1
EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
AMONG
STRATEGIC SUPPLY, INC., XXXXXXX TECHNOLOGIES, INC.
AND STRATEGIC DISTRIBUTION, INC.
AND
DXP ACQUISITION, INC. AND DXP ENTERPRISES, INC.
(PREVIOUSLY INDEX, INC.)
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TABLE OF CONTENTS
Page
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ARTICLE I DEFINED TERMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Other Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE II AGREEMENT OF SALE AND PURCHASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.1 Agreement to Purchase and Sell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.2 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.3 Method of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.4 Assumption of Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.5 Instruments of Transfer: Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.6 Value Assigned to the Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE III REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.1 Representations and Warranties of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.2 Representations and Warranties of Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE IV CONDUCT AND TRANSACTIONS PRIOR TO CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.1 Access to Records and Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.2 Operation of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.4 No Public Announcements or Negotiation with Others . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.5 Reasonable Efforts to Satisfy Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.6 Bulk Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.7 Change of Seller's Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.8 Vacate Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.9 Title Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.10 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.11 Cooperation on Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.12 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.13 Cancellation of Certain Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE V CONDITIONS OF CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.1 Conditions of Obligations of Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.2 Conditions of Obligations of Seller and SDI . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE VI CLOSING DATE AND TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.1 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.2 Termination of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE VII INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.1 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.2 Notice Participation; Duration; Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.3 INDEMNIFICATION IF NEGLIGENCE OF INDEMNITEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
7.4 Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
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7.5 Limited Offset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
7.6 No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.7 Guarantee by DXP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE VIII MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
8.1 Further Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
8.2 No Broker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
8.3 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
8.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
8.5 Acknowledgment Concerning Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . 44
8.6 Limitation on Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
8.7 Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
8.8 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
8.9 Assignability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
8.10 Waivers and Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
8.11 Third Party Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
8.12 Illegalities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
8.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
8.14 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
8.15 Access to Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
8.16 Offset to Subordinated Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
8.17 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
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ANNEXES
Annex A Seller's Disclosure Letter
Annex B Seller's Net Tangible Asset Value as of March 31, 1997
EXHIBITS
2.2(A)(1) Consideration Note
2.3(A) Subordinated Note
2.5.1 General Conveyance, Transfer and Assignment
2.5.2 Assumption Agreement
5.1(C) Opinion of Counsel to Seller
5.2(C) Opinion of Counsel to Purchaser
5.2(D) Transition Services Agreement
7.7 Guaranty Agreement
SCHEDULES
3.2(B) Purchaser's Consents, Approvals, Authorizations, Waivers and Notices
3.2(F) Purchaser's Litigation
8.14(A) Excluded Employees
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ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement") is made and entered
into May 27, 1997, by and among:
STRATEGIC SUPPLY, INC. ("Seller"), a Delaware corporation, XXXXXXX
TECHNOLOGIES, INC. ("Xxxxxxx"), a Delaware corporation, STRATEGIC
DISTRIBUTION, INC. ("SDI"), a Delaware corporation; and
DXP ACQUISITION, INC. doing business as STRATEGIC ACQUISITION, INC.
("Purchaser" or "Newco"), a Nevada corporation, and DXP ENTERPRISES,
INC. ("DXP") (previously Index, Inc), a Texas corporation.
RECITALS
Seller desires to sell to the Purchaser the Business and the Assets
(as hereinafter defined), and Purchaser desires to purchase the Business and
Assets, upon the terms and conditions hereinafter set forth.
AGREEMENTS
In consideration of the mutual benefits to be derived and the
representations and warranties, conditions and promises herein contained, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound hereby, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINED TERMS
1.1 Definitions. For the purposes of this Agreement, unless the
context otherwise requires, the following terms shall have the respective
meanings ascribed to them in this Article or in the Sections referred to below:
"Accounts" has the meaning set out in Section 2.1(B)(12).
"Affiliate" means any Person that, directly or indirectly, controls, or is
controlled by or under common control with, another Person. For the purposes
of this definition, "control" (including the terms "controlled by" and "under
common control with"), as used with respect to any Person, means the power to
direct or cause the direction of the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities or
by contract or otherwise.
"Agreement" has the meaning set out in the first paragraph hereof.
"April Balance Sheet" has the meaning set out in Section 3.1(C)(2).
"April Financial Statements" has the meaning set out in Section 3.1(C)(2).
"Assets" has the meaning set out in Section 2.1(A).
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"Assumed Liabilities" has the meaning set out in Section 2.4(A).
"Assumption Agreement" has the meaning set out in Section 2.5.
"Backlog Orders" has the meaning set out in Section 2.1(B)(11).
"Business" shall mean the distribution of industrial and safety supplies and
maintenance and repair operations and activities related thereto which are
presently conducted by Seller and Xxxxxxx.
"Claim" has the meaning set out in Section 7.2(A).
"Closing" has the meaning set out in Section 6.1(A).
"Closing Date" has the meaning set out in Section 6.1(A).
"Closing Date Statement of Net Assets" has the meaning set out in Section
2.2(B).
"Closing Inventory" shall mean the Inventory of Seller and Xxxxxxx transferred
hereunder to Purchaser.
"Closing Receivables" means the outstanding accounts receivable of Seller as of
the Closing Date.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commitment" has the meaning set out in Section 4.9.
"Commonly Controlled Entity" has the meaning set out in Section 3.1(J).
"Confidentiality Agreement" shall mean the Confidentiality Agreement entered
into between Seller and Purchaser in connection with the negotiation of this
Transaction.
"Consideration Note" has the meaning set out in Section 2.2(A).
"Xxxxxxx" has the meaning set forth in the opening paragraph of this Agreement.
"Customer Data" means all of Seller's customer lists, sales records and other
customer data (including credit data) relating to the Business.
"Damages" has the meaning set out in Section 7.1(A).
"December Balance Sheet" has the meaning set out in Section 3.1(C)(1).
"December Financial Statements" has the meaning set out in Section 3.1(C)(1).
"Deed" means the special warranty deed, in form and substance satisfactory to
Purchaser, by which Seller shall transfer title to the Owned Property to
Purchaser.
"Defined Benefit Plan" means a defined benefit plan as defined in Section 3(35)
of ERISA.
"Designated Leases" has the meaning set out in Section 4.13.
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"DXP" has the meaning set out in the opening paragraph of this Agreement.
"Earn-Out Payment" has the meaning set out in Section 2.2(C)(2)(a).
"Earn-Out Period" has the meaning set out in Section 2.2(C)(2)(b).
"Earn-Out Termination Date" has the meaning set out in Section 2.2(C)(4).
"EBIT" has the meaning set out in Section 2.2(C)(2)(c).
"Effective Time of Closing" has the meaning set out in Section 6.1(B).
"Employees" has the meaning set out in Section 8.14(A).
"Environmental Laws" has the meaning set out in Section 3.1(P).
"Equipment" has the meaning set out in Section 2.1(B)(5).
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"Estimated Net Tangible Asset Value" has the meaning set out in Section 2.2(A).
"Excluded Assets" has the meaning set out in Section 2.1(C).
"Excluded Employees" has the meaning set out in Section 8.14(A).
"Final Earn-Out Period" has the meaning set out in Section 2.2(C)(2)(b).
"Final Net Tangible Asset Value" has the meaning set out in Section 2.2(B).
"Financial Statements" has the meaning set out in Section 3.1(C).
"Fixtures and Improvements" has the meaning set out in Section 2.1(B)(2).
"GAAP" has the meaning set out in Section 3.1(C).
"General Conveyance, Transfer and Assignment" has the meaning set out in
Section 2.5.
"Governmental Body" means any court or any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign.
"HWI Stock" means all shares of capital stock owned by Seller in Hardware
Wholesale, Inc.
"Indemnitee" has the meaning set out in Section 7.2(A).
"Indemnitor" has the meaning set out in Section 7.2(A).
"Instruments" has the meaning set out in Section 3.1(I).
"Intangible Assets" has the meaning set out in Section 2.1(B)(7).
"Inventories" has the meaning set out in Section 2.1(B)(10).
"Inventory Realized Amount" has the meaning set out in Section 4.12.
"IRS" means the Internal Revenue Service.
"Known" or "Knowledge" means whenever a statement regarding the existence or
absence of facts in this Agreement is qualified by a phrase such as "to such
Person's knowledge" or "known to such Person," it is intended by the parties
that the only information to be attributed to such Person is information
actually known to (a) the Person in the case of an individual or (b) in the
case of Seller, Xxxxxx X. Xxxxxx, Xxxxxxx Xxxxxx, Xxxx Xxxxx, Xxx Xxxxx, Xxxx
Xxxxxxx or Xxx Xxxxxx or (c) in the case of Purchaser and DXP would mean Xxxxx
Xxxxxx, Xxxxx Xxxxx, Xxxx Xxxxxxx and Xxxxxxx
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Xxxxxxx. Unless otherwise provided in this Agreement, no such Person is
represented to have undertaken a separate investigation in connection with the
transactions contemplated hereby to determine the existence or absence of facts
in any statement qualified by "known by" or "to the knowledge of" any Person.
"Lien" means all mortgages, deeds of trust, liens, security interests, pledges,
conditional sale contracts, claims, rights of first refusal, options, charges,
liberties, easements, rights-of-way, limitations, reservations, restrictions
and other encumbrances of any kind.
"Lufkin Debt" means the indebtedness of Seller to Lufkin Industries, Inc.
evidenced by that certain Promissory Note dated June 14, 1994 in the original
principal balance of $600,000.
"Material Adverse Effect" means (a) any change, development or effect
(individually or in the aggregate) in the general affairs, management,
business, results of operations, condition (financial or otherwise), assets,
liabilities or prospects (whether or not the result thereof would be covered by
insurance) that would be material and adverse to Seller and its subsidiaries,
taken as whole, or (b) any fact or development that would (individually or in
the aggregate) impair Seller's or Xxxxxxx'x ability or obligations to perform
on a timely basis any material obligations it has under this Agreement.
"Net Tangible Asset Value" has the meaning set out in Section 2.2(B).
"Newco" has the meaning set out in the opening paragraph of this Agreement and
in Section 2.2(C)(2)(d).
"Operative Documents" means this Agreement and all other agreements,
instruments, documents, and certificates executed and delivered by or on behalf
of Seller, Xxxxxxx, SDI, or Purchaser, DXP at or before the Closing pursuant to
this Agreement.
"Order" means any order, writ, injunction, decree, judgment, award or
determination of any court or Governmental Body.
"Owned Property " has the meaning set out in Section 2.1(B)(1).
"Permits" means all permits, authorizations, certificates, approvals,
registrations, variances, exemptions, rights-of- way, franchises, privileges,
immunities, grants, ordinances, licenses and other rights of every kind and
character (a) under any (1) federal, state, local or foreign statute, ordinance
or regulation, (2) Order or (3) contract with any Governmental Body or (b)
granted by any Governmental Body.
"Permitted Encumbrances" means (a) Liens described or referred to in Seller's
Disclosure Letter, (b) Liens for current Taxes and assessments not yet due and
payable, including, but not limited to, Liens for nondelinquent ad valorem
Taxes, nondelinquent statutory Liens arising other than by reason of any
default on the part of Seller or its subsidiaries, (c) Liens, in respect of
motor vehicles and transportation equipment used in the ordinary course of
business, (d) purchase-money Liens if incurred in the ordinary course of
business and which relate to obligations assumed hereunder by Purchaser, (e)
Liens reflected on the Commitment, or (f) such Liens, minor imperfections of
title, or easements on real property, leasehold estates, or personalty as do
not in any material respect detract from the value thereof and do not
materially interfere with the present use of the property subject thereto.
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"Person" means an individual, partnership, joint venture, corporation, bank,
trust, unincorporated organization or a Governmental Body.
"Prime Rate" means the prime lending rate charged, from time to time, by Texas
Commerce Bank, National Association, to its commercial customers.
"Products" means all products marketed or distributed by Seller or Xxxxxxx.
"Purchase Price" has the meaning set out in Section 2.2(A).
"Purchaser" has the meaning set out in the opening paragraph of this Agreement.
"Purchaser April Balance Sheet" has the meaning set out in Section 3.2(E)(2).
"Purchaser April Financial Statements" has the meaning set out in Section
3.2(E)(2).
"Purchaser December Balance Sheet" has the meaning set out in Section
3.2(E)(1).
"Purchaser December Financial Statements" has the meaning set out in Section
3.2(E)(1).
"Purchaser Financial Statements" has the meaning set out in Section 3.2(E).
"Purchaser Indemnitees" has the meaning set out in Section 7.1(A).
"Real Property" means the Owned Property and the Fixtures and Improvements and
Realty Rights pertaining thereto.
"Realty Rights" has the meaning set out in Section 2.1(B)(3).
"Records" has the meaning set out in Section 2.1(B)(13).
"Scheduled Contracts" has the meaning set out in Section 2.1(B)(9).
"Scheduled Leases" has the meaning set out in Section 2.1(B)(8).
"SDI" has the meaning set out in the opening paragraph of this Agreement.
