SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 1998 Commission file number 1-5838
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NCH CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 75-0457200
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
P.O. Box 152170
2727 Chemsearch Boulevard
Irving, Texas 75015
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (972)438-0211
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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COMMON STOCK, $1 PAR VALUE NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: NONE
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (X)
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
Approximate Aggregate
Market Value* Total Shares
of Shares Held by Outstanding
Class Non-affiliates at June 26, 1998
-------------------------- -------------- --------------
COMMON STOCK, $1 PAR VALUE $ 169,926,700 5,602,684
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*The approximate aggregate market value of the common stock held by
non-affiliates is based on the closing price of these shares on the New
York Stock Exchange on June 26, 1998.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's 1998 Annual Report to the Shareholders and
definitive Proxy Statement relating to the Registrant's 1998 Annual
Shareholders Meeting are incorporated by reference in Parts II and III of
this Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
Location in Form 10-K Incorporated Document
PART II
Item 5 - Market for the Registrant's Page 36 of the 1998
Common Equity and Related Shareholder Annual Report.
Matters.
Item 6 - Selected Financial Data. Page 18 of the 1998
Annual Report.
Item 7 - Management's Discussion and Pages 18-21 of the 1998
Analysis of Financial Condition and Annual Report.
Results of Operations.
Item 8 - Financial Statements and Pages 22-36 of the 1998
Supplementary Data. Annual Report.
PART III
Item 10 - Directors and Executive Pages 2-4 and 10-11 of the
Officers of the Registrant. Company's Proxy Statement
dated June 22, 1998, in
connection with its Annual
Meeting to be held on
July 23, 1998.
Item 11 - Executive Compensation. Pages 4-8 of the Company's
Proxy Statement dated June
22, 1998, in connection with
its Annual Meeting to be held
on July 23, 1998.
Item 12 - Security Ownership of Certain Pages 10-11 of the Company's
Beneficial Owners and Management. Proxy Statement dated June 22,
1998, in connection with its
Annual Meeting to be held on
July 23, 1998.
Item 13 - Certain Relationships and Pages 2-3 and 8 of the
Related Transactions. Company's Proxy Statement dated
June 22, 1998, in connection
with its Annual Meeting to be
held on July 23, 1998.
PART I
Item 1. Business
--------
NCH Corporation, a Delaware corporation, and its subsidiaries (herein
collectively referred to as the "Company" or "NCH" unless the context
requires differently) markets an extensive line of maintenance, repair and
supply products to customers throughout the world. Products include
specialty chemicals, fasteners, welding supplies, and plumbing and
electronic parts. These products are marketed principally through the
Company's own sales force. During the current year, the two subsidiaries
that marketed safety supplies were sold. Therefore, safety supplies are no
longer included in the Company's product offerings. There have been no
other significant changes in the kind of products produced or marketed by
the Company since the beginning of the last fiscal year, although
individual products are continually added to and deleted from the product
line. Sales are generally consistent throughout the year, with no
significant seasonal fluctuations.
Competitive conditions in the industry involved are severe and the
Company believes that no one enterprise or group of enterprises has a
dominant or preeminent position in the market. Further, the Company
believes that no enterprise has a significant percentage of the market.
No informative statement can be made as to the Company's rank in its
industry. Not only do other concerns compete in the broad general range of
maintenance, repair or supply products, but there are also many competitors
who produce one or more products which compete with specific products sold
by the Company. Competition in the industry is primarily on the basis of
price, service and product performance. The Company's main emphasis is on
service and product performance rather than price. Sales of Company
products are not dependent upon a limited number of customers, and no
particular customer accounts for more than 3% of net sales.
Qualified sales representatives are crucial to the Company's
operations. In addition to industry competition, the Company competes with
the entire business community for qualified sales representatives. This
competition has been, and remains, severe. The Company has a required
formal training program for its sales representatives consisting of
in-house and field training. Based on the Company's experience in the
last three years, turnover of new sales representatives in the first year
is estimated to be 80%. The annual cost of recruiting and training
sales representatives over the past three years has averaged approximately
$40 million per year.
The products that the Company markets are readily available from
numerous sources. The Company buys raw materials and finished products
from a large number of suppliers, none of whom would materially impact the
sales or earnings of the Company should they cease to be a source of
supply. In some foreign countries, licensees manufacture specialty
chemical products for marketing by the Company's subsidiaries.
Patents, franchises and concessions have not played an important role
in the Company's business. Trademarks are extensively used on products,
and are useful but not of paramount importance.
As of the end of its last fiscal year the Company employed 10,373
persons. The Company employs 87 professional or technical persons on its
laboratory staff ranging from Ph.D's to nongraduate chemical technicians.
Although the laboratory staff spends time on research activities relating
to the development of new products or services and the improvement of
existing products or services, the staff is also engaged in quality control
and customer service activities. Costs cannot be broken down between these
various activities. The approximate amounts spent on laboratory operations
in the years ended April 30, 1998, 1997 and 1996, were $5.5 million, $5.0
million and $4.6 million, respectively. All laboratory costs, including
research and development, are expensed as incurred.
The Company is subject to various federal, state and local laws and
regulations affecting businesses in general, including environmental laws
and regulations. Complying with all laws and regulations has not
materially affected the Company's competitive position, earnings or
capital expenditures. All laws and regulations are subject to change and
the Company cannot predict what effect, if any, changes might have on its
business.
International sales are conducted through subsidiaries in Europe,
Canada, Latin America, Australia and the Far East. Intercompany sales and
profits have been eliminated from the following schedule. Corporate
expenses are allocated between the geographic areas. Identifiable assets
are those identified with the operations in each geographic area.
Corporate assets include portions of cash and cash equivalents and
marketable securities.
Financial information by geographic area, in thousands of dollars,
follows for the years ended April 30:
Latin
United Pacific & America Consoli-
States Europe Far East & Canada dated
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1998
Net Sales $457,220 $245,669 $30,738 $50,468 $784,095
Net Income (Loss) 27,299 10,880 (2,730) 246 35,695
Identifiable Assets 262,426 116,953 12,691 21,424 413,494
Corporate Assets 106,210
1997
Net Sales $417,411 $266,263 $34,313 $48,774 $766,761
Net Income 21,809 11,686 86 1,094 34,675
Identifiable Assets 267,639 114,486 17,476 23,325 422,926
Corporate Assets 74,665
1996
Net Sales $412,027 $275,353 $35,727 $49,727 $772,834
Net Income 20,341 15,247 247 472 36,307
Identifiable Assets 256,625 126,041 17,789 21,094 421,549
Corporate Assets 92,855
Sales between geographic areas and export sales from the United States
are immaterial and are therefore not included in net sales disclosed in the
above table.
In the Company's experience, other than currency fluctuations, the
overall risk of international operations has not been appreciably higher
than domestic operations, although the risk of operations in any one
country may be greater than in the United States. The Company is subject
to the risks inherent in operating in foreign countries, including
government regulation, currency restrictions and other restraints, risk
of expropriation and burdensome taxes.
Item 2. Properties
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The Company owns its world headquarters and domestic administrative
center complex in Irving, Texas, containing approximately 319,000 square
feet.
The Company owns and operates 19 manufacturing facilities in 7 states
and 11 foreign countries, located in Canada, Europe, Latin America and the
Far East, containing approximately 1,137,000 square feet. These facilities
also include related office and warehouse space.
The Company owns and occupies a total of 17 office or office/warehouse
combinations in 3 states and 6 foreign countries, located in Europe and
Latin America, containing approximately 773,000 square feet.
In addition, the Company leases additional warehouse space,
manufacturing plants, and office space at various locations in the United
States and abroad, none of which is material in relation to the Company's
overall assets.
During the last fiscal year the Company made investments, net of
dispositions, of $12,593,000 ($13,935,000 gross) in property, plant and
equipment.
The plants and properties owned and operated by the Company are
maintained in good condition and are believed to be suitable and adequate
for the next several years.
Item 3. Legal Proceedings
-----------------
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the business, to which the Company or any
of its subsidiaries is a party or of which any of their property is subject.
From time to time, the Company is named as a potentially responsible
party in proceedings involving compliance with environmental laws and
regulations. Currently, there are no such proceedings involving monetary
sanctions pending against the Company, which singularly or in the
aggregate, involve potential damages or expenditures in excess of 10% of
the current assets of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
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No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
Executive Officers of the Registrant
------------------------------------
The following are the executive officers of the Company as of
June 1, 1998:
Name Office Age
---- ------ ---
Lester A. Levy Chairman of the Board; Director 75
Milton P. Levy, Jr. Chairman of the Executive Committee;
Director 72
Irvin L. Levy President; Director 69
Earl Nicholson Senior Vice President 76
James A. Stone Senior Vice President 76
Joe Cleveland Vice President and Secretary 64
Tom Hetzer Vice President - Finance 61
Glen Scivally Vice President and Treasurer 57
Messrs. Lester A. Levy, Milton P. Levy, Jr. and Irvin L. Levy are brothers.
Each of the Company's executive officers has been an executive officer of
the registrant for more than five years as his principal employment.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
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Matters
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Market and Dividend Information, appearing on page 36 of the 1998
Annual Report, is incorporated by reference herein.
Item 6. Selected Financial Data
-----------------------
Selected Financial Data, appearing on page 18 of the 1998 Annual
Report, is incorporated by reference herein.
Item 7. Management's Discussion and Analysis of
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Financial Condition and Results of Operations
---------------------------------------------
Management's Discussion and Analysis of Financial Condition and
Results of Operations, appearing on pages 18-21 of the 1998 Annual Report,
is incorporated by reference herein.
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
The Financial Statements and Supplementary Data, appearing on pages
22-36 of the 1998 Annual Report, is incorporated by reference herein.
Item 9. Changes in and Disagreements with Accountants on
------------------------------------------------
Accounting and Financial Disclosure
-----------------------------------
None
PART III
Item 10. Directors and Executive Officers of the Registrant
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Information on directors of the registrant, found on pages 2-4 of the
Company's Proxy Statement dated June 22, 1998, in connection with its Annual
Meeting to be held July 23, 1998, is incorporated by reference herein.
Information on executive officers of the registrant, found on pages
10-11 of the Company's Proxy Statement dated June 22, 1998, is incorporated
by reference herein.
Item 11. Executive Compensation
----------------------
Information on executive compensation and transactions, found on pages
4-8 of the Company's Proxy Statement dated June 22, 1998, in connection
with its Annual Meeting to be held July 23, 1998, is incorporated by
reference herein.
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
Information on security ownership of principal stockholders and
management, found on pages 10-11 of the Company's Proxy Statement dated
June 22, 1998, in connection with its Annual Meeting to be held on July
23, 1998, is incorporated by reference herein.
Item 13. Certain Relationships and Related Transactions
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Information on certain relationships and related transactions, found
on pages 2-3 and 8 of the Company's Proxy Statement dated June 22, 1998,
in connection with its Annual Meeting to be held on July 23, 1998, is
incorporated by reference herein.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
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(a)(1) and (2): The response to this portion of Item 14 is submitted as a
separate section of this report on pages 18-19. The information set forth
on pages 18-19 of this report is incorporated by reference. The
consolidated financial statements set forth on page 18 of this report are
filed as part of this Form 10-K by incorporation by reference to pages
22-36 of the 1998 Annual Report.
(a)(3) and (c): Exhibits. For a list of the exhibits filed as a part of
this report, see the Index to Exhibits on page 22 of this report, which is
incorporated by reference.
(b) Reports on Form 8-K: No reports on Form 8-K were filed during the
quarter ended April 30, 1998. A report on Form 8-K was filed on June
3, 1998.
(d) Not applicable.
SIGNATURES
The Issuer
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Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, NCH Corporation has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Irving, and the State of Texas, on this 5th day of June, 1998.
NCH CORPORATION, Registrant
By /s/ Irvin L. Levy
---------------------------
Irvin L. Levy, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
NCH Corporation and in the capacities and on the date indicated.
Signature Capacity at Registrant Date
--------- ---------------------- ----
/s/Lester A. Levy Chairman of the Board; June 5, 1998
----------------------- Director
Lester A. Levy
/s/Milton P. Levy, Jr. Chairman of the Executive June 5, 1998
----------------------- Committee; Director
Milton P. Levy, Jr.
/s/Irvin L. Levy President; Director June 5, 1998
----------------------- (Principal Executive Officer)
Irvin L. Levy
/s/Tom Hetzer Vice President - Finance June 5, 1998
----------------------- (Principal Accounting Officer)
Tom Hetzer
/s/Robert L. Blumenthal Director June 5, 1998
-----------------------
Robert L. Blumenthal
/s/Rawles Fulgham Director June 5, 1998
-----------------------
Rawles Fulgham
/s/Jerrold M. Trim Director June 5, 1998
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Jerrold M. Trim
/s/Thomas B. Walker Jr. Director June 5, 1998
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Thomas B. Walker Jr.
NCH CORPORATION
AND SUBSIDIARY COMPANIES
FORM 10-K
ITEMS 8, 14(a)(1) and (2) and (a)(3) and (c)
INDEX OF FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS
The following consolidated financial statements are filed as part of
this Form 10-K by incorporation by reference to pages 22-36 of the 1998
Annual Report.
Consolidated Financial Statements:
Statements of Income, Years Ended April 30, 1998, 1997 and 1996
Balance Sheets, April 30, 1998 and 1997
Statements of Cash Flows, Years Ended April 30, 1998, 1997 and 1996
Statements of Stockholders' Equity, Years Ended April 30, 1998, 1997
and 1996
Notes to Consolidated Financial Statements
Independent Auditors' Report
Selected Unaudited Quarterly Data, Years Ended April 30, 1998 and 1997
The following consolidated financial statement schedule of the
registrant and its subsidiaries is included in Item 14(a)(2):
Page
----
Consolidated Financial Statement Schedule
Independent Auditors' Report 20
II - Valuation and Qualifying Accounts 21
Schedules other than those listed above are omitted because they are
not required or are not applicable, the information required is immaterial
in relation to the registrant's consolidated financial statements, or the
required information is shown in the consolidated financial statements or
notes thereto. Columns omitted from schedules filed have been omitted
because the information is not applicable.
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
NCH Corporation:
Under date of May 26, 1998, we reported on the consolidated balance
sheets of NCH Corporation and subsidiaries as of April 30, 1998 and 1997,
and the related consolidated statements of income, stockholders' equity and
cash flows for each of the years in the three-year period ended April 30,
1998, as contained in the 1998 Annual Report to Shareholders. These
consolidated financial statements and our report thereon are incorporated
by reference in the annual report on Form 10-K for the year ended April
30, 1998. In connection with our audits of the aforementioned consolidated
financial statements, we also audited the related consolidated financial
statement schedule as listed in the accompanying index. This consolidated
financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this
consolidated financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set
forth therein.
/s/ KPMG Peat Marwick LLP
Dallas, Texas
May 26, 1998
NCH CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
Balance at Charged to Foreign Deductions-- Balance
Beginning Costs and Currency Accounts at End of
Description of Period Expenses Translation Written-Off Period
------------------------- --------- ---------- ----------- ----------- ---------
Reserves Deducted in the Balance
Sheet from Assets to Which They
Apply
Allowances for Doubtful Accounts
Year Ended April 30, 1998 $15,624 $5,483 $ (770) $4,684 $15,653
======= ====== ======= ====== =======
Year Ended April 30, 1997 $16,259 $6,939 $(1,311) $6,263 $15,624
======= ====== ======= ====== =======
Year Ended April 30, 1996 $16,879 $7,697 $ (284) $8,033 $16,259
======= ====== ======= ====== =======
INDEX TO EXHIBITS
-----------------
Exhibit Sequentially
Number Exhibit Numbered Page
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Exhibit 3.1 (1) Restated Certificate of Incorporation
Exhibit 3.2 (1) Bylaws, as amended
Exhibit 10.1 (1)(3) Form of 1980 Non-Qualified Stock Option
Plan, as amended
Exhibit 10.1.1 (2) Stock Purchase Agreement among Jackson
Acquisition, Inc., NCH Corporation,
American Allsafe Company and Silencio/
Safety Direct, Inc. dated as of
March 30, 1998
Exhibit 10.2 (1)(3) Form of Non-Qualified Stock Option
Agreement
Exhibit 10.5 (1)(3) Forms of Deferred Compensation
Agreements with Messrs. Irvin, Lester,
and Milton Levy
Exhibit 10.7 (3)(4) Fourth and Fifth Amendments to Deferred Compensation
Agreements with Messrs. Irvin, Lester,
and Milton Levy
Exhibit 10.8 (3)(5) Executive Committee Incentive Bonus Plan
Exhibit 10.9 (3)(6) Fourth, Fifth and Sixth Amendments to Deferred
Compensation Agreements with Messrs. Irvin, Lester,
and Milton Levy
Exhibit 13 (2) Annual Report for the year ended April 30, 1998
for information only and not filed
Exhibit 21 (2) Subsidiaries of the Registrant
Exhibit 23 (2) Independent Auditors' Consent
Exhibit 27 (2) Financial Data Schedule
Exhibit 99 (2) Definitive Proxy Statement regarding
the Company's 1998 Annual Meeting of
Stockholders
(1) Incorporated herein by reference to the exhibits with the same
exhibit number and designation in the Registrant's report on Form
10-K for the fiscal year ended April 30, 1987, filed with the
Securities and Exchange Commission.
(2) Filed herewith.
(3) Management contract or compensatory plan or arrangement required
to be filed as an exhibit to this report pursuant to Item 14(c)
of Form 10-K.
(4) Incorporated herein by reference to the exhibit with the same
exhibit number and designation in the Registrant's report on Form
10-K for the fiscal year ended April 30, 1995, filed with the
Securities and Exchange Commission.
(5) Incorporated herein by reference to the exhibit with the same
exhibit number and designation in the Registrant's report on Form
10-K for the fiscal year ended April 30, 1994, filed with the
Securities and Exchange Commission.
(6) Incorporated herein by reference to the exhibit with the same
exhibit number and designation in the Registrant's report on Form
10-K for the fiscal year ended April 30, 1997, filed with the
Securities and Exchange Commission.
NCH CORPORATION AND SUBSIDIARIES
EXHIBIT 10.1.1 STOCK PURCHASE AGREEMENT AMONG JACKSON ACQUISITION, INC.,
AMERICAN ALLSAFE COMPANY AND SILENCIO/SAFETY DIRECT, INC.
STOCK PURCHASE AGREEMENT
among
JACKSON ACQUISITION, INC.,
NCH CORPORATION,
AMERICAN ALLSAFE COMPANY
and
SILENCIO/SAFETY DIRECT, INC.
Dated as of March 30, 1998
TABLE OF CONTENTS
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SECTION PAGE
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ARTICLE I
DEFINITIONS
1.1. Definitions 1
ARTICLE II
PURCHASE AND SALE OF SHARES
2.1. Basic Transaction 7
2.2. Payment of Purchase Price 7
2.3. Deposit 7
2.4. The Closing 7
2.5. Closing Deliveries by Seller 7
2.6. Closing Deliveries by Buyer 8
2.7. Purchase Price Allocation 8
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
3.1. Organization of Seller 9
3.2. Authorization of Transaction 9
3.3. Noncontravention 9
3.4. Brokers' Fees 10
3.5. Shares 10
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANIES AND THE SELLER
4.1. Organization, Qualification, and Corporate Power 10
4.2. Capitalization 11
4.3. Noncontravention 11
4.4. Brokers= Fees 11
4.5. Title to Assets 12
4.6. Subsidiaries 12
4.7. Financial Statements 12
4.8. Events Subsequent to Latest Balance Sheet 12
4.9. Undisclosed Liabilities 14
4.10. Legal Compliance 14
4.11. SEC Compliance 14
4.12. Tax Matters 15
4.13. Real Property 17
4.14. Intellectual Property 19
4.15. Assets of the Companies 21
4.16. Inventory 22
4.17. Contracts 22
4.18. Notes and Accounts Receivable 24
4.19. Powers of Attorney 24
4.20. Insurance 24
4.21. Litigation 25
4.22. Product Warranty 25
4.23. Employees 26
4.24. Employee Benefits 26
4.25. Environmental Matters 28
4.26. Permits 30
4.27. No Conflict of Interest 30
4.28. Bank Accounts 31
4.29. Customers and Suppliers 31
4.30. Claims Against Officers and Directors 31
4.31. Improper and Other Payments 31
4.32. Accuracy of Statements 32
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE BUYER
5.1. Organization of the Buyer 32
5.2. Authorization of Transaction 32
5.3. Noncontravention 32
5.4. Brokers' Fees 33
5.5. Investment Purpose 33
5.6. Litigation 33
ARTICLE VI
COVENANTS
6.1. General 33
6.2. Operation of Business 33
6.3. Full Access 35
6.4. Exclusivity 35
6.5. Efforts 36
6.6. Maintenance of Insurance 36
6.7. Notice and Supplemental Information 36
6.8. Post-Closing Access and Cooperation 37
6.9. Consistent Tax Reporting 37
6.10. Section 338(h)(10) Election 37
6.11. Termination of Shareholder Agreements 38
6.12. Resignation of Officers and Directors 38
6.13. Interim Financial Statements 38
6.14. Transition 38
6.15. Confidentiality 38
6.16. Post-Closing Covenants 39
6.17. Transfer Taxes 39
6.18. Business Name 40
6.19. Noncompetition 40
6.20. Assumption and Termination of Certain Contracts 41
6.21. Employee Benefits 41
6.22. Title Insurance 42
6.23. Financial Condition at Closing 42
6.24. Foreign Trademarks 43
ARTICLE VII
CONDITIONS TO OBLIGATION OF BUYER
7.1. Warranties True as of Closing Date 43
7.2. Compliance with Covenants 43
7.3. Consents 43
7.4. Actions or Proceedings 43
7.5. Certificate 44
7.6. Opinion of Counsel 44
7.7. Resignations 44
7.8. Financing 44
7.9. Termination of Certain Agreements 44
7.10. Government Approvals 44
7.11. Collateral Agreements 44
7.12. Lamba Assets 44
7.13. Documents 44
7.14. FIRPTA Certificate 45
7.15. Assumption and Termination of Certain Contracts 45
7.16. Replatting and conveyance of Allsafe property 45
ARTICLE VIII
CONDITIONS TO OBLIGATION OF THE SELLER
8.1. Warranties True as of Closing 46
8.2. Compliance with Covenants 46
8.3. Actions or Proceedings 46
8.4. Certificate 46
8.5. Opinion of Counsel 46
8.6. Documents 46
8.7. Government Approvals 46
ARTICLE IX
SURVIVAL AND REMEDY; INDEMNIFICATION
9.1. Survival of Representations and Warranties 47
9.2. Indemnification by the Seller 47
9.3. Indemnification by the Buyer 48
9.4. Third-Party Claims 49
9.5. Other Indemnification Provisions 50
ARTICLE X
TAX MATTERS
10.1. Filing of Tax Returns and Payment of Taxes 51
10.2. Refunds of Taxes 51
10.3. Cooperation on Tax Matters 52
10.4. Certain Taxes 52
ARTICLE XI
TERMINATION
11.1. Termination of Agreement 53
11.2. Effect of Termination 53
ARTICLE XII
MISCELLANEOUS
12.1. Expenses 54
12.2. Press Releases and Public Announcements 54
12.3. No Third-Party Beneficiaries 54
12.4. Entire Agreement 54
12.5. Succession and Assignment 54
12.6. Counterparts 54
12.7. Headings 54
12.8. Notices 55
12.9. Governing Law 56
12.10. Amendments and Waivers 56
12.11. Severability 56
12.12. Construction 56
12.13. Incorporation of Exhibits, Annexes, and Schedules 56
12.14. Specific Performance 57
Exhibits
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Exhibit A - Form of Opinion of Counsel to the Seller
Exhibit B - Form of Opinion of Counsel to the Buyer
Exhibit C - Form of Transition Services Agreement
Exhibit D - Form of Easement (Driveway)
Exhibit E - Form of Easement (Turnaround)
Schedules
---------
Schedule 4.2 Capitalization
Schedule 4.4 Broker's Fee
Schedule 4.5 Title to Assets
Schedule 4.7 Financial Statements
Schedule 4.8 Events Subsequent to latest Balance Sheet
Schedule 4.10 Legal Compliance
Schedule 4.12 Tax Returns
Schedule 4.13(a) Owned Property
Schedule 4.13(b) Leased Property
Schedule 4.14(b) Intellectual Property Infringements
Schedule 4.14(c) Intellectual Property of the Companies
Schedule 4.14(d) Third Party Intellectual Property
Schedule 4.17 Contracts
Schedule 4.20 Insurance
Schedule 4.21 Litigation
Schedule 4.22 Warranties
Schedule 4.23 Employees
Schedule 4.24(a) Employee Benefits
Schedule 4.24(b) Plan Documents and Reports
Schedule 4.24(c) Compliance with Employee Benefit Laws
Schedule 4.25 Environmental Matters
Schedule 4.26 Permits
Schedule 4.28 Bank Accounts
Schedule 4.29 Customers and Suppliers
Schedule 6.2 Operation of Business
Schedule 6.18 Business Name
Schedule 6.24 Foreign Trademarks
Schedule 7.15 Assumption and Termination of Certain Contracts
Schedule 9.2(c) Seller Indemnification
Schedule 9.2(d) Buyer Assumed Claims with Certain Seller Liability
STOCK PURCHASE AGREEMENT
------------------------
THIS STOCK PURCHASE AGREEMENT, dated as of March 30, 1998, is by and among
Jackson Acquisition, Inc., a Delaware corporation (the "Buyer"), NCH
Corporation, a Delaware corporation (the "Seller"), American Allsafe
Company, a Texas corporation ("Allsafe"), and Silencio/Safety Direct,
Inc., a Nevada corporation ("Silencio" and, together with Allsafe, the
"Companies").
WHEREAS, the Seller owns all of the outstanding capital stock of the
Companies (the "Shares");
WHEREAS, the Buyer wishes to purchase the Shares from the Seller and the
Seller desires to sell to the Buyer all of the Shares;
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the parties agree as follows:
ARTICLE I
DEFINITIONS
SECTION I.1. Definitions. The following terms shall have the following
meanings for the purposes of this Agreement.
"Accounts Receivable" means the rights of the Companies to cash payment for
their sales and other amounts that would be classified as an account
receivable on the asset side of a consolidated balance sheet of either of
the Companies prepared in accordance with GAAP.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, fines,
costs, amounts paid in settlement, Liabilities, obligations, Taxes, liens,
losses, expenses, and fees, including court costs and attorneys' fees and
expenses.
"Affiliate" means, with respect to any specified Person, a Person that
directly or indirectly, through one or more intermediaries, controls or is
controlled by, or is under common control with, the Person specified.
"Affiliated Group" means any affiliated group within the meaning of Code
S1504(a) or any similar group defined under a similar provision of state,
local or foreign Law.
"Agreement" means this Stock Purchase Agreement, including all exhibits and
schedules hereto, as it may be amended from time to time.
"Authority" means any governmental, regulatory or administrative body,
agency, subdivision or authority, any court or judicial authority, any
public regulatory authority, whether foreign, national, federal, state or
local or otherwise, or any Person lawfully empowered by any of the
foregoing to enforce or seek compliance with any regulation.
"Business" means the safety products manufacturing business of the Seller,
which shall include, all of the inventory, sales and distributor
information, Intellectual Property and other intangibles (collectively,
the "Lamba Assets") of Lamba Systems U.K., a division of NCH U.K., Limited,
a corporation organized under the laws of the United Kingdom ("Lamba U.K.");
provided, however, that all Accounts Receivable of Lamba U.K. shall be
excluded from the Business and the definition of Lamba Assets.
"Buyer" has the meaning set forth in the preface above.
"Buyer Indemnified Parties" has the meaning set forth in Section 9.2. below.
"Closing" has the meaning set forth in Section 2.4 below.
"Closing Date" has the meaning set forth in Section 2.4 below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Companies" has the meaning set forth in the preface above.
"Company Indemnifying Party" has the meaning set forth in Section 9.2
below.
"Confidential Information" means any information concerning the businesses
and affairs of the Companies other than information which is (i) generally
available to the public through no fault of the disclosing party or (ii)
which the disclosing party knew or to which the disclosing party had
access prior to disclosure.
"Contract" means any contract, lease, commitment, understanding, sales
order, purchase order, agreement, indenture, mortgage, note, bond, right,
warrant, instrument, plan, permit or license, whether written or oral,
which is intended or purports to be binding and enforceable.
"Current Liabilities" shall mean any indebtedness or other obligation
coming due within one year that in either case would be classified as a
current liability on the liability side of a consolidated balance sheet of
either of the Companies in accordance with GAAP.
"Deposit Amount" means $295,000.
