1
Exhibit 10.15
ASSET PURCHASE AGREEMENT
THIS AGREEMENT ("Agreement") is made this 31st day of January, 1996,
among WATERLINK ACQUISITION CORP., a Delaware corporation ("Purchaser"), MASS
TRANSFER SYSTEMS, INC., a MASSACHUSETTS corporation ("Seller"), WATERLINK, INC.,
a Delaware corporation ("Waterlink"), and XXXX X. XXXXXXX ("Xxxxxxx") and
XXXXXXXXX X. XXXXX ("Xxxxx"), shareholders of Seller (Neville and Xxxxx are
collectively referred to as the "Shareholders").
R E C I T A L:
--------------
Purchaser desires to purchase, and Seller desires to sell to Purchaser,
all of the business, assets, and goodwill of Seller, except as otherwise
provided in this Agreement, in exchange for cash, promissory notes and for the
assumption of certain of Seller's liabilities and obligations, as expressly
provided in this Agreement.
NOW, THEREFORE, Purchaser and Seller agree as follows:
ARTICLE I
---------
TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES
------------------------------------------------
1.1 TRANSFER OF ASSETS. On the terms and subject to the conditions in
this Agreement, Seller will convey, transfer, assign and deliver to Purchaser on
the Closing Date (defined below) all of the business, assets, and goodwill owned
or used by Seller on the Closing Date in the conduct of its business (the
"Business") of every kind and description, wherever located, known or unknown,
tangible or intangible, including, without limitation, all property, real,
personal or mixed, cash on hand and in accounts, accounts receivable,
securities, deposits on contractual obligations or otherwise, claims and rights
under contracts and leases, licenses, customer lists, trade secrets, know-how
and all other pending claims and other choses in action, exclusive rights to use
the name "Mass Transfer Systems" and any derivative or combination of that name
and all other names or slogans used by Seller in connection with the Business or
its products, all product catalogs and other advertising materials, all files,
books and records of Seller relating to the Business, and all rights, title and
interests in and to any computer programs, all as the same exist on the Closing
Date (collectively, the "Subject Assets"). Notwithstanding the foregoing, the
Subject Assets will not include any tax refund claims and those items
specifically referenced on Schedule 1.1.
1.2 ASSUMPTION OF LIABILITIES. Subject to the conditions in this
Agreement, on the Closing Date, Purchaser will deliver an undertaking in form
and substance reasonably satisfactory to Seller and its counsel pursuant to
which Purchaser will assume and agree to pay, perform and discharge (i) all
obligations and liabilities of Seller to the extent reflected or reserved
against in Seller's balance sheet as of September 30, 1995, included in the
Seller Financial Statements (defined below), (ii) all obligations and
liabilities of Seller arising after the Closing Date under any contracts,
agreements, instruments and arrangements listed on Schedule 3.19 furnished by
Seller to Purchaser pursuant to this Agreement or entered into in the ordinary
course of business, and (iii) all current
1
2
liabilities and obligations of Seller of the nature contained on Seller's
September 30, 1995 balance sheet or of the nature disclosed on Schedule 3.7
hereto, arising after the date of such balance sheet in the ordinary course of
business and not in violation of Section 10.1 of this Agreement PROVIDED,
HOWEVER, that Purchaser will not assume any liability of Seller in excess of
Four Hundred Thousand Dollars ($400,000) under the Promissory Note dated
December 18, 1995 made by Seller in favor of Neville in the original principal
amount of One Million Two Hundred Thousand Dollars ($1,200,000) (the "Neville
Note"). Any of the foregoing notwithstanding, Purchaser will not assume any
other obligations or liabilities of Seller, including, without limitation, those
arising out of or in connection with the negotiation and preparation of this
Agreement or the consummation of the transactions provided for in this Agreement
(except for the fees of Seller's professional advisors in an amount not to
exceed Forty-Five Thousand Dollars ($45,000), or for any taxes of Seller of any
nature other than VAT Taxes and GST Taxes (each as defined in Section 3.10) to
the extent reserved for on the Seller Financial Statement. The liabilities to be
assumed by Purchaser hereunder are collectively referred to as the "Assumed
Liabilities."
1.3 METHOD OF CONVEYANCE AND TRANSFER. The conveyance, transfer and
delivery of the Subject Assets will be effected by quit claim deeds, bills of
sale, endorsements, assignments and other instruments of transfer, all in such
form as Purchaser reasonably requests, vesting in Purchaser good and marketable
title to the Subject Assets, free and clear of all covenants, conditions,
easements, liens, charges, security interests, adverse claims, encumbrances,
demands or other title defects or restrictions of any kind, except, with respect
to the Real Property portion of the Subject Assets only, for those Permitted
Encumbrances set forth on Schedule 1.3 existing on the Closing Date ("Permitted
Encumbrances").
1.4 FURTHER ASSURANCES. Seller, within a reasonable period of time,
after the Closing Date, upon request of Purchaser, do, execute, acknowledge and
deliver, all such further acts, deeds, assignments, transfers, conveyances,
powers of attorney and assurances as may be reasonably required for the
conveying transferring, assigning, and delivering to Purchaser, or to successors
and assigns, and for aiding and assisting in collecting and reducing to
possession, all the Subject Assets.
ARTICLE II
----------
PAYMENT OF PURCHASE PRICE
-------------------------
2.1 PAYMENT BY PURCHASER.
(a) At the Closing, Purchaser will pay to Seller the purchase
price for the Subject Assets, as follows:
(i) The sum of Two Million Five Hundred Thousand Dollars
($2,500,000) plus the amount equal to the Shareholders'
collective income tax liability for the prior fiscal year and the
current fiscal year resulting from Seller's operation of the
Business prior to the Closing (the "Shareholders' Tax Liability")
estimated to be approximately Two Hundred Fifty-One Thousand
Dollars ($251,000)
2
3
(the "Cash Purchase Price") by certified or bank check in
immediately available funds or by wire transfer to an account
designated by Seller, provided, however, that if prior to the
Closing Date, (A) Seller elects to pay down the Neville Note as
permitted by Section 10.1(g)(ii) of this Agreement, and/or (B)
Seller makes a distribution to the Shareholders in accordance
with Section 10.1(f) of this Agreement, then the Cash Purchase
Price will be reduced by the aggregate amount of such pay down
and/or distribution, as the case may be, and, provided, further,
that if the amount of the Shareholders' Tax Liability is not
known on the Closing Date, then it shall be deemed to be Two
Hundred Fifty-One Thousand Dollars ($251,000) for purposes of
payment of the Cash Purchase Price at the Closing (the "Estimated
Amount") and after the Closing, the Shareholders shall provide
evidence of the actual amount of the Shareholders' Tax Liability
and the difference between the actual amount of the Shareholders'
Tax Liability and the Estimated Amount promptly shall be paid by
Purchaser to Seller if the actual amount of the Shareholders' Tax
Liability is greater than the Estimated Amount or by Seller to
Purchaser if the actual amount of the Shareholders' Tax Liability
is less than the Estimated Amount.
(ii) Purchaser will issue to Seller its convertible
subordinated promissory note (the "Convertible Subordinated
Promissory Note") in the form of Exhibit "A" to this Agreement,
dated as of the Closing Date and payable to Seller in the
principal amount of Two Million Dollars ($2,000,000). The
Convertible Subordinated Promissory Note will be convertible into
shares of common stock of Waterlink, as provided for therein, and
will be guaranteed by Waterlink in accordance with Article XII of
this Agreement.
(iii) Purchaser will issue to Seller its subordinated
promissory note (the "Subordinated Promissory Note") in the form
of Exhibit "B" to this Agreement, dated as of the Closing Date
and payable to Seller in the principal amount of One Million
Three Hundred Thousand Dollars ($1,300,000). The Subordinated
Promissory Note will be guaranteed by Waterlink in accordance
with Article XII of this Agreement.
(iv) Purchaser will issue to Seller its subordinated
promissory note (the "Second Subordinated Promissory Note") in
the form of Exhibit "C" to this Agreement, dated as of the
Closing Date and payable to Seller in the principal amount of
Eight Hundred Thousand Dollars ($800,000). The Convertible
Subordinated Promissory Note, Subordinated Promissory Note and
Second Subordinated Promissory Note are collectively referred to
as the "Promissory Notes". The Second Subordinated Promissory
Note will be guaranteed by Waterlink in accordance with Article
XII of this Agreement.
(b) After the Closing, Purchaser will pay to Seller as additional
purchase price for the Subject Assets, the Earn-out Payments referred
to in Section 2.2 below, if applicable.
3
4
2.2 EARN-OUT.
(a) In addition to the payments referred to in Section 2.1(a)
above and with respect to the periods set forth below (the "Earn-out
Periods"), Purchaser shall pay to Seller the amounts set forth below
(the "Earn-out Payments") based on the adjusted earnings before income
and taxes ("Adjusted EBIT") (as more fully defined below) of the
Business.
(b) "Adjusted EBIT" for any period of determination shall mean
the earnings before interest (other than interest on borrowings used
for working capital purposes) and federal and state income taxes of
the Business and determined as if the Business was an independent
corporate entity whether or not it is subsequently merged into another
entity or other businesses or assets not relating to the Business are
operated or acquired by Purchaser (it being the intent of the parties
that extraordinary expenses and expenses incurred in connection with
new projects outside the ordinary and normal courst [sic] of business
[sic]), determined in accordance with generally accepted accounting
principals consistently applied, from period to period, except that no
purchase price accounting adjustments shall be made with respect to
the acquisition of the Subject Assets and the assumption of the
Assumed Liabilities and all the Subject Assets and the Assumed
Liabilities will be recorded at Seller's historical costs and using
Seller's historical useful lives based on the Seller Financial
Statements (defined below) at the Closing.
(c) In accordance with the following table, Earn-out Payments
shall be payable by Purchaser to Seller by certified or bank check in
immediately available funds for the Earnout Periods if the Adjusted
EBIT equals or exceeds the amounts set forth below:
EARN-OUT PERIOD ADJUSTED EBIT EARN-OUT PAYMENT
--------------- ------------- ----------------
Twelve (12) month $1,000,000 $500,000
period ending
September 30, 1996
Twelve (12) month $1,485,000 $500,000
period ending
September 30, 1997
(d) Purchaser shall deliver to Seller within ninety (90) days of
the end of each Earn-out Period, (i) Purchaser's financial statements
covering such Earn-out Periods, and (ii) a statement setting forth the
computation and amount of Adjusted EBIT for such Earn-out Period (the
"Earn-out Statement") (as reviewed and concurred to by Purchaser's
independent public accountants if such statement indicates that no
Earn-out Payment is due) and shall pay the Earn-out Payment, if any,
to Seller within thirty (30) days of the delivery of the Earn-out
Statement.
4
5
(e) Seller shall have thirty (30) days from the date the Earn-out
Statements are delivered to it to furnish Purchaser with a letter
requesting access to the books and records of Purchaser necessary to
compute Adjusted EBIT and upon receipt of such request, Purchaser
shall promptly make available such books and records to Seller. Seller
shall have sixty (60) days after such access is granted to furnish
Purchaser with a letter setting forth those items with which it
disagrees and the reasons for each such disagreement. The parties
shall promptly seek to reconcile any such disagreement; if they fail
to reach an agreement within thirty (30) days of receipt by Purchaser
of such letter, then an independent public accounting firm shall be
retained by the parties to settle any remaining disagreement, and the
decision of said firm shall be final and binding on all parties to
this Agreement. If Seller and Purchaser cannot agree on an accounting
firm to settle any remaining disagreement within such thirty (30) day
period, then Seller and Purchaser shall each designate an independent
public accounting firm and the two (2) firms so designated shall
select an independent public accounting firm and the decision of said
firm shall be final and binding on all parties to this Agreement. The
fees of all accounting firms involved shall be paid by the party which
fails to prevail with respect to the dispute. The payment of the
portion of the Earn-out Payment in dispute, if any, ultimately
determined (pursuant to the procedures set forth in this paragraph) to
be due the Seller shall be made within fifteen (15) days of such
determination.
