STOCK PURCHASE AGREEMENT
among
THE TORO COMPANY
JAMES HARDIE (USA) INC.
JAMES HARDIE INDUSTRIES LIMITED
and
RCI PTY. LTD.
Dated September 18, 1996
TABLE OF CONTENTS
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. SALE AND TRANSFER OF SHARES; CLOSING. . . . . . . . . . . . . . . . . 1
1.1. Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2. Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3. Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4. Closing Obligations. . . . . . . . . . . . . . . . . . . . . . 2
1.5. Adjustment Amount. . . . . . . . . . . . . . . . . . . . . . . 3
1.6. Adjustment Procedure . . . . . . . . . . . . . . . . . . . . . 3
2. REPRESENTATIONS AND WARRANTIES OF SELLERS . . . . . . . . . . . . . . 5
2.1. Organization and Good Standing . . . . . . . . . . . . . . . . 5
2.2. Authority; No Conflict . . . . . . . . . . . . . . . . . . . . 5
2.3. Capitalization . . . . . . . . . . . . . . . . . . . . . . . . 7
2.4. Financial Statements . . . . . . . . . . . . . . . . . . . . . 7
2.5. Title to Properties; Encumbrances. . . . . . . . . . . . . . . 8
2.6 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.7. No Material Adverse Change; Contingent Liabilities . . . . . . 11
2.8. Employee Benefits. . . . . . . . . . . . . . . . . . . . . . . 11
2.9. Compliance with Legal Requirements . . . . . . . . . . . . . . 14
2.10. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . 15
2.11. Absence of Certain Changes and Events. . . . . . . . . . . . . 15
2.12. Contracts; No Defaults . . . . . . . . . . . . . . . . . . . . 16
2.13. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.14. Environmental Matters. . . . . . . . . . . . . . . . . . . . . 18
2.15. Intellectual Property. . . . . . . . . . . . . . . . . . . . . 18
2.16. Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . 19
2.17. Ownership of Assets; No Seller Liabilities . . . . . . . . . . 19
2.18. Governmental Permits . . . . . . . . . . . . . . . . . . . . . 19
2.19. Certain Transactions or Arrangements . . . . . . . . . . . . . 20
2.20. Accuracy of Information Furnished. . . . . . . . . . . . . . . 20
2.21. Laguna Niguel Property . . . . . . . . . . . . . . . . . . . . 21
3. REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . . . . . . . . . 21
3.1. Organization and Good Standing . . . . . . . . . . . . . . . . 21
3.2. Authority; No Conflict . . . . . . . . . . . . . . . . . . . . 22
3.3. Investment Intent. . . . . . . . . . . . . . . . . . . . . . . 23
3.4. Certain Proceedings. . . . . . . . . . . . . . . . . . . . . . 23
3.5. Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . 23
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3.6. Consents and Approvals . . . . . . . . . . . . . . . . . . . . 23
3.7. Necessary Funds. . . . . . . . . . . . . . . . . . . . . . . . 23
3.8. Material Misstatements or Omissions. . . . . . . . . . . . . . 23
3.9. Buyer's Investigation. . . . . . . . . . . . . . . . . . . . . 23
4. COVENANTS AND AGREEMENTS OF SELLERS . . . . . . . . . . . . . . . . . 24
4.1. Access and Investigation . . . . . . . . . . . . . . . . . . . 24
4.2. Operation of the Businesses of the Acquired Companies. . . . . 24
4.3. Negative Covenant. . . . . . . . . . . . . . . . . . . . . . . 25
4.4. Approvals of Governmental Bodies . . . . . . . . . . . . . . . 25
4.5. Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.6. No Solicitation. . . . . . . . . . . . . . . . . . . . . . . . 25
4.7. Sellers' Payment of Certain Amounts. . . . . . . . . . . . . . 25
4.8. Loans Payable; Intercompany Accounts Payable
and Receivable . . . . . . . . . . . . . . . . . . . . . . . 26
4.9. Laguna Niguel Property . . . . . . . . . . . . . . . . . . . . 26
5. COVENANTS AND AGREEMENTS OF BUYER . . . . . . . . . . . . . . . . . . 26
5.1. Approvals of Governmental Bodies . . . . . . . . . . . . . . . 26
5.2. Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.3. Certain Employee Benefit Matters . . . . . . . . . . . . . . . 27
5.4. Preservation of and Access to Certain Information and
Cooperation After Closing. . . . . . . . . . . . . . . . . . 29
5.5. Use of Name. . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.6. Notice and Opportunity to Cure . . . . . . . . . . . . . . . . 31
5.7. Stay-on Bonuses and Severance. . . . . . . . . . . . . . . . . 31
6. OTHER AGREEMENTS OF THE PARTIES . . . . . . . . . . . . . . . . . . . 31
6.1. Environmental Audit. . . . . . . . . . . . . . . . . . . . . . 31
6.2. Certain Other Obligations. . . . . . . . . . . . . . . . . . . 32
6.3. Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.4. Letters of Credit. . . . . . . . . . . . . . . . . . . . . . . 36
6.5. Covered Risk . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.6. Notice and Opportunity to Cure re Conditions . . . . . . . . . 37
7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE . . . . . . . . . 38
7.1. Accuracy of Representations. . . . . . . . . . . . . . . . . . 38
7.2. Sellers' Performance . . . . . . . . . . . . . . . . . . . . . 38
7.3. Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.4. No Injunction. . . . . . . . . . . . . . . . . . . . . . . . . 38
7.5. No Prohibition . . . . . . . . . . . . . . . . . . . . . . . . 38
7.6. Environmental Matters. . . . . . . . . . . . . . . . . . . . . 39
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8. CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE. . . . . . . . . 39
8.1. Accuracy of Representations. . . . . . . . . . . . . . . . . . 39
8.2. Buyer's Performance. . . . . . . . . . . . . . . . . . . . . . 39
8.3. No Injunction. . . . . . . . . . . . . . . . . . . . . . . . . 39
8.4. Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.1. Termination Events . . . . . . . . . . . . . . . . . . . . . . 40
9.2. Effect of Termination. . . . . . . . . . . . . . . . . . . . . 40
10. INDEMNIFICATION; REMEDIES . . . . . . . . . . . . . . . . . . . . . . 40
10.1. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
10.2. Indemnification and Payment of Damages by Sellers. . . . . . . 41
10.3. Indemnification and Payment of Damages by Buyer. . . . . . . . 42
10.4. Time Limitations . . . . . . . . . . . . . . . . . . . . . . . 42
10.5. Limitations on Amount. . . . . . . . . . . . . . . . . . . . . 43
10.6. Procedure for Indemnification -- Third Party Claims. . . . . . 43
10.7. Tax Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . 45
11. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
11.1. Disclaimer of Other Representations and Warranties by Seller . 45
11.2. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . 46
11.3. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
11.4. Public Announcements . . . . . . . . . . . . . . . . . . . . . 46
11.5. Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . 46
11.6. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
11.7. Jurisdiction; Service of Process . . . . . . . . . . . . . . . 48
11.8. Further Assurances . . . . . . . . . . . . . . . . . . . . . . 48
11.9. Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
11.10. Entire Agreement and Modification. . . . . . . . . . . . . . . 48
11.11. Assignments, Successors, and No Third-Party Rights . . . . . . 48
11.12. Severability . . . . . . . . . . . . . . . . . . . . . . . . . 49
11.13. Section Headings, Construction . . . . . . . . . . . . . . . . 49
11.14. Time of Essence. . . . . . . . . . . . . . . . . . . . . . . . 49
11.15. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . 49
11.16. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 50
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STOCK PURCHASE AGREEMENT
This stock purchase agreement ("Agreement") is made as of September
18, 1996 by and among The Toro Company, a Delaware corporation ("Buyer"); James
Hardie (USA) Inc., a Nevada corporation; James Hardie Industries, Limited, a
corporation organized under the laws of New South Wales, Australia; and RCI Pty.