"Employee" has the meaning set forth in Section 4.23 below.
"Employee Benefit Plan" means any (a) nonqualified deferred compensation
or retirement plan or arrangement, (b) qualified defined contribution
retirement plan or arrangement which is an Employee Pension Benefit Plan,
(c) qualified defined benefit retirement plan or arrangement which is an
Employee Pension Benefit Plan (including any Multiemployer Plan), or (d)
Employee Welfare Benefit Plan or material fringe benefit or other
retirement, bonus, or incentive plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA S3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA S3(1).
"Encumbrances" means all liens, claims, easements, rights-of-way,
reservations, restrictions, encroachments, tenancies and any other
encumbrances of whatsoever kind, type or nature which affect the Owned
Property.
"Environmental Laws" means all Federal, state, and local statutes,
regulations, ordinances and other provisions having the force or effect of
law, all judicial and administrative orders and determinations, all
contractual obligations and all common law concerning public health and
safety, worker health and safety, and pollution or protection of the
environment, including without limitation all those relating to the
presence, use, production, generation, handling, transportation, treatment,
storage, disposal, distribution, labeling, testing, processing, discharge,
release, threatened release, control, or cleanup of any Hazardous
Substances, materials or wastes, chemical substances or mixtures,
pesticides, pollutants, contaminants, toxic chemicals, petroleum products
or byproducts, asbestos, polychlorinated biphenyls, noise or radiation,
each as amended and as now or hereafter in effect, including (but not
limited to) the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, the Superfund Amendments and Reauthorization Act of
1986, as amended, the Resource Conservation and Recovery Act of 1976,
as amended, the Toxic Substances Control Act of 1976, as amended, the
Federal Water Pollution Control Act Amendments of 1972, the Clean Water Act
of 1977, as amended, any so-called "Superlien" law, and any other similar
Federal, state or local statutes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Financial Statements" has the meaning set forth in Section 4.7 below.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"Hazardous Substance" means any material or substance which (i) constitutes
a hazardous substance, toxic substance or pollutant (as such terms are
defined by or pursuant to any Environmental Laws) or (ii) is regulated or
controlled as a hazardous substance, toxic substance, pollutant or other
regulated or controlled material, substance or matter pursuant to any
Environmental Laws.
"Indemnified Party" has the meaning set forth in Section 9.4 below.
"Indemnifying Party" has the meaning set forth in Section 9.4 below.
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements
thereto, and all patents, patent applications, and patent disclosures,
together with all reissuances, continuations, continuations-in-part,
revisions, extensions, and reexaminations thereof, (b) all trademarks,
service marks, trade dress, logos, trade names, and corporate names,
together with all translations, adaptations, derivations, and combinations
thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (c) all
copyrightable works, all copyrights, and all applications, registrations,
and renewals in connection therewith, (d) all trade secrets and
confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings,
specifications, customer and supplier lists, pricing and cost information,
and business and marketing plans and proposals), (e) all computer software
(including data and related documentation), (f) all other proprietary
rights, and (g) all copies and tangible embodiments thereof (in whatever
form or medium).
"Knowledge" means with respect to a specified party hereto, actual knowledge
of (i) the executive officers of such party and (ii) the officers and
employees of such party who have operational responsibility for the subject
matter associated with the relevant representation.
"Latest Balance Sheet" means the unaudited balance sheet of each of the
Companies dated as of January 31, 1998.
"Law" means any law, statute, regulation, ordinance, rule, order, decree,
judgment, consent decree, settlement agreement or governmental requirement
enacted, promulgated, entered into, agreed or imposed by any Authority.
"Liability" means any liability (whether asserted or unasserted, whether
absolute or contingent, whether accrued or unaccrued, whether liquidated
or unliquidated, and whether due or to become due), including any liability
for Taxes.
"Lien" means any mortgage, lien (except for any lien for Taxes not yet due
and payable), charge, restriction, pledge, security interest, option,
lease or sublease, claim, right of any third party, easement, encroachment
or encumbrance (other than, in each such case, any restriction on transfer
imposed pursuant to applicable securities laws).
"Material", "material" or "materially" means any circumstance or state of
facts which results in, or would reasonably be expected to result in the
expenditure or commitment of $150,000 or more.
"Material Adverse Effect" means any change or effect that would be, or
would reasonably be expected to be, materially adverse to the properties,
assets, condition (financial or otherwise), results of operations, or
business of a specified Person.
"Most Recent Financial Statements" has the meaning set forth in Section
4.7 below.
"Most Recent Fiscal Month End" has the meaning set forth in Section 4.7
below.
"Most Recent Fiscal Year End" has the meaning set forth in Section 4.7
below.
"Multiemployer Plan" has the meaning set forth in ERISA S3(37).
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to
quantity and frequency).
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permits" has the meaning set forth in Section 4.26 below.
"Permitted Encumbrances" means and shall include:
(a) all Encumbrances reflected on the Title Commitment approved by the
Buyer: and
(b) liens and other encumbrances created by Buyer.
"Person" means an individual, a partnership, a corporation, an association,
a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or
political subdivision thereof).
"Purchase Price" means $29,500,000.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Seller Affiliate" means Seller and any other person which is directly or
indirectly controlled by Seller. A person shall be deemed to be
"controlled by" Seller if Seller possesses, directly or indirectly, (i) the
power to vote 50% or more of the securities (on a fully diluted basis)
having ordinary voting power for the election of directors or managing
general partners, or (ii) power to direct or cause the direction of the
management and policies or such person by Contract or otherwise.
"Seller" has the meaning set forth in the preface above.
"Shares" means all shares of capital stock of the Companies held of record
by the Seller.
"Subsequent Monthly Financial Statements" has the meaning set forth in
Section 6.13 below.
"Subsidiary" of a specified Person means any corporation, partnership,
limited liability company, joint venture or other legal entity of which
the specified Person (either alone or through or together with any other
subsidiary) owns, directly or indirectly, 50% or more of the stock or other
equity interest or partnership interest the holders of which are generally
entitled to vote for the election of the board of directors or other
governing body of such corporation or other legal entity.
"Tax" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code S59A), customs
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property,
sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any
interest, penalty, or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule
or attachment thereto, and including any amendment thereof.
"Terminated Contracts" has the meaning set forth in Section 7.15 below.
"Third Party Claim" has the meaning set forth in Section 9.4 below.
"Title Commitment" means a commitment for an owner's policy of title
insurance with respect to the Owned Property issued by the Title Company,
on the most recent form promulgated by ALTA, setting forth the status of
the title of the Owned Property and showing all Encumbrances and other
matters relating to the Owned Property.
"Title Company" means reputable title insurance company reasonably
acceptable to Seller and Buyer.
"Title Policy" means an owner's policy of title insurance with respect to
the Owned Property on the most recent form promulgated by ALTA, issued by
the Title Company, which policy shall initially be in the amount as
determined in Section 6.22 of this Agreement subject only to the
Permitted Encumbrances.
"Working Capital" has the meaning set forth in Section 6.23(a) below.
ARTICLE II
PURCHASE AND SALE OF SHARES
SECTION II.1. Basic Transaction. On and subject to the terms and
conditions of this Agreement, the Buyer agrees to purchase from the Seller,
and the Seller agrees to sell, or cause to be sold, to the Buyer, all of
the Shares for the consideration specified herein.
SECTION II.2. Payment of Purchase Price. On the Closing Date, in
consideration for the Shares, the Buyer shall pay to the Seller an amount
equal to the Purchase Price less the Deposit Amount (the "Net Purchase
Price"). The Net Purchase Price shall be paid to the Seller by means of
wire transfer of immediately available funds to an account or accounts
designated by the Seller.
SECTION II.3. Deposit. Upon the execution and delivery of this Agreement,
the Buyer shall present to the Seller the Deposit Amount, which shall be
placed in an escrow account and shall be released to the Seller (i) in the
event the Closing occurs on or prior to April 30, 1998 on the Closing Date
or (ii) in the event that the Buyer fails to purchase the Shares on or
prior to April 30, 1998, other than as a result of the failure of the
Seller or the Company, as the case may be, to meet any of the closing
conditions expressly set forth in Section 7.1, 7.2, 7.3, 7.4, 7.5, 7.6,
7.7, 7.9, 7.10, 7.11 or 7.14, on April 30, 1998.
SECTION II.4. The Closing. The closing of the transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of Mayer,
Brown & Platt, 1675 Broadway, New York, NY 10019, commencing at 10:00
a.m. local time on the earlier of (i) April 15, 1998, (ii) five (5)
business days following the satisfaction or waiver of all conditions to the
obligations of the parties to consummate the transactions contemplated
hereby (other than conditions with respect to actions the respective
parties will take at the Closing itself) or (iii) such other date as the
parties may mutually determine, but in no event later than April 30, 1998
(the "Closing Date").
SECTION II.5. Closing Deliveries by Seller. To effect the transfer
referred to in Section 2.1 hereof and the delivery of the consideration
described in Section 2.2 hereof, the Seller shall, on the Closing Date,
deliver the following:
(a) Seller shall cause to be delivered to Buyer certificates evidencing the
Shares, free and clear of any and all Liens, duly endorsed in blank for
transfer or accompanied by stock powers duly executed in blank;
(b) Seller shall have delivered to Buyer all consents, approvals, releases
and waivers from governmental Authorities and other third parties required
or necessary as a result of the transactions contemplated hereby, reasonably
satisfactory in form and substance to Buyer and its counsel;
(c) Seller shall have delivered all other documents required to be
delivered pursuant to Article VII hereof not specifically mentioned above
in this Section 2.5 ; and
(d) Seller shall have delivered two executed counterparts of access
easements substantially in the form as set forth on Exhibits D and E;
(e) All instruments and documents executed and delivered to Buyer pursuant
hereto shall be in form and substance, and shall be executed in a manner,
reasonably satisfactory to Buyer and its counsel.
SECTION II.6. Closing Deliveries by Buyer. To effect the transfer referred
to in Section 2.1 hereof and the delivery of the consideration described in
Section 2.2 hereof, the Buyer shall, on the Closing Date, deliver the
following:
(a) Buyer shall have tendered to Seller the Net Purchase Price by wire
transfer of immediately available funds to such account or accounts of which
Seller shall have given notice to Buyer hereunder not later than two (2)
business days prior to the Closing Date;
(b) Buyer shall have delivered two executed counterparts of access
easements substantially in the form as set forth on Exhibits D and E.
(c) Buyer shall have released the Deposit Amount from the escrow account
to the Seller;
(d) Buyer shall have tendered all other documents required to be delivered
pursuant to Article VIII hereof not specifically mentioned above in this
Section 2.6; and
(e) All instruments and documents executed and delivered to Seller pursuant
hereto shall be in form and substance, and shall be executed in a manner,
reasonably satisfactory to Seller and its counsel.
SECTION II.7. Purchase Price Allocation. The Purchase Price for the Shares
(including assumed liabilities of the Companies) shall be allocated among
the assets of each of the Companies as mutually agreed by Buyer and Seller
within 60 days after the Closing Date. In the event the Buyer and Seller
fail to agree to a purchase price allocation within 60 days of the Closing
Date, they shall submit their respective allocation to a nationally
recognized mutually acceptable independent accounting firm, which shall
make an allocation binding upon both parties within 30 days of its
engagement. Each of the Buyer and Seller shall bear 50% of the costs of
such independent allocation. Following the consummation of the transactions
contemplated by this Agreement, Buyer and Seller in connection with their
respective U.S. Federal, state and local income Tax Returns shall not take
any position inconsistent with such allocation (or any adjustment to such
allocations). Any adjustment to the Purchase Price (or the assumed
liabilities of the Companies) shall be allocated among the assets of each
of the Companies in accordance with Temp. Treas. Reg. S 1.338(b)-3T(d) or
Temp. Treas. Reg. S 1.338(b)-3T(e), whichever is applicable.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to the Buyer that the statements
contained in this Article III are correct and complete as of the date of
this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the
date of this Agreement throughout this Article III) with respect to itself.
All information set forth in the Schedules shall be deemed by this reference
to be set forth in all such other Schedules delivered under this Article
III. Without limiting the generality of the foregoing, the mere listing
(or inclusion of a copy) of a document or other item shall not be deemed
adequate to disclose an exception to a representation or warranty made
herein (unless the representation or warranty has to do with the
existence of the document or other item itself).
SECTION III.1. Organization of Seller. Seller is duly organized, validly
existing and in good standing under the laws of the State of Delaware.
SECTION III.2. Authorization of Transaction. Seller has the requisite
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder. This Agreement constitutes the valid and
legally binding obligation of the Seller (assuming due authorization,
execution and delivery hereof by the Buyer), enforceable in accordance with
its terms and conditions, except as the same may be limited by applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally and by
general principles of equity (regardless of whether enforcement is sought
in a proceeding at law or equity).
SECTION III.3. Noncontravention. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated
hereby, will (A) violate any constitution, Law, injunction, ruling, charge,
or other restriction of any Authority to which the Seller is subject, (B)
violate any provision of the certificate of incorporation or bylaws of the
Seller or (C) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
Contract, lease, license, instrument, or other arrangement to which the
Seller is a party or by which it is bound or to which any of its assets
are subject, except for any violations or conflicts that, individually or
in the aggregate, would not be material to the Companies (taken as a whole),
impair the ability of the Seller to perform its obligations under this
Agreement or prevent the consummation of any of the transactions
contemplated hereby.
SECTION III.4. Brokers' Fees. The Seller has no Liability or obligation
to pay any fees or commissions to any broker, finder, or agent with respect
to the transactions contemplated by this Agreement for which the Buyer
could become liable or obligated.
SECTION III.5. Shares. The Seller holds of record and owns beneficially
all of the Shares, free and clear of any restrictions on transfer (other
than any restrictions under the Securities Act and state securities Laws),
Taxes, Liens, options, warrants, purchase rights, Contracts, commitments,
equities, claims, or demands. The Seller is not a party to any option,
warrant, purchase right, or other Contract or commitment that could require
the Seller to sell, transfer, or otherwise dispose of any Shares (other
than this Agreement). The Seller is not a party to any voting trust,
proxy, or other agreement or understanding with respect to the voting of
any of the Shares.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANIES AND THE SELLER
Each of the Companies and the Seller, jointly and severally hereby
represents and warrants to the Buyer that the statements contained in this
Article IV are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then
and as though the Closing Date were substituted for the date of this
Agreement throughout this Article IV), except as set forth in the Schedules
hereto. All information set forth in the Schedules shall be deemed by this
reference to be set forth in all such other Schedules delivered under this
Article IV, An item disclosed in any Schedule shall be deemed disclosed
for purposes of all Schedules. Without limiting the generality of the
foregoing, the mere listing (or inclusion of a copy) of a document or other
item shall not be deemed adequate to disclose an exception to a
representation or warranty made herein (unless the representation or
warranty has to do with the existence of the document or other item itself).
SECTION IV.1. Organization, Qualification, and Corporate Power. Each of
the Companies is a corporation duly organized, validly existing, and in
good standing under the Laws of its jurisdiction of incorporation. Each
of the Companies is duly authorized to conduct business and is in good
standing under the Laws of each jurisdiction where such qualification is
required, except where the failure to be so qualified or be in good
standing would not be material to the Companies (taken as a whole). Each of
the Companies has full corporate power and authority and all licenses,
Permits, and authorizations necessary to carry on the business in which it
is engaged and to own and use the properties owned and used by it, except
where the failure to have such power and authority and hold such licenses,
Permits and authorizations would not be material to the Companies (taken as
a whole). The Seller has delivered to the Buyer correct and complete
copies of the articles of incorporation and bylaws of each of the Companies
(as amended to date). The minute books (containing the records of meetings
of the stockholders, the board of directors, and any committees of the
board of directors), the stock certificate books, and the stock record
books of each of the Companies are correct and complete in all material
respects. None of the Companies is, in any material respect, in default
under or in violation of any provision of its articles of incorporation or
bylaws.
SECTION IV.2. Capitalization.
(a) The entire authorized capital stock of each of the Companies is set
forth on Schedule 4.2. All of the issued and outstanding Shares have been
duly authorized, are validly issued, fully paid, and nonassessable, and are
held of record by the Seller. There are no outstanding or authorized
options, warrants, purchase rights, subscription rights, conversion rights,
exchange rights, or other Contracts or commitments that could require any
of the Companies to issue, sell, or otherwise cause to become outstanding
any of the Shares. There are no outstanding or authorized stock
appreciation, phantom stock, profit participation, or similar rights with
respect to the Shares. There are no voting trusts, proxies, or other
agreements or understandings with respect to the voting of the Shares.
(b) The assignments, endorsements, stock powers and other instruments of
transfer delivered by the Seller to Buyer at the Closing will be sufficient
to transfer the Seller's entire interest, legal and beneficial, in the
Shares. The Seller has full power and authority to convey good and
marketable title to all of the Shares, and upon transfer to Buyer of the
certificates representing such Shares, Buyer will receive good and
marketable title to such Shares, free and clear of all Liens.
SECTION IV.3. Noncontravention. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated
hereby, will (i) violate any constitution, Law, injunction, ruling, charge,
or other restriction of any Authority to which any of the Companies or
Lamba U.K. is subject or any provision of the articles of incorporation or
bylaws of any of the Companies or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify, or cancel, or require any
notice under any material Contract, lease, license, instrument, or other
arrangement to which any of the Companies or Lamba U.K. is a party or by
which it is bound or to which any of its assets is subject (or result in
the imposition of any Lien upon any of its assets). Except for filings
under the Hart-Scott-Rodino Act, neither the Seller nor any of the Companies
needs to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any Authority in order for the
parties to consummate the transactions contemplated by this Agreement,
except for such consents, approvals, orders, authorizations, registrations,
declarations, filings, notices or Permits the failure of which to be
obtained or made would not be material to the Companies (taken as a whole),
impair the ability of the Seller or any of the Companies to perform their
respective obligations under this Agreement or prevent the consummation of
any of the transactions contemplated thereby.
SECTION IV.4. Brokers' Fees. Except as set forth on Schedule 4.4, neither
the Seller nor any of the Companies has any Liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement.
SECTION IV.5. Title to Assets. Except as set forth on Schedule 4.5 hereto,
each of the Companies has good and marketable title to, or a valid
leasehold or license interest in, the properties and assets used by it,
located on its premises, or shown on the Latest Balance Sheet or acquired
after the date thereof and that are material to the Companies (taken as a
whole), free and clear of all Liens, except for (i) properties and assets
disposed of in the Ordinary Course of Business since the date of the Latest
Balance Sheet and (ii) Liens that, individually or in the aggregate, are not
material to the Companies, taken as a whole.
SECTION IV.6. Subsidiaries. None of the Companies has any direct or
indirect Subsidiaries, either wholly or partially owned, and none of the
Companies holds any direct or indirect economic, voting or management
interest in any Person or owns any securities issued by any Person.
SECTION IV.7. Financial Statements. Attached hereto as Schedule 4.7 are
the following financial statements (collectively the "Financial
Statements"): (i) audited consolidated balance sheets and statements of
income (including all notes thereto) as of and for the fiscal year ended
April 30, 1997 (the "Most Recent Fiscal Year End") for each of the
Companies; (ii) unaudited consolidated balance sheets and statements of
income (including all notes thereto) as of and for the fiscal year ended
April 30, 1995 and 1996; and (iii) unaudited consolidated balance sheets
and statements of income (including all notes thereto) (the "Most Recent
Financial Statements") as of and for the 9 months ended January 31, 1998
(the "Most Recent Fiscal Month End") for each of the Companies. The
Financial Statements (including the notes thereto) have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby and present fairly the financial condition of each of the
Companies as of such dates and the results of operations of each of the
Companies for such periods. The Seller maintains a separate cash account
for each of the Companies (into which the Seller deposits all of the
receipts of the Business and out of which the Seller makes all of the
disbursements of the Business).
SECTION IV.8. Events Subsequent to Latest Balance Sheet. Except as set
forth on Schedule 4.8 hereto, since the date of the Latest Balance Sheet,
there has not been any adverse change in the business, financial condition,
operations or results of operations of any of the Companies (taken as
whole), that, individually or together with other similar events, could
reasonably be expected to constitute or cause a Material Adverse Effect on
the Companies, taken as a whole. Without limiting the generality of the
foregoing, since that date:
(a) none of the Companies has sold, leased, transferred, or assigned any
of its material assets, tangible or intangible, other than in the Ordinary
Course of Business;
(b) except purchase orders and sales contracts entered into in the Ordinary
Course of Business, none of the Companies has entered into any Contract (or
series of related Contracts) involving more than $150,000;
(c) no party (including any of the Companies) has accelerated, terminated,
modified, or canceled any material Contract (or series of related Contracts)
to which any of the Companies is a party or by which any of the Companies is
bound;
(d) except in the Ordinary Course of Business, none of the Companies has
imposed any Lien upon any of its assets, tangible or intangible;
(e) except in accordance with the capital expenditure budget provided to
the Buyer and as set forth on Schedule 4.8, none of the Companies has made
any capital expenditure (or series of related capital expenditures) in an
amount in excess of $150,000 either individually or in the aggregate;
(f) except in accordance with the capital expenditure budget provided to
the Buyer and as set forth on Schedule 4.8, none of the Companies has made
any capital investment in, any loan to, or any acquisition of the
securities or assets, except in the Ordinary Course of Business (such as,
without limitation, the purchase of inventory and supplies), of, any other
Person (or series of related capital investments, loans, and acquisitions);
(g) none of the Companies has issued any note, bond, or other debt security
or created, incurred, assumed, or guaranteed any indebtedness for borrowed
money or capitalized lease obligation involving more than $150,000 either
individually or in the aggregate;
(h) none of the Companies has delayed or postponed the payment of any
material accounts payable or other Liabilities outside the Ordinary Course
of Business;
(i) none of the Companies has canceled, compromised, waived, or released
any right or claim (or series of related rights and claims) either
involving more than $150,000 or outside the Ordinary Course of Business;
(j) none of the Companies has granted any license or sublicense of any
rights under or with respect to any Intellectual Property;
(k) there has been no change made or authorized in the articles of
incorporation or bylaws of any of the Companies;
(l) none of the Companies has issued, sold, or otherwise disposed any of
its capital stock, or granted any options, warrants, or other rights to
purchase or obtain (including upon conversion, exchange, or exercise) any
of its capital stock;
(m) none of the Companies has declared, set aside, or paid any dividend
or made any distribution with respect to its capital stock (whether in cash
or in kind) or redeemed, purchased, or otherwise acquired any of its capital
stock, or otherwise made any payments or dispositions of the Companies' cash
outside of the Ordinary Course of Business; provided, that Seller shall be
entitled to withdraw substantially all monies from the Companies' cash
accounts immediately prior to the Closing Date.
(n) none of the Companies has experienced any damage, destruction, or loss
(whether or not covered by insurance) to its property that is material to
the Companies (taken as a whole);
(o) except as identified on Schedule 4.8, none of the Companies has made
any loan to, or entered into any other transaction with, any of its
directors, officers, employees or Affiliates;
(p) other than in the Ordinary Course of Business, none of the Companies
has entered into any employment Contract or collective bargaining agreement
or modified the terms of any existing such Contract or agreement;
(q) other than in the Ordinary Course of Business, none of the Companies
has granted any increase in the base compensation of any of its directors
or officers, or made any other change in employment terms for any of its
directors, officers, and employees or, except for wage and salary increases
made in the Ordinary Course of Business, increased the compensation of any
other employee of any of the Companies;
(r) none of the Companies has adopted, amended, modified, or terminated
any bonus, profit-sharing, incentive, severance, or other plan, Contract,
or commitment for the benefit of any of its directors or officers (or
taken any such action with respect to any other Employee Benefit Plan);
(s) none of the Companies has made or pledged to make any charitable or
other capital contribution outside the Ordinary Course of Business; and
(t) none of the Companies has committed to any of the foregoing.
SECTION IV.9. Undisclosed Liabilities. None of the Companies has any
material Liability (and, to the Knowledge of the Companies and the Sellers,
there is no basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand against any of
the Companies giving rise to any material Liability), except for (i)
Liabilities which are reflected, reserved or disclosed in the Latest
Balance Sheet and (ii) Liabilities which have arisen after the date of
the Latest Balance Sheet in the Ordinary Course of Business.
SECTION IV.10. Legal Compliance. Except as set forth on Schedule 4.10,
each of the Companies and their respective predecessors and Affiliates have
complied in all material respects with all applicable Laws, and no action,
suit, proceeding, hearing, investigation, charge, complaint, claim, demand,
or notice has been filed or commenced against any of them alleging any
failure to so comply.
SECTION IV.11. SEC Compliance. The Seller and the Companies have complied
with all applicable provisions of the Securities Act and the Securities
Exchange Act and with all SEC regulations and have filed and registered
all forms, agreements, securities and documents required by Law and by the
regulations promulgated by the SEC, including, but not limited to, all
required registration statements, proxy statements, annual and quarterly
reports and all other necessary filings except to the extent such failure
to comply would not be material to the Companies (taken as a whole). To
the Knowledge of the Companies and the Seller, no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has
been filed or commenced against any of them alleging any failure so to
comply.
SECTION IV.12. Tax Matters.
(a) Each of the Companies has duly and timely filed (taking into account
all valid extensions of filing dates) all Tax Returns that it has been
required to file for all periods through and including the Closing Date.
All such Tax Returns were correct and complete in all material respects.
All material Taxes owed by any of the Companies (whether or not shown on
any Tax Return) have been timely paid, except for Taxes being contested
in good faith by appropriate proceedings and for which adequate reserves
have been established in accordance with GAAP. None of the Companies
currently is the beneficiary of any extension of time within which to file
any Tax Return. Each of the Companies has maintained an adequate provision
for, and adequate funds to pay Taxes payable for such Company as of January
31, 1998, and such provision and funds (as adjusted for the passage of time
through the Closing Date in accordance with the past custom and practices
of each of the Companies in filing their respective Tax Returns) will be
adequate for Taxes payable by such Company as of the Closing Date. No
claim has ever been made by an Authority in a jurisdiction where any Company
does not pay Taxes or file Tax Returns that it is or may be subject to
taxation by that jurisdiction. There are no Liens on any of the assets of
any of the Companies that arose in connection with any failure (or alleged
failure) to pay any Tax.
(b) Except as set forth on Schedule 4.12, none of the Tax Returns that
include the operations of the Companies has ever been audited or
investigated by any taxing Authority, and, to the Knowledge of the
Companies and the Seller no fact exists which would constitute grounds for
the assessment of any additional material Taxes by any taxing Authority with
respect to the taxable years covered in such Tax Returns. To the Knowledge
of the Companies and the Seller, no issues have been raised in any
examination by any taxing Authority with respect to the businesses and
operations of the Companies which, by application of similar principals,
reasonably could be expected to result in a proposed adjustment to the
Liability for material Taxes for any other period not so examined. To
the Knowledge of the Company and the Seller, neither the Companies nor
the Seller has received, or expects to receive, from any taxing Authority
any written notice of a proposed adjustment, deficiency, underpayment of
Taxes or any other such notice which has not been satisfied by payment or
been withdrawn, and no claims have been asserted relating to such Taxes
against the Companies.
(c) Schedule 4.12 lists all federal, state, local, and foreign income Tax
Returns filed with respect to each of the Companies for taxable periods for
which the applicable statute of limitations has not expired. The Seller has
delivered to the Buyer correct and complete copies of all federal, state,
local and foreign income Tax Returns, examination reports, and statements
of deficiencies assessed against or agreed to by each of the Companies for
taxable periods for which the applicable statue of limitations has not
expired. None of the Companies has waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(d) To the Knowledge of the Companies and the Seller, neither the Seller
nor any of the Companies (i) expects any Authority to assess any material
additional Taxes for any period for which Tax Returns have been filed or
has received from any taxing Authority any written notice of a proposed
adjustment, deficiency, underpayment of Taxes or any other such notice
which has not been satisfied by payment or been withdrawn, and no claims
have been asserted relating to such Taxes against any of the Companies.
(e) Each of the Companies has withheld and paid all material Taxes
required to have been withheld and paid in connection with amounts paid or
owing to any employee, independent Contractor, creditor, stockholder, or
other third party.
(f) None of the Companies has filed a consent to the application of
Section 341(f) of the Code.
(g) None of the Companies will be required, as a result of (i) a change
in accounting method for a Tax period beginning on or before the Closing
Date, to include any adjustment under Section 481(c) of the Code (or any
corresponding provision of state, local or foreign Tax Law) in taxable
income for any Tax period beginning on or after the Closing Date, or (ii)
any "closing agreement," as described in Section 7121 of the Code (or
any corresponding provision of state, local or foreign Tax Law), to
include any item of income in or exclude any item of deduction from any
Tax period beginning on or after the Closing Date.
