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Exhibit 10.18
AGREEMENT AND PLAN OF MERGER
by and among
WATERLINK, INC.
WET ACQUISITION CORP.
and
WATER EQUIPMENT TECHNOLOGIES, INC.,
AND THE SHAREHOLDERS OF
WATER EQUIPMENT TECHNOLOGIES, INC.
Dated as of September 27, 1996
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TABLE OF CONTENTS
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ARTICLE I THE MERGER.................................................................................1
Section 1.1 The Merger...............................................................1
Section 1.2 Effective Time..........................................................1
Section 1.3 Closing.................................................................2
Section 1.4 Directors and Officers..................................................2
Section 1.5 Shareholders' Meeting...................................................2
Section 1.6 Tax-Free Reorganization.................................................2
ARTICLE II CONVERSION OF SHARES.......................................................................3
Section 2.1 Conversion of Shares.....................................................3
Section 2.2 Issuance of Parent Common Stock; Cash in Lieu
of Fractional Shares.....................................................7
Section 2.3 Stock Transfer Books.....................................................9
ARTICLE III REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE
COMPANY AND THE SHAREHOLDERS........................................................................9
Section 3.1 Organization and Standing................................................9
Section 3.2 Conflicts; Consents......................................................9
Section 3.3 Capital Stock...........................................................10
Section 3.4 Investments of the Company.............................................10
Section 3.5 Outstanding Options and Warrants........................................10
Section 3.6 Business Relations......................................................10
Section 3.7 Real Property...........................................................10
Section 3.8 Title to and Condition of Assets........................................13
Section 3.9 Financial Statements....................................................13
Section 3.10 Absence of Certain Changes..............................................14
Section 3.11 Absence of Undisclosed Liabilities......................................15
Section 3.12 Taxes...................................................................15
Section 3.13 Indebtedness to Officers, Directors and Shareholders....................17
Section 3.14 Articles of Incorporation and Bylaws....................................17
Section 3.15 Corporate Minutes.......................................................17
Section 3.16 Brokerage and Finder's Fees.............................................17
Section 3.17 Accounts Receivable.....................................................17
Section 3.18 Employment Matters......................................................18
Section 3.19 No Defaults.............................................................18
Section 3.20 Material Contracts......................................................19
Section 3.21 Purchase Orders.........................................................19
Section 3.22 Indebtedness............................................................19
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Section 3.23 Litigation..............................................................19
Section 3.24 Insurance...............................................................19
Section 3.25 Transactions with Officers, Etc.........................................20
Section 3.26 Employees...............................................................20
Section 3.27 Trademarks, Copyrights and Similar Matters..............................21
Section 3.28 Employee Benefit Plans and Other Plans..................................21
Section 3.29 Environmental Matters...................................................24
Section 3.30 Bank Accounts...........................................................26
Section 3.31 Compliance with Laws....................................................26
Section 3.32 Powers of Attorney......................................................26
Section 3.33 Licenses and Rights.....................................................26
Section 3.34 Schedule of Government Reports..........................................26
Section 3.35 Products................................................................26
Section 3.36 Casualty Occurrences....................................................27
Section 3.37 Inventory...............................................................27
Section 3.38 Capital Expenditure Plans...............................................27
Section 3.39 No Intentions to Dispose................................................27
Section 3.40 Ultra/Pure Spin-off.....................................................27
Section 3.41 Material Misstatements or Omissions.....................................27
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
PARENT AND SUB...........................................................................28
Section 4.1 Organization and Standing...............................................28
Section 4.2 Conflicts; Consents.....................................................28
Section 4.3 Certificate of Incorporation and By-Laws................................28
Section 4.4 Parent Disclosure Memorandum............................................29
Section 4.5 Parent Authorized Capitalization........................................29
Section 4.6 Absence of Certain Changes..............................................30
Section 4.7 Subsidiaries and Investments............................................30
Section 4.8 Absence of Undisclosed Liabilities......................................30
Section 4.9 Brokerage and Finder's Fees.............................................30
Section 4.10 Taxes...................................................................30
Section 4.11 Material Misstatements or Omissions.....................................30
ARTICLE V CONDITIONS PRECEDENT TO OBLIGATIONS OF
PARENT AND SUB............................................................................31
Section 5.1 Representations True....................................................31
Section 5.2 All Consents Obtained...................................................31
Section 5.3 Performance and Obligations.............................................31
Section 5.4 Receipt of Documents by Parent..........................................31
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Section 5.5 No Litigation...........................................................31
Section 5.6 Employment Agreements...................................................32
Section 5.7 Shareholder Approval....................................................32
Section 5.8 Termination or Exercise of Stock Options................................32
Section 5.9 Resignation.............................................................32
Section 5.10 Investment Letter.......................................................32
Section 5.11 Leases for West Palm Beach and Clearwater Sites.........................32
Section 5.12 Stock Restriction Agreement.............................................32
Section 5.13 Minimum Net Working Capital.............................................32
Section 5.14 Delivery of Books and Records...........................................32
Section 5.15 Absence of Changes......................................................33
Section 5.16 Parent's Review.........................................................33
Section 5.17 Company Debentures......................................................33
Section 5.18 Company Credit Facility.................................................33
ARTICLE VI CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
AND THE SHAREHOLDERS......................................................................33
Section 6.1 Representations True....................................................33
Section 6.2 All Consents Obtained...................................................33
Section 6.3 Performance of Obligations..............................................34
Section 6.4 Receipt of Documents by the Company.....................................34
Section 6.5 No Litigation...........................................................34
Section 6.6 Employment Agreements...................................................34
Section 6.7 Leases for West Palm and Clearwater Sites...............................34
ARTICLE VII TERMINATION OF AGREEMENT.........................................................34
ARTICLE VIII SURVIVAL OF REPRESENTATIONS AND WARRANTIES:
INDEMNIFICATION: DISPUTES.................................................................35
Section 8.1 Survival of Representations and Warranties..............................35
Section 8.2 Shareholders' Indemnification...........................................35
Section 8.3 Defense of Claim........................................................36
Section 8.4 Defense of Tax Claim....................................................37
Section 8.5 Parent and Sub's Indemnification........................................38
ARTICLE IX CONDUCT PRIOR TO CLOSING DATE....................................................39
Section 9.1 Continuation of Business................................................39
Section 9.2 Preservation of Business................................................40
Section 9.3 Consents and Approvals..................................................40
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ARTICLE X ASSIGNMENT, THIRD PARTIES, BINDING EFFECT.................................................40
ARTICLE XI EXPENSES..................................................................................41
ARTICLE XII NOTICES...................................................................................41
ARTICLE XIII REMEDIES NOT EXCLUSIVE....................................................................42
ARTICLE XIV NON-COMPETITION...........................................................................42
Section 14.1 Non-Competition Agreement...............................................42
Section 14.2 Disclosure of Confidential Information..................................43
ARTICLE XV MISCELLANEOUS.............................................................................44
Section 15.1 Counterparts............................................................44
Section 15.2 Captions and Section Headings...........................................44
Section 15.3 Waivers.................................................................44
Section 15.4 Right of Inspection.....................................................44
Section 15.5 Amendments, Supplements or Modifications................................44
Section 15.6 Entire Agreement........................................................44
Section 15.7 Governing Law...........................................................44
Section 15.8 Knowledge...............................................................45
Section 15.9 Press Releases..........................................................45
Section 15.10 Disclosure Schedules....................................................45
List of Schedules
Schedule I Allocation of Waterlink Corporate Overhead
Schedule II Determination of Waterlink Common Stock Fair Market Value
Schedule III List of Shareholders
Schedule IV List of WET Supervisory Employees
List of Exhibits
Exhibits X-0, X-0
and A-3 Forms of Employment Agreements
Exhibit B Form of Investment Letter
Exhibits C-1, C-2 Forms of West Palm Beach Lease and Clearwater Lease
Exhibit D Form of Stock Restriction Agreement
Exhibit E Ultra/Pure Description of Business
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AGREEMENT AND PLAN OF MERGER ("Agreement"), dated as of September 27,
1996, by and among Waterlink, Inc., a Delaware corporation ("Parent"), WET
Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of Parent
("Sub"), Water Equipment Technologies, Inc., a Florida corporation (the
"Company") and the shareholders of the Company listed on the signature page
hereof (collectively, the "Shareholders" and each individually, a
"Shareholder").
WHEREAS, the Boards of Directors of Parent, Sub and the Company have
approved, and deem it advisable and in the best interests of their respective
shareholders to consummate, the acquisition of the Company by Parent upon the
terms and subject to the conditions set forth herein;
WHEREAS, it is intended that the acquisition be accomplished by a
merger of the Company with and into Sub, with Sub being the surviving
corporation; and
WHEREAS, the parties intend for the merger to qualify as a tax-free
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties agree as follows:
ARTICLE I
THE MERGER
Section 1.1 THE MERGER. Subject to the terms and conditions of this
Agreement and in accordance with the Florida Business Corporation Act ("FBCA")
and the General Corporation Law of the State of Delaware ("DGCL"), at the
Effective Time (as defined below), the Company and Sub shall consummate a merger
(the "Merger") pursuant to which (i) the Company shall be merged with and into
Sub and the separate corporate existence of the Company shall thereupon cease,
and (ii) Sub shall be the successor or surviving corporation in the Merger (the
"Surviving Corporation") and shall continue to be governed by the laws of the
State of Delaware. Pursuant to and by virtue of the Merger, (x) the Articles of
Incorporation of Sub, as in effect immediately prior to the Effective Time,
shall be the Articles of Incorporation of the Surviving Corporation until
thereafter amended as provided by law and such Articles of Incorporation except
that the name of the Surviving Corporation shall be Water Equipment
Technologies, Inc. and shall be so reflected in such Articles of Incorporation,
and (y) the Bylaws of Sub, as in effect immediately prior to the Effective Time,
shall be the Bylaws of the Surviving Corporation until thereafter amended as
provided by law, the Articles of Incorporation of the Surviving Corporation and
such Bylaws. The Merger shall have the effects set forth in the FBCA and the
DGCL.
Section 1.2 EFFECTIVE TIME. Parent, Sub and the Company will cause
Articles of Merger or Certificates of Merger, as the case may be, (collectively,
the "Certificates of Merger") with respect to the Merger to be executed and
filed on the date of the Closing (as defined in
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Section 1.3) (or on such other date as Parent and the Company may agree) with
the Secretaries of State of the States of Florida and Delaware as provided in
the FBCA and the DGCL, respectively. The Merger shall become effective when the
Certificates of Merger and other filings required by the FBCA and the DGCL have
been duly filed with the Secretaries of State of the States of Florida and
Delaware or at such time as is agreed upon by the parties and specified in the
Certificates of Merger, and such time is hereinafter referred to as the
"Effective Time".
Section 1.3 CLOSING. The closing of the Merger (the "Closing") will
take place at 10:00 a.m., Cleveland, Ohio time, on a date to be mutually agreed
by the parties hereto, such date to be not more than thirty (30) days of the
date of this Agreement, unless an extension is mutually agreed to by the parties
(the "Closing Date"), at the offices of Benesch, Friedlander, Xxxxxx & Aronoff
P.L.L., 0000 XX Xxxxxxx Xxxxxxxx, 000 Xxxxxx Xxxxxx, Xxxxxxxxx, Xxxx 00000
unless another time, date or place is agreed to in writing by the parties
hereto.
Section 1.4 DIRECTORS AND OFFICERS. The Directors of the Surviving
Corporation shall be, from and after the Effective Time, Xxxxx Xxxxxxx, Xxxx
Xxxx and Xxxxx Xxxxxxx and the officers of the Surviving Corporation shall be,
from and after the Effective Time, Xxxx Xxxx, Chairman, Xxxxx Xxxxxxx, Chief
Operating Officer, Xxxxxxxx Xxxxxxxx, Secretary and Xxxxx Xxxxxxx, Treasurer, in
each case until their successors shall have been duly elected or appointed or
qualified or until their earlier death, resignation or removal in accordance
with the Surviving Corporation's Articles of Incorporation and Bylaws; PROVIDED,
HOWEVER, that the Board of Directors of Parent, subject to the satisfaction of
its fiduciary duties and the terms of Xxxxx Xxxxxxx'x employment agreement
referred to in Section 5.6 hereof, will elect Xxxxx Xxxxxxx as the Chief
Operating Officer of the Surviving Corporation during each EBIT Earn-out Period
(as defined in Section 2.1(d) below).
Section 1.5 SHAREHOLDERS' MEETING. In order to consummate the Merger,
the Company, acting through its Board of Directors, shall, in accordance with
the FBCA and all other applicable law, duly call, give notice of, convene and
hold a special meeting of its shareholders (the "Company Special Meeting"), as
soon as practicable for the purpose of considering and taking action upon this
Agreement. The Board of Directors of the Company shall recommend that the
shareholders of the Company vote in favor of the approval of the Merger and the
adoption of this Agreement. In lieu of the Company Special Meeting, the
shareholders of the Company may take action upon and approve the Company's
execution and delivery of, and performance of its obligations under, this
Agreement without a meeting by unanimous written consent of all such
shareholders to the extent permitted by and in accordance with the FBCA and the
Company's Bylaws. In connection with the Shareholders' consideration and
evaluation of this Agreement and the transactions contemplated hereby,
including, without limitation, the issuance to the Shareholders of the shares of
Parent Common Stock (as defined in and contemplated by Section 2.1), the Company
will, sufficiently in advance of such consideration, provide or make available
to all the Shareholders, such material information relating to the Company, its
business, financial condition and prospects, deemed by the Shareholders to be
necessary to enable such Shareholders to evaluate this Agreement and the
transactions contemplated hereby.
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Section 1.6 TAX-FREE REORGANIZATION. The parties intend to adopt this
Agreement as a tax-free plan of reorganization and to consummate the Merger in
accordance with the provisions of Sections 368(a)(1)(A) and 368(a)(2)(D) of the
Code. Each Shareholder agrees not to dispose of any Parent Common Stock received
in the Merger within two (2) years of the Effective Time unless the Shareholder
obtains an opinion of counsel reasonably satisfactory to Parent that such
transfer will not violate the continuity of shareholder interest requirement set
forth in Treasury Regulation Section 1.368-1. Subject to the terms of the Stock
Restriction Agreement (as defined in Section 5.16 below), any Shareholder
wishing to dispose of any shares of Parent Common Stock received in the Merger
shall provide written notice to Parent, not less than thirty (30) days prior to
the intended date of disposition, specifying the number of shares of which the
Shareholder proposes to dispose.
ARTICLE II
CONVERSION OF SHARES
Section 2.1 CONVERSION OF SHARES.
(a) Each share of common stock, par value $.01 per share, of
Sub issued and outstanding immediately prior to the Effective Time, by
virtue of the Merger and without any other action taken by Parent, Sub
or the Company, shall be, at the Effective Time, automatically
converted into and become one fully paid and nonassessable share of
common stock of the Surviving Corporation.