(f) Waterlink hereby agrees that until September 30, 1997 it will
comply and will cause the Purchaser to comply with the following
covenants:
(i) The Purchaser shall maintain its corporate existence,
and shall be operated as a separate, consolidated subsidiary of
Waterlink, subject to CLAUSE (ii) below;
(ii) Purchaser shall not, without the consent of the Seller,
sell inventory to any affiliate of Waterlink at prices or upon
terms and conditions significantly less favorable to Purchaser
than would be the case if such transaction had been affected with
other arms-length purchasers of Purchaser unaffiliated with
Waterlink; and
(iii) No sales of or revenues generated by products
presently manufactured, distributed and sold or services
presently provided by Seller shall be diverted to Waterlink or
any subsidiary now or hereafter affiliated with Waterlink (it
being understood that Waterlink and its subsidiaries presently do
not manufacture or provide such products or services).
(g) The parties hereby agree that any expenses in the calculation
of the Adjusted EBIT or in enforcing the provisions of this Section
2.2 shall not be taken into account for purposes of calculating
Adjusted EBIT.
2.3 ALLOCATION OF PURCHASE PRICE. Purchaser will allocate the purchase
price among the Subject Assets in accordance with Section 1060 of the Internal
Revenue Code (the "Code") and the specification as listed and described in
Schedule 2.3. Seller will prepare any information or forms
5
6
required by Section 1060 of the Code and provide Purchaser with a copy of such
information and forms. Purchaser and Seller will each attach a copy of such
information or forms as are required to be filed pursuant to Section 1060 of the
Code to the tax return filed covering the period in which the transfer of the
Subject Assets occurs. Any excess of the purchase price over the fair market
value of Subject Assets will be allocated to goodwill or other intangible assets
as designated by Purchaser so long as such designation is not adverse to Seller.
Seller and Purchaser will report the sale and purchase of the Subject Assets in
accordance with the allocations set forth on Schedule 2.3 for all federal, state
and local tax purposes. Seller will indemnify and hold Purchaser harmless, and
Purchaser will indemnify and hold Seller harmless, from and against any and all
losses, liabilities and expenses, including, without limitation, reasonable
attorneys' fees and additional income taxes, interest and penalties that may be
incurred by the indemnified party as a result of the failure of the indemnifying
party to so report the sale and purchase of the Subject Assets. Seller's tax
identification number is 00-0000000, and Purchaser's tax identification number
is 00-0000000.
2.4 TRANSFER TAXES. All applicable sales and transfer taxes, if any,
arising by reason of the transfer of the Subject Assets under this Agreement
will be borne by Purchaser.
2.5 REAL PROPERTY ADJUSTMENTS. The parties will prorate and apportion
as of the Closing Date (i) any long-term assessments and (ii) general real
estate taxes (including supplemental taxes, if any) using the rates and
valuations shown on the latest available tax duplicates. When the actual final
amount of such assessments and taxes becomes known (including, without
limitation, those resulting from a proposed or actual change in valuation prior
to the Closing Date) Seller and Purchaser will adjust between themselves the
assessment and tax proration based upon the actual final assessments and taxes
ultimately payable by Purchaser. Prepaid rents and other charges will be
prorated and apportioned as of the Closing Date. Seller will be charged with the
cost of discharging any monetary liens and they will be discharged as of the
Closing Date. All assessments, transfer taxes, conveyance fees and recording
costs will be charged to and paid by Purchaser.
ARTICLE III
-----------
REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF SELLER AND
--------------------------------------------------------
THE SHAREHOLDERS
----------------
Seller and each of the Shareholders, jointly and severally, represent
and warrant to, and agree with, Purchaser and Waterlink as follows:
3.1 ORGANIZATION AND STANDING.
(a) Seller is a corporation duly organized, validly existing and
in good standing under the laws of the Commonwealth of Massachusetts.
Seller owns no voting stock or other capital stock of any other
corporation, directly or indirectly, nor is Seller directly or
indirectly a partner in any general partnership. Seller has full power
and authority to carry on its business as and where now conducted and
to own or lease and operate its properties at and where now owned or
leased and operated by it, and is duly qualified to do business
6
7
and is in good standing in every jurisdiction in which the property
owned, leased or operated by it, or the nature of the business
conducted by it, makes such qualification necessary except where the
failure to qualify would not have a material adverse effect on the
Business, Subject Assets or financial condition of Seller.
(b) Seller is not qualified to do business as a foreign
corporation in any jurisdiction.
3.2 AUTHORITY OF SELLER AND THE SHAREHOLDERS; CONSENTS. The execution,
delivery and consummation of this Agreement by Seller has been duly authorized
by the board of directors and the Shareholders in accordance with all applicable
laws and the Articles of Incorporation and By-Laws of Seller, and at the Closing
Date no further corporate action will be necessary on the part of Seller or the
Shareholders to make this Agreement valid and binding on Seller and the
Shareholders and enforceable against Seller and the Shareholders in accordance
with its terms. The execution, delivery and consummation of this Agreement by
Seller (i) is not contrary to the Articles of Incorporation or By-Laws of
Seller, (ii) does not now and will not, with the passage of time, the giving of
notice or otherwise, result in a violation or breach of, or constitute a default
under, any term or provision of any indenture, mortgage, deed of trust, lease,
instrument, order, judgment, decree, rule, regulation, law, contract, agreement
or any other restriction to which Seller is a party or to which Seller or any of
the Subject Assets is subject or bound except for such violations, breaches and
defaults which would not individually or in the aggregate have a material
adverse effect on the Business, Subject Assets or financial condition of Seller,
(iii) will not result in the creation of any lien or other charge upon any of
the Subject Assets, and (iv) other than the Xxxxx'x Ferry Mortgage and loan
(which will be paid off by Seller at the Closing), will not result in any
acceleration or termination of any loan or security interest agreement to which
Seller is a party or to which Seller or any of the Subject Assets is subject or
bound. Except as may be listed on Schedule 3.2 and other than consents required
under those of Seller's customer contracts which are less than One Hundred
Thousand Dollars ($100,000) or pursuant to which products or services have yet
to be shipped or provided, no approval or consent of any person, firm or other
entity or governmental body is or was required to be obtained by Seller for the
authorization of this Agreement or the consummation by Seller of the
transactions contemplated in this Agreement. Seller and Purchaser agree that if
any required consents listed on Schedule 3.2 and relating to any of Seller's
customer contracts are not obtained, Seller will not assign such contract if
such assignment would result in the termination of such contract or would
otherwise materially and adversely effect the value of such contract (unless and
until such consent is obtained) but will sub-contract with Purchaser to provide
the services and/or products required under such contracts and will deliver to
Purchaser all funds received relating to the performance of such contract, it
being the intention of the parties that Purchaser perform all the obligations
and receive all the benefits under such contracts to the same extent as if
assigned to Purchaser.
3.3 BUSINESS RELATIONS. Other than as set forth on Schedule 3.3,
Seller is not required, in the ordinary course of business, to provide any
bonding or any other financial security arrangements in connection with any
transactions with any customers or suppliers. Seller has not received any notice
of any disruption (including, without limitation, delayed deliveries or
allocations
7
8
by suppliers) in the availability of any materials or products used in its
business and has no reason to believe that any such disruption will occur. There
are no sole source suppliers of goods, equipment or services used by Seller
(other than public utilities) with respect to which practical alternative
sources of supply are unavailable.
3.4 REAL PROPERTY.
(a) Schedule 3.4(a) is a true and complete list of (i) all real
property owned by Seller, including, without limitation, all
buildings, structures and improvements thereon and all appurtenances
thereto and the rights and privileges of Seller in all rights of way,
licenses or easements, and (ii) all options, deeds of trust, deeds of
declaration, mortgages and land contracts pursuant to or in which
Seller has any interest (collectively, the "Real Property"). Seller
has furnished to Purchaser or its counsel true and complete copies of
each written contract and a written description of each oral contract
relating to the list set forth on Schedule 3.4(a). Other than the Real
Property, Seller does not lease, sublet or otherwise occupy any other
real property.
(b) With respect to the Real Property, except as set forth on
Schedule 3.4(b):
(i) There is no condemnation proceeding or eminent domain
proceeding of any kind pending or, to the best knowledge of
Seller, threatened against any of the Real Property;
(ii) The Real Property is occupied under valid and current
certificates of occupancy or the like, and the transactions
contemplated by this Agreement will not require the issuance of
any new or amended certificates of occupancy or the like; there
are no facts known to Seller which would prevent each location
from being occupied after the Closing Date in substantially the
same manner as before;
(iii) To the best of Seller's knowledge, the Real Property
does not violate, and all improvements are constructed in
material compliance with, any applicable federal, state or local
statutes, laws, ordinances, regulations, rules, codes, orders or
requirements, including, without limitation, any building,
zoning, fire or environmental laws or codes (the "Laws and
Ordinances") and Seller will convey, transfer and assign the Real
Property free from any such violations;
(iv) To the best of Seller's knowledge, there are no
outstanding variances or special use permits affecting the Real
Property or its uses;
(v) No notice of a violation of any Laws and Ordinances, or
of any covenant, condition, easement or restriction affecting the
Real Property or relating to its use or occupancy has been given
to Seller, nor is Seller aware of any such violation;
8
9
(vi) Except as shown on the survey, no portion of the Real
Property is located within a special flood plain area as
designated by the Federal Emergency Management Agency or other
applicable government authority;
(vii) The Real Property has and will have as of the Closing
Date water supply, storm and sanitary sewage facilities,
telephone, gas, electricity, fire protection, means of ingress
and egress to and from public highways. All utility lines and
facilities presently serving the Real Property are serviced and
maintained by the appropriate public or quasi-public entity. All
utilities enter the Real Property through adjoining public
streets or, if they pass through adjoining private land, they do
so in accordance with valid public easements;
(viii) Seller has no knowledge of improvements made by any
public or private authority, the costs of which are to be
assessed as special taxes or charges against the Real Property,
and there are no present assessments;
(ix) No portion of the Real Property has been leased by
Seller or is occupied by any third party under any other
arrangement with Seller.
3.5 INVESTMENTS IN OTHER ENTITIES. Seller does not have any direct or
indirect equity interest, or debt convertible into any equity interest, in any
entity, corporation or otherwise, or any right, warrant or option to acquire any
such interest.
3.6 TITLE TO AND CONDITION OF ASSETS. Seller owns and possesses and
will own and possess as of the Closing Date all right, title and interest in and
to the Subject Assets, including, without limitation (i) good and marketable
title in fee simple to all its Real Property, and (ii) good and merchantable
title to the Subject Assets other than the Real Property, in each case free and
clear of all conveyances, conditions, easements, liens, charges, security
interests, adverse claims, encumbrances, encroachments, reservations, easements,
limitations, servitudes, other title defects or restrictions of any nature other
than, with respect to the Real Property only, Permitted Encumbrances. Seller has
and will have as of the Closing Date the right, power and authority to convey,
transfer, assign and deliver the Subject Assets free and clear of any title
defect or restriction, including, without limitation, those enumerated in this
Section 3.6. All tangible Subject Assets of Seller are in Seller's possession or
under its control, and all equipment included in the Subject Assets is in good
operating condition and repair, subject only to routine maintenance and ordinary
wear and tear consistent with the age and use thereof, and is fit and adequate
for use in the ordinary course of the Business as currently conducted by Seller.
Seller enjoys peaceful and quiet possession of the Subject Assets pursuant to or
by all of the deeds, bills of sale, leases, licenses and other agreements under
which it is operating its business.
3.7 FINANCIAL STATEMENTS. Prior to the date of this Agreement, Seller
provided Purchaser with the following financial statements of Seller and will
provide to Purchaser monthly financial statements for the months after September
30, 1995 (the "New Monthly Financial Statements") as soon as practicable after
the end of each month, to wit: the compiled balance sheets and statements
9
10
of income at and for the fiscal years ended February 29, 1992, February 28,
1993, and February 28, 1994, and at and for the shortened fiscal year ended
December 31, 1994 and the unaudited balance sheet and statement of income at and
for the nine (9) month period ending September 30, 1995 (the "Seller Financial
Statements").
The Seller Financial Statements (i) present fairly (and, with respect
to the New Monthly Statements, when so delivered, will present fairly), in all
material respects, Seller's financial position, results of its operations and
cash flows at and for the periods therein specified, (ii) are (and, with respect
to the New Monthly Statements, when so delivered, will be) true and complete,
(iii) are (and, with respect to the New Monthly Statements, when so delivered,
will be) consistent with the books and records of Seller except that, the Seller
Financial Statements were (and with respect to the New Monthly Statements, when
so delivered, will be) subject to the normal recurring adjustments set forth on
Schedule 3.7. The Seller Financial Statements will be deemed to include any
accompanying notes and schedules.