"Seller" has the meaning set out in the opening paragraph of this Agreement.
"Seller 401(K) Plan" means the Strategic Distribution, Inc. Profit Sharing Plan.
"Seller Indemnitees" has the meaning set out in Section 7.1(B).
"Seller's Disclosure Letter" means the disclosure letter, in the form set forth
in Annex A hereto, delivered by Seller and Xxxxxxx to Purchaser upon the
execution and delivery of this Agreement, and a "Supplement" thereto means a
supplemental disclosure letter delivered pursuant to Section 5.1(H) of this
Agreement.
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"Subordinated Note" has the meaning set out in Section 2.3(A)(2).
"Supplier Data" means all of Seller's supplier lists and other supplier data
relating to the purchase of raw materials, utilities and other supplies used in
connection with the Business.
"Tax Obligations" means, collectively, Taxes which are attributable or relating
to the assets or the business of Seller or Xxxxxxx for any periods ending on or
before the Effective Time of Closing, or which may be applicable because of
Seller's or Xxxxxxx'x sale of the Business or any of the Assets to Purchaser.
"Taxes" means, collectively, any federal, state, local or foreign income,
sales, real or personal property or other taxes, assessments, fees, levies,
imposts, duties, deductions or other charges of any nature whatsoever
(including without limitation interest and penalties) imposed by any law, rule
or regulation.
"TBCA" means the Texas Business Corporation Act, as amended.
"Title Policy" has the meaning set out in Section 4.9.
"Transaction" means the sale and purchase of the Assets, assignment and
assumption of certain liabilities, and performance of covenants, in each case
as contemplated by this Agreement.
"Vehicles" has the meaning set out in Section 2.1(B)(4).
1.2 Other Definitions.
A. All terms defined in this Agreement shall have the
above-defined meanings when used in any of the
documents described herein, certificates, reports or
other documents made or delivered pursuant to this
Agreement, unless the context therein shall otherwise
require.
B. Defined terms used herein in the singular shall
import the plural and vice versa.
C. The words "hereof", "herein", "hereunder" and similar
terms when used in this Agreement shall refer to this
Agreement as a whole and not to any particular
provision of this Agreement.
D. Unless specifically otherwise noted, references to
statutes by popular names are references to the
United States Code Annotated, including the
regulations promulgated thereunder, and all
amendments thereof.
ARTICLE II
AGREEMENT OF SALE AND PURCHASE
2.1 Agreement to Purchase and Sell.
A. On and subject to the terms and conditions of this
Agreement, Seller and Xxxxxxx agree to sell, convey,
transfer, assign and deliver to Purchaser, and
Purchaser agrees to purchase from Seller and Xxxxxxx,
the assets, rights,
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franchises and properties described in Section 2.1(B)
(all such assets, rights, franchises and properties
being herein collectively referred to as the "Assets"
and individually referred to as an "Asset") free and
clear of all Liens other than Permitted Encumbrances;
provided, however, that the Assets shall not include
the Excluded Assets.
B. Subject to Section 2.1(C), the Assets shall consist
of all assets of Seller and Xxxxxxx at the Effective
Time of Closing described in the following clauses
(1) through (20):
(1) Owned Property. The parcels of real property
described (by metes and bounds calls) in
Appendix 2.1(B)(1) to the Seller's Disclosure
Letter (the "Owned Property").
(2) Fixtures and Improvements. All estates,
rights, titles and interests of Seller in and
to all warehouses, storage facilities,
buildings, works, structures, fixtures,
landings, construction in progress,
improvements, betterments, installations and
additions constructed, erected or located on
or attached or affixed to the Owned Property
(the "Fixtures and Improvements").
(3) Realty Rights. All estates, rights, titles
and interests of Seller in and to all
tenements, hereditaments, easements,
rights-of-way, rights, licenses, patents,
rights of ingress and egress, reversionary
interests, privileges, appurtenances and
other related interest, belonging, pertaining
or relating to the Owned Property, any and
all rights to the present or future use of
wastewater, wastewater capacity, drainage,
water or other utility facilities relating to
the Owned Property, including, without
limitation, all reservations of or
commitments or letters covering any such use
in the future, whether now owned or hereafter
acquired, and the entire right, title and
interest of Seller, if any, in, to and under
all streets, ways, alleys, passages, strips,
gores, pipes, pipelines, sewers, sewer
rights, ditches, waters, water courses, water
rights and powers, air rights, railroad
sidings, minerals, mineral rights and mineral
interests adjoining, upon, above, in, under
or pertaining to the Owned Property, all
currently existing options and rights to
purchase or otherwise acquire real property
that is contiguous to the Owned Property, and
all claims or demands whatsoever of Seller,
either in law or in equity, with respect to
the Owned Property, including, without
limitation, any unpaid awards to be made
relating thereto, including any unpaid awards
or damages payable by reason of damage
thereto or by reason of a widening of any
adjoining streets or roads or a changing of
the grade with respect to same (the "Realty
Rights").
(4) Vehicles. All the trucks, trailers and other
certificated vehicles described in Appendix
2.1(B)(4) to the Seller's Disclosure Letter
of Seller and Xxxxxxx (the "Vehicles").
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(5) Equipment. All of Seller's and Xxxxxxx'x
furniture, equipment, machinery, apparatus,
tools, dies, appliances, vehicles,
implements, spare parts, supplies and all
other tangible personal property of every
kind and description (other than the Vehicles
and the Inventories) located either on the
Owned Property or elsewhere insofar as any of
the foregoing relates to the Business (the
"Equipment"). The Equipment includes,
without limitation, all of the items listed
in Appendix 2.1(B)(5) to the Seller's
Disclosure Letter.
(6) Permits. All right, title and interest of
Seller and Xxxxxxx in, to and under all
Permits relating to the Business (to the
extent same are assignable) including,
without limitation, those listed in Appendix
2.1(B)(6) to the Seller's Disclosure Letter.
(7) Intangible Assets. All right, title and
interest of Seller and Xxxxxxx in, to and
under all patents, trademarks, technology,
know-how, data, copyrights, trade names,
service marks, licenses, covenants by others
not to compete, rights and privileges used
exclusively in the conduct of the Business
(the "Marks") and the right to recover for
infringement thereon and all goodwill
associated with the Business in connection
with which the Marks are used, all as listed
in Appendix 2.1(B)(7) to the Seller's
Disclosure Letter (the "Intangible Assets").
(8) Scheduled Leases. All right, title and
interest of Seller and Xxxxxxx in, to and
under the lease agreements described in
Appendix 2.1(B)(8) to the Seller's Disclosure
Letter (the "Scheduled Leases") and all
rights (including rights of refund and
offset), privileges, deposits, claims, causes
of action and options relating or pertaining
to the Scheduled Leases or any thereof.
(9) Scheduled Contracts. All right, title and
interest of Seller and Xxxxxxx in, to and
under the contracts and agreements described
in Appendix 2.1(B)(9) to the Seller's
Disclosure Letter (the "Scheduled Contracts")
and all rights (including rights of refund
and offset), privileges, deposits, claims,
causes of action and options relating or
pertaining to the Scheduled Contracts or any
thereof.
(10) Inventories. All of Seller's and Xxxxxxx'x
inventories located either at the Owned
Property or elsewhere insofar as any of the
foregoing relates to the Business, including,
without limitation, finished goods,
work-in-progress, raw materials, supply
inventories, and other inventories (the
"Inventories").
(11) Backlog Orders. All of Seller's and
Xxxxxxx'x backlog of orders for Products
which are accepted by Seller in the ordinary
course of business prior to the Effective
Time of Closing and not invoiced or shipped
or canceled prior to the Effective Time of
Closing (collectively, the "Backlog Orders").
13
(12) Cash and Bank Accounts. The bank accounts
described on Appendix 2.1(B)(12) to the
Seller's Disclosure Letter (including all
cash on deposit in such accounts and
uncleared deposits in such accounts) and the
xxxxx cash of Seller and Xxxxxxx in each case
as of the Closing Date (collectively, the
"Accounts").
(13) Books and Records. All of Seller's and
Xxxxxxx'x books, records, papers and
instruments of whatever nature and wherever
located that relate to the Business or the
Assets or which are required or necessary in
order for Purchaser to conduct the Business
from and after the Effective Time of Closing
in the manner in which it is presently being
conducted, including, without limitation,
blueprints, specifications, plats, maps,
surveys, building and machinery diagrams,
accounting and financial records, maintenance
and production records, personnel and labor
relations records, environmental records and
reports, sales and property Tax records and
returns, sales records, the Customer Data and
the Supplier Data, but excluding income Tax
records and returns and corporate minute book
and stock records (the "Records").
(14) Prepaid Expenses and Current Assets. All
right, title and interest of Seller and
Xxxxxxx in and to all prepaid rentals, other
prepaid expenses, bonds, deposits and other
current assets relating to any of the Assets
or the Business, including, without
limitation, all prepaid expenses of the
nature described in the April Balance Sheet
but excluding any deferred income Taxes and
prepaid insurance premiums.
(15) Stock Ownership. All shares of capital stock
owned by Seller in Hardware Wholesale, Inc.
(16) Computers. All right, title and interest of
Seller and Xxxxxxx in computer equipment and
hardware located at the Owned Property or any
property subject to the Scheduled Leases,
including, without limitation, all central
processing units, terminals, disk drives,
tape drives, electronic memory units,
printers, keyboards, screens, peripherals
(and other input/output devices), modems and
other communication controllers, and any and
all parts and appurtenances thereto, together
with all intellectual property used by Seller
in the operation of such computer equipment
and hardware (to the extent same is
assignable), including, without limitation,
all software, all of Seller's rights under
any licenses related to Seller's use, at any
time, of such computer equipment, hardware or
software, and all assignable leases pursuant
to which Seller leases any computer
equipment, hardware or software; insofar, and
only insofar, as any of the foregoing relates
to the Business, provided in no event shall
Purchaser acquire any interest in or right to
use any computer software or intellectual
property which is an Excluded Asset.
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(17) Other Intangibles. All right, title and
interest of Seller and Xxxxxxx in, to and
under all rights, privileges, claims, causes
of action, and options relating to the
Business or the foregoing Assets, including
any Customer Data.
(18) Other Property. All other or additional
privileges, rights, interests, properties and
assets of Seller and Xxxxxxx of every kind
and description and wherever located that are
used exclusively in the Business as presently
being conducted.
(19) Names. The names Strategic Supply, Inc.,
SafetyMaster Corporation, and Xxxxx Supply,
Inc.
(20) Goodwill. Goodwill associated with the
transferred Assets and Business.
C. The Assets shall not include any of the assets of
Seller or Xxxxxxx, as of the Effective Time of
Closing, set forth on Appendix 2.1(C) to the Seller's
Disclosure Letter (collectively, the "Excluded
Assets").
D. Seller agrees to assign to Purchaser, and Purchaser
agrees to assume, perform and discharge all of the
liabilities, duties and obligations of Seller which
arise after the Effective Time of Closing under the
Scheduled Leases as identified in Appendix 2.1(B)(8)
to the Seller's Disclosure Letter to the extent such
leases are assignable to Purchaser.
2.2 Purchase Price.
A. The purchase price for the Assets (the "Purchase
Price") shall be the sum of the (i) Net Tangible
Asset Value (as defined in Section 2.2(B) below),
(ii) an amount equal to the cash transferred to
Purchaser by Seller and referenced in Section
2.1(B)(12) hereof plus $50,000, (iii) the promissory
note in the amount of the outstanding principal
balance, as of the Closing Date, of the Lufkin Debt
in the form of Exhibit 2.2(A)(1) hereto (the
"Consideration Note") and (iv) the total amount of
Earn-Out Payments (as defined in Section 2.2(C)(2)(a)
below). At the Closing, Purchaser and Seller shall
complete and execute a certificate setting forth
their best estimate of the Net Tangible Asset Value
based on the April Balance Sheet (the "Estimated Net
Tangible Asset Value").
B. (1) Seller shall cause KPMG Peat Marwick to prepare
in accordance with GAAP an audited statement of net
assets acquired as of the Closing Date (the "Closing
Date Statement of Net Assets"). Not later than the
sixtieth day after the Closing Date, the final Net
Tangible Asset Value (the "Final Net Tangible Asset
Value") as of the Effective Time of Closing shall be
determined from such Closing Date Statement of Net
Assets. The Seller shall deliver to Purchaser a copy
of the Closing Date Statement of Net Assets and a
certificate setting forth the Final Net Tangible
Asset Value. Purchaser shall within 20 days
following receipt from Seller of the calculation of
the Final
15
Net Tangible Asset Value accept or provide a written
objection to the Final Net Tangible Asset Value. If
Purchaser objects to the Final Net Tangible Asset
Value, then Purchaser and Seller shall cooperate in
good faith to reach a mutual agreement as to such
amount. If Purchaser and Seller are unable to agree
on any component of Final Net Tangible Asset Value
within 20 days after Purchaser's written objection,
then such dispute shall be resolved by a nationally
recognized independent accounting firm mutually
agreed upon by Purchaser and Seller, whose
determination shall be final and binding. Such
independent accounting firm will not be the principal
accounting firm used by either Seller or Purchaser.