(b) Each share of common stock of the Company ("Company Common
Stock") issued and outstanding immediately prior to the Effective Time
shall be, at the Effective Time, by virtue of the Merger and without
any action taken on the part of the holder thereof, be automatically
converted into the right to receive (i) (A) cash equal to the quotient
of Two Million One Hundred Twenty Five Thousand Dollars ($2,125,000)
divided by the number of shares of Company Common Stock issued and
outstanding immediately prior to the Effective Time (collectively, the
"Outstanding Shares") and (B) a number of duly authorized, validly
issued, fully paid and nonassessable shares of common stock, par value
$.001 per share, of Parent ("Parent Common Stock") equal to the
quotient of Five Hundred Thousand (500,000) shares divided by the
number of Outstanding Shares, subject in part however, to adjustment as
hereinafter provided (the consideration referred to in clauses (i)(A)
and (B) of this subsection (b) is referred to as the "Initial Merger
Consideration") and (ii) the Earn-out Consideration Per Share, if any,
contemplated by clauses (d) and (e) below, subject in part however, to
claims for indemnification as hereinafter provided.
(c) The Initial Merger Consideration will be adjusted based on
the actual earnings before interest and federal and state income taxes
of the Company for the year ended September 30, 1996, determined in
accordance with generally accepted accounting
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principles ("GAAP") consistently applied without giving effect to any
earnings attributed to distributions or dividends from the Company's
subsidiaries and without giving effect to the legal fees and expenses
(subject to Article XI hereof) incurred by the Company in connection
with the transactions contemplated by this Agreement ("EBIT"). If the
EBIT of the Company for the year ended September 30, 1996 is less than
or greater than Seven Hundred Fifty Thousand Dollars ($750,000) (the
"Forecasted EBIT"), the Initial Merger Consideration will be increased
or decreased, as the case may be, equally between the cash portion
thereof and the Parent Common Stock portion thereof (it being
understood and agreed that for purposes of valuing the Parent Common
Stock, each share of Parent Common Stock shall be deemed to have a
value of Four Dollars and Twenty Five Cents ($4.25)) so that the
Initial Merger Consideration, as adjusted, equals the excess of (i) the
product of six (6) times the EBIT of the Company for the year ended
September 30, 1996 (the "Initial Merger Consideration Adjustment") over
(ii) Two Hundred Fifty Thousand Dollars ($250,000). Any such adjustment
will be effected in the manner set forth in Sections 2.1(e) and (f) and
2.2(d) below. By way of example, if the EBIT of the Company for such
period is Seven Hundred Ninety Two Thousand Five Hundred Dollars
($792,500), the Initial Merger Consideration would be increased by Two
Hundred Fifty Five Thousand Dollars ($255,000) in the aggregate (six
(6) times the difference between the EBIT and the Forecasted EBIT), One
Hundred Twenty Seven Thousand Five Hundred Dollars ($127,500) of which
would be payable in cash and the remainder payable in thirty thousand
(30,000) shares of Parent Common Stock ($127,500 divided by $4.25). If
the EBIT of the Company for such period is less than Seven Hundred
Fifty Thousand Dollars ($750,000), the Initial Merger Consideration
will be decreased accordingly and such adjustment will be effected in
the manner set forth in Sections 2.1(f) and (g) and 2.2(d) below.
(d) In addition to the Initial Merger Consideration and with
respect to the year ended September 30, 1997 (the "First EBIT Earn-out
Period") and the year ended September 30, 1998 (the "Second EBIT
Earn-out Period" and, together with the First Earn-out Period, the
"EBIT Earn-out Periods") each share of Company Common Stock issued and
outstanding immediately prior to the Effective Time shall be, at the
Effective Time, by virtue of the Merger and without any action taken on
the part of the holder thereof, automatically converted into the right
to receive cash and shares of Parent Common Stock in the amounts set
forth below (the "EBIT Earn-out Consideration") based on the adjusted
earnings before income and taxes ("Adjusted EBIT") (as more fully
defined below) of the Surviving Corporation for such EBIT Earn-out
Periods.
(i) "Adjusted EBIT" for each EBIT Earn-out Period
shall mean the earnings before interest (other than interest
on borrowings used for working capital purposes) and federal
and state income taxes of the Surviving Corporation determined
in accordance with GAAP consistently applied, from period to
period, except that (A) no effect shall be given to any
expenses of the Surviving Corporation relating to Xxxxx
Xxxxxxx'x Employment Agreement referred to in Section 5.6
below or any expenses, including but not limited to, the
amortization
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of good will, which is the result of purchase accounting
adjustments required by GAAP on the books of the Company
solely as a result of the Merger under the purchase method of
accounting or other applicable method of accounting for a
business combination, (B) the Surviving Corporation shall be
allocated a portion of Parent's expenses incurred on behalf of
the Surviving Corporation determined in the manner illustrated
in Schedule I attached hereto, and (C) no effect shall be
given to any revenues generated from, and associated expenses
incurred in connection with, sales which individually exceed
One Hundred Thousand Dollars ($100,000) and that are sales to
or referred by Parent or, other than the Surviving
Corporation, any subsidiary of Parent or any employee of
Parent or, other than the Surviving Corporation, of any
subsidiary of Parent. Notwithstanding the foregoing, in the
event that the business operations of the Surviving
Corporation are materially interrupted as a result of fire,
flood, acts of God, or other casualty occurrence beyond the
control of the Surviving Corporation, then Adjusted EBIT shall
include the proceeds of any business interruption or like
insurance policy insuring against such casualty occurrences to
the extent such proceeds represent lost profits during the
relevant EBIT Earn-out Period.
(ii) The EBIT Earn-out Consideration in the aggregate
for the First EBIT Earn-out Period shall equal one-half (1/2)
of the excess, if any, of the Adjusted EBIT for the year ended
September 30, 1997 over the Adjusted EBIT for the year ended
September 30, 1996 and the EBIT Earn-out Consideration in the
aggregate for the Second EBIT Earn-out Period shall equal
one-half (1/2) of the excess, if any, of the Adjusted EBIT for
the year ended September 30, 1998 over the greater of (A) the
Adjusted EBIT for the year ended September 30, 1997 and (B)
the Adjusted EBIT for the year ended September 30, 1996;
provided, however, that if the Adjusted EBIT for the year
ended September 30, 1997 is less than the Adjusted EBIT for
the year ended September 30, 1996, then the aggregate EBIT
Earn-Out Consideration for the Second EBIT Earn-Out Period
shall be reduced by the excess of the Adjusted EBIT for the
year ended September 30, 1996 over the Adjusted EBIT for the
year ended September 30, 1997. The EBIT Earn-out Consideration
Per Share for each EBIT Earn-out Period, if any, shall equal
the quotient of the EBIT Earn-out Consideration for such EBIT
Earn-out Period divided by the number of Outstanding Shares.
The EBIT Earn-out Consideration Per Share shall be payable by
Parent to the Shareholders with respect to each Outstanding
Share owned by each such Shareholder in (A) cash in an amount
equal to one-half (1/2) of the EBIT Earn-out Consideration Per
Share and (B) a number of duly authorized, validly issued,
fully paid and nonassessable shares of Parent Common Stock
equal to the quotient of one-half (1/2) of the EBIT Earn-out
Consideration Per Share divided by the Fair Market Value Per
Share of Parent Common Stock as of the date of payment as
determined in the manner set forth on Schedule II attached
hereto.
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(e) In addition to the Initial Merger Consideration and the
EBIT Earn-out Consideration, each share of Company Common Stock issued
and outstanding immediately prior to the Effective Time shall be, at
the Effective Time, by virtue of the Merger and without any action
taken on the part of the holder thereof, automatically converted into
the right to receive additional cash in the amounts set forth below
(the "KDF Earn-out Consideration") based on the Surviving Corporation's
purchases of KDF-Wool from KDF Fluid Treatment, Inc. ("KDF"). The KDF
Earn-out Consideration in the aggregate shall equal the product of One
Dollar and Twenty-Seven Cents ($1.27) multiplied by the number of
pounds of KDF-Wool purchased by the Surviving Corporation from KDF
during the period beginning at the Effective Time and ending on the
earlier of (i) the third (3rd) anniversary of the Effective Time and
(ii) the date through which the aggregate KDF Earn-out Consideration
equals Three Hundred and Thirty Thousand Dollars ($330,000), the
maximum amount of KDF Earn-out Consideration that may become payable in
the aggregate to holders of Outstanding Shares (the "KDF Earn-out
Termination Date"). The KDF Earn-out Consideration Per Share for any
period of determination (together with the EBIT Earn-out Consideration
Per Share, the "Earn-out Consideration Per Share") shall equal the
quotient of the KDF Earn-out Consideration divided by the number of
Outstanding Shares. The KDF Earn-out Consideration Per Share shall be
payable in cash by Parent to the Shareholders with respect to each
Outstanding Share owned by such Shareholder on a quarterly basis
beginning on February 15, 1997 with respect to the period beginning at
the Effective Time and ending on December 31, 1996 and each May 15,
August 15, November 15 and February 15 thereafter until the KDF
Earn-out Termination Date. Parent shall deliver to the Shareholders'
Representative (as defined below), together with each KDF Earn-out
Consideration payment, a statement setting forth the amount of KDF-Wool
purchased by the Surviving Corporation from KDF during the relevant
period and the corresponding calculation of KDF Earn-out Consideration
Per Share (the "KDF Earn-out Statement").
(f) Parent shall deliver to Xxxxx Xxxxxxx, as representative
of all the shareholders of the Company (the "Shareholders'
Representative"), (i) on or before the later of December 31, 1996, or
the ninetieth (90th) day next following the Effective Time, (A) the
Surviving Corporation's financial statements for the year ended
September 30, 1996 and (B) a statement setting forth the computation
and amount of EBIT of the Surviving Corporation for such period and the
related computation and amount of cash and shares of Parent Common
Stock payable or forfeitable, as the case may be, comprising the
Initial Merger Consideration Adjustment (the "EBIT Adjustment
Statement") as reviewed by and concurred with by Parent's independent
public accountants, and (ii) within ninety (90) days of the end of each
EBIT Earn-out Period, (A) the Surviving Corporation's financial
statements covering such EBIT Earn-out Period, and (B) a statement
setting forth the computation and amount of Adjusted EBIT for such EBIT
Earn-out Period and the related computation and amount of cash and
shares of Parent Common Stock, if any, payable as EBIT Earn-out
Consideration Per Share (the "EBIT Earn-out Statement") as reviewed by
and concurred with by Parent's independent public accountants.
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(g) The Shareholders' Representative shall have thirty (30)
days from the date the EBIT Adjustment Statement, an EBIT Earn-out
Statement or a KDF Earn-out Statement, as the case may be, is delivered
to it to furnish Parent with a letter requesting access to the books
and records of Parent necessary to compute EBIT, Adjusted EBIT or the
KDF Earn-out Consideration Per Share, as the case may be, and upon
receipt of such request, Parent shall promptly make available such
books and records to the Shareholders' Representative. The
Shareholders' Representative shall have sixty (60) days after such
access is granted to furnish Parent with a letter setting forth those
items with which it disagrees and the reasons for each such
disagreement. The parties shall promptly seek to reconcile any such
disagreement. If they fail to reach an agreement within thirty (30)
days of receipt by Parent of such letter, then an independent public
accounting firm shall be retained by the parties to settle any
remaining disagreement, and the decision of said firm shall be final
and binding on all parties to this Agreement. If the Shareholders'
Representative and Parent cannot agree on an accounting firm to settle
any remaining disagreement within such thirty (30) day period, then the
Shareholders' Representative and Parent shall each designate an
independent public accounting firm and the two (2) firms so designated
shall select a third independent public accounting firm and the
decision of said firm shall be final and binding on all parties to this
Agreement. The fees of all accounting firms involved shall be paid by
the party which fails to prevail with respect to the dispute.
(h) In the event that Parent fails to deliver the cash portion
of the EBIT Earn- out Consideration or the KDF Earn-out Consideration
within sixty (60) days of the due date of any such payment, then the
Shareholders, acting through the Shareholders' Representative, may
elect, at their option while such payment remains unpaid, to require
Parent to deliver a subordinated demand promissory note in the original
principal amount of such unpaid payment plus interest at the rate of
ten percent (10%) per annum.
(i) On and after the Effective Time, holders of certificates
which immediately prior to the Effective Time represented outstanding
shares of Company Common Stock (the "Certificates") shall cease to have
any rights as shareholders of the Company, except the right to receive
the Initial Merger Consideration and the Earn-out Consideration Per
Share set forth in this Article II (collectively, the "Merger
Consideration").
Section 2.2 ISSUANCE OF PARENT COMMON STOCK; CASH IN LIEU OF FRACTIONAL
SHARES.
(a) The manner in which each share of Company Common Stock
shall be converted into the Merger Consideration shall be as set forth
in this Section 2.2.
(b) Parent shall act as exchange/escrow agent for the holders
of shares of Company Common Stock in connection with the Merger (the
"Exchange/Escrow Agent"). In connection therewith, the Exchange/Escrow
Agent shall accept the Certificates delivered by such holders and shall
pay and deliver (and hold, pending cancellation, forfeiture or
delivery, pursuant to Section 2.2(d) below), cash and certificates
evidencing shares of
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Parent Common Stock to which the holders of Company Common Stock shall
become entitled pursuant to this Article II.
(c) As soon as reasonably practicable after the Effective
Time, the Exchange/Escrow Agent shall mail to each holder of Company
Common Stock (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the
Exchange/Escrow Agent and shall be in such form and have such other
provisions as Parent may reasonably specify) (the "Letter of
Transmittal") and (ii) instructions for use in effecting the surrender
of the Certificates in exchange for the Merger Consideration. Upon
surrender of a Certificate for cancellation to the Exchange/Escrow
Agent or to such other agent or agents as may be appointed by Parent,
together with such Letter of Transmittal, duly executed, the holder of
such Certificate shall be entitled to receive in exchange therefor the
Merger Consideration for such shares of Company Common Stock formerly
represented by such Certificate and Parent shall cause the Surviving
Company to cancel the Certificate so surrendered. The name of each
Shareholder, the number of shares of Company Common Stock owned by such
Shareholder, the amount of cash and number of shares of Parent Common
Stock to which each such Shareholder shall become entitled to receive
as of the Effective Time, and the amount of Escrow Cash and number of
Escrow Shares (as each such term is defined below) issuable to each
such holder is set forth on Schedule III attached hereto. The shares of
Parent Common Stock into which the shares of Company Common Stock have
been converted in the Merger and comprising the Initial Merger
Consideration are hereinafter referred to as the "Exchange Shares."
(d) Notwithstanding anything to the contrary contained in this
Agreement, Two Hundred Twelve Thousand Five Hundred Dollars ($212,500)
and Fifty Thousand (50,000) of the Exchange Shares shall be held by the
Exchange/Escrow Agent, in trust, for the benefit of all the
Shareholders, until the EBIT Adjustment Statement is delivered and the
information contained thereon agreed to by Parent and the Shareholders'
Representative or finally decided by the independent public accounting
firm pursuant to the provisions of Section 2.1(g) (the "Escrow Release
Date"). The cash and shares of Parent Common Stock being held by the
Exchange/Escrow Agent are referred to as the "Escrow Cash" and "Escrow
Shares", respectively. The Escrow Cash shall bear interest at the rate
of six percent (6%) per annum from the Effective Date to the date of
forfeiture or release, as the case may be. The Escrow Cash and Escrow
Shares will be held to satisfy any decrease in the Initial Merger
Consideration in the event the Initial Merger Consideration Adjustment
is negative in accordance with Section 2.1(c). On the Escrow Release
Date, if the Initial Merger Consideration Adjustment is not negative,
the Exchange/Escrow Agent will release all the Escrow Cash (including
all interest accrued thereon) and Escrow Shares to the Shareholders
listed on Schedule III hereto (provided, however, that such
Shareholders have delivered to the Exchange/Escrow Agent duly executed
Letters of Transmittal together with their Certificates for
cancellation in accordance with Section 2.2(c)) and, within five (5)
days of the Escrow Release Date, Parent will deliver to such
Shareholders the additional cash and shares of Parent Common Stock to
be delivered
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pursuant to Section 2.1(c). If the Initial Merger Consideration
Adjustment is negative, the Exchange/Escrow Agent will retain that
portion of the Escrow Cash (including all interest accrued thereon) and
Escrow Shares necessary to effect the decrease in the Initial Merger
Consideration pursuant to Section 2.1(c) and will promptly deliver to
the Shareholders the balance of the Escrow Cash (including all interest
accrued thereon) and Escrow Shares, if any. Notwithstanding the
foregoing, in the event that the Escrow Cash (including all interest
accrued thereon) and Escrow Shares are insufficient to cover the
decrease in the Initial Merger Consideration, the Shareholders listed
on Schedule III hereto shall remain obligated to deliver that number of
shares for cancellation and cash required to cover such Shareholders'
pro rata portion of such decrease.
(e) No fractional shares of Parent Common Stock comprising the
Initial Merger Consideration or the EBIT Earn-out Consideration will be
issued. In lieu thereof, cash will be delivered in an amount equal to
such fraction of a share of Parent Common Stock multiplied by Four and
25/100 Dollars ($4.25).
Section 2.3 STOCK TRANSFER BOOKS. At the Effective Time, the stock
transfer books of the Company shall be closed and there shall be no further
registration of transfers of shares of Company Common Stock on the records of
the Company.
ARTICLE III
-----------
REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF
---------------------------------------------
THE COMPANY AND THE SHAREHOLDERS
--------------------------------
The Company and the Shareholders, severally, represent and warrant to,
and agree with, Parent and Sub as follows (except where the concept otherwise
requires, for purposes of this Article III, the "Company" includes its
subsidiary, Water Equipment Technologies (Europe) Limited):
Section 3.1 ORGANIZATION AND STANDING.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Florida.
The Company has full corporate power and authority to carry on its
business as and where now conducted and to own or lease and operate its
properties at and where now owned or leased and operated by it, and is
duly qualified to do business and is in good standing in every
jurisdiction in which the property owned, leased or operated by it, or
the nature of the business conducted by it, makes such qualification
necessary.
(b) Set forth on Schedule 3.1(b)(i) is a true and correct
list of all jurisdictions in which the Company is qualified to do
business as a foreign Corporation and on
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Schedule 3.1(b)(ii) each jurisdiction where the Company does business
or owns or leases property.
Section 3.2 CONFLICTS; CONSENTS.
(a) Except as set forth on Schedule 3.2(a), the execution,
delivery and consummation of this Agreement by the Company (i) does not
now and will not, with the passage of time, the giving of notice or
otherwise, result in a violation or breach of, or constitute a default
under, the Company's Articles of Incorporation or By-laws, or any term
or provision of any indenture, mortgage, deed of trust, lease,
instrument, order, judgment, decree, rule, regulation, law, contract,
agreement or any other restriction to which the Company is a party or
to which the Company or any of its assets is subject or bound, (ii)
will not result in the creation of any lien or other charge upon any
assets of the Company, and (iii) will not result in any acceleration or
termination of any loan or security interest agreement to which the
Company is a party or to which the Company or any of its assets is
subject or bound.
(b) Except as may be listed on Schedule 3.2(b), no approval or
consent of any person, firm or other entity or governmental body is or
was required to be obtained by the Company for the authorization of
this Agreement or the consummation by the Company of the transactions
contemplated by this Agreement.
Section 3.3 CAPITAL STOCK. Schedule 3.3 sets forth the authorized
capital stock of the Company and the number of shares of such capital stock
issued and outstanding. The record holders thereof are as set forth on Schedule
III attached hereto. All of the outstanding shares of the Company are duly
authorized, validly issued, fully paid and nonassessable and were not issued in
violation of preemptive or any other rights, including any rights under any
federal or state securities laws, of any shareholder.
Section 3.4 INVESTMENTS OF THE COMPANY. Except as set forth on Schedule
3.4, the Company has no direct or indirect equity, debt or other interest in any
entity, corporate or otherwise, or any right, warrant or option to acquire any
such interest.
Section 3.5 OUTSTANDING OPTIONS AND WARRANTS. Except as set forth on
Schedule 3.5, there are no subscriptions, options, warrants, rights, puts,
calls, commitments or agreements (respecting issuance, redemption, repurchase,
voting or otherwise) relating to, nor any outstanding securities convertible
into, any shares of capital stock or other equity interest of the Company, or
into any such convertible securities (collectively, "Rights"). The Company has
not agreed to issue, purchase, sell or transfer any of same, except as provided
in this Agreement. On or prior to the Closing, all outstanding Rights will have
been exercised or otherwise terminated and after the Closing, the Surviving
Corporation will have no further obligations under any agreements with respect
thereto.
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Section 3.6 BUSINESS RELATIONS. Other than as set forth on Schedule
3.6(a), the Company is not required, in the ordinary course of business, to
provide any bonding or any other financial security arrangements in connection
with any transactions with any customers or suppliers. The Company has not
received any notice of any disruption (including, without limitation, delayed
deliveries or allocations by suppliers) in the availability of any materials or
products used in the Company's business and has no reason to believe that any
such disruption will occur. Except as set forth on Schedule 3.6(a), there are no
sole source suppliers of goods, equipment or services used by the Company (other
than public utilities) with respect to which practical alternative sources of
supply are unavailable. Other than as set forth on Schedule 3.6(b), no single
customer or group of commonly-owned or controlled customers of the Company
accounted for greater than five percent (5%) of the Company's gross revenues for
either the most recently completed fiscal year or the portion of the current
fiscal year ended July 31, 1996.
Section 3.7 REAL PROPERTY.
(a) Schedule 3.7(a) is a true and complete list of (i) all
real property leases to which the Company is a party and (ii) all
options, deeds of trust, deeds of declaration, mortgages and land
contracts pursuant to or in which the Company has any interest
(collectively, the "Real Property"). The Company has furnished to
Parent or its counsel true and complete copies of each written contract
and a written description of each oral contract relating to the list
set forth on Schedule 3.7(a). The Company owns no real property.
(b) Except as set forth on Schedule 3.7(b), with respect to
the Real Property:
(i) There is no condemnation proceeding or eminent
domain proceeding of any kind pending or, to the best
knowledge of the Company, threatened against any of the Real
Property;
(ii) The Real Property is occupied under valid and
current certificates of occupancy or the like, and the
transactions contemplated by this Agreement will not require
the issuance of any new or amended certificates of occupancy
or the like; there are no facts known to the Company which
would prevent each location from being occupied after the
Closing Date in substantially the same manner as before;
(iii) To the best knowledge of the Company, the Real
Property does not violate, and all improvements are
constructed in compliance with, any applicable federal, state
or local statutes, laws, ordinances, regulations, rules,
codes, orders or requirements, including, without limitation,
any building, zoning, fire or environmental laws or codes (the
"Laws and Ordinances");
(iv) The Company has obtained all appropriate
licenses, permits, building permits and occupancy permits that
are required with respect to the Real
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Property by the Laws and Ordinances and all such licenses and
permits are in full force and effect;
(v) There are no outstanding variances or special
use permits affecting the Real Property or its uses;
(vi) No written notice of a violation of any Laws and
Ordinances, or of any covenant, condition, easement or
restriction affecting the Real Property or relating to its use
or occupancy has been given, nor is the Company aware of any
facts or circumstances that may result in any such violation;
(vii) No portion of the Real Property is located
within a special flood plain area as designated by the Federal
Emergency Management Agency or other applicable government
authority;
(viii) The Real Property has and will have as of the
Closing Date adequate water supply, storm and sanitary sewage
facilities, telephone, electricity, fire protection, means of
ingress and egress to and from public highways and, without
limitation, other required public utilities. All utility lines
and facilities presently serving the Real Property are
serviced and maintained by the appropriate public or
quasi-public entity. All utilities enter the Real Property
through adjoining public streets or, to the best knowledge of
the Company, if they pass through adjoining private land, they
do so in accordance with valid public easements. The Company
has no knowledge of any increase in the applicable rate for
any utility service being furnished to the Real Property from
the rate in effect with respect to the most recent xxxx that
the Company has received for such service;
(ix) The Company has no knowledge of improvements
made or contemplated to be made by any public or private
authority, the costs of which are to be assessed as special
taxes or charges against the Real Property, and there are no
present assessments;
(x) All improvements constituting the Real Property
and made by the Company are without structural defects, were
constructed in substantial conformity with all plans and
specifications, are located entirely within the boundary lines
of the Real Property and do not encroach upon any street or
land of others;
(xi) The Real Property either (a) is freely
accessible directly from all public streets on which it abuts,
or (b) to the best knowledge of the Company, uses adjoining
private land to access the same in accordance with valid
public easements. The Company has no knowledge of any
condition which would result in the termination of such
access.
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(c) With respect to the leased property comprising the Real
Property including all leasehold improvements (collectively, the
"Leased Property"), except as set forth on Schedule 3.7(c):
(i) All leases are in writing and are duly executed
and, to the best knowledge of the Company, where required,
witnessed, acknowledged and recorded to make them valid and
binding and in full force and effect for their full term, and
none have been modified, amended, sublet or assigned;
(ii) The rental set forth in each such lease is the
actual rental being paid, and there are no separate agreements
or understandings with respect to the same not set forth on
Schedule 3.7(c);
(iii) Where the Company is the lessee, the lessee
under each such lease has the full right to exercise any
renewal option and on due exercise will be entitled to enjoy
the use of the leased premises for the full term of such
renewal option, and such renewal option does not terminate on
assignment of such lease;
(iv) There is no default by the Company which affects
the Leased Property;
(v) Where the Company is the lessee, on performance
by the lessee of the terms of each lease (all of which terms
have been fully performed by the lessee as of the date of this
Agreement and will have been fully performed as of the Closing
Date), the lessee has the full right to enjoy the use of the
premises demised for the full term of the lease without
disturbance by any other party, and there are no written or
oral contracts between the Company and any third party
relating to any claim by such third party of any right to all
or any part of the interest of the Company in any leasehold
estate or otherwise relating to the use and occupancy by the
Company of such estate;
(vi) Where the Company is the lessee, all leasehold
improvements are in good operating or working condition and
repair, after taking into account ordinary wear and tear, and
are adequate for the operation of the business of the Company
as presently conducted. All contributions required to have
been paid by any lessor of property in respect of any
leasehold improvements have been paid.
Section 3.8 TITLE TO AND CONDITION OF ASSETS. Except as set forth on
Schedule 3.8, the Company owns and possesses all right, title and interest in
and to its assets, including, without limitation (i) valid and subsisting
leasehold interests in all leasehold estates comprising the Real Property and
(ii) good and merchantable title to all properties and assets other than the
Real Property, in each case free and clear of all conveyances, conditions,
easements, liens, charges, security interests, adverse claims, encumbrances,
encroachments, reservations, easements, limitations, servitudes, other title
defects or restrictions of any nature other than purchase money
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security interests. All tangible assets of the Company are in the Company's
possession or under its respective control, and all equipment used by the
Company is in good operating condition and repair, subject only to routine
maintenance, and is fit and adequate for the purposes intended. The Company
enjoys peaceful and quiet possession of its assets pursuant to or by all of the
deeds, bills of sale, leases, licenses and other agreements under which it is
operating its business.
Section 3.9 FINANCIAL STATEMENTS. Prior to the date of this Agreement,
the Company has provided Parent with the consolidated financial statements of
the Company and its subsidiaries listed below (collectively, the "Financial
Statements"):
(a) Balance Sheets at September 30, 1993, 1994 and 1995 as
reviewed by the Company's independent certified public accountants;
(b) Statement of Operations for the years ended September 30,
1993, 1994 and 1995 as reviewed by the Company's independent certified
public accountants; and
(c) Unaudited Balance Sheets and Statements of Operations at
and for the quarter ended December 31, 1995, and the nine-month period
ended June 30, 1996.
Except as set forth or [sic] Schedule 3.9, the Financial Statements (i)
have been prepared in accordance with GAAP applied on a consistent basis during
the periods, (ii) present fairly in all material respects, the Company's
financial position, results of its operations and changes in its financial
position at and for the periods therein specified, (iii) are true and complete,
(iv) are consistent with the books and records of the Company, and (v) with
respect to all of the unaudited Financial Statements, include all adjustments,
consisting only of normal recurring adjustments, required for a fair
presentation. The Financial Statements will be deemed to include any
accompanying notes and schedules.
Section 3.10 ABSENCE OF CERTAIN CHANGES. Since June 30, 1996, other
than time spent in connection with the negotiation and preparation of this
Agreement and the transactions contemplated hereby, the Company has conducted
its business in the ordinary and regular course consistent with past practice.
Since such date, there has not been any material adverse change in the business,
condition (financial or otherwise), assets, liabilities, results of operations
or, to the Company's knowledge, prospects of the Company. To the Company's
knowledge, other than the transactions contemplated by this Agreement, there has
not occurred any event or governmental regulation or order which could cause
such a change, nor, to the Company's knowledge, is the occurrence of any such
event, regulation or order threatened. Except as set forth on Schedule 3.10,
without limiting the generality of the foregoing, since June 30, 1996, there has
not been:
(a) Any increase made or promised in the compensation or other
remuneration payable or to become payable by the Company to any of its
employees, agents or partners;
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(b) Any mortgage or pledge of, or any other lien, charge or
encumbrance of any kind, on any of the assets, tangible or intangible,
of the Company.
(c) Other than the contemplated distribution by the Company to
the Shareholders of all the capital stock of the Company's subsidiary,
Ultra/Pure Water, Inc., any sale or transfer of any assets, except for
sales of inventory in the ordinary course of business, or settlement,
cancellation or release of any indebtedness owing to the Company or of
any other claims of the Company;
(d) Other than the contemplated distribution by the Company to
the Shareholders of all the capital stock of the Company's subsidiary
Ultra/Pure Water, Inc., any sale, license, assignment or transfer by
the Company of any patents, trademarks, trade names or other similar
intangible assets;
(e) Any amendments or termination of any material contract,
agreement or license to which the Company is a party or to which the
Company or any of its assets are subject or bound;
(f) Any commitment made (through negotiations or otherwise) or
any liability incurred to any labor organization by the Company;
(g) Any payment, declaration or setting aside by the Company
of dividends or a return of capital or any distribution by the Company
of any cash or other assets to any of its shareholders in redemption of
or as the purchase price for any of the Company's capital stock or
equity or in discharge or cancellation in whole or in part of any
indebtedness owing (whether in payment of principal, interest or
otherwise) to any of its shareholders;
(h) Except for the redemption of the Company's 1995 Ten
Percent Convertible Debentures in the aggregate principal amount not
exceeding Five Hundred Thousand Dollars ($500,000), any discharge or
satisfaction by the Company of any lien, encumbrance, obligation or
liability (accrued, absolute, fixed or contingent), other than those
shown on the June 30, 1996 balance sheet of the Financial Statements
that have been discharged or satisfied in the ordinary course without
acceleration and other than those incurred and discharged in the
ordinary course of business consistent with past practice;
(i) Any material transaction entered into by the Company other
than in the ordinary course of business consistent with past practice;
(j) Any institution by the Company of a bonus, stock option,
profit-sharing, pension plan or similar arrangement or any changes in
any such existing plans;
(k) Any incurrence by the Company (whether discharged or not)
of any obligation or liability (whether accrued, absolute, fixed or
contingent) other than current
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liabilities incurred, and obligations entered into, in the ordinary
course of business consistent with past practice;
(l) Any adverse change in collection loss experience;
(m) Any material loss, damage or destruction to any of the
Company's properties (whether or not covered by insurance) or any labor
trouble;
(n) Any payments in cash or otherwise by the Company to its
shareholders or any affiliate pursuant to a tax sharing arrangement or
any other type of intercompany agreement; or
(o) Any change in accounting principles or practices from
those utilized in the preparation of the Financial Statements.
Section 3.11 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth on
the June 30, 1996 balance sheet of the Financial Statements, or on Schedule
3.11, the Company is not obligated for, nor are any of its assets or properties
subject to, any material liabilities or adverse claims or obligations, absolute
or contingent, except those incurred in the ordinary course of business since
June 30, 1996, and the Company is not in default with respect to any terms or
conditions of any liability or obligation. There are no facts known to the
Company that might reasonably serve as a basis, in whole or in part, for any
material liabilities or obligations not disclosed in this Agreement, in the
Financial Statements or in the Schedules and Exhibits attached hereto.
Section 3.12 TAXES.
(a) The Company has filed, and will file, on a timely basis,
all income, franchise, sales, property, gross receipts, employment and
other tax returns and reports of every nature whatsoever required to be
filed by it (including any consolidated or combined return required to
be filed by it and any affiliated person or entity) on or before the
Closing Date accurately reflecting all taxes, including penalties,
additions to tax, and interest ("Taxes") owing to the United States or
any other government or any government subdivision, state or local, or
any other taxing authority ("Tax Returns"), and has paid in full or
made adequate provision in the Financial Statements for the payment of
all Taxes for which it has or may have liability. All such Tax Returns
are true, correct and complete in all respects. The Company has no
knowledge of any unassessed Taxes proposed or threatened against the
Company as a result of the operation of its business. There are no
liens on the Company's assets as a result of any liabilities for Taxes,
except for Taxes not yet due and payable. There are, and after the date
of this Agreement will be, no deficiencies for Taxes, of any kind
assessed against or relating to the Company with respect to any taxable
period ending on or before the Closing Date. There are, and after the
date of this Agreement will be, no federal income tax deficiencies
assessed against the Company pursuant to Treasury Regulations Section
1.1502-6. There are, and after the date of this Agreement will be, no
other deficiencies for Taxes, relating to Tax Returns
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which include the Company for periods ending on or before the Closing
Date. As to all tax periods, or portions thereof, which end prior to,
or include, the Closing Date for which no Tax Returns are yet due, the
liability of the Company for Taxes allocable to periods (or portions
thereof) ending on or before the Closing Date does not exceed the
amount accrued on the Financial Statements for such Taxes. The
liability of the Company for Taxes has not increased since December 31,
1995, except in the ordinary course of business.
(b) The Company is not a party to any action or proceeding by
any governmental authority for the assessment or collection of Taxes,
nor has any such event been asserted or threatened. The Company has not
filed any consent of the type described under Section 341(f) of the
Code, nor is it subject to any accumulated earnings penalties. The
Company has not made any payments, is not obligated to make any
payments, or is not a party to any agreement that under certain
circumstances could oblige it to make any payments that would not be
deductible under Section 280G of the Code. The Company was never a
member of any unitary group for purposes of any state income or
franchise tax laws. The Company has not been a United States real
property holding corporation within the meaning of Code Section
897(c)(2) during the applicable period specified in Code Section
897(c)(1)(A)(ii).
(c) Except as set forth on Schedule 3.12, there are no
outstanding agreements or waivers extending the statutory period of
limitations applicable to any federal, state, local, or foreign Tax
Return of the Company for any period. The federal income tax returns
which include the Company currently are being audited by the Internal
Revenue Service for the fiscal year ended September 30, 1994. All
deficiencies for Taxes raised as a result of any past audits have been
satisfied and all deficiencies for Taxes with respect to the fiscal
year ended September 30, 1994 will be borne by the Shareholders. No
federal, state, local or foreign taxing authority has audited any tax
return or report filed by the Company for any taxable period beginning
after September 30, 1994.
(d) The Company has furnished to Parent complete and correct
copies of all federal income tax returns of the Company for all taxable
years beginning after September 30, 1990. The Company has furnished to
Parent complete and correct copies of all state, local and foreign
income or franchise tax returns filed by the Company for each of their
respective taxable years beginning after December 31, 1990.
(e) The Company has furnished to Parent complete and correct
copies of all audit reports (or portions thereof) received by the
Company from the U.S. Treasury Department which relate to the Company
for any taxable period beginning after September 30,1990 and will
furnish to Parent complete and correct copies of any such audit reports
relating to any such periods received after the date hereof. The
Company has furnished to Parent complete and correct copies of all
audit reports (or portions thereof) received by the Company from any
state, local or foreign taxing authority, which relate to the Company
for any taxable period beginning after December 31, 1990 and will
furnish
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to Parent complete and correct copies of any such audit reports
relating to any such periods received after the date hereof.
(f) Schedule 3.12 sets forth all tax elections made by the
Company, all adjustments under Section 481(a) of the Code which will
affect the Taxes of Parent for all taxable years which end on or after
the Closing Date and all tax rulings or closing agreements to which the
Company is a party. Schedule 3.12 sets forth all jurisdictions in which
the Company has filed or will file state income or franchise tax
returns for each taxable period, or portion thereof, ending on or
before the Effective Time.
(g) There are no liens for Taxes currently in existence with
respect to the Company. There are no tax sharing agreements or similar
arrangements in effect that include the Company.
Section 3.13 INDEBTEDNESS TO OFFICERS, DIRECTORS AND SHAREHOLDERS.
Except as set forth on Schedule 3.13, the Company is not indebted to any of its
shareholders, officers or directors (or to members of their immediate families)
in any amount whatever other than for salaries payable or for expenses incurred
on behalf of the Company in the ordinary course of business.
Section 3.14 ARTICLES OF INCORPORATION AND BYLAWS. True, accurate and
complete copies of the Articles of Incorporation and Bylaws of the Company,
together with all amendments thereto, have been delivered to Parent or its
counsel.
Section 3.15 CORPORATE MINUTES. The Company has furnished or made
available to Parent and its counsel the corporate record books of the Company
and the same are accurate and complete and reflect all material resolutions
adopted and all actions taken, authorized or ratified by the shareholders and
directors of the Company. Copies of all corporate minutes of meetings held and
of all written actions taken after the date of this Agreement will be furnished
to Parent promptly, and in all events, prior to the Closing Date.
Section 3.16 BROKERAGE AND FINDER'S FEES. None of the Company or any
shareholder, officer, director or agent of the Company has incurred any
liability to any broker, finder or agent for any brokerage fees, finder's fees,
or commissions with respect to the transactions contemplated by this Agreement.
Section 3.17 ACCOUNTS RECEIVABLE. The Company has previously delivered
to Parent an aging schedule as of a date not more than thirty (30) days prior to
the date of this Agreement, which is true, correct and complete, of the accounts
receivables, both trade and non-trade, of the Company as of that date. The
Company will update the list as of a date not more than five (5) days prior to
the Closing Date. The reserves for doubtful receivables and uncollectible
accounts that will be reflected on the books of the Company as of the Closing
Date will not exceed two and one-half percent (2.5%) of the then aggregate
accounts receivable, and will be sufficient to provide for any losses that may
arise in connection with the collection of the accounts receivable. Except as
set forth on Schedule 3.17 with respect to those accounts receivable that are
secured by
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outstanding letters of credit, the accounts receivable as reflected on the books
of the Company as of the Closing Date, net of such reserves, will be fully
collectible in the ordinary course of business within ninety (90) days after the
Closing Date, without resort to legal proceedings. All of such accounts
receivable will represent valid claims that have arisen in the ordinary course
of business.
Section 3.18 EMPLOYMENT MATTERS.
(a) Except as set forth on Schedule 3.18, the Company is not a
party to, participant in, or bound by, any collective bargaining
agreement, union contract or employment, bonus, deferred compensation,
insurance, pension, profit sharing or similar personnel arrangement,
any stock purchase, stock option or other stock plans or programs or
any employee termination or severance arrangement.
(b) Except as set forth on Schedule 3.18, the employment by
the Company of any person (whether or not there is a written employment
agreement) may be terminated for any reason whatsoever not inconsistent
with current law, without penalty or liability of any kind other than
accrued vacation pay.
(c) Except as set forth on Schedule 3.18, there are no active,
pending or, to the best of Company's knowledge, threatened
administrative or judicial proceedings under Title VII of the Civil
Rights Act of 1964, the Age Discrimination in Employment Act, the Fair
Labor Standards Act, the Occupational Safety and Health Act, the
National Labor Relations Act or any other foreign, federal, state or
local law (including common law), ordinance or regulation relating to
employees of the Company.
(d) The relation of the Company with its employees is
generally good and there are no pending or, to the best of Company's
knowledge, threatened, labor difficulties.
Section 3.19 NO DEFAULTS. Except as set forth on Schedule 3.19, the
Company is not in default (nor is any such default alleged to exist) under the
terms of any written or oral contract (including, without limitation, purchase
orders), agreement, lease, license, mortgage, deed of trust, note, guaranty,
instrument or understanding (collectively, "Contracts") to which it is a party
or to which any of its assets, business or operations is subject, nor, to the
best of the Company's knowledge, is any condition or event threatened, which,
after notice or the passage of time, or both, would constitute a default under
any Contract. To the Company's' knowledge, no such default, condition or event
exists or is alleged to exist with respect to the performance of any obligation
of any other party to any of such Contracts.
Section 3.20 MATERIAL CONTRACTS. (a) Schedule 3.20(a) is a true and
correct list of each Contract to which the Company is a party or by
which any of its assets, businesses or operations is bound or affected.
Schedule 3.20(a) includes a description of any consents or approvals
required of third parties under the terms of such Contracts for the
consummation of the transactions contemplated by this Agreement.
Schedule 3.20(a)
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excludes any Contract that involves or is reasonably expected to
involve the payment of consideration having an aggregate value of less
than Fifteen Thousand Dollars ($15,000). A true, correct and complete
copy of each written, and a description of each oral, Contract, so
listed has been delivered to Parent or its counsel.
(b) Schedule 3.20(b) is a true and correct list of each
Contract with a customer of the Company that contains provisions (i)
providing for payment terms to the Company of forty-five (45) days or
greater, (ii) permitting the customer to retain in excess of five
percent (5%) of the purchase price for the products or services to be
provided thereby as security for warranty claims or for any other
purpose, or (iii) providing for liquidated or stipulated damages.
Section 3.21 PURCHASE ORDERS. Schedule 3.21 is a true and complete list
of all purchase orders under which the Company is or will become obligated to
pay any particular vendor an aggregate sum in excess of Ten Thousand Dollars
($10,000).
Section 3.22 INDEBTEDNESS. Schedule 3.22 is a true and complete list of
all indebtedness, including, without limitation, trade accounts payable owed or
to be owed by the Company and, if such indebtedness is secured, a description of
all properties or other assets pledged, mortgaged or otherwise hypothecated
(voluntarily or involuntarily) as security.
Section 3.23 LITIGATION. Schedule 3.23 is a true and complete list of
all administrative or judicial proceedings to which the Company is a party or,
to the knowledge of the Company, to which it is threatened to be made a party
which relate, directly or indirectly, to any of the Company's assets, including,
without limitation, proceedings that could affect title to or interests in the
assets. There is no action, suit, claim, demand, arbitration or other proceeding
or investigation, administrative or judicial, pending or threatened against or
affecting the Company or any of its assets, including, without limitation, any
relating to so-called product liability, which, if adversely determined or
resolved, would have an adverse effect on the business, assets, condition
(financial or otherwise), results of operations or prospects of the Company, or
any provisions of, or the validity of, or rights under, any leases or other
operating agreements, licenses, permits or grants of authority of the Company.
The Company has not received notice that it is the subject of any governmental
investigation and the Company is not subject to, nor is it or has it been in
default with respect to, any order, writ, injunction or decree of any court, or
of any federal, state, local or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign. Schedule 3.23
indicates which of the matters listed are covered by valid insurance and the
extent of such coverage.
Section 3.24 INSURANCE. Schedule 3.24 is a true and correct list of all
the policies of insurance covering the business, properties and assets of the
Company presently in force (including as to each (i) risk insured against, (ii)
name of carrier, (iii) policy number, (iv) amount of coverage, (v) amount of
premium, (vi) expiration date and (vii) the property, if any, insured),
indicating as to each whether it insures on an "occurrence" or a "claims made"
basis and whether it provides for any retrospective rate or premium adjustments.
The insurance described on
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Schedule 3.24 insures the Company in the amounts and against such perils as are
generally maintained for comparable businesses. All of the insurance policies
set forth on Schedule 3.24 are in full force and effect and all premiums,
retention amounts and other related expenses due have been paid, and the Company
has not received any notice of cancellations with respect to any of the
policies. The Company has not been refused any insurance by any insurance
carrier to which it has applied for insurance during the last five (5) years. To
the best of the Company's knowledge, there are no circumstances existing which
would enable any insurer to avoid liability under any of the Company's policies.
Section 3.25 TRANSACTIONS WITH OFFICERS, ETC.
(a) Schedule 3.25(a) is a true and correct list of the
ownership of the Company in any entity that has any existing
contractual relationship, oral or written, or other business
relationship with any shareholders of the Company.
(b) Schedule 3.25(b) is a true and correct list of all
Contracts (oral or written), including, but not limited to, any loans
(other than those set forth on Schedule 3.13 of this Agreement or not
required to be set forth thereon) or leases, to which the Company is a
party and to which any of the officers, directors or other employees or
shareholders of the Company, or members of their immediate families or
other Companies, partnerships or other entities in which any of them
has a material interest, is also a party. Schedule 3.25(b) includes a
list of indebtedness of any such person or entity to the Company.
(c) Except as set forth on Schedule 3.25(c) and other than the
ownership of not more than one percent (1%) of the outstanding shares
of any class of capital stock of a publicly held corporation, none of
the Company or any officer, director, employee or shareholder of the
Company, or members of their immediate families or other corporations,
partnerships or other entities in which any of them has a material
interest, has any direct or indirect interest in any competitor,
supplier or customer of the Company or in any person, firm or entity
from whom or to whom the Company leases any property, or in any other
person, firm or entity with whom the Company transacts business of any
nature.
Section 3.26 EMPLOYEES. Schedule 3.26 is a true and correct list of all
employees of the Company (as used in this Agreement, the term "employees"
includes employees, salesmen, agents, sales representatives and all other
persons associated with the Company), their accrued vacation and sick pay, the
nature of their duties and the date and amount of their last increase in
compensation. A true, correct and complete copy of each written employment
contract and a description of each oral employment agreement with any employee
has been delivered to Parent or its counsel.
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Section 3.27 TRADEMARKS, COPYRIGHTS AND SIMILAR MATTERS.
(a) The Company has never been charged with infringement or
violation of any patent, trademark, service xxxx, trade name or
copyright. To the best knowledge of the Company, the Company is not
using nor has it in any way made use of any patentable or unpatentable
invention, or any confidential information or trade secret, of any
former employer of any present or past employee of the Company. All
patents, trademarks, service marks, trade names and copyrights (the
"Specified Items"), and all applications or registrations (including
those whose use is limited to one or more states of the United States),
owned or used by the Company are listed on Schedule 3.27 and, to the
extent indicated, have been duly registered in, filed in or issued by
the United States Patent Office or the corresponding agency or office
of each of such states. Except as indicated on Schedule 3.27, the
Company is the sole and exclusive owner of, or has the sole and
exclusive right to use, the Specified Items, except for the rights of
licensees (whose names and addresses are listed on Schedule 3.27).
Except as set forth on Schedule 3.27, the Company does not use any of
the Specified Items by consent of any other party and the same are free
and clear of any attachments, liens, claims, encumbrances or
agreements. Except as listed on Schedule 3.27, there are no claims or
demands of any other person, firm or corporation pertaining to any of
the Specified Items, and no proceedings have been instituted, are
pending or, to the knowledge of the Company, are threatened which
challenge the right of the Company with respect to any of the Specified
Items. To the best knowledge of the Company, none of the Specified
Items infringes on, or, to the knowledge of the Company, is being
infringed on by others, and none of the Specified Items is subject to
any outstanding order, decree, judgment, stipulation or agreement
restricting the scope of its use.
(b) The Company is the sole and exclusive owner of its
corporate name and any trade names under which it does business. The
Company does not use any such names by consent of any other person or
entity, and owns such names free and clear of any attachments, liens,
claims, encumbrances or agreements. There are no claims or demands of
any other person or entity pertaining to the use of the names and no
proceedings have been instituted or, to the knowledge of the Company,
are threatened, which challenge the right of the Company in respect of
any such names; and the use of such name by the Company does not
infringe on or, to the knowledge of the Company, is not being infringed
on by others, and is not subject to any outstanding order, decree,
judgment, stipulation or agreement restricting the scope of their use.
(c) True, correct and complete copies of all patents,
trademarks, service marks, trade names and copyrights, and of all
related applications or registrations, that are listed on Schedule 3.27
have been delivered to Parent or its counsel.
Section 3.28 EMPLOYEE BENEFIT PLANS AND OTHER PLANS. Except for the
plans or arrangements listed on Schedule 3.28 (hereinafter referred collectively
to as the "Plans" and individually as the "Plan"), the Company does not,
directly or indirectly, maintain, sponsor or
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have an obligation or liability with respect to, any "employee benefit plan," as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), executive compensation or incentive plan, profit sharing
plan, bonus or severance arrangement, employment contract, collective bargaining
agreement, union contract, deferred compensation agreement, stock purchase or
incentive plan or arrangement, or other employee benefit plan or arrangement.
For the purposes of this Agreement, "Controlled Group" shall mean the
Shareholders, the Company and any trade or business, whether or not
incorporated, which is treated together with the Shareholders or Company under
Section 4001(b)(1) of ERISA or Sections 414(b), (c), (m) or (o) of the Code as a
single employer. With respect to each Plan identified on Schedule 3.28:
(a) All applicable ERISA and Code requirements with respect to
such Plan as to the filing of reports, documents and notices with the
Secretary of Labor, the Pension Benefit Guaranty Company, and the
Secretary of the Treasury, or the furnishing of such documents to
Company employees, participants or beneficiaries, have been complied
with in all respects by such Plan or its administrators;
(b) No member of the Controlled Group, Plan, fiduciary of such
Plan or administrator of such Plan, has taken any action, or failed to
take any action, which action or failure could subject the Company, or
any employee of the Company to any liability for breach of any
fiduciary duty, or for any prohibited transaction (as defined in
Section 4975 of the Code), with respect to or in connection with such
Plan;
(c) There are no actions, suits or claims pending (other than
routine claims for benefits) or, to the knowledge of the Company,
threatened against such Plan, the Company, or against any fiduciary of
such Plan;
(d) Such Plan, the fiduciaries of such Plan, Controlled Group
members and administrators of such Plan have at all times complied with
applicable requirements of ERISA, the Code, and any other applicable
law governing such Plan, and such Plan has at all times been properly
administered in accordance with all such requirements of law and in
accordance with its terms to the extent consistent with all such
requirements of law;
(e) The Plan is not a "multiemployer plan" as described in
Section 3(37) of ERISA or Section 414(f) of the Code, nor is it subject
to Title IV of ERISA;
(f) All bonding required by applicable provisions of ERISA
with respect to the Plan has been obtained and is in full force and
effect;
(g) No trust associated with the Plan has earned any
"unrelated business taxable income" (as such term is defined in Section
512 of the Code and the regulations thereunder) or "unrelated debt
financed income" (as such term is defined in Section 514 of the Code
and regulations thereunder);
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(h) If the Plan is an "employee pension benefit plan" (as
defined in ERISA Section 3(2)), the Plan and its associated trust
complies with the applicable provisions of the Code (including, but not
limited to, Code Sections 401(a), 401(a)(4), 410(b), 401(a)(26) and
501(a)), has received a favorable determination letter from the
Internal Revenue Service stating that the Plan qualifies under Section
401(a) and that the associated trust, if any, qualifies under Section
501(a), has been timely amended (and the amendment has been submitted
to the Internal Revenue Service for a favorable determination letter)
with respect to changes required by the Code, ERISA, and the
regulations thereunder;
(i) The Plan has not incurred any "accumulated funding
deficiency," as defined in Section 302(a)(2) of ERISA whether or not
waived;
(j) The Plan does not (i) provide for non-terminable or
non-alterable medical benefits for employees, dependents or retirees or
(ii) provide any benefits for any person upon or following retirement
or termination of employment except as otherwise required by Part 6 of
subtitle B of Title I of ERISA or Section 4980B of the Code (herein
collectively referred to as "COBRA"), and then only to the extent the
person pays the "applicable premium" (as defined in Code Section
4980B(f)(4)) for such coverage;
(k) No events or changes have occurred or are expected to
occur with respect to the Plan that would cause an increase in the cost
of providing the benefits under the Plan;
(l) Full payment has been made of all amounts which the
Company or other member of the Controlled Group, is required, under
applicable law or under the Plan, to have paid as a contribution or a
benefit for the plan years of the Plan ended prior to the date hereof.
All contributions required to be made by, and all other liability of,
the Company with respect to the Plan for the periods covered by the
Financial Statements shall have been set forth on the appropriate
Financial Statement in accordance with GAAP. Benefits under the Plan
are as represented and have not been increased subsequent to the date
as of which documents have been provided.
(m) The consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or
officer of the Company to severance pay, unemployment compensation or
any other payment, (ii) accelerate the time of payment or vesting under
the Plan, (iii) increase the amount of compensation due any such
employee or officer, (iv) except as specifically set forth herein,
directly or indirectly cause the Company to transfer or set aside any
assets to fund or otherwise provide for the benefits under the Plan for
any current or former employee, officer or director, or (v) result in
any non-exempt prohibited transaction described in ERISA Section 406 or
Code Section 4975.
(n) The Company has timely provided or will timely provide all
notices and has provided and will continue to provide any continuation
of health benefit coverage (including but not limited to medical and
dental coverage) required to be provided to any
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of the Company's, or any other member of the Controlled Group's,
employees, former employees, or the beneficiaries or dependents of such
employees or former employees, under COBRA, to the extent such notices
and continuation of health benefit coverage are required to be provided
by reason of the events occurring prior to or on the Closing.
(o) The Company has delivered or caused to be delivered to
Parent or Parent's counsel true and correct copies of the following
with respect to the Plan:
(i) A copy of the Plan and amendments thereto to the
date hereof;
(ii) A copy of each trust agreement and insurance
contract pertaining to the investment of the assets, if any,
of the Plan or the payment of benefits thereunder, including
all amendments to such documents to the date hereof;
(iii) The most recent determination letter issued by
the IRS with respect to the Plan for which a determination
letter has been issued and any pending determination letter
request with respect to the Plan;
(iv) The three (3) most recent IRS Form 5500 series
annual return/reports, including all applicable Schedules and
audited financial statements, filed with respect to the Plan;
and
(v) A copy of the latest summary plan description
(within the meaning of Section 102(a)(1) of ERISA) for the
Plan and each summary of material modifications (within the
meaning of Section 102(a)(2) of ERISA) thereto, each of which
has been provided to employees and filed with the Department
of Labor.
Section 3.29 ENVIRONMENTAL MATTERS.
(a) Definitions. For purposes of this Section:
(i) "Contaminant" means any substance or waste
containing hazardous substances, pollutants or contaminants as
those terms are defined in the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. Section
U.S.C. 9601 ET SEQ., and any other substance similarly defined
or identified in any other federal, state or local laws, rules
or regulations governing the manufacture, import, use,
handling, storage, processing, release or disposal of
substances or wastes deemed hazardous, toxic, dangerous or
injurious to public health or to the environment. This
definition includes asbestos-containing material and petroleum
or petroleum-based products.
(ii) "Requirements of Law" means any federal, state
or local law, rule, regulation, permit, agreement, order or
other binding determination of any governmental authority
relating to the environment, public health or safety.
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(iii) "Release" has the same meaning as in the
Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. Section U.S.C. 9601 ET SEQ.
(b) Except as set forth on Schedule 3.29(b):
(i) the Company has not caused or allowed any
Contaminant to be used, manufactured, stored, placed,
processed or released on or off-site of any of the Real
Property listed on Schedule 3.7(a);
(ii) the Real Property is in material compliance with
all applicable Requirements of Law;
(iii) neither the Company, nor the Real Property, nor any
real property owned or leased by the Company in the past or in
which the Company has had any interest in the past, are the
subject of any notice, order or agreement regarding any
remedial action or the Release, threatened Release or presence
of a Contaminant; and
(iv) to the best knowledge of the Company, neither the
Company, nor the Real Property are subject to any contingent
liability in connection with the Release, threatened Release,
or presence of any Contaminants on or off-site of the Real
Property.
(c) Except as set forth on Schedule 3.29(c):
(i) the Company has obtained all environmental,
health and safety permits necessary, and made all
notifications necessary, for the current use of its assets;
(ii) all such permits and notifications are in good
standing and the Company has made timely application for
renewal of such permits where necessary;
(iii) the Company is in material compliance with all
terms and conditions of such permits and notifications; and
(iv) the Company's assets are in material compliance
with all applicable Requirements of Law and, to the best
knowledge of the Company, are subject to no contingent
liability in connection with the Release, threatened Release
or presence of any Contaminants on or off-site of such assets.
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(d) Except as set forth on Schedule 3.29(d), there is not now
on or in the Company's assets, including but not limited to, the Real
Property:
(i) any treatment, storage, recycling, disposal or
arrangement therefor, of any hazardous waste as that term is
defined under 40 CFR Part 261 or any state equivalent;
(ii) any underground storage tanks, in use or abandoned;
(iii) any asbestos-containing material;
(iv) any polychlorinated biphenyls (PCBs) in any
hydraulic oils, transformers, capacitors or other electrical
equipment.
Section 3.30 BANK ACCOUNTS. Schedule 3.30 is a true and correct list of
the name of each bank, savings and loan, or other financial institution in which
the Company has an account or safe deposit box, the names of all persons
authorized to draw on each account or to have access to each box, the number of
signatures required to be given for a withdrawal and a description of the type
of account.
Section 3.31 COMPLIANCE WITH LAWS. The Company has complied with all
laws, regulations, rules and orders of any governmental department or agency or
any other commission, board, agency or instrumentality, federal, state or local,
or other requirements of law affecting its business and operations and is not in
default under or in violation of any provision of any federal, state or local
law, regulation, rule or order except, in each case, where such default would
not have a material adverse effect on the business or financial condition of the
Company.
Section 3.32 POWERS OF ATTORNEY. The Company has not given any power of
attorney (irrevocable or otherwise) that is presently in effect to any person or
entity for any purpose.
Section 3.33 LICENSES AND RIGHTS. The Company possesses all franchises,
licenses, easements, permits and other authorizations from governmental or
regulatory authorities and from all other persons or entities that are necessary
to permit it to engage in its business as presently conducted in and at all
locations and places where it is presently operating. Such franchises, licenses,
permits and other authorizations are listed on Schedule 3.33.
Section 3.34 SCHEDULE OF GOVERNMENT REPORTS. Schedule 3.34 is a true
and correct list, and the Company has furnished to Parent or its counsel
complete copies of all reports, if any, filed since December 31, 1992, by the
Company with the Department of Labor, Equal Employment Opportunity Commission,
Federal Trade Commission, Department of Justice, Occupational Safety and Health
Administration, Internal Revenue Service (other than tax returns and standard
forms relating to compensation or remuneration of employees), Environmental
Protection Agency, Securities and Exchange Commission or Pension Benefit
Guarantee Company, or any similar state agency.
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Section 3.35 PRODUCTS.
(a) The products sold by the Company conform to and meet or
exceed the standards required by all applicable laws, ordinances and
regulations now in effect and, to the Company's knowledge, there is no
pending legislation, ordinance or regulation which if adopted or
enacted would have a material adverse effect on such products or the
Company's business.
(b) Schedule 3.35 contains a written statement accurately
describing the Company's warranties and customer service policies and
any recurring warranty problems. The Company has no outstanding
contracts or proposals that depart from the warranty and customer
service policy and practice described in such Schedule. Except as may
be listed on Schedule 3.35, no claims of customers or others based on
an alleged or admitted defect of material, workmanship or design or
otherwise in or in respect of any of the Company's products are
presently pending or, to the knowledge of the Company, threatened other
than product warranty claims in the aggregate not in excess of
Twenty-Five Thousand Dollars ($25,000). All liabilities of the Company
relating to any such claims, contingent or otherwise, have been set
forth on the appropriate Financial Statements in accordance with GAAP.
Section 3.36 CASUALTY OCCURRENCES. Schedule 3.36 is a true and correct
list of occurrences during the last five (5) years of damages to persons or
property involving any defects or alleged defects in any of the Company's
products or their respective designs. All such occurrences are fully and
adequately covered by paid-for insurance.
Section 3.37 INVENTORY. Except as set forth on Schedule 3.37, the
inventories of the Company consist only of items of a quality and quantity
usable and saleable in the ordinary course of business, consistent with past
practice, within the Company's and the subsidiaries' normal inventory "turn"
experience and do not include any item of inventory which has previously been
written off by the Company. Items of below-standard quality and items not
previously readily saleable in the ordinary course of business have been written
down in value in accordance with generally accepted accounting principles to
estimated net realizable market values. The value at which the inventories are
carried on the Company's books reflects the average cost (on a LIFO basis) and
is based on quantities determined by physical count.
Section 3.38 CAPITAL EXPENDITURE PLANS. Schedule 3.38 sets forth a
description of each capital expenditure program of the Company involving the
expenditure of at least Ten Thousand Dollars ($10,000) as to which the
expenditure of funds is incomplete, setting forth (i) the budgeted expenditures
and (ii) the actual amounts expended, if any.
Section 3.39 NO INTENTIONS TO DISPOSE. No Shareholder has any present
plan, intention, or arrangement to dispose of any of the Parent Common Stock
received in the Merger if such disposition would reduce the fair value of the
Parent Common Stock (with such fair value measured as of the Effective Time)
retained by the Shareholder to an amount less than fifty
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percent (50%) of the fair value of the Company Common Stock held by the
Shareholder immediately before the Merger.
Section 3.40 ULTRA/PURE SPIN-OFF. The fair market value of all the
outstanding capital stock of Ultra/Pure Water, Inc. to be distributed to the
Shareholders, at the time of such distribution, did not or will not exceed ten
percent (10%) of the fair market value of the Company's net assets nor more than
thirty percent (30%) of the fair market value of the Company's gross assets held
immediately prior to such distribution.
Section 3.41 MATERIAL MISSTATEMENTS OR OMISSIONS. No representations or
warranties made by the Company in this Agreement or the Schedules hereto or in
any disclosures made to the Shareholders or other security holders of the
Company in connection with their consideration of the approval of this Agreement
and the transactions contemplated hereby contain or will contain any untrue
statement of a material fact, or omit or will omit to state a material fact
necessary to make the statements of fact contained therein not misleading.
ARTICLE IV
----------
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
------------------------------------------------
Parent and Sub, jointly and severally, warrant and represent to, and
agree with, the Company and the Shareholders as follows:
Section 4.1 ORGANIZATION AND STANDING. Each of Parent and Sub is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. Each of Parent and Sub has full power and authority to
carry on its business as and where now conducted and to own or lease and operate
its properties at and where now owned or leased and operated by it, and is duly
qualified to do business and is in good standing in every jurisdiction in which
the property owned, leased or operated by it, or the nature of the business
conducted by it, makes such qualification necessary. Other than actions taken in
connection with its organization and the transactions contemplated by this
Agreement, Sub has conducted no businesses since its organization.
Section 4.2 CONFLICTS; CONSENTS.
(a) The execution, delivery and consummation of this Agreement
by Parent and Sub (i) does not now and will not, with the passage of
time, the giving of notice or otherwise, result in a violation or
breach of, or constitute a default under, either of their respective
Certificates of Incorporation or By-laws, or any term of provision of
any indenture, mortgage, deed of trust, lease instrument, order,
judgment, decree, rule, regulation, law, contract, agreement or any
other restriction to which either of Parent or Sub is a party or to
which either Parent or Sub or any of their respective assets is subject
or bound, (ii) will not result in the creation of any lien or other
charge upon any assets of
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either of Parent or Sub, and (iii) will not result in any acceleration
or termination of any loan or security interest agreement to which
either of Parent or Sub is a party or to which either of Parent or Sub
or any of their respective assets is subject or bound.
(b) Except as may be listed on Schedule 4.2, no approval or
consent of any person, firm or other entity or governmental body is or
was required to be obtained by Parent or Sub for the authorization of
this Agreement or the consummation by Parent or Sub of the transactions
contemplated by this Agreement.
Section 4.3 CERTIFICATE OF INCORPORATION AND BY-LAWS. True, accurate
and complete copies of the Certificate of Incorporation and the By-laws of
Parent and Sub, together with all amendments thereto, have been delivered to the
Company or its counsel.
Section 4.4 PARENT DISCLOSURE MEMORANDUM.
(a) Prior to the date of this Agreement, Parent provided the Company
and the Shareholders with a Disclosure Memorandum dated September 20, 1996 as
may be amended, (the "Disclosure Memorandum") which contained, among other
things the following financial statements of Parent and its subsidiaries (the
"Parent Financial Statements"): the consolidated audited balance sheet and
statement of income at and for the shortened fiscal year ended September 30,
1995 and unaudited balance sheet and statement of income at and for the nine (9)
month period ended June 30, 1996. The Parent Financial Statements (i) have been
prepared in accordance with GAAP applied on a consistent basis during the
periods, (ii) present fairly, in all material respects, Parent's consolidated
financial position, results of operations and changes in its financial position
at and for the periods therein specified, (iii) are true and compete, (iv) are
consistent with the books and records of Parent, and (v) with respect to all of
the unaudited Parent Financial Statements include all adjustments, consisting
only of normal recurring adjustments, required for a fair presentation. The
Parent Financial Statements will be deemed to include any accompanying notes and
schedules.
(b) The Disclosure Memorandum has been prepared by the management of
Parent in a good faith effort to describe Parent and its existing subsidiaries'
present and proposed businesses, products, and the markets therefore. To the
best knowledge of Parent, the assumptions used in the preparation of the
Disclosure Memorandum are realistic and reasonable; however, no warranty or
representation is given as to the opinions, forecasts or other non-factual or
future matters contained in the Disclosure Memorandum. The Disclosure Memorandum
does not contain any material misstatement of fact, or omit to state a material
fact, necessary to make the statements of fact contained therein not misleading.
Section 4.5 PARENT AUTHORIZED CAPITALIZATION. The authorized capital
stock of Parent consists of, and at the Closing will consist of 9,537,000 shares
of common stock, $.001 par value per share (the "Common Shares") and 5,463,000
shares of preferred stock of which 440,000 have been designated as Series A (the
"Series A Shares") 1,836,000 have been designated as Series B (the "Series B
Shares"), 1,647,000 have been designated as Series C (the "Series C Shares"),
and
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1,540,000 have been designated as Blank Check Preferred Shares (the "Blank Check
Preferred Shares" and, together with the Series A Shares, the Series B Shares
and the Series C Shares, the "Preferred Shares"). Of such Common Shares
1,500,000 shares immediately prior to the Closing, will be issued and
outstanding, 750,000 shares will be reserved for exercise of stock options and
3,923,000 shares will be reserved for conversion of Preferred Shares; of such
Series A Shares, 400,000 shares immediately prior to the Closing, will be issued
and outstanding; of such Series B Shares, 1,700,000 shares immediately prior to
Closing will be issued and outstanding; of such Series C Shares, 1,150,000
shares immediately prior to the Closing will be issued and outstanding and no
Blank Check Preferred Shares are issued and outstanding. The outstanding Common
Shares and Preferred Shares are duly and validly issued, fully paid and
nonassessable. Except for the Convertible Subordinated Note of Parent dated
January 31, 1996 in favor of Mass Transfer Systems, Inc. in the principal amount
of $2,000,000, the Subordinated Notes of Parent dated January 31, 1996 each in
favor of Mass Transfer Systems, Inc. in the aggregate principal amount of
$2,100,000 and the Convertible Subordinated Note of Parent dated April 26, 1996
in favor of Xxxxxxxx X. Xxxxxx in the principal amount of $400,000, the
Preferred Shares and the outstanding options listed on Schedule 4.5, there is no
subscription right, option, warrant, convertible security or other right
(contingent or otherwise) presently outstanding, for the purchase, acquisition
or sale of any Common Shares, Preferred Shares or any securities convertible
into or exchangeable for Common Shares, Preferred Shares or other securities of
Parent. The Exchange Shares, when issued, will be fully paid, validly issued and
non-assessable.
Section 4.6 ABSENCE OF CERTAIN CHANGES. Since June 30, 1996, Parent has
actively conducted its business in the ordinary and regular course consistent
with past practice. Except as set forth on Schedule 4.6, without limiting the
generality of the foregoing, since such date, there has been no material adverse
change in the business, financial condition, assets, liabilities, results of
operations or, to Parent's knowledge, prospects of Parent.
Section 4.7 SUBSIDIARIES AND INVESTMENTS. The Sub has no subsidiaries,
nor any other investments in any person. Other than those subsidiaries listed on
Schedule 4.7, Parent has no subsidiaries, nor any other investments in any
person.
Section 4.8 ABSENCE OF UNDISCLOSED LIABILITIES. Except (i) as set forth
on the Parent Financial Statements, (ii) those incurred in the ordinary course
of business since June 30, 1996, and (iii) as set forth on Schedule 4.8, Parent
and its subsidiaries are not obligated for, nor are any of their respective
assets or properties subject to, any material liabilities or adverse claims or
obligations, absolute or contingent. Parent and its subsidiaries are not in
default with respect to any terms or conditions of any material liability or
obligation. There are no facts known to Parent that might reasonably serve as a
basis, in whole or in part, for any material liabilities or obligations not
disclosed in this Agreement, in the Parent Financial Statements or in the
Schedules.
Section 4.9 BROKERAGE AND FINDER'S FEES. Other than fees payable by
Parent to the Environmental Business Journal, none of Parent, Sub or any
shareholder, officer, director or agent of Parent or Sub has incurred any
liability to any broker, finder or agent for any brokerage
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fees, finder's fees, or commissions with respect to the transactions
contemplated by this Agreement.
Section 4.10 TAXES. Parent has filed all material federal and state
income tax returns required to be filed by it with respect to tax years ending
on or before the Closing Date, and has paid in full or made adequate provision
for the payment of all such taxes (including penalties and interest) shown to be
due on such tax returns.
Section 4.11 MATERIAL MISSTATEMENTS OR OMISSIONS. No representations or
warranties made by Parent or Sub in this Agreement or the Schedules hereto
contain or will contain any untrue statement of a material fact, or omit or will
omit to state a material fact necessary to make the statements of fact contained
therein not misleading.
ARTICLE V
---------
CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND SUB
-----------------------------------------------------
The obligations of Parent and Sub to close under this Agreement are, at
each of their options, subject to the satisfaction of the following conditions
at or prior to the Closing Date.
Section 5.1 REPRESENTATIONS TRUE. The representations and warranties of
the Company and the Shareholders contained in this Agreement are true, complete
and accurate in all material respects on and as of the Effective Time to the
same extent and with the same force and effect as if made on such date, except
as affected by the transactions contemplated under this Agreement.
Section 5.2 ALL CONSENTS OBTAINED. All necessary approvals or consents
required to be obtained by the Company, Parent or Sub have been obtained from
all local, state and federal departments and agencies, from all other
commissions, boards, agencies and from any other person or entity whose approval
or consent is necessary to consummate the transactions contemplated under this
Agreement including, without limitation, such consents as may be listed or
required to be listed on Schedules 3.2 and 4.2.
Section 5.3 PERFORMANCE AND OBLIGATIONS. The Company and the
Shareholders have duly performed all obligations, covenants and agreements
undertaken by them in this Agreement and have complied with all terms and
conditions applicable to them under this Agreement to be performed and complied
with on or before the Closing Date.
Section 5.4 RECEIPT OF DOCUMENTS BY PARENT. Parent has received:
(a) a certificate executed by the President and Secretary or
Treasurer of the Company certifying as to the fulfillment of the
matters contained in Sections 5.1, 5.2, 5.3 and 5.5;
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(b) a true and correct copy of the Company's Articles of
Incorporation, certified by the Secretary of State of Florida, as of a
date not more than seven (7) days prior to the Closing Date, and a true
and correct copy of the Company's Bylaws certified by the Secretary of
the Company as of the Closing Date;
(c) a written opinion from counsel for the Company (who must
be satisfactory to Parent and its counsel), dated as of the Closing
Date, addressed to Parent, satisfactory to Parent and its counsel in
form and substance; and
(d) certified copies of resolutions duly adopted by the Board
of Directors and Shareholders of the Company approving this Agreement
and the transactions contemplated under it.
Section 5.5 NO LITIGATION. No suit, action, or other proceeding is
threatened or pending before any court or governmental agency in which it will
be or it is sought to restrain or prohibit or to obtain material damages or
relief in connection with this Agreement or the consummation of this Agreement,
or which is likely to materially and adversely affect the value of the business
or assets of the Company.
Section 5.6 EMPLOYMENT AGREEMENTS. Xxxxx Xxxxxxx, Jorg Menningmann and
Xxxx Xxxxxxx have entered into Employment Agreements substantially in the forms
of EXHIBITS "A-1", "A-2" and "A-3" to this Agreement (the "Employment
Agreements").
Section 5.7 SHAREHOLDER APPROVAL. This Agreement has been adopted and
approved by all the Shareholders in accordance with the FBCA and the Company has
delivered or made available to all the Shareholders the disclosure information
referred to in Section 1.5.
Section 5.8 TERMINATION OR EXERCISE OF STOCK OPTIONS. All Rights,
including those stock options set forth on Schedule 3.5, have been either
terminated or exercised. To the extent that any Rights have been exercised into
shares of Company Common Stock, each holder thereof shall be deemed to be a
"Shareholder" for purposes of this Agreement and shall have executed an addendum
to this Agreement acknowledging such holder's agreement to be bound by the
provisions of this Agreement as a Shareholder to the same extent as if such
holder was an original signatory to this Agreement.
Section 5.9 RESIGNATION. All directors and officers of the Company,
other than those continuing in such positions as set forth in Section 1.4, have
tendered resignations to become effective at the Effective Time.
Section 5.10 INVESTMENT LETTER. Parent shall have received from each
shareholder of the Company at the Effective Time an agreement and acknowledgment
substantially in the form of EXHIBIT "B" to this Agreement.
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Section 5.11 LEASES FOR WEST PALM BEACH AND CLEARWATER SITES. Xxxxx and
Xxxxxxx Xxxxxxx and Florida Real Estate Development, respectively, have entered
into leases substantially in the forms of EXHIBIT "C-1" and "C-2" to this
Agreement (the "West Palm Beach Lease" and "Clearwater Lease", respectively).
Section 5.12 STOCK RESTRICTION AGREEMENT. Each shareholder of the
Company at the Effective Time will have entered into the Stock Restriction
Agreement substantially in the form of EXHIBIT "D" to this Agreement.
Section 5.13 MINIMUM NET WORKING CAPITAL. The Net Working Capital of
the Company shall be at least One Million Five Hundred Thousand Dollars
($1,500,000). Net Working Capital shall mean the excess, if any, of current
assets over current liabilities as determined in accordance with GAAP.
Section 5.14 DELIVERY OF BOOKS AND RECORDS. The Company has delivered
or made available to Parent all books and records of the Company relating to or
reasonably required for the operation of the business of the Company, including,
without limitation, copies of all Contracts, financial and accounting records,
files and records relating to employees, and all related correspondence.
Section 5.15 ABSENCE OF CHANGES. There has been no material adverse
change in the business (financial or otherwise), assets, liabilities, results of
operations or prospects of the Company since the date of this Agreement.
Section 5.16 PARENT'S REVIEW. Parent has conducted a review of the
business, assets, books and records of the Company and has found the results of
such review to be satisfactory to Parent, in its sole discretion.
Section 5.17 COMPANY DEBENTURES. All the Company's outstanding 1995
Series Three Year Ten Percent Convertible Debentures shall have been redeemed by
the Company or converted by the holders thereof into shares of Company Common
Stock in each case in accordance with the terms thereof and the Company shall
have no remaining obligations or liabilities whatsoever thereunder or in
connection therewith.
Section 5.18 COMPANY CREDIT FACILITY. The Company's credit facility
with SunTrust Bank, South Florida National Association (the "Company Credit
Facility") shall have been terminated, all indebtedness owing by the Company
thereunder repaid in full and all liens on any of the Company's assets securing
such indebtedness released or terminated.
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ARTICLE VI
----------
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY AND THE
----------------------------------------------------------
SHAREHOLDERS
------------
The obligations of the Company and the Shareholders to close under this
Agreement are, at the option of the Company or the Shareholders (acting through
the Shareholders holding at least a majority in interest of the shares of
Company Common Stock), subject to the satisfaction of the following conditions
at or prior to the Closing Date.
Section 6.1 REPRESENTATIONS TRUE. The representations and warranties of
Parent and Sub contained in this Agreement are true, complete and accurate in
all material respects on and as of the Effective Time to the same extent and
with the same force and effect as if made on such date, except as affected by
the transactions contemplated under this Agreement.
Section 6.2 ALL CONSENTS OBTAINED. All necessary approvals or consents
required to be obtained by the Company, Parent or Sub have been obtained from
all local, state and federal departments and agencies, from all other
commissions, boards, agencies and from any other person or entity whose approval
or consent is necessary to consummate the transactions contemplated by this
Agreement including, without limitation, such consents as may be listed or
required to be listed on Schedules 2.2 and 4.2.
Section 6.3 PERFORMANCE OF OBLIGATIONS. Parent and Sub have duly
performed all obligations, covenants and agreements undertaken by such party in
this Agreement and have complied with all the terms and conditions applicable to
such party under this Agreement to be performed or complied with on or before
the Closing Date.
Section 6.4 RECEIPT OF DOCUMENTS BY THE COMPANY. The Company has
received:
(a) certificates executed by the President and Secretary or
Treasurer of each of Parent and Sub certifying as to the fulfillment of
the matters contained in Sections 6.1, 6.2 and 6.3 of this Article;
(b) a written opinion from counsel for Parent, dated as of
the Closing Date, addressed to the Company, satisfactory to the
Company and its counsel in form and substance; and
(c) certified copies of resolutions duly adopted by the Board
of Directors of Parent and Sub approving this Agreement and the
transactions contemplated under it.
Section 6.5 NO LITIGATION. No suit, action, or other proceeding is
threatened or pending before any court or governmental agency in which it will
be or it is sought to obtain material damages from the Company in connection
with this Agreement or the consummation of this Agreement.
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Section 6.6 EMPLOYMENT AGREEMENTS. The Surviving Corporation and Parent
have entered into the Employment Agreements.
Section 6.7 LEASES FOR WEST PALM AND CLEARWATER SITES. The Surviving
Corporation has entered into the West Palm Beach Lease and the Clearwater Lease
and Parent has entered into the guaranties of such leases included on Exhibits
"C-1" and "C-2".
ARTICLE VII
-----------
TERMINATION OF AGREEMENT
------------------------
This Agreement and the transactions contemplated under it may be
terminated and abandoned at any time prior to the Closing Date (unless otherwise
specified below):
(a) by mutual consent in writing of Parent, Sub and the
Company;
(b) by Parent or the Company if, in the case of Parent, there
has been a material misrepresentation or breach of warranty in the
representation and warranties of the Company and the Shareholders made
under this Agreement or, in the case of the Company, if there has been
a material misrepresentation or breach of warranty in the
representations and warranties of Parent and Sub made under this
Agreement;
(c) by Parent if all or a material portion of the Company's
assets have been materially damaged or destroyed before the Closing;
(d) by Parent if any of the Real Property has been taken, in
whole or in part, by eminent domain or by conveyance in lieu of eminent
domain;
(e) by the Company if all or a material portion of Parent's
assets have been materially damaged or destroyed before the Closing; or
(f) by Parent, if any of the conditions contained in Article
V, or by the Company, if any of the conditions contained in Article VI,
respectively, have not been fulfilled in all respects in each case at
or prior to the Closing Date.
Any termination pursuant to this Article VII will not affect the obligations of
the parties under Article XI and Section 15.10, and will be without prejudice to
the terminating party's legal rights and remedies by reason of any breach of
this Agreement occurring prior to such termination.
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ARTICLE VIII
------------
SURVIVAL OF REPRESENTATIONS
---------------------------
AND WARRANTIES: INDEMNIFICATION: DISPUTES
-----------------------------------------
Section 8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Notwithstanding
the Closing of the transactions contemplated under this Agreement, or any
investigation made by or on behalf of any party to this Agreement, the
representations and warranties of the Company and the Shareholders, on the one
hand, and Parent and the Sub, on the other hand, contained in this Agreement or
in any certificate, Schedule, chart, list, letter, compilation or other document
furnished or to be furnished pursuant to this Agreement, will survive the
Closing for a period of two (2) years, except (a) that the representations and
warranties of the Company and the Shareholders contained in Sections 3.12, 3.28
and 3.29 with respect to tax matters, employee benefit matters and environmental
matters will survive for so long as any applicable statute of limitations has
not expired, been suspended or been waived or extended, and for thirty (30) days
after and (b) the representations and warranties of the Company and the
Shareholders contained in Sections 3.3 and 3.5 will survive the Closing
indefinitely. However, as to any breach of, or misstatement in, any such
representation or warranty as to which Parent has given notice to the
Shareholders on or prior to the expiration of the applicable period, as above
set forth, the same will continue to survive beyond said period, but only as to
the matters contained in such notice.
Section 8.2 SHAREHOLDERS' INDEMNIFICATION. Each Shareholder, severally
in pro rata proportion to the number of Outstanding Shares held by such
Shareholder immediately prior to the Effective Time, will indemnify and save
harmless Parent and Sub and their respective subsidiaries, shareholders,
directors, officers, employees and agents from any and all costs, expenses,
losses, damages and liabilities incurred or suffered, directly or indirectly, by
any of them (including, without limitation, reasonable legal fees and expenses)
(collectively, in each case, an "Indemnification Claim") resulting from or
attributable to (a) the breach of any covenant or agreement of the Company or
any of the Shareholders hereunder, (b) the breach of, or misstatement in, any
one or more of the representations or warranties of the Shareholders and the
Company made in or pursuant to this Agreement, (c) any claims, demands, suits,
investigations, proceedings or actions by any third party containing or relating
to allegations that, if true, would constitute a breach of, or misstatement in,
any one or more of the representations or warranties of the Company and the
Shareholders made in or pursuant to this Agreement, (d) the Company's treatment,
transport, recycling, storage or disposal, or any arrangement for any of same,
done or made prior to the Effective Time, of any Contaminant generated and
transported off-site from any facility owned or operated by the Company or any
of its predecessors or the noncompliance by the Company with any Requirement of
Law, (e) any defect in any product manufactured, shipped or installed by the
Company prior to the Effective Time (provided that such damages or defect were
not caused by Parent or the Surviving Corporation's service on or modifications
to such products), or (f) liquidated damages arising pursuant to the Company's
contract with Xxxxxx City Membrane Softening Water Treatment Plant or the
Seminole Water Control District Contract. Notwithstanding anything to the
contrary in the preceding sentence, the Shareholders shall be obligated to
indemnify Parent and Sub pursuant to clause (e) of this Section 8.2 only to the
extent
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of Parent and Sub's damages in excess of the proceeds of any insurance policies
concerning the losses or damages arising from such defective product (i.e., any
applicable deductible or damages in excess of the coverage limits of such
policy). Parent will be entitled to set off against any Earn-out Consideration
the amount of such costs, expenses, losses, damages and liabilities and, to the
extent not in a liquidated amount, then in an amount reasonably and in good
faith estimated by Parent.
Section 8.3 DEFENSE OF CLAIM. If Parent or Sub has received actual
notice of any claim asserted or any action or administrative or other proceeding
commenced in respect of which claim, action or proceeding indemnity properly may
be sought against the Shareholders pursuant to this Agreement, Parent will give
notice in writing to the Shareholders. Within fifteen (15) days after the
earlier of (i) receipt of such notice or (ii) receipt of actual notice by the
Shareholders from sources other than Parent, the Shareholders acting through the
Shareholders' Representative may give Parent written notice of their election to
conduct the defense of such claim, action or proceeding at its own expense. If
the Shareholders have given Parent such notice of election to conduct the
defense, the Shareholders may conduct the defense at their expense, but Parent
will nevertheless have the right to participate in the defense, but such
participation will be solely at the expense of Parent, without a right of
further reimbursement. If the Shareholders have not so notified Parent in
writing (within the time above provided) of their election to conduct the
defense of such claim, action or proceeding, Parent may (but need not) conduct
(at the Shareholders' expense) the defense of such claim, action or proceeding.
Parent may at any time notify the Shareholders of Parent's intention to settle,
compromise or satisfy any such claim, action or proceeding (the defense of which
the Shareholders have not previously elected to conduct) and may make such
settlement, compromise or satisfaction (at the Shareholders' expense) unless the
Shareholders notify Parent in writing (within seven (7) days after receipt of
such notice of intention to settle, compromise or satisfy) of its election to
assume (at its sole expense) the defense of any such claim, action or proceeding
and promptly take appropriate action to implement such defense. Any settlement,
compromise or satisfaction made by Parent, or any such final judgment or decree
entered in, any claim, action or proceeding defended only by Parent, regardless
of the amount or terms, will be deemed to have been consented to by, and will be
binding on, the Shareholders as fully as though they alone had assumed the
defense and a final judgment or decree had been entered in such proceeding or
action by a court of competent jurisdiction in the amount of such settlement,
compromise, satisfaction, judgment or decree. If the Shareholders have elected
under this Section 8.3 to conduct the defense of any claim, action or
proceeding, then the Shareholders will be obligated to pay the amount of any
adverse final judgment or decree rendered with respect to such claim, action or
proceeding. If the Shareholders elect to settle, compromise or satisfy any
claim, action or proceeding defended by them, the cost of any such settlement,
compromise or satisfaction will be borne entirely by the Shareholders and may be
made only with the consent of Parent. Parent and the Shareholders will use all
reasonable efforts to cooperate fully with respect to the defense of any claim,
action or proceeding covered by this Section 8.3.
Section 8.4 DEFENSE OF TAX CLAIM. Notwithstanding anything to the
contrary herein, if (i) a claim is made or a deficiency alleged by the Internal
Revenue Service or any other taxing authority, which, if successful, would
result in a cost, expense, loss, damage or liability in respect
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of which indemnity properly may be sought against Shareholders pursuant to this
Agreement, and (ii)(X) such claim or alleged deficiency, if successful, could
adversely impact Parent's or the Surviving Corporation's liability for Taxes
attributable to periods beginning after, or including, the Closing Date, and (Y)
Shareholders do not furnish Parent with evidence of their ability to pay any
such claim or deficiency, if successful, then the following exclusively shall
apply.
(a) Parent shall, after Parent receives actual notice of same,
promptly notify the Shareholders in writing of such claim or alleged
deficiency and shall not make payment of the Taxes claimed for at least
thirty (30) days after the giving of such notice.
(b) Parent shall give to Shareholders any relevant information
relating to such claim or alleged deficiency which may be particularly
within the knowledge of Parent;
(c) If the Shareholders desire that Parent contest such claim
or alleged deficiency, within thirty (30) days after receipt of notice
by the Shareholders from Parent of such claim or alleged deficiency,
the Shareholders shall:
(i) request in writing that such claim or alleged
deficiency be contested;
(ii) if so requested by Parent, furnish Parent with
an opinion of independent tax counsel selected by the
Shareholders and approved by Parent, at the Shareholders'
expense, to the effect that a meritorious defense exists with
respect to such claim or alleged deficiency; and
(iii) indemnify Parent in a manner satisfactory to
Parent and pay to Parent on demand all liabilities and
expenses (including, without limitation, fees and
disbursements of attorneys and accountants and any interest,
penalties or other additions to tax) which may be entailed in
such defense, along with such security for such
indemnification as Parent reasonably may request;
(d) On the Shareholders' furnishing Parent with such items as
are set forth above, Parent shall take such legal or other action
deemed reasonable by it in contesting such claim or alleged deficiency,
provided that:
(i) Parent, at its sole option, may forego any and
all administrative appeals, proceedings, hearings and
conferences with the Internal Revenue Service or other
appropriate taxing authority in respect of such claim or
alleged deficiency; and
(ii) Parent, at its sole option, may either pay the
Taxes claimed (in which event the Shareholders shall promptly
pay, on written request from Parent, the amount of any such
deficiency to Parent) and xxx for a refund in the appropriate
United States District Court and/or the United States Court of
Claims
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and/or other appropriate court or forums, and/or may agree to
a reasonable settlement of such claims or deficiencies
(e) If the Shareholders have paid additional amounts to Parent
pursuant to subsection (c) of this Section 8.4 with respect to a tax
claim, action or proceeding in respect of which indemnity properly may
be sought against the Shareholders pursuant to this Agreement, and such
claim for Taxes shall be ultimately recovered in whole or in part by
Parent, by reason of an agreement with the Internal Revenue Service,
the United States or other appropriate taxing authority, or any court
decision (including a decision of the Tax Court of the United States or
other comparable court or forum) which is not appealed, then Parent
shall pay the Shareholders the additional amounts previously paid by
the Shareholders to Parent (pursuant to said Section 8.4(c)) with
respect to the tax claimed which were ultimately recovered plus any
interest thereon received by Parent, within fourteen (14) days after
receipt thereof by Parent.
Section 8.5 PARENT AND SUB'S INDEMNIFICATION. Parent and Sub, jointly
and severally, covenant and agree to indemnify and save harmless the
Shareholders from any and all costs, expenses, losses, damages and liabilities
incurred or suffered by the Shareholders (including reasonable legal fees and
costs) resulting from or attributable to the breach of, or misstatement in, any
one or more of the covenants, representations or warranties of Parent and Sub
made in or pursuant to this Agreement to the same extent as provided in Clauses
(a), (b) and (c) of Section 8.2, and in the same manner as provided in Section
8.3, of this Article VIII.
Section 8.6 LIMITATIONS ON INDEMNIFICATION. Any of the foregoing
notwithstanding, in no event will the aggregate liability of each Shareholder on
the one hand, or Parent and Sub, on the other hand, exceed the aggregate amount
of each Shareholder's pro rata portion of the Initial Merger Consideration and
any Earn-out Consideration delivered pursuant to the Merger.
ARTICLE IX
----------
CONDUCT PRIOR TO CLOSING DATE
-----------------------------
Section 9.1 CONTINUATION OF BUSINESS. Except as otherwise contemplated
by this Agreement, until the Closing Date, the Shareholders will cause the
Company to continue to conduct its business in the ordinary and usual course
consistent with past practice, and, without limiting the generality of this
undertaking, the Shareholders will not, and will cause the Company
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46
not to, do or suffer to be done any of the following, whether or not in the
ordinary and usual course, without the prior written consent of Parent:
(a) Other than the contemplated distribution by the Company to
the Shareholders of all the outstanding capital stock of the Company's
subsidiary, Ultra/Pure Water, Inc., dispose or contract to dispose of,
or acquire or contract to acquire, any Real Property or other assets
(except for inventory disposed of or acquired in the ordinary course of
business), or any interest in any Real Property or other capital
assets;
(b) Other than pursuant to the terms of the Company Credit
Facility and subject to Section 5.20 hereof, borrow any money;
(c) Enter into any lease;
(d) Encumber any assets;
(e) Enter into any contract, commitment or arrangement of the
type required by Section 3.20 above to be listed on Schedule 3.20;
(f) Declare or pay any dividend or declare or make any other
distribution to shareholders;
(g) Purchase or redeem any shares, notes or other securities;
(h) Other than pursuant to existing contractual arrangements,
increase the rate or amount of compensation or the amount or type of
other remuneration to any of its directors, officers, employees, agents
or other representatives, or agree to do so;
(i) Except as contemplated by Section 9.1(a) above, form or
cause to be formed, or dispose or contract to dispose of, any
subsidiary, or any interest in any subsidiary or acquire any stock or
equity interest in any Company or other entity;
(j) Reclassify, split or combine its shares, or issue, sell,
distribute or dispose of any shares, notes or other securities, or
issue or make any changes to any options, warrants or rights with
respect to its shares (except as contemplated by Section 5.8), or
commit itself to do so;
(k) Make any new commitments or agree to make commitments for
capital improvements or significantly alter standing commitments for
capital improvements;
(l) Make any single expenditure or agree to make any single
expenditure, or series of expenditures in excess of Ten Thousand
Dollars ($10,000) in the aggregate;
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(m) Negotiate with anyone other than Sub for, or participate
with anyone other than Parent and Sub in, the acquisition of the
Company;
(n) Amend, or permit to be amended, in any way, its Articles
of Incorporation or Bylaws or merge or consolidate with any other
corporation or other entity or change the character of its business; or
(o) Make any material change in accounting methods.
Section 9.2 PRESERVATION OF BUSINESS. The Shareholders will use their
best efforts to cause the Company to (i) preserve intact its present business
organization and personnel, (ii) preserve its business, actual and potential,
and its advantageous relationships with all persons having business dealings
with it, and (iii) preserve and maintain in force all its licenses,
certificates, leases, contracts, permits, registrations, franchises,
confidential information, patents, trademarks, trade names, service marks and
copyrights, and applications for any of the same, and other similar rights. The
Shareholders will cause the Company to maintain in force all property, casualty,
crime, life, directors, officers and other forms of insurance and bonds which it
presently carries.
Section 9.3 CONSENTS AND APPROVALS. The Shareholders will use all
reasonable efforts to obtain all necessary consents and approvals of all
persons, firms, entities and governmental authorities to the consummation of the
transactions contemplated by this Agreement.
ARTICLE X
---------
ASSIGNMENT, THIRD PARTIES, BINDING EFFECT
-----------------------------------------
The rights under this Agreement are not assignable nor are the duties
delegable by a party without the written consent of the other party first having
been obtained and any attempted assignment or delegation without such consent
will be null and void. Nothing contained in this Agreement is intended to convey
upon any person or entity, other than the parties hereto and their successors in
interest and permitted assigns, any rights or remedies under or by reason of
this Agreement unless expressly stated. All covenants, agreements,
representations and warranties of the parties contained in this Agreement are
binding on and will inure to the benefit of Parent and Sub, on the one hand and
the Company and the Shareholders, on the other, and their respective successors
and permitted assigns.
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ARTICLE XI
----------
EXPENSES
--------
All costs and expenses, including, without limitation, counsel and
accountants' fees, incurred in connection with the preparation and negotiation
of, and transactions contemplated under, this Agreement shall be paid by Parent
and Sub on the one hand, and by the Shareholders on account of the costs and
expenses incurred by the Shareholders and the Company, on the other hand,
provided, however, that the Company will pay, prior to the Closing, up to a
maximum of Fifteen Thousand Dollars ($15,000) of such expenses of the Company.
ARTICLE XII
-----------
NOTICES
-------
All notices, requests, demands and other communications under this
Agreement must be in writing and will be deemed duly given, unless otherwise
expressly indicated to the contrary in this Agreement, (i) when personally
delivered, (ii) upon receipt of a telephonic facsimile transmission with a
confirmed telephonic transmission answer back, (iii) three (3) days after having
been deposited in the United States mail, certified or registered, return
receipt requested, postage prepaid, or (iv) one (1) business day after having
been dispatched by a nationally recognized overnight courier service, addressed
to the parties or their permitted assigns at the following addresses (or at such
other address or number as is given in writing by either party to the other) as
follows:
TO PARENT OR SUB: Waterlink, Inc.
0000 Xxxxxxx Xxxxxx, X.X.
Xxxxxx, Xxxx 00000
Facsimile No.: (000) 000-0000
Attention: Xxxxx X. Xxxxxxx, CFO
With a copy to: Benesch, Friedlander,
Xxxxxx & Xxxxxxx P.L.L.
0000 XX Xxxxxxx Xxxxxxxx
000 Xxxxxx Xxxxxx
Xxxxxxxxx, Xxxx 00000
Facsimile No.: (000) 000-0000
Attention: Xxxxxxx X. XxXxxxxx
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To Sellers or c/o Water Equipment Technologies, Inc.
THE COMPANY: 000 Xxxx Xxxx
Xxxx Xxxx Xxxxx, Xxxxxxx 00000
Facsimile No.:(000) 000-0000
Attention: Xxxxx Xxxxxxx, P&C
With a copy to: Xxxxxxxx & Xxxx
000 X. Xxxxxxx Xx., Xxxxx 000
Xxxx Xxxx Xxxxx, Xxxxxxx 00000
Facsimile No.:(000) 000-0000
Attention: Xxxxxx X. Xxxxx
ARTICLE XIII
------------
REMEDIES NOT EXCLUSIVE
----------------------
No remedy conferred by any of the specific provisions of this Agreement
is intended to be exclusive of any other remedy, and each and every remedy will
be cumulative and will be in addition to every remedy given under this Agreement
or now or subsequently existing, at law or in equity, by statute or otherwise.
The election of any one or more remedies by any party hereto will not constitute
a waiver of the right to pursue other available remedies.
ARTICLE XIV
-----------
NON-COMPETITION
---------------
Section 14.1 NON-COMPETITION AGREEMENT.
(a) For a period of five (5) years from and after the
Effective Time, but as to clauses (iv) and (v) at any time after the
Closing Date, each Shareholder (other than Xxxxx Xxxxxxx, Xxxx Xxxxxxx
and Jorg Menningmann (whose non-competition agreements are contained in
the employment agreements referred to in Section 5.6) and other than
Xxxxx Xxxxxxx, Xxxxxxx X. Xxxxxxx, Xxxx Xxxxxxx and Xxxx Prae, to which
the provisions of clauses (i) and (ii) do not apply) will not, directly
or indirectly:
(i) engage in, carry on, be employed by or have any
interest in a business substantially similar to the business
as carried on by the Company on the Closing Date; provided,
however, that the ownership of not more than one percent (1%)
of the outstanding shares of any class of capital stock of a
publicly held corporation shall not be deemed a violation of
this Section 14.1;
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(ii) enter into, engage in, or be employed by or consult
with any business in, competition with the Company on matters
substantially similar to the business as carried on by the
Company on the Closing Date;
(iii) employ, assist in employing or otherwise associate
in business with any present, former or future employee of the
Company now or subsequently existing until a period of at
least two (2) years has expired since such employee was
employed by the Company;
(iv) induce any person who is a present or future
employee, officer, agent, affiliate or customer of the Company
now or subsequently existing to terminate the relationship;
and
(v) induce any customer, supplier or any other party
with whom the Company does business to refuse to do business
with the Company on as favorable terms as previously done with
the Company.
The prohibitions in clauses (i) and (ii) will apply anywhere in the
world. Notwithstanding the foregoing, each Shareholder shall be
permitted to maintain his relationship as a shareholder, officer,
director or employee of Ultra/Pure Water, Inc. and KDF Fluid Treatment,
Inc. so long as the businesses of such companies do not compete with
any of the businesses of Parent except as conducted on the date hereof
and described on EXHIBIT "E" to this Agreement. Each Shareholder bound
hereby acknowledges that the length of time and geographic restriction
pertaining to all prohibitions in this subsection (a) both are
reasonable and necessary for the legitimate protection of Parent's
business and interests.
(b) Each Shareholder expressly agrees and understands that the
remedy at law for any breach by him of this Article XV will be
inadequate and that the damages flowing from such breach are not
readily susceptible to being measured in monetary terms. Accordingly,
it is acknowledged that upon adequate proof of any Shareholder's
violation of this Article XV, Parent will be entitled, among other
remedies, to immediate injunctive relief and may obtain a temporary
restraining order restraining any threatened or further breach. Nothing
in this subsection (b) will be deemed to limit Parent's remedies at law
or in equity for any breach by any Shareholder of any of the provisions
of this Agreement which may be pursued or availed of by Parent.
(c) In the event any court of competent jurisdiction
determines that the specified time period or geographical area set
forth in this Section 14.1 is unreasonable, arbitrary or against public
policy, then a lesser time period or geographical area that is
determined by the court to be reasonable, non-arbitrary and not against
public policy may be enforced.
(d) In the event any Shareholder violates any legally
enforceable provision of this Section 14.1 as to which there is a
specific time period during which such Shareholder
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is prohibited from taking certain actions or engaging in certain
activities, then, in such event the violation will toll the running of
the time period from the date of the violation until the violation
ceases.
Section 14.2 DISCLOSURE OF CONFIDENTIAL INFORMATION. Except as may be
required by law or necessary in connection with any dealings with any public
agency or authority or in enforcing any rights hereunder, from and after the
Closing Date, the Shareholders will not disclose, disseminate, divulge, discuss,
copy or otherwise use or suffer to be used, in competition with, or harmful to
the interests of, the Company, any non-public information (written or oral),
documents, lists or other data of or respecting any aspect of the business being
acquired by Parent under this Agreement.
ARTICLE XV
----------
MISCELLANEOUS
-------------
Section 15.1 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which will be deemed to be an original but all of
which together will constitute one and the same document.
Section 15.2 CAPTIONS AND SECTION HEADINGS. Captions and section
headings are for convenience only, are not a part of this Agreement and may not
be used in construing it.
Section 15.3 WAIVERS. Any failure by any of the parties to comply with
any of the obligations, agreements or conditions set forth in this Agreement may
be waived by the other party or parties, but any such waiver will not be deemed
a waiver of any other obligation, agreement or condition contained herein.
Section 15.4 RIGHT OF INSPECTION. From and after the date of this
Agreement to the Closing Date, the Shareholders and the Company will give to
Parent and its counsel, accountants and other representatives, full access
during normal business hours to the offices, properties, agreements, records and
affairs of the Company, and will furnish copies of all Contracts and other
instruments as Parent or its counsel may reasonably request. Such investigation
will not affect the warranties and representations of the Shareholders and the
Company under this Agreement. All such information will be treated
confidentially and will be used only for the purposes intended. If the
transactions contemplated under this Agreement do not take place, all documents
and other property of the Company or the Shareholders will be returned and all
disclosures and information given to Parent as contemplated under this Agreement
will be treated as confidential and not disclosed to others unless disclosed
publicly by the Shareholders or other third parties without fault on the part of
Parent, or unless otherwise required by law.
Section 15.5 AMENDMENTS, SUPPLEMENTS OR MODIFICATIONS. Each of the
parties agrees to cooperate in the effectuation of the transactions contemplated
under this Agreement and to execute
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any and all additional documents to take such additional action as is reasonably
necessary or appropriate for such purposes.
Section 15.6 ENTIRE AGREEMENT. This Agreement, including any
certificate, schedule, exhibit or other document delivered pursuant to its
terms, constitutes the entire agreement between the parties and supersedes all
prior agreements, written and oral, between the parties. There are no verbal
agreements, representations, warranties, undertakings or agreements between the
parties, and this Agreement may not be amended or modified in any respect,
except by a written instrument signed by the parties to this Agreement.
Section 15.7 GOVERNING LAW. This Agreement is to governed by and
construed in accordance with the internal laws of the State of Florida.
Section 15.8 KNOWLEDGE. All references to "knowledge" or "best
knowledge", of a party or "known to" a party means the actual knowledge of a
party after reasonable investigation and due diligence. Actual knowledge of any
officer, director or supervisory employee of a party will be imputed to, and
deemed to be actual knowledge of, that party. For purposes of this Section 15.8,
"supervisory employee" of the Company shall mean any of the employees listed on
Schedule IV hereto.
Section 15.9 PRESS RELEASES. Prior to the Closing, no party will issue
or cause the publication of any press release or other public announcement with
respect to this Agreement or the transactions contemplated under this Agreement
without the prior consent of the other party first obtained; provided, however,
that nothing in this Agreement will prohibit either party from issuing or
causing publication of any press release or public announcement to the extent
that such party determines, on advice on counsel, that such action is required
by law, in which case the party making such determination will, if practicable
under the circumstances, use reasonable efforts to allow the other party
reasonable time to comment on such release or announcement in advance of its
issuance.
Section 15.10 DISCLOSURE SCHEDULES. Disclosure of any matter on any
schedule hereto by any party hereto shall be deemed to be disclosure on every
other schedule hereto to the extent applicable.
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IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the date first above written.
WATERLINK, INC. WET ACQUISITION CORP.
By: /S/ XXXXX X. XXXXXXX By: /s/ Xxxxx X. Xxxxxxx
--------------------------- -------------------------------
"Sub"
"SHAREHOLDERS"
/s/ XXXXXXXX XXXXXXX
-----------------------------------------
Xxxxxxxx Xxxxxxx
/s/ Xxxxxxx X. Xxxxxxx
-----------------------------------------
Xxxxxxx X. Xxxxxxx
/s/ Xxxxxxxx Xxxxxxx Xxxxxxx X. Xxxxxxx
-----------------------------------------
Xxxxxxxx and Xxxxxxx X. Xxxxxxx, Jointly
/s/ Xxxxxx X. Xxxxxxxx Xxxxxxxxx Xxxxxxxx
-----------------------------------------
Xxxxxx X. And Xxxxxxxxx Xxxxxxxx, Jointly
/s/ Xxxx Xxxxxxx
-----------------------------------------
Xxxx Xxxxxxx
/s/ Xxxx X. Xxxxxxx
-----------------------------------------
Xxxx X. Xxxxxxx
/s/ Xxxxx Xxxxxxx
-----------------------------------------
Xxxxx Xxxxxxx
/s/ Xxxxxxx X. Xxxxxxx
-----------------------------------------
Xxxxxxx X. Xxxxxxx
/s/ Jorg Menningmann
-----------------------------------------
Jorg Menningmann
/s/ Xxxxxxx Xxxxxxx
-----------------------------------------
Xxxxxxx Xxxxxxx
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/s/ Xxxxxx Xxxxx
-----------------------------------------
Xxxxxx Xxxxx
/s/ Xxxx Prae
-----------------------------------------
Xxxx Prae
Water Equipment
Technologies, Inc.
By: /s/ Xxxxxxxx Xxxxxxx
------------------------
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