3.8 ABSENCE OF CERTAIN CHANGES. Since September 30, 1995, Seller has
conducted its business in the ordinary and regular course consistent with past
practice (other than time spent by the Shareholders and certain of Seller's
employees in connection with the negotiation of and preparation for this
Agreement and the transactions contemplated hereby). Since such date, there has
not been any material adverse change in the business, financial condition,
assets, liabilities, results of operations or, to the best of Seller's
knowledge, prospects of Seller. Except as set forth on Schedule 3.8, without
limiting the generality of the foregoing, since September 30, 1995, there has
not been:
(a) Any increase made in the compensation or other remuneration
payable or to become payable by Seller to any of its employees or
agents;
(b) Any mortgage or pledge of, or any other lien, charge or
encumbrance of any kind, on any of the assets, tangible or intangible,
of Seller, except in the ordinary course of business;
(c) Any sale or transfer of any assets, except for sales of
inventory in the ordinary course of business, or settlement,
cancellation or release of any indebtedness owing to Seller or of any
other claims of Seller except in the ordinary course of business;
(d) Any sale, license, assignment or transfer by Seller of any
patents, trademarks, trade names or other similar intangible assets;
(e) Any amendments or termination of any material contract,
agreement or license to which Seller is a party or to which Seller or
any of its assets are subject or bound;
(f) Any commitment made (through negotiations or otherwise) or
any liability incurred to any recognized labor organization by Seller;
10
11
(g) Except as otherwise permitted by Section 10.1 of this
Agreement, any payment, declaration or setting aside by Seller of
dividends or a return of capital or any distribution by Seller of any
cash or other assets to any of its shareholders in redemption of or as
the purchase price for any of its capital stock or in discharge or
cancellation in whole or in part of any indebtedness owing (whether in
payment of principal, interest or otherwise) to any of its
shareholders;
(h) Any discharge or satisfaction by Seller of any lien,
encumbrance, obligation or liability (accrued, absolute, fixed or
contingent), other than those incurred and discharged in the ordinary
course of business consistent with past practice;
(i) Any institution by Seller of a bonus, stock option,
profit-sharing, pension plan or similar arrangement or any changes in
any such existing plans other than Seller's 401(k) plan and year-end
bonuses referred to in Section 3.8(a) above;
(j) Any incurrence (whether discharged or not) of any obligation
or liability (whether accrued, absolute, fixed or contingent) other
than current liabilities incurred, and obligations entered into, in
the ordinary course of business consistent with past practice;
(k) Any adverse change in collection loss experience except for
extraordinary write-offs in the approximate amount of $17,000 in the
aggregate;
(l) Any material loss, damage or destruction to any of Seller's
properties (whether or not covered by insurance) or any labor trouble;
or
(m) Any change in accounting principles or practices from those
utilized in the preparation of the Financial Statements.
3.9 ABSENCE OF UNDISCLOSED LIABILITIES. Except (i) as set forth on the
September 30, 1995 balance sheet of the Financial Statements, (ii) as listed on
Schedule 3.9, (iii) those incurred in the ordinary course of business since
September 30, 1995 and (iv) those which individually or in the aggregate do not
exceed $10,000, Seller is not obligated for, nor are any of its assets or
properties subject to, any liabilities or adverse claims or obligations,
absolute or contingent. Seller is not in default with respect to any terms or
conditions of any material liability or obligation. There are no facts known to
Seller that might reasonably serve as a basis, in whole or in part, for any
material liabilities or obligations not disclosed in this Agreement, in the
Financial Statements or in the Schedules.
3.10 TAXES.
(a) Seller has filed all income, franchise, sales and other tax
returns and reports of every nature required by law to be filed by it
accurately reflecting all taxes owing to the United States or any
other government or any government subdivision, state or local, or any
other taxing authority, and has paid in full or made adequate
provision for the payment of
11
12
all taxes (including penalties and interest) for which it has or may
have liability. Seller has no knowledge of any unassessed tax
deficiency proposed or threatened against Seller as a result of the
operation of its business. There are no liens on the Subject Assets as
a result of any tax liabilities except for taxes not yet due and
payable (or contested in good faith and described on Schedule
3.10(a)). Other than those relating to value added taxes relating to
Seller's operations in the United Kingdom ("VAT Taxes") or those
relating to general sales taxes relating to Seller's operations in
Canada ("GST Taxes") there are, and after the date of this Agreement
will be, no tax deficiencies (including penalties and interest) of any
kind assessed against or relating to Seller with respect to any
taxable periods ending on or before, or including, the Closing Date of
a character or nature that would result in liens or claims on any of
the Subject Assets or on Purchaser's title to or use of the Subject
Assets, or that would result in any claim against Purchaser.
(b) Except as set forth on Schedule 3.10(b), there are no
outstanding agreements or waivers extending the statutory period of
limitations applicable to any federal, state, local, or foreign tax
return of Seller for any period. The federal income tax returns of
Seller have not been audited by the Internal Revenue Service with
respect to any taxable period which is still open for assessment. No
state, local or foreign taxing authority has audited any tax return or
report filed by Seller with respect to any taxable period which is
still open for assessment. Seller has furnished to Purchaser complete
and correct copies of all federal tax returns filed by Seller for each
of its fiscal years beginning after January 1, 1990.
(c) Seller has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Code Section 897(c)(1)(A)(ii).
3.11 INDEBTEDNESS TO OFFICERS, DIRECTORS AND SHAREHOLDERS. Other than
as evidenced by the Neville Note or the Agreements with Xxxx Xxxxxxx relating to
the purchase/redemption of Mr. Michael's securities of Seller (the "Xxxxxxx
Documents") as listed on Schedule 3.11, Seller is not indebted to any of its
current or former shareholders, officers or directors (or to members of their
immediate families) in any amount whatever other than for salaries payable or
for expenses incurred on behalf of Seller in the ordinary course of business.
3.12 ARTICLES OF INCORPORATION AND BY-LAWS. True, accurate and
complete copies of the Articles of Incorporation and By-laws of Seller, together
with all amendments thereto, have been delivered to Purchaser or its counsel.
3.13 CORPORATE MINUTES. Seller has furnished or made available to
Purchaser and its counsel the corporate record books of Seller and the same are
accurate and complete and reflect all material resolutions adopted and all
material actions taken, authorized or ratified by the shareholders and directors
of Seller. Copies of all corporate minutes of meetings held and of all written
actions taken after the date of this Agreement will be furnished to Purchaser
promptly, and in all events, prior to the Closing Date.
12
13
3.14 BROKERAGE AND FINDER'S FEES. No shareholder, officer, director or
agent of Seller has incurred any liability to any broker, finder or agent for
any brokerage fees, finder's fees, or commissions with respect to the
transactions contemplated by this Agreement.
3.15 ACCOUNTS RECEIVABLE. Seller has previously delivered to Purchaser
an aging schedule as of December 31, 1995, which is true, correct and complete,
of the accounts receivables of Seller as of that date. All of Seller's accounts
receivable arose or will arise from valid sales in the ordinary course of
business.
3.16 EMPLOYMENT MATTERS.
(a) Except as set forth on Schedule 3.16, Seller is not a party
to, participant in, or bound by, any collective bargaining agreement,
union contract or employment, bonus, deferred compensation, insurance,
pension, profit sharing or similar personnel arrangement, any stock
purchase, stock option or other stock plans or programs or any
employee termination or severance arrangement.
(b) Except as set forth on Schedule 3.16, the employment by
Seller of any person (whether or not there is a written employment
agreement) may be terminated without cause (not inconsistent with
current law), without penalty or liability of any kind.
(c) Except as set forth on Schedule 3.16, there are no active,
pending or, to the best of Seller's and the Shareholders' knowledge,
threatened administrative or judicial proceedings under Title VII of
the Civil Rights Act of 1964, the Age Discrimination in Employment
Act, the Fair Labor Standards Act, the Occupational Safety and Health
Act, the National Labor Relations Act or any other foreign, federal,
state or local law (including common law), ordinance or regulation
relating to employees of the Seller.
(d) The relation of Seller with its employees is good and there
are no pending or, to the best of Seller's and the Shareholders'
knowledge, threatened labor difficulties.
3.17 NO DEFAULTS. Other than warranty claims made in the ordinary
course of business, Seller is not in default (nor is any such default alleged to
exist) under the terms of any written or oral contract, agreement, lease,
license, mortgage, deed of trust, note, guaranty, instrument or understanding
(collectively, "Contracts") to which it is a party or to which any of its
assets, business or operations is subject, nor has any condition or event
occurred, nor, to Seller's knowledge is any condition or event threatened,
which, after notice or the passage of time, or both, would constitute a default
under any Contract. To Seller's knowledge, no such default, condition or event
exists or is alleged to exist with respect to the performance of any obligation
of any other party to any of the Contracts.
3.18 NON-TRADE ACCOUNTS RECEIVABLE. Schedule 3.18 is a true and
correct list of all of Seller's accounts receivable (other than trade accounts
receivable).
13
14
3.19 MATERIAL CONTRACTS. Schedule 3.19 is a true and correct list of
each Contract to which Seller is a party or by which any of its assets,
businesses or operations is bound or affected. Schedule 3.19 excludes any
Contract that (i) may be cancelled by Seller on thirty (30) days' notice or less
without incurring a liability or obligation on the part of Seller for such
cancellation and which is not material to its business, condition (financial or
otherwise), assets, liabilities, results of operations or prospects, or (ii)
involves or is reasonably expected to involve the payment of consideration
having a value of less than Fifty Thousand Dollars ($50,000). A true, correct
and complete copy of each written, and a description of each oral, Contract, so
listed has been delivered or made available to Purchaser or its counsel.
3.20 INDEBTEDNESS. Schedule 3.20 is a true and complete list of all
indebtedness, including, without limitation, trade accounts payable in excess of
Fifty Thousand Dollars ($50,000) owed by Seller, including a description of the
terms of payment, and, if such indebtedness is secured, a description of all
properties or other assets pledged, mortgaged or otherwise hypothecated as
security.
3.21 LITIGATION. Schedule 3.21 is a true and complete list of all
administrative or judicial proceedings to which Seller is a party or, to the
best of Seller's and the Shareholders' knowledge, to which it is threatened to
be made a party which relate, directly or indirectly, to any of the Subject
Assets, including, without limitation, proceedings that could affect title to or
interests in the Subject Assets. There is no action, suit, claim, demand,
arbitration or other proceeding or investigation, administrative or judicial,
pending or, to the best of Seller's and the Shareholders' knowledge, threatened
against or affecting Seller or any of its assets, including, without limitation,
any relating to so-called product liability, which, if adversely determined or
resolved, would have a materially adverse effect on the Business, Subject
Assets, financial condition, or results of operations of Seller, or any
provisions of, or the validity of, or rights under, any leases or other
operating agreements, licenses, permits or grants of authority of Seller. Seller
has not received notice that it is the subject of any governmental investigation
and Seller is not subject to, nor is it or has it been in default with respect
to, any order, writ, injunction or decree of any court, or of any federal,
state, local or other governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign. Schedule 3.21 indicates which of the
matters listed are covered by valid insurance and the extent of such coverage.
3.22 INSURANCE. Schedule 3.22 is a true and correct list of all the
policies of insurance covering the business, properties and assets of Seller
presently in force (including as to each (i) risk insured against, (ii) name of
carrier, (iii) policy number, (iv) amount of coverage, (v) amount of premium,
(vi) expiration date and (vii) the property, if any, insured, indicating as to
each whether it insures on an "occurrence" or a "claims made" basis. All of the
insurance policies set forth on Schedule 3.22 are in full force and effect and
all premiums, retention amounts and other related expenses due have been paid,
and Seller has not received any notice of cancellations with respect to any of
the policies. Seller has not been refused any insurance by any insurance carrier
to which it has applied for insurance during the last five (5) years. To
Seller's knowledge, there are no circumstances existing which would enable any
insurer to avoid liability under any of Seller's policies.
14
15
3.23 TRANSACTIONS WITH OFFICERS, ETC.
(a) Other than the Neville Note and the Xxxxxxx Documents, there
are no Contracts (oral or written), including, but not limited to, any
loans or leases, to which Seller is a party and to which any of the
officers, directors, other employees or shareholders of Seller, or
members of their immediate families or other corporations,
partnerships or other entities in which any of them has a material
interest, is also a party.