All costs and fees of such independent accounting
firm shall be shared equally by Purchaser and Seller.
Not later than (i) the 80th day after the Closing
Date or (ii) if the Final Net Tangible Asset Value is
disputed within five (5) days following resolution of
such dispute, Purchaser and Seller shall adjust the
principal amount of the Subordinated Note by an
amount necessary to compensate for the increase or
decrease, respectively, in the Final Net Tangible
Asset Value from the Estimated Net Tangible Asset
Value.
(2) "Net Tangible Asset Value" shall be the value
of Seller's and Xxxxxxx'x net tangible assets
at the Closing Date, such value being
calculated as follows:
(a) net inventory (inventory less
applicable reserves) at the Closing
Date; plus
(b) property, plant and equipment (net
of depreciation) at the Closing Date;
plus
(c) prepaid expenses and other tangible
assets (including deposits and the
HWI Stock) at the Closing Date;
minus
(d) accrued expenses and accounts
payable; minus
(e) the principal amount of the
Consideration Note.
The Closing Date Statement of Net Assets will be
prepared in accordance with GAAP. By way of example,
if the Net Tangible Asset Value were to be derived
from the Seller's March 31, 1997 financials and
calculated as of March 31, 1997, the Net Tangible
Asset Value would be calculated in the manner set
forth in Annex B attached hereto.
C. (1) Subject to the provisions of subsections (3)
and (4) below, and except with regard to the
Final Earn-Out Period, Purchaser shall on the
15th day of April next succeeding each
Earn-Out Period pay to Seller the Earn-Out
Payment applicable to such Earn-Out Period.
The first Earn-Out Payment shall be due and
payable on April 15, 1998. Pursuant to
Section 2.2(C)(2)(a) herein, the Earn-Out
Payment for the Final Earn-Out Period shall
be due and payable on September 30, 2002 and
any adjustment thereto shall be due and
payable or
16
refundable, as the case may be, on April 15,
2003.
(2) For purposes of this Section 2.2(C), the
following terms shall have the meanings
herein set forth:
(a) "Earn-Out Payment" shall be the
amount by which EBIT of Newco for
the applicable Earn-Out Period
exceeds 3% of Newco net sales for
such Earn-Out Period. The Earn-Out
Payment for the Final Earn-Out
Period shall be calculated from
interim financial statements
prepared in accordance with GAAP as
of May 30, 2002.
(b) "Earn-Out Period" means the
respective periods, including the
Final Earn-Out Period, (i) from the
Effective Time of Closing through
December 31, 1997, (ii) from January
1, 1998 through December 31, 1998,
(iii) from January 1, 1999 through
December 31, 1999, (iv) from January
1, 2000 through December 31, 2000,
(v) from January 1, 2001 through
December 31, 2001, and (vi) from
January 1, 2002 through May 30, 2002
(the "Final Earn-Out Period").
(c) "EBIT" means the earnings of Newco
before interest and taxes,
calculated in accordance with GAAP.
The calculation of EBIT shall
exclude (i) the impact, if any, of
the amortization of goodwill and
transaction costs created in
connection with the Transaction, and
(ii) the impact, if any, of fair
value adjustments created in
connection with the Transaction. In
calculating Newco's EBIT, Purchaser
may include an annual charge for
corporate overhead which will
include the direct overhead expense
of Newco and an allocation of
overhead from DXP. The amount of
overhead allocated from DXP will not
exceed two percent of the revenue of
Newco. To the extent overhead of
Newco is transferred to DXP, the
percentage allocation of DXP
overhead to Newco will be increased
by an amount equal to the annualized
portion of overhead transferred
divided by the annualized revenue of
DXP. Newco and DXP agree that the
overhead allocation to Newco will be
consistent with the manner in which
overhead is allocated to other
direct and indirect subsidiaries of
DXP.
(d) "Newco" for purposes of this Section
2.2 means Purchaser and the business
of Seller and Xxxxxxx acquired by
Purchaser, as the same shall be
developed and operated by Purchaser
and which business shall be
accounted for by Purchaser on a
stand alone basis.
(3) Earn-Out Payments are due on each April 15th
following an Earn-Out Period (except as
otherwise provided above with respect to the
Final
17
Earn-Out Period) subject to extension if the
amount of the Earn-Out Payment is objected to
by Seller pursuant to the procedures set
forth in this subsection (3). Purchaser
shall calculate the annual Earn-Out Payment
and will deliver to Seller, within 90 days
following the end of the applicable Earn-Out
Period, a statement setting forth the
Earn-Out Payment calculation in sufficient
detail to provide Seller an opportunity to
evaluate and analyze such calculation. If
Seller objects to the calculation, the
Purchaser and Seller shall cooperate in good
faith to reach a mutual agreement as to such
calculation. If Purchaser and Seller are
unable to agree on the calculation within 20
days of the Seller's objection, then such
dispute shall be resolved by a nationally
recognized independent accounting firm
mutually agreed upon by Purchaser and Seller,
other than those principally used by
Purchaser and Seller, whose determination
shall be final and binding. In the event an
independent accounting firm is engaged for
this purpose, the Earn-Out Payment shall not
be overdue for purposes of charging penalty
interest until five days following the
independent accounting firm's final
resolution of the dispute. In the event that
such final resolution reflects that the
Earn-Out Payment for the subject Earn-Out
Period was underestimated by Purchaser by an
amount in excess of five percent (5%), then
Purchaser will be required to bear the costs
of engaging such independent accounting firm.
Otherwise, such costs will be borne by
Seller. The additional amount, if any, of
Earn-Out Payment payable by Purchaser to
Seller due to Purchaser's underestimation of
the Earn-Out Payment shall be paid by
Purchaser to Seller within five (5) days
following receipt by Purchaser of the final
resolution.
(4) The obligation of Purchaser to make Earn-Out
Payments to Seller hereunder shall terminate
on the earlier of (i) the date Seller has
received Earn-Out Payments totaling
$3,500,000 (exclusive of interest payments)
and (ii) April 15, 2003 (the "Earn-Out
Termination Date"), provided that the
Earn-Out Termination Date shall not prohibit
Seller from thereafter collecting from
Purchaser any and all amounts which accrued
on or before such date.
(5) If Purchaser fails to pay any Earn-Out
Payment on the applicable due date, then such
Earn-Out Payment shall thereafter accrue
interest at a rate equal to the lesser of (i)
the Prime Rate plus four percent (4%) per
annum and (ii) the highest applicable rate
chargeable under applicable law until paid by
Purchaser.
(6) In connection with the Earn-Out Payments,
each of Purchaser and DXP covenants and
agrees that:
(a) Purchaser and DXP shall operate the
transferred Business in the ordinary course;
(b) Purchaser and DXP shall keep
adequate records and books of
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account in which complete entries will be made to the
extent necessary to enable Seller to fully review the
calculation of the Earn-Out Payments for each
Earn-Out Period;
(c) Purchaser and DXP shall not, and
shall not permit any of their respective Affiliates
to, enter into any agreement, arrangement or other
transaction which precludes or results in any
material adverse conditions or restrictions on
Purchaser's obligation to make any Earn-Out Payment;
and
(d) Purchaser and DXP shall not, and
shall not permit any of their respective Affiliates
to, take any action, the purpose of which is to
reduce the amount of any Earn-Out Payment or
materially adversely affect any of the other rights
or benefits of Seller under the Earn-Out.
2.3 Method of Payment.
A. The Estimated Net Tangible Asset Value shall be
payable to Seller at the Closing as follows:
(1) Purchaser shall deliver to Seller a wire
transfer of immediately available funds in
the amount of FOUR MILLION FIVE HUNDRED
THOUSAND AND NO/100 DOLLARS ($4,500,000); and
(2) the remainder of the Estimated Net Tangible
Asset Value by Purchaser's delivery to Seller
of a subordinated promissory note in the
amount of the Estimated Net Tangible Asset
Value less $4,500,000 (the "Subordinated
Note"). The Subordinated Note will be in the
form attached as Exhibit 2.3(A) hereto and
will pay interest monthly at the rate of
seven percent (7%) per annum. Principal on
the Subordinated Note will be paid $250,000
in year 1, $250,000 in year 2 and no
principal payment in year 3. Remaining
principal will be paid in 24 equal monthly
installments in years four and five after the
Closing Date. In the event the difference
between the Net Tangible Asset Value and
$4,500,000 is less than $2,500,000, the
amount of the wire transfer amount referenced
in the immediately preceding clause will be
reduced in such amount as necessary to bring
the principal amount of the Subordinated Note
to $2,500,000.
B. In addition, at Closing, Purchaser will (i) pay to
Seller a cash amount by wire transfer of immediately
available funds equal to the cash amounts delivered
by Seller to Purchaser hereunder pursuant to Section
2.1(B)(12) plus $50,000 and (ii) deliver to Seller
the Consideration Note.
2.4 Assumption of Liabilities.
A. The only liabilities assumed by Purchaser hereunder
("Assumed Liabilities") are:
(1) the rights and obligations of Seller and
Xxxxxxx under (i) the
19
Scheduled Contracts specifically set forth in
Appendix 2.1(B)(9) to the Seller's Disclosure
Letter to the extent the Scheduled Contracts
have not been performed at the Effective Time
of Closing and (ii) the Scheduled Leases
specifically set forth in Appendix 2.1(B)(8)
to the Seller's Disclosure Letter to the
extent the Scheduled Leases remain in effect
at the Effective Time of Closing;
(2) the accounts payable of Seller and Xxxxxxx at
the Effective Time of Closing;
(3) the liabilities of Seller and Xxxxxxx, if
any, represented by accrued expenses
(including, without limitation, accrued
expenses for utilities, professional fees
(other than fees related to the Transaction,
which shall be subject to Section 8.3), in
each case to the extent that such accrued
expense items are (i) reflected in the April
Balance Sheet or (ii) incurred in the
ordinary course of business between the date
of the April Balance Sheet and the Effective
Time of Closing and are not paid at the
Effective Time of Closing;
(4) ad valorem or similar Taxes to be prorated
pursuant to Section 2.4(C); and
(5) any and all obligations related to or arising
from the return of products or merchandise of
Seller or Xxxxxxx by customers, whether or
not such products or merchandise were
defective and regardless of fault, provided
the cost of replacing such products or
merchandise or refunding the cost thereof is
not in excess of $200,000 in the aggregate
per calendar year.
B. Except as otherwise provided in Section 2.4(A),
Purchaser does not assume or agree to pay, perform or
discharge, and shall not be responsible for, any
other liabilities or obligations of Seller whether
accrued, absolute, contingent or otherwise.
C. Seller and Purchaser shall each pay its respective
pro rata portion of all 1997 ad valorem or similar
Taxes under any Real Property or Scheduled Lease
included in the Assets. Seller shall pay to
Purchaser at the Closing estimated ad valorem or
similar Taxes for the current year (based on the
prior year's Taxes) prorated to the date of the
Closing. Seller shall make available to Purchaser
copies of all statements and assessments reflecting
such prior year's Taxes. Purchaser shall pay such
sums to the appropriate taxing authorities when due,
prior to becoming delinquent. Purchaser shall
promptly forward to Seller after receipt by Purchaser
copies of all 1997 Tax assessments under any such
property or lease. If the 1997 Taxes shall be
readjusted such that the amounts payable are greater
than the prior year's Taxes, Seller shall pay its pro
rata share of any difference promptly upon notice of
such Taxes having been paid by Purchaser. If such
1997 Taxes shall be readjusted such that the amounts
payable are less than the prior years' Taxes,
Purchaser shall refund to Seller its pro rata share
of such
20
reduction upon notice of such Taxes having been paid
by Purchaser. Except as provided in this Agreement,
Purchaser shall have no other liability for Taxes
payable by Seller (including income Taxes) relating
to Business or the Transaction.
2.5 Instruments of Transfer: Further Assurances. In order to
consummate the transactions contemplated hereby, at the Closing Seller shall
execute and deliver to Purchaser the Deed covering the Real Property, and
Seller and Purchaser shall deliver to each other (a) a completed General
Conveyance, Transfer and Assignment, in the form attached as Exhibit 2.5.1
hereto ("General Conveyance, Transfer and Assignment"), covering all of the
Assets other than the Real Property, and (b) an Assumption Agreement in the
form attached as Exhibit 2.5.2 hereto ("Assumption Agreement"). At the
Closing, and at all times thereafter as may be necessary, Seller shall execute
and deliver to Purchaser (1) such other instruments of transfer as shall be
reasonably necessary or appropriate to vest in Purchaser good and indefeasible
title to the Assets and to comply with the purposes and intent of this
Agreement and (2) such other instruments as shall be reasonably necessary or
appropriate to evidence the assignment by Seller and assumption by Purchaser of
the Scheduled Contracts, the Scheduled Leases and certain other liabilities to
the extent provided in Section 2.4(A).
