EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") dated August 6, 1999 is by
and between WSI Industries, Inc., a Minnesota corporation (the "Buyer") and
Xxxxxxx X. Xxxxxx (the "Seller").
RECITAL
Seller owns and desires to sell, and Buyer desires to purchase, 100% of
the capital stock of Xxxxxx Tool & Machining, Inc., a Minnesota corporation (the
"Corporation"), upon the terms and subject to the conditions set forth in this
Agreement.
It is agreed:
ARTICLE I
PURCHASE AND SALE OF STOCK
1.1. SALE OF COMMON STOCK. Seller hereby agrees to sell, convey,
transfer, assign and deliver to Buyer on the Closing Date (as defined in Section
1.7), 100 shares (the "Shares") of duly and validly issued, fully paid and
non-assessable, common stock of the Corporation, representing 100% of the
outstanding capital stock of the Corporation.
1.2. PURCHASE PRICE. Subject to the terms and conditions of this
Agreement and in reliance upon the representations, warranties and covenants of
Seller herein contained and in full consideration of such sale of the Shares to
Buyer, Buyer agrees to pay to Seller a purchase price (the "Purchase Price")
consisting of Seven Million and no/100s Dollars ($7,000,000) subject to
adjustment as provided in Sections 1.3, 1.6, and 6.14 of this Agreement (the
"Closing Payment") and (ii) the Additional Amount as described in Section 1.5.
The Closing Payment shall be paid as detailed in Section 1.4 of this Agreement.
1.3. CLOSING DATE ADJUSTMENT. Seller has prepared and delivered to
Buyer the June 30, 1999 balance sheet of the Corporation (the "Latest Balance
Sheet"), which is attached hereto as Schedule 1.3. If the sum of the book value
of the Corporation as set forth on the Latest Balance Sheet is different from
$2,868,000, the amount of the Note (as defined in Section 1.4) to be delivered
at Closing shall be reduced or increased, as the case may be, on a dollar for
dollar basis. For purposes of this Agreement and the adjustments in this
Section 1.3 and Section 1.6, the book value of the Corporation shall be
determined as of the respective measurement dates and shall equal the book value
of assets less the book value of liabilities but shall exclude cash and cash
equivalents and the note payable to Norwest Equipment Finance, Inc. or its
assigns (the "Bank Debt"). There shall be added to the book value the
adjustments, if any, required under
Section 6.14. The adjustments under Section 6.14 shall be made prior to any
corresponding adjustments in Sections 1.3 and 1.6.
1.4. CLOSING PAYMENT. The Closing Payment shall be paid as follows:
(a) $6,000,000 in cash at Closing by wire transfer of funds,
subject to adjustment as provided in Section 6.14; and
(b) Subordinated Promissory Note (the "Note") delivered at
Closing in the form attached hereto as Exhibit A in an
amount equal to $1,000,000 as adjusted pursuant to Sections
1.3, 1.5 and 1.6 of this Agreement. The parties
acknowledge that the Note shall be adjusted as of the
Closing to $886,618 based on the book value reflected on
the Latest Balance Sheet.
1.5. ADDITIONAL AMOUNT. Seller shall receive Seventy-Five Cents ($.75)
for every One Dollar ($1.00) of Sales (as defined below) above Six Million
Dollars ($6,000,000) generated by the Corporation during the twelve-month period
following the Closing Date, up to a maximum of Seven Hundred Fifty Thousand
Dollars ($750,000). If the Sales contingency described in the immediately
preceding sentence is not fully attained within the period provided in such
sentence, but the Operating Income contingency described in the immediately
following sentence is fully attained within the period provided in such sentence
(i.e., Operating Income exceeds $3,000,000), then, in such event, the Sales
contingency shall be deemed earned in full as of the date the Operating Income
contingency is deemed earned, but subject to the maximum of Seven Hundred Fifty
Thousand Dollars ($750,000) set forth in the first sentence of this Section 1.5.
Seller shall also receive Seventy-Five Cents ($.75) for every One Dollar
($1.00) of Operating Income (as defined below) above Two Million Dollars
($2,000,000) generated by the Corporation during the period from January 24,
2000 to January 24, 2001, up to a maximum of Seven Hundred Fifty Thousand
Dollars ($750,000). In addition, Seller shall receive an additional
Thirty-Three and 1/3 Cents ($.333) for every One Dollar of Operating Income over
Three Million Dollars ($3,000,000) for the 12 month fiscal period beginning
January 24, 2000 (all of the foregoing payments are collectively referred to as
the "Additional Amount"). For purposes of this Agreement, Sales shall be
defined as gross revenues derived from the Corporation's existing and new
customers (excluding revenue generated from Buyer's existing customers'
programs, which include Deere Waterloo Agricultural, ZF Industries, Kohler, Borg
Warner, IBM, Polaris, Deere, Ottumwa and Volvo Penta) as determined by the
Corporation in accordance with generally accepted accounting principles. For
purposes of this Agreement, Operating Income shall be defined as earnings before
interest expense, taxes and acquisition costs, each as determined by the
Corporation in accordance with generally accepted accounting principles, and
shall exclude corporate general and administrative expenses of Buyer, storage
costs at Buyer's Long Lake facility and expenses of employees of Buyer not
working directly and full-time for the Corporation. Buyer agrees not to
intentionally divert business from the Corporation to its Long Lake facility or
to a subsidiary in an attempt to circumvent the intent of
this Section 1.5. The principal amount of the Note will be increased to reflect
any Additional Amount earned by the Seller as of the date such Additional Amount
is earned.
1.6. POST-CLOSING ADJUSTMENT.
(a) Within 45 days after the Closing Date (as defined in
Section 1.7), the Buyer shall deliver to the Seller a balance sheet of
the Corporation as of the opening of business on the Closing Date (the
"Closing Date Balance Sheet") prepared by the Buyer. Such balance sheet
shall be prepared in accordance with generally accepted accounting
principles consistently applied, with the inventory value determined in a
manner consistent with the Latest Balance Sheet. The inventory reflected
on the Closing Date Balance Sheet shall be determined by a physical
inventory taken as of the start of business on the first business day
following the Closing Date and observed by the representatives of the
Buyer and Seller. The inventory will be valued at the lower of cost or
market. The only inventory set forth on the Closing Date Balance Sheet
shall be raw materials, work-in-progress and finished goods inventory for
which there are current or forecasted orders from customers.