(h) None of the Companies has made any payments, is obligated to make
any payments or is a party to any agreement that under certain circumstances
could obligate it to make any "excess parachute payment" as defined in
Section 280G of the Code (without regard to subsection (b)(4) thereof) any
payments that will not be deductible under Section 280G or Section 162(m)
of the Code.
(i) None of the Companies has been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(j) None of the Companies is a party to any Tax allocation or sharing
agreement. None of the Companies is subject to any joint venture,
partnership or other arrangement or Contract which is treated as a
partnership for federal income Tax purposes.
(k) None of the assets of the Companies constitutes tax-exempt bond
financed property or tax-exempt use property within the meaning of
Section 168 of the Code, and none of the assets reflected on the
Financial Statements is subject to a lease, safe harbor lease or other
arrangement as a result of which none of the Companies is treated as
the owner for federal income Tax purposes.
(l) Seller is not a "foreign person" as defined in Section 1445(f)(3)
of the Code.
(m) Except as set forth on Schedule 4.12, none of the Companies (A) has
been a member of an Affiliated Group filing a consolidated federal income
Tax Return or (B) has any Liability for the Taxes of any Person (other
than the Company) under Treas. Reg. S1.1502-6 (or any similar provision of
state, local, or foreign Law), as a transferee or successor, by Contract,
or otherwise.
SECTION IV.13. Real Property.
(a) Schedule 4.13(a) lists and describes briefly all real property that
each of the Companies owns (the "Owned Property"). Except as set forth on
Schedule 4.13(a) with respect to each such parcel of Owned Property:
(i) the identified owner has good and marketable title to the parcel of
Owned Property, free and clear of all Liens, easements, covenants, or other
restrictions, except for installments of special assessments of real estate
Taxes not yet delinquent and recorded easements, covenants, and other
restrictions which do not impair the current use, occupancy, or value, or
the marketability of title, of the property subject thereto; other than
Liens, easements, covenants, or other restrictions that would not be
material to the Companies (taken as a whole);
(ii) there are no pending or, to the Knowledge of the Companies and the
Seller, threatened condemnation proceedings, lawsuits, or administrative
actions relating to the property which are reasonably likely to have a
Material Adverse Effect on the current use, occupancy or value thereof;
(iii) To the Knowledge of the Seller and the Companies, all facilities
have received all approvals of governmental Authorities (including licenses
and Permits) required in connection with the ownership or operation thereof
except where the failure to obtain such approvals would not be material to
the Companies (taken as a whole) and have been operated and maintained in
accordance with applicable Laws, rules, and regulations in all material
respects;
(iv) there are no material leases, subleases, licenses, concessions, or
other Contracts granting to any party or parties the right of use or
occupancy of any portion of the parcel of Owned Property;
(v) there are no outstanding unrecorded options or rights of first refusal
to purchase any Owned Property, or any portion thereof or interest therein;
(vi) there are no parties (other than the Companies and the Seller) in
possession of any Owned Property; and
(vii) all facilities located on the parcels of Owned Property are supplied
with utilities and other services necessary for the current operation of
such facilities in the Ordinary Course of Business, including gas,
electricity, water, telephone, sanitary sewer, and storm sewer;
(b) Schedule 4.13(b) lists and describes briefly all real property
leased or subleased to each of the Companies providing for lease or other
payments thereunder in excess of $150,000 per annum (the "Leased
Property"). The Seller has delivered to the Buyer correct and complete
copies of the leases and subleases and other agreements for occupancy,
including all amendments, extensions and other modifications thereto
("Leases") with respect to each Leased Property, as listed in Schedule
4.13(b) (as amended to date). Except as set forth on Schedule 4.13(b),
with respect to each Lease:
(i) the Lease is legal, valid, binding, enforceable against the Seller or
the Companies (as applicable), and in full force and effect, except as the
same may be limited by applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally and by general principles of
equity (regardless of whether enforcement is sought in a proceeding at law
or equity);
(ii) the Lease will be legal, valid, binding, enforceable, and in full
force and effect on identical terms immediately following the consummation
of the transactions contemplated hereby;
(iii) no party to the Lease is in breach or default in any material
respect, and to the Knowledge of the Companies and the Seller, no event
has occurred which, with notice or lapse of time, would constitute a breach
or default or permit termination, modification, or acceleration thereunder;
(iv) no party to the Lease has repudiated any material provision thereof;
(v) there are no material disputes, oral agreements, or forbearance
programs in effect as to the Lease;
(vi) none of the Companies has assigned, transferred, conveyed, mortgaged,
deeded in trust, or encumbered in any material respect any interest in the
leasehold or subleasehold;
(vii) all facilities leased or subleased thereunder have received all
material approvals of governmental Authorities (including licenses and
permits) required in connection with the operation thereof ; and
(viii) all facilities leased or subleased thereunder are supplied with
utilities and other services necessary for the operation of said facilities
in the Ordinary Course of Business.
SECTION IV.14. Intellectual Property.
(a) Each of the Companies owns or has the right to use pursuant to Contract
all Intellectual Property necessary for the operation of the Business as
presently conducted and proposed to be conducted. Each such item of
Intellectual Property owned or used by each of the Companies immediately
prior to the Closing hereunder will be owned or available for use by such
Company on identical terms and conditions immediately subsequent to the
Closing hereunder. Each of the Companies has taken all necessary action to
maintain and protect each item of Intellectual Property that it owns or
uses, except where the failure to take such action would not be material to
the Companies (taken as a whole).
(b) Except as disclosed on Schedule 4.14(b), none of the Companies has
interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any Intellectual Property rights of third parties in any
material respect, and the Companies and the Seller have no Knowledge of any
charge, complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim that any
of the Companies must license or refrain from using any Intellectual
Property rights of any third party), except for such interference,
infringements, misappropriations, conflicts, charges, complaints, claims,
demands and notices that would not be material to the Companies (taken as a
whole). Except as disclosed on Schedule 4.14(b), to the Knowledge of the
Companies and the Seller, no third party has interfered with, infringed
upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of any of the Companies.
(c) Schedule 4.14(c) identifies each patent or registration which has
been issued to each of the Companies with respect to any of its
Intellectual Property, identifies each pending patent application or
application for registration which each of the Companies has made with
respect to any of its Intellectual Property, and identifies each Contract
which each of the Companies has granted to any third party with respect
to any of its Intellectual Property (together with any exceptions). The
Seller has delivered to the Buyer correct and complete copies of all such
patents, registrations, applications and Contracts (as amended to date) and
has made available to the Buyer correct and complete copies of all other
written documentation evidencing ownership and prosecution (if applicable)
of each such item. Schedule 4.14(c) also identifies each trade name or
unregistered trademark used by each of the Companies in connection with the
Business. Schedule 4.14(c) also identifies each material software program
owned by the Companies, and the Seller has delivered to the Buyer all source
and object code and documentation for or relating to such software programs.
Except as disclosed on Schedule 4.14(c), with respect to each item of
Intellectual Property required to be identified in Schedule 4.14(c):
(i) each of the Companies possesses all right, title, and interest in and
to the item, free and clear of any Lien, license, or other restriction,
except for such other Liens, licenses or other restrictions that would not
be material to the Companies (taken as a whole);
(ii) the item is not subject to any outstanding injunction, judgment,
order, decree, ruling, or charge;
(iii) no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand is pending or, to the Knowledge of the
Companies and the Seller, is threatened which challenges the legality,
validity, enforceability, use, or ownership of the item; and
(iv) none of the Companies has ever agreed to indemnify any Person for
or against any interference, infringement, misappropriation, or other
conflict with respect to the item.
(v) the Seller has not abandoned any of the U.S. registered trademarks
set forth on Schedule 4.14(c).
(d) Schedule 4.14(d) identifies each material item of Intellectual
Property that any third party owns and that each of the Companies uses
pursuant to any Contract. The Seller has delivered to the Buyer correct
and complete copies of all such Contracts (as amended to date). Schedule
4.14(d) also identifies each material Contract providing for support or
maintenance of software used by the Companies. Except as set forth on
Schedule 4.14(d), with respect to each item of Intellectual Property
required to be identified in Schedule 4.14(d):
(i) the Contract covering the item is legal, valid, binding, enforceable,
and in full force and effect, except as the same may be limited by
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies
generally and by general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or equity);
(ii) the Contract will be legal, valid, binding, enforceable, and in
full force and effect on identical terms immediately following the
consummation of the transactions contemplated hereby;
(iii) no party to the Contract is in breach or default in any material
respect, and to the Knowledge of the Companies and the Seller, no event
has occurred which with notice or lapse of time would constitute a breach
or default or permit termination, modification, or acceleration thereunder;
(iv) no party to the Contract has repudiated any material provision of
such Contract;
(v) to the Knowledge of the Companies and the Seller, the underlying item
of Intellectual Property is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge that would be material to the
Companies (taken as a whole);
(vi) no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand is pending or, to the Knowledge of the
Companies and the Seller, is threatened, which challenges the legality,
validity, or enforceability of the underlying item of Intellectual
Property; and
(vii) none of the Companies has granted any sublicense or similar
right with respect to the Contract.
(e) To the Knowledge of the Companies and the Seller and except as set
forth on Schedule 4.14(b), none of the Companies will interfere with,
infringe upon, misappropriate, or otherwise come into conflict with, any
Intellectual Property rights of third parties (including but not limited
to the failure of Silencio to obtain the requisite permission or license
for the use of trademarks and service marks from any third party) as a
result of the continued operation of its Business as presently conducted,
except for such interference, infringements, misappropriations or conflicts
that would not be material to the Companies (taken as a whole).
(f) None of the Companies and the Seller have any Knowledge of any new
products, inventions, procedures, or methods of manufacturing or processing
that any competitors or other third parties have developed which would
reasonably be expected to supersede or make obsolete any product or process
of any of the Companies.
(g) The Companies have (i) undertaken a review and assessment of all
areas within their business and operations that could be materially
adversely affected by the "Year 2000 Problem" (that is, the risk that
computer applications used by the Companies may be unable to recognize and
properly perform date-sensitive functions involving dates prior to and any
date after December 31, 1999), (ii) developed a plan and time line for
addressing the Year 2000 Problem on a timely basis, and (iii) to date,
implemented that plan in accordance with that timetable. The Companies
reasonably anticipate that all computer applications that are material to
the Companies' business and operations will on a timely basis be able to
record, store, process, manage, specify or print dates falling on or after
January 1, 2000 substantially in the same manner, and with substantially
the same functionality, accuracy, data integrity and performance as such
computer applications record, store, process, manage, specify and print
dates falling on or before December 31, 1999 (that is, be "Year 2000
Compliant").
SECTION IV.15. Assets of the Companies. Each of the Companies owns or
leases all buildings, machinery, equipment, and other assets necessary for
the conduct of its Business as presently conducted and as presently proposed
to be conducted. Each such asset is free from defects (patent and latent),
has been maintained in accordance with normal industry practice, is in good
operating condition and repair (subject to normal wear and tear), and is
suitable for the purposes for which it presently is used and presently is
proposed to be used, except where the existence of such defects, failure
to maintain, condition and repair, or suitability would not be material to
the Companies (taken as a whole). The assets of the Companies at the
Closing, when taken together with the Lamba Assets and the Transition
Services Agreement will be sufficient in all material respects to permit
the Buyer to operate the Business as currently conducted and as proposed
to be conducted.
SECTION IV.16. Inventory. The inventory of each of the Companies
consists of raw materials and supplies, manufactured and purchased parts,
goods in process, and finished goods, all of which is merchantable in
all material respects and fit in all material respects for the purpose for
which it was procured or manufactured, subject only to the reserve for
inventory writedown which is reflected on a net basis in inventory on
the face of the Latest Balance Sheet, as adjusted for the passage of time
through the Closing Date in the Ordinary Course of Business.
SECTION IV.17. Contracts. Except for purchase orders and sales contracts
entered into in the Ordinary Course of Business, Schedule 4.17 lists the
following Contracts and other agreements to which each of the Companies
is a party:
(a) any material Contract (or group of related Contracts) that requires
the consent of any person in connection with the execution of this
Agreement and the transactions contemplated thereby;
(b) any Contract (or group of related Contracts) for the lease of personal
property to or from any Person providing for lease payments in excess of
$150,000 per annum;
(c) any Contract (or group of related Contracts) for the purchase or sale
of raw materials, commodities, supplies, products, or other personal
property, or for the furnishing or receipt of services, the performance of
which will, result in a loss to any of the Companies, or involve
consideration in excess of $150,000;
(d) any capitalized lease, pledge, conditional sale or title retention
agreement involving the payment of more than $150,000 in the aggregate;
(e) any Contract creating a partnership or joint venture;
(f) any Contract with a sales representative, manufacturer's
representative, distributor, dealer, broker, sales agency, advertising
agency or other Person engaged in sales, distributing or promotional
activities, or any agreement to act as one of the foregoing on behalf of
any Person the performance of which will involve consideration in excess
of $150,000;
(g) any Contract (or group of related Contracts) under which it has
created, incurred, assumed, or guaranteed any indebtedness for borrowed
money, or any capitalized lease obligation, or under which it has imposed
a Lien on any of its material assets, tangible or intangible;
(h) any Contract pursuant to which any of the Companies has made or will
make loans or advances, or has or will have incurred debts or become a
guarantor or surety or pledged its credit on or otherwise become responsible
with respect to any undertaking of another Person (except for the
negotiation or collection of negotiable instruments in transactions in the
Ordinary Course of Business);
(i) any mortgage, indenture, note, bond or other agreement evidencing
indebtedness incurred or provided by any of the Companies;
(j) any Contract concerning confidentiality or noncompetition or otherwise
prohibiting any of the Companies from freely engaging in any business;
(k) any Contract with the Seller or any Affiliate thereof (other than
standard purchase and sale agreements between the Companies and their
Affiliates);
(l) any profit sharing, stock option, stock purchase, stock appreciation,
deferred compensation, severance, or other plan or arrangement for the
benefit of its current or former directors, officers, and employees;
(m) any Contract involving a governmental body the performance of which
will involve consideration in excess of $150,000;
(n) any collective bargaining agreement;
(o) any Contract for the employment of any individual on a full-time,
part-time, consulting, or other basis providing annual compensation in
excess of $100,000 or providing severance benefits;
(p) any Contract, whether or not fully performed, relating to any
acquisition or disposition of any of the Companies or any predecessor in
interest or any acquisition or disposition of any subsidiary, division,
line of business, or real property of any of the Companies;
(q) any Contract under which it has advanced or loaned any amount to
any of its directors, officers, and employees;
(r) any Contract under which the consequences of a default or
termination could have a Material Adverse Effect on the Business;
(s) any other Contract (or group of related Contracts) the performance
of which involves consideration in excess of $150,000;
(t) any Material Contract between each of the Companies, on the one hand,
and the Seller and any Seller affiliate (other than any of the Companies)
on the other hand;
(u) any commitment to do any of the foregoing described in clauses (a)
through (t).
The Seller has delivered to the Buyer a correct and complete copy of each
written Contract listed in Schedule 4.17 (as amended to date) and a written
summary setting forth the material terms and conditions of each oral
Contract referred to in Schedule 4.17. With respect to each such Contract:
(A) the Contract is legal, valid, binding, enforceable, and in full force
and effect, except as the same may be limited by applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar
laws affecting creditors' rights and remedies generally and by general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or equity); (B) the Contract will continue to be legal,
valid, binding, enforceable, and in full force and effect on identical terms
immediately following the consummation of the transactions contemplated
hereby; (C) to the Knowledge of the Companies and the Seller, no party is
in breach or default, and no event has occurred which with notice or lapse
of time would constitute a breach or default, or permit termination,
modification, or acceleration, under the Contract; and (D) no party has
repudiated any material provision of the Contract.
SECTION IV.18. Notes and Accounts Receivable. All material notes and
Accounts Receivable of each of the Companies are reflected properly on their
respective books and records and are valid receivables subject to no
material setoffs or to the Knowledge of the Companies and the Sellers,
counterclaims. In the event the Companies use the same collection efforts
following the Closing as prior to the Closing, the Seller believes that
such notes and Accounts Receivable will be collected in accordance with
their terms at their recorded amounts, subject only to the reserve for bad
debts set forth on the face of the Latest Balance Sheet. as adjusted for
operations and transactions through the Closing Date in the Ordinary
Course of Business.
SECTION IV.19. Powers of Attorney. There are no outstanding powers of
attorney executed on behalf of any of the Companies that are material to
the Companies (taken as a whole).
SECTION IV.20. Insurance. Schedule 4.20 sets forth the following
information with respect to each insurance policy (including policies
providing property, casualty, Liability, and workers' compensation coverage
and bond and surety arrangements) to which each of the Companies is a
party, a named insured, or otherwise the beneficiary of coverage:
(ai the name, address, and telephone number of the agent;
(bi the name of the insurer, the name of the policyholder, and the name
of each covered insured; and
(ci the policy number and the period of coverage;
The Companies or Seller have provided to Buyer a copy of each of the
policies described on Schedule 4.20. With respect to each such insurance
policy: (A) the policy is legal, valid, binding, enforceable, and in full
force and effect, except as the same may be limited by applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally and to
general principles of equity (regardless of whether enforcement is sought
in a proceeding at law or equity); (B) the policy will continue to be
legal, valid, binding, enforceable, and in full force and effect (subject
to the qualifications noted in Clause (A) above) on identical terms
immediately following the consummation of the transactions contemplated
hereby; (C) neither any of the Companies nor to the Knowledge of the
Companies and the Seller, any other party to the policy is in breach or
default (including with respect to the payment of premiums or the giving of
notices), and no event has occurred which, with notice or the lapse of time,
would constitute such a breach or default, or permit termination,
modification, or acceleration, under the policy; and (D) to the Knowledge
of the Companies and the Seller, no event has occurred which, with notice
or lapse of time, would result in retroactive increases in premiums; and
(E) no party to the policy has repudiated any material provision thereof.
Each of the Companies is covered by insurance in scope and amount customary
and reasonable for the business in which it has engaged. Schedule 4.20
describes any self-insurance arrangements affecting each of the Companies.
Schedule 4.20 sets forth known claims, if any, made against each of the
Companies that are covered by insurance. Such claims have been disclosed
to the appropriate insurance companies and are being defended by such
appropriate insurance companies. Except as set forth on Schedule 4.20, no
claims have been denied coverage during the last three years.
SECTION IV.21. Litigation. Schedule 4.21 sets forth each instance in
which each of the Companies (i) is subject to any outstanding injunction,
judgment, order, decree, ruling, or charge of any Authority or (ii) is a
party or, to the Knowledge of the Companies and the Seller, is threatened
to be made a party to any action, suit, proceeding, hearing, or
investigation of, in, or before any Authority, including with respect to
any material Liability arising out of any injury to individuals or property
as a result of the ownership, possession, or use of any product
manufactured, sold, leased, or delivered by any of the Companies. Neither
the Companies nor the Seller believes that any of the actions, suits,
proceedings, hearings, and investigations set forth in Schedule 4.21 will
result in any Material Liability to the Companies (taken as a whole). None
of the Companies or the Seller have any Knowledge of any matter that would
cause them to believe that any such action, suit, proceeding, hearing, or
investigation may be brought or threatened against any of the Companies.
SECTION IV.22. Product Warranty. Each product manufactured, sold, leased,
or delivered by each of the Companies has been in conformity in all
material respects with all applicable contractual commitments and all
express and implied warranties, and none of the Companies has any material
Liability for replacement or repair thereof or other damages in connection
therewith, subject only to the reserve for product warranty claims set forth
on the face of the Latest Balance Sheet as adjusted for operations and
transactions through the Closing Date in the Ordinary Course of Business.
No product manufactured, sold, leased, or delivered by any of the Companies
is subject to any guaranty, warranty, or other indemnity beyond the
applicable standard terms and conditions of sale or lease other than which
would not be material to the Companies, taken as a whole. Schedule 4.22
includes copies of the standard terms and conditions of sale or lease for
each of the Companies (containing applicable guaranty, warranty, and
indemnity provisions).
SECTION IV.23. Employees. Schedule 4.23 contains a true, complete and
accurate list of the names, titles, annual compensation and all bonuses and
similar payments made with respect to each such individual for the current
and preceding fiscal years for all directors, officers and employees of each
of the Companies whose annual compensation, including any bonuses, equals
or exceeds $100,000 (collectively, the "Employees"). To the Knowledge of
the Companies and the Seller, no executive, key employee, or group of
employees has any plans to terminate employment with any of the Companies.
None of the Companies is a party to or bound by any collective bargaining
agreement, nor has it experienced any strikes, grievances, claims of unfair
labor practices, or other collective bargaining disputes. To the Knowledge
of the Companies and the Seller, none of the Companies has committed any
unfair labor practice. To the Knowledge of the Companies and the Seller,
there is no organizational effort presently being made or threatened by or
on behalf of any labor union with respect to employees of any of the
Companies. None of the Companies has engaged in any plant closing or
employee layoff activities that would violate or require notification
pursuant to, the Worker Adjustment Retraining and Notification Act of 1988,
as amended, or any similar state, local or foreign plant closing or mass
layoff statute, rule or regulation.
SECTION IV.24. Employee Benefits.
(ai General. Except as set forth on Schedule 4.24(a), none of the
Companies is a party to, participates in or has any Liability or contingent
Liability with respect to:
(iA any Employee Welfare Benefit Plan or Employee Pension Benefit Plan,
other than a Multiemployer Plan;
(iiA any retirement or deferred compensation plan, incentive compensation
plan, stock plan, unemployment compensation plan, vacation pay, severance
pay, bonus or benefit arrangement, insurance or hospitalization program or
any other fringe benefit arrangements for any current or former employee,
director, consultant or agent, whether pursuant to Contract, arrangement,
custom or informal understanding, which does not constitute an employee
benefit plan (as defined in section 3(3) of ERISA); or
(iiiA any employment agreement.
(bi Plan Documents and Reports. Except as set forth on Schedule 4.24(b),
a true and correct copy of each of the plans, arrangements, and agreements
listed on Schedule 4.24(a) (referred to hereinafter as "Employee Benefit
Plans"), and all Contracts relating thereto, or to the funding thereof,
including, without limitation, all trust agreements, insurance Contracts,
administration Contracts, investment management agreements, subscription
and participation agreements, and recordkeeping agreements, each as in
effect on the date hereof, has been made available to the Buyer. In the
case of any Employee Benefit Plan which is not in written form, the Buyer
has been supplied with an accurate description of such Employee Benefit
Plan as in effect on the date hereof. A true and correct copy of the most
recent annual report, actuarial report, accountant's opinion of the plan's
financial statements, summary plan description and Internal Revenue Service
determination letter with respect to each Employee Benefit Plan, to the
extent applicable, and a current schedule of assets (and the fair market
value thereof assuming liquidation of any asset which is not readily
tradable) held with respect to any funded Employee Benefit Plan has been
supplied to the Purchasers, and, to the Knowledge of the Companies and the
Seller, there have been no material changes in the financial condition in
the respective plans from that stated in the annual reports and actuarial
reports supplied.
(ci Compliance with Employee Benefit Laws; Liabilities. As to all
Employee Benefit Plans, except as set forth on Schedule 4.24(c):
(iA All Employee Benefit Plans comply and have been administered in form
and in operation in all material respects with all applicable requirements
of Law, and, to the Knowledge of the Companies and the Seller, no event
has occurred which will or could cause any such Employee Benefit Plan to
fail to comply in all material respects with such requirements and no
notice has been issued by any governmental Authority questioning or
challenging such compliance.
(iiA To the Knowledge of the Companies and the Seller, all Employee
Benefit Plans which are employee pension benefit plans comply in all
material respects in form and in operation with all applicable requirements
of sections 401(a) and 501(a) of the Code; there have been no amendments
to such plans which are not the subject of a favorable determination letter
issued with respect thereto by the Internal Revenue Service; and no event
has occurred which will or could give rise to disqualification of any such
plan under such sections.
(iiiA None of the assets of any Employee Benefit Plan is invested in
employer securities or employer real property.
(ivA To the Knowledge of the Companies and the Seller, there have been no
"prohibited transactions" (as described in section 406 of ERISA or section
4975 of the Code) with respect to any Employee Benefit Plan and none of
the Companies has engaged in any prohibited transaction.
(vA To the Knowledge of the Companies and the Seller, there have been no
acts or omissions which have given rise to or may give rise to any material
fines, penalties, taxes or related charges under section 502 of ERISA or
Chapters 43, 47, 68 or 100 of the Code for which any of the Companies may
be liable.
(viA None of the payments contemplated by the Employee Benefit Plans
would, in the aggregate, constitute excess parachute payments (as defined
in section 280G of the Code (without regard to subsection (b)(4) thereof)).
(viiA There are no actions, suits or claims (other than routine claims for
benefits) pending or, to the Knowledge of the Companies and the Seller,
threatened involving any Employee Benefit Plan or the assets thereof and no
facts exist which could give rise to any material actions, suits or claims
(other than routine claims for benefits).
(viiiA There are no Employee Benefit Plans that are subject to the
provisions of Title IV of ERISA.
(ixA Each Employee Benefit Plan which constitutes a "group health plan"
(as defined in section 607(1) of ERISA or section 4980B(g)(2) of the Code),
including any plans of current and former affiliates which must be taken
into account under sections 4980B and 414(t) of the Code or section 601 of
ERISA, has been operated in compliance in all respects with applicable Law,
(except to the extent that such noncompliance would not be material to the
Companies (taken as a whole)), including coverage requirements of section
4980B of the Code and section 601 of ERISA to the extent such requirements
are applicable.
(xA None of the Companies has any Liability or contingent Liability for
providing, under any Employee Benefit Plan or otherwise, any post-retirement
medical or life insurance benefits, other than statutory Liability for
providing group health plan continuation coverage under Part 6 of Title I
of ERISA and section 4980B of the Code.
(xiA Actuarially adequate accruals for all obligations under the Employee
Benefit Plans are reflected in the financial statements of each of the
Companies and such obligations include a pro rata amount of the
contributions which would otherwise have been made in accordance with past
practices and applicable Law for the plan years which include the Closing
Date.
(di Multiemployer Plans. None of the Companies contributes to, has
contributed to, or has any Liability or contingent Liability with respect
to any Multiemployer Plan.
SECTION IV.25. Environmental Matters.
Except as set forth in Schedule 4.25:
(ai To the Knowledge of the Companies and the Seller, each of the
Companies and their Affiliates (which shall be deemed to include, solely
for the purposes of this Section 4.25, only those Affiliates of the
Companies as to which either of the Companies could reasonably be expected
to share any material liability under applicable Environmental Laws):
(iA has complied and is in compliance with all Environmental Laws (and no
action, suit, proceeding, hearing, investigation, charge, complaint, claim,
demand or notice has been filed or commenced against any of them alleging
any such failure to comply) except where the failure to comply would not
be material to the Companies, taken as a whole;
(iiA has obtained and complied with, and is in compliance with, all
Permits, licenses and other authorizations that are required pursuant to
Environmental Laws except where the failure to comply or obtain
authorizations, as the case may be, would not be material to the Companies,
taken as a whole; and
(iiiA has complied in all respects with all other limitations,
restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables which are contained in the
Environmental Laws; except, where the failure to comply or obtain
authorizations, as the case may be, would not be material to the Companies
(taken as a whole).
(bi None of the Companies or their Affiliates has received any written
or oral notice, report or other information from an Authority or third
party regarding any unresolved actual or alleged material violation of
Environmental Laws, or any Liabilities or potential Liabilities, including
any investigatory, remedial or corrective obligations, relating to any of
them or their respective facilities under Environmental Laws.
(ci To the Knowledge of the Companies and the Seller, none of the
Companies has any Liability, and each of the Companies and their respective
Affiliates have not handled or disposed of any substance, arranged for the
disposal of any substance, exposed any employee or other individual to any
substance or condition, or owned or operated any property or facility in any
manner that could give rise to any material Liability for damage to any
site, location or body of water (surface or subsurface), for any illness of
or personal injury to any employee or other individual, or for any reason
under any Environmental Law.
(di Except as set forth on Schedule 4.25, to the Knowledge of the Companies
and the Seller, all properties and equipment used in the Business of each
of the Companies and their respective Affiliates have been free of asbestos,
PCB's, methylene chloride, trichloroethylene, 1,2-transdichloroethylene,
dioxins, dibenzofurans and other Hazardous Substances except to the extent
that the presence of such substances would not be material to the Companies,
taken as a whole.
(ei To the Knowledge of the Companies and the Seller, none of the following
exists at any property or facility owned or operated by any of the
Companies: (1) underground storage tanks, (2) asbestos-containing material
in any form or condition, (3) materials or equipment containing
polychlorinated biphenyls, or (4) landfills, surface impoundments or
Hazardous Substance disposal areas.
