agreement or in any document delivered pursuant
hereto;
2. the Excluded Liabilities (as hereinafter defined); and
3. any claims made by any governmental authority or third party
for damages or clean-up costs under any Federal, state or local law,
rule, regulation or policy governing environmental matters (including,
without limitation, the treatment, storage, disposal, generation,
transportation, handling or release of Hazardous Materials), relating
to the condition of the Real Estate on the Closing Date or the conduct
of the Business on or prior to the Closing Date, whether or not known
to Sellers or Buyer or disclosed herein and whether or not a breach of
any of the representations and warranties of Sellers made in this
Agreement or pursuant hereto.
B. INDEMNIFICATION OF SELLERS BY BUYER. Buyer shall indemnify,
defend and hold Sellers harmless from and against any and all costs,
expenses, losses, damages or liabilities (including, without limitation,
reasonable attorneys' fees) incurred by Sellers with respect to or in
connection with:
1. the existence of any fact, circumstance, situation or
condition constituting a breach or violation of any of the
representations, warranties, covenants or agreements of Buyer
contained in this Agreement or in any document delivered pursuant
hereto; and
2. the Continuing Liabilities (as hereinafter defined).
C. CONTINUING LIABILITIES. As used in this Agreement, "Continuing
Liabilities" shall mean those liabilities of the Company (other than those
specifically identified as Excluded Liabilities in Section 11.4) arising
from the conduct of the Company's business in the ordinary course on or
prior to the Closing Date, including without limitation the following:
1. all accounts payable of the Company remaining unpaid at the
close of business on the Closing Date which arose in the ordinary
course of business;
2. all commissions and other amounts payable to independent sales
representatives of the Company in the ordinary course (excluding any
claims included in the Pending Claims);
3. wages, salaries, federal, state and local income tax
withholding, social security tax contributions (both by employer and
employee) and unemployment taxes, in each case with respect to
salaries and wages for employees of the Company for the pay period
which ends after the Closing Date, any unpaid commissions and
incentives payable to the employees of the Company as of the Closing
Date, and any unpaid and accrued vacation liability with respect to
the employees of the Company (excluding any claims included in the
Pending Litigation);
4. all personal property leases for capitalized leases and
operating leases which are listed in Schedule 11.3(d);
5. the principal of and interest remaining unpaid under the
Capital Debt, together with all penalties and charges, if any,
resulting from prepayment of said loan;
6. the Loan Agreement between the Company and the Town of Cicero;
7. the BHA Proceeding;
8. all Taxes owed by the Company which are not past due, but only
to the extent the aggregate amount thereof does not exceed the amount
thereof included in the Closing Balance Sheet;
9. written warranty obligations and warranty obligations implied
under law to customers of the Company and the Company's obligations to
customers for refunds, service and replacements with respect to
products sold by the Company on or before the Closing Date, but only
to the extent the same are legally enforceable against the Company;
notwithstanding the foregoing, Purchaser shall not assume Excluded
Warranties (as defined in Section 11.4);
10. all legally binding sales orders and contracts from customers
of the Company placed in the ordinary course of business and which are
unfilled as of the close of business on the Closing Date; and
11. all purchase contracts placed by the Company with suppliers
in the ordinary course of business.