(b) If the Seller has any objections to the Closing Date
Balance Sheet, he shall deliver to the Buyer a statement describing such
objections within 15 days after Seller's receipt of the Closing Date
Balance Sheet. If no objections are received within such 15 day period,
the Closing Date Balance Sheet shall be deemed accepted by Seller. Buyer
and Seller shall use reasonable efforts to resolve any objections
received during such 15 day period. In the event Buyer and Seller are
unable to resolve such objections within a 15-day period following
receipt by Buyer of Seller's objections, the Buyer and Seller shall,
within ten days after such 15-day period, select a mutually acceptable
nationally recognized accounting firm to resolve any remaining
objections. The determination of such accounting firm shall be made
within 30 days of the selection of such accounting firm and shall be
conclusive and binding upon the parties hereto. The fees and expenses of
such accounting firm shall be shared equally by Buyer and Seller.
(c) If the aggregate book value of the Corporation, as
reflected on the Closing Date Balance Sheet, as finally determined, is
greater than the aggregate book value of the Corporation as reflected on
the Latest Balance Sheet, the Purchase Price shall be adjusted upward by
such amount and a corresponding adjustment to the Note shall be made as
of the Closing. In the event the aggregate book value of the
Corporation, as reflected on the Closing Date Balance Sheet, as finally
determined, is less than the aggregate book value of the Corporation as
reflected on the Latest Balance Sheet, the Purchase Price shall be
adjusted downward by such amount and a corresponding adjustment to the
Note shall be made as of the Closing. The finalization of the Closing
Date Balance Sheet shall not affect any rights or remedies of Buyer under
this Agreement. In the event a downward adjustment is in excess of the
principal amount of the Note, such excess shall be paid by Seller to
Buyer within five (5) days of final determination of such adjustment.
1.7. CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") is taking place simultaneously with the execution of
this Agreement at the offices of Xxxxxxxxx & Xxxxxx PLLP, 4200 IDS Center, 00
Xxxxx 0xx Xxxxxx, Xxxxxxxxxxx, Xxxxxxxxx at 9:00 a.m. on August 6, 1999. The
date and time of the Closing are herein referred to as the "Closing Date." The
Closing shall be effective as of 11:59 p.m. on August 6, 1999.
1.8. CONDITIONS TO CLOSING.
(a) The obligation of Seller to consummate the transactions
contemplated by this Agreement is subject to the
satisfaction of the following conditions:
(i) The representations and warranties of the Buyer
shall be true and correct on the Closing Date;
(ii) The Buyer shall have performed and complied with all
covenants and agreements required to be performed
and complied with by it under this Agreement prior
to the Closing;
(iii) No action or proceeding before any court or agency
will be pending or threatened wherein an unfavorable
judgment, decree or order could prevent the carrying
out of this Agreement or any of the transactions
contemplated hereby; and
(iv) All documents required to be delivered at Closing
pursuant to Section 4.1 of this Agreement have been
delivered.
(b) The obligation of Buyer to consummate the transactions
contemplated by this Agreement is subject to the
satisfaction of the following conditions:
(i) The representations and warranties of the Seller
shall be true and correct on the Closing Date;
(ii) The Seller shall have performed and complied with
all covenants and agreements required to be
performed and complied with by it under this
Agreement prior to the Closing;
(iii) No action or proceeding before any court or agency
will be pending or threatened wherein an unfavorable
judgment, decree or order could prevent the carrying
out of this Agreement or any of the transactions
contemplated hereby or have an adverse effect on the
Corporation;
(iv) Buyer, in its sole discretion, is satisfied that no
customer of the Corporation intends to discontinue
business with or significantly reduce its business
with the Corporation following the Closing;
(v) Buyer shall have received all required consents,
permits and licenses;
(vi) Buyer shall have reached acceptable employment
arrangements with key employees of the Corporation;
(vii) Buyer shall have obtained financing necessary to
consummate the transactions contemplated hereby on
terms acceptable to Buyer;
(viii) Seller shall have reached a long-term agreement with
its major customer on terms satisfactory to Buyer;
and
(ix) All documents required to be delivered at Closing
pursuant to Section 4.1 of this Agreement have been
delivered.
Either Buyer or Seller may waive any condition to its obligation to consummate
the transactions contemplated by this Agreement and proceed with Closing.
1.9. TERMINATION. This Agreement may be terminated at any time prior
to the Closing:
(a) by mutual consent of the Buyer and the Seller;
(b) by either the Buyer, on the one hand, or the Seller, on the
other hand, if there has been a misrepresentation or breach
of warranty on the part of the other party in the
representations and warranties set forth in this Agreement,
or if the conditions precedent to the terminating party's
obligations to consummate the transactions contemplated
hereby have not been satisfied on or prior to Closing Date
(other than as a result of the willful acts or omissions of
the terminating party); or
(c) by either the Buyer, on the one hand, or the Seller, on the
other hand, if the transactions contemplated hereby have
not been consummated on or before December 31, 1999;
provided that neither the Buyer nor the Seller will be
entitled to terminate pursuant to this Section 1.9(c) if
the Buyer's or the Seller's willful breach of this
Agreement, respectively, has prevented the consummation of
the transactions contemplated hereby.
In the event of termination of this Agreement by either the Buyer or the Seller
as provided above, this Agreement will forthwith become void, and there will be
no liability on the part of either the Buyer or the Seller, except for breaches
of this Agreement prior to the time of such termination.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
To induce Buyer to enter into this Agreement, Seller represents and
warrants to Buyer as follows:
2.1. OWNERSHIP OF THE SHARES. Seller is the record and beneficial
owner of all of the Shares free and clear of all liens, encumbrances, purchase
rights, claims, pledges, mortgages, security interests, or other limitations or
restrictions whatsoever. Seller is not subject to, or a party to, any articles
of incorporation or bylaw provisions, shareholder control agreements, buy-sell
agreements, contracts, instruments or other restrictions of any kind or
character which directly or indirectly restrict or otherwise limit in any manner
the voting, sale or other disposition of the Shares.