(fi To the knowledge of the Companies and the Seller, none of the Companies
or their respective Affiliates has treated, stored, disposed of, arranged
for or permitted the disposal of, transported, handled, or released any
substance, including without limitation any Hazardous Substance, or owned
or operated any property or facility (and no such property or facility is
contaminated by any such substance) in a manner that has given or would
reasonably be expected to give rise to material Liabilities, including
any material Liability for response costs, corrective action costs,
personal injury, property damage, natural resources damages or attorney
fees, or any investigative, corrective or remedial obligations, pursuant
to Environmental Laws.
(gi To the Knowledge of the Companies and the Seller, neither this
Agreement nor the consummation of the transaction that is the subject of
this Agreement will result in any obligations for site investigation or
cleanup, or notification to or consent of government agencies or third
parties, pursuant to any of the so-called "transaction-triggered" or
"responsible property transfer" Environmental Laws.
(hi To the Knowledge of the Companies and the Seller, none of the
Companies or any of their respective Affiliates has, either expressly
or by operation of Law, assumed or undertaken any Liability, including
without limitation any obligation for corrective or remedial action, of any
other Person relating to Environmental Laws.
(ii To the Knowledge of the Companies and the Seller, no facts, events or
conditions relating to the past or present facilities, properties or
operations of any of the Companies or Affiliates will prevent, hinder or
limit continued compliance with Environmental Laws, give rise to any
investigatory, remedial or corrective obligations pursuant to Environmental
Laws, or give rise to any other material Liabilities (whether accrued,
absolute, contingent, unliquidated or otherwise) pursuant to Environmental
Laws, including without limitation any relating to onsite or offsite
releases or threatened releases of Hazardous Substances or wastes, personal
injury, property damage or natural resources damage.
SECTION IV.26. Permits. Schedule 4.26 is a true and accurate list of all
material licenses, certificates, permits, franchises, rights, code
approvals and private product approvals (collectively, "Permits"), which
are necessary for the lawful operation of the Business of each of the
Companies as presently conducted.
SECTION IV.27. No Conflict of Interest. Neither the Seller nor any
Affiliate thereof has or claims to have any direct or indirect interest in
any tangible or intangible property used in the Business of any of the
Companies except as a holder of Shares. Neither the Seller nor any
Affiliate thereof has any direct or indirect interest in any other Person
which conducts a business similar to, has any Contract or arrangement with,
or does business or is involved in any way with, any of the Companies except
for the ownership of less than 5% of the outstanding stock of any publicly
held corporation.
SECTION IV.28. Bank Accounts. Schedule 4.28 sets forth the names and
locations of each bank or other financial institution at which each of the
Companies has accounts (giving the account numbers) or safe deposit box and
the names of all Persons authorized to draw thereon or have access thereto,
and the names of all Persons, if any, now holding powers of attorney or
comparable delegation of authority from each of the Companies and a summary
statement thereof.
SECTION IV.29. Customers and Suppliers.
(ai Schedule 4.29 sets forth:
(iA a list of the 10 largest customers of each of the Companies, in terms
of revenue during each of the 1996 and 1997 calendar years (collectively,
the "Major Customers"); and
(iiA a list of the 10 largest suppliers of each of the Companies in terms
of purchases during the 1996 and 1997 calendar years (collectively, the
"Major Suppliers").
(bi Since the date of the Latest Balance Sheet, there has not been any
material adverse change in the business relationship, and there has been no
material dispute, between any of the Companies and any Major Customer or
Major Supplier, and neither the Companies nor the Seller has any Knowledge
that any Major Customer or Major Supplier intends to reduce its purchases
from, or sales to, any of the Companies.
SECTION IV.30. Claims Against Officers and Directors. To the Knowledge of
the Companies and the Seller, there are no pending or threatened claims
against any director, officer, employee or agent of any of the Companies or
any other Person which could give rise to any material claim for
indemnification against any of the Companies.
SECTION IV.31. Improper and Other Payments.
To the Knowledge of the Companies and the Seller, none of the Companies,
any director, officer, employee, agent or representative of the any of the
Companies, the Seller, their respective Affiliates or any Person acting on
behalf of any of them, has:
(ai made, paid or received any bribes, kickbacks or other similar
payments to or from any Person, whether lawful or unlawful;
(b) made unlawful contributions, directly or indirectly, to a domestic or
foreign political party or candidate; or
(c) made improper payments (as defined in the Foreign Corrupt Practices
Act of 1977, as amended).
SECTION IV.32. Accuracy of Statements. Neither this Agreement nor any
schedule, exhibit or certificate furnished or to be furnished by or on
behalf of each of the Companies or the Seller to Buyer or any
representative or Affiliate of Buyer in connection with this Agreement
or any of the transactions contemplated hereby contains or will contain any
untrue statement of a material fact or omits or will omit to state a
material fact necessary to make the statements contained herein or therein,
in light of the circumstances in which they are made, not misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Seller that the statements
contained in this Article V are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the
date of this Agreement throughout this Article V).
SECTION V.1. Organization of the Buyer. The Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the
State of Delaware.
SECTION V.2. Authorization of Transaction. The Buyer has full power and
authority (including full corporate power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder. This
Agreement constitutes the valid and legally binding obligation of the
Buyer, enforceable in accordance with its terms and conditions, except as
the same may be limited by applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally and to general principles of equity
(regardless of whether enforcement is sought in a proceeding at law or
equity). Except for filings under the Hart-Scott-Rodino Act, the Buyer need
not give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order to
consummate the transactions contemplated by this Agreement.
SECTION V.3. Noncontravention. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated
hereby, will (A) violate any constitution, Law, injunction, ruling, charge,
or other restriction of any Authority, to which the Buyer is subject, (B)
violate any provision of the charter or bylaws of Buyer or (C) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any Contract, lease,
license, instrument, or other arrangement to which the Buyer is a party
or by which it is bound or to which any of its assets is subject, except
for any violations or conflicts that, individually or in the aggregate,
would not be material to the Seller, impair the ability of the Buyer to
perform its obligations under this Agreement or prevent the consummation
of any of the transactions contemplated hereby.
SECTION V.4. Brokers' Fees. The Buyer has no Liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect
to the transactions contemplated by this Agreement for which Seller could
become liable or obligated.
SECTION V.5. Investment Purpose. The Buyer is acquiring the Shares for
its own account and not with a view to or in connection with a sale or
distribution thereof in violation of any securities laws, and it has no
present intention of selling or distributing any of the Shares in violation
of any securities laws.
SECTION V.6. Litigation. There are no actions, suits, investigations or
proceedings (including any proceedings in arbitration) pending, or, to
the Knowledge of the Buyer, threatened, against the Buyer or any of its
assets, at law or in equity, in any court or before or by any Authority
that could reasonably be expected to render the Agreement invalid or not
enforceable in any material respect or the ability of the Buyer to perform
its obligations under this Agreement.
ARTICLE VI
COVENANTS
SECTION VI.1. General. Each of the parties will use his or its
commercially reasonable efforts to take all action and to do all things
necessary in order to consummate and make effective the transactions
contemplated by this Agreement (including satisfaction, but not waiver,
of the closing conditions set forth in Articles VII and VIII below).
SECTION VI.2. Operation of Business. Except as contemplated by this
Agreement or to the extent that Buyer shall otherwise consent in writing,
from the date of this Agreement until the Closing Date, each of the
Companies shall be operated in the Ordinary Course of Business and
shall use commercially reasonable efforts to preserve intact the present
business organization and personnel of each Company and preserve the
business relationships of each Company with other Persons material to the
operation of each Company. The Seller and the Companies shall use
commercially reasonable efforts not to permit any action or omission
which would cause any of the representations or warranties of each Company
contained herein to become inaccurate or any of the covenants of each
Company to be breached. Without limiting the generality of the foregoing,
except as set forth in Schedule 6.2, prior to the Closing, none of the
Companies will, without the prior written consent of the Buyer:
(ai Except in the Ordinary Course of Business, (i) incur any
obligation or enter into any Contract which requires a payment by any
party in excess of, or a series of payments which in the aggregate exceed,
$150,000, or (ii) incur any obligation to enter into any material Contract
which has a term of, or requires the performance of any obligations by any
of the Companies over a period in excess of six months;
(bi sell, transfer, convey, assign or otherwise dispose of any of its
material assets or properties other than in the Ordinary Course of Business;
(ci waive, release or cancel any material claims against third parties or
material debts owing to it, or any material rights other than in the
Ordinary Course of Business;
(di make any material changes in its accounting systems, policies,
principles or practices;
(ei other than in the Ordinary Course of Business, enter into, authorize,
or permit any transaction with the Seller or any Affiliate thereof, or
enter into any Contract relating to compensation or benefits with any
executive officer of either Company, or modify any compensation amounts or
levels of any executive officer of either Company or employee other than in
the Ordinary Course of Business;
(fi except as required for the transactions contemplated in this Agreement,
change or amend its articles of incorporation or by-laws;
(gi except as required for the transactions contemplated in this Agreement,
authorize for issuance, issue, sell, deliver or agree or commit to issue,
sell or deliver (whether through the issuance or granting of options,
warrants, convertible or exchangeable securities, commitments,
subscriptions, rights to purchase or otherwise) any shares of its capital
stock or any other securities of such Company, or amend any of the terms of
any such capital stock or other securities;
(hi except as required for the transactions contemplated in this Agreement,
split, combine, or reclassify any shares of its capital stock, declare,
set aside or pay any dividend or other distribution in property other than
cash in respect of its capital stock, or redeem or otherwise acquire any
capital stock or other securities of such Company;
(ii make any borrowings, incur any debt (other than trade payables and
accrued expenses in the Ordinary Course of Business), or assume, guarantee,
endorse (except for the negotiation or collection of negotiable instruments
in the Ordinary Course of Business) or otherwise become liable (whether
directly, contingently or otherwise) for the obligations of any other
Person, or make any payment or repayment in respect of any indebtedness
(other than trade payables and accrued expenses in the Ordinary Course of
Business);
(ji Other than trade receivables in the Ordinary Course of Business, make
any loans, advances or capital contributions to, or investments in, any
other Person;
(ki enter into, adopt, amend or terminate any bonus, profit sharing,
compensation, termination, stock option, stock appreciation right,
restricted stock, performance unit, pension, retirement, deferred
compensation, employment, severance or other employee benefit agreements,
trusts, plans, funds or other arrangements for the benefit or welfare of
any director or executive officer, or, except in the Ordinary Course of
Business, increase in any manner the compensation or fringe benefits of
any director, or executive officer or pay any benefit not required by any
existing plan and arrangement or, except in the Ordinary Course of Business,
enter into any Contract, commitment or arrangement to do any of the
foregoing;
(li acquire, lease, encumber or otherwise impose a material Lien on any
assets, whether tangible or intangible, other than in the Ordinary Course
of Business;
(mi other than as contemplated in the Companies' capital expenditure
budget, authorize or make any capital expenditures which individually or in
the aggregate are in excess of $150,000;
(ni make any Tax election or settle or compromise any federal, state,
local or foreign income Tax Liability, or waive or extend the statute of
limitations in respect of any such Taxes;
(oi except for the Liabilities set forth on Schedule 9.2(c), pay any
amount, perform any obligation or agree to pay any amount or perform any
obligation, in settlement or compromise of any suits or claims of
Liability against any of the Companies or any of their respective
directors, officers, employees or agents other than in the Ordinary
Course of Business;
(pi except in the Ordinary Course of Business terminate, modify, amend
or otherwise alter or change any of the terms or provisions of any material
agreement, or pay any amount not required by Law or by any material
Contract; or
(r) other than overnight deposits or money market instruments and
investments existing on the date hereof, make any investments with cash or
the proceeds of existing investments.
SECTION VI.3. Full Access. The Seller will permit and cause each of the
Companies to permit representatives of the Buyer to have full access to
all premises, properties, personnel, books, records (including Tax
records), Contracts, and documents of or pertaining to each of the Companies
and shall make the officers and employees of each of the Companies available
to the Buyer and its representatives as the Buyer and their representatives
shall from time to time reasonably request, in each case to the extent that
such access and disclosure would not obligate the Companies to take any
actions that would disrupt the normal course of its business or violate the
terms of any agreement to which any Company is bound or any applicable Law.
SECTION VI.4. Exclusivity. The Seller will not (and the Seller will not
cause or permit any of the Companies or its or their respective
representatives, advisors or Affiliates to) (i) solicit, initiate, or
encourage the submission of any proposal or offer from any Person (other
than the Buyer) relating to the acquisition of any capital stock or other
voting securities, or any substantial portion of the assets, of any of
the Companies (including any acquisition structured as a merger,
consolidation, or share exchange) or (ii) participate in any discussions
or negotiations regarding, furnish any information with respect to,
assist or participate in, or facilitate in any other manner any effort or
attempt by any Person (other than the Buyer) to do or seek any of the
foregoing. The Seller will not vote its Shares in favor of any such
acquisition, whether structured as a merger, consolidation, share exchange
or otherwise. The Seller will notify the Buyer immediately if any Person
makes any firm proposal, offer, inquiry, or contact with respect to any of
the foregoing.
SECTION VI.5. Efforts.
(ai Subject to the terms and conditions hereof, each party hereto shall
use commercially reasonable efforts to consummate the transactions
contemplated hereby. An undertaking of a Person under this Agreement to
use such Person's commercially reasonable efforts shall not require such
Person to incur unreasonable expenses or obligations in order to satisfy
such undertaking.
(bi The Seller, each of the Companies and the Buyer will, as promptly as
practicable (i) make the required filings with, and use their respective
commercially reasonable efforts to obtain all required authorizations,
approvals, consents and other actions of, governmental Authorities,
including, but not limited to, filing (and the Seller will cause each of
the Companies to file) all required forms, agreements and related documents
required by the SEC and making (and the Seller will cause each of the
Companies to make) any further filings pursuant thereto that may be
necessary in connection therewith; and (ii) use their respective
commercially reasonable efforts to obtain all other required consents of
other Persons with respect to the transactions contemplated hereby.
SECTION VI.6. Maintenance of Insurance. Each of the Companies will keep
in full force and effect its existing insurance through the Closing Date,
and shall not allow any material breach, default or cancellation (other
than expiration and replacement of policies in the Ordinary Course of
Business) of such insurance policies or agreements to occur or exist.
SECTION VI.7. Notice and Supplemental Information. The Seller, each of
the Companies and the Buyer shall each give prompt notice to the other
parties of a breach of any of its own representations and warranties in
Articles III, IV and V, respectively or the failure of such party to comply
with or satisfy in any respect any covenant, condition or agreement to be
complied with or satisfied by it hereunder when such noncompliance or
unsatisfactory performance would, or would reasonably be expected to, be
material to any of the other parties to this Agreement. In addition, the
Seller and each of the Companies will, from time to time, as necessary,
prior to three business days preceding the Closing, by notice in accordance
with the terms of this Agreement, supplement or amend the Schedules,
including one or more supplements or amendments to correct any matter which
would constitute a breach of any representation, warranty, agreement or
covenant contained herein. No information provided to a party pursuant to
this Section shall be deemed to cure any breach of any representation or
covenant made in this Agreement unless such information has been accepted
in writing by such party. No such supplement or amendment to the Schedules
shall be deemed to cure any breach for purposes of Section 7.1 or Section
8.1.
SECTION VI.8. Post-Closing Access and Cooperation. The Buyer and the
Companies, after the Closing Date, will afford the Seller and its
representatives reasonable access during normal business hours to the
offices, facilities, books, records, officers and employees of the
Companies to the extent reasonably requested by such Persons to defend any
litigation, to prepare Tax returns, to conduct negotiations with Tax
Authorities, to fulfill an obligation to any Authority imposed by Law and
to implement the provisions of, or to investigate or defend any claims
between the parties arising under, this Agreement or otherwise and to
the extent such access does not disrupt in any material respect the
operation of the Business of the Companies. Without limiting the
generality of the foregoing, the Buyer will, and will cause each of the
Companies to, cooperate with the Seller in the defense of any litigation
(including, without limitation, making personnel, including, without
limitation, Lincoln Kennedy, available for purposes of trial preparation
and testimony, maintaining the Airgard and its related press and other
product samples in working order and keeping all records, files and
letters relating to such products) and providing information requested
by any such Person for the preparation of any such Person's Tax Returns.
Each of the parties hereto will preserve and retain all schedules, work
papers and other documents relating to any Tax Returns of the Companies
or to any claims, audits or other proceedings affecting the Companies
until the expiration of the statute of limitations (including extensions)
applicable to the taxable period to which such documents relate or until
the final determination of any controversy with respect to such taxable
period, and until the final determination of any payments that may be
required with respect to such taxable period under this Agreement.
SECTION VI.9. Consistent Tax Reporting. The Seller, each of the
Companies and the Buyer shall treat and report the transactions contemplated
by this Agreement in all respects consistently for purposes of any Federal,
state, local or foreign Tax. The parties hereto shall not take any actions
or positions inconsistent with the obligations set forth herein.
SECTION VI.10. Section 338(h)(10) Election.
(ai The Seller acknowledges that the purchase of the Shares constitutes
"qualified stock purchases" for purposes of Section 338(d)(3) of the Code.
Seller and Buyer agree to join in making elections under Section 338(h)(10)
of the Code with respect to the purchase of the Shares. Seller shall
deliver to Buyer at, and as a condition to, Closing (1) Internal Revenue
Service Forms 8023 and any applicable similar forms required by state or
local law fully completed with respect to the purchase of the Shares and
executed by a duly authorized officer of Seller, and (2) all additional
data and materials required to be attached to such Forms 8023 and any
applicable similar forms required by state or local law pursuant to Temp.
Treas. Reg. S1.338-1T or otherwise. Seller shall have attached a copy of
such Forms 8023 to the consolidated Federal income Tax Return for its
taxable period which includes the Closing Date and otherwise shall
cooperate fully with Buyer in making the elections under Section 338(h)(10)
of the Code.
(bi The parties hereto acknowledge that for Federal income Tax purposes
(and for state income Tax purposes for those states that use a taxpayer's
Federal income Tax Liability or Federal taxable income as a base for
computing such taxpayer's state income Tax Liability, or whose income Tax
provisions are otherwise similar to the Federal income Tax in this respect),
the purchase of the Shares will be treated in all respects as a sale of
assets by the Companies to Buyer followed by a complete liquidation of the
Companies into Seller, and the parties agree to report the transaction in a
matter consistent with this treatment. The parties also agree that neither
Buyer nor the Companies shall be liable for any Taxes resulting from the
purchase of the Shares.
SECTION VI.11. Termination of Shareholder Agreements. Prior to or at the
Closing each of the Companies shall cause the termination, and render void
and of no effect, (i) any existing shareholder agreements between or among
holders of Shares and any of the Companies affecting the ownership or
disposition of the capital stock of any of the Companies and (ii) any
options or warrants to purchase or rights to subscribe for, any capital
stock of any of the Companies to which any Company is a party and which has
not been previously exercised, canceled or redeemed.
SECTION VI.12. Resignation of Officers and Directors. The Seller shall
cause each officer and member of the Board of Directors of, and each
trustee or fiduciary of any plan or arrangement involving employee benefits
of, each of the Companies, if so requested by Buyer, to tender his or her
resignation from such position effective as of the Closing.
SECTION VI.13. Interim Financial Statements. Each of the Companies
agrees to provide to the Buyer as soon as practicable after the end of each
calendar month financial statements of each of the Companies, consisting of
a balance sheet as of the end of such month and an income statement for
that month and for the portion of the year then ended (the "Subsequent
Monthly Financial Statements").
SECTION VI.14. Transition. The Seller will not take any action that is
designed or intended to have the effect of discouraging any lessor,
licensor, customer, supplier, or other business associate of any of the
Companies from maintaining the same business relationships with such
Company after the Closing as it maintained prior to the Closing. The
Seller will refer all customer inquiries relating to the Business of each
of the Companies to the Buyer from and after the Closing.
SECTION VI.15. Confidentiality. The Buyer and the Buyer's
representatives will not use any of the Confidential Information that they
receive from the Seller or the Companies except in connection with this
Agreement, and, if this Agreement is terminated for any reason whatsoever,
the Buyer and the Buyer's representatives will return within 15 days to the
Companies all tangible embodiments (and all summaries and copies, including
electronically stored information) of the Confidential Information that they
receive from the Seller or the Companies which are in its or its
representatives' possession. Buyer shall indemnify and hold harmless Seller,
the Companies and their employees from any damages, loss or expense incurred
as a result of other use of Confidential Information by Buyer, its
Affiliates, agents or representatives contrary to the terms of this
Agreement. In the event that any party is requested or required (by oral
question or request for information or documents in any legal proceeding,
interrogatory, subpoena, civil investigative demand, or similar process) to
disclose any Confidential Information, such party will notify the non-
disclosing party promptly of the request or requirement so that the non-
disclosing party may seek an appropriate protective order or waive
compliance with the provisions of this Section 6.15. If, in the absence
of a protective order or the receipt of a waiver hereunder, a party is,
on the advice of counsel, compelled to disclose any Confidential
Information to any tribunal or else stand liable for contempt, such party
may disclose the Confidential Information to the tribunal; provided,
however, that such party shall use commercially reasonable efforts to
obtain, at the request and expense of the non-disclosing party, an order or
other assurance that confidential treatment will be accorded to such portion
of the Confidential Information required to be disclosed as a party shall
designate.
SECTION VI.16. Post-Closing Covenants. The Seller, each of the Companies
and the Buyer agree as follows with respect to the period following the
Closing:
(ai In case at any time after the Closing any further action is necessary
or desirable to carry out the purposes of this Agreement, each of the
parties will take such further action (including the execution and delivery
of such further instruments and documents) as any other party hereto
reasonably may request, all at the sole cost and expense of the requesting
party (unless the requesting party is entitled to indemnification therefor
under Article IX). From and after the Closing, the Buyer will be entitled
to access all documents, books, records, agreements, and financial data of
any sort relating to any of the Companies, as the Buyer and its
representatives shall from time to time reasonably request, in each case to
the extent that such access and disclosure would not obligate the Seller or
its Subsidiaries to take any actions that would disrupt the normal course
of its business or violate the terms of any agreement to which the Seller
or its Subsidiaries is bound or any applicable Law.
(bi In the event and for so long as any party hereto actively is contesting
or defending against any charge, complaint, action, suit, proceeding,
hearing, investigation, claim, or demand in connection with any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or
prior to the Closing Date involving any of the Companies (other than any
such charge, complaint, action, suit, proceeding, hearing, investigation,
claim or demand between Buyer, on the one hand, and Seller and the
Companies, on the other, relating to the transactions contemplated hereby),
each of the other parties hereto will cooperate with it and its counsel in
the contest or defense, make available their personnel, and provide such
testimony and access to their books and records as shall be necessary in
connection with the contest or defense, all at the sole cost and expense of
the contesting or defending party (unless the contesting or defending party
is entitled to indemnification therefor under Article IX).
SECTION VI.17. Transfer Taxes. The Seller shall be responsible for the
timely payment of, and shall indemnify and hold harmless the Buyer against,
all sales (including, without limitation, bulk sales), use, value added,
documentary, stamp, gross receipts, registration, transfer, conveyance,
excise, recording, license and other similar Taxes and fees ("Transfer
Taxes"), arising out of or in connection with or attributable to the
transactions effected pursuant to this Agreement and any collateral
agreements. The Seller shall prepare and timely file (taking into account
all valid extensions of time) all Tax Returns required to filed in respect
of Transfer Taxes (including, without limitation, all notices required to
be given with respect to bulk sales taxes), provided that the Buyer shall
be permitted to prepare any such Tax Returns that are the primary
responsibility of the Buyer under applicable law. The Buyer's preparation
of any such Tax Returns shall be subject to Seller's approval, which
approval shall not be withheld unreasonably.
SECTION VI.18. Business Name. After the Closing, Seller will not,
directly or indirectly, use or do business, or allow any Affiliate to use
or do business, or assist any third party in using or doing business,
under the names and trade marks set forth on Schedule 6.18 (or any other
name confusingly similar to such names and marks), except for the use of
such names and trademarks used in the Ordinary Course of Business of
selling and distributing the Companies' products.
SECTION VI.19. Noncompetition.
(a) The Seller acknowledges that it has a special knowledge of the
Business and the proprietary and confidential information included in the
Business, and that the Buyer is making a considerable investment in the
Business from which the Seller has benefitted. In consideration of this
Agreement and such investment and benefit, and as an inducement to the
Buyer to enter into this Agreement and consummate the transactions
contemplated herein, the Seller, agrees that, for a period of five years
after the Closing Date, Seller will not, directly or indirectly, own,
manage, operate, control or participate in the ownership, management,
operation or control of, or be connected as a partner or otherwise with,
or have any financial interest in, or aid or assist anyone else in the
conduct of, any business that directly or indirectly designs and
manufactures safety products in any way similar to those of the Companies
as of the Closing Date, or for use in a similar manner or application as
those of the Buyer and its Affiliates as of the Closing Date ("Competitive
Business"); provided, however, that the Seller may own less than 5% of any
outstanding class of securities registered pursuant to the Securities
Exchange Act of 1934, as amended, of an issuer that is a Competitive
Business; provided, further, that (i) Seller and its Affiliates may
continue to sell and distribute (but not manufacture or assemble) safety
related products purchased from the Companies or from any other third party
provided that no more than 15% of such sales are made to parties other than
end users, and (ii) the Seller and its Affiliates may continue to
manufacture, assemble and sell first aid, identification and other related
safety products that do not compete with the products that the Companies
currently design and manufacture.
(b) For a period of five years following the Closing Date, the Seller will
not, without the express prior written approval of the of the Buyer, (A)
directly or indirectly recruit, solicit or otherwise induce or influence
any sales agent, joint venturer, lessor, supplier, agent, representative or
any other person that has a business relationship with either of the
Companies as of the Closing Date to discontinue, reduce or adversely modify
such employment, agency or business relationship with the Buyer or such
Company as it relates to the Business as conducted by the Company as of
the Closing Date, or (B) employ or seek to employ or cause any Competitive
Business to employ or seek to employ any person or agent who is employed or
retained by the Buyer or either of the Companies. Notwithstanding the
foregoing, nothing herein shall prevent Seller from providing a letter of
recommendation to an employee with respect to a future employment
opportunity.
(c) For a period of five years following the Closing Date, the Buyer will
not, without the express prior written approval of the Seller, employ or
seek to employ any person or agent who is employed or retained by the
Seller or its Subsidiaries. Notwithstanding the foregoing, nothing herein
shall prevent Buyer from providing a letter of recommendation to an
employee with respect to a future employment opportunity.
(d) If, at the time of enforcement of any provision of this Section 6.19,
a court shall hold that the duration, scope or other restrictions stated
herein are unreasonable under circumstances then existing, the parties
agree that the maximum duration, scope or other restrictions reasonable
under such circumstances shall be substituted for the stated duration,
scope or other restrictions and that the court shall be allowed to revise
the restrictions contained herein to cover the maximum period, scope and
other restrictions permitted by law.
SECTION VI.20. Assumption and Termination of Certain Contracts. The Seller
shall terminate the Terminated Contracts.
SECTION VI.21. Employee Benefits. The Seller, each of the Companies and
the Buyer agree as follows with respect to employee benefits:
(a) Prior to the Closing, Seller will transfer the sponsorship of the
American Allsafe Profit Sharing and Savings Plan (the "American Allsafe
Plan") to a member of the Seller's controlled group of corporations other
than either of the Companies. The American Allsafe Plan will not be
assumed by the Buyer as a result of the sale of the Shares to Buyer.
(b) Any Seller Active Employee (as defined below) who continues employment
immediately after Closing will be permitted to participate in the Buyer's
401(k) Plan (as defined below) in accordance with the terms and provisions
of such 401(k) Plan if the employee accepts such offer. Buyer's 401(k) Plan
shall accept rollovers by Transferred Employees (as defined below) of their
distributions from the American Allsafe Plan, including direct rollovers of
plan loans. The term "Buyer's 401(k) Plan" shall mean the 401(k) Plan
currently in place or to be adopted for the Transferred Employees by the
Buyer. The term "Transferred Employee" shall mean any Seller Active
Employee who accepts employment with Buyer effective immediately after
Closing. The term "Seller Active Employee" means an individual who was
employed by Seller performing his normal duties on the day before Closing,
provided however, an individual who is not at work performing his normal
duties on the day before Closing, but is on paid leave under the Seller's
vacation, holiday or sick leave policy, or jury duty policy or any other
short-term or long-term leave shall be considered to be a Seller Active
Employee. To the extent allowed by applicable law, to determine the
entry date for participation in the Buyer's 401(k) Plan and vesting,
the Buyer will credit all prior service with the Seller for any
Transferred Employee.