(b) Neither Seller nor any officer, director, shareholder or, to
Seller's knowledge, employee of Seller or members of their immediate
families or other corporations, partnerships or other entities in
which any of them has a material interest, has any direct or indirect
interest in any competitor, supplier or customer of Seller or in any
person, firm or entity from whom or to whom Seller leases any
property, or in any other person, firm or entity with whom Seller
transacts business of any nature.
3.24 EMPLOYEES/INDEPENDENT SALES REPRESENTATIVES.
(a) Schedule 3.24(a) is a true and correct list of all employees
of Seller (as used in this Agreement, the term "employees" includes
employees, salespersons, consultants, agents, sales representatives
and all other persons associated with the Seller whose current annual
rate of fixed compensation exceeds Thirty Thousand Dollars ($30,000)),
and their accrued vacation and sick pay as of the date hereof. A true,
correct and complete copy of each written employment contract and a
description of each oral employment agreement with any employee has
been delivered to Purchaser or its counsel.
(b) Schedule 3.24(b) is a true and correct list of the four
highest producing independent or outside sales representatives of
Seller ("Independent Sales Representatives"), the amount of sales
attributable to each such Independent Sales Representative for each of
the last two years (or such shorter period of time if acting in such
capacity for less than two years), and a description of each such
Independent Sales Representative's compensation or commission
arrangements. A true, correct and complete copy of a representative
written agreement with respect to each Independent Sales
Representative has been delivered to Purchaser or its counsel.
3.25 TRADEMARKS, COPYRIGHTS AND SIMILAR MATTERS.
(a) Except as set forth on Schedule 3.25, Seller has never been
charged with infringement or violation of any patent, trademark,
service xxxx, trade name or copyright. To the best of Seller's
knowledge, Seller is not using or has not in any way made use of any
patentable or unpatentable invention, or any confidential information
or trade secret, of any former employer of any present or past
employee of Seller. Other than rights in and to the name Mass Transfer
Systems and derivatives thereof, Seller does not own or use any
patents, trademarks, service marks, trade names or copyrights.
15
16
(b) To the best of Seller's knowledge, Seller is the sole and
exclusive owner, and has the full right, power and authority to transfer to
Purchaser the exclusive use of, the name "Mass Transfer Systems, Inc."
Except as set forth on Schedule 3.25, Seller does not use the name by
consent of any other person or entity, and Seller owns the name free and
clear of any attachments, liens, claims, encumbrances or agreements. Except
as set forth on Schedule 3.25, there are no claims or demands of any other
person or entity pertaining to the use of the name and no proceedings have
been instituted or, to the knowledge of the Seller, are threatened, which
challenge the right of Seller in respect of the name; and except as set
forth on Schedule 3.25, the use of the name by Seller does not infringe on
or, to the knowledge of Seller, is not being infringed on by others, and is
not subject to any outstanding order, decree, judgment, stipulation or
agreement restricting the scope of its use.
3.26 EMPLOYEE BENEFIT PLANS AND OTHER PLANS.
(a) For purposes of this Section 3.26, the following definitions
apply:
(i) "Benefit Plan" means each deferred compensation, equity
compensation, pension, profit-sharing, retirement and welfare plan,
each plan, arrangement or policy for the provision of bonuses and/or
severance benefits, each "employee benefit plan" (as defined in ERISA
Section 3(3)) and each fringe benefit plan that a Controlled Group
Member maintains, contributes to, has liability with respect to, or
has an obligation to contribute to;
(ii) "Controlled Group Member" means Seller and each other person
or entity required to be aggregated with Seller under Code Section
414(b), (c), (m) or (o); and
(iii) "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
(b) No Controlled Group Member has directly or indirectly acted in any
manner or incurred any obligation or liability, and will not directly or
indirectly act in any manner in the future or incur any obligation or
liability in the future with respect to any Benefit Plan which has or could
give rise to any liens on any of the Subject Assets, or which could result
in any liability or obligation to Purchaser, whether arising out of the
establishment, operation, administration or termination of such Benefit
Plans or the transactions contemplated by this Agreement.
(c) No Controlled Group Member directly or indirectly maintains,
sponsors, contributes to, has an obligation to contribute to or has
liability with respect to, and has not directly or indirectly maintained,
sponsored, contributed to or had an obligation to contribute to at any time
within the ten (10) year period ending on the Closing Date, any Benefit
Plan which is subject to Title IV of ERISA (including, without limitation,
any multi employer plan subject to the requirements of Subtitle E of such
Title).
16
17
(d) Schedule 3.26 is a true and correct list of all Benefit Plans that
Seller, directly or indirectly, sponsors, maintains or contributes to or
has, directly or indirectly, sponsored, maintained, or had an obligation to
contribute to at any time within the five (5) year period ending on the
Closing Date.
(e) Each Controlled Group Member has timely provided or will timely
provide all notices and any continuation of health benefit coverage
(including, without limitation, medical and dental coverage) required to be
provided to employees, former employees or the beneficiaries or dependents
of such employees or former employees, under Part 6 of Subtitle B of Title
I of ERISA or Code Section 4980B to the extent such notices and
continuation of health benefit coverage are required to be provided by
reason of the events occurring prior to or on the Closing Date or by reason
of the transactions contemplated by this Agreement.
3.27 ENVIRONMENTAL MATTERS.
(a) Except as set forth on Schedule 3.7, there have been no actual or
threatened "releases" in excess of legal limits, of "hazardous substances"
or "petroleum" into the "environment" at any real property "owned" or
"operated," in whole or in part, by Seller as those terms are used in the
federal Comprehensive Environmental Response, Compensation and Liability
Act, as amended, 42 U.S.C. T9601, et seq.;
(b) There has been no "disposal" of "solid waste" as those terms are
used in the federal Solid Waste Disposal Act, 42 U.S.C. T6901, et seq.
(SWDA) at any real property owned or operated by Seller;
(c) No real property presently owned or operated by Seller poses an
"imminent and substantial endangerment to health or the environment" within
the meaning of Sections 7002 and 7003 of the federal Solid Waste Disposal
Act, 42 U.S.C. 6972 and 6973, or to the public health and safety within the
meaning of common law and statutory provisions relating to nuisances;
(d) Seller has not arranged with another for disposal or treatment, or
arranged with a transporter for transport for disposal or treatment of
hazardous substances generated by it at a site where there has been an
actual or threatened release of hazardous substances into the environment
within the meaning of Section 101(a)(4) of CERCLA, 42 U.S.C. T9607(a)(3);
(e) To the best of Seller's knowledge, Seller is not presently in
violation of, and has not previously violated, any federal, state or local
statute or regulation concerning the protection of the public health,
safety or the environment, including, but not limited to, CERCLA, SWDA, the
federal Toxic Substances Control Act, 15 U.S.C. T2601, et seq., the federal
Clean Air Act, 42 U.S.C. T7401, et seq., the federal Clean Xxxxx Xxx, 00
X.X.X. X000x, et seq., and the Occupational Health and Safety Act, 29
U.S.C. T651, et seq. ("Environmental Laws");
17
18
(f) To the best of Seller's knowledge, Seller has obtained all
permits, registrations, plan approval and other governmental
authorizations ("governmental authorizations") necessary under
Environmental Laws to transact its business, all such governmental
authorizations are unexpired and in good standing, and Seller is in
compliance with all of the terms and conditions of such governmental
authorizations;
(g) Seller has received no order, complaint, notice of violation,
citizen suit demand or other communications, oral or written,
asserting that it is in violation or has violated any provisions of
Environmental Laws, and knows of no pending investigation of its
business activities for any such alleged violation.
3.28 BANK ACCOUNTS. Schedule 3.28 is a true and correct list of the
name of each bank, savings and loan, or other financial institution in which
Seller has an account or safe deposit box, the names of all persons authorized
to draw on each account or to have access to each box, the number of signatures
required to be given for a withdrawal and a description of the type of account.
3.29 COMPLIANCE WITH LAWS. To the best of Seller's knowledge, Seller
has complied in all material respects with all laws, regulations, rules and
orders of any governmental department or agency or any other commission, board,
agency or instrumentality, federal, state or local, or other requirements of law
affecting the Business and operations and is not in default under or in
violation of any provision of any federal, state or local law, regulation, rule
or order.
3.30 POWERS OF ATTORNEY. Except those provided to Seller's accountant
in connection with matters with the Internal Revenue Service, Seller has not
given any power of attorney (irrevocable or otherwise) to any person or entity
for any purpose.
3.31 LICENSES AND RIGHTS. Seller possesses all franchises, licenses,
easements, permits and other authorizations from governmental or regulatory
authorities and from all other persons or entities that are necessary to permit
it to engage in the Business as presently conducted in and at all locations and
places where it is presently operating, except where the failure to possess such
would not have a material adverse effect on the Business, Subject Assets or
financial condition of Seller. Such franchises, licenses, permits and other
authorizations are listed on Schedule 3.31.
3.32 PRODUCTS.
(a) To the best of Seller's knowledge, there are no existing or
threatened material product liability or material warranty claims
(other than warranty claims made in the ordinary course of business)
against Seller based on products which are, or are alleged to be,
defective or fail to meet product warranties.
(b) All existing warranties covering Seller's products were
issued in the normal course of business and are consistent with
Seller's normal warranty policy. To the extent transferable, Seller
will convey to Purchaser all its rights in manufacturers' warranties
for products sold by Seller (which will be deemed a part of the
Subject Assets). Except as may
18
19
be listed on Schedule 3.32, no claims of customers or others based on
an alleged or admitted defect of material, workmanship or design or
otherwise in or in respect of any of Seller's products are presently
pending or, to the best of Seller's knowledge, threatened.
3.33 CASUALTY OCCURRENCES. There have been no occurrences during the
last five (5) years of damages to persons or property involving any defects or
alleged defects in any of Seller's products or their design.
3.34 INVENTORY. Other than an immaterial amount of obsolete inventory,
the inventory of Seller consists only of items of a quality and quantity usable
and saleable in the ordinary course of business, consistent with past practice,
within Seller's normal inventory "turn" experience and does not include any item
of inventory which has previously been written off by Seller. Items of
below-standard quality and items not previously readily saleable in the ordinary
course of business have been written down in value in accordance with generally
accepted accounting principles to estimated net realizable market values. The
value at which the inventory is carried on Seller's books reflects the lower of
cost (on a FIFO basis) or estimated net realizable market value, and is based on
quantities determined by physical count.
3.35 MATERIAL MISSTATEMENTS OR OMISSIONS. No representations or
warranties made by Seller in this Agreement or in any Schedule hereto contain or
will contain any untrue statement of a material fact, or omit or will omit to
state a material fact necessary to make the statements of fact contained therein
not misleading.
3.36 FIRPTA. Seller is not a non-resident alien individual, foreign
person, or foreign corporation for purposes of the provision of Code Sections
871, 882 or 1445. On or before the Closing Date, Seller will deliver to
Purchaser qualifying statements as defined in Code Section 1445 or executed
affidavits pursuant to Code Section 1445.
3.37 INVESTMENT REPRESENTATIONS.
(a) Seller (i) is acquiring the Convertible Subordinated
Promissory Note, Subordinated Promissory Note and Second Subordinated
Promissory Note (and any securities acquired upon conversion or
exchange of any of the Promissory Notes) for the purpose of investment
and not with a view towards the resale or distribution thereof within
the meaning of the Securities Act of 1933 (the "1933 Act"), (ii) will
not sell, transfer or otherwise dispose of the Convertible
Subordinated Promissory Note, Subordinated Promissory Note or Second
Subordinated Promissory Note (or any securities acquired upon
conversion or exchange of any of the Promissory Notes) except in
compliance with the 1933 Act, and (iii) is aware that the Convertible
Subordinated Promissory Note, Subordinated Promissory Note or Second
Subordinated Promissory Note (and any securities acquired upon
conversion or exchange of any of the Promissory Notes) are "restricted
securities" as that term is defined in Rule 144 of the General Rules
and Regulations under the 1933 Act;
19
20
(b) Seller understands that the Convertible Subordinated
Promissory Note, Subordinated Promissory Note and Second Subordinated
Promissory Note (and any securities acquired upon conversion or
exchange of any of the Promissory Notes) have not been registered
under the 1933 Act and must be held indefinitely unless they are
subsequently registered under the 1933 Act or an exemption from such
registration is available.