2.2. AUTHORITY OF SELLER. Seller has full and unrestricted legal
right, power and authority to enter into this Agreement, and to sell, assign,
transfer, and deliver to Buyer valid, lawful and marketable title to the Shares
to be sold, assigned and transferred by Seller pursuant to this Agreement.
Seller represents that neither the execution and delivery of this Agreement or
any other agreements contemplated hereby nor the consummation of the
transactions contemplated hereby will conflict with or result in any violation
of, or default under, any contract, agreement or commitment or any law
applicable to Seller or the Corporation or any of its assets or property or its
business. No action, consent or approval by, or filing by Seller or the
Corporation with, any federal, state, municipal, foreign or other court or
governmental body or agency, or any other regulatory body, is required in
connection with the execution and delivery by the Seller of this Agreement or
the consummation by Seller of the transactions contemplated hereby.
2.3. TITLE. Upon delivery to Buyer of certificates duly endorsed or
accompanied by duly executed stock powers representing all the Shares described
in Section 1.1 above, Buyer will acquire lawful, valid and marketable title to
the Shares free and clear of all liens, encumbrances, purchase rights, claims,
pledges, mortgages, security interests, or other limitations or restrictions
whatsoever.
2.4. ORGANIZATION AND QUALIFICATIONS OF THE CORPORATION. The
Corporation is a corporation lawfully existing and in good standing under the
laws of Minnesota with full power and authority to own or lease its properties
and to conduct its business in the manner and in the places where such
properties are owned or leased or such business is conducted by it.
2.5. CAPITALIZATION OF THE CORPORATION. The authorized capital stock
of the Corporation consists of 1,000 shares of common stock, of which 100 shares
are issued and outstanding, fully paid and non-assessable. There are no
outstanding warrants, options, preemptive rights, or other rights or securities
to purchase or acquire newly issued shares of the Corporation's capital stock.
There are no stock appreciation, phantom or similar rights based on the book
value or any other attribute of any capital stock of the Corporation.
2.6. SUBSIDIARIES. The Corporation does not have any subsidiaries or
own any securities issued by any other business organization or governmental
authority, other than shares held for investment in a publicly held company.
The Corporation is not a partner or joint venturer in any partnership or joint
venture.
2.7. TITLE TO PROPERTIES; CONDITION OF PROPERTIES. The Corporation
owns and has good and marketable title to all of the assets listed on the Latest
Balance Sheet (defined in Section 1.3) (other than inventory sold since the date
of the Latest Balance Sheet) or acquired since then, free and clear of any lien
or encumbrance of any kind (collectively, "Encumbrances"). All machinery and
equipment owned by the Corporation is in good repair, has been well maintained
and is in good working order, normal wear and tear excepted. All assets
necessary for the continued operation of the Corporation's business as it is
currently being conducted and as it has been conducted since January 1, 1998 are
owned by the Corporation or subject to valid leasehold interests. The
Corporation has paid the Bank Debt.
2.8. REAL PROPERTY. All real property leased by the Corporation is
described in Schedule 2.8 (the "Real Property") and is owned by Seller. The
Corporation owns no real property.
2.9. ENVIRONMENTAL MATTERS.
(a) Neither the Real Property nor any property
previously owned or operated by the Corporation has been used by
the Corporation, or to the best knowledge of Seller, by any other
party, for the purpose of storing, disposing or treating any
hazardous, toxic or dangerous substance, waste or material
("Hazardous Materials") as defined under or regulated by any
federal, state or local laws relating to pollution, protection of
the environment or worker health and safety (collectively, the
"Environmental Laws"). There has been no release or threatened
release of Hazardous Materials on the Real Property by the
Corporation or Seller or, to the best knowledge of Seller, by any
other party. Neither the Corporation nor the Seller has received
any notice of any asserted present or past failure by the
Corporation or by any other party to comply with any Environmental
Laws or any rule or regulation adopted pursuant to such laws in
connection with the Real Property.
(b) The Corporation has not transported Hazardous
Materials, or arranged for the transportation of Hazardous
Materials to any disposal, treatment or storage site which is the
subject of federal, state or local enforcement actions, or, to the
best knowledge of Seller, other governmental or private
investigations, or which may lead to claims against the
Corporation for clean up costs, remedial work, or for damages.
(c) There are no underground storage tanks, as defined
under federal or applicable state law, located on the Real
Property, and none have been placed on the Real Property during
the Corporation's operation of the Real Property or the Seller's
ownership of the Real Property.
(d) To the best knowledge of Seller, there are no
material expenditures required to bring the Real Property in
compliance with the Environmental Laws.
2.10. FINANCIAL STATEMENTS. Seller has delivered to Buyer the following
financial statements:
(a) Unaudited balance sheets dated December 31, 1998 and
1997, and related statements of income and retained earnings flows
for the years then ended; and
(b) Unaudited balance sheet dated March 31, 1999 and the Latest
Balance Sheet.
All of the financial statements referred to in this Section 2.10 have
been prepared in accordance with generally accepted accounting principles
applied on a basis consistent with the Corporation's past practices and present
fairly the financial condition of the Corporation at the dates of said
statements and the results of its operations for the periods covered. All
accruals for liabilities and reserves for contingent liabilities have been
established by the Corporation as required to be established and maintained
under generally accepted accounting principles.
2.11. PAYMENT OF TAXES. The Corporation has filed all federal, state
and local income, excise or franchise tax returns, real estate and personal
property tax returns, sales and use tax returns and other tax returns and
reports required to be filed by it and has paid all taxes owing by it except
taxes for which adequate provision has been made in the Latest Balance Sheet.
The Corporation has maintained a valid S election since September 1, 1990. The
Corporation has received no notice of any impending audit by any taxing
authority. The Corporation has not received notice of any tax deficiency
proposed or assessed against it, and it has not executed any waiver of any
statute of limitations on the assessment or collection of any tax.