2.6 Value Assigned to the Assets. On or before the Closing Date,
Purchaser and Seller shall agree on the proportion of the consideration to be
allocated to each of the Assets purchased pursuant to this Agreement as shall
have been proposed by Purchaser and reasonably approved by Seller, and
Purchaser and Seller agree that they shall not thereafter take any position or
action inconsistent with such allocation in the filing of any federal income
Tax returns.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Seller. Seller represents
and warrants to Purchaser that the following are true and correct on and as of
the date of this Agreement (except with respect to matters which are stated as
of a particular date or time) and will be true and correct through the
Effective Time of Closing as if made on and as of that date:
A. Organization and Good Standing of Seller. Seller is
a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware
and is qualified to transact business and is in good
standing as a foreign corporation in the
jurisdictions (which are listed in Appendix 3.l(A) to
Seller's Disclosure Letter) where it is required to
qualify in order to conduct its businesses as
presently conducted except where the failure to be
qualified would not have a Material Adverse Effect.
Seller has the corporate power and authority to own,
lease or operate all properties and assets now owned,
leased or operated by it and to carry on its
businesses as now conducted.
Seller will, prior to Closing, deliver to Purchaser
true and correct copies of the Articles of
Incorporation and Bylaws of Seller.
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B. Consents, Authorizations and Binding Effect.
(1) Seller and SDI may execute, deliver and
perform this Agreement (including without
limitation execution, delivery and
performance of the Operative Documents to
which each of them is a party) without the
necessity of the Seller obtaining any
consent, approval, authorization or waiver or
giving any notice or otherwise, except for
such consents, approvals, authorizations,
waivers and notices:
(a) which have been obtained and are
unconditional and are in full force
and effect and such notices which
have been given;
(b) which are described on Appendix
3.1(B) to Seller's Disclosure Letter;
or
(c) which if not obtained would not have
a material adverse impact on the
Transaction or Purchaser's use of
the Assets or the Business.
(2) Seller has the corporate power to enter into
this Agreement and the Operative Documents
and to carry out its respective obligations
hereunder and thereunder. This Agreement has
been and the Operative Documents will be duly
authorized, executed and delivered by Seller
and constitute the legal, valid and binding
obligations of Seller, enforceable against it
in accordance with its terms, except as may
be limited by bankruptcy, reorganization,
fraudulent conveyance, insolvency and similar
laws of general application relating to or
affecting the enforcement of rights of
creditors.
(3) The execution, delivery and performance of
this Agreement by Seller does not and will
not:
(a) constitute a violation of its
Articles of Incorporation, as
amended, or its Bylaws, as amended,
(b) constitute a violation of any
statute, judgment, order, decree or
regulation or rule of any
Governmental Body applicable or
relating to Seller or SDI or the
Assets or the Business,
(c) to the knowledge of Seller,
constitute a material breach or
material default under, or give rise
to any material right of
termination, cancellation or
acceleration under, any term or
provision of any contract,
agreement, lease, mortgage, deed of
trust, commitment, license,
franchise, Permit, authorization or
any other instrument or obligation
to which Seller is a party or by
which the Assets are bound, or an
event which with notice, lapse of
time, or both, would result in any
such conflict, breach, default or
right other than those breaches,
defaults or violations which Seller
shall have cured on or before the
Effective Time of Closing and except
where such
22
breach or default would not have a
material adverse effect or
materially restrict or impair
Newco's acquisition of the Assets,
or
(d) result in a Lien against the Assets
except any Lien arising out of this
Agreement or the Operative
Documents.
(4) Without limiting the foregoing, the
execution, delivery and performance of the
Operative Documents, and consummation of the
transactions contemplated thereby, have been
duly authorized and approved by the Board of
Directors of Seller and by SDI as the sole
shareholder of Seller.
C. Financial Statements, Etc. The following audited and
unaudited financial statements of Seller have been
delivered to Purchaser and are attached as Appendix
3.1(C) to the Seller's Disclosure Letter:
(1) the audited consolidated balance sheet of
Seller and its subsidiaries as of December
31, 1996 (the "December Balance Sheet") and
the related audited statements of operations,
of stockholder's equity and of cash flows for
the three-year period ended December 31,
1996, (together with related notes and
Schedules) which financial statements contain
a report of KPMG Peat Marwick, independent
auditors, reporting thereon (such balance
sheet, the related statements of operations,
of stockholder's equity and of cash flows,
and the related footnotes being hereinafter
together referred to as the "December
Financial Statements"); and
(2) the unaudited consolidated balance sheet of
Seller and its subsidiaries as of April 30,
1997 (the "April Balance Sheet") and the
related unaudited statements of operations,
of stockholder's equity and of cash flows for
the four-month period then ended (together
with related footnotes) (such balance sheet,
the related statements of operations, of
stockholder's equity and of cash flows, and
the related footnotes being hereinafter
together referred to as the "April Financial
Statements").
The December Financial Statements (including the
related notes and schedules) and the April Financial
Statements (collectively, the "Financial
Statements"), have been prepared from the books and
records of Seller in conformity with generally
accepted accounting principles applied on a basis
consistent with preceding years and throughout the
periods involved ("GAAP") and present fairly the
financial position of Seller as of the dates of such
statements, subject to year-end adjustments made
consistently with GAAP with respect to the April
Financial Statements, and provided that the April
Financial Statements do not comply with GAAP in that
such financial statements do not include related
footnotes required for such financial statements to
comply with GAAP.
23
At the Effective Time of Closing, the outstanding
Lufkin Debt will not exceed the principal balance
shown in the April Balance Sheet, plus accrued
interest thereon.
D. Title and Condition of Assets. Seller has good and
indefeasible title to the Owned Property and tangible
and intangible personal property owned by it that
comprise the Assets, free and clear of Liens, other
than:
(1) Permitted Encumbrances, or
(2) Liens which will be released or discharged at
or prior to the Effective Time of Closing.
To the knowledge of Seller, the tangible Assets are
capable of being used in the Business as presently
being conducted without present need for repair or
replacement except in the ordinary course of the
Business.
Since the date of the December Balance Sheet, Seller
has not sold, transferred, leased, distributed or
otherwise disposed of any of its assets, or agreed to
do so except for sales of Products and services in
the ordinary course of business or the disposition of
immaterial assets in the ordinary course of business
or which in the reasonable judgment of management are
not necessary or advisable to the efficient
operations of Seller.
All real and tangible personal property held by
Seller under the Scheduled Leases is held under valid
and binding lease agreements in full force and
effect. Seller is not in material default, and to
Seller's knowledge no notice of alleged material
default has been received by Seller, under any such
Scheduled Leases and, to the knowledge of Seller, no
lessor is in material default or alleged to be in
material default thereunder.
The Assets constitute all material assets and
properties, real, personal, tangible and intangible,
that are necessary for the continued conduct of the
Business as presently being conducted.
Appendix 2.1(B)(12) to the Seller's Disclosure Letter
contains a true and correct list of the names of each
bank, savings and loan or other financial institution
in which Seller or subsidiaries has an account,
including cash contribution accounts, safe deposit
boxes and lock box arrangements, and the names of all
Persons authorized to draw thereon or to have access
thereto.
E. Insurance. Appendix 3.1(E) to Seller's Disclosure
Letter contains a list of all policies of insurance
maintained as of the date of this Agreement by
Seller, or maintained by SDI in respect of the
Business and Assets, including without limitation
insurance providing benefits for employees, in effect
as of the date of this Agreement.
F. Litigation and Compliance With Laws, Etc. There are
no claims, actions, suits or proceedings, whether in
equity or at law, or governmental or
24
administrative investigations pending or, to the
knowledge of Seller, threatened against Seller or any
Asset, except (1) as described on Appendix 3.1(F) to
Seller's Disclosure Letter, or as may arise with
respect to any of the matters described thereon, (2)
for any claims, actions, suits or proceedings which
pertain to routine claims by Persons other than
Governmental Bodies that are covered by insurance
(subject to the applicable insurance deductibles) and
(3) for other claims, actions, suits or proceedings
which, singly or in the aggregate, would not have, if
prosecuted to judgment against Seller or the Assets,
a Material Adverse Effect.
Except as described on Appendix 3.1(F) to Seller's
Disclosure Letter, as of the date of this Agreement,
(1) Seller in all material respects is in
compliance under any law, regulation, writ,
injunction, decree or order applicable to
Seller or its Assets, including without
limitation all safety and health, antitrust,
consumer protection, labor, equal opportunity
or discrimination laws, rules and
regulations, except where such non-
compliance would have a Material Adverse
Effect, and
(2) there are no judgments outstanding and
unsatisfied against the Seller or the Assets
that would impair Seller's ability to comply
with its obligations under this Agreement.
G. Taxes. Seller has duly filed when due, including any
extensions, all Tax reports and returns in connection
with and in respect of the Business and the Assets,
and has timely paid and discharged all Tax
Obligations shown thereon. Seller has made available
to Purchaser, to the extent requested by Purchaser,
all Tax reports and returns of Seller for all periods
ending prior to the date hereof.
Seller has not received written notice of any Tax
deficiency outstanding, proposed or assessed against
or allocable to Seller, nor has Seller executed any
waiver of any statute of limitations on the
assessment or collection of any Tax or executed or
filed with the IRS or any other Governmental Body any
agreement now in effect extending the period for
assessment or collection of any Taxes against Seller.
There are no Tax Liens upon, pending against or, to
the knowledge of Seller, threatened against any
Asset.
H. Intangible Assets. Except for intangible assets
included in the Excluded Assets, Appendix 3.1(H) to
Seller's Disclosure Letter sets forth:
(1) all patents, patent applications, trademarks,
trademark registrations, applications for
trademark registrations, trade names and
copyrights (i) which Seller owns or in which
Seller has any proprietary interest or (ii)
which are necessary for the conduct of the
Business, and
25
(2) all license agreements with respect to any of
the foregoing as to which Seller is licensor
or licensee.
There are no pending or, to the knowledge of Seller,
threatened infringement claims against Seller by any
Person with respect to any of the items listed on
Appendix 3.1(H) to Seller's Disclosure Letter, nor
has any such item been declared invalid or been
limited by any court or agreement. To the knowledge
of Seller, the use of the Intangible Assets by Seller
and the conduct of the Business as presently
conducted does not infringe on the rights of any
other Person.
I. Instruments in Full Force and Effect: Possession
under Leases. The Scheduled Contracts and the
Scheduled Leases constituting a part of the Assets
("Instruments") are valid, binding and in full force
and effect, have not been amended or supplemented in
any manner or respect except as disclosed on Appendix
2.1(B)(9) to Seller's Disclosure Letter and Appendix.
2.1(D) to Seller's Disclosure Letter, and upon
assignment and assumption, with applicable consents,
if necessary, will be enforceable by Purchaser in
accordance with their respective terms. There are no
material defaults by Seller thereunder and Seller
knows of no material defaults thereunder by any other
party thereto, and, to the knowledge of Seller, no
event has occurred that with the lapse of time or
action or inaction by any party thereto would result
in a material violation thereof or a material default
thereunder. Seller enjoys peaceful and undisturbed
possession under all leases included in the Scheduled
Leases.
J. Employee Plans and Agreements.
(1) The Seller does not contribute to or have an
obligation to contribute to, and has not at
any time within six years prior to the
Closing Date contributed to or had an
obligation to contribute to, a multi-employer
plan within the meaning of Section 3(37) of
ERISA.
(2) With respect to any employee benefit plan,
within the meaning of Section 3(3) of ERISA,
which is sponsored, maintained or contributed
to, or has been sponsored, maintained or
contributed to within six years prior to the
Closing Date, by the Seller or any
corporation, trade, business or entity under
common control with the Seller, within the
meaning of Section 414(b), (c) or (m) of the
Code or Section 4001 of ERISA ("Commonly
Controlled Entity"), (i) no withdrawal
liability, within the meaning of Section 4201
of ERISA, has been incurred, which withdrawal
liability has not been satisfied, (ii) no
liability to the Pension Benefit Guaranty
Corporation has been incurred by the Seller
or any Commonly Controlled Entity, which
liability has not been satisfied, (iii) no
accumulated funding deficiency, whether
waived or not waived, within the meaning of
Section 302 of ERISA or Section 412 of the
Code has been incurred and (iv) all
contributions, including installments, to
such plan required by Section 302 of ERISA
and Section 412 of the Code have
26
been timely made.
K. Labor and Employee Relations.
(1) Except as listed in Appendix 3.1(K) to
Seller's Disclosure Letter, there exists no
collective bargaining agreement or other
labor union contract applicable to any
employee of Seller and no such agreement or
contract has been requested by any employee
or group of employees of Seller, nor has
there been any discussion with respect
thereto by management of Seller or its
subsidiaries with any employees of Seller.
Neither Seller nor subsidiaries has received
any written notification of any unfair labor
practice charges or complaints pending before
any agency having jurisdiction thereof nor
are there any current union representation
claims involving any of the employees of
Seller. Further, neither Seller nor its
subsidiaries is aware of any such threatened
charges or claims.