(c) Seller acknowledges that he has had an opportunity to ask
questions of and receive answers from duly designated representatives
of Purchaser and Waterlink concerning the terms and conditions
pursuant to which the Convertible Subordinated Promissory Note,
Subordinated Promissory Note and Second Subordinated Promissory Note
(and any securities acquired upon conversion or exchange of any of the
Promissory Notes) will be acquired. Seller further acknowledges that
it has been afforded an opportunity to examine such documents and
other information which it has requested for the purpose of evaluating
its investment in the Convertible Subordinated Promissory Note,
Subordinated Promissory Note and Second Subordinated Promissory Note
(and any securities acquired upon conversion or exchange of any of the
Promissory Notes).
(d) By reason of its knowledge and experience in financial and
business matters in general, and investments in particular, Seller is
capable of evaluating the merits and risks of its acquisition of the
Convertible Subordinated Promissory Note, Subordinated Promissory Note
and Second Subordinated Promissory Note (and any securities acquired
upon conversion or exchange of any of the Promissory Notes).
(e) Seller acknowledges that the Convertible Subordinated
Promissory Note, Subordinated Promissory Note and Second Subordinated
Promissory Note (and any securities acquired upon conversion or
exchange of any of the Promissory Notes) and any and all securities
issued in replacement or exchange therefor will bear the following
legend:
This [name of security] has not been registered under the
Securities Act of 1933 (the "Act") and is a restricted security as
that term is defined in Rule 144 under the Act. The [name of security]
may not be offered for sale, sold or otherwise transferred except
pursuant to an effective registration statement under the Act or
pursuant to an exemption from registration under the Act, the
availability of which is to be established to the satisfaction of
[name of issuer].
20
21
ARTICLE IV
----------
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND WATERLINK
---------------------------------------------------------
Purchaser and Waterlink, jointly and severally, warrant and represent
to, and agree with, Seller and the Shareholders as follows:
4.1 ORGANIZATION AND GOOD STANDING OF PURCHASER AND WATERLINK. Each of
Purchaser and Waterlink is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Each of Purchaser and
Waterlink has full power and authority to carry on its business as and where now
conducted and to own or lease and operate its properties at and where now owned
or leased and operated by it, and is duly qualified to do business and is in
good standing in every jurisdiction in which the property owned, leased or
operated by it, or the nature of the business conducted by it, makes such
qualification necessary except where the failure to qualify would not have a
material adverse effect on the business or financial condition of Purchaser or
Waterlink, as the case may be. Other than actions taken in connection with its
organization and the transactions contemplated by this Agreement, Purchaser has
conducted no business since its organization.
4.2 AUTHORITY OF PURCHASER AND WATERLINK. The execution, delivery and
consummation of this Agreement, including, without limitation, Waterlink's
guarantee contained in Article XII of this Agreement, and each agreement
required to be executed, delivered and consummated hereby including, without
limitation, the Promissory Notes, by Purchaser and Waterlink (i) are within each
party's power and authority, (ii) have been or will be duly authorized by their
respective boards of directors in accordance with all applicable laws and the
Certificates of Incorporation and By-laws of Purchaser and Waterlink, as the
case may be, and at the Closing Date no further corporate action will be
necessary on the part of Purchaser or Waterlink to make this Agreement and each
agreement required to be executed, delivered and consummated hereby including,
without limitation, the Promissory Notes, valid and binding on Purchaser and
Waterlink and enforceable against Purchaser and Waterlink in accordance with
their respective terms, (iii) do not conflict with nor will result in any breach
of any provision of, or the creation of any lien, mortgage, charge, security
interest or other encumbrance upon any of the property of Waterlink or Purchaser
pursuant to their respective charters, by-laws or any law, regulation, order,
permit, judgment, agreement or instrument. Except as has been obtained, no
approval or consent of any person, firm or other entity or governmental body is
or was required to be obtained by Purchaser or Waterlink for the authorization
of this Agreement or the consummation by Purchaser or Waterlink of the
transactions contemplated in this Agreement. The execution, delivery and
consummation by the Purchaser and Waterlink of this Agreement, including,
without limitation, Waterlink's guarantee contained in Article XII of this
Agreement, and each such other agreement to which Purchaser and Waterlink is a
party, and the issuance of the Promissory Notes, do not require the approval or
consent of, or any filing with, any governmental authority or agency, except
such filings and notices as may be necessary to register securities or establish
and preserve any exemption from registration under applicable state and federal
securities laws.
21
22
4.3 CERTIFICATE OF INCORPORATION AND BY-LAWS. True, accurate and
complete copies of the Certificate of Incorporation and the By-laws of Purchaser
and Waterlink, together with all amendments thereto, have been delivered to
Seller or its counsel.
4.4 WATERLINK FINANCIAL STATEMENTS; BUSINESS PLAN.
(a) Prior to the date of this Agreement, Waterlink provided
Seller with the following financial statements of Waterlink and its
subsidiaries (the "Waterlink Financial Statements"), to wit: the
consolidated audited balance sheet and statement of income at and for
the shortened fiscal year ended September 30, 1995 and unaudited
balance sheet and statement of income at and for the two (2) month
period ended November 30, 1995.
The Waterlink Financial Statements (i) have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis during the periods, (ii) present fairly, in all
material respects, Waterlink's financial position, results of
operations and cash flows at and for the periods therein specified,
(iii) are true and complete, (iv) are consistent with the books and
records of Waterlink, and (v) with respect to all of the unaudited
Waterlink Financial Statements, include all adjustments, consisting
only of normal recurring adjustments, required for a fair
presentation. The Waterlink Financial Statements will be deemed to
include any accompanying notes and schedules.
(b) Prior to the date of this Agreement, Waterlink provided
Seller with the preliminary financial statements of Waterlink as of
December 31, 1995 (the "Preliminary Statements"). The Preliminary
Statements present fairly, in all material respects, the financial
condition and results of operations of Waterlink as of the date and
for the periods indicated therein. Waterlink's business plan
previously delivered to Seller has been prepared by the management of
Waterlink in a good faith effort to describe Waterlink and its
existing subsidiaries' present and proposed products, and the markets
therefor. To the best knowledge of Waterlink, the assumptions used in
the preparation of the business plan are realistic and reasonable;
however, no warranty or representation is given as to the opinions,
forecasts or other non-factual or future matters contained in the
business plan.
4.5 WATERLINK AUTHORIZED CAPITALIZATION. The authorized capital stock
of Waterlink consists of, and at the Closing will consist of 6,126,000 shares of
common stock, $.001 par value per share (the "Common Shares) and 2,276,000
shares of preferred stock of which 440,000 have been designated as Series A (the
"Series A Shares") and 1,836,000 have been designated as Series B (the "Series B
Shares" and, together with the Series A Shares, the "Preferred Shares"). Of such
Common Shares, 1,450,000 shares immediately prior to the Closing, will be issued
and outstanding, 400,000 shares will be reserved for exercise of stock options
and 2,276,000 shares will be reserved for conversion of Preferred Shares; of
such Series A Shares, 400,000 shares immediately prior to the Closing, will be
issued and outstanding; and of such Series B Shares, 1,700,000 shares
immediately prior to Closing will be issued and outstanding. The outstanding
Common Shares and Preferred Shares are duly and validly issued, fully paid and
nonassessable. Except for the Convertible Subordinated Promissory Note,
Subordinated Promissory Note, Second Subordinated Promissory
22
23
Note, the Preferred Shares and the outstanding options listed on Schedule 4.5,
there is no subscription right, option, warrant, convertible security or other
right (contingent or otherwise) presently outstanding, for the purchase,
acquisition or sale of any Common Shares, Preferred Shares or any securities
convertible into or exchangeable for Common Shares, Preferred Shares or other
securities of Waterlink.
4.6 ABSENCE OF CERTAIN CHANGES. Since December 31, 1995, Waterlink has
actively conducted its business in the ordinary and regular course consistent
with past practice. Except as set forth on Schedule 4.6, without limiting the
generality of the foregoing, since such date, there has been no material adverse
change in the business, financial condition, assets, liabilities, results of
operations or, to Waterlink's knowledge, prospects of Waterlink.
4.7 SUBSIDIARIES AND INVESTMENTS. The Purchaser has no subsidiaries,
nor any other investments in any person. Other than those subsidiaries listed on
Schedule 4.7, Waterlink has no subsidiaries, nor any other investments in any
person.
4.8 PROHIBITIVE AGREEMENTS. To the best knowledge of Waterlink, no
person who is or is contemplated to be a director, officer, employee or
consultant of Waterlink or its subsidiaries (collectively for this paragraph
"Waterlink") is presently obligated under or presently bound by any terms or
provisions of any agreements or contracts, or subject to any judgments, decrees
or orders of any court or administrative agency, that would preclude the
operation of the business of Waterlink in the ordinary course or of the Seller
in the ordinary course.
4.9 TITLE TO ASSETS. Waterlink and its subsidiaries own or lease all
assets used in the conduct of their respective businesses as presently
conducted, have good title to all of their owned assets, and have good title to
all of their leasehold interests, in each case subject to such mortgage, pledge,
lien, encumbrance, charge, or security interest as are described in the
Waterlink Financial Statements and the Preliminary Statements.
4.10 LITIGATION. There is no litigation or governmental proceeding or
investigation pending or, to the best knowledge of Waterlink, threatened against
Waterlink or any of its subsidiaries or affecting any of the properties or
assets of Waterlink or any of its subsidiaries which might result, either in any
case or in the aggregate, in any material adverse change in the business,
operations, or financial condition of Waterlink, or any of its subsidiaries or
which might call into question the validity of this Agreement.
4.11 TAXES. Waterlink and each subsidiary has prepared and filed all
federal, state and other tax returns required by law to be filed, which returns
are complete and correct in all material respects, and all taxes shown to be due
and all additional assessments have been paid or provision made therefor.
Waterlink knows of no additional tax assessments or adjustments pending or
threatened against Waterlink or any of its subsidiaries, for any period, nor of
any basis for any material assessment or adjustment.
23
24
4.12 COMPLIANCE WITH LAWS. To the best knowledge of Waterlink,
Waterlink and its subsidiaries have complied with all laws, regulations, rules
and orders of any governmental department or agency or any other commission,
board, agency or instrumentality, federal, state or local, or other requirements
of law affecting their businesses and operations and are not in default under or
in violation of any provision of any federal, state or local law, regulation,
rule or order.
4.13 EXCLUSIVE LICENSES. To the best knowledge of Waterlink, except as
set forth on Schedule 4.13 neither Waterlink nor any of its subsidiaries is a
party to or bound by any contract, agreement, license agreement, sublicense
agreement, consulting agreement or other instrument pursuant to which Waterlink
or such subsidiary has granted or is obligated to grant any party an exclusive
license of any kind relating to any of Waterlink's or its subsidiaries' products
or properties.
4.14 ENVIRONMENTAL MATTERS. To the best knowledge of Waterlink and
each subsidiary and based on reports prepared and delivered to Waterlink in
connection with the acquisition of its subsidiaries (the "Environmental
Reports"), there has been no on-site disposal or discharge of chemicals, oil or
solid waste in excess of legal limits by Waterlink and each subsidiary, or by
anyone else on the premises presently occupied, owned, leased or used by
Waterlink and each such subsidiary. To the best knowledge of Waterlink and each
subsidiary and based on the Environmental Reports, Waterlink and each subsidiary
and is presently complying with all applicable laws concerning the protection of
the public, health, safety or environment including without limitation the
Environmental Laws. To the best knowledge of Waterlink and based on the
Environmental Reports, there are no investigations, actions or proceedings
involving or affecting Waterlink or any subsidiary, or their assets, properties
or business arising under any Environmental Laws and there is no basis for any
such additional investigation, action or proceedings.
4.15 ERISA. Except as set forth on Schedule 4.15, Waterlink does not
make, and has not made, any contributions to any pension, defined benefit plans
or defined contribution plans for its employees, in each case which are subject
to the Federal Employee Retirement Income Security Act of 1974, as amended.
4.16 ABSENCE OF UNDISCLOSED LIABILITIES. Except (i) as set forth on
the Waterlink Financial Statements and the Preliminary Statements, (ii) those
incurred in the ordinary course of business since December 31, 1995, and (iii)
as set forth on Schedule 4.16, Waterlink and its subsidiaries are not obligated
for, nor are any of their respective assets or properties subject to, any
material liabilities or adverse claims or obligations, absolute or contingent.
Waterlink and its subsidiaries are not in default with respect to any terms or
conditions of any material liability or obligation. There are no facts known to
Waterlink that might reasonably serve as a basis, in whole or in part, for any
material liabilities or obligations not disclosed in this Agreement, in the
Waterlink Financial Statements, the Preliminary Statements or in the Schedules.