2.12. ABSENCE OF UNDISCLOSED LIABILITIES. The Corporation has no
liabilities of any nature, whether accrued, absolute or contingent, other than
and to the extent reflected or reserved
against on the Latest Balance Sheet and liabilities incurred in the ordinary
course of business since the date of the Latest Balance Sheet and liabilities
disclosed on Schedule 2.12. Except as set forth on Schedule 2.24, Seller has no
knowledge of any facts which materially adversely affect, or may in the future
(so far as can now be reasonably foreseen) materially adversely affect, the
business, properties, operations or condition of the Corporation which have not
been specifically disclosed in this Agreement.
2.13. ACCOUNTS RECEIVABLE. All of the accounts receivable of the
Corporation reflected on the Closing Date Balance Sheet will be valid and
enforceable claims, fully collectible within 90 days of their respective invoice
dates, and subject to no setoff or counterclaim in the recorded amounts, subject
only to the allowance for doubtful accounts reflected on the Closing Date
Balance Sheet. In the event such accounts receivable are not fully collected
within such 90-day period, the principal amount of the Note shall be reduced
downward dollar-for-dollar effective as of the Closing Date by the uncollected
amount, subject to the allowance for doubtful accounts, and the uncollected
receivables shall be assigned to Seller.
2.14. INVENTORIES. The inventory of the Corporation reflected on the
Closing Date Balance Sheet will consist of items of a quantity consistent with
normal inventory levels of the Corporation and of a quality and condition that
is usable and saleable in the ordinary course of business for the purposes for
which intended within 12 months from the Closing Date. Such inventory is
carried on the Corporation's books of account in accordance with generally
accepted accounting principles.
2.15. CONDUCT OF BUSINESS IN THE ORDINARY COURSE. Except as provided on
Schedule 2.15, the Corporation has conducted its business since March 31, 1999
only in the usual and ordinary course consistent with past practice and since
such date, the Corporation has not (i) sold or transferred any of its assets,
except inventory in the ordinary course of business; (ii) changed any method of
accounting or accounting practice; (iii) increased or promised to increase the
compensation payable to any employee, except in accordance with annual wage
reviews consistent with past practices; (iv) made any direct or indirect
payments, dividends, distributions, sales or transfers of assets, other than
normal compensation and the distributions reflected on the Latest Balance Sheet,
to any officer, director, shareholder or employee of the Corporation or any of
their affiliates; (v) changed its outstanding shares of capital stock or
repurchased, redeemed or acquired any outstanding shares of capital stock or
other ownership interest in securities of the Corporation; or (vi) suffered any
damage or casualty to its assets.
2.16. PATENTS, TRADE NAMES, TRADEMARKS AND COPYRIGHTS. The Corporation
owns and has the right to use, free and clear of any claims or rights of others,
the name "Xxxxxx Tool" and all intellectual property, know-how, trade secrets,
customer and supplier lists which it is using.
2.17. COMMITMENTS. Except as described on Schedule 2.23, the
Corporation is not a party to or subject to any of the following contracts,
commitments, understandings, agreements or licenses, oral or written (the
"Commitments"):
(a) any Commitment creating any obligation of the
Corporation of $5,000 or more (other than sales and purchase
commitments in the ordinary course of business for less than
$5,000 each);
(b) any Commitment providing for the purchase of all or
substantially all of the Corporation's requirements of a
particular product from a supplier, or for periodic minimum
purchases of a particular product from a supplier;
(c) any Commitment not terminable on 30-days notice
without penalty to the Corporation, other than sales and purchase
commitments entered into in the ordinary course of business;
(d) any Commitment with any employee, consultant, sales
agent or distributor;
(e) any Commitment containing covenants limiting the
Corporation's freedom to compete in any line of business or with
any person or entity;
(f) any Commitment for the purchase of any fixed asset
for a price in excess of $5,000, whether or not such purchase is
in the ordinary course of business;
(g) any license agreement (as licensor or licensee),
except software licenses used in the ordinary course of business
in compliance with their respective terms;
(h) any Commitment with any present or former officer,
director or shareholder of the Corporation or with any persons or
organizations controlled by or affiliated with any of them; or
(i) any other Commitment not described above which
involves total consideration in excess of $500 per month, other
than utilities purchased in the ordinary course of business,
salaries and employee benefits described on Schedule 2.23.
True, correct and complete copies of the Commitments have been provided
to Buyer prior to the execution of this Agreement. All Commitments are in full
force and effect and have not been amended, extended or otherwise modified.
Neither the Corporation nor, to the best knowledge of Seller, any other party is
in default under any Commitments. None of the Commitments related to funded
debt require prepayment penalties. The Corporation has all
necessary software licenses to conduct its business as currently conducted and
the Corporation is in compliance with such licenses.
2.18. LITIGATION. There are no legal, administrative, arbitration or
other proceedings or governmental investigations pending or, to the best
knowledge of Seller, threatened against the Corporation and there are no facts
known to Seller which may result in such a proceeding or investigation.
2.19. COMPLIANCE WITH LAWS. The Corporation is in compliance in all
material respects with any laws, regulations or permits which apply to the
conduct of its business or the Real Property.
2.20. PERMITS. The Corporation holds all licenses, permits and
franchises which are required to permit it to conduct its business, and all such
licenses, permits and franchises are listed on Schedule 2.20.
2.21. TRANSACTIONS WITH INTERESTED PERSONS. Seller does not own
directly or indirectly any material interest in, or serve as an officer or
director of, any customer, competitor or supplier of the Corporation, or any
organization which has a material contract or arrangement with the Corporation.
2.22. SUPPLIERS; CUSTOMERS. There are no existing disputes with any of
the Corporation's suppliers, other than normal disputes in the ordinary course
of business. Seller has no reason to believe that any supplier will discontinue
business with the Corporation following the Closing. No customer has notified
the Corporation, and Seller has no knowledge that a customer intends to
discontinue business with or significantly reduce its business with the
Corporation or materially change the terms or price of its jobs. The
Corporation is not a party to any contract or series of contracts with any one
customer to sell products which, in the aggregate with respect to such customer,
is to be performed at a price which is less than the Corporation's full cost or
to buy products at prices other than the prevailing market prices at the time
the contracts were entered into.