Ltd., a corporation organized under the laws of the Australian Capital
Territory, Australia (collectively, "Sellers"). All capitalized terms not
otherwise defined are defined in the Appendix to this Agreement.
RECITALS
Sellers desire to sell, and Buyer desires to purchase, all of the
issued and outstanding shares (the "Shares") of capital stock of James Hardie
Irrigation, Inc., a Nevada corporation ("Hardie US"), James Hardie Irrigation
Pty. Limited, a corporation organized under the laws of South Australia,
Australia ("Hardie Australia"), and James Hardie Irrigation Europe S.p.A., a
corporation organized under the laws of Italy ("Hardie Italy and collectively
with Hardie US and Hardie Australia, the "Acquired Companies") for the
consideration and on the terms set forth in this Agreement; and
Sellers are, and with respect to Hardie Italy will be at the Closing,
the record and beneficial owners of all of the issued and outstanding capital
stock of the Acquired Companies.
AGREEMENT
The parties, in consideration of the mutual promises set forth herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, and intending to be legally bound, agree as follows:
1. SALE AND TRANSFER OF SHARES; CLOSING
1.1. SHARES. Subject to the terms and conditions of this Agreement at
the Closing, Sellers will sell, convey, assign, transfer, and deliver the Shares
to Buyer, and Buyer will purchase and acquire the Shares from Sellers.
1.2. PURCHASE PRICE. The purchase price for the Shares will be
US$131,500,000 plus the Adjustment Amount (the "Purchase Price"). The Buyer and
Sellers agree to allocate the Purchase Price (and all other capitalizable costs)
among the Shares for all purposes, including financial accounting and tax
purposes) in accordance with the allocation schedule attached hereto as SCHEDULE
1.2.
1
1.3. CLOSING. Subject to the terms and conditions of this Agreement,
the purchase and sale of the Shares (the "Closing") provided for in this
Agreement will take place at the offices of Barnhorst, Schreiner & Goonan,
located at 550 West "C" St., Ste. 1350, San Diego, California, at 10:00 a.m.
(local time) on the later of (i) November 15, 1996 or (ii) the date that is two
business days following the later of (x) the date on which the conditions set
forth herein shall have been satisfied or duly waived or (y) the termination or
expiration of the applicable waiting period under the HSR Act, or at such other
time and place as the parties may agree. Subject to the provisions of SECTION
9, failure to consummate the purchase and sale provided for in this Agreement on
the date and time and at the place determined pursuant to this SECTION 1.3 will
not result in the termination of this Agreement and will not relieve any party
of any obligation under this Agreement.
1.4. CLOSING OBLIGATIONS. At the Closing:
(a) Sellers will deliver to Buyer:
(i) certificates representing the Shares, free and clear of all
Encumbrances, duly endorsed and in proper form for transfer (or
accompanied by duly executed stock powers);
(ii) certificates dated the Closing Date, (x) setting forth the
resolutions of the Board of Directors of Sellers authorizing the
execution and delivery of this Agreement and the consummation of
the Contemplated Transactions, and certifying that such
resolutions have not been amended or rescinded and are in full
force and effect; and (y) setting forth the matters contemplated
by SECTIONS 7.1 and 7.2 of this Agreement; and
(iii) such other documents, instruments or agreements as may be
reasonably requested by Buyer to effectuate the Contemplated
Transactions.
(iv) each Seller which is a transferor of a U.S. real property
interest shall provide to Buyer an affidavit of an officer of
such Seller, sworn to under penalties of perjury, setting forth,
in the form set forth in Section 1.1445-2(b)(2) of the Treasury
Regulations promulgated under the Code, such Seller's name,
address and federal tax identification number and stating that
such Seller is not a "foreign person" within the meaning of
Section 1445 of the Code. If Buyer shall not have received such
affidavit on or before the Closing Date, Buyer may withhold from
the Purchase Price such sums as required to be withheld therefrom
under Section 1445 of the Code.
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(b) Buyer will deliver to Sellers:
(i) the following amounts by wire transfer in immediately
available funds to accounts specified by Sellers: an amount equal
to the estimated SE for Hardie US as shown on the Certificate (as
defined in SECTION 1.6(a)) plus US$21,498,438 to James Hardie
(USA) Inc.; an amount equal to the estimated SE for Hardie
Australia as shown on the Certificate plus US$5,000,000 to James
Hardie Industries Limited; and an amount equal to the estimated
SE for Hardie Italy as shown on the Certificate plus US$374,610
to RCI Pty. Ltd.;
(ii) certificates dated the Closing Date, (x) setting forth the
resolutions of the Board of Directors of Buyer authorizing the
execution and delivery of this Agreement and the consummation of
the Contemplated Transactions, and certifying that such
resolutions have not been amended or rescinded and are in full
force and effect; and (y) setting forth the matters contemplated
by SECTIONS 8.1 and 8.2 of this Agreement; and
(iii) such other documents, instruments or agreements as may be
reasonably requested by Sellers to effectuate the Contemplated
Transactions.