4.17 CORPORATE MINUTES. Waterlink and Purchaser have furnished or made
available to Seller and its counsel the corporate record books of Waterlink and
Purchaser and the same are accurate and complete and reflect all material
resolutions adopted and all actions taken, authorized or ratified by the
shareholders and directors of Waterlink and Purchaser, as the case may be.
Copies
24
25
of all corporate minutes of meetings held and of all written actions taken after
the date of this Agreement will be furnished to Seller promptly, and in all
events, prior to the Closing Date.
4.18 LABOR AND EMPLOYMENT MATTERS.
(a) Neither Waterlink nor any subsidiary is a party to any
collective bargaining agreements, and, to the best knowledge of
Waterlink and such subsidiary, no organizational efforts are presently
being made with respect to any of its employees.
(b) To the best knowledge of Waterlink, no officer or other key
employee or consultant of Waterlink has any present intention of
terminating his employment with, or engagement by Waterlink, and
Waterlink has no present intention of terminating such employment or
engagement.
4.19 REGISTRATION RIGHTS. Except as set forth on Schedule 4.17,
Waterlink is not under any contractual obligation to register any of its
presently outstanding securities or any of its securities which may hereafter be
issued.
4.20 BROKERAGE AND FINDER'S FEES. No shareholder, officer, director or
agent of Purchaser or Waterlink has incurred any liability to any broker, finder
or agent for any brokerage fees, finder's fees, or commissions with respect to
the transactions contemplated by this Agreement.
4.21 MATERIAL MISSTATEMENTS OR OMISSIONS. No representations or
warranties made by Seller in this Agreement or the Schedules hereto contain or
will contain any untrue statement of a material fact, or omit or will omit to
state a material fact necessary to make the statements of fact contained therein
not misleading.
ARTICLE V
---------
CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER AND WATERLINK
--------------------------------------------------------------
The obligations of Purchaser and Waterlink under this Agreement are,
at their option, subject to satisfaction of the following conditions at or prior
to the Closing Date:
5.1 REPRESENTATIONS TRUE. The representations and warranties of Seller
and the Shareholders contained in this Agreement are true, complete and accurate
in all material respects on and as of the Closing Date to the same extent and
with the same force and effect as if made on such date, except as affected by
the transactions contemplated under this Agreement.
5.2 ALL CONSENTS OBTAINED. All necessary approvals or consents
required to be obtained by Seller and the Shareholders have been obtained from
all local, state and federal departments and agencies, from all other
commissions, boards, agencies and from any other person or entity whose approval
or consent is necessary to consummate the transactions contemplated under this
Agreement including, without limitation, such consents as may be listed or
required to be listed on Schedule 3.2.
25
26
5.3 PERFORMANCE AND OBLIGATIONS. Seller and the Shareholders have duly
performed all obligations, covenants and agreements undertaken by Seller or the
Shareholders in this Agreement and have complied with all terms and conditions
applicable to them under this Agreement to be performed and complied with on or
before the Closing Date.
5.4 RECEIPT OF DOCUMENTS BY PURCHASER. Purchaser has received:
(a) a certificate executed by the President and Secretary of the
Seller certifying as to the fulfillment of the matters contained in
Sections 5.1, 5.2, 5.3 and 5.5.
(b) a true and correct copy of Seller's Articles of
Incorporation, certified by the Secretary of the Commonwealth of
Massachusetts as of a date not more than five (5) days prior to the
Closing Date, and a true and correct copy of Seller's By-Laws
certified by the Secretary of Seller as of the Closing Date.
(c) a written opinion from counsel for Seller, dated as of the
Closing Date, addressed to Purchaser, satisfactory to Purchaser and
its counsel substantially in the form attached hereto as Exhibit ___.
(d) certified copies of resolutions duly adopted by the
shareholders and board of directors of Seller approving this Agreement
and the transactions contemplated under it;
(e) with respect to all Real Property, ALTA preliminary
commitments for title insurance, containing commitments to issue (a)
fee owner's title insurance policies on ALTA Form B, 1970, and (b)
loan policies for the benefit of any lender supplying financing for
Purchaser's acquisitions, on ALTA Loan Policy Form 1970. Each such
policy of title insurance must contain the following:
(i) an endorsement deleting standard printed exceptions;
(ii) an access endorsement, insuring, among other matters,
that the property subject to the policy and all entrances, exits,
driveways and access roads have free access to and from a public
road or highway;
(iii) affirmative assurance that the parcels comprising the
property subject to the policy are contiguous to each other
without any strips, gores or other parcels of land intervening;
(iv) affirmative assurance of title to all easements
benefiting the property subject to the policy;
(v) affirmative assurance of the state of facts shown on the
survey delivered to Purchaser pursuant to Section 5.4(f), which
must be read into and form
26
27
a part of each such commitment and the policies to be issued on
account of such commitments.
(f) surveys of all Real Property prepared at Purchaser's cost by
a land surveyor licensed in the state in which the property is
located, showing the perimeter of the property and the location of all
improvements, easements and other matters affecting the property
subject to the survey. The surveys are to be in form and substance
reasonably acceptable to Purchaser, are to have the seal and
registration number of the surveyor affixed to the survey and must
include the date on which the actual field survey was concluded. The
surveys must contain a certificate, in form and substance acceptable
to Purchaser, its counsel, the title company, any lender supplying
financing to Purchaser and any other parties designated by Purchaser
certifying that the survey is an accurate representation of the
property, made in accordance with the "Minimum Standard Detail
Requirements for Land Title Surveys" adopted by the American Title
Association. The surveys must show which portion of the property, if
any, is located within a flood plain or flood way area as designated
by the United States Federal Emergency Management Agency.
5.5 NO LITIGATION. No suit, action, or other proceeding is threatened
or pending before any court or governmental agency in which it will be or it is
sought to restrain or prohibit or to obtain material damages or relief in
connection with this Agreement or the consummation of this Agreement, or which
is likely to materially and adversely affect the value of the business or assets
of Seller.
5.6 EMPLOYMENT AGREEMENTS. Each of Neville and Xxxxx has entered into
an Employment Agreement with Purchaser in the form of Exhibits "E" and "F",
respectively, to this Agreement.
5.7 DELIVERY OF BOOKS AND RECORDS. Seller has delivered or made
available to Purchaser all books and records of Seller relating to or reasonably
required for the operation of the business of Seller, including, without
limitation, copies of all Contracts, financial and accounting records, files and
records relating to employees, and all related correspondence.
5.8 INSTRUMENTS OF TRANSFER. Seller has executed and delivered to
Purchaser good and sufficient instruments of transfer transferring to Purchaser
title to all of the Subject Assets as required pursuant to Section 1.3. The
instruments of transfer must be in form and substance reasonably satisfactory to
Purchaser and its counsel, which form is usual and customary for transferring
the type of property involved under the laws of the jurisdictions applicable to
such transfer.
5.9 CONFIDENTIALITY AND NON-COMPETE AGREEMENTS. Seller has (i)
assigned to Purchaser any and all rights of Seller under any confidentiality
agreement covering confidential information concerning Seller's business or the
Subject Assets and under any non-compete or similar agreement in favor of Seller
restricting activities competitive with those of Seller's business, (ii) provide
Purchaser with a list of such agreements and (iii) deliver copies of such
agreements of Purchaser.
27
28
5.10 ABSENCE OF CHANGES. There has been no material adverse change in
the business (financial or otherwise), assets, liabilities, results of
operations or prospects of Seller since the date of this Agreement.
ARTICLE VI
----------
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
---------------------------------------------
AND THE SHAREHOLDERS
--------------------
The obligations of Seller and the Shareholders under this Agreement
are, at their option, subject to satisfaction of the following conditions at or
prior to the Closing Date:
6.1 REPRESENTATIONS TRUE. The representations and warranties of
Purchaser and Waterlink contained in this Agreement are true, complete and
accurate in all material respects on and as of the Closing Date to the same
extent and with the same force and effect as if made on such date, except as
affected by the transactions contemplated under this Agreement.
6.2 ALL CONSENTS OBTAINED. All necessary approvals or consents
required to be obtained by Seller and the Shareholders have been obtained from
all local, state and federal departments and agencies, from all other
commissions, boards, agencies and from any other person or entity whose approval
or consent is necessary to consummate the transactions contemplated by this
Agreement.
6.3 PERFORMANCE OF OBLIGATIONS. Purchaser and Waterlink have duly
performed all obligations, covenants and agreements undertaken by Purchaser or
Waterlink in this Agreement and have complied with all the terms and conditions
applicable to them under this Agreement to be performed or complied with on or
before the Closing Date.
6.4 RECEIPT OF DOCUMENTS BY SELLER. Seller has received:
(a) the purchase price for the Subject Assets as provided in
Section 2.1(a);
(b) certificates executed by each of the President or CFO of
Purchaser and the President or CFO of Waterlink certifying as to the
fulfillment of the matters contained in Sections 6.1 and 6.3 of this
Article;
(c) a written opinion from counsel for Purchaser and Waterlink,
dated as of the Closing Date, addressed to Seller, satisfactory to
Seller and its counsel substantially in the form attached hereto as
Exhibit ___.
(d) certified copies of resolutions duly adopted by the Board of
Directors of Purchaser and Waterlink approving this Agreement and the
transactions contemplated under it.
28
29
6.5 NO LITIGATION. No suit, action, or other proceeding is threatened
or pending before any court or governmental agency in which it will be or it is
sought to restrain or prohibit or obtain material damages or relief from Seller
in connection with this Agreement or the consummation of this Agreement.
6.6 EMPLOYMENT AGREEMENTS. Each of Neville and Xxxxx has entered into
an Employment Agreement with Purchaser in the form of Exhibits "E" and "F" to
this Agreement.
6.7 REGISTRATION RIGHTS AGREEMENT. Waterlink, each of the Shareholders
and Seller shall have entered into a Registration Rights Agreement substantially
in the form attached hereto as Exhibit "G".
6.8 ASSUMPTION OF LIABILITIES. Purchaser shall have entered into an
Assumption Agreement more particularly described in Section 1.2 of the
Agreement.
6.9 NEVILLE NOTE. The Neville Note has been amended and restated, and
issued by Purchaser to Neville in the form of Exhibit "G" to this Agreement
which will be guaranteed by Waterlink (the "New Neville Note").
ARTICLE VII
-----------
CLOSING
-------
The closing of the transactions contemplated by this Agreement (the
"Closing") will take place at the offices of Benesch, Friedlander, Xxxxxx &
Aronoff P.L.L., 000 Xxxxxx Xxxxxx, 0000 XX Xxxxxxx Xxxxxxxx, Xxxxxxxxx, Xxxx
00000 on January 31, 1996, at 10:00 A.M. Cleveland, Ohio Time or such other
place or date mutually agreeable to the parties (the "Closing Date"). If the
Closing has not taken place by such date by reason of failure of fulfillment of
any condition or conditions contained in this Agreement, then the non-breaching
party may, by written notice to the other party, extend the Closing Date for a
period of thirty (30) days to permit fulfillment of such condition or
conditions. Unless the parties otherwise agree in writing, if the Closing has
not occurred by [March 15, 1996], then this Agreement will be deemed to have
been terminated and abandoned, subject to the legal rights and remedies of
either party arising out of the other party's breach of any of the provisions of
this Agreement. The parties will in good faith use all reasonable efforts to
achieve the Closing.
ARTICLE VIII
------------
TERMINATION OF AGREEMENT
------------------------
This Agreement and the transactions contemplated under it may be
terminated and abandoned at any time prior to the Closing Date:
(a) by mutual consent in writing of Purchaser and Seller;
29
30
(b) by Purchaser or Seller if, in the case of Purchaser, there
has been a material misrepresentation or breach of warranty in the
representation and warranties of Seller or the Shareholders made under
this Agreement or if, in the case of Seller, there has been a material
misrepresentation or breach of warranty in the representations and
warranties of Purchaser or Waterlink made under this Agreement;
(c) by Purchaser if all or a material portion of the Subject
Assets have been materially damaged or destroyed before the Closing;
(d) By Purchaser if a substantial portion of the Real Property
has been taken, in whole or in part, by eminent domain or by
conveyance in lieu of eminent domain;
(e) by Purchaser, if any of the conditions contained in Article
V, or by Seller, if any of the conditions contained in Article VI,
respectively, have not been fulfilled in all material respects.