D. EXCLUDED LIABILITIES. As used in this Agreement, "Excluded
Liabilities" shall mean those liabilities of the Company arising from the
conduct of the business of the Company on or prior to the Closing Date
which are outside the ordinary course of business, including without
limitation the following:
1. any liabilities of the Company of the nature described in
paragraph (f) of Section 11.3 which exceed the respective amounts
thereof included in the Closing Balance Sheet and any liabilities
under capitalized leases listed in Schedule 11.3(d) which exceed the
amount thereof included in the Closing Balance Sheet;
2. any liability of the Company with respect to Taxes which are
past due;
3. any liability of the Company with respect to Taxes which are
not past due which exceed the amount thereof included in the Closing
Balance Sheet;
4. any liability arising under any agreement with any sales
representative, distributor or other agent or representative of the
Business except for the Continuing Liabilities described in
Section 11.3;
5. any liabilities with respect to purchase orders and contracts
from customers which are not included in Continuing Liabilities, and
any sales contracts with suppliers which are not included in
Continuing Liabilities;
6. any Warranty Costs to be paid from the General Escrow Deposit
pursuant to Section 6.3 and any warranty obligations of Sellers which
have a term longer than twelve months (the "Excluded Warranties");
7. any liabilities arising from the infringement by the Company
of the patent, trademark or other proprietary rights of a third party
to the extent such liabilities relate to sales made or actions taken
by the Company on or prior to the Closing Date;
8. employee discrimination, wrongful discharge and unfair labor
practice claims arising out of the conduct by the Company of the
Business on or prior to the Closing Date;
9. any liability of ▇▇▇ or the Company for violation of any law,
regulation, rule or ordinance including, without limitation, any
violation of any Environmental Laws;
10. any liability of the Company arising with respect to the
Pending Claims;
11. any liability or obligation of any kind whatsoever of UAF or
of TDC Filter Limited, a Delaware corporation, whether absolute or
contingent, fixed or unliquidated; and
12. any liability of the Company under that certain document
dated August 21, 1995 between the Company, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇
▇▇▇▇.
E. PROCEDURE FOR USING GENERAL ESCROW DEPOSIT TO PAY FOR
INDEMNIFICATION. In the event Buyer is entitled to indemnification
hereunder, Buyer shall proceed first against the Escrow Deposit for
satisfaction of such claim (the "Escrow Claim") in accordance with the
provisions of this Section before exercising any of its other rights
against Sellers.
1. Buyer shall notify Sellers of the amount of the General Escrow
Claim, including (in the case of a third party claim) the damages and
liabilities, and costs and expenses (including reasonable attorneys'
fees) incurred and to be incurred in connection therewith.
2. The parties shall direct the General Escrow Agent to transfer
to Buyer the lesser of the General Escrow Deposit or the amount of
such General Escrow Claim, on the last to occur of (i) the fifth (5th)
business day after the date of Buyer's notice of the General Escrow
Claim, or (ii) if such General Escrow Claim is contested as
hereinafter provided, the date the dispute is resolved in accordance
with this Section, or (iii) the date such General Escrow Claim becomes
liquidated in amount.
3. If Sellers dispute the claim as a valid Escrow Claim, Sellers
shall so notify Buyer and General Escrow Agent within ten (10)
business days after the date of notice of such General Escrow Claim.
The parties shall attempt in good faith to resolve such dispute. If
the parties have not resolved such dispute within thirty (30) days
after Sellers notified Buyer and General Escrow Agent of such dispute,
then such dispute shall be resolved by a committee of three
arbitrators (one appointed by Sellers, one appointed by Buyer and one
appointed by the other two so appointed), who shall be appointed
within sixty (60) days after the expiration of such thirty (30) day
period. The arbitrator shall be located in, and the arbitration shall
take place in, Chicago, Illinois in accordance with the rules of the
American Arbitration Association and their decision shall be final and
binding on the parties. The expenses of such arbitration (excluding
expenses incurred by the parties in connection with such proceeding,
which shall be borne by the party incurring such expenses) shall be
borne one-half by Buyer and one-half by Sellers. The parties shall
cooperate and diligently pursue the arbitration of such claim in order
for a decision to be made by the arbitrators within 45 days after
their appointment.
F. PROCEDURE FOR INDEMNIFICATION BY BUYER. Except as otherwise
provided in Section 7.12, if a complaint, claim or legal action is brought
or made by a third party ("Third Party Claim") as to which Sellers are
entitled to indemnification hereunder, Sellers shall give written notice of
such Third Party Claim to Buyer promptly after Sellers receive notice
thereof, which notice shall include a copy of any letter, complaint or
similar writing received by Sellers; provided, however, that any failure to
provide, or delay in providing such notification shall not constitute a bar
or defense to indemnification except to the extent Buyer has been
prejudiced thereby.
Buyer shall assume the defense of such Third Party Claim. The
obligations of Buyer under this Article 11 shall include taking all steps
necessary in the defense of such Third Party Claim and holding Sellers
harmless from and against any and all damages caused by or arising out of
any settlement or any judgment in connection with such claim or litigation.