1.5. ADJUSTMENT AMOUNT. The Adjustment Amount (which may be a
positive or negative number) will be equal to the aggregate Shareholders' Equity
of the Acquired Companies as of the Closing Date, determined in accordance with
GAAP, except as noted herein ("SE") less US$104,626,952 (see SCHEDULE 1.5, which
sets forth certain calculations with respect to the Balance Sheet that reflect
the derivation of said amount). For purposes of determining the Adjustment
Amount, the exchange rates that will be used to calculate SE of the Acquired
Companies as of the Closing Date shall be the James Hardie Spot Exchange Rates
as of the Closing Date, calculated in the manner previously provided to Buyer.
1.6. ADJUSTMENT PROCEDURE. (a) At least 2 business days prior to the
Closing, Sellers shall deliver to Buyer a certificate containing a good faith
estimate of the SE of each Acquired Company as of the Closing Date (the
"Certificate"). Sellers will prepare and will cause Coopers & Lybrand L.L.P.,
Coopers & Lybrand Australia, and Coopers & Lybrand Italy (collectively "C&L") to
audit the separate financial statements of the Acquired Companies as of the
Closing Date and for the period from the date of the Balance Sheet through the
Closing Date ("Closing Financial Statements"), prepared in accordance with GAAP,
including a footnote in the Hardie US Closing Financial Statements of the
computation of SE (for all of the Acquired Companies) as of the Closing Date,
and consistent with SCHEDULE 1.5; PROVIDED that the Closing Financial Statements
shall
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be prepared in accordance with SECTION 2.4. Buyer's auditors will be allowed to
observe C&L's observation of Sellers' physical inventory, and C&L will keep
Buyer's auditors reasonably informed as to matters relating to the audit. At
Buyer's expense, Sellers or C&L will provide Buyer's auditors with such access
to information as Buyer's auditors may reasonably need to be able to render an
unqualified opinion to Buyer with respect to the Closing Financial Statements.
Sellers will deliver the Closing Financial Statements to Buyer within 60 days
after the Closing Date. If within 60 days following delivery of the Closing
Financial Statements, Buyer has not given Sellers written notice of its
objection to the Closing Financial Statements (such notice must contain a
statement of the basis of Buyer's objection), or the objection is based upon a
difference of US$250,000 or less between C&L and Buyer's auditors' calculations
with respect to the SE reflected in the Closing Financial Statements, then the
SE reflected in the Closing Financial Statements will be used in computing the
Adjustment Amount. Sellers shall cause C&L to cooperate fully with Buyer and
its accountants to the extent required by Buyer and its accountants to review
the Closing Financial Statements (including, without limitation, providing
reasonable access upon and following the delivery of the Closing Financial
Statements to Buyer to review the workpapers of C&L relating to its audit of the
Closing Financial Statements). If Buyer gives a notice of objection, Buyer's
and Sellers' accountants shall attempt in good faith to resolve their
differences, and any resolution by them as to any disputed amount shall be
final, binding and conclusive on Buyer and Sellers. If the parties' accountants
are unable to resolve any such dispute within fifteen days of the date of
Sellers' receipt of Buyer's notice of objection, then either party may submit
the issues in dispute to one of the other "Big Six" certified public accounting
firms (the "Accountants"), agreeable to both parties, for resolution. If issues
in dispute are submitted to the Accountants for resolution, (i) each party will
furnish to the Accountants access to such work papers and other documents and
information relating to the disputed issues as the Accountants may request and
are available to that party or its Related Persons (or its independent public
accountants), and each party will be afforded the opportunity to present to the
Accountants any material relating to the determination and to discuss the
determination with the Accountants, (ii) the determination by the Accountants,
as set forth in a notice delivered to both parties by the Accountants, will be
binding and conclusive on the parties, and (iii) the Accountants shall award the
party prevailing in such dispute its reasonable costs for such proceeding,
taking into consideration the results of the proceeding. (The balance sheet
included in the Closing Financial Statements as adjusted, if necessary, to
reflect the final Adjustment Amount, is sometimes referred to herein as the
"Closing Balance Sheet").
(b) On the tenth business day following the Adjustment Amount
Determination Date, if the Purchase Price is greater than the payments made
pursuant to SECTION 1.4(b)(i), Buyer will pay the difference to Sellers, and if
the Purchase Price is less than the payments made pursuant to Section 1.4(b)(i),
Sellers will pay the difference to Buyer. Amounts not paid within thirty (30)
days of the date such amounts are due will bear interest at five percent (5%)
per annum beginning on the Closing Date and ending on the date of payment.
Payments must be made in immediately available funds. Payments must be made by
wire transfer to such bank account as the recipient will specify. The
Adjustment
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Amount will be allocated dollar for dollar among the Acquired Companies in
accordance with the changes in their respective SEs, if any, as shown on the
Closing Balance Sheet, as compared to their Ses as shown on the Balance Sheet.
2. REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers represent and warrant to Buyer as follows:
2.1. ORGANIZATION AND GOOD STANDING. (a) Each Acquired Company is a
business entity duly organized, validly existing, and in good standing under the
laws of its jurisdiction of incorporation, with full corporate power and
authority to conduct its business as it is now being conducted, and to own,
lease and operate the properties and assets where such properties and assets are
now owned, leased or operated. Each Acquired Company is duly qualified to do
business as a foreign corporation and is in good standing under the laws of each
state or other jurisdiction in which either the ownership or use of the
properties owned or used by it, or the nature of the activities conducted by it,
requires such qualification.
(b) Sellers have made, or will make, available to Buyer prior to the
Closing Date correct and complete copies of the Organizational Documents of each
Acquired Company, as currently in effect. Other than Wallace O'Connor, Inc.,
the Acquired Companies have no subsidiaries.
2.2. AUTHORITY; NO CONFLICT. (a) Sellers have full corporate power and
authority to execute and deliver this Agreement and to consummate the
Contemplated Transactions and otherwise carry out their obligations hereunder.
This Agreement and the consummation of the Contemplated Transactions have been
duly authorized, executed and delivered by Sellers and constitute valid and
legally binding obligations of Sellers, enforceable in accordance with its
terms, except as enforcement may be limited by applicable bankruptcy, insolvency
and other similar laws affecting creditors' rights and rules of law governing
specific performance, injunctive relief and other equitable remedies. Sellers
have obtained all necessary corporate and shareholder authorizations and
approvals required for the execution and delivery of this Agreement and the
consummation of the Contemplated Transactions.