(2) Except as set forth in Appendix 3.1(K) to
Seller's Disclosure Letter, neither Seller
nor its subsidiaries are aware of any union
organizing activities or proceedings
involving, or any pending petitions for
recognition of, a labor union or association
as the exclusive bargaining agent for, or
where the purpose is to organize, any group
or groups of employees of Seller. There is
not currently pending, with regard to any of
its facilities, any proceeding before the
National Labor Relations Board, wherein any
labor organization is seeking representation
of any employees of Seller.
(3) Except as set forth in Appendix 3.1(K) to
Seller's Disclosure Letter, neither Seller
nor its subsidiaries is aware of any strikes,
work stoppages, work slowdowns or lockouts,
nor of any threats thereof, by or with
respect to any of the employees of Seller.
Since January 1, 1993 there have been no
labor disputes, strikes, slowdowns, work
stoppages, lockouts or similar matters
involving employees of Seller.
(4) Except as set forth in Appendix 3. l(K) to
Seller's Disclosure Letter, there are not
pending any grievances filed by employees of
Seller within any collective bargaining unit
or by representatives of employees within any
collective bargaining unit. Further, there
are no arbitration decisions, settlement
agreements, injunctions, consent decrees or
conciliation agreements which affect the
operation of the Business other than those
specifically listed in Appendix 3.1(K) to
Seller's Disclosure Letter.
(5) Except as set forth in Appendix 3.1(K) to
Seller's Disclosure Letter, there exists (i)
no pending charges of discrimination or
lawsuits involving alleged violations of any
fair employment law, wage payment law,
occupational safety and health law, (ii) no
pending, or to the knowledge of Seller
threatened, litigation arising out of
employment relationships, or other
employment-related law, whether
27
federal, state or local, and (iii) no
pending, or to the knowledge of Seller
threatened, litigation arising out of
employment relationships, presently
threatened or pending, by any applicant,
employee or former employee of Seller or any
representative of any such Person or Persons.
No charges or claims involving any of the
facilities or employees of Seller are pending
before any administrative agency, local,
state or federal, and no lawsuits involving
any of such facilities or employees are
pending with respect to equal employment
opportunity, age discrimination, occupational
safety, or any other form of alleged
employment practice or unfair labor practice.
(6) Seller complies in all material respects with
all applicable laws, rules and regulations
relating to the employment of labor,
including, but without limitation, those
relating to wages, hours, concerted activity,
non-discrimination, occupational health and
safety and the payment and withholding of
employment related Taxes.
L. Real Property. Except as set forth in Appendix
3.1(L) to Seller's Disclosure Letter:
(1) Seller has and will convey to Purchaser good
and indefeasible title to the Owned Property
free and clear of any and all Liens other
than Permitted Encumbrances.
(2) To the knowledge of Seller, the Real Property
does not violate any provisions of any
applicable building code, fire, health or
safety regulations, or other governmental
ordinances, orders or regulations. Seller is
unaware of any condition that exists with
respect to the Real Property which would
prevent, or require repair or modification
thereof as a prerequisite to, Purchaser using
the Real Property in the ordinary conduct of
the Business except with respect to ordinary
wear and tear and scheduled maintenance and
repair.
(3) There are no parties in possession of any
portion of the Owned Property as lessees,
tenants at sufferance or trespassers.
(4) There is no pending condemnation or similar
proceeding or assessment affecting the Real
Property, or any part thereof, nor to the
best knowledge and belief of Seller is any
such proceeding or assessment contemplated by
any Governmental Body.
M. Absence of Certain Changes, Etc. Except as disclosed
in Financial Statements or on Appendix 3.1(M) to
Seller's Disclosure Letter, since December 31, 1996,
there has been no adverse change in the Business,
financial condition or results of operations of
Seller from that reflected in the December Financial
Statements in each case which would have a Material
Adverse Effect.
Since December 31, 1996 and except as disclosed on
Appendix 3.1(M) to
28
Seller's Disclosure Letter, Seller has:
(1) conducted its operations in the ordinary
course,
(2) not entered into any transaction or contract,
or amended or terminated any transaction or
contract, except normal transactions or
contracts consistent in nature and scope with
prior practices and entered into in the
ordinary course of business,
(3) not mortgaged, sold, transferred, distributed
or otherwise disposed of any of its Assets,
except in the ordinary course of business,
(4) not experienced any material damage,
destruction or loss to or of any of its
Assets except in the ordinary course of
business and except to the extent that any
Asset damaged, destroyed or lost has been
repaired or replaced,
(5) not made or agreed to make any capital
expenditures for additions to property, plant
or equipment, except for expenditures and
commitments not exceeding $50,000 in the
aggregate,
(6) not made or agreed to make any change in the
compensation payable to any employee, except
for increases in compensation in the ordinary
course of business substantially consistent
with past practices of Seller, or
(7) not granted credit to any customer or
distributor on terms more favorable than the
terms on which credit has been extended to
such customer or distributor in the past nor
changed the terms of any credit previously
extended except in the ordinary course of
business.
N. Material Contracts, Etc. Appendix 3.1(N) to Seller's
Disclosure Letter lists all contracts, leases,
agreements and instruments material to the Business
or requiring the performance by Seller of any
material obligations of Seller after the date hereof
except the following:
(1) purchase orders and contracts with suppliers
and customers entered into in the ordinary
course of business, and
(2) miscellaneous contracts, leases, agreements
and instruments (with Persons unaffiliated
with Seller) involving liabilities under any
such contract, lease, agreement and
instrument of not more than $25,000 in any
twelve month period.
Seller has heretofore delivered, or made available,
to Purchaser or its counsel complete copies of all
contracts, leases, agreements and instruments listed
on Appendix 3.1(N) to Seller's Disclosure Letter.
Except as set forth in Appendix 3.1(N) to Seller's
Disclosure Letter, Seller
29
is not a party to any agreement, contract or covenant
limiting the freedom of the Seller or any party
contracting with Seller from competing in any line of
business or with any Person in any geographic area.
O. Permits. Seller possesses all the Permits listed in
Appendix 2.1(B)(6) to Seller's Disclosure Letter,
copies of all of which have been delivered to
Purchaser. Such Permits constitute all the Permits
necessary under law or otherwise for Seller to
conduct the Business as now being conducted and to
construct, own, operate, maintain and use the Assets
in the manner in which they are now being
constructed, operated, maintained and used. Each of
such Permits and Seller's rights with respect thereto
is valid and subsisting, in full force and effect,
and enforceable by Seller. Seller is in compliance
in all material respects with the terms of such
Permits. None of such Permits have been, or to the
knowledge of Seller, are threatened to be, revoked,
canceled, suspended or modified.
P. Environmental Matters.
(1) Except as set forth in Appendix 3.1(P) to
Seller's Disclosure Letter and to the
knowledge of Seller:
(a) Seller is not in violation of any
Environmental Laws in connection
with the conduct of the Business,
where such violation or
non-compliance would have a Material
Adverse Effect, and
(b) there are no underground storage
tanks (as defined under
Environmental Laws) located under
the Owned Property;
(2) Seller has not received any written notices
of any violation of, non-compliance with, or
remedial obligation under, Environmental
Laws, relating to the conduct of the
Business, which violation or non-compliance
would have a Material Adverse Effect; and
(3) there are no writs, injunctions, decrees,
orders or judgments outstanding, or lawsuits,
claims, proceedings or investigations,
pending or to the knowledge of Seller
threatened, relating to the conduct of the
Business.
As used in this Agreement, "Environmental Laws" means
any applicable federal, state, or local laws, rules,
or regulations, common law or strict liability
provisions, and any judicial or administrative
interpretations thereof, including any judicial or
administrative orders or judgments, relating to
health, safety, industrial hygiene, pollution or
environmental matters.
Q. Customers and Suppliers. Appendix 3.1(Q) to Seller's
Disclosure Letter sets forth (1) a true and correct
list of (i) the ten (10) largest customers of Seller
in terms of sales during the fiscal year ended
December 31, 1996, and (ii) the ten (10) largest
customers of Seller in terms of sales during the four
(4) months ended April 30, 1997, showing the
approximate total sales to each
30
such customer during each of such periods; and (2) a
true and correct list of the ten (10) largest
suppliers of Seller in terms of purchases during the
four (4) months ended April 30, 1997, showing the
approximate total purchases from each such supplier
during such respective periods. Except to the extent
set forth in Appendix 3.1(Q) to Seller's Disclosure
Letter, there has not been any material adverse
change in the business relationship of Seller with
any customer or supplier so named in the disclosure
statement. Except for the customers and suppliers
named in Appendix 3.1(Q) to Seller's Disclosure
Letter, Seller has not had any customer which
accounted for more than 5% of the sales during the
period from January 1, 1996 through and including the
date hereof, or any supplier from whom it purchased
more than 5% of the total goods or services purchased
by it during such period.
3.2 Representations and Warranties of Purchaser. Purchaser
represents and warrants to Seller that the following are true and correct on
and as of the date of this Agreement and will be true and correct through the
Effective Time of Closing as if made on and as of that date:
A. Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the
State of Nevada and is qualified to transact business
and is in good standing as a foreign corporation in
the jurisdictions where it is required to qualify in
order to conduct its businesses as presently
conducted.
Purchaser has the corporate power and authority to
own, lease or operate all properties and assets now
owned, leased or operated by it and to carry on its
businesses as now conducted.
B. Purchaser may execute, deliver and perform this
Agreement (including, without limitation, execution,
delivery and performance of the Operative Documents
to which it is a party) without the necessity of
Purchaser obtaining any consent, approval,
authorization or waiver or giving any notice or
otherwise, except for such consents, approvals,
authorizations, waivers and notices as described on
Schedule 3.2(B) hereto.
C. The execution, delivery and performance of this
Agreement do not and will not:
(1) constitute a violation of the Articles of
Incorporation, as amended, or the Bylaws, as
amended, as the case may be, of Purchaser,
(2) constitute a violation of any statute,
judgment, order, decree or regulation or rule
of any court, governmental authority or
arbitrator applicable or relating to
Purchaser, or
(3) to the knowledge of Purchaser, constitute a
default under any contract to which Purchaser
is a party except where such default would
not have a material adverse effect upon the
ability of Purchaser to perform its
obligations under this Agreement.
31
D. Purchaser has the corporate power to enter into this
Agreement and the Operative Documents and to carry
out its respective obligations hereunder. This
Agreement and each of the Operative Documents to
which Purchaser is a party has been duly authorized,
executed and delivered by Purchaser. This Agreement
and each of the Operative Documents to which
Purchaser is a party constitutes the legal, valid and
binding obligation of Purchaser, enforceable in
accordance with its terms, except as may be limited
by bankruptcy, reorganization, insolvency and similar
laws of general application relating to or affecting
the enforcement of rights of creditors.
E. Financial Statements, Etc. The following audited and
unaudited financial statements of Purchaser have been
delivered to Seller:
(1) the audited consolidated balance sheet of
Purchaser as of December 31, 1996 (the
"Purchaser December Balance Sheet") and the
related audited statements of operations, of
stockholder's equity and of cash flows for
the three-year period ended December 31, 1996
(together with related notes and schedules),
which financial statements contain a report
of Xxxxxx Xxxxxxxx LLP, independent auditors,
reporting thereon (such balance sheet, the
related statements of operations, of
stockholder's equity and of cash flows, and
the related footnotes being hereinafter
together refereed to as the "Purchaser
December Financial Statements"); and
(2) the unaudited consolidated balance sheet of
Seller as of April 30, 1997 (the "Purchaser
April Balance Sheet") and the related
unaudited statements of operations, of
stockholder's equity and of cash flows for
the four-month period then ended (together
with related footnotes) (such balance sheet,
the related statements of operations, of
stockholder's equity and of cash flows, and
the related footnotes being hereinafter
together referred to as the "Purchaser April
Financial Statements").
Except as set forth in Purchaser's Financial
Statements set out in Section 3.2(E)(1), the
Purchaser December Financial Statements and the
Purchaser April Financial Statements (collectively,
the "Purchaser Financial Statements"), including the
related notes and schedules, have been prepared from
the books and records of Purchaser in conformity with
generally accepted accounting principles applied on a
basis consistent with GAAP and present fairly the
financial position of Purchaser as of the dates of
such statements.
F. Litigation and Compliance With Laws, Etc. There are
no claims, actions, suits or proceedings, whether in
equity or at law, or governmental or administrative
investigations pending or, to the knowledge of
Purchaser, threatened against Purchaser, except (1)
as described on Schedule 3.2(F) hereto, or as may
arise with respect to any of the matters described
thereon, and (2) for any claims, actions, suits or
proceedings which pertain to routine claims by
persons other than Governmental Bodies that are
covered by
32
insurance (subject to the applicable insurance
deductibles).
Purchaser in all material respects is in compliance
under any law, regulation, writ, injunction, decree
or order applicable to Purchaser or its assets,
including without limitation all safety and health,
antitrust, consumer protection, labor, equal
opportunity or discrimination laws, rules and
regulations, and there are no judgments outstanding
and unsatisfied against Purchaser that would have a
material adverse effect on Purchaser or otherwise
impair Purchaser's ability to comply with its
obligations under this Agreement.