(c) Buyer agrees to continue to maintain after Closing for the benefit of
the Transferred Employees, the Employee Welfare Benefit Plans maintained
for the Transferred Employees immediately prior to Closing, provided that
Buyer will not provide or be in any way liable for any retiree medical or
retiree life insurance benefits. Except with respect to any retiree
medical or retiree life insurance benefits, the applicable plans shall
continue to provide a level of benefits for the Transferred Employees equal
to the level of benefits available immediately prior to Closing for a
period of six months.
SECTION VI.22. Title Insurance. Within 60 days from the date hereof,
Seller, at its sole cost and expense, shall provide to Buyer the Title
Commitments. The Title Commitments shall include endorsements for access,
contiguity, zoning and other such endorsements reasonably requested by
Buyer. If Buyer chooses to convert the Title Commitments to a Title
Policy, the cost of the Title Policy, including premiums, shall be paid
by the Seller with the amount of the insurance for the Owned Property being
at least the appraised value of such property as mutually agreed between
the Buyer and the Seller.
SECTION VI.23. Financial Condition at Closing.
(a) As of the Closing Date, the Working Capital of the Companies, as
reflected on the Closing Balance Sheet of the Companies, shall be at least
90% of the Working Capital of the Companies as expressed on the Latest
Balance Sheet as determined in accordance with GAAP. For purposes of this
Section 6.23(a), "Working Capital" shall mean Accounts Receivable plus
inventory (determined in accordance with GAAP) less Current Liabilities.
Any shortfall in the Working Capital will result in a dollar-for-dollar
reduction of the Purchase Price.
(b) The Seller shall, within 5 business days after the Closing Date,
deliver to the Buyer a balance sheet as of the Closing Date (the "Closing
Balance Sheet") noting any material changes between the Closing Balance
Sheet and the Latest Balance Sheet together with a certificate of the
Chief Financial Officer of the Seller stating that the Closing Balance
Sheet was prepared so as to present fairly in all material respects the
combined financial position of the Companies on a basis consistent with
the Financial Statements. In the event the Working Capital of the Companies
reflected on the Closing Balance Sheet is less than 90% of the Working
Capital expressed on the Latest Balance Sheet (the "Shortfall"), Seller
shall pay to Buyer, within 10 business days of the Closing Date, an amount
equal to the Shortfall.
SECTION VI.24. Foreign Trademarks. Seller shall use commercially
reasonable efforts to effect the assignment of the foreign trademarks
listed on Schedule 6.24 herein to the Companies before the Closing, and
Seller shall continue to use its commercially reasonable efforts after the
Closing to effect such assignments.
ARTICLE VII
CONDITIONS TO OBLIGATION OF BUYER
The obligation of the Buyer to consummate the transactions to be performed
by it in connection with the Closing is subject to satisfaction of the
following conditions:
SECTION VII.1. Warranties True as of Closing Date. The representations
and warranties set forth in Articles III and IV shall have been accurate,
true and correct in all material respects on and as of the date of this
Agreement (except to the extent that such representations and warranties
speak as of an earlier date), and shall also be materially accurate, true
and correct in all material respects on and as of the Closing Date with
the same force and effect as though made on and as of the Closing Date
(except to the extent that such representations and warranties speak as
of an earlier date) except, with respect to such representations and
warranties, for changes that are a result of actions of Seller or the
Companies that are expressly permitted by this Agreement; provided, that
(i) any representation or warranty which is by its terms qualified by
materiality shall be accurate, true and correct in all respects and
(ii) each representation and warranty made as of the Closing Date shall
give effect to the amendment of any Schedules made in accordance with
Section 6.7.
SECTION VII.2. Compliance with Covenants. The Seller and each of the
Companies shall have performed and complied with all of the covenants
hereunder in all material respects through the Closing.
SECTION VII.3. Consents. Each of the Companies shall have procured
third party consents from the appropriate parties to any Contract set
forth on Schedule 4.17 whose consent is required and necessary for the
execution of this Agreement.
SECTION VII.4. Actions or Proceedings. No action, suit, or proceeding
shall be pending or, to the Knowledge of the parties hereto, threatened
before any Authority wherein an unfavorable injunction, judgment, order,
decree, ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, (C) affect adversely the right of the Buyer to own the
Shares and to control each of the Companies in any Material respect, or
(D) affect adversely the right of any of the Companies to own its assets
and to operate its Business (and no such injunction, judgment, order,
decree, ruling, or charge shall be in effect) in any Material respect.
SECTION VII.5. Certificate. The Seller shall have delivered to the Buyer
a certificate to the effect that each of the conditions specified above
in Sections 7.1-7.4 is satisfied in all respects.
SECTION VII.6. Opinion of Counsel. The Buyer shall have received from
Joseph Cleveland, the general counsel of the Seller, an opinion in form and
substance substantially as set forth in Exhibit A attached hereto,
addressed to the Buyer, and dated as of the Closing Date.
SECTION VII.7. Resignations. The Buyer shall have received the
resignations, effective as of the Closing, of each director and officer of
each of the Companies other than those whom the Buyer shall have specified
in writing at least five business days prior to the Closing.
SECTION VII.8. Financing. The Buyer shall have obtained on terms and
conditions reasonably satisfactory to it all of the financing it needs in
order to consummate the transactions contemplated hereby and fund the
working capital requirements of each of the Companies after the Closing.
SECTION VII.9. Termination of Certain Agreements. The Seller shall have,
and the Seller shall have caused its Affiliates and each of the Companies
to, and each of the Companies and their respective Affiliates shall have,
effective as of the Closing, terminated, rescinded, canceled and rendered
void and of no effect any and all Contracts between any Company on the one
hand and the Seller or any Affiliate thereof (other than any of the
Companies) on the other hand. The Seller agrees that effective as of the
Closing, all rights of the Seller or any Affiliate thereof or any
Affiliates of any of the Companies to indemnification by any Company
(whether by Contract, by-law, Law or otherwise) are terminated, void, of
no effect and unenforceable by them except as may arise pursuant to this
Agreement.
SECTION VII.10. Government Approvals. The Seller and each of the
Companies shall have received all authorizations, consents and approvals
required in connection with the execution delivery, and performance of
this Agreement.
SECTION VII.11. Collateral Agreements. Seller or one of its Affiliates,
as the case may be, shall have entered into a transition services
agreement in the form attached hereto as Exhibit C.
SECTION VII.12. Lamba Assets. The Buyer shall have received evidence
reasonably satisfactory to it that the Lamba Assets shall have been
transferred to the Companies.
SECTION VII.13. Documents. All actions to be taken by the Seller in
connection with consummation of the transactions contemplated hereby and
all certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably satisfactory
in form and substance to the Buyer.
SECTION VII.14. FIRPTA Certificate. Buyer shall have received from the
Seller a duly executed certificate in the form specified by Treasury
Regulation S1.1445-2(b)(2).
SECTION VII.15. Assumption and Termination of Certain Contracts. As of
the Closing Date, the Seller shall have transferred the sponsorship of the
American Allsafe Profit Sharing and Savings Plan (the "American Allsafe
Plan") to a member of the Seller's controlled group of corporations other
than either of the Companies and delivered to the Buyer a certificate of
transfer evidencing such transfer of sponsorship. Furthermore, as of the
Closing Date, the Seller shall have fully assumed any obligations of any
of the Companies under any of the Contracts listed on Schedule 7.15 hereto
and delivered to the Buyer a certificate of assumption evidencing such
assumption of the Contracts listed on Schedule 7.15 hereto (the "Terminated
Contracts"), including, but not limited to:
(a) any deferred compensation Contract between either the of Companies
and Lincoln Kennedy;
(b) any deferred compensation Contract between either of the Companies
and Jeff Millen;
(c) any deferred compensation Contract between either of the Companies
and Tim Swift; and
(d) any Contract between either of the Companies and any member of
NCH's management group.
SECTION VII.16. Replatting and conveyance of Allsafe property. Buyer
shall be satisfied, in its reasonable discretion, with the replatting of
the real property known as 99 Wales and 101 Wales (also known as 480
Fillmore) located in Tonawanda, New York. Buyer's satisfaction shall
include, without limitation, Buyer's reasonable satisfaction with all
easements on such real property for access and truck use.
The Buyer may waive any condition specified in this Article VII if it
executes a writing so stating at or prior to the Closing.
ARTICLE VIII
CONDITIONS TO OBLIGATION OF THE SELLER
The obligation of the Seller to consummate the transactions to be performed
by it in connection with the Closing is subject to satisfaction of the
following conditions:
SECTION VIII.1. Warranties True as of Closing. The representations and
warranties set forth in Article V shall have been accurate, true and
correct in all material respects on and as of the date of this Agreement
(except to the extent that such representation or warranties speak as of an
earlier date), and shall also be accurate, true and correct in all material
respects on and as of the Closing Date (except to the extent that such
representation or warranties speak as of an earlier date) with the same
force and effect as though made on and as of the Closing Date; provided,
that any representation of warranty which is by its terms qualified by
materiality shall be accurate, true and correct in all respects.
SECTION VIII.2. Compliance with Covenants. The Buyer shall have performed
and complied with all of its covenants hereunder in all material respects
through the Closing.
SECTION VIII.3. Actions or Proceedings. No action, suit, or proceeding
shall be pending before any Authority wherein an unfavorable injunction,
judgment, order, decree, ruling, or charge would prevent consummation of
any of the transactions contemplated by this Agreement.
SECTION VIII.4. Certificate. The Buyer shall have delivered to the Seller
a certificate to the effect that each of the conditions specified above
in Sections 8.1 - 8.3 is satisfied in all respects.
SECTION VIII.5. Opinion of Counsel. The Seller shall have received from
Mayer, Brown & Platt, counsel to the Buyer, an opinion in form and substance
as set forth in Exhibit B attached hereto, addressed to the Seller, and
dated as of the Closing Date.
SECTION VIII.6. Documents. All actions to be taken by the Buyer in
connection with the consummation of the transactions contemplated hereby
and all certificates, opinions, instruments, and other documents required
to effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Seller.
SECTION VIII.7. Government Approvals. All applicable waiting periods (and
any extensions thereof) under the Hart-Scott-Rodino Act shall have expired
or otherwise terminated and the Buyer shall have received all other
authorizations, consents and approvals necessary for the performance of
this Agreement.
The Seller may waive any condition specified in this Article VIII if it
executes a writing so stating at or prior to the Closing.
ARTICLE IX
SURVIVAL AND REMEDY; INDEMNIFICATION
SECTION IX.1. Survival of Representations and Warranties. All of the
terms and conditions of this Agreement, together with the warranties,
representations, agreements and covenants contained herein or in any
instrument or document delivered or to be delivered pursuant to this
Agreement, shall survive the execution of this Agreement and the Closing
Date, notwithstanding any investigation heretofore or hereafter made by
or on behalf of any party hereto; provided, however, that unless otherwise
stated herein, the agreements and covenants set forth in this Agreement
shall survive and continue until all obligations set forth therein shall
have been performed and satisfied. Notwithstanding the foregoing, (a) the
representations and warranties of the Seller and each of the Companies
contained in Sections 3.1 and 3.5 and Sections 4.1 and 4.2 of this
Agreement and the representations and warranties of the Buyer contained in
Sections 5.1, 5.2, 5.3 and 5.5 of this Agreement shall survive the Closing
and continue in full force and effect indefinitely; (b) the representations
and warranties of the Seller and each of the Companies contained in
Sections 4.12 and 4.24 of this Agreement and the covenants set forth in
Article X shall survive the Closing and continue in full force and effect
until the expiration of the applicable statute of limitations, including
any extensions or waivers thereof; (c) the representations and warranties
of the Seller and each of the Companies contained in Section 4.25 of this
Agreement shall survive the Closing and continue in full force and effect
until two years from the Closing Date; and (d) all other representations
and warranties, and the related agreements of the Seller, each of the
Companies and the Buyer to indemnify each other set forth in this Article
IX, shall survive and continue for, and all indemnification claims with
respect thereto shall be made prior to the end of, 547 days from the
Closing Date, except for representations, warranties and related
indemnities for which an indemnification claim shall be pending, in
accordance with the terms of this Agreement, as of the end of the
applicable period referred to above, in which event such indemnities shall
survive with respect to such indemnification claim until the final
disposition thereof (the "Indemnification Period").
SECTION IX.2. Indemnification by the Seller.
(a) In the event that, during the Indemnification Period there is a breach
of any of the representations or warranties made by, or any breach of or
failure to perform any covenant, agreement or obligation of, any of the
Companies or the Seller in this Agreement or Agreement otherwise and
delivered contained in any exhibit or schedule to this Agreement, and, if
there is an applicable survival period pursuant to Section 9.1, then, in
each case, provided that the Buyer makes a written claim for
indemnification against the Seller within the applicable survival period,
the Seller agrees (subject to the limitations set forth in this Article IX)
to indemnify the Buyer and its Affiliates, directors, officers, employees,
stockholders, representatives and agents (collectively the "Buyer
Indemnified Parties") from and against the entirety of any Adverse
Consequences the Buyer Indemnified Parties may suffer through and after the
date of the claim for indemnification (including any Adverse Consequences
the Buyer Indemnified Parties may suffer through and after the end of the
applicable survival period) resulting from, arising out of or caused by any
breach (or alleged breach) of the foregoing; provided, however, that (A)
other than as set forth in Sections 9.2(b), (c) and (d), the Seller shall
not have any obligation to indemnify the Buyer Indemnified Parties from and
against any Adverse Consequences resulting from, arising out of, or caused
by any breach by any of the Companies or the Seller until the Buyer
Indemnified Parties have suffered Adverse Consequences by reason of all
such breaches in excess of a $295,000, aggregate threshold (at which point
the Seller will be obligated to indemnify the Buyer Indemnified Parties
from and against all such Adverse Consequences above such $295,000
threshold) and (B) there will be a $2,950,000 aggregate ceiling (the
"Indemnification Cap") on the obligation to indemnify the Buyer
Indemnified Parties from and against Adverse Consequences resulting from,
arising out of, or relating to the items identified in this Article IX.
Notwithstanding the foregoing or any other provision or term of this
Agreement, Buyer shall not be entitled to be indemnified hereunder for any
Adverse Consequences resulting from breaches of representations or
warranties of which Buyer had Knowledge on or prior to the Closing Date.
(b) The Seller agrees to indemnify the Buyer Indemnified Parties from and
against the entirety of any Adverse Consequences the Buyer Indemnified
Parties may suffer resulting from or arising out of relating to, in the
nature of, or caused by any Liability of any of the Companies (x) for any
Taxes of any of the Companies and any predecessor entities owned by or
affiliated with any of the Companies with respect to any Tax period or
portion thereof ending on or before the Closing Date (or for any Tax year
beginning before and ending after the Closing Date to the extent allocable
(as determined in accordance with the next sentence) to the portion of such
period beginning before and ending on the Closing Date), to the extent such
Taxes are not reflected in the reserve for Tax Liability (rather than any
reserve for deferred Taxes established to reflect timing differences between
book and Tax income) shown on the face of the Latest Balance Sheet, and (y)
for the unpaid Taxes of any Person (other than any of the Companies) under
Reg. S1.1502-6 (or any similar provision of state, local, or foreign Law),
as a transferee or successor, by Contract, or otherwise. For purposes of
allocating gross income and deductions between deemed short taxable periods,
all amounts of income and deduction shall be deemed to have accrued pro
rata during each Company's actual taxable year, except for items of
income or loss arising from an extraordinary event, which shall be
reflected in the period in which such event occurred.
(c) The Seller agrees to indemnify the Buyer Indemnified Parties from and
against the entirety of any Adverse Consequences the Buyer Indemnified
Parties may suffer resulting from or arising out of any matters disclosed on
Schedule 9.2(c).
(d) With respect to the two claims set forth on Schedule 9.2(d):
(i) Buyer shall have the right to defend such claims as if Buyer were the
Indemnifying Party subject to Seller's rights under Section 9.4 as if Seller
were an Indemnified Party; and
(ii) Buyer shall assume all Liability for such claims; provided, that Seller
shall be obligated, notwithstanding any survival period set forth in this
Article IX, to indemnify Buyer for any Adverse Consequences with respect
to such claims to the extent that such Adverse Consequences are not
covered by either the Seller's or the Buyers's insurance.
SECTION IX.3. Indemnification by the Buyer. Provided that the Seller
makes a written claim for indemnification against the Buyer within the
survival period set forth in Section 9.1, the Buyer and, from and after the
Closing, the Companies, jointly and severally, agree to indemnify the Seller
against, and agree to hold Seller and its Affiliates, directors, officers,
employees, stockholders, representatives and agents harmless from, any and
all Adverse Consequences incurred or suffered by them arising out of,
relating to or caused by, (i) any breach of or any inaccuracy in any
representation or warranty made by the Buyer pursuant to this Agreement,
any agreement executed and delivered in connection herewith or contained in
any exhibit or schedule to this Agreement; (ii) any breach of or failure by
the Buyer to perform any agreement, covenant or obligation of the Buyer set
out in this Agreement, any agreement executed and delivered in connection
herewith or contained in any exhibit or schedule to this Agreement; and
(iii) any obligations and Liabilities in respect of the Companies from and
after the Closing Date.
SECTION IX.4. Third-Party Claims.
(a) If any third party shall notify any party hereto (the "Indemnified
Party") with respect to any matter (a "Third Party Claim") which may give
rise to a claim for indemnification against any other party hereto (the
"Indemnifying Party") under this Article IX, then the Indemnified Party
shall promptly notify each Indemnifying Party thereof in writing; provided,
however, that no delay on the part of the Indemnified Party in notifying
any Indemnifying Party shall relieve the Indemnifying Party from any
obligation hereunder unless (and then solely to the extent) the
Indemnifying Party is prejudiced thereby.
(b) Any Indemnifying Party will have the right to defend the Indemnified
Party against the Third Party Claim with counsel of the Indemnifying
Party's choice reasonably satisfactory to the Indemnified Party so long
as (A) the Indemnifying Party notifies the Indemnified Party in writing
after the Indemnified Party has given notice of the Third Party Claim that,
subject to the limitations set forth in this Article IX, the Indemnifying
Party will indemnify the Indemnified Party from and against the entirety of
any Adverse Consequences the Indemnified Party may suffer resulting from,
arising out of, or caused by the Third Party Claim, and (B) the
Indemnifying Party conducts the defense of the Third Party Claim actively
and diligently.
(c) So long as the Indemnifying Party is conducting the defense of the
Third Party Claim in accordance with Section 9.4(b) above, (A) the
Indemnified Party may retain separate co-counsel at its sole cost and
expense and participate in the defense of the Third Party Claim, (B) the
Indemnified Party will not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim without the prior
written consent of the Indemnifying Party (not to be withheld unreasonably),
(C) the Indemnifying Party will not consent to the entry of any judgment
or enter into any settlement with respect to the Third Party Claim without
the prior written consent of the Indemnified Party (not to be unreasonably
withheld or delayed) (unless such entry or settlement includes as an
unconditional term thereof the giving by each claimant or plaintiff to each
Indemnified Party a release from all liability, in which case no such
consent will be required), and (D) with respect to any Third Party claim
relating to Taxes, the Seller, as Indemnifying Party, will not consent to
the entry of any judgment or enter into any settlement with respect to the
Third Party claim without the consent of Buyer, as Indemnified Party, if
such judgment or settlement could reasonably be expected to be material to
the Buyer for any post-Closing Tax Periods.
(d) Seller shall be entitled to have sole control over the defense,
settlement, compromise, admission or acknowledgment of all claims set forth
on Schedule 9.2(c).The Indemnifying Party shall not be entitled to control
(but shall be entitled to participate at its own expense in the defense
of), and the Indemnified Party shall be entitled to have sole control over,
the defense or settlement, compromise, admission, or acknowledgment of any
Third Party Claim (1) as to which the Indemnifying Party fails to assume
the defense within a reasonable length of time, (2) to the extent the
Third Party Claim seeks an order, injunction, or other equitable relief
against the Indemnified Party which, if successful, would materially
adversely affect the business, operations, assets or financial condition
of the Indemnified Party or (3) settlement of, or an adverse judgment with
respect to, such Third Party Claim is reasonably likely, in the good faith
judgment of the Indemnified Party, to establish a precedential custom or
practice which would be reasonably likely to materially adversely affect
the business, operations, assets or financial condition of the Indemnified
Party; provided, however, that, in each case, the Indemnified Party shall
make no settlement, compromise, admission or acknowledgment that would
reasonably be expected to give rise to liability on the part of any
Indemnifying Party without the prior written consent of such Indemnifying
Party.
(e) The parties hereto shall extend reasonable cooperation in connection
with the defense of any Third Party Claim pursuant to this Article IX and,
in connection therewith, shall furnish such records, information, and
testimony and attend such conferences, discovery proceedings, hearings,
trials, and appeals as may be reasonably requested.
SECTION IX.5. Other Indemnification Provisions.
(a) The liability of any party under this Article IX shall be in addition
to, and not exclusive of any other liability that such party may have at
law or equity based on a party's fraudulent acts or omissions. None of
the provisions of this Agreement shall be deemed a waiver of any defenses
which may be available in respect of actions or claims for fraud,
including but not limited to, defenses of statutes of limitations or
limitations of damages.
(b) Seller hereby agrees that he will not make any claim for
indemnification against any of the Companies by reason of the fact that he
was a director, manager, officer, employee or agent of any such entity or
was serving at the request of any such entity as a partner, member,
trustee, director, manager, officer, employee, or agent of another entity
(whether such claim is for judgments, damages, penalties, fines, costs,
amounts paid in settlement, losses, expenses, or otherwise and whether such
claim is pursuant to any statute, charter document, bylaw, agreement, or
otherwise) with respect to any action, suit, proceeding, complaint, claim
or demand brought by the Buyer against the Seller (whether such action,
suit, proceeding, complaint, claim or demand is pursuant to this Agreement,
applicable Law, or otherwise).
(c) Indemnification claims shall be reduced, by and to the extent, that
Seller or the Buyer Indemnified Parties, as applicable, with respect to such
claim shall be entitled to receive proceeds under insurance policies, risk
sharing pools, or similar arrangements specifically as a result of, and in
compensation for, the subject matter of an indemnification claim by such
party, net of any increased premiums or similar costs arising out of the
making of such claims against such arrangements. In addition,
indemnification claims shall be reduced by and to the extent that the
Seller or the Buyer Indemnified Parties, as applicable, with respect to
such claim shall lawfully be entitled to realize a Tax benefit as a result
of an indemnification claim. For purposes of this Section 9.5(c), a party
will be considered to realize an actual tax benefit if there is an actual
reduction in Taxes payable or a refund of Taxes previously paid.
(d) Except as otherwise provided in this Agreement, Buyer and the Companies
hereby release and forever discharge Seller and its Subsidiaries from any
and all suits, legal or administrative proceedings, claims, demands,
damages, losses, costs, liabilities, interest or causes of action
whatsoever in law or in equity, known or unknown, which Buyer and the
Companies might now or subsequently may have based on or relating to, or
arising out of this Agreement or Seller's use, maintenance, ownership and
operation of the Shares and the Companies' Business, including with
limitation, rights to contribution under the Environmental Laws, breaches
of statutory or implied warranties or otherwise, nuisance or other tort
actions and common law rights of contribution.
ARTICLE X
TAX MATTERS
SECTION X.1. Filing of Tax Returns and Payment of Taxes. As soon as
practicable after the Closing Date, Seller and the Companies will prepare
and file all appropriate Tax Returns for the operations of the Companies
for all periods ending on or before the Closing Date, including, for those
jurisdictions and tax authorities that permit or require a short period Tax
Return, for the period ending on the Closing Date and Seller will timely
pay the amount of Taxes shown to be due on such Tax Returns. The books and
records of Seller and the Companies will be maintained, and the Federal,
state and other income Tax Returns of the "affiliated group" (as defined in
Section 1504(a) of the Code) of which Seller and each of the Companies is a
member (the "Seller Group") will be filed, so as to accurately reflect the
operations of the Companies through the end of the Closing Date. Buyer
shall prepare and file all appropriate Tax Returns for the operations of
the Companies for all periods ending after the Closing Date and will timely
pay the amount of Taxes shown to be due on such Tax Returns.
SECTION X.2. Refunds of Taxes. Seller will be entitled to any refunds of
Taxes (including interest thereon) payable with respect to the operations
of the Companies for any period ending on or prior to the Closing Date.
Buyer shall be entitled to all other refunds of Taxes with respect to the
operations of the Companies. Refunds to which Seller is not entitled shall
be retained by the Companies, and shall not be paid to Seller, and if
received by Seller, shall be paid over to Buyer within 15 business days
after receipt.
SECTION X.3. Cooperation on Tax Matters.
(a) Buyer, each of the Companies and Seller shall cooperate fully, as and
to the extent reasonably requested by the other party, in connection with
the filing of Tax Returns pursuant to this Article X and any audit,
litigation or other proceeding with respect to Taxes. Such cooperation
shall include the retention and (upon the other party's request) the
provision of records and information which are reasonably relevant to any
such audit, litigation or other proceeding and making employees available
on a mutually convenient basis to provide additional information and
explanation of any material provided hereunder. Each of the Companies and
the Seller agree (A) to retain all books and records with respect to Tax
matters pertinent to the Companies relating to any taxable period beginning
before the Closing Date until the expiration of the statute of limitations
(and, to the extent notified by Buyer or Seller, any extensions thereof) of
the respective taxable periods, and to abide by all record retention
agreements entered into with any taxing Authority, and (B) to give the
other party reasonable written notice prior to transferring, destroying or
discarding any such books and records and, if the other party so requests,
the Companies or Seller, as the case may be, shall allow the other party to
take possession of such books and records.
(b) Buyer and Seller further agree, upon request, to use commercially
reasonable efforts to obtain any certificate or other document from any
governmental Authority or any other Person as may be necessary to mitigate,
reduce or eliminate any Tax that could be imposed (including, but not
limited to, with respect to the transactions contemplated hereby).
(c) Seller shall promptly notify Buyer and the Companies of any proposed
adjustment of any item on any Tax Return of the Seller Group for any period
ending on or prior to the Closing Date (including a deemed short taxable
period ending on and including the Closing Date with respect to those
jurisdictions in which the Companies' taxable years do not end on the
Closing Date), if such proposed adjustment may affect the Tax liability of
the Companies or Buyer for any period beginning after the close of such
period, including, without limitation, any proposed adjustments to the
allocation among assets of amounts received by Seller pursuant to the
transactions contemplated by this Agreement.
SECTION X.4. Certain Taxes. All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement (including any New
York City Transfer Tax and any similar tax imposed in other states or
subdivisions), shall be paid by Seller when due with respect to all such
transfer, documentary, sales, use, stamp, registration and other Taxes and
fees, and, if required by applicable Law, Buyer will, and will cause its
Affiliates to join in the execution of any such Tax Returns and other
documentation.
ARTICLE XI
TERMINATION
SECTION XI.1. Termination of Agreement. Certain of the parties may
terminate this Agreement as provided below:
(a) the Buyer and the Seller may terminate this Agreement by mutual
written consent at any time prior to the Closing;
(b) the Buyer may terminate this Agreement by giving written notice to
the Seller at any time prior to the Closing (A) in the event the Seller
has breached any representation, warranty, or covenant contained in this
Agreement in any material respect, the Buyer has notified in writing the
Seller of the breach, and the breach has continued without cure for a
period of 30 days after the notice of breach or (B) if the Closing shall
not have occurred on or before April 30, 1998, by reason of the failure of
any condition precedent under Article VII hereof (unless the failure
results primarily from the Buyer itself breaching any representation,
warranty, or covenant contained in this Agreement);
(c) the Seller may terminate this Agreement by giving written notice to
the Buyer at any time prior to the Closing (A) in the event the Buyer has
breached any material representation, warranty, or covenant contained in
this Agreement in any material respect, the Seller have notified in writing
the Buyer of the breach, and the breach has continued without cure for a
period of 30 days after the notice of breach; provided, however, that there
shall be no cure period with respect to the condition to closing set forth
in Section 7.8; or (B) if the Closing shall not have occurred on or before
April 30, 1998, by reason of the failure of any condition precedent under
Article VIII hereof (unless the failure results primarily from the Seller
breaching any representation, warranty, or covenant contained in this
Agreement); and
(d) the Buyer or Seller may terminate this Agreement by giving written
notice to the other if a court of competent jurisdiction or other Authority
shall have issued an order, decree, or ruling or taken any other action
(which order, decree or ruling the parties hereto shall use commercially
reasonable efforts to lift), in each case permanently restraining,
enjoying, or otherwise prohibiting the transactions contemplated by this
Agreement, and such order, decree, ruling, or other action shall have
become final and nonappealable.