G. PROCEDURE FOR INDEMNIFICATION BY SELLERS. Except as otherwise
provided in Section 7.12:
1. If a Third Party Claim is brought or made as to which Buyer
is entitled to indemnification hereunder, Buyer may defend against such
claim or litigation in such manner as it deems appropriate; provided,
however, that Buyer may not settle such Third Party Claim without the prior
written consent of Sellers. Sellers shall promptly reimburse Buyer for the
amount of any judgment rendered with respect to such Third Party Claim, and
for all costs and expenses reasonably incurred by Buyer in the defense of
such claim.
2. If an offer to settle a Third Party Claim is made by a third
party, or if Buyer desires to make a settlement offer to settle a Third
Party Claim, the parties shall attempt in good faith to determine whether
such proposed settlement offer is reasonable in light of all the
circumstances (including, without limiting the foregoing, Sellers' net
worth as measured against the exposure to liability for such Third Party
Claim). If Sellers do not object to such settlement offer in the manner
hereinafter provided, Buyer may accept or make such settlement offer, and
Sellers shall promptly reimburse Buyer for the amount of such settlement if
it is in fact made on such terms.
If Sellers believe the proposed settlement offer is unreasonable and
do not approve of the same, then prior to the time the settlement offer
expires or the time for making the settlement offer, Sellers must notify
Buyer in writing that they withhold their consent to such settlement offer,
in which case such notice shall be invalid unless Sellers have deposited
into the General Escrow (or if the General Escrow has been terminated, a
comparable escrow) cash in an amount equal to the full damages sought in
such Third Party Claim plus Buyer's estimated costs of defending the same.
H. OFFER OF SETTLEMENT. Notwithstanding anything to the contrary
contained in this Article 11, if a full and unconditional settlement offer
solely for money damages is made by the applicable third party involved in
the Third Party Claim, which offer the party obligated to provide
indemnification hereunder ("Indemnitor") desires to accept, the Indemnitor
shall so notify the party entitled to indemnification under this Agreement
("Claimant") in writing. If the Claimant declines to accept such
settlement offer, the Claimant may continue to contest the Third Party
Claim, free of any participation by the Indemnitor, at the Claimant's sole
expense, and the amount of any ultimate liability with respect to such
Third Party Claim which the Indemnitor shall be obligated to pay pursuant
to this Article 11 shall equal the lesser of (a) the amount of the
settlement offer which the Claimant declined to accept, or (b) the ultimate
losses incurred by the Claimant, subject, however, to the other limitations
set forth in this Article 11.
I. COOPERATION. The parties agree to cooperate with each other in
the defense of any Third Party Claim.
J. PAST DUE AMOUNTS. If any amount owed by Sellers to Buyer
pursuant to this Agreement is not paid when due, such amount shall bear
interest at a rate equal to the prime (or equivalent) rate charged by the
Bank plus 4% until paid in full, and Sellers shall reimburse Buyer on
demand for all reasonable attorneys' fees incurred by Buyer in collecting
such amount.
K. RIGHT OF SET-OFF. Buyer may set-off any amount owed to it by
Sellers pursuant to this Agreement against any amount owed by Buyer to ▇▇▇
or ▇▇▇▇▇ with respect to the ▇▇▇▇▇▇▇ Litigation or any Prior Period Seller
Income Taxes pursuant to this Agreement.
L. NO RIGHTS FOR BREACHES KNOWN PRIOR TO CLOSING. Neither party
shall have any liability for a breach of a representation or warranty made
hereunder if such breach was known to the other party prior to the Closing.
If the provisions of this Section conflict with any provision of Article 6
or Article 7, the provisions of Article 6 and Article 7 shall prevail.
M. BASKET. Notwithstanding anything to the contrary herein
contained, Sellers shall not be obligated to provide any indemnification
hereunder to Buyer pursuant to Section 11.1(a) as a result of the breach or
violation of any of Sellers' representations and warranties hereunder
unless and until the aggregate costs, expenses, losses, damages and
liabilities incurred by Buyer as a result of such breach or violation
(without regard to any materiality qualifications in the representations
and warranties of Sellers hereunder) (collectively, "Losses") exceed
$20,000, it being the parties' intention that the first $20,000 of such
Losses shall be borne by Buyer.