G. Taxes. Purchaser has duly filed when due, including
any extensions, all Tax reports and returns in
connection with and in respect of Purchaser's
business, assets and employees, and has timely paid
and discharged all Tax Obligations shown thereon.
Purchaser has made available to Seller, to the extent
requested by Seller, all Tax reports and returns of
Purchaser for all periods ending prior to the date
hereof.
Purchaser has not received notice of any Tax
deficiency outstanding, proposed or assessed against
or allocable to Purchaser, nor has Purchaser executed
any waiver of any statute of limitations on the
assessment or collection of any Tax or executed or
filed with the IRS or any other Governmental Body any
agreement now in effect extending the period for
assessment or collection of any Taxes against
Purchaser.
ARTICLE IV
CONDUCT AND TRANSACTIONS PRIOR TO CLOSING
4.1 Access to Records and Properties. Between the date of this
Agreement and the Effective Time of Closing, Seller shall give to Purchaser and
its advisors such access to the premises, books and records of Seller, and
shall cause the officers, employees and accountants of Seller to furnish such
financial and operating data and other information with respect to Seller as
Purchaser shall from time to time reasonably request. Without limiting the
generality of the foregoing, Seller shall give to Purchaser and its
representatives access during normal business hours to the facilities and
operations of Seller so that Purchaser may (1) obtain evaluations of the Assets
and (2) perform any and all assessing, testing, monitoring and investigating
that Purchaser and Seller mutually agree to be necessary with respect to
environmental matters concerning Seller, its assets and the operation of the
Business. Any investigation pursuant to this Section 4.1 shall be conducted at
Purchaser's cost (other than the usual salary of employees of Seller, overhead
expenses of Seller and the fees and expenses of counsel and independent public
accountants for Seller) and in such manner as not to interfere unreasonably
with the business and operations of Seller. Purchaser shall be subject to the
Confidentiality Agreement with respect to all information and data gathered as
a result of access granted under this Section 4.1, provided that the
Confidentiality Agreement shall terminate on the Closing Date.
4.2 Operation of Seller. Between the date hereof and the
Effective Time of Closing, except as contemplated herein or except with the
prior consent of Purchaser, which consent will not be unreasonably withheld,
Seller shall:
33
A. conduct the Business in the ordinary course of
business consistent with past practices;
B. not dispose of, or commit to dispose of, any Assets
(other than the liquidation and settlement of
Accounts and the sale and delivery of Inventory and
products covered by Backlog Orders, all in the
ordinary and customary course of Seller's business);
and
C. use all reasonable efforts to continue in effect
until immediately following the Effective Time of
Closing all present insurance coverage with respect
to the Assets, the Business and the Employees.
Seller shall not effect any amendment to the articles of incorporation
or the bylaws of Seller and shall not cause or permit the issuance of any
additional shares of the capital stock or equity interests (or options,
warrants or other rights to acquire capital stock or equity interests) of
Seller.
Each party shall make reasonable efforts to advise the other promptly
in writing of any condition or circumstance, known to such party, occurring
from the date hereof up to and including the Effective Time of Closing that
would cause the respective representations herein to become untrue in any
material respect.
4.3 Consents. Seller shall use its reasonable efforts to obtain
any consents of Governmental Bodies, suppliers, distributors, and other Persons
required in order for Seller to sell and transfer the Assets and Business
pursuant to this Agreement.
4.4 No Public Announcements or Negotiation with Others.
A. The parties hereto shall not issue any press release
or make any public statement regarding the
transactions contemplated by this Agreement without
obtaining the prior consent of the other party, which
consent shall not be unreasonably withheld.
B. Unless and until this Agreement shall have been
terminated by Purchaser or Seller pursuant to Section
6.2, neither SDI, Seller nor any of the officers or
directors of Seller, nor any Affiliates of any of
them whom they are able to influence, shall (except
to the extent required in the exercise of fiduciary
duties or under applicable law):
(1) directly or indirectly, encourage, solicit,
initiate or participate in any discussions or
negotiations with any corporation,
partnership, Person or other entity or group
(other than to Purchaser or an Affiliate or
an associate of Purchaser) concerning any
merger, sale of substantial assets, business
combination, sale of shares of capital stock
or similar transactions involving the
business of Seller or any Asset, whether by
providing non-public information or
otherwise; or
(2) disclose, directly or indirectly, any
information not customarily disclosed to any
Person concerning Seller's business and
properties, afford to any other Person access
to Seller's properties, books or
34
records or otherwise assist or encourage any
Person in connection with any of the
foregoing.
In the event Seller shall receive a written offer for a transaction of the type
referred to in this Section 4.4, Seller shall promptly inform Purchaser as to
any such offer.
4.5 Reasonable Efforts to Satisfy Conditions. Seller shall use
its reasonable efforts to cause the conditions to the obligations of Purchaser
contained in Section 5.1 to be satisfied to the extent that the satisfaction of
such conditions is in the control of Seller. Purchaser shall use its
reasonable efforts to cause the conditions to the obligations of Seller and SDI
contained in Section 5.2 to be satisfied to the extent that the satisfaction of
such conditions is in the control of Purchaser.
4.6 Bulk Transfer. Seller agrees to and does hereby indemnify and
hold Purchaser harmless from and against all claims, losses, demands, damages,
liabilities, losses, costs and expenses resulting from or relating to non-
compliance by Purchaser or Seller with the bulk transfer provisions of the
Uniform Commercial Code (or any similar law) in connection with the sale and
transfer of the Assets to Purchaser other than the liabilities assumed by
Purchaser hereunder and Purchaser and Seller hereby waive compliance therewith.
4.7 Change of Seller's Name. Immediately following the Closing,
Seller shall cease to use the name "STRATEGIC SUPPLY, INC." or any similar name
and as soon as practical thereafter will file with the office of the Secretary
of State of the State of Delaware all documents necessary to change the name of
Seller to a name reasonably satisfactory to Purchaser. Pending the
effectiveness under the Delaware Corporation Laws of Seller's name change,
Seller shall file all necessary documentation with the appropriate governmental
authorities to evidence its doing business as an entity using a name other than
"STRATEGIC SUPPLY, INC." Seller shall take the equivalent action with respect
to such name in any other jurisdiction where it has been, is or is licensed to
be used.
4.8 Vacate Real Property. Seller shall vacate all of the Real
Property at the Effective Time of Closing.
4.9 Title Policy. Seller shall cooperate with Purchaser in
Purchaser is obtaining an Owners Title Policy Commitment (the "Commitment")
issued by a title company satisfactory to Purchaser committing and binding said
title company to issue to Purchaser a title policy, which shall show good and
indefeasible title to the Real Property to be vested in Seller ("Title
Policy").
4.10 Accounts Receivable. All accounts receivable of Seller shall
remain with Seller provided Purchaser agrees (at no cost to Seller) for a
period of twelve months following the Closing Date to serve as a collection
agent with respect to the Closing Receivables. In this connection, Purchaser
agrees to use commercially reasonable efforts to collect all Closing
Receivables. Purchaser agrees not to settle or compromise or attempt to settle
or compromise any Closing Receivables without the prior written consent and
approval of Seller. Purchaser further agrees that the payments made by
customers of Purchaser which are also obligors under the Closing Receivables
shall be applied first to the Closing Receivables and then to receivables of
such customers to Purchaser unless the customers directs in writing that
payments be applied in a particular manner. To the extent that Closing
Receivables remain outstanding on the first day of each month during the third
through twelfth month after the Closing Date, Purchaser agrees on the first day
of each month to pay to Seller a cash payment equal to .58% of the then
outstanding balance of Closing
35
Receivables. Each of Purchaser and Seller shall promptly pay to the other any
amounts received by it or any Affiliate on account of a Closing Receivable (or
any portion thereof) which is, at such time, the property of the other.
4.11 Cooperation on Tax Matters. Purchaser and Seller agree to
furnish or cause to be furnished to each other, as promptly as practicable,
such information and assistance relating to the Business as is reasonably
necessary for the preparation and filing of any return, claim for refund or
other required or optional filings relating to Tax matters, for the preparation
for and proof of facts during any Tax audit, for the preparation for any Tax
protest, for the prosecution or defense of any suit or other proceeding
relating to Tax matters and for the answer to any governmental or regulatory
inquiry relating to Tax matters.
Purchaser agrees to retain possession of all accounting, business,
financial and Tax records and information (i) relating to the Business in
existence on the Closing Date transferred to Purchaser hereunder and (ii)
coming into existence after the Closing Date which relate to the Business
before the Closing Date, for a period of six years from the Closing Date. In
addition, from and after the Closing Date, Purchaser agrees that it will not
unreasonably withhold access by Seller and its attorneys, accountants and other
representatives (after reasonable notice and during normal business hours and
with reasonable charge), to such personnel, books, records, documents and any
or all other information relating to the Business as Seller may reasonably deem
necessary to properly prepare for, file, prove, answer, prosecute and/or defend
any such return, filing, audit, protest, claim, suit, inquiry or other
proceeding. Such access shall include, without limitation, access to any
computerized information retrieval systems relating to the Business.
4.12 Inventories. Seller agrees that at any time within thirty
(30) days after the third anniversary of the Closing Date and subject to the
provisions of this Section 4.12, Purchaser shall have the right and option to
cause Seller to purchase, and if such option is executed, Seller will purchase
the Closing Inventory which then remains unsold by Purchaser. Such put option
may be exercised by Purchaser's delivery to Seller of written notice of such
election which identifies the Closing Inventory to be purchased and the
purchase price thereof. The purchase price payable by Seller for such Closing
Inventory shall be the amount by which the appropriate net book value of such
Closing Inventories less applicable reserves (as reflected on the Closing Date
Statement of Net Assets) is greater than the Inventory Realized Amount.
"Inventory Realized Amount" shall mean the proceeds received by Purchaser from
sales of Closing Inventory, provided, that in calculating such proceeds, the
sales price received by Purchaser for sales of inventory shall be deemed to be
the lesser of (i) the sales price actually received for such Closing Inventory
and (ii) the cost at which such Closing Inventory was carried on the books of
Seller as of the Closing Date, such costs to be reflected on a schedule
prepared by Seller and Purchaser at or immediately following Closing. If the
put option is exercised, Purchaser agrees that Seller may effect its purchase
first by reducing the principal amount of the Subordinated Note.
4.13 Cancellation of Certain Leases. Purchaser and Seller
acknowledge that Purchaser may desire to cancel or terminate certain of the
Scheduled Leases after twelve months following the Closing Date, such Scheduled
Leases consisting of the leases in Xxxxxx, Pampa and Xxxxx which are reflected
in Appendix 2.1(B)(8) to the Seller's Disclosure Letter (collectively the
"Designated Leases"). In the event that Purchaser elects to terminate all or
part of any of the Designated Leases after twelve months following the Closing
Date but prior to the end of the stated term (without taking into consideration
any extension thereof), Seller agrees to reimburse Purchaser an amount equal to
one half of any amounts which are required to be paid to the lessors of the
Designated
36
Leases in connection with such early termination (up to an aggregate payment of
$120,487) net of proceeds from sublessees and other amounts received by
Purchaser which are related to such termination. The amounts payable hereunder
by Seller, if any, may at Seller's election be paid through a reduction of the
principal payments payable to Seller under the Subordinated Note. Purchaser
agrees to use all commercially reasonable efforts to sublet such Designated
Leases or otherwise to mitigate the payments to the lessors upon any such
termination.
ARTICLE V
CONDITIONS OF CLOSING
5.1 Conditions of Obligations of Purchaser. The obligations of
Purchaser to consummate the purchase and sale under this Agreement are subject
to the satisfaction of the following conditions, each of which may be waived in
writing by Purchaser:
A. Representations and Warranties: Performance of
Obligations.
(1) The representations and warranties of Seller
set forth in Section 3.1 hereof shall have
been and shall be true and correct in all
material respects on and as of the date of
this Agreement and shall be true and correct
in all material respects on and as of the
Closing Date, as though made on and as of the
Closing Date.
(2) Seller shall have performed in all material
respects the covenants, agreements and
obligations required to be performed by it
under this Agreement prior to and on the
Closing Date.
(3) Seller shall have delivered to Purchaser its
certificate confirming the satisfaction of
the conditions set forth in subparagraphs (1)
and (2) above and such other matters that
Purchaser may reasonably request.
B. Delivery of Instruments. Seller shall have delivered
to Purchaser the duly authorized and executed Deed,
the General Conveyance, Transfer and Assignment, and
such other conveyance documents that Purchaser may
reasonably request to effect the transfer and
conveyance of the Business to Purchaser.
C. Opinion of Counsel to Seller. Purchaser shall have
received the opinion of Seller's counsel, Xxxxxxx &
Xxxxx L.L.P., dated the Closing Date, in the form of
Exhibit 5.1(C) hereto.
D. Environmental Review Report. Purchaser shall have
received, at Purchaser's expense, an environmental
review report from a Person satisfactory to Purchaser
as to the absence of any evidence of non-compliance
with Environmental Laws that would have a Material
Adverse Effect on the Business or Assets to be
acquired.