SECTION XI.2. Effect of Termination. If any party terminates this
Agreement pursuant to Section 11.1 above, all rights and obligations of
the parties hereunder shall terminate without any Liability of any party
to any other party (except for any Liability of any party then in breach).
ARTICLE XII
MISCELLANEOUS
SECTION XII.1. Expenses. Each party will bear his or its own costs and
expenses (including legal fees and expenses) incurred in connection with
this Agreement and the transactions contemplated hereby. The Seller agrees
that none of the Companies has borne or will bear any of the Seller's costs
and expenses (including any of their legal fees and expenses) in connection
with this Agreement or any of the transactions contemplated hereby.
SECTION XII.2. Press Releases and Public Announcements. No party shall
issue any press release or make any public announcement relating to the
subject matter of this Agreement without the prior written approval of the
Buyer and the Seller; provided, however, that any party may make any public
disclosure it believes in good faith is required by applicable Law or any
listing or trading agreement concerning its publicly-traded securities
(in which case the disclosing party will use commercially reasonable
efforts to advise the other parties prior to making the disclosure).
SECTION XII.3. No Third-Party Beneficiaries. Subject to the provisions
of Section 12.5, this Agreement shall not confer any rights or remedies
upon any Person other than the parties and their respective successors
and permitted assigns, provided, however, that Section 6.21 shall confer
the rights and remedies stated therein to the Transferred Employees.
SECTION XII.4. Entire Agreement. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the parties and
supersedes any prior understandings, agreements, or representations by or
among the parties, written or oral, to the extent they related in any way
to the subject matter hereof.
SECTION XII.5. Succession and Assignment. This Agreement shall be binding
upon and inure to the benefit of the parties named herein and their
respective successors and permitted assigns. No party may assign either
this Agreement or any of his or its rights, interests, or obligations
hereunder without the prior written approval of the Buyer and the Seller;
provided, however, that the Buyer may (i) assign any or all of its rights
and interests (but not obligations) hereunder to one or more of its
Affiliates, (ii) designate one or more of its Affiliates to perform its
obligations hereunder (in any or all of which cases the Buyer nonetheless
shall remain responsible for the performance of all of its obligations
hereunder) and (iii) grant a security interest in respect of its rights
hereunder to its lenders.
SECTION XII.6. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of
which together will constitute one and the same instrument.
SECTION XII.7. Headings. The section headings contained in this
Agreement are inserted for convenience only and shall not affect in any
way the meaning or interpretation of this Agreement.
SECTION XII.8. Notices. All notices, requests, demands, claims, and
other communications hereunder will be in writing. Any notice, request,
demand, claim, or other communication hereunder shall be deemed duly
given if (and then two business days after) it is sent by registered or
certified mail, return receipt requested, postage prepaid, and addressed
to the intended recipient as set forth below:
(a) If to the Seller, to the addressed as follows:
NCH Corporation
2727 Chemsearch Boulevard
Irving, Texas 75062
Attn: Mr. Jack B. Rubin
Senior Vice President
Facsimile No.: (972) 721-6135
Attn: Joe Cleveland
General Counsel
Facsimile No.: (972) 438-0100
with a copy to:
Vinson & Elkins L.L.P.
3700 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201-2975
Attention: Jeffrey A. Chapman
Facsimile No.: (214) 220-7716
(b) If to the Buyer, addressed as follows:
Jackson Products, Inc.
2997 Clackson Road
Chesterfield, Missouri 63017
Attention: Christopher T. Paule
Facsimile No.: (314) 207-2800
with a copy to:
Mayer, Brown & Platt
1675 Broadway, Suite 1900
New York, New York 10019
Attention: James B. Carlson
Facsimile No.: (212) 262-1910
Any party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set forth
above using any other means (including personal delivery, expedited courier,
messenger service, telecopy, ordinary mail, or electronic mail), but no such
notice, request, demand, claim, or other communication shall be deemed to
have been duly given unless and until it actually is received by the
intended recipient. Any party may change the address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other parties notice in the manner herein set forth.
SECTION XII.9. Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic Laws of the State of New York
without giving effect to any choice or conflict of Law provision or rule
(whether of the State of New York or any other jurisdiction) that would
cause the application of the Laws of any jurisdiction other than the State
of New York.
SECTION XII.10. Amendments and Waivers. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and
signed by the Buyer and Seller. No waiver by any party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder
or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
SECTION XII.11. Severability. Any term or provision of this Agreement
that is invalid or unenforceable in any situation in any jurisdiction shall
not affect the validity or enforceability of the remaining terms and
provisions hereof or the validity or enforceability of the offending term
or provision in any other situation or in any other jurisdiction.
SECTION XII.12. Construction. The parties have participated jointly in
the negotiation and drafting of this Agreement. In the event an ambiguity
or question of intent or interpretation arises, this Agreement shall be
construed as if drafted jointly by the parties and no presumption or burden
of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement. Any reference to
any federal, state, local, or foreign statute or Law shall be deemed also
to refer to all rules and regulations promulgated thereunder, unless the
context requires otherwise. The word "including" shall mean including
without limitation. The parties intend that each representation, warranty,
and covenant contained herein shall have independent significance. If any
party has breached any representation, warranty, or covenant contained
herein in any respect, the fact that there exists another representation,
warranty, or covenant relating to the same subject matter (regardless of
the relative levels of specificity) which the party has not breached shall
not detract from or mitigate the fact that the party is in breach of the
first representation, warranty, or covenant.
SECTION XII.13. Incorporation of Exhibits, Annexes, and Schedules. The
exhibits, annexes, and schedules identified in this Agreement are
incorporated herein by reference and made a part hereof.
SECTION XII.14. Specific Performance. Each of the parties acknowledges
and agrees that the other parties would be damaged irreparably in the event
that Sections 6.5, 6.15 and 6.19 of this Agreement are not performed in
accordance with its specific terms or otherwise are breached. Accordingly,
each of the parties agrees that the other parties shall be entitled to an
injunction or injunctions to prevent breaches of such provision of this
Agreement and to enforce specifically this Agreement and the terms and
provisions hereof in any action instituted in any court of the United
States or any state thereof having jurisdiction over the parties and the
matter, in addition to any other remedy to which they may be entitled,
at law or in equity.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
JACKSON PRODUCTS, INC.
By: /s/ Christopher T. Paule
-----------------------------
Name: Christopher T. Paule
Title: Vice President
NCH CORPORATION
By: /s/ Tom Hetzer
----------------------
Name: Tom Hetzer
Title: Vice President - Finance
AMERICAN ALLSAFE COMPANY
By: /s/ Jack B. Rubin
-----------------------
Name: Jack B. Rubin
Title: Senior Vice President
SILENCIO/SAFETY DIRECT, INC.
By: /s/ Jack B. Rubin
-----------------------
Name: Jack B. Rubin
Title: Senior Vice President
NCH CORPORATION AND SUBSIDIARIES
EXHIBIT 13
ANNUAL REPORT FOR THE YEAR ENDED APRIL 30, 1998
Selected Financial Data
NCH Corporation and Subsidiaries
(In Thousands Except Per Share Data)
Years Ended April 30,
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
Net Sales $784,095 $766,761 $772,834 $735,098 $679,987
Net Income $ 35,695 $ 34,675 $ 36,307 $ 35,582 $ 31,207
Earnings Per
Share
Basic $4.98 $4.73 $4.51 $4.29 $3.77
Diluted $4.97 $4.73 $4.51 $4.27 $3.76
Current
Ratio 3.7 to 1 3.4 to 1 3.3 to 1 3.5 to 1 3.6 to 1
Total Assets $519,704 $497,591 $514,404 $529,137 $485,223
Long-Term
Debt $ 1,400 $ 112 $ 49 $ 4,761 $ 6,790
Retirement
and Deferred
Compensation
Plans $111,088 $107,057 $ 99,915 $ 92,157 $ 83,986
Cash Dividends
Declared
Per Share $1.35 $2.20 $2.20 $2.15 $2.00
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
Liquidity and Capital Resources
-------------------------------
In the fiscal year ended April 30, 1998, working capital increased to
$288.7 million from $260.1 million at April 30, 1997. The current ratio was
3.7 to 1 at April 30, 1998, compared to 3.4 to 1 at April 30, 1997. The
total of cash, cash equivalents and marketable securities increased by
$27.8 million to $118.8 million at April 30, 1998. Net cash flow from
operations totaled $27.7 million for fiscal 1998. Additional cash was
provided by the sale of two subsidiaries with net proceeds of $30.1
million, net proceeds from the exercise of stock options of $7.3 million,
and net proceeds from notes payable of $4.7 million. Principal uses of
cash consisted of net purchases of marketable securities of $31.8 million,
net capital expenditures of $12.6 million, payment of dividends of $9.3
million, and treasury stock purchases of $9.1 million. During the year,
the Company purchased the assets of two small domestic businesses for
$4.6 million. Management expects that operating cash flows will continue
to generate sufficient funds to finance operating needs, capital
expenditures and the payment of dividends. Long-term and short-term
indebtedness has usually been limited to the borrowing of local country
currencies by the Company's international subsidiaries to finance working
capital requirements, although the Company has incurred debt domestically
at various times when financially advantageous.
The Company's international subsidiaries operate on a fiscal year
ending on the last day of February. At February 28, 1998, the value of
the U.S. dollar had increased relative to most of the currencies in which
the Company's international subsidiaries operate. As a result, the
reported values of both assets and liabilities of the Company's
international subsidiaries decreased as a result of the change in the
Company's composite spot rate at February 28, 1998, compared to February
28, 1997. This is reflected by the foreign currency translation component
of stockholders' equity, which increased $8.0 million to a $33.8 million
reduction of equity at April 30, 1998.
As reported on the Consolidated Balance Sheets, accounts receivable
decreased by $3.9 million in the year ended April 30, 1998. The change in
accounts receivable presented in the Consolidated Statements of Cash Flows
excludes the effect of exchange rates on the reported asset values and
shows that accounts receivable, net of the provision for losses, increased
by $3.4 million compared to the end of the prior year. The change in
accounts receivable, was primarily the result of the sale of two domestic
subsidiaries during April 1998, offset by increased sales in certain of the
domestic operations during the month of April.
As reported on the Consolidated Balance Sheets, inventories increased
by $1.0 million in the year ended April 30, 1998. The change in inventories
presented in the Consolidated Statements of Cash Flows excludes the effect
of exchange rates on the reported asset values and shows that inventories
increased $6.5 million in the same period. Inventories increased in the
current year due to higher inventory requirements as a result of increasing
sales in several of the Company's domestic operations, partially offset by
the sale of two domestic subsidiaries during April 1998.
Accounts payable, accrued expenses and income taxes payable decreased
by $1.4 million as reported on the Consolidated Balance Sheets. Accounts
payable decreased as a result of normal business activity associated with
timing of payments and was offset by an increase in income taxes payable.
Income taxes payable increased due to the timing of payments in the current
year as compared to the prior year and increased pre-tax income during the
current year in the domestic operations.
Net capital expenditures for property, plant and equipment were $12.6
million for the year ended April 30, 1998. These consisted of the
installation and update of worldwide computer systems and normal additions
of operating equipment. Capital expenditures for the upcoming year are
anticipated to be less than current year expenditures.
Deferred tax benefits represent future income tax deductions and,
therefore, impact future cash flows by reducing federal income taxes to be
paid in future years in which the temporary differences are expected to be
recovered or settled. Management believes the Company will have sufficient
future taxable income to make it more likely than not that the net deferred
tax assets will be realized.
Total bank indebtedness, comprised of long-term debt, current
maturities of long-term debt and notes payable, increased $2.3 million as
reported on the Consolidated Balance Sheets. During the year, short-term
borrowings, primarily in Europe, were repaid, and $3.7 million of domestic
debt was repaid in connection with the sale of two subsidiaries. Of the
$1.7 million in long-term debt and current maturities, $1.5 million is a
note payable issued in connection with the purchase of a small domestic
business. The remaining long-term debt and current maturities and all $7.2
million of notes payable consist of international subsidiary borrowings in
local country currencies used primarily to finance working capital
requirements.
The retirement and deferred compensation plan liability on the
Consolidated Balance Sheets represents compensation deferred by employees
and accrued interest on such deferrals as well as accrued retirement
benefits under non-qualified retirement plans. Deferred compensation is
expensed as earned with a liability recorded for payment in future years.
During fiscal year 1998, cash dividends paid amounted to $9.3
million ($1.30 per share) compared to $16.0 million in 1997 ($2.20 per
share, which included a special dividend of $1.00 per share). The directors
of the Company increased the regular quarterly dividend to $.35 from $.30
on September 10, 1997, which was paid December 15, 1997. On April 8, 1998,
the directors of the Company declared a regular quarterly cash dividend of
$.35 per share of Common Stock to be paid June 15, 1998, to shareholders
of record June 1, 1998.
Subsequent Event
----------------
On May 26, 1998, the Board of Directors authorized the repurchase
of an aggregate of 1,266,176 shares of NCH Corporation Common Stock from
the Milton P. Levy, Jr. family. These shares were acquired on May 26,
1998 at $60.89 per share. The closing trading price of NCH Common Stock
on that date was $65.44 per share. In addition, the Company purchased an
additional 284,839 shares on the open market. In these two transactions,
the Company repurchased 1,551,015 shares of NCH Common Stock for an
aggregate price of $93.8 million.
Operating Results
-----------------
Net sales of $784.1 million in fiscal 1998 were 2% higher than net
sales of $766.8 million in fiscal 1997. Net sales in fiscal year 1997 were
1% lower than fiscal 1996 net sales of $772.8 million. Domestic net sales
increased 1% from fiscal 1996 to 1997, and 10% from fiscal 1997 to 1998.
Net sales from total international operations increased 4% from fiscal
1997 to 1998 when measured on a local currency basis. Due to the
strengthening of the U.S. dollar, sales from international operations
reflected a decrease of 6% from fiscal 1997 to 1998 as reported in U.S.
dollars. Total international net sales in fiscal 1997 decreased 3% from
1996 as reported in U.S. dollars and remained constant when measured on a
local currency basis. Net sales in Europe increased 4% on a local currency
basis from fiscal 1997 to 1998 and remained constant from fiscal 1996 to
1997. When reported in U.S. dollars, net sales in Europe decreased 8% from
fiscal 1997 to 1998, as compared to a 3% decrease from fiscal 1996 to 1997.
Net sales in the Pacific and Far East decreased 23% on a local currency
basis from fiscal 1997 to 1998 as compared to a 7% increase in local
currency net sales from fiscal 1996 to 1997. Net sales in the Pacific and
Far East decreased 14% from fiscal 1997 to 1998 as reported in U.S.
dollars as compared to a 4% decrease from fiscal 1996 to 1997. Net sales
in Latin America and Canada decreased 1% on a local currency basis from
fiscal 1997 to 1998 compared to a 12% decrease from 1996 to 1997. Net
sales in Latin America and Canada as reported in U.S. dollars increased 3%
from fiscal 1997 to 1998 and decreased 3% from fiscal 1996 to 1997.
Operating income decreased to $51.7 million in fiscal 1998 compared
to $56.3 million in 1997, due to the strengthening of the U.S. dollar and
lower operating margins in the international operations. Domestic
operating margins improved slightly from fiscal 1997 to 1998 due to
decreased marketing and administrative costs, partially offset by
increased cost of sales from fiscal 1997 to 1998. Internationally,
operating margins decreased due to increased marketing and administrative
expenses in fiscal 1998 compared to 1997. Operating income decreased to
$56.3 million in fiscal 1997 from $61.0 million in 1996. Domestically,
operating margins in fiscal 1997 decreased slightly from 1996 due to higher
marketing and administrative expenses. International operating margins in
fiscal 1997 decreased slightly due to increased administrative expenses.
In fiscal year 1998, the Company reported net interest expense of
$.4 million compared to net interest income of $.8 million in 1997.
This decrease is due to higher average borrowings during 1998 as compared
to 1997 for both domestic and international operations. The $.8 million
in net interest income in fiscal 1997 compared to net interest income of
$1.2 million in 1996.
Loss on revaluation of foreign currencies was $2.3 million in fiscal
1998 compared to $2.4 million in fiscal 1997. The current year loss is due
to foreign exchange expense in certain European and Pacific subsidiaries
and translation losses in hyper-inflationary countries. In fiscal 1997,
loss on currency revaluation was $2.4 million compared to a loss of $.8
million in 1996. The fiscal 1997 loss is attributable to foreign exchange
expense in certain European subsidiaries and translation losses in
hyper-inflationary countries. The Company enters into foreign exchange
contracts and foreign currency option contracts from time to time to manage
its exposure to foreign currency rate changes.
During April 1998, the Company sold two subsidiaries, resulting in a
gain of $11.0 million before taxes ($7.1 million after taxes). Sales for
these two subsidiaries were less than 5% of the Company's consolidated
annual sales, and therefore this transaction is not expected to have a
material impact on the Company's future operations. During the previous
fiscal year, the Company sold subsidiary assets, resulting in a gain of
$3.5 million before taxes ($2.3 million after taxes). This subsidiary's
sales were not a material portion of the Company's consolidated annual
sales, and therefore this transaction has not had a material impact on the
Company's operations.
The overall corporate tax rate for fiscal 1998 was 40.5% of pre-tax
income compared to 40.4% in 1997 and 40.9% in 1996. A reconciliation of
the effective tax rates to U.S. statutory rates is contained in the Notes
to Consolidated Financial Statements.
Net income in fiscal year 1998 increased 3% to $35.7 million from
$34.7 million in 1997. Basic earnings per share increased 5% to $4.98 per
share in fiscal 1998, due to the increase in net income combined with the
decrease in the weighted average number of common shares outstanding during
the current year. Diluted earnings per share also increased 5% to $4.97
per share in fiscal 1998. Net income in fiscal 1997 was 4% lower than the
$36.3 million reported in 1996. Basic earnings per share in fiscal 1997
were $4.73, a 5% increase from $4.51 in 1996, due to a decrease in the
weighted average number of common shares outstanding during fiscal 1997.
Diluted earnings per share also increased 5% to $4.73 per share in fiscal
1997.
On a geographic area basis, net income for the United States increased
25% to $27.3 million in fiscal year 1998, due to the sale of subsidiary
assets during the year. Net income of $21.8 million in fiscal 1997 was 7%
higher than the $20.3 million reported in 1996, primarily due to the sale
of subsidiary assets during fiscal 1997 and a lower effective income tax
rate in 1997 compared to 1996.
Net income in Europe decreased 7% from $11.7 million in fiscal 1997
to $10.9 million in 1998. The decrease in net income from fiscal 1997 to
1998 was primarily attributable to the negative effect of the stronger U.S.
dollar in 1998 compared to 1997. Net income in fiscal 1996 was $15.2
million. The decrease in net income from fiscal 1996 to 1997 was primarily
attributable to decreased sales in certain European countries plus the
negative effect of the stronger U.S. dollar in 1997 compared to 1996.
Net loss in the Pacific and Far East operations was $2.7 million in
fiscal 1998 compared to net income of $.1 million in 1997 due to the
regional business environment and the strength of the U.S. dollar relative
to regional currencies. Net income of $.1 million in fiscal 1997 compared
to net income of $.2 million reported in 1996.
Latin America and Canada had net income of $.2 million in fiscal 1998
compared to $1.1 million in 1997. Net income of $1.1 million in fiscal
1997 compared to net income of $.5 million reported in 1996.
Year 2000 Compliance
--------------------
The Company is continuing to review its worldwide computer systems
to identify and address any code changes, testing, and implementation
procedures necessary to make its systems year 2000 compliant. The Company
believes that with modifications to existing software, and converting to
new software, the year 2000 issue will not pose significant operational
problems for the Company's computer systems as so modified and converted.
The Company expects to be compliant by the end of fiscal year 1999.
Amounts expensed for year 2000 projects have not been and are not expected
to be significant to the Company's results of operations.
Forward-Looking Information
---------------------------
Management is unaware of any conditions or trends that could have a
material adverse effect on the Company's consolidated financial position,
future results of operations or liquidity. However, investors should also
be aware of factors that could have a negative impact on prospects and the
consistency of progress. These include economic, political or other
factors such as currency exchange rates, inflation rates, taxes and
regulations in each of the countries in which the Company operates,
competitive products and pricing, and changes in the prices of raw
materials.
Recent Accounting Pronouncements
--------------------------------
In June 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 130, "Reporting Comprehensive Income". This statement establishes
standards for the reporting and display of comprehensive income in a full
set of general purpose financial statements. Also in June 1997, the FASB
issued SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information". This statement establishes standards for the
reporting of information about operating segments in annual financial
statements. Additionally, it requires that enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. In February 1998, the FASB issued SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits" that provides
new employer disclosure requirements regarding pension plans and other
postretirement plans. SFAS Nos. 130, 131, and 132 are effective for
periods beginning after December 15, 1997, and the Company will adopt
these statements for fiscal year 1999. These statements increase
disclosure only and will have no effect on the Company's financial position
or results of operations.
Consolidated Statements of Income
NCH Corporation and Subsidiaries
(In Thousands Except Per Share Data)
Years Ended April 30,
1998 1997 1996
-------- -------- --------
Net Sales $784,095 $766,761 $772,834
-------- -------- --------
Operating Expenses
Cost of sales, including
warehousing and commissions 427,304 403,317 407,141
Marketing and administrative
expenses 305,044 307,193 304,692
-------- -------- --------
732,348 710,510 711,833
Operating Income 51,747 56,251 61,001
Other (Expenses) Income
Revaluation of foreign currencies (2,318) (2,373) (789)
Net interest (434) 801 1,171
Gain on sale of subsidiaries 10,972 3,536 -
-------- -------- --------
Income before Income Taxes 59,967 58,215 61,383
Provision for Income Taxes 24,272 23,540 25,076
-------- -------- --------
Net Income $ 35,695 $ 34,675 $ 36,307
======== ======== ========
Earnings Per Share
Basic $4.98 $4.73 $4.51
===== ===== =====
Diluted $4.97 $4.73 $4.51
===== ===== =====
The accompanying notes are an integral part of these financial statements.
Consolidated Balance Sheets
NCH Corporation and Subsidiaries
(In Thousands Except Share Data)
As of April 30,
1998 1997
-------- --------
Assets
Current Assets
Cash and cash equivalents $ 17,139 $ 21,273
Marketable securities 101,626 69,700
Accounts receivable (less allowance for
doubtful accounts of $15,653 and $15,624) 140,758 144,664
Inventories 108,478 107,502
Prepaid expenses 9,434 6,228
Deferred income taxes 19,099 18,579
-------- --------
Total Current Assets 396,534 367,946
-------- --------
Property, Plant and Equipment 191,514 202,830
Accumulated depreciation 112,353 114,330
-------- --------
79,161 88,500
-------- --------
Deferred Income Taxes 30,848 29,637
-------- --------
Other 13,161 11,508
-------- --------
Total $519,704 $497,591
======== ========
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable to banks $ 7,178 $ 2,694
Current maturities of long-term debt 292 3,767
Accounts payable 49,083 51,057
Accrued expenses 28,019 28,286
Income taxes payable 20,736 19,874
Dividends payable 2,504 2,149
-------- --------
Total Current Liabilities 107,812 107,827
-------- --------
Long-Term Debt, less current maturities 1,400 112
-------- --------
Retirement and Deferred Compensation Plans 111,088 107,057
-------- --------
Stockholders' Equity
Common stock, par value $1 per share, authorized
20,000,000 shares. Issued 11,769,304 shares 11,769 11,769
Additional paid-in capital 12,289 8,708
Retained earnings 474,540 448,513
Foreign currency translation adjustment (33,786) (25,740)
Unrealized gains on investments 111 40
-------- --------
464,923 443,290
Less treasury stock
(4,615,605 and 4,606,705 shares) 165,519 160,695
-------- --------
299,404 282,595
-------- --------
Total $519,704 $497,591
======== ========
The accompanying notes are an integral part of these financial statements.
Consolidated Statements of Cash Flows
NCH Corporation and Subsidiaries
(In Thousands)
Years Ended April 30,
1998 1997 1996
-------- -------- --------
Cash Flows from Operating Activities
Net income $35,695 $34,675 $36,307
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 14,992 15,092 14,981
Gain on sale of subsidiaries (10,972) (3,536) -
Provision for losses on accounts receivable 5,483 6,939 7,697
Deferred income taxes (1,917) (3,723) (5,150)
Retirement and deferred compensation plans 4,757 7,860 8,143
Other noncash items 206 546 (486)
Change in assets and liabilities, excluding net assets
acquired in the purchase of businesses:
Accounts receivable (8,883) (12,414) (5,824)
Inventories (6,459) (2,397) (995)
Prepaid expenses (3,240) (286) (183)
Accounts payable, accrued expenses
and income taxes payable (606) (381) (4,020)
Other noncurrent assets (1,308) (1,704) (2,132)
-------- -------- --------
Net cash provided by operating activities 27,748 40,671 48,338
-------- -------- --------
Cash Flows from Investing Activities
Sales of property, plant and equipment 1,342 1,641 823
Purchases of property, plant and equipment (13,935) (17,659) (18,396)
Redemptions of marketable securities 36,589 45,927 52,590
Purchases of marketable securities (68,407) (33,657) (22,031)
Acquisition of businesses (4,562) (246) -
Sale of subsidiaries 30,098 7,932 -
Other (886) (1,012) (1,012)
-------- -------- --------
Net cash provided by (used in) investing activities (19,761) 2,926 11,974
-------- -------- --------
Cash Flows from Financing Activities
Proceeds from notes payable 5,172 2,296 2,487
Payments of notes payable (427) (6,596) (480)
Additional long-term debt 98 114 -
Payments of long-term debt (3,764) (24) (3,275)
Borrowing of cash surrender values 1,930 1,914 1,887
Surrender of insurance contracts - 6,452 -
Payments of dividends (9,313) (15,999) (17,746)
Purchases of treasury stock (9,054) (30,052) (37,283)
Proceeds from exercise of stock options 7,259 1,800 1,077
-------- -------- --------
Net cash used in financing activities (8,099) (40,095) (53,333)
Effect of Exchange Rate Changes on Cash and Cash Equivalents (4,022) (4,035) (1,437)
-------- -------- --------
Net Increase (Decrease) in Cash and Cash Equivalents (4,134) (533) 5,542
Cash and Cash Equivalents at Beginning of Year 21,273 21,806 16,264
-------- -------- --------
Cash and Cash Equivalents at End of Year $17,139 $21,273 $21,806
======== ======== ========
The accompanying notes are an integral part of these financial statements.
Consolidated Statements of Stockholders' Equity
NCH Corporation and Subsidiaries
(In Thousands Except Per Share Data)
Foreign Unrealized
Common Treasury Common Treasury Additional Currency Gains
Stock Stock Stock Stock Paid-In Retained Translation (Losses) on
Shares Shares Amount Amount Capital Earnings Adjustment Investments Total
------- ------- ------- ------- ------- ------- -------- -------- --------
Balance, April 30, 1995 11,769 (3,458) $11,769 $(95,206) $7,348 $410,932 $(18,412) $(255) $316,176
Net income 36,307 36,307
Cash dividends on common
stock, $1.90 per share (15,253) (15,253)
Dividend declared, but not
paid, $.30 per share (2,299) (2,299)
Treasury stock acquired (669) (37,283) (37,283)
Treasury stock sold under
stock option plans 20 574 503 1,077
Treasury stock issued under
stock participation plan
and stock bonuses 2 92 61 153
Foreign currency translation
adjustment (308) (308)
Unrealized gains on investments 365 365
------- ------- ------- ------- ------- ------- -------- -------- --------
Balance, April 30, 1996 11,769 (4,105) 11,769 (131,823) 7,912 429,687 (18,720) 110 298,935
Net income 34,675 34,675
Cash dividends on common
stock, $1.90 per share (13,700) (13,700)
Dividend declared, but not
paid, $.30 per share (2,149) (2,149)
Treasury stock acquired (537) (30,052) (30,052)
Treasury stock sold under
stock option plans 33 1,097 703 1,800
Treasury stock issued under
stock participation plan
and stock bonuses 2 83 93 176
Foreign currency translation
adjustment (7,020) (7,020)
Unrealized losses on investments (70) (70)
------- ------- ------- ------- ------- ------- -------- -------- --------
Balance, April 30, 1997 11,769 (4,607) 11,769 (160,695) 8,708 448,513 (25,740) 40 282,595
Net income 35,695 35,695
Cash dividends on common
stock, $1.00 per share (7,164) (7,164)
Dividend declared, but not
paid, $.35 per share (2,504) (2,504)
Treasury stock acquired (137) (9,324) (9,324)
Treasury stock sold under
stock option plans 125 4,415 3,509 7,924
Treasury stock issued under
stock participation plan
and stock bonuses 3 85 72 157
Foreign currency translation
adjustment (8,046) (8,046)
Unrealized gains on investments 71 71
------- ------- ------- ------- ------- ------- -------- -------- --------
Balance, April 30, 1998 11,769 (4,616) $11,769 $(165,519) $12,289 $474,540 $(33,786) $ 111 $299,404
======= ======= ======= ======= ======= ======= ======== ======== ========
The accompanying notes are an integral part of these financial statements.