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(b) Except as set forth in SCHEDULE 2.2, neither the execution and
delivery of this Agreement nor the consummation or performance of any of the
Contemplated Transactions will:
(i) give any Person the right to prevent, delay, or otherwise
interfere with any of the Contemplated Transactions pursuant to:
(1) any provision of Sellers' or the Acquired Companies'
Organizational Documents;
(2) any resolution adopted by the board of directors or the
stockholders of Sellers or the Acquired Companies;
(3) any Legal Requirement or Order to which any of Sellers or
the Acquired Companies may be subject or by which any of their
respective assets or properties may be bound or affected; or
(4) any Contract to which any of Sellers or the Acquired
Companies is a party or by which any of Sellers or any Acquired
Company may be bound or by which any of their respective assets
or properties may be bound or affected;
(ii) with or without the giving of notice or the lapse of time or
both, violate, conflict with, result in or constitute a breach of or
default under, or constitute an event permitting modification,
amendment or termination of, or result in any acceleration of or
increase in any payment required by, or in the loss, revocation,
impairment, suspension or forfeiture of any rights, privileges or
benefits of any of the Acquired Companies, or result in the creation
or imposition of any Encumbrance upon any of the respective
properties, assets or businesses of any of the Acquired Companies
under, any Organizational Document, Contract, Order or Legal
Requirement to which any of the Sellers or any Acquired Companies is a
party or by which any of them or any of their respective assets or
properties may be bound or affected; except for any of the foregoing
matters in this clause (ii) that are not individually or in the
aggregate reasonably likely to result in a Material Adverse Change.
Except as set forth in SCHEDULE 2.2, Sellers and the Acquired Companies are not
and will not be required to obtain any Consent from any Person in connection
with the execution and delivery of this Agreement or the consummation or
performance of any of the Contemplated Transactions and there is no requirement
applicable to any of Sellers or the Acquired Companies (or in the case of any
non-United States matters, Buyer in connection with or as a result of the
condition of the business of the Acquired Companies or the status of the
Acquired Companies) to make or give any declaration, notice, registration,
application or filing to or with, or to obtain any order, qualification, waiver,
permit, authorization, consent
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or approval of or from, any Governmental Body or other Person in connection with
the execution and delivery of this Agreement and the consummation of the
Contemplated Transactions (except as may arise as a result of the specific legal
or regulatory status of Buyer, other than Buyer's status as a U.S. legal
entity).
2.3. CAPITALIZATION. The authorized, capital stock of the Acquired
Companies is shown on SCHEDULE 2.3. Each of the outstanding Shares has been duly
authorized and validly issued and is fully paid and nonassessable, free and
clear of any preemptive rights. Sellers are the record and beneficial owners of
all of the issued and outstanding capital stock of the Acquired Companies, free
and clear of any Encumbrances. Upon consummation of the transactions
contemplated by this Agreement, Sellers will deliver to Buyer good and valid
title to all of the Shares, free and clear of any Encumbrances. Except for the
encumbrances listed on SCHEDULE 2.3 (which will be eliminated at Sellers' cost
prior to the Closing), no shares of capital stock of the Acquired Companies are
held in treasury, and, except for the Shares, there are no issued or outstanding
equity securities of the Acquired Companies and no other issued or outstanding
equity securities of the Acquired Companies convertible at any time into equity
securities of the Acquired Companies. Except for this Agreement, there are no
agreements, arrangements, warrants, options, puts, calls, rights, options or
employee benefit plans or other commitments or understandings of any character
(including without limitation phantom securities) relating to any capital stock
of any Acquired Company or to the issuance, sale, purchase, redemption,
conversion, exchange, registration, voting or transfer of any shares of capital
stock or any debt or equity or other securities of any of the Acquired
Companies.
2.4. FINANCIAL STATEMENTS. Sellers have made available to Buyer: (a)
(i) unaudited balance sheets of Hardie US as at March 31 in each of the years
1993 through 1994, and the related unaudited statements of income, changes in
shareholder's equity, and cash flows for each of the fiscal years then ended;
(ii) unaudited balance sheets of Hardie Australia as at March 31 in each of the
years 1993 through 1995, and the related unaudited statements of operations,
changes in shareholder's equity, and cash flows for each of the fiscal years
then ended; and (iii) unaudited balance sheets of Hardie Italy as at March 31 in
each of the years 1993 through 1995, and the related unaudited statements of
operations, changes in shareholder's equity, and cash flows for each of the
fiscal years then ended; and (b) (i) audited balance sheets of James Hardie
Irrigation, a division of Hardie US, as at March 31, 1995 and 1996, and the
related audited statements of operations, divisional equity, and cash flows for
each of the fiscal years then ended, together with the report thereon of C&L,
independent certified public accountants; (ii) an audited balance sheet of
Hardie Australia as at March 31, 1996, and the related audited statements of
operations, shareholder's deficit, and cash flows for the fiscal year then
ended, together with the report thereon of C&L, independent certified public
accountants; and (iii) an audited balance sheet of Hardie Italy as at March 31,
1996, and the related audited statements of operations, shareholder's equity,
and cash flows for the fiscal year then ended, together with the report thereon
of C&L, independent certified public accountants (the audited balance sheets
as at March 31, 1996 of each of James Hardie Irrigation, a division of Hardie
US, Hardie
7
Australia and Hardie Italy, including the notes thereto, collectively, the
"Balance Sheet"). The information contained in the unaudited financial
statements referred to in this SECTION 2.4 was prepared in the ordinary course
of business, in good faith, based upon the books and records of the Acquired
Companies, relied upon in the conduct of the Acquired Companies' business, and,
to the Knowledge of Sellers and the Acquired Companies, after due inquiry, is
accurate, in all material respects, with respect to the Acquired Companies as of
such dates and for such periods. The audited financial statements referred to
in this SECTION 2.4 present, and the Closing Financial Statements will present,
fairly the financial position, operations, shareholders' equity and cash flows
of the Acquired Companies as of such dates and for such periods; such balance
sheets and the notes thereto include or disclose, and the Closing Balance Sheet
will include or disclose, all material liabilities, direct or contingent, of the
Acquired Companies as of the dates thereof; and such financial statements are,
and the Closing Financial Statements will be, prepared in accordance with GAAP.