N. CAP. Notwithstanding anything to the contrary herein contained,
Sellers shall not be obligated to provide indemnification to Buyer pursuant
to Section 11.1 of this Agreement or to make any other payments hereunder
(except with respect to the Unlimited Claims, as hereinafter defined) in
excess of an aggregate amount of $750,000. Buyer's recourse against
Sellers personally for payment of Sellers' indemnification obligations or
to make any other payments hereunder (including Buyer's rights of offset
under Ted's Noncompetition Agreement and Ted's Employment Agreement) shall
be limited to the amount of the General Escrow Deposit released to Sellers,
except with respect to Unlimited Claims. Sellers shall have unlimited
personal liability, and Buyer shall have unlimited right of offset under
Ted's Noncompetition Agreement and Ted's Employment Agreement, for the
Unlimited Claims; provided, however, that ▇▇▇▇▇▇▇▇ shall have no personal
liability for the Prior Period Seller Income Taxes, the ▇▇▇▇▇▇▇ Litigation
or the adjustment pursuant to Section 3.6, which liability shall be borne
solely by ▇▇▇ and ▇▇▇▇▇. As used herein, "Unlimited Claims" shall mean
Prior Period Seller Income Taxes, any amounts payable with respect to the
Pending Claims, including but not limited to the ▇▇▇▇▇▇▇ Litigation, and
the adjustment pursuant to Section 3.6.
ARTICLE 12.
ALTERNATE DISPUTE RESOLUTION
If a dispute arises between the parties that is not to be resolved by
the Dispute
Accountants pursuant to this Agreement, then the dispute may be submitted
by Sellers or buyer to an individual or organization recognized in the
field of alternate dispute resolution agreed upon by the parties
("Mediator"). The Mediator shall be requested to recommend to the parties
in writing a procedure for non-binding mediation ("Mediation") to resolve
such dispute. The parties shall cooperate and diligently pursue a
resolution through Mediation within 45 days after the Mediator has been
agreed upon. If the dispute cannot be resolved within such period as the
Mediator deems reasonable, the Mediator shall, upon the request of Buyer or
Sellers, certify to the parties that the dispute is incapable of resolution
through the Mediation process. The expenses of such Mediation (excluding
expenses incurred solely by Buyer or Sellers in such Mediation, which shall
be borne by the party incurring such expenses) shall be borne one-half by
Buyer and one-half by Sellers. Since the Mediation is conducted for the
purpose of settling a dispute, all proposals and settlement offers shall be
inadmissible for any purpose by virtue of Rule 408 of the Federal Rules of
Evidence and the principles expressed in such rule.
If Buyer and Sellers are unable to agree upon a Mediator within ten
(10) days after either party notifies the other of the notifying party's
desire to submit the dispute in question to a Mediator or the Mediator
certifies to the parties that the dispute is incapable of resolution
through the Mediation process, then either party shall be entitled to
commence legal proceedings in order to resolve such dispute.
ARTICLE 13.
MISCELLANEOUS
A. WRITTEN AGREEMENT TO GOVERN. This Agreement sets forth the
entire understanding and supersedes all prior and contemporaneous oral and
written agreements between the parties relating to the subject matter
contained herein, and merges all prior and contemporaneous discussions
between them. No party shall be bound by any definition, condition,
representation, warranty, covenant or provision other than as expressly
stated in this Agreement or as subsequently shall be set forth in writing
and executed by a duly authorized representative of each of the parties.
B. SEVERABILITY. The parties expressly agree that it is not the
intention of any party to violate any public policy, statutory or common
laws, rules, regulations, treaties or decisions of any government or agency
thereof. If any provision of this Agreement is judicially or
administratively interpreted or construed as being so in violation, such
provision shall be inoperative and the remainder of this Agreement shall
remain binding upon the parties hereto.