Any termination pursuant to this Article VIII will not affect the obligations of
the parties under Article XII or Section 16.5, and will be without prejudice to
the terminating party's legal rights and remedies by reason of any breach of
this Agreement occurring prior to such termination. Notwithstanding anything in
this Agreement to the contrary, if, on the Closing Date, Purchaser (i) has
complied with all of the conditions to Closing contained in Article VI, (ii) has
notified Seller of its intention to consummate the transactions contemplated
under this Agreement, and (iii) is ready and able to pay Seller the purchase
price and furnishes evidence to that effect to Seller, and if the Closing does
not then occur due to the refusal of Seller to so consummate the transactions
contemplated under this Agreement, Purchaser will be entitled to specifically
enforce the terms of this Agreement in a court of competent jurisdiction, it
being acknowledged that monetary damages due Purchaser in such case cannot be
adequately determined at law.
ARTICLE IX
----------
SURVIVAL OF REPRESENTATIONS
---------------------------
AND WARRANTIES; INDEMNIFICATION; DISPUTES
-----------------------------------------
9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Notwithstanding the
Closing of the transactions contemplated under this Agreement, or any
investigation made by or on behalf of any party to this Agreement, the
representations and warranties of Seller, the Shareholders, Purchaser and
Waterlink contained in this Agreement or in any certificate, Schedule, chart,
list, letter, compilation or other document furnished or to be furnished
pursuant to this Agreement, will survive the Closing for a period of one (1)
year, except that the representations and warranties of Seller and the
Shareholders contained in Sections 3.10, 3.26, 3.27 and 3.32 with respect to tax
matters, employee benefit matters, environmental matters and product
liability/warranty claims will survive for two (2) years. However, as to any
breach of, or misstatement in, any such representation or warranty as to which
the non-breaching party as given notice to the breaching party on or prior to
30
31
the expiration of the applicable period, as above set forth, the same will
continue to survive beyond said period, but only as to the matters contained in
such notice.
9.2 SELLER'S AND THE SHAREHOLDERS' INDEMNIFICATION. Seller and the
Shareholders, jointly and severally, will indemnify and save harmless Purchaser
and Waterlink and their respective subsidiaries, shareholders, directors,
officers, employees and agents from any and all costs, expenses, losses, damages
and liabilities incurred or suffered, directly or indirectly, by any of them
(including, without limitation, reasonable legal fees and expenses)
(collectively, the "damages") resulting from or attributable to (a) the breach
of, or misstatement in, any one or more of the representations or warranties of
Seller or the Shareholders made in or pursuant to this Agreement; (b) any
claims, demands, suits, investigations, proceedings or actions by any third
party containing or relating to allegations that, if true, would constitute a
breach of, or misstatement in, any one or more of the representations or
warranties of Seller or the Shareholders made in or pursuant to this Agreement,
provided, however, that if any such claim, demand, suit, investigation,
proceeding or action by any such third party does not result in any damages to
Purchaser other than the costs associated with defending such claim, demand,
suit, investigation, proceeding or action, then Purchaser, on the one hand,
shall bear one-half of such costs and Seller and the Shareholders, on the other
hand, shall collectively bear one-half of such costs; (c) Seller's treatment,
transport, recycling, storage or disposal, or any arrangement for any of same,
done or made prior to the Closing, of any Contaminant generated and transported
off-site from any facility owned or operated by Seller or any of its
predecessors; (d) any and all obligations, debts or other liabilities of Seller
not expressly assumed by Purchaser pursuant to this Agreement; (e) any facts or
circumstances which would have amounted to a breach of, or misstatement in, the
representations and warranties of Seller and the Shareholders contained in
Section 3.4(b) (iii) and 3.29 of the Agreement had Seller known the existence of
such; (f) Seller's failure to fulfill its obligations under the Order of
Conditions issued by the Fall River Conservation Commission delivered on or
about November 27, 1990; or (g) Seller's noncompliance with any provision of law
regarding bulk transfers or similar laws. Purchaser will be entitled to set off
against any payments due under the Promissory Notes the amount of such costs,
expenses, losses, damages and liabilities, and, to the extent not in a
liquidated amount, then in an amount reasonably and in good faith estimated by
Purchaser.
9.3 DEFENSE OF CLAIM. In case Purchaser or Waterlink received actual
notice of any claim asserted or any action administrative or other proceeding
commenced in respect of which claim, action or proceeding indemnity properly may
be sought against Seller and the Shareholders pursuant to this Agreement,
Purchaser will give notice in writing to Seller. Within ten (10) days after
receipt of such notice, Seller may give Purchaser written notice of its election
to conduct the defense of such claim, action or proceeding at its own expense.
If Seller has given Purchaser such notice of election to conduct the defense,
Seller may conduct the defense at its expense, but Purchaser will nevertheless
have the right to participate in the defense, but such participation will be
solely at the expense of Purchaser, without a right of further reimbursement. If
Seller has not so notified Purchaser in writing (within the time above provided)
of its election to conduct the defense of such claim, action or proceeding,
Purchaser may (but need not) conduct (at Seller's expense) the defense of such
claim, action or proceeding. Purchaser may at any time notify Seller of
Purchaser's intention to settle, compromise or satisfy any such claim, action or
proceeding (the defense of which Seller has not
31
32
previously elected to conduct) and may make such settlement, compromise or
satisfaction (at Seller's expense) unless Sellers notifies Purchaser in writing
(within twenty (20) days (or such shorter period of time if required by the
terms of the proposed settlement, but in no event less than five (5) days) after
receipt of such notice of intention to settle, compromise or satisfy) of its
election to assume (at its sole expense) the defense of any such claim, action
or proceeding and promptly take appropriate action to implement such defense.
Any settlement, compromise or satisfaction made by Purchaser, or any such final
judgment or decree entered in, any claim, action or proceeding defended only by
Purchaser, regardless of the amount or terms, will be deemed to have been
consented to by, and will be binding on, Seller as fully as though it alone had
assumed the defense and a final judgment or decree had been entered in such
proceeding or action by a court of competent jurisdiction in the amount of such
settlement, compromise, satisfaction, judgment or decree. If Seller has elected
under this Section 9.3 to conduct the defense of any claim, action or
proceeding, then Seller will be obligated to pay the amount of any adverse final
judgment or decree rendered with respect to such claim, action or proceeding
subject to the terms of this Agreement. If Seller elects to settle, compromise
or satisfy any claim, action or proceeding defended by it, the cost of any such
settlement, compromise or satisfaction will be borne entirely by Seller and may
be made only with the consent of Purchaser if Purchase is not completely and
unconditionally released, is otherwise adversely affected, or has imposed upon
it any obligations or restrictions, which consent will not be unreasonably
withheld. Purchaser and Seller will use all reasonable efforts to cooperate
fully with respect to the defense of any claim, action or proceeding covered by
this Section 9.3.
9.4 PURCHASER'S AND WATERLINK'S INDEMNIFICATION. Purchaser and
Waterlink, jointly and severally, will indemnify and save harmless Seller and
the Shareholders from any and all costs, expenses, losses, damages and
liabilities incurred or suffered directly or indirectly by Seller or the
Shareholders (including, without limitation, reasonable legal fees and costs)
(collectively, the "damages") resulting from or attributable to the breach of,
or misstatement in, any one or more of the representations or warranties of
Purchaser or Waterlink made in or pursuant to this Agreement to the same extent
as provided in Clauses (a) and (b) of Section 9.2, and in the same manner as
provided in Section 9.3, of this Article IX.
9.5 LIMITATIONS ON INDEMNIFICATION. Any of the foregoing
notwithstanding, no party will have any right to indemnification unless and
until the aggregate damages indemnifiable by the indemnifying party exceed
Seventy-Five Thousand Dollars ($75,000) and thereafter, will be entitled to the
full extent of the damages and in no event will the aggregate liability of
Seller and the Shareholders, on the one hand, or Purchaser and Waterlink, on the
other hand, exceed the aggregate amount of cash proceeds and the value of other
property realized by the Shareholders, net of all taxes, from the payment of the
Cash Purchase Price (excluding any adjustment based on any portion of the Cash
Purchase Price used to pay down the Neville Note) and the issuance of the
Promissory Notes.
32
33
ARTICLE X
---------
CONDUCT PRIOR TO CLOSING DATE
-----------------------------
10.1 CONTINUATION OF BUSINESS. Until the Closing Date, Seller will
continue to conduct its business in the ordinary and usual course consistent
with past practice, and, without limiting the generality of this undertaking,
Seller will not do or suffer to be done any of the following, whether or not in
the ordinary and usual course, without the prior written consent of Purchaser:
(a) Dispose or contract to dispose of any Real Property or other
Subject Assets (other than in the ordinary course of business), or any
interest in any Real Property or other Subject Assets;
(b) Acquire or contract to acquire any Real Property or capital
assets in excess of $10,000;
(c) Enter into any obligations or commitments for future payments
in excess of $5,000 other than in connection with fulfilling currently
existing customer purchase orders;
(d) Enter into any capital or operating lease calling for
expenditures in excess of $5,000;
(e) Encumber any assets (other than in the ordinary course of
business);
(f) Declare or pay any dividend or declare or make any other
distribution to shareholders other than a distribution to Xxxxx to
fulfill his obligations under the Xxxxxxx Documents and the
corresponding, pro rata, distribution to Neville;
(g) Purchase or redeem any shares, notes or other securities
provided, however, that this Section 10.1(g) shall not prohibit Seller
from paying to Neville (i) any principal amount in excess of
$1,200,000 due under the Neville Note and (ii) $800,000 to reduce the
outstanding principal balance under the Neville Note to $400,000
(after giving effect to any payments permitted under subsection (g)(i)
of this Section 10.1);
(h) Increase the rate or amount of compensation or the amount or
type of other remuneration to any of its directors, officers,
employees, agents or other representatives, or agree to do so;
(i) Form or cause to be formed, or dispose or contract to dispose
of, any Subsidiary, or any interest in any Subsidiary;
(j) Reclassify, split or combine its shares, or issue, sell,
distribute or dispose of any shares, notes or other securities, or
commit itself to do so;
33
34
(k) Make any new commitments or agree to make commitments for
capital improvements or significantly alter standing commitments for
capital improvements in excess of $10,000;
(l) Make any single expenditure or agree to make any single
expenditure, or series of expenditures in excess of $10,000 in the
aggregate (other than the payment of professional fees incurred in
connection with this transaction in an aggregate amount not to exceed
$45,000);
(m) Negotiate with anyone other than Purchaser for, or
participate with anyone other than Purchaser in, the acquisition of
all or any part of the Subject Assets;
(n) Amend, or permit to be amended, in any way, its Articles of
Incorporation or By-Laws other than relating to the change of Seller's
name;
(o) Make any material change in accounting methods; and
(p) Award any bonus compensation or enter into other bonus
arrangements with any employees or shareholders other than year-end
bonuses to employees in an aggregate amount not to exceed $125,000.
10.2 PRESERVATION OF BUSINESS. Seller will use its best efforts to (i)
preserve intact its present business organization and personnel, (ii) preserve
its business, actual and potential, and its advantageous relationships with all
persons having business dealings with it, and (iii) preserve and maintain in
force all its licenses, certificates, leases, contracts, permits, registrations,
franchises, confidential information, patents, trademarks, trade names, service
marks and copyrights, and applications for any of the same, and other similar
rights. Seller will use its best efforts to maintain in force all property,
casualty, crime, life, directors, officers and other forms of insurance and
bonds which it presently carries.
10.3 CONSENTS AND APPROVALS. Seller, the Shareholders, Purchaser and
Waterlink will use all reasonable efforts to obtain all necessary consents and
approvals of all persons, firms, entities and governmental authorities to the
consummation of the transactions contemplated by this Agreement.
ARTICLE XI
----------
ADDITIONAL COVENANTS
--------------------
11.1 ALLOCATION OF TAXES, FILING RESPONSIBILITY. Except as otherwise
specifically agreed to herein, Seller shall file all tax returns and pay all
taxes for all taxable periods ending on or before the Closing Date. Purchaser
shall file all returns and pay all taxes for all taxable periods commencing
after the Closing Date. For any taxable period commencing before and ending
after the Closing Date, the Purchaser shall file such returns (with full
cooperation from Seller) and any taxes due for such periods shall be allocated
between Seller and Purchaser based upon the relative
34
35
taxable activity occurring on or before the Closing on the one hand, and after
the Closing on the other.