The Closing Financial Statements will be prepared in accordance with GAAP and
shall be accompanied by the unqualified audit opinion of C&L.
2.5. TITLE TO PROPERTIES; ENCUMBRANCES. The Acquired Companies hold
good and marketable fee title or valid and subsisting leasehold title to all of
the real property and other properties or assets of which any Acquired Company
is the record and beneficial owner or the lessee or licensee ("Acquired Assets")
free and clear of any liens, charges, pledges, security interests or other
Encumbrances or imperfections or defects in title other than: (a) those
reflected or reserved against in the Balance Sheet; (b) those set forth on
SCHEDULE 2.5, and Permitted Encumbrances, if any, which, individually or in the
aggregate, do not materially adversely affect the marketability or insurability
of title to the real property or materially detract from the value of or
materially interfere with the present use of the real property; or (c) as to the
assets which are leased, the rights of the other party or parties to the lease
arrangements. All Acquired Assets are in good operating condition and in good
repair, except for ordinary wear and tear or assets that are at or near the end
of their useful lives, and suitable for the uses intended, except for such
failures that individually or in the aggregate are not reasonably likely to
result in a Material Adverse Change, and such Acquired Assets comprise all of
the assets and properties used in the operation of the Acquired Companies'
Business as currently conducted or required by the Acquired Companies for the
continued conduct of the Acquired Companies' Business. Without limiting the
foregoing, all inventory comprising Acquired Assets is of good, usable and
merchantable quality in all material respects and does not include obsolete or
discontinued items, unless and to the extent a reserve for such obsolete and
discontinued items has been established on the Acquired Companies' financial
statements. For purposes of this Agreement, "Permitted Encumbrances" with
respect to any real property shall mean:
(i) liens for Taxes and assessments, both general and special,
and other governmental charges which are not yet due and payable as of
the Closing;
(ii) all land use restrictions (including environmental and
wetlands), building and zoning codes and ordinances, and other laws,
ordinances, regulations, rules,
8
orders, licenses or determinations of any Governmental Body
heretofore, now or hereafter enacted, made or issued by any such
authority affecting the real property;
(iii) all easements, rights-of-way, covenants, conditions,
restrictions, reservations, licenses, agreements, and other matters of
record which are customary and typical for properties similar to the
real property;
(iv) all encroachments, overlaps, overhangs, unrecorded
easements, or any other matters not of record which would be disclosed
by an accurate survey or inspection of the real property, including,
without limitations, any of the foregoing which are disclosed by any
surveys provided by Sellers hereunder;
(v) all electric power, telephone, gas, sanitary sewer, storm
sewer, water and other utility lines, pipelines, service lines, and
facilities of any nature on, over or under the real property, and all
licenses, easements, rights-of-way, and other agreements relating
thereto;
(vi) all existing public and private roads and streets (whether
dedicated or undedicated), and all railroad lines and rights-of-way
affecting the real property;
(vii) prior reservations or conveyances of mineral rights or
mineral leases of every kind and character;
(viii) inchoate mechanic's and materialmen's liens for
construction in progress and workmen's, repairmen's, warehousemen's,
carrier's liens, and other similar statutory liens arising in the
Ordinary Course of Business for amounts not yet overdue; and
(ix) all exceptions set forth in the preliminary title reports
referenced on SCHEDULE 2.5, which have been provided by Sellers to
Buyer.
2.6 TAXES. (a) Except as set forth on SCHEDULE 2.6(a), each of the
Sellers and each Acquired Company has filed or caused to be filed all Tax
Returns that are or were required to be filed by or with respect to any of them,
either separately or as a member of a group of corporations, pursuant to
applicable Legal Requirements. Except as set forth on SCHEDULE 2.6(a), each
Acquired Company has paid, or made provision for the payment of, all Taxes that
have or may have become due pursuant to those Tax Returns or otherwise, or
pursuant to any assessment, except such Taxes, if any, as are listed in SCHEDULE
2.6(a) and are being contested in good faith and as to which adequate reserves
(determined in accordance with GAAP) will be provided in the Closing Balance
Sheet.
(b) (i) The charges, accruals, and reserves with respect to Taxes on
the respective books of each Acquired Company are adequate (determined in
accordance with GAAP) and are at least equal to that Acquired Company's
liability for Taxes; (ii) there exists
9
no proposed tax assessment against any Acquired Company except as disclosed in
the Closing Balance Sheet or in SCHEDULE 2.6(a); (iii) all Taxes that any
Acquired Company is or was required by Legal Requirements to withhold or collect
have been duly withheld or collected and, to the extent required, have been paid
to the proper Governmental Body or other Person, and (iv) there exists no lien
for Taxes upon any assets of any Acquired Company, except liens for Taxes not
yet due and payable.
(c) All Tax Returns filed by (or that include on a consolidated,
unitary, or combined basis) any Acquired Company are true, correct, and
complete. There is no tax sharing agreement that required or will require any
payment by any Acquired Company after the Closing Date.
(d) Except as set forth in SCHEDULE 2.6(d), none of the Acquired
Companies (i) has been a member of any group that has filed a combined,
consolidated or unitary Tax Return, other than such Tax Returns for which the
period for assessment has expired (taking into account any extension or waiver
thereof) or (ii) has any liability for the Taxes of any person under Treas.
Reg. Section 1.1502-6 (or any similar provision of state, local, or foreign
law), as a transferee or successor, by contract, or otherwise.
(e) Except for Hardie US and as set forth in SCHEDULE 2.6(e), none of
the Acquired Companies is (i) engaged in a United States trade or business for
federal income tax purposes; (ii) a passive foreign investment company within
the meaning of the Code; or (iii) a foreign investment company within the
meaning of the Code.
(f) Except as set forth on SCHEDULE 2.6(f), no claim has ever been
made by an authority in a jurisdiction where any of the Acquired Companies does
not file Tax Returns that it is or may be subject to taxation by that
jurisdiction.
(g) Except as set forth on SCHEDULE 2.6(g), to the Knowledge of
Sellers and the Acquired Companies, after due inquiry, no authority will assess
any additional Taxes on any Acquired Company for any period for which Tax
Returns have been filed. There is no dispute or claim concerning any tax
liability for Tax of any of the Acquired Companies either (i) claimed or raised
by any authority in writing or (ii) as to which any of the Sellers and the
directors and officers (and employees responsible for Tax matters) of the
Acquired Companies has Knowledge. SCHEDULE 2.6(g) lists all foreign, federal,
state, and local income Tax Returns filed with respect to any of Acquired
Companies that currently are the subject of audit.