C. NOTICES AND OTHER COMMUNICATIONS. All notices, demands or
requests provided for or permitted to be given pursuant to this Agreement
must be in writing. All notices, demands and requests shall be deemed to
have been properly served if given by personal delivery, or if transmitted
by telecopy, or if delivered to Federal Express or other reputable
overnight carrier for next business day delivery, charges billed to or
prepaid by shipper, or if deposited in the United States mail, registered
or certified with return receipt requested, proper postage prepaid,
addressed as follows:
If to Sellers: Mr. and ▇▇▇. ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
With a copy to: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇
Three First National Plaza, Suite 3300
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
If to Buyer: MFRI, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Mr. ▇▇▇▇▇ ▇▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇ ▇. ▇▇▇▇▇, Esq.
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Each notice, demand or request shall be effective upon personal
delivery, or upon confirmation of receipt of the applicable telecopy, or
one (1) business day after delivery to a reputable overnight carrier in
accordance with the foregoing, or three (3) business days after the date on
which the same is deposited in the United States mail in accordance with
the foregoing. Rejection or other refusal to accept or the inability to
deliver because of changed address of which no notice was given shall not
adversely impact the effectiveness of any such notice, demand or request.
Any addressee may change its address for notices hereunder by giving
written notice in accordance with this Section.
D. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and each counterpart shall constitute an original instrument,
but all such separate counterparts shall constitute one and the same
agreement.
E. LAW TO GOVERN. The validity, construction and enforceability of
this Agreement shall be governed in all respects by the laws of the State
of Illinois, without regard to its conflict of laws rules.
F. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that except as provided in this
Section, no party may assign its rights and obligations hereunder without
the prior written consent of the other parties, which consent may
unreasonably be withheld. Notwithstanding the foregoing, Buyer may assign
its rights and delegate the performance of its obligations hereunder to a
direct or indirect wholly-owned subsidiary of Buyer without the prior
written consent of the other parties, such assignment to become effective
upon written notification thereof to Sellers, in which case Buyer will
continue to be liable for all of its obligations hereunder.
G. NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement,
expressed or implied, is intended to confer upon any person, other than the
parties hereto and their successors and permitted assigns, any rights or
remedies under or by reason of this Agreement.
H. BUSINESS DAY. As used in this Agreement, "business day" means
any day on which Federal banks in Chicago, Illinois are not required or
permitted to be closed.
I. INTERPRETATION. The masculine, feminine or neuter pronouns used
herein shall be interpreted without regard to gender, and the use of the
singular or plural shall be deemed to include the other whenever the
context so requires. The headings in this Agreement are inserted for
convenience of reference only and shall not be a part of or control or
affect the meaning of this Agreement. Unless otherwise expressly stated
herein, all references herein to articles, sections and paragraphs are to
sections and paragraphs in this Agreement and all references herein to
Schedules are to Schedules attached to the Disclosure Schedules. The
obligations of Sellers under this Agreement shall be joint and several.
J. MODIFICATION. The parties to this Agreement may, by mutual
written consent executed by an authorized officer of Buyer and Sellers,
modify or supplement this Agreement in such manner as may be mutually
agreed upon by them in writing.
K. WAIVER OF PROVISIONS. The terms, covenants, representations,
warranties and conditions of this Agreement may be waived only by a written
instrument executed by the party waiving compliance. The failure of any
party at any time to require performance of any provisions hereof shall, in
no manner, affect the right at a later date to enforce the same. No waiver
by any party of any condition, or breach of any provision, term, covenant,
representation or warranty contained in this Agreement, whether by conduct
or otherwise, in any one or more instances, shall be deemed to be or
construed as a further or continuing waiver of any such condition or of the
breach of any other provision, term, covenant, representation or warranty
of this Agreement.
L. EXPENSES. Except as otherwise provided in this Agreement or the
Real Estate Sale Contract, each party shall bear its own expenses incident
to this Agreement and the transactions contemplated hereby, including
without limitation, all fees of counsel, accountants and consultants.
M. NO OFFER. This Agreement is not an offer and shall not be
binding on either party until signed by all parties.
IN WITNESS WHEREOF, Buyer has caused this Agreement to be executed on
its behalf by its officer thereunto duly authorized, and Sellers have
executed this agreement, all on or as of the day and year first above
written.
MFRI, INC.
By: /S/ ▇▇▇▇▇ ▇▇▇▇▇
Its: PRESIDENT
/S/ ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
/S/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
/S/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇
