EXHIBIT 10
TRANSITION AGREEMENT
dated as of September 3,1995
among
HASTINGS FILTERS, INC.
HASTINGS MANUFACTURING COMPANY
and
HASTINGS INC.
and joined in by
CLARCOR INC.
TRANSITION AGREEMENT
TRANSITION AGREEMENT, dated as of September 3, 1995 (this
"Agreement"), between Hastings Filters Inc., a Delaware corporation
("Buyer"), Hastings Manufacturing Company, a Michigan corporation
("Seller"), and Hastings Inc., a Canadian corporation ("Hastings Canada").
Buyer is a wholly-owned indirect subsidiary of CLARCOR, Inc., a Delaware
corporation ("CLARCOR"). CLARCOR joins in this Agreement to guarantee the
performance of Buyer's obligations hereunder as set forth in Section 9.12.
WITNESSETH:
WHEREAS, Seller and its subsidiary, Hastings Canada, are, among
other things, engaged in the business (the "Business") of manufacturing,
purchasing, selling, reselling and distributing oil, air, diesel fuel,
radiator, water, gas and transmission fluid filters and crankcase breathers
and pollution control valves (the "Filter Products");
WHEREAS, Buyer, Seller and Hastings Canada have entered into an
Asset Purchase Agreement, dated the hereof (the "Asset Purchase
Agreement"), which provides for the purchase by Buyer of certain of the
properties and assets of Seller and Hastings Canada related to the
Business; and
WHEREAS, Buyer, Seller and Hastings Canada desire to set forth
their understanding and agreement with respect to certain matters regarding
the transition of the operation of the Business from Seller and Hastings
Canada to Buyer;
-1-
WHEREAS, Seller has agreed to furnish Buyer with certain filter
products, component parts and related services during a transition period
on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
TRANSITION PERIOD
Section 1.01. TRANSITION PERIOD. As used in this Agreement, the
"Transition Period" shall mean the Initial Transition Period, as such
Initial Transition Period may be extended pursuant to SECTION 1.03 hereof.
Section 1.02. INITIAL TRANSITION PERIOD. The "Initial
Transition Period" shall mean the period commencing on the Closing Date and
terminating on the date occurring eight months after such Closing Date (the
"Termination Date").
Section 1.03. EXTENSION OPTION. Buyer shall have the option
(the "Extension Option"), exercisable in its sole discretion, to extend the
Transition Period beyond the Initial Transition Period to any date
occurring not more than four months after the date of termination of the
Initial Transition Period. The Extension Option shall be exercisable by
delivery of written notice (the "Option Exercise Notice") from Buyer to
-2-
Seller not less than 30 days prior to the termination of the Initial
Transition Period. The Option Exercise Notice shall be executed by an
officer of Buyer and shall state the date on which the Transition Period,
as extended, shall terminate (the "Extended Termination Date"). Buyer may
amend the Option Exercise Notice by modifying the Extended Termination Date
at any time, provided that Buyer provides written notice of such
modification to Seller not less than 30 days prior to the earlier of the
existing Extended Termination Date or the proposed new Extended Termination
date. Such modification notice shall be executed by an officer of Buyer.
In no event shall the Transition Period by extended beyond the period set
forth in the first sentence of this SECTION 1.03.
Section 1.04. CERTAIN DEFINED TERMS USED HEREIN. Capitalized
terms used herein but not defined herein shall have the respective meaning
specified in the Asset Purchase Agreement.
ARTICLE II
PERFORMANCE OBLIGATIONS
Section 2.01. GENERAL. Seller hereby covenants and agrees to
perform the obligations set forth in this ARTICLE II during the Transition
Period. Seller acknowledges that the purpose of this Agreement is to
minimize any disruptions to the operation of the Business during the
Transition Period. Accordingly, Seller shall devote such resources and
personnel as is necessary to perform such obligations in a manner
reasonably satisfactory to Buyer and shall produce Hastings Filters
-3-
Products (a) of a quality at least equal to the quality of Filter Products
produced or acquired by Seller prior to the Closing Date and (b) in
quantities which satisfy the standards set forth in this Agreement. For
purposes of this Agreement, "Transition Filter Products" shall consist of
components for and finished spin on filters, components for cartridge style
oil filters, gas filters, and components for and finished heavy duty air
filters identified in detail on SCHEDULE 2.01 hereto.
Section 2.02. PRODUCTION. (a) During the Transition Period, the
scheduling and component part and finished goods production releases shall
continue under the same processes as currently are employed between the
Hastings, Michigan plant (the "Hastings Plant") and the Yankton, South
Dakota plant (the "Yankton Plant"), as further described below. On each
Monday (the "Forecast/Order Date") during the Transition Period, Buyer
shall advise Seller in writing of (i) Buyer's forecast (the "Forecast") of
the type and quantity of Transition Filter Products which Buyer then
anticipates that Buyer will ask Seller to produce for Buyer during the
eight-week period beginning on the Forecast/Order Date (the "Forecast
Period") and (ii) Buyer's order (the "Order") of the type and quantity of
Transition Filter Products to be produced by Seller for Buyer and shipped
by Seller to Buyer during the five business day period beginning seven days
after the Forecast/Order Date (the "Order Period"). Seller shall (x) take
such preparatory actions as are reasonably necessary to enable Seller to
perform in accordance with the Forecast during the Forecast Period and (y)
manufacture and/or acquire and ship to Buyer such Transition Filter
-4-
Products as are set forth in the Order during the Order Period, provided
that (A) the actual amount of Transition Filter Products produced with
respect to any Order may not be more than 10% more or 10% less than the
amount specified in such Order and (B) no Forecast or Order shall require
the production of a quantity of Transition Filter Products in excess of the
standards set forth in subsection (b) of this SECTION 2.02 ("Accepted
Filter Products"). Buyer shall pay Seller for all such Accepted Filter
Products in accordance with SECTION 3.01; Transition Filter Products not
meeting such standards and therefore rejected by Buyer shall remain the
property of Seller and Buyer shall have no obligation with respect thereto.
(b) Seller agrees that its production of Transition Filter
Products pursuant to this Agreement shall be at a rate which, if annualized
and sold, is not less than the greater of (i) the production rate of
Transition Filter Products in 1994, or (ii) the annualized production rate
of Transition Filter Products in 1995 through the date of this Agreement,
PROVIDED that if annualized Orders for Transition Filter Products pursuant
to this Agreement are less than such amount, then Seller's required
production rate shall be reduced to the annualized level which would result
from such Orders (the "Target Production Rate"). Buyer and Seller
acknowledge and agree, so long as the product mix of Buyer's Orders remains
roughly similar to the product mix during the period applied to calculate
the Target Production Rate under this Section, that Seller maintains the
capacity to fill such Orders and that such Orders will generally not
-5-
require price increases as a result of increased production costs in
accordance with Section 2.02(c).
(c) Seller will provide Buyer with Transition Filter Products at
the Target Production Rate for the price set forth in SECTION 3.01 of this
Agreement. In the event that Buyer's annualized Orders for Transition
Filter Products exceeds the Target Production Rate, Buyer acknowledges that
Seller may incur increased production costs (such as labor overtime) and
Buyer agrees that the price applicable to any Orders exceeding the Target
Production Rate will be increased by an amount to be negotiated in good
faith and mutually agreed upon by Buyer and Seller. In the event Buyer and
Seller are unable to agree upon the price for Orders exceeding the Target
Production Rate, Seller shall have no obligation to fill any orders
exceeding the Target Production Rate.
Section 2.03. COMPONENTS AND RESOURCES. (a) None of the raw
materials, work-in-process, components or finished goods inventory of
Transition Filter Products located at the Hastings Plant on the Closing
Date (except for certain finished goods located in Warehouse #3, normally
distributed from the Knoxville Facility) shall be purchased by Buyer
pursuant to the Asset Purchase Agreement but shall be retained by Seller
and utilized by Seller so long as available in production of Transition
Filter Products by Seller pursuant to this Agreement. In the event that
such inventories are or become inadequate to produce Transition Filter
Products pursuant to a Forecast or Order, Seller shall, at its cost and
expense and subject to compensation as set forth in Article III, acquire
-6-
such additional raw materials and other components as may be required for
such purposes. In addition, Seller shall, at its cost and expense and
subject to compensation as set forth in Article III, provide such power,
supplies and other standard overhead items as are necessary to manufacture
Transition Filter Products pursuant to Forecasts or Orders at the Hastings
Plant in accordance with this Agreement. As various manufacturing
processes utilized in producing Transition Filter Products are transferred
during the Transition Period from the Hastings Plant to the Yankton Plant,
Seller shall, consistent with Buyer's Forecasts and Orders, reduce or
eliminate its purchases of raw materials and utilize existing work-in-
process to produce finished components and finished goods.
(b) At the end of the Transition Period Buyer shall purchase
from Seller any remaining raw materials, work-in-process, finished
components and finished goods, at a price determined as follows:
(i) the total quantity of such inventory shall be determined by
a physical count to be taken by representatives of Seller and Buyer in
accordance with generally accepted auditing standards on a date no
more than 10 business days prior to the end of the Transition Period.
The Seller shall report to the Buyer in writing as of the end of the
Transition Period the quantity of each item of inventory determined
from such count. The total quantity of inventory so reported is
hereafter called the "Base Inventory". The Base Inventory for all
items of inventory multiplied by the lower of cost or market (the
"Inventory Price") for each item shall be the "Total Inventory";
-7-
(ii) as of the end of the Transition Period, Seller shall advise
Buyer in writing of the quantity of each separate item of such
inventory included in Base Inventory used or sold by Seller in the 12
month period preceding the date hereof (the "Inventory Calculation
Base");
(iii) (A) the Inventory Calculation Base for each item of
finished goods shall be multiplied by three and the resulting product,
which shall not exceed the Base Inventory amount for each item, shall
be multiplied by the Inventory Price of each item of inventory and (B)
the Inventory Calculation Base for each item of raw material and work-
in-process inventory shall be multiplied by the Inventory Price of
such items. The sum of the amounts calculated pursuant to (A) and (B)
above shall be the "Gross Dollar Amount of Inventory". For purposes
of calculating the Gross Dollar Amount of Inventory, any part number
added to the Seller's master file within the two years prior to the
date hereof shall be included in the Gross Dollar Amount of Inventory
at its fully recorded amount (i.e., Base Inventory times the Inventory
Price);
(iv) The Obsolescence Reserve Credit, calculated pursuant to
Section 3.6 of the Asset Purchase Agreement, shall be added to the
Gross Dollar Amount of Inventory. The amount so calculated shall be
paid by Buyer to Seller within 10 days of the end of the Transition
Period. Buyer shall remove such Inventory from the Hastings Plant
within such 10 day period.
-8-
Section 2.04. MANUFACTURE. Seller shall provide such personnel
as are necessary to manufacture Transition Filter Products as the Hastings
Plant in accordance with this Agreement. Such manufacture shall be
performed at the direction and under the supervision of Seller. Seller
acknowledges that Buyer's Orders will be designed to provide Transition
Filter Products during the Transition Period and (b) to increase production
of Transition Filter Products during the Transition Period to enable buyer
to carry an excess inventory of Transition Filter Products during the
period of time between the expiration of the Transition Period and the
commencement of production of Transition Filter Products by Buyer at an
alternate location, which excess inventory is intended to minimize any
disruptions in the distribution of Transition Filter Products to customers.
Buyer shall compensate Seller for the carrying costs of excess inventory
pursuant to SECTION 3.03.
Section 2.05. SUPPORT SERVICES. Seller shall provide continuing
support services for so long as requested by Buyer during the Transition
Period with regard to Transition Filter Products. Seller shall make
appropriate personnel available upon the reasonable request by Buyer to
facilitate and to assist conversion of such support services from Seller's
computer systems to those of Buyer. Additionally, Seller shall provide for
Buyer such support services as Seller deems reasonably necessary to furnish
the Transition Filter Products in accordance with this Agreement and to
comply with its other obligations under this Agreement. Assuming that
Orders do not materially exceed the Target Production Rate and do not
-9-
materially vary from the product mix during the period applied in
calculating the Target Production Rate, Seller currently maintains all of
the support services it reasonably believes necessary to fulfill its
obligations to Buyer during the Transition Period under this Agreement.
Buyer acknowledges that Seller shall have no obligation to provide any
continuing support services for which Buyer is unwilling to pay for or has
not paid for in accordance with this Agreement. Seller shall bear no
liability to Buyer, including liability for consequential damages, in
connection with not furnishing any support services for reason of
nonpayment by Buyer. Notwithstanding the foregoing, this Section 2.05
shall not relieve Seller from liability or performance under this Agreement
if Buyer withholds payment for support services because Seller has breached
its obligations under other provisions of this Agreement.
Section 2.06 STORAGE. (a) In order to facilitate Buyer's
accumulation of surplus inventory during the Transition Period, Seller
agrees that Buyer shall be permitted to store Transition Filter Products
sold by Seller to Buyer in surplus storage space of Seller designated as
"Warehouse #3" (the "Warehouse"). Buyer may store purchased Transition
Filter Products at Seller's Warehouse only in such quantities as will not
cause any disruption in Seller's business operations, as determined in
Seller's discretion, or require Seller to acquire or occupy any additional
storage space. Buyer will be solely responsible for any storage containers
required in connection with storing purchased Transition Filter Products at
Seller's Warehouse.
-10-
(b) Seller will deliver Transition Filter Products to the
Warehouse at Buyer's request to be stated in an Order. Buyer shall be
provided with a reasonable opportunity to inspect finished Transition
Filter Products at the Hastings Plant prior to delivery to the Warehouse.
All Transition Filter Products delivered to the Warehouse at Buyer's
request will be deemed accepted by Buyer.
(c) Buyer shall bear all risk of loss for any and all Transition
Filter Products shipped to and stored at the Warehouse at Buyer's request.
ARTICLE III
COMPENSATION AND LIABILITY
Section 3.01. PRICES FOR TRANSITION FILTER PRODUCTS. Upon
shipment by Seller of all or any part of any Order, Buyer shall become
obligated to pay to Seller in accordance with SECTION 3.03(A), unless
contested in good faith by Buyer, an amount calculated from the unit prices
for Transition Filter Products set forth on SCHEDULE 2.01 (the "Page One
Costs") plus an additional amount not to exceed 5% thereof (the "Page Two
Costs") plus an amount equal to 5% of the sum of the Page One and Page Two
Costs. Such Page Two Costs shall be expressed as a flat percentage of the
unit standard prices at a percentage as reviewed and agreed between a
designee of Buyer and Seller. Seller confirms that such unit prices (Page
One Costs) are equal on the date hereof to Seller's standard cost for each
such Transition Filter Product. Such Page One Costs are the direct
-11-
material, labor and overhead costs of such Transition Filter Products.
Buyer and Seller agree that such Page One Costs may be adjusted from time
to time to reflect applicable labor rates per Seller's union contract,
material costs changes as reviewed by Buyer and overhead rate changes as
reviewed by Buyer as the relationship between incurred direct labor and
incurred overhead costs changes; provided that, in no event shall any such
increase in the labor rate component of such price exceed the amount, if
any, by which such labor rates have increased for Seller's piston ring
business. Seller further confirms that the Page Two Costs represents
certain indirect costs (production scrap, waste disposal, material price
variances, incoming freight, inventory adjustments, product development
costs, scrap sales and cash discounts earned) related to the production of
Transition Filter Products which are not included in the Page One Costs for
each such Transition Filter Product supplied by Seller. The prices paid by
Buyer hereunder are FOB the Hastings Plant and all shipping costs therefore
shall be borne by Buyer.
Section 3.02. CARRYING COSTS. Buyer acknowledges that Seller
has agreed to maintain inventory relating to Transition Filter Products in
order to provide Buyer with Transition Filter Products during the
Transition Period. Accordingly, Buyer shall compensate Seller on a monthly
basis for the costs of carrying inventory relating to Transition Filter
Products in an amount determined by multiplying (i) the Prime Rate as
established by The First National Bank of Chicago from time to time divided
by twelve by (ii) the amount of the cost or average standard costs of all
-12-
raw materials, work-in-process, components parts and unbilled finished
goods inventory of Transition Filter Products at the Hastings Plant.
Section 3.03. PAYMENT OF COMPENSATION. (a) Upon shipment by
Seller of Transition Filter Products during the Transition Period pursuant
to an Order, Seller shall submit to Buyer an invoice for all amounts to
which it is entitled pursuant to SECTION 3.01 of this Agreement. Buyer
shall pay such invoice in accordance with its normal payment practices, but
in no event more than 15 days after the invoice date thereof unless
contested in good faith by Buyer. Any amounts due from Buyer to Seller in
connection with Orders exceeding the Target Production Rate under Section
2.02(c) shall be invoiced and paid by Buyer to Seller in accordance with
this Section 3.03(a).
(b) Not less than seven days prior to the commencement of the
first month of the Transition Period and not less than seven days prior to
the beginning of each month thereafter, Buyer and Seller shall agree to a
good faith written estimate prepared by Seller for such subsequent month of
Seller's carrying costs to which Seller is entitled to compensation from
Buyer pursuant to SECTION 3.02. Buyer shall pay such estimated carrying
costs to Seller on a weekly basis during such month, subject to adjustment
at the end of each month for any difference between the estimated amounts
paid by Buyer and the actual carrying costs of Seller calculated in
accordance with Section 3.02.
-13-
(c) Not less than seven days prior to the commencement of the
first month of the Transition Period and not less than seven days prior to
the beginning of each month thereafter, Buyer and Seller shall agree to a
good faith written estimate prepared by Seller for the cost of support
services to be provided by Seller to Buyer during the subsequent month to
which Seller is entitled to compensation from Buyer pursuant to SECTION
2.05. Buyer shall pay such estimated support service costs, plus an amount
equal to 5% of such support service costs, to Seller on a weekly basis
during such month, subject to adjustment at the end of each month for any
difference between the estimated amounts paid by Buyer and the actual
support services costs plus 5% incurred by Seller.
Section 3.04. WARRANTY COSTS; PRODUCT LIABILITY CLAIMS. Buyer
shall be liable for all warranty costs and product liability claims related
to any Transition Filter Products manufactured and accepted by Buyer after
the commencement of the Transition Period; PROVIDED, HOWEVER, that (a) this
SECTION 3.04 shall not relieve Seller of any liability to Buyer in
connection with such warranty costs or product liability claims resulting
from the gross negligence or willful misconduct of Seller in performing its
obligations hereunder if such action or failure to act by Seller
constituting gross negligence or willful misconduct was not at the
direction of Buyer and (b) Seller shall not sell or permit to be used any
Filter Products manufactured by Seller after the commencement of the
Transition Period and rejected in good faith by Buyer for reason that the
products failed to conform to the standard set forth in Section 2.01(a) of
this Agreement.
-14-
Section 3.05. SELLER'S EMPLOYEES. Seller acknowledges that
employees of Seller utilized by Seller to perform its obligations hereunder
shall remain the employees of Seller rather than Buyer during the
Transition Period. Accordingly, Seller shall remain liable for all costs,
expenses and liabilities with respect to such employees, including, without
limitation, wages, salaries, bonuses, employee benefits, insurance claims
and taxes. Seller shall use its best efforts to prevent any disruption by
its employees of the activities pursuant to Article V. In the event of any
such disruptions or attempted disruptions, Seller shall cooperate with
Buyer to mitigate the effects thereof.
ARTICLE IV
KNOXVILLE FACILITY
Section 4.01. PISTON RING DISTRIBUTION. (a) Buyer and Seller
acknowledge that, pursuant to the Asset Purchase Agreement, Buyer is
acquiring from Seller a facility located in Knoxville, Tennessee (the
"Knoxville Facility"), from which Seller currently also ships and
distributes its piston ring products (the "Rings"). For a period beginning
on the Closing Date and ending on the third day after written notice of
termination is given by Seller to Buyer (but in no event later than 90 days
after the termination of the Transition Period), Buyer shall permit Seller
to accept shipments of Rings at the Knoxville Facility and, using the
facilities and Seller's personnel located at the Knoxville Facility, ship
such Rings to Seller's customers. Buyer shall not be responsible for
-15-
Seller's personnel located at the Knoxville Facility, the quality or the
condition of the Rings so shipped or incur any liability to Seller for
defaults by Seller's customers, returned products or warranty claims with
respect to Rings.
(b) For the period of time that Seller occupies a portion of the
Knoxville Facility, Seller agrees to reimburse Buyer for out-of-pocket
costs incurred by Buyer allocable to the portion of the Knoxville Facility
occupied by Seller. Out-of-pocket costs reimbursable by Seller to Buyer
shall include costs such as taxes, insurance, utilities, janitorial,
maintenance and security (allocable to the period of Seller's occupancy)
but shall not include costs such as special assessments or capital
improvements or repairs with respect to the facility. Any out-of-pocket
costs not attributable solely to Seller's occupancy of a portion of the
Knoxville Facility shall be prorated between Seller and Buyer with Seller
paying an amount equal to such costs multiplied by a fraction, the
numerator being the square footage of the Knoxville Facility occupied by
Seller during the applicable period and the denominator being the total
square footage of the Knoxville Facility. Buyer shall furnish Seller with
statements reasonably detailing reimbursable costs due from Seller
following the end of each month and Seller shall reimburse Buyer for such
costs, unless contested in good faith by Seller, within fourteen days of
receipt of each statement. For the first and last month of Seller's use of
a portion of the Knoxville facility, any reimbursable out-of-pocket costs
otherwise billed on a monthly basis shall be multiplied by a fraction, the
-16-
numerator of which is the number of days during the preceding month during
which Seller used the Knoxville Facility and the denominator of which is
the total number of days in such month. Notwithstanding the foregoing,
Buyer and Seller shall each pay their own direct costs arising from their
use of the Knoxville Facility (e.g. Seller shall pay for piston ring
shipping cartons and Buyer shall pay for filter product shipping cartons).
Section 4.02. FILTER DISTRIBUTION. During the same period of
time as set forth in SECTION 4.01 hereof, Seller agrees to provide to Buyer
the services of such of Seller's employees as are necessary to accept
shipment of Transition Filter Products at the Knoxville Facility and to
distribute such Transition Filter Products to Buyer's customers. In
addition, Seller shall provide Buyer with customer order entry and customer
billing support services for Transition Filter Products at the Knoxville
Facility.
Section 4.03. (a) COMPENSATION. Buyer shall compensate Seller
on a weekly basis for the services provided by Seller pursuant to SECTION
4.02 during such week by reimbursing Seller for its costs and expenses
directly related thereto incurred during such week plus 5% of such costs
and expenses. Within 15 days after the date of this Agreement, Buyer and
Seller shall agree to a proposed budget setting forth their best estimate
of the weekly costs and expenses directly related to the provision by
Seller of such services. Seller shall not be entitled to weekly
compensation under this SECTION 4.03 for costs and expenses (exclusive of
the 5% add-on) in excess of 110% of the total weekly budgeted out-of-pocket
-17-
costs and expenses as set forth on such budget (exclusive of the 5% add-
on), such costs and expenses and such budgeted amount to be prorated for
any final partial week during which such services are rendered by Buyer
based on the number of days elapsed in such final partial week.
(b) Any related overhead expenses as determined and agreed to by
a designee of each of Buyer and Seller will be paid by Buyer to Seller on a
monthly basis on the 15th day of each month for overhead expenses incurred
during the prior month.
Section 4.04. SELLER'S EMPLOYEES. (a) Except as set forth in
paragraph (b) hereof, Seller acknowledges that employees of Seller located
at the Knoxville Facility shall remain the employees of Seller rather than
Buyer during the Transition Period. Accordingly, Seller shall remain
liable for all costs, expenses and liabilities with respect to such
employees, including, without limitation, wages, salaries, bonuses,
employee benefits, insurance claims and taxes. Seller shall use its best
efforts to prevent any disruption by its employees of the activities
undertaken by Seller and Buyer at the Knoxville Facility. In the event of
any such disruptions or attempted disruptions, Seller shall cooperate with
Buyer to mitigate the effects thereof. At the end of the Transition
Period, Buyer may elect to hire any or all of the employees located at the
Knoxville Facility.
-18-
ARTICLE V
REMOVAL OF PURCHASED ASSETS FROM HASTINGS PLANT
Section 5.01. GENERAL. (a) At any time during the Transition
Period, Buyer shall have the right to remove from the Hastings Plant any or
all of the Purchased Assets located therein. All costs and expenses
involved in preparing the Purchased Assets for shipment, loading and
shipping such Purchased Assets shall be borne by Buyer and Buyer shall be
responsible for and bear any risk of loss for any damages to the Purchased
Assets, the Hastings Plant or the equipment of Seller caused by Buyer's
agents, contractors or representatives. Buyer may utilize Seller's
employees in such removal process, provided that Seller shall be
compensated by Buyer for the cost of such employees' hourly labor. Subject
to SECTION 5.03, Seller shall provide Buyer and its agents and contractors
such easements over and access to its property and the Hastings Plant as
may be reasonably necessary for Buyer to accomplish the removal from the
Hastings Plant of the Purchased Assets.
(b) Any Purchased Assets not removed by Buyer from the Hastings
Plant during the Transition Period shall be deemed to have been abandoned
by Buyer. Seller shall have the right to dispose of any such abandoned
Purchased Assets in its sole discretion. The costs of such disposal to be
borne by Seller.
Section 5.02. EFFECT ON SELLERS OBLIGATIONS UNDER ARTICLE II.
In the event that Buyer's activities pursuant to SECTION 5.01 result in the
-19-
shipment from the Hastings Plant of equipment necessary or required for the
production by Seller of any Transition Filter Product, Seller's obligations
under ARTICLE II to manufacture such Transition Filter Products shall
terminate.
Section 5.03. COORDINATION WITH SELLER. Upon the commencement
of the Transition Period, Buyer shall provide Seller with a forecast, to be
updated by Buyer as necessary, of Buyer's estimated schedule for the
removal of the Purchased Assets from the Hastings Plant. In addition to
such forecasts, Buyer shall give Seller not less than 7 business days
written notice of its intention to remove any Purchased Assets from the
Hastings Plant and will promptly provide Seller with written notice of any
of the Purchased Assets that Buyer has decided to abandon and which may be
removed by Seller. Buyer and Seller agree to cooperate in good faith so
that Buyer's activities pursuant to SECTION 5.01 shall not (a) be impeded
by any activity by Seller or its employees or agents or (b) disrupt
unnecessarily Seller's manufacturing operations at the Hastings Plant.
ARTICLE VI
CANADIAN FACILITY
Section 6.01. FILLING CUSTOMER ORDERS. (a) Hastings Canada
shall continue to fill orders for Filter Products during the period
specified in Section 6.02 hereof. Such orders shall be filled from
inventory of Filter Products on hand at Hastings Canada facility at Xxxxxx,
Xxxxxxx, Xxxxxx (the "Canadian Facility"); and, to the extent necessary,
-20-
Hastings Canada shall acquire additional inventory of Filter Products to
fill such orders from Knoxville Facility in accordance with past practices.
(b) Hastings Canada shall invoice the customer for the price of
the Filter Products so ordered and shipped in accordance with the price
lists for such Products in existence on the date hereof or as changed with
the advance written consent of Buyer. Upon payment to Hastings Canada of
such invoices, Hastings Canada shall remit to Buyer's subsidiary, 1137447
Ontario, Inc., the owner of such Filter Products, within 5 days of such
payment, an amount equal to 83% of the total amount paid less any portion
thereof which is in payment of applicable taxes. Hastings Canada shall
retain the balance of such net payment, after remitting any such tax to the
proper governmental authority. Such retention shall constitute all of the
compensation due to Hastings Canada for its services pursuant to this
Article VI.
The parties acknowledge that (a) a total of approximately $55,000
(the "Transfer Tax") has been paid to the Canadian Government in respect of
the Canadian Federal Goods and Service Tax ("GST"), (b) each of the Seller
and the Buyer have paid one half of such tax, and (c) such amount (the
"Credit Amount") is refundable to 1137447 or may be used to offset GST
taxes otherwise payable with respect to sales of Filter Product pursuant to
this Agreement. To the extent of such refunds or credits, Hastings Canada
shall first be entitled to retain or be paid an amount equal to the portion
of the Transfer Tax paid by Seller. After Seller has been paid in full
-21-
with respect to its portion of the Transfer Taxes, all future refunds or
credits shall be made or paid to 1137447.
Section 6.02. TERM. The obligations of Hastings Canada and
Buyer pursuant to this Article VI shall begin on the date hereof and
terminate on the later of (a) the 60th day after Buyer gives written notice
to Seller of such termination or (b) the Termination Date.
Section 6.03. REMOVAL OF PURCHASED ASSETS FROM THE CANADIAN
FACILITY. (a) Buyer shall remove all of the Purchased Assets located at
the Canadian Facility from the Canadian Facility no later than the end of
the term specified in SECTION 6.02. All costs and expenses involved in
preparing such Purchased Assets for shipment, loading and shipping such
Purchased Assets shall be borne by Buyer and Buyer shall be responsible for
and bear any risk of loss for any damages to such Purchased Assets, the
Canadian Facility or the equipment of Hastings Canada caused by Buyer's
agents, contractor or representatives. Buyer may utilize employees of
Hastings Canada in such removal process, provided that Hastings Canada
shall be compensated by Buyer for the cost of such employees' hourly labor.
Hastings Canada shall provide Buyer and its agents and contractors such
easements over and access to the Canadian Facility as may be reasonably
necessary for Buyer to accomplish the removal from the Canadian Facility of
such Purchased Assets.
(b) Any Purchased Assets not removed by Buyer from the Canadian
Facility during the term specified in SECTION 6.02 shall be deemed to have
-22-
been abandoned by Buyer. Hastings Canada shall have the right to dispose
of any such abandoned Purchased Assets in its sole discretion. The costs
of such disposal shall be borne by Hastings Canada.
Section 6.04. TREATMENT OF INVENTORY AT CANADIAN FACILITY. Any
inventory of Filter Products on hand at the Canadian Facility at the end of
the period specified in SECTION 6.02 shall be removed by Buyer in
accordance with SECTION 6.03.
Section 6.05. HASTINGS CANADA'S EMPLOYEES. Hastings Canada
acknowledges that employees of Hastings Canada utilized by Hastings Canada
to perform its obligations hereunder shall remain the employees of Hastings
Canada rather than Buyer. Accordingly, Hastings Canada shall remain liable
for all costs, expenses and liabilities with respect to such employees,
including, without limitation, wages, salaries, bonuses, employee benefits,
insurance claims and taxes. Hastings Canada shall use its best efforts to
prevent any disruption by its employees of the activities undertaken by
Hastings Canada herein or of Buyer's activities pursuant to this Article
VI. In the event of any such disruptions or attempted disruptions,
Hastings Canada shall cooperate with Buyer to mitigate the effects thereof.
ARTICLE VII
CONFIDENTIALITY
Section 7.01. CONFIDENTIALITY. Buyer and Seller agree that the
terms of Section 11.2 of the Asset Purchase Agreement shall apply to and be
incorporated by reference in this Agreement, the same as if any information
-23-
acquired in the course of transactions contemplated by this Agreement
were obtained during the course of the negotiations or investigation
contemplated in the Asset Purchase Agreement, with the effect that the
confidentiality obligations of Buyer and Seller shall be the same under
this Agreement as under the Asset Purchase Agreement.
Section 7.02. REMEDIES. (a) The parties agree that the
provisions of SECTION 7.01 hereof are reasonable with respect to the scope
and duration set forth therein. In the event that a court or agency of
competent jurisdiction shall determine that any of the provisions set forth
in SECTION 7.01 hereof are unreasonable under circumstances then existing,
the parties hereto agree that the maximum scope or duration permissible
under such circumstances shall be substituted for the scope or duration
stated therein.
(b) Without limiting the right to pursue all other legal and
equitable remedies available for violation of the covenants contained in
ARTICLE VII hereof, it is expressly agreed that such other remedies cannot
fully compensate Buyer or Seller for any violation and that Buyer and
Seller, as the case may be, shall be entitled to injunctive relief to
prevent any such violation or any continuing violation thereof.
ARTICLE VIII
TERMINATION
Section 8.01. EVENTS OF TERMINATION BY BUYER. In the event that
during the Transition Period there should occur the failure or inability of
-24-
Seller to perform any of its obligations under this Agreement, Buyer may
elect to terminate the rights and obligations of Seller and Buyer hereunder
by written notice to Seller. Buyer agrees to provide Seller with a
reasonable opportunity to cure any breach or default reasonably susceptible
to cure. In the event that Buyer exercises its election to terminate this
Agreement pursuant to this SECTION 8.01, Buyer's and Seller's rights and
obligations under this Agreement shall terminate effective with such
notice. Such termination shall not relieve either party of any liability
to the other party incurred prior to or, with respect to the liability of
the party in default, resulting from the termination of this Agreement.
Section 8.02. EVENTS OF TERMINATION BY SELLER. In the event
that during the Transition Period there should occur the failure or
inability of Buyer to perform any of its obligations under this Agreement,
Seller may elect to terminate the rights and obligations of Seller and
Buyer hereunder by written notice to Buyer. Seller agrees to provide Buyer
with a reasonable opportunity to cure any breach or default reasonably
susceptible to cure. In the event that Seller exercises its election to
terminate this Agreement pursuant to this SECTION 8.02, Buyer's and
Seller's rights and obligations under this Agreement shall terminate
effective with such notice. Such termination shall not relieve either
party of any liability to the other party incurred prior to or, with
respect to the liability of the party in default, resulting from the
termination of this Agreement.
-25-
ARTICLE IX
MISCELLANEOUS
Section 9.01. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MICHIGAN,
WITHOUT GIVING REGARD TO THE CONFLICT OF LAWS AND PRINCIPLES THEREOF.
Section 9.02. NOTICES. All notices and requests given pursuant
to this Agreement shall be in writing and shall be made by hand-delivery,
first-class mail (registered or certified, return receipt requested),
confirmed facsimile or overnight air courier guaranteeing next business day
delivery to the relevant address specified below:
If to Buyer, to:
CLARCOR Inc.
0000 Xxxxx Xxxxxx
X.X. Xxx 0000
Xxxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxx
Tel. 815/000-0000
Fax 815/000-0000
with a copy to:
Sidley & Austin
Xxxxx 0000
Xxx Xxxxx Xxxxxxxx Xxxxx
Xxxxxxx, XX 00000
Tel. 312/000-0000
Fax 312/000-0000
-26-
If to Seller or Hastings Canada, to:
Hastings Manufacturing Company
000 Xxxxx Xxxxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxx 00000
Attention: Xxxx X.X. Xxxxxxx
Xxxxxx Xxxxxxx
Co-Presidents
Tel. 616/000-0000
Fax 616/000-0000
with a copy to:
Xxxxxx Xxxxxxxx & Xxxx LLP
900 Old Kent Bank Building
000 Xxxx Xxxxxx, X.X.
Xxxxx Xxxxxx, Xxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxxxx, Esq.
Tel. 616/000-0000
Fax 616/000-0000
or to such other address as such party may indicate by a notice delivered
to the other party hereto. Except as otherwise provided in this Agreement,
the date of each such notice and request shall be deemed to be, and the
date on which each such notice and request shall be deemed given shall be:
at the time delivered, if personally delivered or mail; when receipt is
acknowledged, if sent by facsimile; and the next business day after timely
delivery to the courier, if sent by overnight air courier guaranteeing next
business day delivery.
Section 9.03. ENTIRE AGREEMENT; INTEGRATION. This Agreement
supersedes all prior agreements between or among any of the parties hereto
with respect to the subject matter contained herein and therein, and such
agreements embody the entire understanding among the parties relating to
such subject matter.
-27-
Section 9.04. INJUNCTIVE RELIEF. Each of the parties hereto
acknowledges that in the event of a breach by any of them of any material
provision of this Agreement, the aggrieved party may be without an adequate
remedy at law. Each of the parties therefore agrees that in the event of
such a breach hereof the aggrieved party may elect to institute and
prosecute proceedings in any court of competent jurisdiction to enforce
specific performance or to enjoin the continuing breach hereof. By seeking
or obtaining any such relief, the aggrieved party shall not be precluded
from seeking or obtaining any other relief to which it may be entitled.
Section 9.05. SECTION HEADINGS. Section headings are for
convenience of reference only and shall not affect the meaning of any
provision of this Agreement.
Section 9.06. COUNTERPARTS. This Agreement may be executed in
any number of counterparts, each of which shall be an original, and all of
which shall together constitute one and the same instrument. All
signatures need not be on the same counterpart.
Section 9.07. SEVERABILITY. If any provision of this Agreement
shall be invalid or unenforceable, such invalidity or unenforceability
shall not affect the validity and enforceability of the remaining
provisions of this Agreement, unless the result thereof would be
unreasonable, in which case the parties hereto shall negotiate in good
faith as to appropriate amendments hereto.
-28-
Section 9.08. FILING. A copy of this Agreement and of all
amendments thereto shall be filed at the principal executive office of
Buyer with the corporate recorder of Buyer.
Section 9.09. ATTORNEY'S FEES. In any action or proceeding
brought to enforce any provision of this Agreement, or where any provision
hereof is validly asserted as a defense, the successful party shall be
entitled to recover reasonable attorneys' fees (including any fees incurred
in any appeal) in addition to its costs and expenses and any other
available remedy.
Section 9.10. SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
successors. The rights of either party hereto under this Agreement shall
not be assignable by such party, except that the rights of Buyer hereunder
may be assigned without the consent of Seller to any corporation all of the
capital stock or to any general or limited partnership in which Buyer or
any such corporation is a general partner, PROVIDED that Buyer shall not be
released from any of its obligations hereunder by reason of such
assignment.
Section 9.11. NO THIRD PARTY BENEFICIARIES. Nothing herein
expressed or implied is intended to confer upon any person, other than the
parties hereto, or their respective successors, assigns and legal
representatives, any rights, remedies, obligations or liabilities under or
by reason of this Agreement.
-29-
Section 9.12. CERTAIN MEDICAL INSURANCE. With respect to each
person employed at the Yankton Plant (a "Transferred Employee") who, on
the day before the Closing Date, is a participant in the Hastings
Manufacturing Company Employee Health Plan (the "Medical Plan"), Seller
shall provide, within the period required by law, notice of the
Transferred Employee's rights to health care continuation coverage under
the Consolidated Omnibus Budget Reconciliation Act of 1985 (ERISA
601-609 and Internal Revenue Code 4980B) ("COBRA").
Buyer shall pay to Seller, with respect to the period beginning on the
Closing Date and ending on the earlier of (i) December 31, 1995, and (ii)
the end of the month in which such Transferred Employee's employment with
Buyer is terminated (the "Benefit Transition Period"), the full amount of
the COBRA applicable premium for each Transferred Employee who elects COBRA
continuation coverage under the Plan. At the end of the Benefit Transition
Period, Seller shall, with respect to the COBRA coverage of Transferred
Employees during the Benefit Transition Period, provide Buyer with a
statement reasonably detailing the total costs of (i) claims paid under the
Medical Plan (less any stop-loss insurance proceeds received with respect
thereto), (ii) stop-loss insurance premiums, and (iii) administrative costs
and fees paid to any third-party administrator. Buyer agrees to reimburse
Seller promptly for any amount by which the total of these costs exceeds
the COBRA applicable premium paid by Seller for the Benefit Transition
Period. If the total cost is less than the COBRA premium, then Seller will
promptly reimburse Buyer for the difference. Buyer agrees that, at or
before the end of the Benefit Transition Period, it will transfer coverage
-30-
of the Transferred Employees and their covered dependents to a group
health plan maintained by Buyer. It is intended that coverage under
Buyer's plan will terminate all COBRA obligations of Seller except as
otherwise required by law and that the Medical Plan shall have no further
obligations to pay any claims attributable to the Transferred Employees,
whether such claims were incurred during or after the Benefit Transition
Period. During any period that Seller is making payroll payments to the
Transferred Employees on behalf of Buyer, Seller shall continue to collect
payroll deductions in the same amounts as prior to the Closing Date, and
shall promptly remit all such withheld amounts to Buyer.
Section 9.13. GUARANTY BY CLARCOR. By joining in this
Agreement, CLARCOR guarantees to Seller and Hastings Canada the full and
prompt payment and performance (not just collection) by Buyer and its
assigns of all of Buyer's covenants and obligations under this Agreement.
CLARCOR's guaranty of all of Buyer's covenants and obligations under this
Agreement shall remain effective notwithstanding any assignment of any of
Buyer's covenants or obligations. If Buyer does not perform a covenant or
obligation under this Agreement, CLARCOR shall promptly perform the
covenant or obligation. This guaranty is an absolute, irrevocable,
primary, continuing, unconditional, and unlimited guaranty of performance
and payment, and is not a guaranty of collection. This guaranty shall
remain in full force and effect (and shall remain in effect notwithstanding
any amendment to this Agreement) until all of Buyer's obligations, under
this Agreement have been paid, observed, performed, or discharged in full.
-31-
* * * * *
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the date first written above.
ATTEST: HASTINGS FILTER, INC.
By: /S/ XXXXXX X. XXXXXXXX By: /S/ XXXXXX X. XXXXXXX
Xxxxxx X. Xxxxxxxx Xxxxxx X. Xxxxxxx
Secretary Its President
ATTEST: CLARCOR INC.
By: /S/ XXXXXX X. XXXXXXXX By: /S/ XXXXXX X. XXXXXXX
Xxxxxx X. Xxxxxxxx Xxxxxx X. Xxxxxxx
Secretary Its President
ATTEST: HASTINGS MANUFACTURING COMPANY
By: /S/ X.X. XXXXXXX By: /S/ XXXX X.X. XXXXXXX
Xxxxx X. Xxxxxxx Xxxx X.X. Xxxxxxx
Secretary Co-President
ATTEST: HASTINGS INC.
By: /S/ X.X. XXXXXXX By: /S/ XXXX X.X. XXXXXXX
Xxxxx X. Xxxxxxx Xxxx X.X. Xxxxxxx
Assistant Secretary Vice President
-32-
SCHEDULE 2.01
DESCRIPTION AND UNIT PRICE OF
TRANSITION FILTER PRODUCTS
See attached computer printout together with cover page.