(h) Except as set forth on SCHEDULE 2.6(h), none of the Acquired
Companies has waived any statutes of limitation in respect of Taxes or agreed to
any extension of time with respect to a Tax assessment or deficiency that has
not since expired.
10
(i) None of the Acquired Companies has been a United States real
property holding corporation within the meaning of Code Section 897(c)(2) during
the applicable period specified in Code Section 897(c)(1)(A)(ii).
(j) Except as set forth on SCHEDULE 2.6(j), none of the income of any
of the Acquired Companies is Subpart F income of Hardie US (within the meaning
of Section 952 of the Code).
(k) James Hardie (USA) Inc. has in the past filed, and for the tax
year that includes the Closing Date, will file, as the common parent, a
consolidated federal income tax return that includes Hardie US.
(l) SCHEDULE 2.6(l) sets forth a summary of the adjusted basis of the
assets of Hardie US for federal income tax purposes as at the date set forth on
that schedule.
2.7. NO MATERIAL ADVERSE CHANGE; CONTINGENT LIABILITIES.
(a) Since March 31, 1996, there has not been any Material Adverse
Change and no event has occurred or circumstance exists that is reasonably
likely to result in a Material Adverse Change, provided, however, and without
limiting the generality of the foregoing, Buyer and Sellers agree that the
following shall not constitute a Material Adverse Change: (i) a decline,
resulting from the impact on the Acquired Companies of the Contemplated
Transactions, of up to and including 25% in the revenues, on a cumulative basis,
of the Acquired Companies from their worldwide landscape business during the 12
month period immediately preceding the Closing Date, when compared to the same
twelve month period for the prior year; and (ii) any action that is required to
be taken pursuant to SECTION 6.2(a) of this Agreement. The foregoing
notwithstanding, for purposes of determining whether a material adverse effect
has otherwise occurred, the exception stated in SUBSECTION (i) above shall not
be deemed to establish a standard of materiality.
(b) None of the Acquired Companies is subject to any obligation or
liability of any nature (whether known or unknown, due or to become due,
accrued, absolute, contingent, inchoate or otherwise, including, without
limitation, unasserted claims), which is not reflected on the Balance Sheet,
other than obligations and liabilities incurred in the Ordinary Course of
Business after March 31, 1996 which, individually or in the aggregate, are not
reasonably likely to result in a Material Adverse Change.
2.8. EMPLOYEE BENEFITS. (a) SCHEDULE 2.8(a) includes a complete list
of all employee benefit plans, programs, policies, practices, and other
arrangements providing benefits to any employee or former employee or
beneficiary or dependent thereof, whether or not written, and whether covering
one person or more than one person, sponsored or maintained by any of the
Acquired Companies or to which any of the Acquired Companies contributes or is
obligated to contribute ("Plans"). Without limiting the generality of the
foregoing, the term "Plans" includes all employee welfare benefit plans within
the meaning
11
of Section 3(1) of ERISA and all employee pension benefit plans within the
meaning of Section 3(2) of ERISA.
(b) With respect to each Plan, Sellers have delivered, or will
deliver prior to the Closing Date, to Buyer a true, correct and complete copy
of: (i) each writing constituting a part of such Plan, including without
limitation all plan documents, benefit schedules, trust agreements, and
insurance contracts and other funding vehicles; (ii) the current summary plan
description, if any; (iii) the most recent annual financial report pertaining to
Hardie US, if any; and (iv) the most recent determination letter from the IRS,
if any. Except as specifically provided in the foregoing documents delivered to
Buyer, there are no amendments to any Plan that have been adopted or approved
nor have Sellers or any of the Acquired Companies undertaken to make any such
amendments.
(c) SCHEDULE 2.8(c) identifies each Plan that is intended to be a
"qualified plan" within the meaning of Section 401(a) of the Code ("Qualified
Plans"). The IRS has issued a favorable determination letter with respect to
each Qualified Plan that has not been revoked, and there are no existing
circumstances nor any events that have occurred that could adversely affect the
qualified status of any Qualified Plan or the related trust. No Plan is
intended to meet the requirements of Code Section 501(c)(9).
(d) All contributions required to be made to any Plan by applicable
law or regulation or by any plan document or other contractual undertaking, and
all premiums due or payable with respect to insurance policies funding any Plan,
for any period through the date hereof, have been timely made or paid in full
or, to the extent not required to be made or paid on or before the date hereof,
have been fully reflected on the financial statements referred to in SECTION
2.4.
(e) The Acquired Companies have complied, and are now in compliance,
in all material respects with all provisions of ERISA, the Code and all laws and
regulations applicable to the Plans. There is not now, nor do any circumstances
exist that could give rise to, any requirement for the posting of security with
respect to a Plan or the imposition of any lien on the assets of any of the
Acquired Companies under ERISA or the Code. No prohibited transaction has
occurred with respect to any Plan.
(f) No Plan is subject to Title IV or Section 302 of ERISA or Section
412 or 4971 of the Code.
(g) No Plan is a "multiemployer plan" within the meaning of Section
4001(a)(3) of ERISA (a "Multiemployer Plan") or a plan that has two or more
contributing sponsors at least two of whom are not under common control, within
the meaning of Section 4063 of ERISA (a "Multiple Employer Plan"), nor has any
of the Acquired Companies or any ERISA Affiliate thereof, at any time since
September 2, 1974, contributed to or been obligated to contribute to any
Multiemployer Plan or Multiple Employer Plan.
12
(h) There does not now exist, nor do any circumstances exist that
could result in, any Controlled Group Liability that would be a liability of any
of the Acquired Companies following the Closing. Without limiting the
generality of the foregoing, none of the Acquired Companies nor any ERISA
Affiliate thereof has engaged in any transaction described in Section 4069 or
Section 4204 or 4212 of ERISA.
(i) Except as set forth in the current summary plan description, the
Acquired Companies have no liability for life, health, medical or other welfare
benefits to former employees or beneficiaries or dependents thereof, except for
health continuation coverage as required by Section 4980B of the Code or Part 6
of Title I of ERISA and at no expense to the Acquired Companies.
(j) Except as specifically contemplated by SECTION 5.3(c) of this
Agreement, neither the execution and delivery of this Agreement nor the
consummation of the Contemplated Transactions will (either alone or in
conjunction with any other event) result in, cause the accelerated vesting or
delivery of, or increase the amount or value of, any payment or benefit to any
employee of any of the Acquired Companies. Without limiting the generality of
the foregoing, no amount paid or payable by any of the Acquired Companies in
connection with the Contemplated Transactions (either solely as a result thereof
or as a result of such transactions in conjunction with any other event) will be
an "excess parachute payment" within the meaning of Section 28OG of the Code.
The total severance that could become payable if the employment of all employees
of the Acquired Companies were terminated on the Closing Date would not exceed
the amount set forth on SCHEDULE 2.8(j).
(k) No labor organization or group of employees of any of the
Acquired Companies has made a pending demand for recognition or certification,
and there are no representation or certification proceedings or petitions
seeking a representation proceeding presently pending or, to the Knowledge of
Sellers and the Acquired Companies, after due inquiry, threatened to be brought
or filed, with the National Labor Relations Board or any other labor relations
tribunal or authority. There are no organizing activities, strikes, work
stoppages, slowdowns, lockouts, material arbitrations or material grievances, or
other material labor disputes pending or, to the Knowledge of Sellers and the
Acquired Companies, after due inquiry, threatened against or involving any of
the Acquired Companies.
(l) There are no pending or, to the Knowledge of Sellers or the
Acquired Companies, after due inquiry, threatened claims (other than claims for
benefits in the ordinary course), lawsuits or arbitrations which have been
asserted or instituted against the Plans, any fiduciaries thereof with respect
to their duties to the Plans or the assets of any of the trusts under any of the
Plans which could reasonably be expected to result in any material liability of
any of the Acquired Companies to the Pension Benefit Guaranty Corporation, the
Department of Treasury, the Department of Labor or any multiemployer plan.
13
(m) For purposes of this SECTION 2.8, the term "employee" shall be
considered to include individuals rendering personal services to any of the
Acquired Companies as independent contractors.
(n) AUSTRALIAN SUPERANNUATION SCHEMES.
1. SCHEDULE 2.8(n) references all of the Australian Schemes.
2. There is no accrued liability, unfunded or contingent
obligations with respect to any Australian Scheme.
3. All occupational superannuation contributions required
under any award or prescribed industrial agreement in
respect of the Employees have been made and all applicable
laws have been satisfied. There is no superannuation
guarantee charge of liability accrued or payable in
respect of Employees.
4. Each Australian Scheme has at all times been administered
in accordance with the relevant rules and/or trust
document and (in the case of superannuation schemes) in
accordance with all requirements which from time to time
have needed to be satisfied in order for the Australian
Scheme to qualify for the maximum income tax concessions
available to superannuation funds.
5. Each Australian Scheme (which is a superannuation scheme)
has been and remains a "complying superannuation fund" for
the purposes of the Australian Income Tax Assessment Act
1936.
6. All payments from the Seller's Fund contemplated by or
made pursuant to SECTION 5.3(b) are permitted by the trust
deeds and rules governing the Seller's Fund.
7. For purposes of this Section 2.8(n), "Australian Schemes"
means all superannuation schemes, retirement benefit
schemes or other pension schemes or arrangements and all
employment benefit plans, program or arrangements such as
medical, dental or life insurance made available to or
procured for the current and former officers and employees
of Hardie Australia, if any.
2.9. COMPLIANCE WITH LEGAL REQUIREMENTS. Except as set forth on
SCHEDULE 2-9: (a) the business of the Acquired Companies has been and is being
conducted in accordance with all applicable Legal Requirements or Orders of all
Governmental Bodies or other authorities (exclusive of Environmental Laws as
covered by SECTION 2.14 below), the Acquired Assets conform with all applicable
Legal Requirements or Orders and none of
14
Sellers or the Acquired Companies has received any notice alleging any conflict
with, violation or breach of or default under any Legal Requirements or Orders,
other than those that individually or in the aggregate are not reasonably likely
to result in a Material Adverse Change; and (b) the Acquired Companies are not
in violation of, or in default under, any term or provision of their
Organizational Documents or of any lien, indenture, mortgage, lease, agreement,
instrument, commitment or other arrangement or other Contract or Encumbrance, or
subject to any restriction of any kind or character, which individually or in
the aggregate is reasonably likely to result in a Material Adverse Change.
Sellers have received no notice of any proposed public improvement which may
involve any charge being levied or assessed against the real property of the
Acquired Companies that individually or in the aggregate is reasonably likely to
result in a Material Adverse Change.
2.10. LEGAL PROCEEDINGS. Except as set forth in SCHEDULE 2.10, there
are no actions, claims, suits, demands, arbitrations, inquiries, summons,
investigations or proceedings of any nature, whether civil, criminal,
administrative, regulatory or otherwise, pending or, to the Knowledge of Sellers
or the Acquired Companies, after due inquiry, threatened against or relating to
any of the Acquired Companies or any of their respective properties or assets,
or relating to this Agreement or the Contemplated Transactions by or before any
Governmental Body, and there are no orders, writs, injunctions, stipulations,
awards, judgments or decrees outstanding against, affecting or relating to the
Acquired Companies or their respective assets or properties which individually
or in the aggregate are reasonably likely to result in a Material Adverse
Change. Except as described on SCHEDULE 2.10, (a) there are no express written
warranties with respect to the present or former products of the Acquired
Companies, and (b) there are no pending or, to the Knowledge of Sellers or the
Acquired Companies, after due inquiry, threatened claims with respect to any
such warranty that are not reserved for in the warranty reserve that
individually or in the aggregate are likely to result in a Material Adverse
Change.