Notes to Consolidated Financial Statements
NCH Corporation and Subsidiaries
1. Summary of Significant Accounting Policies
Principles of consolidation - The consolidated financial statements
include the accounts of NCH Corporation and its majority owned
subsidiaries (the "Company"). Significant intercompany transactions and
balances have been eliminated. A February fiscal year-end is used for
most international subsidiaries in order to meet reporting requirements.
Nature of operations - The Company markets an extensive line of
maintenance, repair and supply products to customers throughout the world.
Products include specialty chemicals, fasteners, welding supplies, and
plumbing and electronic parts. These products are marketed principally
through the Company's own sales force.
Use of estimates in the financial statements - The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Foreign currency translation - With the exception of hyper-
inflationary countries, all assets and liabilities of operations outside
the United States are translated into U.S. dollars at period-end exchange
rates, and income and expenses are translated at average rates for the
year. Gains and losses resulting from translation, as well as gains and
losses from foreign exchange contracts hedging the net assets of foreign
subsidiaries, are included in the foreign currency translation adjustment
component of stockholders' equity. Gains and losses from foreign exchange
contracts hedging specific intercompany foreign currency commitments are
deferred and accounted for as part of the hedged transaction. The hyper-
inflationary countries have been translated into U.S. dollar equivalents
as follows: current assets (except for inventories), current liabilities,
long-term debt and other liabilities at period-end exchange rates;
inventories, property, other assets, capital stock and retained earnings
at historical rates; income and expense items at average rates for the
year, except for cost of sales and depreciation expense, which are
translated at historical rates. Gains and losses resulting from
translation for hyper-inflationary countries are recognized in the income
statement as expense or income in the current period. Exchange
adjustments resulting from foreign currency transactions are recognized as
expense or income in the current period for all countries.
Cash and cash equivalents and marketable securities - Cash and cash
equivalents include cash on hand, cash in banks and all highly liquid
investments with a maturity of three months or less at the time of
purchase. Cash equivalents are stated at amortized cost plus accrued
interest. Marketable securities are stated at estimated fair value.
Inventories - Raw materials, sales supplies and purchased finished
goods are stated at a moving average cost, which approximates cost on a
first-in, first-out basis and is not in excess of market value.
Manufactured finished goods are stated at an amount approximating cost of
manufacturing, which is not in excess of net realizable value.
Property, plant and equipment - These assets are recorded at cost.
When these assets are disposed of, the cost and related accumulated
depreciation are removed from the accounts, and any resulting gain or
loss is included in income during that year. The cost of maintenance and
repairs is charged to expense as incurred, whereas expenditures that
substantially increase the useful lives of plant or equipment are
capitalized.
Depreciation - Depreciation on buildings and equipment is provided
for financial statement purposes using the straight-line method over the
estimated useful lives of the related assets. Depreciation on certain
buildings and equipment is provided for income tax purposes using
accelerated methods.
Intangible assets - Intangible assets are classified as other assets
in the consolidated financial statements and include patents, computer
software and trademarks. Intangible assets are amortized using the
straight-line method over their estimated useful lives, but not in excess
of 40 years. The unamortized cost of impaired intangible assets is
charged to expense when impairment occurs.
Research and development - Research and development costs, which are
included in the costs of laboratory operations, are charged to expense as
incurred. Research and development costs, however, cannot be separately
identified from the total laboratory costs. Total laboratory costs
amounted to approximately $5.5 million in 1998, $5.0 million in 1997 and
$4.6 million in 1996.
Income taxes - Deferred income taxes result from temporary
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. State income tax
has been included in the provision for income taxes and income taxes
payable.
Treasury stock - Treasury stock is stated at cost.
Retirement plans - The Company's policy is to fund its qualified
retirement type plans as accrued. The cost of these retirement benefits
for past service has been fully funded. Non-qualified retirement plans
are not funded, but provision for the estimated liabilities arising from
these plans has been made in the consolidated financial statements.
Postretirement benefits other than pensions - The Company charges to
expense the estimated future costs of retiree health care benefits during
the years that employees render service. The postretirement health care
benefit plan is not funded.
Stock options - The Company issues shares from its treasury as
options are exercised. When an option is exercised, treasury stock is
credited with the average cost of the treasury shares issued, and
additional paid-in capital is charged or credited for the difference
between the option price and the average cost of the treasury shares. No
charge to income is made in connection with the stock option plan.
Effective May 1, 1996, the Company adopted the disclosure provisions of
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting
for Stock-Based Compensation". For the impact of the fair value of
employee stock options granted during fiscal years 1998, 1997 and 1996,
see footnote 8, "Capital Stock and Options".
Earnings per share - Effective January 31, 1998, the Company adopted
SFAS No. 128, "Earnings Per Share". Basic earnings per share is computed
by dividing net income by the weighted-average number of shares
outstanding. Diluted earnings per share includes the dilutive effect of
stock options. Prior periods have been restated to reflect the new
standard.
2. Consolidated International Subsidiaries
At April 30, 1998 and 1997, the parent Company's investment in
consolidated international subsidiaries amounted to $46,752,000 and
$45,151,000. The current year consolidated financial statements include
international subsidiaries' assets of $151,068,000, liabilities of
$63,579,000 and net income of $8,396,000, after allocation of corporate
expenses and excluding intercompany sales and profits. For the prior
year, these subsidiaries had assets of $155,287,000, liabilities of
$60,914,000 and net income of $12,866,000.
3. Income Taxes
The following are the components of the provision for income taxes
(in thousands of dollars):
Years Ended April 30,
-------------------------------------
1998 1997 1996
-------- -------- --------
U.S. Federal
Current $10,754 $11,425 $10,675
Deferred (2,375) (3,888) (4,075)
Foreign
Current 13,096 14,429 17,421
Deferred 458 165 (721)
State 2,339 1,409 1,776
-------- -------- --------
$24,272 $23,540 $25,076
======== ======== ========
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
The components of deferred tax assets and liabilities as of April 30
are as follows (in thousands of dollars):
Deferred tax assets: 1998 1997
-------- --------
Allowance for doubtful accounts $ 3,771 $ 3,916
Inventory related 4,858 4,277
Insurance related 3,679 3,491
Accrued expenses 6,112 5,756
Retirement and deferred compensation plans 36,479 35,093
Marketable securities (59) (22)
Foreign operating loss carryforwards 1,092 1,026
Valuation allowance (16) (55)
-------- --------
55,916 53,482
-------- --------
Deferred tax liabilities:
Depreciation 4,455 4,403
Other 1,514 863
-------- --------
5,969 5,266
-------- --------
Net deferred tax asset $49,947 $48,216
======== ========
A valuation allowance has been provided for certain foreign net
operating loss carryforwards which are estimated to expire before they
are utilized. The decreases in the valuation allowance during the years
ended April 30, 1998, 1997, and 1996 were $39,000, $39,000 and $62,000,
respectively.
The following is a reconciliation of the difference between the U.S.
statutory income tax rate and the effective tax rate:
Years Ended April 30,
--------------------------
1998 1997 1996
------ ------ ------
U.S. statutory rate 35.0% 35.0% 35.0%
Tax exempt interest (1.7) (1.8) (2.2)
Other .8 .5 .8
Effect of international
operations 3.9 5.2 5.5
Effect of state income
taxes 2.5 1.5 1.8
------ ------ ------
Effective tax rate 40.5% 40.4% 40.9%
====== ====== ======
The Company files a consolidated U.S. federal income tax return with
its domestic subsidiaries. International subsidiaries file tax returns
in countries of their incorporation. In addition, branches of certain
U.S. and international companies file tax returns in countries in which
they conduct business. Certain of these subsidiaries have operating loss
carryforwards totaling approximately $2,804,000, which will expire
between 1999 and 2004. The accumulated undistributed earnings of
international subsidiaries not included in the consolidated U.S. federal
income tax return approximated $74,146,000 at April 30, 1998, $74,834,000
at April 30, 1997 and $69,286,000 at April 30, 1996. No provision is
made in the accompanying consolidated financial statements for the
estimated taxes that would result on distribution of the accumulated
undistributed earnings since the Company intends to invest indefinitely
in the operations of these subsidiaries. For 1998, 1997 and 1996,
worldwide income tax payments amounted to $24,227,000, $25,045,000 and
$33,668,000, respectively.
4. Inventories
A summary of inventories at April 30 follows (in thousands of
dollars):
1998 1997
-------- --------
Raw materials $ 13,904 $ 14,580
Finished goods 92,795 90,915
Sales supplies 1,779 2,007
-------- --------
$108,478 $107,502
======== ========
5. Property, Plant and Equipment
Property, plant and equipment at April 30 consists of the following
(in thousands of dollars):
1998 1997
-------- --------
Land $ 12,605 $ 12,205
Buildings 78,243 83,658
Equipment 100,666 106,967
-------- --------
$191,514 $202,830
======== ========
Depreciation charged to income was $13,633,000, $13,882,000 and
$13,595,000 for each of the years ended April 30, 1998, 1997 and 1996,
respectively. The estimated useful life of buildings is 25 to 40 years;
equipment is 3 to 10 years.
6. Long-Term Debt
Long-term debt at April 30 consists of the following (in thousands
of dollars):
1998 1997
------ ------
Borrowed by domestic companies:
Note issued to individual in connection with
purchase of business, at 5.85%, principal
and interest payable annually through 2005. $ 1,500 -
Variable interest industrial revenue bond,
secured by property, at 71.9% of prime. - $ 3,700
Other - 20
------ ------
1,500 3,720
------ ------
Borrowed by international companies 192 159
------ ------
1,692 3,879
Less current maturities 292 3,767
------ ------
Long-term debt, less current maturities $ 1,400 $ 112
====== ======
The industrial revenue bond of $3,700,000 was paid off in April
1998, in connection with the sale of two subsidiaries. Scheduled
maturities of long-term debt for the years following April 30, 1998, are
as follows:
1999 $ 292,000
2000 303,000
2001 239,000
2002 214,000
2003 214,000
Thereafter 430,000
---------
Total $1,692,000
=========
7. Employee Benefits
Retirement plans - The parent and its domestic subsidiaries have
various qualified retirement type plans covering substantially all
domestic employees. None of these plans have defined benefits. Some of
the international subsidiaries also have non-defined benefit retirement
plans. These plans are funded on a current basis, and the cost of
retirement benefits for past service has been fully funded. In addition,
the Company has non-qualified deferred compensation plans for the primary
purpose of providing retirement benefits. These plans are not funded,
but provision for the estimated liabilities arising from these plans has
been made in the consolidated financial statements.
Expenses for retirement plans, exclusive of interest expense, were
$9,433,000, $13,316,000 and $10,510,000 in the years ended April 30,
1998, 1997 and 1996, respectively.
Postretirement benefits other than pensions - The Company and
several of its domestic subsidiaries have a postretirement health care
benefit plan covering substantially all domestic employees. Eligible
retirees receive a specific contribution from the Company toward the cost
of the health plan, which is a supplement to Medicare. The amount of the
contribution is based on years of service with the Company at retirement.
The plan is not funded; retiree health benefits are paid as covered
expenses are incurred. Provision has been made in the accompanying
consolidated financial statements for the net postretirement benefit
expense of this plan. Net postretirement benefit expenses for the years
ended April 30 are as follows (in thousands of dollars):
1998 1997 1996
------ ------ ------
Service cost - benefits earned
during the year $ 11 $ 23 $146
Interest cost on accumulated
postretirement benefit obligation 244 226 202
Net amortization of prior service cost 176 176 176
------ ------ ------
Net postretirement benefit expense $431 $425 $524
------ ------ ------
The reconciliation of the accumulated postretirement benefit
obligation to the recorded liability at April 30 is as follows (in
thousands of dollars):
1998 1997
------ ------
Accumulated postretirement benefit obligation
Retirees $ 623 $ 502
Fully eligible active plan participants 1,539 1,478
Other active plan participants 1,340 1,338
------ ------
Total 3,502 3,318
Unrecognized prior service cost (939) (1,115)
------ ------
Accrued postretirement benefit liability $2,563 $2,203
====== ======
Measurement of the accumulated postretirement benefit obligation is
based on a 7% assumed discount rate for 1998 and 1997.
Certain of the Company's non-U.S. subsidiaries have health care
plans for retirees, although many retirees outside of the United States
are covered by government sponsored and administered programs.
8. Capital Stock and Options
None of the Company's authorized 500,000 shares of $1 par value
Preferred Stock has been issued.
On April 8, 1998, the directors of the Company declared a regular
quarterly cash dividend of $.35 per share of Common Stock to be paid June
15, 1998, to shareholders of record June 1, 1998.
At April 30, 1998, the Company has a non-qualified stock option
plan, which is described below. The Company applies APB Opinion No. 25
and related FASB Interpretations for its plans. No charge to income is
made in connection with the stock option plan. Had compensation cost for
the Company's stock option plan been determined consistent with FASB
Statement No. 123, the Company's net income and earnings per share would
have been reduced to the pro forma amounts indicated below (in thousands
except per share data):
1998 1997 1996
-------- -------- --------
Net Income
As Reported $35,695 $34,675 $36,307
Pro Forma $35,623 $34,642 $36,307
Earnings per share
As Reported
Basic $ 4.98 $ 4.73 $ 4.51
Diluted $ 4.97 $ 4.73 $ 4.51
Pro Forma
Basic $ 4.97 $ 4.73 $ 4.51
Diluted $ 4.96 $ 4.72 $ 4.51
Pro forma net income reflects only options granted in fiscal years
1996 and 1997. Therefore, the full impact of calculating compensation
cost for stock options under SFAS No. 123 is not reflected in the pro
forma net income amounts presented above because compensation cost is
reflected over the options' vesting period and compensation cost for
options granted prior to May 1, 1995 is not considered.
Under the 1980 Non-Qualified Stock Option Plan, the Company may
grant options to its employees for up to 1.5 million shares of common
stock. At April 30, 1998, 1997 and 1996, 552,000, 677,000 and 710,000
shares of the Company's Common Stock, respectively, were reserved for
issuance under this plan which grants options to key employees and
officers. The purchase price under the grant cannot be less than the
market value at the date of grant. The options under such plan are
exercisable in equal amounts at the beginning of the second, third and
fourth year of their lives and expire after five years.
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions:
1998 1997 1996
------ ------ ------
Annual dividend yield 2.2% 3.8% 4.0%
Expected volatility 19.0% 19.6% 20.4%
Risk-free interest rates 5.3% 5.8% 5.5%
Expected lives (years) 5 5 5
The annual dividend rate shown above is weighted over the effective life
of the options.
A summary of the status of the Company's stock option plan as of
April 30, 1998, 1997, and 1996, and changes during the years ended on
those dates is presented below:
(In Thousands Except Per Share Data)
Years Ended April 30,
---------------------------------------------------
1998 1997 1996
--------------- --------------- ---------------
Average Average Average
Number Price Number Price Number Price
of Per of Per of Per
Shares Share Shares Share Shares Share
------ ------ ------ ------ ------ ------
Outstanding at beginning
of period 284 $58.85 280 $58.81 243 $59.41
Granted 81 62.50 78 57.25 72 55.25
Exercised (125) 60.14 (33) 55.23 (20) 54.00
Canceled or expired (13) 67.22 (41) 58.39 (15) 57.46
------ ------ ------ ------ ------ ------
Outstanding at end
of period 227 $58.97 284 $58.85 280 $58.81
====== ====== ====== ====== ====== ======
Options exercisable
at year-end 70 $57.50 139 $60.53 145 $60.95
====== ====== ====== ====== ====== ======
Stock options outstanding at April 30, 1998 had a range in
exercise prices of $53.75 to $62.50 and an average remaining contractual
life of 3.8 years. The weighted average fair value of options,
calculated using the Black-Scholes option pricing model, granted during
the years ended April 30, 1998, 1997 and 1996 were $6.30, $2.49 and
$2.27, respectively. At April 30, 1998, 1997 and 1996, 19,000 shares of
Treasury Stock, were reserved for issuance to employees under a stock
participation plan.
9. Interest Costs
During the years ended April 30, 1998, 1997 and 1996, interest
costs, including interest expense on non-funded retirement plans,
amounting to $5,319,000, $4,383,000 and $5,231,000, respectively, were
expensed as incurred. For the same periods, interest payments were
$3,067,000, $2,480,000 and $2,951,000, respectively.
10. Leases
At April 30, 1998, the Company and its subsidiaries had a number
of noncancellable leases for various office and warehouse facilities.
The majority of these agreements expire at various times through 2001,
and substantially all include renewal provisions. The amount of other
obligations assumed, such as payment of property taxes and maintenance,
is nominal. Total rent expense for 1998, 1997 and 1996 (including
operating leases on data processing equipment, trucks and trailers, and
office equipment) was approximately $11,275,000, $11,393,000 and
$11,798,000, respectively. The minimum aggregate rentals under the terms
of noncancellable operating leases for future years are:
1999 $8,288,000
2000 5,409,000
2001 4,081,000
2002 2,643,000
Thereafter 5,660,000
11. Contingent Liabilities
The Company and its subsidiaries are engaged in a variety of legal
proceedings arising in the ordinary course of business, including some
concerning environmental matters. In the opinion of Management, the
ultimate liabilities resulting from these proceedings will not have a
material adverse effect on the Company's financial position or operating
results.
Gains or losses resulting from contracts hedging net foreign
currency positions have been included in the foreign currency translation
adjustment component of stockholders' equity. Gains and losses from all
other contracts are included in the Consolidated Statements of Income.
There were no such contracts at April 30, 1998 or 1997. In addition, at
April 30, 1998 and 1997, the Company had standby letters of credit
outstanding totaling $5,078,000 and $5,878,000, respectively, which
guarantee payment to certain insurance carriers.
12. Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts
receivable, accounts payable, accrued expenses, notes payable to banks
and current maturities of long-term debt approximate fair value, because
of the short maturities of these financial instruments. The carrying
amounts of marketable securities approximate fair value and are based on
quoted market prices obtained from an independent broker. The carrying
amounts of long-term debt approximate fair value as estimated based on
the discounted value of future cash flows using the Company's current
borrowing rate for loans of comparable terms and maturities.
13. Marketable Securities
The Company classifies all of its investments in securities which do
not meet the definition of cash equivalents as marketable securities
available-for-sale. Available-for-sale securities are reported at fair
value with unrealized gains and losses (net of deferred income taxes)
recognized on the balance sheet as a separate component of stockholders'
equity. Fair values are based on quoted market prices obtained from an
independent broker. Realized gains and losses are included in other
income and are immaterial. The cost of securities sold is based on the
specific identification method.
The following is a summary of available-for-sale marketable
securities as of April 30 (in thousands of dollars):
Government
Bonds, Treasury Certificates
Notes and Bills of Deposit Total
--------------- ---------- -------
1998
----
Cost $101,236 $220 $101,456
Gross Unrealized Losses (89) - (89)
Gross Unrealized Gains 259 - 259
-------- ---- --------
Estimated Fair Value $101,406 $220 $101,626
======== ==== ========
1997
----
Cost $ 69,334 $304 $ 69,638
Gross Unrealized Losses (233) - (233)
Gross Unrealized Gains 295 - 295
-------- ---- --------
Estimated Fair Value $ 69,396 $304 $ 69,700
======== ==== ========
The contractual maturities of the marketable securities at estimated
fair value as of April 30, 1998 are as follows:
1999 $64,422,000
2000 31,961,000
2001 5,243,000
14. Segment and Geographic Area Information
The Company's operations are predominantly within one business segment,
which includes specialty chemicals, fasteners, welding supplies, and
plumbing and electronic parts. Substantially all of these products are sold
for repair, maintenance or industrial supply use.
Financial information by geographic area, in thousands of dollars,
follows for the years ended April 30:
Latin
United Pacific & America Consoli-
States Europe Far East & Canada dated
------- -------- --------- -------- --------
1998
----
Net Sales $457,220 $245,669 $30,738 $50,468 $784,095
Net Income (Loss) 27,299 10,880 (2,730) 246 35,695
Identifiable Assets 262,426 116,953 12,691 21,424 413,494
Corporate Assets 106,210
1997
----
Net Sales $417,411 $266,263 $34,313 $48,774 $766,761
Net Income 21,809 11,686 86 1,094 34,675
Identifiable Assets 267,639 114,486 17,476 23,325 422,926
Corporate Assets 74,665
1996
----
Net Sales $412,027 $275,353 $35,727 $49,727 $772,834
Net Income 20,341 15,247 247 472 36,307
Identifiable Assets 256,625 126,041 17,789 21,094 421,549
Corporate Assets 92,855
Intercompany sales and profits have been eliminated from the above
schedule. Corporate expenses were allocated between the geographic areas.
Identifiable assets are those identified with the operations in each
geographic area. Corporate assets consist primarily of portions of cash and
cash equivalents and marketable securities.
15. Earnings Per Share
The following is a reconciliation of basic earnings per share to diluted
earnings per share for the years ended April 30, 1998, 1997, and 1996
(shares in thousands):
1998 1997 1996
------ ------ ------
Basic earnings per share $4.98 $4.73 $4.51
====== ====== ======
Average shares outstanding - basic 7,163 7,326 8,052
====== ====== ======
Potential shares exercisable under
stock option plan 228 184 134
Less: shares potentially repurchased
under treasury stock method (205) (177) (129)
------ ------ ------
Adjusted average shares
outstanding - diluted 7,186 7,333 8,057
====== ====== ======
Diluted earnings per share $4.97 $4.73 $4.51
====== ====== ======
Stock options are the Company's only potential dilutive securities and
are considered in the diluted earnings per share calculations if they would
not have been antidilutive for those periods. For the year ended April 30,
1998, all options were included as their effect was dilutive for those
periods. However, for the years ended April 30, 1997, and 1996, options
totaling 103,000 and 147,000 were excluded as their effect would have been
antidilutive.
16. Subsequent Events
On May 26, 1998, the Board of Directors authorized the repurchase of an
aggregate of 1,266,176 shares of NCH Corporation Common Stock from the
Milton P. Levy, Jr. family. These shares were acquired on May 26, 1998 at
$60.89 per share. The closing trading price of NCH Common Stock on that
date was $65.44 per share. In addition, the Company purchased an additional
284,839 shares on the open market. In these two transactions, the Company
repurchased 1,551,015 shares of NCH Common Stock for an aggregate price of
$93.8 million.
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
NCH Corporation:
We have audited the accompanying consolidated balance sheets of NCH
Corporation and subsidiaries as of April 30, 1998 and 1997, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the years in the three-year period ended April 30, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of NCH
Corporation and subsidiaries as of April 30, 1998 and 1997, and the results
of their operations and their cash flows for each of the years in the
three-year period ended April 30, 1998, in conformity with generally
accepted accounting principles.
/S/ KPMG Peat Marwick LLP
Dallas, Texas
May 26, 1998
RESPONSIBILITY FOR FINANCIAL REPORTING
The management of the Company is responsible for the financial
information and representations contained in the financial statements and
other sections of the annual report. The financial statements have been
prepared in conformity with generally accepted accounting principles, and
therefore include informed estimates and judgments.
The Company's system of internal control is designed to provide
reasonable, but not absolute, assurance as to the integrity, objectivity
and reliability of the financial records and the safeguarding of assets.
Management believes that, within a cost-effective framework, the Company's
accounting controls provide reasonable assurance that material errors or
irregularities are prevented or would be detected within a relatively short
period of time. The possibility exists, however, that errors or
irregularities may occur and not be detected. The Company has a program of
internal audits and follow-up, covering separate Company operations and
functions in the U.S. and its international subsidiaries.
The Board of Directors pursues its review of the audit function,
internal controls and the financial statements largely through its Audit
Committee, which consists solely of directors who are not employees of the
Company. The Audit Committee periodically meets with management, the
independent auditors and internal auditors with regard to their respective
responsibilities. Both KPMG Peat Marwick LLP and the internal auditors
have full access to the Audit Committee. They meet with the committee,
without management present, to discuss the scope and results of their
examination, including internal control and financial reporting matters.
Management also recognizes its responsibility for fostering a strong
ethical climate so that the Company's affairs are conducted according to
the highest standards of personal and corporate conduct. This
responsibility is characterized and reflected in the Company's code of
corporate conduct, which is publicized throughout the Company. The code
of conduct addresses, among other things, the necessity of ensuring open
communication within the Company; potential conflicts of interests;
compliance with all domestic and foreign laws, including those relating to
financial disclosure; and the confidentiality of proprietary information.
The Company maintains a systematic program to assess compliance with
these policies.
/s/ Irvin L. Levy /s/ Tom Hetzer
------------------ ---------------
Irvin L. Levy Tom Hetzer
Chief Executive Officer Chief Financial Officer
Selected Unaudited Quarterly Data
(In Thousands Except Per Share Data)
Years Ended April 30,
Quarter
-----------------------------------------------
First Second Third Fourth
-------- -------- -------- --------
1998
----
Net Sales $197,996 $193,621 $195,659 $196,819
Operating Income 12,800 15,438 11,277 12,232
Net Income 7,207 8,586 6,263 13,639
Earnings Per Share
Basic $1.01 $1.20 $ .87 $1.91
Diluted $1.00 $1.19 $ .87 $1.90
1997
----
Net Sales $192,536 $192,585 $193,291 $188,349
Operating Income 11,654 17,234 13,322 14,041
Net Income 6,666 12,042 7,738 8,229
Earnings Per Share
Basic $ .88 $1.64 $1.07 $1.14
Diluted $ .88 $1.64 $1.07 $1.14
Basic earnings per share for each period is calculated based on the
weighted average number of shares outstanding during the period. Diluted
earnings per share includes the dilutive effect of stock options.
Market and Dividend Information
NCH Corporation stock is traded on the New York Stock Exchange. The
high and low prices by quarter are shown for the past two years in the
schedule below.
Cash dividends paid during the fiscal year ended April 30, 1998,
amounted to $9.3 million compared to $16.0 million and $17.7 million in
fiscal years 1997 and 1996, respectively. On April 8, 1998, a dividend of
$.35 per share was declared, payable June 15, 1998. A summary of the
quarterly dividends per share for the past two years is set forth in the
schedule below.
Common Stock Prices Dividends Per Share
--------------------------------- -----------------------------
1998 1997 Declared Paid
-------------- --------------- ------------- -------------
Quarter High Low High Low 1998 1997 1998 1997
------- ------ ------ ------ ------ ----- ----- ----- -----
First 65 3/4 61 5/16 65 53 3/4 $ .30 $ .30 $ .30 $ .30
Second 73 63 3/16 57 1/4 53 5/8 $ .35 $1.30 $ .30 $ .30
Third 70 1/4 61 60 1/2 55 $ .35 $ .30 $ .35 $1.30
Fourth 72 1/4 58 15/16 63 3/4 57 5/8 $ .35 $ .30 $ .35 $ .30
As of June 1, 1998, there were 548 holders of record of the Company's
Common Stock, which includes several brokerage firms that hold shares of the
Company's stock for an estimated 2,000 investors.
NCH CORPORATION AND SUBSIDIARIES
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
NCH Corporation is the parent company of numerous wholly-owned
subsidiaries engaged in the business of marketing an extensive line of
maintenance, repair and supply products. At the close of the last fiscal
year, fourteen of these subsidiaries were operating domestically and 135 in
foreign countries. The Company is also the parent of several wholly-owned
subsidiaries that market various other products. All such subsidiaries
considered in the aggregate as a single subsidiary would not constitute a
significant subsidiary of NCH Corporation, and therefore are not listed here.
As of the close of the last fiscal year, the following corporation was
not wholly-owned by NCH Corporation:
Immediate Parent and Jurisdiction
Name of Subsidiary Percentage of Ownership of Incorporation
------------------ ----------------------- ----------------
NCH Hua Yang Ltd. 51% NCH Corporation People's Republic
of China
NCH CORPORATION AND SUBSIDIARIES
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
NCH Corporation:
We consent to incorporation by reference in the registration statement
(No. 33-65206) on Form S-8 of NCH Corporation of our report dated May
26, 1998, relating to the consolidated balance sheets of NCH Corporation and
subsidiaries as of April 30, 1998 and 1997, and the related consolidated
statements of income, stockholders' equity, and cash flows and related
schedule for each of the years in the three-year period ended April 30,
1998, which report appears in or is incorporated by reference in the
April 30, 1998 annual report on Form 10-K of NCH Corporation.