11.2 SELLER NAME CHANGE. Within three (3) business days after the
Closing, Seller will file appropriate and necessary documentation with the
Secretary of the Commonwealth of Massachusetts amending its Articles of
Incorporation to change its name to a name other than Mass Transfer Systems,
Inc. or any derivative thereof.
ARTICLE XII
-----------
WATERLINK GUARANTEE
-------------------
Waterlink hereby irrevocably and unconditionally guarantees the full,
timely and faithful performance by Purchaser of its obligations contained in
Section 2.2 of this Agreement, under the Promissory Notes and the New Neville
Note (the "Guaranteed Obligations"). This guarantee is a continuing, absolute
and unconditional guarantee and shall remain in full force and effect so long as
Purchaser has any obligations under the Guaranteed Obligations. Waterlink waives
notice of acceptance of this guarantee and notice of any liability to which it
may apply, and waives presentation, demand and protest of any Guaranteed
Obligation and also waives notice of any nonpayment. The obligations of
Waterlink under this guarantee are absolute and unconditional and shall not be
impaired by:
(a) the failure of Seller, the Shareholders or Neville to assert
any claim or demand or to enforce any right or remedy against
Purchaser;
(b) any rescission, waiver, amendment or modification of any of
the terms or provisions of this Agreement or any agreement or
instrument executed pursuant thereto; or
(c) the act or failure to act in any manner referred to in this
guarantee which may deprive Waterlink of its right to subrogation
against Purchaser to recover fully indemnity for any payment made
pursuant to this guarantee.
This guarantee is a continuing guarantee and shall be binding upon
Waterlink and its successors and assigns and shall inure to the benefit of the
successors and assigns of Seller and the Shareholders.
ARTICLE XIII
------------
ASSIGNMENT, THIRD PARTIES, BINDING EFFECT
-----------------------------------------
The rights under this Agreement are not assignable nor are the duties
delegable by a party without the written consent of the other party first having
been obtained, and any attempted assignment or delegation without such consent
will be null and void; provided, however, that Purchaser and Waterlink may
assign their respective rights hereunder to their principal lenders,
35
36
subject to any defenses that Seller and the Shareholders may have hereunder
against Purchaser and Waterlink. Nothing contained in this Agreement is intended
to convey upon any person or entity, other than the parties and their successors
in interest and permitted assigns, any rights or remedies under or by reason of
this Agreement unless expressly stated. All covenants, agreements,
representations and warranties of the parties contained in this Agreement are
binding on and will inure to the benefit of Purchaser, Waterlink, Seller and the
Shareholders, respectively, and their respective successors and permitted
assigns.
ARTICLE XIV
-----------
EXPENSES
--------
Except as otherwise agreed to in this Agreement, Purchaser and
Waterlink, on the one hand, and Seller and the Shareholders, on the other hand,
will bear their own respective expenses, including, without limitation, counsel
and accountants' fees, in connection with the preparation and negotiation of,
and transactions contemplated under, this Agreement.
ARTICLE XV
----------
NOTICES
-------
All notices, requests, demands and other communications under this
Agreement must be in writing and will be deemed duly given, unless otherwise
expressly indicated to the contrary in this Agreement, (i) when personally
delivered, (ii) upon receipt of a telephonic facsimile transmission with a
confirmed telephonic transmission answer back, (iii) three (3) days after having
been deposited in the United States mail, certified or registered, return
receipt requested, postage prepaid, or (iv) one (1) business day after having
been dispatched by a nationally recognized overnight courier service, addressed
to the parties or their permitted assigns at the following addresses (or at such
other address or number as is given in writing by either party to the other) as
follows:
TO PURCHASER OR WATERLINK: Waterlink, Inc.
------------------------- 000 Xxxxxx Xxx., X.X.
Xxxxxx, Xxxx 00000
Facsimile No.: 000-000-0000
Attention: Xxxxxxxx X. Xxxxxxxxx,
Chairman
With a copy to: Benesch, Friedlander,
Xxxxxx & Xxxxxxx P.L.L.
0000 XX Xxxxxxx Xxxxxxxx
000 Xxxxxx Xxxxxx
Xxxxxxxxx, Xxxx 00000-0000
Facsimile No.: 000-000-0000
Attention: Xxx X. Xxxxxx
36
37
TO SELLER OR THE SHAREHOLDERS: c/o Xxxx X. Xxxxxxx
------------------------------ 000 Xxxxxxxxxx Xxxxx
Xxxxxxx, Xxxxxxxxxxxxx 00000
Facsimile No.: 508-821-2523
With a copy to: Xxxxxxxx, Xxxxx & Xxxxxx
0000 Xxxxx Xxxxxx
Xxxxxxxxxx, Xxxxx Xxxxxx 00000
Facsimile No.: 401-277-9600
Attention: Xxxxxx Xxxxxxx Xxxx
ARTICLE XVI
-----------
REMEDIES NOT EXCLUSIVE
----------------------
No remedy conferred by any of the specific provisions of this
Agreement is intended to be exclusive of any other remedy, and each and every
remedy will be cumulative and will be in addition to every remedy given under
this Agreement or now or subsequently existing, at law or in equity, by statute
or otherwise. The election of any one or more remedies by Purchaser or Seller
will not constitute a waiver of the right to pursue other available remedies.
ARTICLE XVII
------------
NON-COMPETITION
---------------
17.1 NON-COMPETITION AGREEMENT.
(a) For a period of five (5) years from and after the Closing
Date, (but as to clauses (iv) and (v) at any time after the Closing
Date), in any states in the United States or any countries outside the
United States where Purchaser or Waterlink then has done business or
is actively contemplating doing business, Seller shall not, directly
or indirectly, whether as an individual on Seller's own account, or as
a shareholder, partner, joint venturer, director, officer, employee,
consultant, creditor and/or agent, of any person, firm or organization
or otherwise, directly or indirectly:
(i) engage in, carry on or have any interest in a business
substantially similar to the business as carried on the date of
termination of this Agreement, by the Purchaser, Waterlink or any
subsidiary of Waterlink,
(ii) enter into, engage in, or be employed by or consult
with any business in, competition with the Purchaser, Waterlink
or any subsidiary of Waterlink on matters substantially similar
to the business as carried on by Purchaser or Waterlink on the
date of termination of this Agreement,
37
38
(iii) employ, assist in employing or otherwise associate in
business with any present, former or future employee of
Purchaser, Waterlink or any subsidiary of Waterlink,
(iv) induce any person who is a present or future employee,
officer, agent, affiliate or customer of Purchaser, Waterlink or
any subsidiary of Waterlink to terminate the relationship, and
(v) induce any customer or supplier of Purchaser, Waterlink
or any subsidiary of Waterlink to refuse to do business with
Purchaser or Waterlink or any subsidiary of Waterlink, as the
case may be, on as favorable terms as previously done with
Purchaser, Waterlink or any subsidiary of Waterlink, as the case
may be.
Seller acknowledges that the length of time and geographic
restriction pertaining to all prohibitions in this Subsection (a) both
are reasonable and necessary for the legitimate protection of
Purchaser's business and interests.
(b) Seller expressly agrees and understands that the remedy at
law for any breach by Seller of this Article XVII will be inadequate
and that the damages flowing from such breach are not readily
susceptible to being measured in monetary terms. Accordingly, it is
acknowledged that upon adequate proof of Seller's violation of this
Article XVII, Purchaser will be entitled, among other remedies, to
immediate injunctive relief and may obtain a temporary restraining
order restraining any threatened or further breach. Nothing in this
subsection (b) will be deemed to limit Purchaser's remedies at law or
in equity for any breach by Seller of any of the provisions of this
Agreement which may be pursued or availed of by Purchaser.
(c) In the event any court of competent jurisdiction determines
that the specified time period or geographical area set forth in this
Section 17.1 is unreasonable, arbitrary or against public policy, then
a lesser time period or geographical area that is determined by the
court to be reasonable, non-arbitrary and not against public policy
may be enforced.
(d) In the event Seller violates any legally enforceable
provision of this Section 17.1 as to which there is a specific time
period during which Seller is prohibited from taking certain actions
or engaging in certain activities, then, in such event the violation
will toll the running of the time period from the date of the
violation until the violation ceases.
17.2 DISCLOSURE OF CONFIDENTIAL INFORMATION. Except as may be required
by law or necessary in connection with any dealings with any public agency or
authority, from and after the Closing Date, Seller and the Shareholders will not
disclose, disseminate, divulge, discuss, copy or otherwise use or suffer to be
used, in competition with, or harmful to the interests of, Purchaser or
Waterlink, any information (written or oral), documents, lists or other data of
or respecting any aspect of the Subject Assets or the business being acquired by
Purchaser from Seller under this
38
39
Agreement. The terms of this Section 17.2 shall not survive the termination of
this Agreement for any reason.
ARTICLE XVIII
-------------
MISCELLANEOUS
-------------
18.1 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original but all of which
together will constitute one and the same document.
18.2 CAPTIONS AND SECTION HEADINGS. Captions and section headings are
for convenience only, are not a part of this Agreement and may not be used in
construing it.
18.3 POSSESSION OF SUBJECT ASSETS. Possession of the Subject Assets
will be given to Purchaser on the Closing Date. Purchaser will not acquire any
title to the Subject Assets until possession has been given to it in accordance
with this Section 18.3, and, accordingly, all risk and loss with respect to the
Subject Assets will be borne by Seller until possession has been given to
Purchaser. For purposes of this Section 18.3, possession will be deemed to have
been given to Purchaser when Seller delivers or causes to be delivered to
Purchaser good and sufficient instruments of transfer and conveyance as provided
in this Agreement.
18.4 WAIVERS. Any failure by any of the parties to comply with any of
the obligations, agreements or conditions set forth in this Agreement may be
waived by the other party or parties, but any such waiver will not be deemed a
waiver of any other obligation, agreement or condition contained herein.
18.5 RIGHT OF INSPECTION. From and after the date of this Agreement to
the Closing Date, each of the parties hereto will give to the other and their
counsel, accountants and other representatives, full access during normal
business hours to its offices, properties, agreements, records and affairs, and
will furnish copies of all contracts and other instruments as such or counsel
may reasonably request. All such information will be treated confidentially and
will be used only for the purposes intended. If the transactions contemplated
under this Agreement do not take place, all documents and other property of the
disclosing party will be returned and all disclosures and information given to
the investigating party as contemplated under this Agreement will be treated as
confidential and not disclosed to others unless disclosed publicly by the
disclosing party or other third parties without fault on the part of the
investigating party, or unless otherwise required by law.
18.6 AMENDMENTS, SUPPLEMENTS OR MODIFICATIONS. Each of the parties
agrees to cooperate in the effectuation of the transactions contemplated under
this Agreement and to execute any and all additional documents to take such
additional action as is reasonably necessary or appropriate for such purposes.
39
40
18.7 ENTIRE AGREEMENT. This Agreement, including any certificate,
schedule, exhibit or other document delivered pursuant to its terms, constitutes
the entire agreement between the parties. There are no verbal agreements,
representations, warranties, undertakings or agreements between the parties, and
this Agreement may not be amended or modified in any respect, except by a
written instrument signed by the parties to this Agreement.
18.8 GOVERNING LAWS. This Agreement is to governed by and construed in
accordance with the internal laws of the Commonwealth of Massachusetts.
18.9 KNOWLEDGE. All references to "knowledge" or "best knowledge" of
Seller means the actual knowledge of the Shareholders, and of Purchaser or
Waterlink means the actual knowledge of each such party, each after reasonable
investigation and due diligence. Failure to so investigate or exercise due
diligence may result in the imputation of knowledge to a party if the
circumstances, in the opinion of a trier of the facts, so warrants.
18.10 PRESS RELEASES. Prior to the Closing, no party will issue or
cause the publication of any press release or other public announcement with
respect to this Agreement or the transactions contemplated under this Agreement
without the prior consent of the other party first obtained.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the date first above written.
WATERLINK ACQUISITION CORP.
By: /s/ Xxxxx X. Xxxxxxx
----------------------------------
Its: CFO
MASS TRANSFER SYSTEMS, INC.
By: /s/ Xxxx X. Xxxxxxx
----------------------------------
Its: President
WATERLINK, INC
By: /s/ Xxxx X. Xxxxxxx
----------------------------------
Xxxx X. Xxxxxxx
By: /s/ Xxxxxxxxx X. Xxxxx
----------------------------------
Xxxxxxxxx X. Xxxxx
40