2.23 EMPLOYEE BENEFIT PLANS. Schedule 2.23 sets forth a list of all
health care plans or arrangements; life insurance or other death benefit plans;
deferred compensation or other pension or retirement plans; or other fringe or
employee benefit plans or arrangements; any employment or consulting contracts
or executive compensation agreements; whether written or otherwise, formal or
informal, voluntary or required by law, including, without limitation, any
"employee benefit plan" as defined in Section 3(3) ("Employee Plan") (i) which
the Corporation has any time maintained for the benefit of or relating to
present or former employees, directors, leased employees, consultants and/or
their dependents or beneficiaries; or (ii) with respect to which the Corporation
or any ERISA Affiliate has made any payments or contributions. For purposes of
this Section, "ERISA Affiliate" means all trades or businesses (whether or not
incorporated) which are, or any time during the six years prior to the Closing
Date, were members of a group
of which the Corporation is or was a member which are or were under common
control within the meaning of Code Section 414(b) or (c) or which are or were
treated, together with the Corporation, as a single corporation under Code
Section 414(m) or (o). Except as specifically set forth in Schedule 2.23:
(a) Each Employee Plan has been consistently administered in
substantial compliance with its terms and provisions and with the Code,
ERISA and all other applicable laws and regulations, including, without
limitation, Code Section 4980B and ERISA Section 601, et. seq. Each
Employee Plan which is an employee pension plan as defined in Section
3(2) of ERISA meets the applicable requirements for qualification under
Section 401(a) and for exemption under Section 501(a) of the Code. All
reports required under ERISA or any other law or regulation to be filed
by the Corporation or any ERISA Affiliate have been duly filed with the
relevant governmental body, and all such reports are true and correct as
of the date given in all material respects, and all Employee Plans have
timely complied in all material respects with the disclosure of
information regarding the Employee Plans required under Title 1 of ERISA.
(b) All contributions required to be made prior to the Closing
Date to any Employee Plan have been paid or accrued for and neither the
Corporation nor any ERISA Affiliate has any liability for any Employee
Plan that has arisen or accrued prior to the Closing which has not been
provided for through contributions, insurance or by appropriate accrual
on the Closing Date.
(c) Neither the Corporation nor any ERISA Affiliate has engaged
in any nonexempt "prohibited transaction" within the meanings of Sections
503 and 4975 of the Code or Section 406 of ERISA.
(d) Neither the Corporation nor any ERISA Affiliate has ever
been (i) a party or contributor to, or incurred withdrawal liability
under Section 4201 of ERISA with respect to, any multiemployer plan (as
such term is defined in Section 3(37) of ERISA), or (ii) a party or
contributor to any plan maintained by more than one employer (as
described in Section 413(c) of the Code).
(e) There are no lawsuits or claims brought by any present or
former employee against the Corporation or any ERISA Affiliate or any of
their respective Employee Plans, other than claims for benefits in the
normal course, which have not been finally resolved, and there are no
claims or assessments pending or threatened against the Corporation or
any ERISA Affiliate or any of their respective Employee Plans.
(f) Except as otherwise expressly provided in any Employee Plan
or as otherwise required by applicable law, no condition exists that
would materially increase the expense to the employer whose employees are
covered under any of the Corporation's
or any ERISA Affiliate's Employee Plans nor does any condition exist
which would prevent the amendment or termination of any such Employee
Plan.
(g) Schedule 2.23 sets forth (i) the names of all former
employees of the Corporation whose employment has terminated either
voluntarily or involuntarily during the preceding twelve-month period to
which the Corporation has any continuing obligation or liability; and
(ii) the names of all employees of the Corporation who are on a short or
long term disability, workers' compensation disability, sick leave,
personal leave or is otherwise unable to return to work prior to Closing,
the expected duration of their disability or leave, and any benefits to
which such individuals are entitled as of the Closing.
2.24 EMPLOYEE MATTERS. None of the employees of the Corporation are
represented by any union or subject to any collective bargaining agreement and,
except as set forth on Schedule 2.24, none of such employees are engaged in any
organizational activities. The Corporation is in substantial compliance with all
applicable federal, state, and local laws relating to the employment of labor,
including the provisions thereof relating to wages, hours, occupational health
and safety, health and welfare insurance, collective bargaining, discrimination,
and the payment of withholding and social security taxes, and the Corporation is
not liable for any arrears of wages, or any tax or penalties, for failure to
comply with any of the foregoing. The Corporation is not in receipt of any
complaint, demand letter or charge issued by any federal, state or local agency
alleging a violation of any law, regulation or ordinance respecting employment
or employment practices, nor has the Corporation heretofore incurred any
liability under the Workers Adjustment and Retraining Notification Act or
similar state law or regulation. To the best knowledge of Seller, none of the
employees of the Corporation has suffered or is suffering from any illness or
disease caused directly or indirectly by any employment related condition or by
contract with any Hazardous Materials within the scope of such employee's
employment with the Corporation.
2.25. BANK ACCOUNTS. Schedule 2.25 is a complete list of all bank
accounts of the Corporation, listing all authorized signatories thereto.
2.26. FULL DISCLOSURE. Seller has not omitted to disclose any material
fact necessary to make the representations and warranties of Seller contained
herein not misleading.
2.27. BROKER. No person, firm or corporation has or shall have, as a
result of any act or omission of either the Corporation (prior to the Closing)
or the Seller, or any representative or agent of either of them, any right,
interest or valid claim against Buyer or the Corporation, for any commission,
fee or other compensation as a finder or broker in connection with the
transactions contemplated by this Agreement.