/s/ KPMG Peat Marwick LLP
Dallas, Texas
July 22, 1998
NCH CORPORATION AND SUBSIDIARIES
EXHIBIT 99
DEFINITIVE PROXY STATEMENT
REGARDING THE COMPANY'S 1998 ANNUAL MEETING OF STOCKHOLDERS
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [ X ]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for
Use of the Commission
Only (as permitted by
Rule 14a-6(e)(2))
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
NCH Corporation
----------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how
it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the Form or Schedule and the
date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
[LOGO]
2727 Chemsearch Boulevard
Irving, Texas 75062
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held July 23, 1998
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of NCH
Corporation will be held in the Gourmet Room II of the Crescent Club, 17th
Floor, 200 Crescent Court (at the corner of Pearl and Cedar Springs Streets),
Dallas, Texas, on Thursday, the 23rd day of July, 1998, at 10:00 a.m.,
Central Daylight Time, for the following purposes:
1. To elect two Class I directors of NCH to hold office until the next
annual election of Class I directors by stockholders or until their
respective successors are duly elected and qualified.
2. To ratify the appointment of KPMG Peat Marwick LLP, Certified Public
Accountants, to be the independent auditors of NCH for the fiscal year
ending April 30, 1999.
3. To transact such other business as may properly come before the meeting
or any adjournments of the meeting.
The Board of Directors has fixed the close of business on Monday,
June 1, 1998, as the record date for determining stockholders entitled to
vote at and to receive notice of the annual meeting.
Whether or not you expect to attend the meeting in person, you are
urged to complete, sign, and date the enclosed form of proxy and return it
promptly so that your shares of stock may be represented and voted at the
meeting. If you are present at the meeting, your proxy will be returned to
you if you so request.
Joe Cleveland,
Secretary
Dated: June 22, 1998
[LOGO]
2727 Chemsearch Boulevard
Irving, Texas 75062
PROXY STATEMENT
For
ANNUAL MEETING OF STOCKHOLDERS
To Be Held on July 23, 1998
Dated: June 22, 1998
SOLICITATION AND REVOCABILITY OF PROXIES
The accompanying proxy is solicited by the management of, and on behalf
of, NCH Corporation, a Delaware corporation ("NCH"), to be voted at the
Annual Meeting of the Stockholders of NCH, to be held Thursday, July 23,
1998 (the "Meeting"), at the time and place and for the purposes set forth
in the accompanying Notice of Annual Meeting. When properly executed
proxies in the accompanying form are received, the shares represented
thereby will be voted at the Meeting in accordance with the directions
noted on the proxies; if no direction is indicated, then such shares will be
voted for the election of the directors and in favor of the proposals set
forth in the Notice of Annual Meeting attached to this Proxy Statement.
The enclosed proxy confers discretionary authority to vote with respect
to any and all of the following matters that may come before the Meeting:
(1) matters that NCH's Board of Directors does not know a reasonable time
before the Meeting are to be presented at the Meeting; and (2) matters
incidental to the conduct of the Meeting. Management does not intend to
present any business for a vote at the Meeting other than the matters set
forth in the accompanying Notice of Annual Meeting, and it has no information
that others will do so. If other matters requiring the vote of the
stockholders properly come before the Meeting, then, subject to the
limitations set forth in the applicable regulations under the Securities
Exchange Act of 1934, it is the intention of the persons named in the
attached form of proxy to vote the proxies held by them in accordance with
their judgment on such matters.
Any stockholder giving a proxy has the power to revoke that proxy at
any time before it is voted. A proxy may be revoked by filing with the
Secretary of NCH either a written revocation or a duly executed proxy
bearing a date subsequent to the date of the proxy being revoked. Any
stockholder may attend the Meeting and vote in person, whether or not such
stockholder has previously submitted a proxy.
In addition to soliciting proxies by mail, officers and regular
employees of NCH may solicit the return of proxies. Brokerage houses and
other custodians, nominees, and fiduciaries may be requested to forward
solicitation material to the beneficial owners of stock.
This Proxy Statement and the accompanying proxy are first being sent
or given to NCH's stockholders on or about June 22, 1998.
NCH will bear the cost of preparing, printing, assembling, and
mailing the Notice of Annual Meeting, this Proxy Statement, the enclosed
proxy, and any additional material, as well as the cost of forwarding
solicitation material to the beneficial owners of stock.
VOTING RIGHTS
The record date for determining stockholders entitled to notice of
and to vote at the Meeting is the close of business on June 1, 1998. On
that date there were 5,602,684 shares issued and outstanding of NCH's $1.00
par value common stock ("Common Stock"), which is NCH's only class of voting
securities outstanding. Each share of NCH's Common Stock is entitled to one
vote in the matter of election of directors and in any other matter that
may be acted upon at the Meeting. Neither NCH's certificate of
incorporation nor its bylaws permits cumulative voting. The presence, in
person or by proxy, of the holders of a majority of the outstanding shares
of Common Stock entitled to vote at the Meeting is necessary to constitute a
quorum at the Meeting, but in no event will a quorum consist of less than
one-third of the shares entitled to vote at the Meeting. The affirmative
vote of a plurality of the shares of Common Stock represented at the Meeting
and entitled to vote is required to elect directors. All other matters to
be voted on will be decided by a majority of the shares of Common Stock
represented at the meeting and entitled to vote. Abstentions and broker
nonvotes are each included in determining the number of shares present at
the meeting for purposes of determining a quorum. Abstentions and broker
nonvotes have no effect on determining plurality, except to the extent that
they affect the total votes received by any particular candidate.
ELECTION OF DIRECTORS
NCH's Board of Directors consists of seven members, divided into three
classes: Class I (two directors), Class II (three directors), and Class III
(two directors). Only the Class I positions are due for nomination and
election at the Meeting. The Class II and Class III positions will be due
for nomination and election at the annual meetings of stockholders to be
held in 1999 and 2000, respectively.
The intention of the persons named in the enclosed proxy, unless such
proxy specifies otherwise, is to vote the shares represented by such proxy
for the election of Lester A. Levy and Rawles Fulgham as the Class I
directors. Messrs. Lester A. Levy and Rawles Fulgham have been nominated
to stand for re-election by the Board of Directors until their terms expire
or until their respective successors are duly elected and qualified.
Messrs. Lester A. Levy and Rawles Fulgham are presently directors of NCH.
Messrs. Irvin, Lester, and Milton Levy are brothers. Robert L. Blumenthal
is a first cousin of Messrs. Irvin, Lester, and Milton Levy. Certain
information regarding each nominee and director is set forth below. The
number of shares beneficially owned by each nominee is listed under "Security
Ownership of Principal Stockholders and Management."
Class I Directors and Nominees
Rawles Fulgham, 70, has been a director of NCH since 1981. Mr. Fulgham
was an executive director of Merrill Lynch Private Capital Inc. from 1982
until 1989, when he assumed his current position as a Senior Advisor to
Merrill Lynch & Co., Inc. He is also a director of Dresser Industries, Inc.,
Global Industrial Technologies, Inc., BancTec, Inc., and a member of the
Advisory Committee of Dorchester Hugoton, Ltd., all of which are located in
Dallas, Texas. He is a member of the Audit Committee and the Compensation
Committee.
Lester A. Levy, 75, has been a director and officer of NCH since 1947,
and since 1965 has served as Chairman of the Board of Directors of NCH. He
is either the president or a vice president of substantially all of NCH's
subsidiaries. Mr. Levy is a member of the Stock Option Committee and the
Executive Committee.
If either of the above nominees for Class I directors should become
unavailable to serve as a director, then the shares represented by proxy
will be voted for such substitute nominees as may be nominated by the
Board of Directors. NCH has no reason to believe that either of the above
nominees are, or will be, unavailable to serve as a director.
Class II Directors
Robert L. Blumenthal, 67, has engaged in the practice of law since
1957. He is a partner at the Dallas law firm of Carrington, Coleman,
Sloman & Blumenthal, L.L.P., which serves as NCH's legal counsel.
Thomas B. Walker, Jr., 74, has been a director of NCH since 1987. He
was a general partner of Goldman, Sachs & Co. from 1968 until 1984 when he
assumed his current position as a limited partner of The Goldman Sachs
Group, L.P. Mr. Walker is also a director of Sysco Corporation, A. H. Belo
Corporation, and Riviana Foods, Inc. He is a member of the Audit Committee
and the Compensation Committee.
Milton P. Levy, Jr., 72, has been a director and officer of NCH since
1947, and since 1965 has served as Chairman of the Executive Committee of
NCH. He is either the president or a vice president of substantially all
of NCH's subsidiaries. Mr. Levy is a member of the Stock Option Committee
and the Executive Committee.
Class III Directors
Jerrold M. Trim, 61, has been a director of NCH since 1980 and is the
president and majority shareholder of Windsor Association, Inc., which is
engaged primarily in investment consulting services. He is also a general
partner of Chiddingstone Management Company and The Penshurst Fund, which
are limited partnerships that invest in marketable securities. He is a
member of the Audit Committee and the Compensation Committee.
Irvin L. Levy, 69, has been a director and an officer of NCH since 1950,
and has served as NCH's President since 1965. He is either president or a
vice president of substantially all of NCH's subsidiaries. Mr. Levy is a
member of the Stock Option Committee and the Executive Committee.
Meeting Attendance and Committees of the Board
NCH has audit, compensation, executive, and stock option committees of
the Board, whose members are noted above. During the last fiscal year, the
Board of Directors met on four occasions, the Compensation Committee met
once, the Audit Committee met once, the Executive Committee met at least 25
times, and the Stock Option Committee met once. NCH does not have a
standing nominating committee of the Board. Nominees to the Board are
selected by the entire Board.
The Audit Committee of the Board reviews the scope of the independent
auditors' examinations and the scope of activities of NCH's internal
auditors. Additionally, it receives and reviews reports of NCH's independent
auditors and internal auditors. The Audit Committee also meets (without
management's presence, if the Audit Committee so desires) with the
independent auditors and members of the internal auditing staff, receives
recommendations or suggestions for change, and may initiate or supervise any
special investigations it may choose to undertake.
The Compensation Committee recommends to the Board of Directors the
salaries of Messrs. Irvin, Lester, and Milton Levy.
The Executive Committee possesses all of the powers of the Board of
Directors between meetings of the Board.
The Stock Option Committee of the Board determines those employees of
NCH and its subsidiaries who will receive stock options and the amount of
such options.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Director Compensation
Directors who are not executive officers of NCH receive compensation of
$25,000 per annum and $1,000 for each meeting of the Board of Directors or
Board committee attended. All other directors receive $1,000 for each such
meeting attended. Members of the Stock Option Committee and Executive
Committee are not compensated separately for their services on such
committees.
Report on Executive Compensation
Responsibility for Executive Compensation
Three outside directors, as the Compensation Committee of NCH (Messrs.
Fulgham, Trim, and Walker), have primary responsibility for recommending to
the Board the executive compensation program for Messrs. Irvin, Lester, and
Milton Levy. The Compensation Committee recommends to the Board an annual
aggregate base compensation for the Office of the Executive Committee and
is responsible for administering and approving incentive compensation for
the Office of the Executive Committee. After Board approval of the
Compensation Committee's recommendation for aggregate base compensation
(with Messrs. Irvin, Lester, and Milton Levy abstaining), the Messrs. Levy
divide the compensation of the Executive Committee among themselves. The
Executive Committee is responsible for setting the compensation for all
other officers of NCH.
Executive Compensation Strategy
With respect to compensation of all key executives other than Messrs.
Irvin, Lester, and Milton Levy, NCH's strategy is generally as follows:
* Attract and retain key executives by delivering a market competitive
rate of base pay. Market competitive rates of pay are determined by
reviewing compensation data from other companies that resemble NCH in
terms of lines of business, size, scope, and complexity.
* Provide salary increases to key executives based on their individual
effort and performance. In addition to the individual's experience, job
duties, and performance, annual increases are influenced by NCH's overall
performance.
* Provide annual incentive opportunities based on objectives that NCH
feels are critical to its success during the year. Target incentive
levels are set on an individual basis and actual awards are made at the
Executive Committee's discretion.
* Provide long-term incentives to key employees so that employees are
focused on activities and decisions that promote NCH's long-term
financial and operational success. To meet this objective, NCH offers
stock options to certain key employees. Options are generally granted
for a period of five years at a price that is at least equal to the fair
market value of the Common Stock at the time of grant. Options vest in
equal increments over a three-year period from the time of grant.
Compensation of Messrs. Irvin, Lester, and Milton Levy
In 1994, the Compensation Committee, with assistance from an outside
consulting firm, determined the competitiveness of the compensation for
the Office of the Executive Committee. Based on survey and proxy analyses
performed by the consulting firm, the Compensation Committee adopted the
incentive bonus plan described below. All of the companies in the peer
group in NCH's performance graph on page 9 of this Proxy Statement were
included in the analysis performed by the consulting firm.
Although no formula or preset goal is used in setting the base salary
for the Office of the Executive Committee, performance in sales and earnings
as well as the current economic and competitive environment is considered.
To maintain a competitive level of compensation, the Compensation Committee
increased the base salary for the Office of the Executive Committee
effective May 1, 1998 for fiscal 1999.
NCH has adopted a separate strategy with respect to the incentive
compensation of the Office of the Executive Committee. Since these
individuals are very significant long-term stockholders of NCH, some of the
typical approaches to executive compensation that exist in the marketplace
are not necessarily relevant at NCH. Long-term incentive programs are
implemented for senior executives to create a link between the corporation's
performance and the executive's own personal wealth. In light of the
shareholding of Messrs. Irvin and Lester Levy, they are already
significantly impacted financially by NCH's overall performance. The
Compensation Committee generally feels that in this situation any long-term
incentive program should be tied to salary or bonus.
To qualify all compensation paid to the Executive Committee of the
Board of Directors as a deductible expense under Section 162 of the Internal
Revenue Code (the "Code"), on April 28, 1994, the Compensation Committee of
the Board of Directors adopted an incentive bonus plan (the "Bonus Plan"),
for the Office of the Executive Committee, which was approved by the
stockholders at the 1994 Annual Meeting.
The Bonus Plan provides a formula for determining the amounts of
annual bonuses to be paid to each member of the Executive Committee. Bonus
amounts will depend on the amount by which NCH's net income after taxes,
but before accrual for any bonus under the Bonus Plan, for a particular
fiscal year increases over its net income before accrual for any bonus
for the preceding fiscal year. An amendment to the original formula for
determining the amounts of annual bonuses was adopted by the Compensation
Committee on June 7, 1996, which was approved by the stockholders at the
1996 Annual Meeting, because the formula could have resulted in a member
receiving over $1 million in annual compensation, which amount in excess of
$1 million would not have been deductible by NCH under Section 162(m) of the
Code. As amended, the formula provides as follows. Increases from 10% to
less than 15% will result in payment of a $225,000 bonus to each member of
the Executive Committee. Increases of 15% or greater will result in payment
of a $325,000 bonus to each Executive Committee member. For fiscal 1998,
no bonus was payable because NCH's net income did not increase by 10% or
more over its net income for fiscal 1997.
The Bonus Plan prohibits amendment of its terms to increase the cost
of the Bonus Plan to NCH or to change the persons to whom bonuses will be
paid under the Bonus Plan without a vote of NCH's stockholders.
Conclusion
The Compensation Committee believes that current compensation
arrangements in place at NCH are reasonable and competitive given NCH's
size and status and the current regulatory environment surrounding
executive compensation. The base salary program allows NCH to attract and
retain management talent. In addition, for those employees who are
incentive eligible, such systems continue to provide the necessary link
between the attainment of NCH's performance objectives and the compensation
received by executives.
Executive Committee &
Compensation Committee Stock Option Committee
---------------------- ----------------------
Rawles Fulgham Irvin L. Levy
Jerrold M. Trim Lester A. Levy
Thomas B. Walker, Jr. Milton P. Levy, Jr.
The report on executive compensation will not be deemed to be
incorporated by reference into any filing by NCH under the Securities Act
of 1933 or the Securities Exchange Act of 1934, except to the extent that
NCH specifically incorporates the above report by reference.
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions
Messrs. Irvin, Lester, and Milton Levy are members of the Executive
Committee of NCH's Board of Directors, which committee determines most
salaries and promotions with respect to officers of NCH and its subsidiaries,
and of the Stock Option Committee, which determines those employees of NCH
and its subsidiaries who will receive stock options and the amount of such
options. Messrs. Irvin, Lester, and Milton Levy are executive officers and
employees of NCH.
NCH's Board of Directors (with the subject members abstaining)
determines the salaries of Messrs. Irvin, Lester, and Milton Levy after
recommendation of the Compensation Committee, whose members are Rawles
Fulgham, Jerrold M. Trim, and Thomas B. Walker, Jr.
Executive Compensation
The following table summarizes the compensation paid to Messrs. Irvin,
Lester, and Milton Levy, who together hold the office of the Executive
Committee, and to NCH's two other most highly compensated executive
officers (whose compensation exceeded $100,000 in fiscal 1998) for services
rendered in all capacities to NCH during the fiscal years ended April 30,
1998, 1997, and 1996.
SUMMARY COMPENSATION TABLE
Name and Annual Compensation(1)
Principal Fiscal ---------------------- All Other
Positions Year Salary(2) Bonus Compensation (3)
-------------- ----- --------- ------- ----------------
Irvin L. Levy,
President 1998 $889,420 $ - $4,000
1997 862,282 - 3,700
1996 859,228 - 3,700
Lester A. Levy,
Chairman
of the Board 1998 894,087 - 3,200
1997 866,263 - 3,000
1996 863,430 - 3,000
Milton P. Levy, Jr.,
Chairman of the
Executive Committee 1998 896,074 - 3,200
1997 867,598 - 3,000
1996 865,281 - 3,700
Thomas F. Hetzer,
Vice President
- Finance 1998 221,331 28,000 4,000
1997 205,883 - 3,700
1996 192,204 - 3,700
Glen L. Scivally,
Vice President
and Treasurer 1998 195,846 27,000 4,000
1997 182,357 - 3,700
1996 175,114 - 3,700
------------------
(1) Certain of NCH's executive officers receive personal benefits in
addition to annual salary and bonus. The aggregate amounts of the personal
benefits, however, do not exceed the lesser of $50,000 or 10% of the total
of the annual salary and bonus reported for the named executive officer.
(2) Includes compensation for services as a director (other than Mr. Hetzer
and Mr. Scivally).
(3) The amounts included in this column were contributed to the accounts
of the executives included in the table under NCH's qualified profit sharing
and savings plan.
Retirement Agreements
NCH has entered into retirement agreements allowing retirement at any
time after age 59-1/2 with Messrs. Irvin, Lester, and Milton Levy that
provide for lifetime monthly payments and guarantee 120 monthly payments
beginning at death, retirement, or disability. In fiscal year 1997,
payments under these agreements were increased from $385,000 to $500,000 per
year for Messrs. Irvin L. Levy and Lester A. Levy and decreased from
$535,000 to $500,000 per year for Mr. Milton P. Levy, Jr., subject to
adjustment each year for increases in the United States Consumer Price Index
for the preceding year.
CERTAIN TRANSACTIONS
On May 26, 1998, the Board of Directors authorized the repurchase of an
aggregate of 1,266,176 shares of NCH Common Stock from Milton P. Levy, Jr.,
certain members of his family, including his children, their spouses and his
grandchildren, and trusts for the benefit of his family members. The
repurchases were consummated effective as of May 26, 1998 at a price of
$60.89 per share. The total received by Milton P. Levy, Jr. was $61,789,162
for 1,014,767 shares; by Marjorie K. Levy (Mr. Levy's wife) was $2,097,539
for 34,448 shares; and by Mr. Levy's three daughters (Nancy Levy Szor, Sally
Levy Rosen, and Kathy Levy Hornbach), their spouses and Mr. Levy's
grandchildren or trusts for their benefit $13,210,755 for 216,961 shares.
The closing trading price of NCH Common Stock on May 26, 1998 was $65.44.
FIVE YEAR COMPARISON OF CUMULATIVE TOTAL RETURN
The following graph presents NCH's cumulative stockholder return during
the period beginning April 30, 1993, and ending April 30, 1998. NCH is
compared to the S&P 500 and a peer group consisting of companies that
collectively represent lines of business in which NCH competes. The
companies included in the peer group index are Betz Laboratories, Inc., The
Dexter Corporation, Ecolab Inc., Lawson Products, Inc., Nalco Chemical
Company, National Service Industries, Inc., Petrolite Corporation
(Petrolite), Premier Industrial Corporation (Premier), Quaker Chemical
Corporation, Safety-Kleen Corp., and Snap-On Tools Corporation. During
fiscal year 1997, Premier was acquired by another corporation. As a result,
Premier's shareholder return is no longer available, and therefore, Premier
was excluded from the peer group for performance after 1996. During fiscal
year 1998, Petrolite was acquired by another corporation. Therefore,
Petrolite's shareholder return is also no longer available, and Petrolite
was excluded from the peer group for performance after 1997. Each index
assumes $100 invested at the close of trading on April 30, 1993, and is
calculated assuming quarterly reinvestment of dividends and quarterly
weighting by market capitalization.
[STOCK PERFORMANCE GRAPH FILED UNDER COVER OF FORM S-E]
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
NCH Corporation 100 101 111 104 118 121
S&P 500 Index 100 105 124 161 202 284
Peer Group 100 104 108 124 155 201
Data source: S&P Compustat, a division of McGraw-Hill, Inc.
The stock price performance depicted in the graph above is not
necessarily indicative of future price performance. The graph will not be
deemed to be incorporated by reference in any filing by NCH under the
Securities Act of 1933 or the Securities Exchange Act of 1934, except to
the extent that NCH specifically incorporates the graph by reference.
SECURITY OWNERSHIP OF
PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of NCH's Common Stock as of June 1, 1998, by: (i)
persons known to management to beneficially own more than 5% of NCH's Common
Stock; (ii) each director and nominee for director; (iii) the three persons
holding the office of the Executive Committee and NCH's two other most
highly compensated executive officers (whose compensation exceeded $100,000
in fiscal 1998); and (iv) all directors and executive officers of NCH as a
group. Except as noted below, each person included in the table has sole
voting and investment power with respect to the shares that the person
beneficially owns.
Name of Amount & Nature
Beneficial Owner of Beneficial Ownership Percent of Class
---------------- ----------------------- ----------------
Robert L. Blumenthal 2,683 *
Rawles Fulgham (1) 2,000 *
Thomas F. Hetzer 0 -
Irvin L. Levy (2)(3) 1,445,725 25.8%
Lester A. Levy (2)(4) 1,451,684 25.9%
Milton P. Levy, Jr. (2)(5) 44,000 *
Glen L. Scivally 0 -
Jerrold M. Trim (6) 0 -
Thomas B. Walker, Jr. 10,000 *
All directors and executive 2,906,005 51.9%
officers as a group (12 people)
First Chicago NBD Corporation (7) 489,530 8.7%
---------------------
* Less than 1% of class.
(1) Of these shares, 700 are held by a Dallas bank in trust for the
retirement plan and benefit of Mr. Fulgham.
(2) The address of Messrs. Irvin, Lester, and Milton Levy is P.O. Box
152170, Irving, Texas 75015. The definition of beneficial ownership under the
rules and regulations of the Securities and Exchange Commission requires
inclusion of the same 29,000 shares held as cotrustees by Messrs. Irvin,
Lester, and Milton Levy for a family trust in the totals listed above for
each of Messrs. Irvin, Lester, and Milton Levy.
(3) Irvin L. Levy owns a life estate interest in 1,000,000 shares included
in the table over which he has sole voting and investment power, and his
children own a remainder interest in such 1,000,000 shares. The table
includes 29,000 shares held as cotrustee with his brothers for a family
trust over which he shares voting and investment power, the beneficial
ownership of which Mr. Levy disclaims.
(4) Lester A. Levy owns a life estate interest in 625,194 shares included
in the table over which he has sole voting and investment power, and his
children own a remainder interest in such 625,194 shares. The table
includes 29,000 shares held as cotrustee with his brothers for a family
trust over which he shares voting and investment power, the beneficial
ownership of which Mr. Levy disclaims.
(5) The table includes 29,000 shares held by Milton P. Levy, Jr. as
cotrustee with his brothers for a family trust over which he shares voting
and investment power, the beneficial ownership of which Mr. Levy disclaims.
Effective May 26, 1998, NCH repurchased from Milton P. Levy, Jr. an aggregate
of 1,014,767 shares of NCH Common Stock for a purchase price of $61,789,162,
in addition to shares of NCH Common Stock from certain members of his family
and trusts for their benefit. See discussion in "Certain Transactions" in
this proxy.
(6) Windsor Association, Inc., of which Mr. Trim is president, has a
corporate policy against its employees owning any publicly traded securities.
(7) The table sets forth First Chicago NBD Corporation's stockholding based
on its latest Schedule 13G filed with the SEC dated as of January 30, 1998.
First Chicago NBD Corporation reports its address as One First National
Plaza, Chicago, Illinois 60670. It has sole dispositive power over 489,530
shares, shared dispositive power over 0 shares, sole voting power over
479,081 shares, and shared voting power over 0 shares.
SELECTION OF AUDITORS
The Board of Directors has appointed KPMG Peat Marwick LLP, Certified
Public Accountants, to continue to be the principal independent auditors of
NCH, subject to stockholder ratification at the Meeting. A representative
of that firm has been requested to be present at the Meeting and will have
an opportunity to make a statement if the representative desires to do so
and to respond to appropriate questions.
PROPOSALS OF STOCKHOLDERS
Stockholders of NCH who intend to present a proposal for action at the
1999 Annual Meeting of Stockholders of NCH must notify NCH's management of
such intention by notice received at NCH's principal executive offices not
less than 120 days in advance of June 23, 1999, for such proposal to be
included in NCH's proxy statement and form of proxy relating to such meeting.
ANNUAL REPORT
The Annual Report for the year ended April 30, 1998, is being mailed to
stockholders with this Proxy Statement. The Annual Report is not to be
regarded as proxy soliciting material. NCH will provide without charge to
each stockholder to whom this Proxy Statement and the accompanying form of
proxy are sent, on the written request of such person, a copy of NCH's
annual report on Form 10-K for the fiscal year ended April 30, 1998,
including the financial statements and the financial statement schedules,
required to be filed with the Securities and Exchange Commission.
Requests should be directed to NCH Corporation, Attention: Secretary,
P. O. Box 152170, Irving, Texas 75015.
/s/ Irvin L. Levy
------------------
Irvin L. Levy,
President
Irving, Texas
Dated: June 22, 1998
PROXY CARD
NCH CORPORATION
ANNUAL MEETING OF STOCKHOLDERS-JULY 23, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, revoking all prior proxies, hereby appoints James H. Stone,
Tom Hetzer, and Joe Cleveland, and any one or more of them, proxy or
proxies, with full power of substitution in each, and hereby authorizes
them to vote for the undersigned and in the undersigned's name, all shares
of common stock of NCH Corporation (the "Company") standing in the name of
the undersigned on June 1, 1998, as if the undersigned were personally
present and voting at the Company's annual meeting of stockholders to be
held on July 23, 1998, in Dallas, Texas, and at any adjournment thereof,
upon the matters set forth on the reverse side hereof.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. IF NO DIRECTION IS MADE, THEN THIS
PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2, AND IN THE PROXIES' DISCRETION
ON ALL OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING,
INCLUDING MATTERS INCIDENT TO THE CONDUCT OF SUCH MEETING.
(Continue and to be signed on reverse side)
FOR WITHHOLD AUTHORITY
1. Election of Directors / / / /
Nominees: Lester A. Levy and Rawles Fulgham
---------------------------------------------------------------------
Instruction: To withhold authority to vote for all nominees, mark the
Withhold Authority box. To withhold authority to vote for any individual
nominees, write the nominee's name on the line above.
2. Proposal to ratify the appointment of KPMG Peat Marwick LLP as
independent auditors of NCH Corporation.
FOR / / AGAINST / / ABSTAIN / /
3. In their discretion, the proxies are authorized to vote upon any other
matters that may properly come before the meeting or any adjournment
thereof, subject to the limitations set forth in the applicable regulations
under the Securities Exchange Act of 1934.
Dated: , 1998
-------------------------------------------
-------------------------------------------
Signature
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Signature if held jointly
NOTE: Please sign exactly as name appears hereon. Joint owner should each
sign. When signing as attorney, executor, administrator, trustee, guardian,
officer or partner, please indicate full title and capacity.