E. Consents, Notices and Approvals. All consents and
approvals of all Persons necessary for the
consummation of the Transaction under Seller's
articles of incorporation or bylaws or any agreement,
permit, law or regulation shall
37
have been received and delivered to Purchaser, all
notices to any Person required by any of the
foregoing to be given in respect of the Transaction
shall have been duly given, and all necessary action
shall have been taken to assign to Purchaser the
Scheduled Contracts, the Scheduled Leases and any
other material agreements between Seller and its
shareholders, suppliers, customers and other third
parties.
F. Change of Corporate Name. Seller shall have approved
and shall have executed and delivered to Purchaser,
an amendment to its articles of incorporation,
pursuant to the Delaware Corporation Laws and in form
suitable for filing with the Secretary of State of
Delaware pursuant to the Delaware Corporation Laws,
changing its corporate name to a name that does not
include the word "Strategic Supply" or any other name
under which Seller presently conducts business.
G. "Net Tangible Asset Value Certificate". The
Certificate of Estimated Net Tangible Asset Value
shall have been delivered by Seller to Purchaser.
H. "Supplemental Disclosure Statement". The Seller
shall have delivered the Supplemental Disclosure
Statement to Purchaser.
5.2 Conditions of Obligations of Seller and SDI. The obligations
of Seller to consummate the sale and purchase under this Agreement are subject
to the satisfaction of the following conditions, each of which may be waived in
writing by Seller:
A. Representations and Warranties: Performance of
Obligations. The representations and warranties of
Purchaser set forth in Section 3.2 hereof shall have
been and be true and correct in all material respects
on and as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing
Date.
Purchaser shall have performed in all material
respects the covenants, agreements and obligations
necessary to be performed by it under this Agreement
prior to the Closing Date and such other matters that
Seller may reasonably request.
B. Purchase Price and Other Payments. Purchaser shall
have delivered to Seller the cash portion of the
Purchase Price, the Subordinated Note, the
Consideration Note and any other payments required to
be made as of the Closing Date.
C. Opinion of Counsel to Purchaser. Seller shall have
received the opinion of Xxxxx & Xxxxx, L.L.P., dated
the Closing Date, in the form of Exhibit 5.2(C)
hereto.
D. Transition Services Agreement. Seller and Purchaser
shall have entered into a Transition Services
Agreement with respect to SDI Mexico in the form of
Exhibit 5.2(D) hereof.
38
ARTICLE VI
CLOSING DATE AND TERMINATION OF AGREEMENT
6.1 Closing Date.
A. Subject to the right of (1) Seller and (2) Purchaser
to terminate this Agreement pursuant to Section 6.2
hereof, the closing of the consummation of the
purchase and sale contemplated by this Agreement (the
"Closing") shall, unless another date or place is
agreed to in writing by Seller and Purchaser, take
place at the offices of Xxxxxxx & Xxxxx L.L.P.,
Houston, Texas, at 10:00 a.m., Houston, Texas time on
May 30, 1997, or such other date as the parties may
agree upon (the "Closing Date").
B. For all purposes hereof, the term "the Effective Time
of Closing" shall occur upon (i) the delivery to
Purchaser of the Deed, the General Conveyance,
Transfer and Assignment, and the other Operative
Documents as contemplated herein on the Closing Date
and (ii) the payment of the Purchase Price, including
the delivery to Seller of the Subordinated Note the
Consideration Note, and the delivery to Seller of the
other Operative Documents.
6.2 Termination of Agreement.
A. This Agreement may, by written notice given at or
prior to the Closing in the manner hereinafter
provided, be terminated or abandoned:
(1) in the event that the Effective Time of
Closing shall not have occurred on or before
May 30, 1997 (or such extension date pursuant
to Section 6.1(A)), by Seller or by
Purchaser;
(2) by Purchaser if a material default or breach
shall be made by Seller with respect to the
due and timely performance of any of its
covenants and agreements contained herein, or
with respect to the correctness of or due
compliance with any of its representations
and warranties and such default cannot be
cured and has not been waived;
(3) by Seller if a material default or breach
shall be made by Purchaser with respect to
the due and timely performance of any of its
covenants and agreements contained herein, or
with respect to the correctness of or due
compliance with any of its representations
and warranties and such default cannot be
cured and has not been waived;
(4) by mutual consent of Seller and Purchaser; or
(5) by Purchaser if any supplement to the
Seller's Disclosure Letter contains updated
or supplemental disclosure which indirectly
or in the aggregate would have a Material
Adverse Effect.
B. No termination of this Agreement, whether pursuant to
this Section 6.2 or
39
otherwise, shall terminate or impair any claim by
Seller or by Purchaser against the other based upon
any breach of Section 4.5 hereof.
ARTICLE VII
INDEMNIFICATION
7.1 Indemnity.
A. Subject to Section 7.2(B) hereof, Seller and SDI,
jointly and severally, agree to indemnify and hold
Purchaser and Purchaser's officers, directors,
shareholders, Affiliates, and agents ("Purchaser
Indemnitees") harmless from any and all damages,
losses, liabilities, payments, obligations,
penalties, claims, litigation, demands, defenses,
judgments, suits, proceedings, costs, disbursements
or expenses (including, without limitation,
reasonable fees, disbursements and expenses of
attorneys, accountants and other professional
advisors and of expert witnesses and costs of
investigation and preparation) of any kind or nature
whatsoever (collectively "Damages"), resulting from
or arising out of:
(1) any breach of or inaccuracy in any
representation or warranty of Seller
contained in this Agreement; and
(2) any breach or non-performance, partial or
total, by Seller of any covenant or agreement
of Seller contained in this Agreement.
B. Subject to Section 7.2(B) hereof, Purchaser and DXP,
jointly and severally, agree to indemnify and hold
Seller and Seller's officers, directors,
shareholders, Affiliates, and agents ("Seller
Indemnitees") harmless from, any and all Damages
resulting from or arising out of:
(1) any breach of any representation or warranty
of Purchaser contained in this Agreement; and
(2) the non-performance, partial or total, of any
covenant or agreement of Purchaser contained
in this Agreement.
7.2 Notice Participation; Duration; Limitations.
A. If a claim by a third party is made against a party
indemnified pursuant to this Article VII
("Indemnitee"), and if such Indemnitee intends to
seek indemnity with respect thereto under this
Article VII, such Indemnitee shall promptly, and in
any event within 30 days of the assertion of any
claim or the discovery of any fact upon which such
Indemnitee intends to base a claim for
indemnification under this Agreement ("Claim"),
notify the party or parties from whom indemnification
is sought ("Indemnitor") of such Claim. Delay on the
part of the Indemnitee in providing the notice of
Claim shall not relieve the Indemnitor from its
obligations hereunder unless (and then only to the
extent) the Indemnitor is prejudiced or damaged by
such delay. In the event of any Claim, Indemnitor, at
its option, may assume (with legal counsel
40
reasonably acceptable to the Indemnitee) the defense
of any claim, demand, lawsuit or other proceeding in
connection with the Indemnitee's Claim, and may
assert any defense of Indemnitee or Indemnitor;
provided that Indemnitee shall have the right at its
own expense to participate jointly with Indemnitor in
the defense of any claim, demand, lawsuit or other
proceeding in connection with the Indemnitee's Claim.
In the event that Indemnitor elects to undertake the
defense of any Claim hereunder, Indemnitee shall
cooperate with Indemnitor to the fullest extent
possible in regard to all matters relating to the
Claim (including, without limitation, corrective
actions required by applicable law, assertion of
defenses and the determination, mitigation,
negotiation and settlement of all amounts, costs,
actions, penalties, damages and the like related
thereto) so as to permit Indemnitor's management of
same with regard to the amount of Damages payable by
the Indemnitor hereunder. Neither Purchaser nor
Seller shall be entitled to settle any Claim without
the prior written consent of the other, which consent
shall not unreasonably be withheld.
B. The representations and warranties of the parties
shall survive the Closing for a period of two years
(except for the representations and warranties under
Sections 3.1(G) and 3.2(G) which shall survive for
the applicable statute of limitations and the
representations and warranties in Section 3.1(P)
which shall survive for three years), and the
indemnification procedures in this Article VII shall
be the exclusive remedy available to the parties
hereto. No claim for indemnification under this
Section 7.2 may be made after the second anniversary
of the Effective Time of Closing, except that claims
for indemnification in respect of breaches of the
representations and warranties contained in Section
3.1(G) or 3.2(G) hereof may be made so long as any
claim is made in respect of such matters under any
applicable statute of limitations and claims for
indemnification in respect of breaches of the
representations and warranties contained in Section
3.1(P) may be made so long as any claim is made in
respect of such matter prior to the third anniversary
of the Closing; provided, however, that the foregoing
shall not affect any claim made with sufficient
detail in good faith prior to the date of such
expiration.
C. The obligations of Purchaser and DXP and Seller and
SDI to indemnify any Person pursuant to this Article
VIII shall be subject to the following limitations:
(1) Neither the Seller Indemnitees nor
the Purchaser Indemnitees shall be
entitled to indemnification under
this Article VII for any individual
Claim unless the Damages incurred by
the party or parties seeking
indemnification with respect to such
Claim exceed $10,000;
(2) Neither the Seller Indemnitees nor
the Purchaser Indemnitees shall be
entitled to indemnification under
this Article VII unless the
aggregate Damages incurred by the
party or parties seeking
indemnification are in excess of
$150,000 and then
41
only to the extent of such excess;
(3) the aggregate liability of Seller
and SDI to indemnify Purchaser
Indemnitees shall not exceed an
amount equal to $9,000,000; and
(4) no party shall have liability for
any lost business opportunities,
loss of revenue, speculative or
prospective profits or any other
special, incidental, consequential,
exemplary, punitive or indirect
damages.
7.3 INDEMNIFICATION IF NEGLIGENCE OF INDEMNITEE. THE
INDEMNIFICATION PROVIDED IN THIS ARTICLE SHALL BE APPLICABLE WHETHER OR NOT
NEGLIGENCE OF THE INDEMNITEE IS ALLEGED OR PROVEN.
7.4 Reimbursement. In the event that the Indemnitor shall
undertake, conduct or control the defense or settlement of any Claim and it is
later determined that such Claim was not a Claim for which the Indemnitor is
required to indemnify the Indemnitee under this Article VII, the Indemnitee
shall reimburse the Indemnitor for all its costs and expenses with respect to
such settlement or defense, including reasonable attorneys' fees and
disbursements.
7.5 Limited Offset. Except under the provisions of this Section
7.5 or as specifically provided for in this Agreement, Purchaser shall have no
right to offset any amounts under this Article VII against any amounts payable
by Purchaser pursuant to any Operative Document except in accordance with the
following procedures. Purchaser must assert any claim of offset to Seller by
written notice and offset shall only be permitted against the Subordinated
Note, if any. If Seller agrees in writing to such offset, Purchaser may offset
the amount which is so accepted by Seller against the balance of the
Subordinated Note. If Seller does not accept such claim, Seller and Purchaser
will have 30 days in which to resolve any disagreement. If an agreement is not
reached within the 30 day period, unless both parties agree to extend the
period in which to reach an agreement, the claim for offset shall be submitted
to binding arbitration in accordance with the Commercial Arbitration Rules of
the American Arbitration Association as such rules may be modified herein or as
otherwise agreed by the parties in such controversy. The forum for arbitration
shall be Houston, Texas and the governing law for such arbitration shall be the
laws of the State of Texas, without reference to the conflicts of laws rules
thereof. Except for offsets against the Subordinated Note as specifically
permitted in this Agreement, there shall be no rights of offset available to
Purchaser.
7.6 No Third Party Beneficiaries. The foregoing indemnification
is given solely for the purpose of protecting the parties to this Agreement and
the Purchaser Indemnitees and shall not be deemed extended to, or interpreted
in a manner to confer any benefit, right or cause of action upon, any other
Person.
7.7 Guarantee by DXP. In addition, at the Closing DXP will enter
into a Guaranty Agreement in substantially the form of Exhibit 7.7 attached
hereto unconditionally guaranteeing payment of (i) the Consideration Note, (ii)
the Subordinated Note, and (iii) the Earn-Out Payments.
42
ARTICLE VIII
MISCELLANEOUS
8.1 Further Actions. From time to time, as and when requested by
Purchaser or Seller, Seller or Purchaser shall execute and deliver, or cause to
be executed and delivered, such documents and instruments and shall take, or
cause to be taken, such further or other actions as may be reasonably necessary
to effectuate the Transaction and transfer, assign and deliver to Purchaser or
its permitted assigns the Business (or to evidence the foregoing) and to
consummate and to effect the other transactions expressly, required to be
performed by Seller hereunder.
8.2 No Broker. Except for the fees payable to Xxxxxxx, Xxxxxx
Inc., and Interlaken Capital, Inc. by Seller or its Affiliates, Seller and
Purchaser represent and warrant to the other that they have no obligation or
liability to any broker or finder by reason of the Transactions which are the
subject of this Agreement. Each of Seller and Purchaser agree to indemnify the
other against, and to hold the other harmless from, at all times after the date
hereof, any and all liabilities and expenses (including, without limitation,
legal fees) resulting from, related to or arising out of any claim by any
Person for brokerage commissions or finder's fees, or rights to similar
compensation, on account of services purportedly rendered on behalf of Seller
or Purchaser, as the case may be, in connection with this Agreement or the
Transactions contemplated hereby.