2.28 YEAR 2000 COMPLIANCE. To the best of Seller's knowledge, all
computer software, firmware, hardware and other similar items of automated,
computerized, and/or software systems
that are used by the Corporation in the conduct of its business will not
malfunction, will not cease to function, will not generate incorrect data or
results when processing, providing and/or receiving (i) date-related data into
and between the 20th and 21st centuries; and (ii) date-related data in
connection with any valid date in the 20th and 21st centuries in such a manner
as would result in a material adverse effect on the Corporation's operations or
financial condition. No representation is made hereunder by Seller with respect
to utility, transportation and similar services provided to the Corporation on a
daily or ordinary course basis from third parties.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
3.1. ORGANIZATION AND QUALIFICATION OF BUYER. Buyer is a corporation
lawfully existing and in good standing under the laws of Minnesota with full
power and authority to own or lease its properties and to conduct its business
in the manner and in the places where such properties are owned or leased or
such business is conducted by it.
3.2. APPROVAL. Buyer has all necessary corporate power and is duly
authorized to purchase, acquire and accept the Shares as specified in this
Agreement. Buyer has taken all action required to authorize and approve the
execution and delivery of this Agreement and the consummation by Buyer of the
transactions contemplated hereby.
3.3. PROHIBITIONS OF TRANSACTIONS. There is no pending or threatened
action, suit, proceeding or investigation before any court or governmental body,
or by any government agency, which would restrain or prevent Buyer from carrying
out the transactions contemplated by this Agreement.
3.4. LITIGATION. There is no litigation proceeding or investigation of
any claim pending, or to the best of knowledge of the Buyer, threatened against
the Buyer, its business, or against the transaction contemplated by Buyer under
this Agreement which, if adversely determined, would materially and adversely
affect the execution, delivery or performance of this Agreement on the part of
the Buyer, and there is no basis known to Buyer for any such action.
3.5. BROKER. No person, firm or corporation has, or shall have, as a
result of any act or omission of Buyer, any right, interest or valid claim
against the Seller or the Corporation (prior to the Closing), for any
commission, fee or other compensation as a finder or broker in connection with
the transactions contemplated by this Agreement. Buyer will pay all amounts due
Franklin Capital Partners as a result of this transaction.
3.6. NO CONFLICTS; APPROVALS. Buyer represents that neither the
execution and delivery of this Agreement or any other agreement contemplated
hereby by Buyer nor the consummation of the transactions hereby by Buyer will
conflict with or result in any violation of, or default
under, any contract, agreement or commitment or any law applicable to Buyer or
any of its assets or property or its business. No action, consent or approval
by, or filing by Buyer with, any federal, state, municipal, foreign or other
court or governmental body or agency, or any other regulatory body, is required
in connection with the execution and delivery by Buyer of this Agreement or the
consummation by Buyer of the transactions contemplated hereby, except such
filings as may be necessary under federal securities laws.
ARTICLE IV
DOCUMENTS DELIVERED AT CLOSING
4.1. DELIVERIES AT CLOSING. The following documents shall be executed
and/or delivered at the Closing:
(a) Certificates representing all the issued and
outstanding Shares duly endorsed by Seller or accompanied by duly
executed stock powers transferring such shares to Buyer.
(b) A Lease Agreement between the Corporation and Seller
in the form of Exhibit B.
(c) An Employment Agreement between the Corporation and Seller
in the form of Exhibit C.
(d) A Non-Compete Agreement between the Corporation and Seller
in the form of Exhibit D.
(e) A Stock Option Agreement between the Buyer and the Seller
in the form of Exhibit E.
(f) An Opinion of the Seller's Counsel relating to the items
contained in Sections 2.1 through 2.5 of this Agreement.
(g) The Note.
(h) Resignations of the officers and directors of the
Corporation.
(i) Certificate of Secretary of Buyer regarding resolutions of
the Board of Directors approving the transactions contemplated by this
Agreement.
(j) An executed Subordination Agreement and Landlord's Waiver
with Buyer's senior lender.
(k) Required consents of third parties.
(l) Termination and release of all liens and encumbrances on
the assets of the Corporation and evidence of payment by the Corporation
or Seller of all Bank Debt including any prepayment penalties and fees
associated therewith.
ARTICLE V
INDEMNIFICATION AND RELEASE
5.1. INDEMNIFICATION OF BUYER. Seller shall defend, indemnify and hold
harmless Buyer and the Corporation from and against any and all claims, causes
of action, losses, costs, damages, deficiencies or expenses (including
reasonable attorneys' fees) (collectively "Damages") arising from or related to
(a) any and all misrepresentations or breaches of representations, warranties or
covenants of Seller set forth in this Agreement; (b) any tax payable by the
Corporation with respect to any taxable period ending on or prior to the Closing
Date, and any tax deficiencies of the Corporation, including interest and
penalties, arising from any audit by any tax authority with respect to any
period ending on or prior to the Closing Date; (c) whether or not disclosed by
Seller as of the Closing Date, any liability under any Environmental Law arising
out of, resulting from or relating to (1) the Real Property, or the ownership or
operation thereof on or prior to the Closing Date; (2) Hazardous Materials
generated, released or disposed of by Seller or the Corporation on or prior to
the Closing Date; (3) conditions which exist at the Real Property on or prior to
the Closing Date or after the Closing Date which were not caused by the
Corporation on or after the Closing Date; or (4) the existence or maintenance of
any underground storage or holding tank on the Real Property, including any
release of Hazardous Materials associated therewith, on or before the Closing
Date (and after the Closing Date, provided the Corporation continues to utilize
the tanks in substantially the same manner as utilized prior the Closing); (d)
liabilities of the Corporation arising out of events occurring or facts existing
prior to Closing to the extent accruals for such liabilities reflected on the
Closing Date Balance Sheet are insufficient to cover such liabilities; (e) the
failure of Mitsubishi to fulfill its obligations under its letter dated August
5, 1999; (f) failure of Seller to comply with the terms of that certain Contract
for Deed dated January 23, 1984 with respect to the Real Property; or (g) any
costs and expenses associated with defending against any of the foregoing
claims, liabilities, obligations, costs, damages, losses and expenses and
seeking indemnification therefor.
5.2. INDEMNIFICATION OF SELLER. Buyer shall defend, indemnify and hold
harmless Seller from and against any and all claims, causes of action, losses,
costs, damages, deficiencies or expenses (including reasonable attorneys' fees)
(collectively "Damages") arising from or related to (a) any and all
misrepresentations or breaches of representations, warranties or covenants of
Buyer set forth in this Agreement; (b) except to the extent indemnifiable by
Seller as provided in Section 5.1 above, liabilities of the Corporation arising
out of events first occurring after the Closing; or (c) any costs and expenses
associated with defending against any of the foregoing claims, liabilities,
obligations, costs, damages, losses and expenses and seeking indemnification
therefor.
5.3. LIMITATIONS.
(a) Notwithstanding the provisions of Section 5.1, Buyer and
the Corporation shall not be entitled to recover Damages for which Buyer
or the Corporation is entitled to indemnification as a result of or
arising out of matters described in Section 5.1(a) until such Damages
exceed $50,000, and if such Damages exceed such amount, Buyer and the
Corporation shall be entitled to recover all such Damages; provided
Damages resulting from the breach of the representations and warranties
in Section 2.3 (Title), Section 2.9 (Environmental), Section 2.11
(Taxes), Section 2.23 (Employee Benefits), or Section 6.2 (Expenses)
shall not be subject to the limitation contained in this Section 5.3(a).
(b) Notwithstanding the provisions of Section 5.1, the
aggregate Damages for which Buyer or the Corporation is entitled to
indemnification pursuant to Section 5.1(a) shall not exceed an amount
equal to the Closing Payment and Additional Amount; provided Damages
resulting from the breach of the representations and warranties in
Section 2.3 (Title) shall not be subject to the foregoing limitation, but
shall be limited to an amount equal to the Closing Payment, the
Additional Payment and all other payments to be made by Buyer or
Corporation to Seller under the other agreements referenced herein.
(c) Any proceeds from insurance paid to or on account of the
Buyer as a direct result of any fact, event or circumstance requiring
indemnity pursuant to Section 5.1 shall constitute a credit which shall
be offset against the total Damage (before the application of Section
5.3(a)).
(d) Any damage calculated for purposes of Section 5.1 shall be
calculated taking into account any offsetting federal, state, local or
foreign tax benefits which may accrue because of such Damage to Buyer.
(e) On August 1, 2002, the parties shall be released from the
agreements of indemnification contained in Sections 5.1 and 5.2 in
respect of any claims which have not been made, in writing, prior to such
date; provided, however, that (i) the Seller shall not be released from
the agreements of indemnification arising under Section 5.1(a) with
respect to breaches of representations and warranties contained in
Section 2.3 (Title) or Section 2.11 (Taxes), or breaches of covenants in
this Agreement, all of which shall continue until the applicable statute
of limitations has expired; and (ii) Seller shall not be released from
the agreements of indemnification arising under Sections 5.1(b), 5.1(c)
or 5.1(d), all of which shall continue until the applicable statute of
limitations has expired, at which xxxx Xxxxxx shall be released from such
agreements of indemnification. Notwithstanding the foregoing, all
agreements of indemnification under Sections 5.1 and 5.2 shall remain
effective in respect of claims made in writing by giving notice as
provided in this Agreement prior to such respective dates until such
claims are finally determined and satisfied in full.
5.4. GENERAL RELEASE. On the Closing Date, Seller releases the
Corporation and its directors, officers, agents and employees and discharges
them from any and all obligations and claims which have arisen or might arise
out of facts or actions existing or taken on or prior to the Closing Date,
except obligations or claims which may be made under this Agreement, but
including specifically the Corporation's obligations under any oral or written
lease for the Real Property. In the event that Buyer is entitled to any claim
for indemnification under this Agreement against the Seller, the Seller agrees
that he shall not have the right to seek indemnity or contribution with respect
to any such claim from, or have any similar right with respect to, the
Corporation, Buyer or their affiliates whether by contract, agreement, bylaw,
corporate law statute, common law or otherwise.
5.5. SET-OFF. In the event Buyer makes a claim for indemnification
under this Agreement, and so long as the claim remains unpaid or unresolved,
then Buyer may, at its option, discontinue making any payments of interest or
principal on the Note or payments under the Non-Compete or Employment Agreement
(but not the salary amounts thereunder and not any payments under the Lease), up
to the amount of such claim, until such time as the claim is paid or resolved;
provided, however, that in lieu of making payments of interest or principal on
the Note or payments under the other agreements, Buyer shall make such payments
as they become due to a mutually acceptable third party, as escrow agent, to be
held by the escrow agent in an interest-bearing account for the benefit of
Seller or Buyer as ultimately determined by the disputants as a result of a
mutually satisfactory settlement, or by court or arbitrator's award. If the
parties are unable to agree on a mutually acceptable escrow agent, the escrow
agent shall be U.S. Trust National Association. Buyer agrees not to provide
Seller with a 1099 with respect to payments made into escrow.
ARTICLE VI
MISCELLANEOUS
6.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements set forth in this Agreement or in any
writing delivered to Buyer or Seller in connection with this Agreement will
survive the Closing Date and the consummation of the transactions contemplated
hereby as provided in Section 5.3(e).
6.2. EXPENSES. Buyer and Seller will each pay all of their own legal
and other expenses incurred in the preparation of this Agreement and the
performance of the terms and conditions hereof. Seller represents that all such
expenses of the Corporation shall be paid (and not accrued) prior to the
Closing.
6.3. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the internal laws (and not the law of conflicts) of the State of
Minnesota.
6.4. ENTIRE AGREEMENT. This Agreement, including the other documents
referred to herein which form a part hereof, contains the entire understanding
of the parties hereto with
respect to the subject matter contained herein. This Agreement supersedes all
prior agreements and undertakings between the parties with respect to such
subject matter. No waiver and no modification or amendment of any provision of
this Agreement shall be effective unless specifically made in writing and duly
signed by the party to be bound thereby.