8.3 Expenses. Except as otherwise specifically provided herein,
Seller and Purchaser shall each bear their own legal fees, accounting fees and
other costs and expenses with respect to the negotiation, execution and the
delivery of this Agreement and the consummation of the Transactions hereunder.
Seller shall pay all sales, transfer and documentary Taxes incident to the sale
of the Assets.
8.4 Entire Agreement. This Agreement, the Exhibits hereto, the
Seller's Disclosure Letter and any Supplement thereto contain, and are intended
by the parties as a final expression of, the entire agreement between Seller
and Purchaser with respect to the Transactions contemplated by this Agreement
and supersede all prior oral or written agreements, arrangements or
understandings with respect thereto (other than the Confidentiality Agreement,
which shall terminate on the Closing Date), including, without limitation, the
letter agreement, dated May 5, 1997, executed by DXP Enterprises, Inc. and SDI.
8.5 Acknowledgment Concerning Representations and Warranties.
Purchaser acknowledges and affirms that it has had the opportunity to complete
its own independent investigation, analysis and evaluation of Seller and the
Business and Assets.
8.6 Limitation on Representations and Warranties.
(A) Except as and to the extent expressly set forth in
this Agreement, or included on any Schedule hereto,
Seller makes no other representation or warranty and
disclaims all liability and responsibility for any
representation, warranty, statement or information
(financial or otherwise) made or communicated (orally
or in writing) to Purchaser or any of its Affiliates,
employees, agents, consultants or representatives
(including, without limitation, any opinion,
information, projection, financial statement or
advice that may have been provided to Purchaser by
any officer, director, employee, agent, consultant or
representative of Seller or of any Affiliate
thereof).
(B) WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, AND
43
WITHOUT DIMINISHING IN ANY MANNER THE SCOPE OF THE
REPRESENTATIONS AND WARRANTIES SET FORTH IN ARTICLE
III, EXCEPT TO THE EXTENT EXPRESSLY SET FORTH IN
ARTICLE III, SELLER MAKES NO REPRESENTATION OR
WARRANTY, EXPRESS OR IMPLIED, AS TO THE FOLLOWING
MATTERS: THE MAINTENANCE, REPAIR, CONDITION,
QUALITY, SUITABILITY, DESIGN OR MARKETABILITY OF ANY
OF THE ASSETS, INCLUDING, WITHOUT LIMITATION, ANY
REPRESENTATION OR WARRANTY AS TO MERCHANTABILITY OR
FITNESS FOR ANY PARTICULAR PURPOSE OF ANY OF THE
ASSETS, IT BEING EXPRESSLY UNDERSTOOD AND AGREED BY
THE PARTIES THAT PURCHASER IS ACQUIRING THE ASSETS
AND BUSINESS "AS IS", "WHERE IS" AND "WITH ALL
FAULTS."
(C) Seller furthermore makes no representation or
warranty to Purchaser regarding the probable success
or future profitability of the Business or of any of
the Assets.
8.7 Descriptive Headings. The descriptive headings of this
Agreement are for convenience only and shall not control or affect the meaning
or construction of any provision of this Agreement.
8.8 Notices. All notices or other communications which are
required or permitted hereunder shall be in writing and shall be delivered
either personally or by telegram, telex, telecopy or similar facsimile means,
by registered or certified mail (postage prepaid and return receipt requested),
or by express courier or delivery service, addressed as follows:
If to Seller or SDI:
STRATEGIC SUPPLY, INC.
Interlaken Capital, Inc.
000 Xxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Attention: Chairman
Facsimile No: 000-000-0000
With a copy to:
STRATEGIC DISTRIBUTION, INC.
c/o Interlaken Capital, Inc.
000 Xxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Attention: General Counsel
Facsimile No: 000-000-0000
With a copy to:
Xxxxxxx & Xxxxx L.L.P.
0000 Xxxxx Xxxxxxxx Tower
44
000 Xxxxxx
Xxxxxxx, Xxxxx 00000
Attention: Xxxxxxxxxxx X. Xxxxxxx, Esquire
Facsimile No: 713/220-4285
If to Purchaser:
DXP ENTERPRISES, INC.
000 Xxxxxxxx Xxxx Xxxx., Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Xxxx X. Xxxxxxx, Senior Vice
President - Finance
Facsimile No: (000) 000-0000
With a copy to:
Xxxxx & Xxxxx, L.L.P.
0000 Xxx Xxxxxx 00xx Xxxxx
Xxxxxxx, Xxxxx 00000
Attention: Xxxx X. Xxxxxxxxxxx
Facsimile No: (000) 000-0000
or at such other address and number as either party shall have
previously designated by written notice given to the other party in
the manner hereinabove set forth. Notices shall be deemed given when
received, if sent by telegram, telecopy or similar facsimile means
(confirmation of such receipt by confirmed facsimile transmission
being deemed receipt of communications sent by telecopy or other
facsimile means); and when delivered and receipted for (or upon the
date of attempted delivery where delivery is refused), if
hand-delivered, sent by express courier or delivery service or sent by
Certified Mail--Return Receipt Requested.
8.9 Assignability. This Agreement shall not be assignable
otherwise than by operation of law by any party without the prior written
consent of the other parties, and any purported assignment by any party without
the prior written consent of the other parties shall be void.
8.10 Waivers and Amendments. Any waiver of any term or condition
of this Agreement, or any amendment or supplementation of this Agreement, shall
be effective only if in writing. A waiver of any breach or failure to enforce
any of the terms or conditions of this Agreement shall not in any way affect,
limit or waive a party's rights hereunder at any time to enforce strict
compliance thereafter with every term or condition of this Agreement.
8.11 Third Party Rights. Notwithstanding any other provision of
this Agreement, this Agreement shall not create benefits on behalf of any
Person who is not a party to this Agreement (including without limitation, any
broker or finder, notwithstanding the provisions of Section 8.2 hereof), and
this Agreement shall be effective only as between the parties hereto, their
successors and permitted assigns; provided, however that Purchaser Indemnitees
are intended third party beneficiaries hereof to the extent provided in
Sections 7.1 and 7.6.
8.12 Illegalities. In the event that any provision contained in
this Agreement shall be
45
determined to be invalid, illegal or unenforceable in any respect for any
reason, the validity, legality and enforceability of any such provision in
every other respect and the remaining provisions of this Agreement shall not,
at the election of the party for whose benefit the provision exists, be in any
way impaired.
8.13 Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart hereof shall be deemed to be an
original instrument, but all such counterparts together shall constitute but
one Agreement.
8.14 Employees.
A. Purchaser agrees to and shall offer employment to
substantially all of the employees of Seller involved
in the Business ("Employees") on substantially the
same terms as disclosed to Purchaser herein, provided
that Purchaser shall not be required to offer
employment to any of the Persons specified on
Schedule 8.14(A) hereto (the "Excluded Employees").
B. Seller and Purchaser shall promptly take the
necessary steps to provide for a plan transfer (as
such transfer is described in Section 414(1) of the
Code) of account balances (in cash and including
outstanding loans) of Employees from the Seller
401(K) Plan. Such transfers shall not take place
until Purchaser provides Seller a written opinion of
its counsel that such Purchaser savings plans, in
form, are qualified plans as described in Section
401(a) of the Code, which meet the requirements of
Section 401(K) of the Code, and that any related
trust meets the requirements for exemption from
income taxability of Section 501(a) of the Code, or
Purchaser provides a favorable IRS determination
letter with respect to each such Purchaser savings
plan and associated trust. If such amounts are not
transferable, each such Employee who is hired by
Purchaser will continue to be subject to the Seller's
plan with respect to the 401(K) account balance in
accordance with the terms thereof.
C. Seller shall be solely responsible for severance
benefits liability, if any, with respect to any
termination by Seller of the Excluded Employees.
D. Nothing expressed or implied in this Agreement shall
confer upon any Employee, or any legal representative
thereof, any rights or remedies, including any right
to employment, whether directly or as a third party
beneficiary, or continued employment for any
specified period, of any nature or kind whatsoever.
8.15 Access to Records.
A. Following the Effective Time of Closing, Purchaser
shall give to Seller free and unrestricted access to
(and the right to make copies at the expense of
Seller) the Records, to the extent that such were
purchased by Purchaser hereunder and relate to the
business, operations, income, expenses and assets of
Seller existing on, accruing or arising prior to or
occurring prior to Effective Time of Closing, but any
access pursuant to this Section 8.15 shall be
conducted in such manner as not to interfere
unreasonably with the
46
operations of the Business following the Effective
Time of Closing.
B. Following the Effective Time of Closing, Seller shall
give to Purchaser free and unrestricted access to
(and the right to make copies at the expense of
Purchaser) the books, files, records and Tax returns
and supporting schedules and work papers of Seller to
the extent that such relate to the business,
operations, income, expenses and assets of Seller
existing on, accruing or arising prior to or
occurring prior to the Effective Time of Closing, but
any access pursuant to this Section 8.15 shall be
conducted in such manner as not to interfere
unreasonably with the operations of the business of
Seller following the Effective Time of Closing.
8.16 Offset to Subordinated Loan. Purchaser and Seller agree that
whenever this Agreement calls for or permits a reduction in principal under the
Subordinated Note, such reduction shall be made 50% to the most current
principal and 50% to the backend principal.
8.17 Governing Law. Agreement shall be governed by and construed
in accordance with the laws of the State of Texas.
47
In witness whereof, the undersigned have executed this Agreement as of
the date first above written.
PURCHASER:
DXP ACQUISITION, INC. d/b/a
STRATEGIC ACQUISITION, INC.
By: /s/ XXXX X. XXXXXXX
-----------------------------------------
Name: Xxxx X. Xxxxxxx
Title: Senior Vice President - Finance
DXP:
DXP ENTERPRISES, INC. (Previously INDEX, INC
By: /s/ XXXX X. XXXXXXX
-----------------------------------------
Name: Xxxx X. Xxxxxxx
Title: Senior Vice President - Finance
SELLER:
STRATEGIC DISTRIBUTION, INC.
By: /s/ XXXXXX X. XXXXXX
-----------------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Chairman
STRATEGIC SUPPLY, INC.
By: /s/ XXXXXX X. XXXXXX
-----------------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Chairman
XXXXXXX TECHNOLOGIES, INC.
By: /s/ XXXXXX X. XXXXXX
-----------------------------------------
Name: Xxxxxx X. Xxxxxx
---------------------------------------
Title: Vice President
--------------------------------------
48
ANNEX A
Seller's Disclosure Letter
(Attached)
49
ANNEX B
Seller's Net Tangible Asset Value as of March 31, 1997
Net Tangible Asset Value
Inventory 9,300,062
-----------
Property Plant & Equipment 2,327,837
-----------
Prepaids and Other Tangible Assets 234,764
-----------
Accounts Payable & Accrued Expenses (4,333,535)
-----------
Consideration Note (531,000)
-----------
6,998,128
-----------
Cash (4,500,000)
-----------
Sub Note (2,498,128)
-----------
-0-
-----------
50
EXHIBIT 2.2(A)(1)
Consideration Note
(Attached)
51
EXHIBIT 2.3(A)
Subordinated Note
(Attached)
52
EXHIBIT 2.5.1
General Conveyance, Transfer and Assignment
(Attached)
53
EXHIBIT 2.5.2
Assumption Agreement
(To Be Attached)
54
EXHIBIT 5.1(C)
Opinion of Counsel to Seller
[To Be Agreed Prior to Closing]
55
EXHIBIT 5.2(C)
Opinion of Counsel to Purchaser
[To Be Agreed Prior to Closing]
56
EXHIBIT 5.2(D)
Transaction Service Agreement
The form will be agreed upon at Closing provided
the services attached hereto will be provided for
SDI Mexico through December 31, 1997.
57
Exhibit 7.7
Guaranty Agreement
(Attached)
58
The following annexes, schedules and exhibits have not been filed with this
exhibit:
Annex A - Seller's Disclosure Letter
Exhibit 2.2(A)(1) - Consideration Note
Exhibit 2.3(A) - Subordinated Note
Exhibit 2.5.1 - General Conveyance, Transfer and Assignment
Exhibit 2.5.2 - Assumption Agreement
Exhibit 5.1(C) - Opinion of Counsel to Seller
Exhibit 5.2(C) - Opinion of Counsel to Purchaser
Exhibit 5.2(D) - Transition Services Agreement
Exhibit 7.7 - Guaranty Agreement
Schedule 3.2(B) - Purchaser's Consents, Approvals, Authorizations, Waivers and
Notices
Schedules 3.2(F) - Purchaser's Litigation
Schedules 8.14(A) - Excluded Employees
The Company will furnish supplementally any of the omitted annexes, schedules
and exhibits to the Commission upon request.