6.5. SEVERABILITY OF INVALID PROVISION. If any one or more covenants
or agreements provided in this Agreement should be contrary to law, then such
covenant or covenants, agreement or agreements shall be null and void and shall
in no way affect the validity of the other provisions of this Agreement.
6.6. 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, and no other person shall acquire or have any right under or by
virtue of this Agreement.
6.7. SECTION HEADINGS. Section headings contained in this Agreement
are inserted only as a matter of convenience and in no way define, limit, extend
or describe the scope of this Agreement or the intent of any of the provisions
hereof.
6.8. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and shall become effective when one or more counterparts have been
signed by each of the parties.
6.9. WAIVER. Waiver by Seller or Buyer of any breach of or failure to
comply with any provision of this Agreement by the other party shall not be
construed as, or constitute a continuing waiver of, or a waiver of any other
breach of, or failure to comply with, any other provision of this Agreement.
6.10. NON-EXCLUSIVITY. The rights, remedies, powers and privileges
provided in this Agreement are cumulative and not exclusive and shall be in
addition to any and all other rights, remedies, powers and privileges granted by
law, rule, regulation or instrument; provided, however, that such rights,
remedies, powers and privileges are subject to the limitations in Section 5.3,
except to the extent they relate to claims of fraud.
6.11. FINANCIAL STATEMENTS. Seller and Buyer acknowledge that Buyer may
need to report this transaction in a Form 8-K filing with the Securities and
Exchange Commission (the "SEC") and, in connection therewith, Buyer may file
audited financial statements of the Corporation for the past three years.
Seller agrees to the inclusion of such financial statements in the Form 8-K and
further agrees to provide all necessary assistance, including management
letters, as may reasonably be required to complete such audited financial
statements within the time required by the SEC.
6.12. 338(h)(10) ELECTION; FINAL S-CORPORATION RETURN.
(a) Buyer, at its sole discretion, may make an election for
federal and state tax purposes, and Seller hereby agrees to join Buyer in
making an election, under Section 338(h)(10) of the Internal Revenue Code
of 1986, as amended (the "338(h)(10) Election") with respect to the
purchase and sale of the Shares. Buyer shall pay, at such time as the
election is made and joined in by Seller, any taxes for which Seller or
the Corporation may become liable to any taxing authority which are
attributable to the 338(h)(10) Election. Seller's joining in the
election is conditioned on the payment of such taxes at the time of the
election. Buyer and Seller agree to an allocation of the purchase price
with respect to the assets of the Corporation for all tax purposes in
accordance with a schedule to be prepared by Buyer and delivered to
Seller at the time the 338(h)(10) Election is made.
(b) Seller will prepare the final income tax return for the
Corporation, and the related Forms K-1 through the Closing Date.
6.13. NOTICES. All notices and replies thereto required hereunder shall
be in writing, properly addressed to the other party, signed by the party giving
notice, and may be delivered by hand or sent by facsimile transaction or
certified mail, return receipt requested. Notices shall be effective upon
receipt. Notices sent by mail shall be deemed received on the date of receipt
indicated by the return verification provided by the U.S. Postal Service.
Notices sent by facsimile transaction shall be deemed received the day on which
sent and shall be conclusively presumed to have been received in the event that
the sender's copy of the facsimile transaction contains the "confirmation" of
the other party's facsimile transaction. Notice shall be given, mailed or sent
to the parties at the following addresses, or at such other address as may be
given by proper notice.
If to Buyer: WSI Industries, Inc.
0000 Xxxx Xxxxxxx Xxxxxxxxx
Xxxx Xxxx, XX 00000
Attn: Xxxxxxx X. Xxxxx
Fax: 000-000-0000
If to Seller: Xxxxxxx X. Xxxxxx
000 Xxxxx Xxxxxx Xxxx Xxxxxxxxx
Xxxxxxxxx, XX 00000
6.14. MINIMUM WORKING CAPITAL. Notwithstanding anything herein to the
contrary, Seller represents that the Corporation has a minimum Working Capital
(defined below) of $1,141,194 as of the Closing, excluding cash to be
distributed to Seller and the Bank Debt. Working Capital is defined as current
assets less current liabilities of the Corporation as determined in accordance
with generally accepted accounting principles. For purposes of
determining the Closing Payment, the Working Capital shall be initially
determined based on the Latest Balance Sheet. If the Working Capital set forth
on the Latest Balance Sheet is less than $1,141,194, the cash portion of the
Closing Payment shall be reduced on a dollar for dollar basis or, at his option,
Seller shall provide sufficient cash to equal such deficiency. To the extent
the Closing Payment is reduced as provided herein, a corresponding adjustment
shall be made to the book value of the Corporation for purposes of determining
any adjustment upward to be made under Sections 1.3 or 1.6. If the Working
Capital as finally determined on the Closing Date Balance Sheet is less than
$1,141,194, Seller shall promptly reimburse Buyer for such deficiency. To the
extent Seller reimburses Buyer, a corresponding upward adjustment shall be made
to the book value of the Corporation for purposes of determining any adjustment
to be made under Section 1.6. If the Working Capital as fully determined on the
Closing Date Balance Sheet is more than $1,141,194, Buyer shall promptly pay
Seller for such excess up to $298,872 and a corresponding adjustment downward
shall be made to the book value of the Corporation for purposes of determining
any adjustment to be made under Section 1.6. Any breach of the Seller's
obligations in this Section 6.14 shall not be subject to the limitations set
forth in Article V.
6.15. DISTRIBUTION. Prior to the Closing, the Corporation shall
distribute to Seller all leasehold improvements reflected on the Corporation's
fixed assets listing.
6.16. CONTRACT FOR DEED. Seller shall promptly provide Buyer with a
copy of any notice of default received by Seller under that certain Contract for
Deed dated January 23, 1984 with respect to the Real Property.
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto on the day and year first above written.
BUYER:
WSI INDUSTRIES, INC.
By: /s/ Xxxxxxx X. Xxxxx
-------------------------------------
Its: President
------------------------------------
SELLER:
/s/ Xxxxxxx X. Xxxxxx
-----------------------------------------
Xxxxxxx X. Xxxxxx