2.11. ABSENCE OF CERTAIN CHANGES AND EVENTS. Except as set forth in
SCHEDULE 2.11, since the date of the Balance Sheet, the Acquired Companies have
conducted their businesses only in the Ordinary Course of Business and there has
not been any:
(a) change in any Acquired Company's authorized or issued
capital stock; grant of any option or right or other security or
commitment relating to the purchase of any shares of capital stock or
other security of any Acquired Company; issuance of any security
convertible into or exchangeable or exercisable for any such capital
stock; grant of any registration rights; purchase, redemption,
retirement, or other acquisition by any Acquired Company of any shares
of any such capital stock; or declaration or payment of any dividend
or other distribution or payment in respect of shares of capital stock
(other than dividends paid by a wholly owned subsidiary of an Acquired
Company to an Acquired Company or to a wholly owned subsidiary of an
Acquired Company);
(b) amendment to the Organizational Documents of any Acquired
Company;
15
(c) payment or increase by any Acquired Company of any
bonuses, salaries, or other compensation to any stockholder, director,
officer, or employee or entry into any employment, severance, or
similar contract with any director, officer, or employee, except in
the Ordinary Course of Business;
(d) adoption or amendment of, or increase in the payments to
or benefits under, any profit sharing, bonus, deferred compensation,
savings, insurance, pension, retirement, or other employee benefit
plan for or with any employees of any Acquired Company ("Benefit
Arrangements");
(e) damage to or destruction or loss of any asset or
property of any Acquired Company, whether or not covered by insurance,
that individually or in the aggregate is reasonably likely to result
in a Material Adverse Change;
(f) sale (other than sales of inventory in the Ordinary Course
of Business, the transfer of ownership of the Carson City property,
and the distribution of all of the capital stock of Wallace O'Connor,
Inc., which shall occur prior to the Closing Date), lease, or other
disposition of any asset or property of any Acquired Company or
mortgage, pledge, or imposition of any lien or other Encumbrance on
any material asset or property of any Acquired Company;
(g) entry into any material joint venture or partnership, or
any purchase or acquisition of any assets or securities of any Person;
(h) material capital expenditure or commitment, any incurrence
or guarantee of any indebtedness for money borrowed (other than short-
term indebtedness incurred in the Ordinary Course of Business);
(i) material change in the accounting methods used by any
Acquired Company or any material reclassification of assets or
liabilities;
(j) transfer of any assets or other rights from any Acquired
Company to, or any assumption of any liability by any Acquired Company
of, the liabilities of Wallace O'Connor, Inc.; or
(k) agreement, commitment or understanding, whether oral or
written, by any Seller or any Acquired Company to do any of the
foregoing.
2.12. CONTRACTS; NO DEFAULTS. SCHEDULE 2.12 sets forth a list of all
Contracts to which any of the Acquired Companies is a party or by which any of
the Acquired Companies is obligated or any of their assets are subject, in the
following categories: (a) Benefit Arrangements providing for aggregate payments
of US$50,000 or more in any 12-month period or any contract with employees,
consultants or agents not terminable at will without cost or other liability by
reason of such termination; (b) collective bargaining
16
agreements; (c) guarantees by any of the Acquired Companies of any obligation
for the borrowing of US$100,000 or more in the aggregate; (d) letters of credit,
indentures, notes, mortgages, installment obligations, capital leases, interest
rate or foreign exchange contracts, or other instruments relating to the
borrowing of money in excess of US$100,000 in the aggregate; (e) agreements,
contracts, commitments, licenses, agreements or leases (excluding open purchase
orders or supply agreements entered into in the Ordinary Course of Business)
that involve the receipt or payment by any of the Acquired Companies within one
year of more than US$100,000; (f) executory contracts involving the acquisition
or disposition of material tangible or intangible assets other than in the
Ordinary Course of Business; (g) any sales representative, marketing or other
distributorship agreements which involve the sale of greater than US$100,000 of
product annually; and (h) any Contract containing a non-compete, indemnity or
similar provision. Except as disclosed on SCHEDULE 2.12 or as not individually
or in the aggregate reasonably likely to result in a Material Adverse Change,
none of the Acquired Companies is in breach or violation of or default under any
Contract (and no event has occurred and is continuing that constitutes or, with
notice or the passage of time or both, would constitute such a breach, violation
or default by any of the Acquired Companies), has waived any rights under any
Contract, and (to the Knowledge of Sellers and the Acquired Companies, after due
inquiry) the other parties with whom any of them has a Contract are not in
breach of or in default under any such Contract.
2.13. INSURANCE. (a) The Acquired Companies are named as insureds
with insurance carriers, covering the assets, business, equipment, properties,
operations, employees, officers and directors of each of the Acquired Companies,
in amounts and against all risks normally insured against by Persons operating
similar businesses in similar locations. SCHEDULE 2.13 sets forth a list of the
insurance coverage in effect as of the date of this Agreement. There is no
material claim by any of the Acquired Companies pending under any of the
material insurance coverage as to which coverage has been questioned, denied or
disputed by the underwriters of such policies.
(b) Sellers and their predecessors have maintained or maintain certain
policies of insurance applicable to the Acquired Companies which are not
necessarily exclusive to the Acquired Companies, including, but not limited to,
some of the policies described in SECTION 2.13. Certain coverages and limits
under these policies may be impaired by claims arising from other operations of
Sellers and their Related Persons and predecessors currently or previously owned
by Sellers and their Related Persons and predecessors. Except as otherwise
provided in this SECTION 2.13, Sellers make no representations or warranties in
respect of any policy of insurance and shall not be responsible for any
allocations, determinations as to coverage or lack thereof, or any action or
failure to act or decision or interpretation made by underwriters, insurers or
their agents with respect thereto.
(c) In the event that, between the execution of this Agreement and
the Closing Date, any insured property owned or leased by any of the Acquired
Companies suffers any damage, destruction, or allied loss, and such damage,
destruction, or allied loss is not reflected in the Closing Balance Sheet,
Sellers shall surrender to Buyer at the Closing, (i) all
17
insurance proceeds received by Sellers with respect to such damage or loss and
(ii) all rights of the Sellers with respect to any causes of action, whether or
not litigation has commenced as of the Closing Date, in connection with such
damage or loss.
2.14. ENVIRONMENTAL MATTERS. Except as set forth on SCHEDULE 2.14,
to the Knowledge of Sellers or the Acquired Companies, after due inquiry, no
Acquired Company has received notice that any Environmental Laws or other
foreign, federal, state or local statutes, orders, rules or regulations,
ordinances or governmental policies require any work, repairs, construction or
capital expenditures with respect to the properties and assets, which would
result in any Material Adverse Change. To the Knowledge of Sellers or the
Acquired Companies, after due inquiry, the Acquired Companies have complied, in
the conduct of their respective businesses, with all applicable Environmental
Laws, except for failures to comply which are not reasonably likely,
individually or in the aggregate, to result in a Material Adverse Change. None
of the Acquired Companies has been notified that it may be a potentially
responsible party under any Environmental Law and, to the Knowledge of Sellers
or the Acquired Companies, after due inquiry, there are no events, facts or
circumstances that indicate that any of the Acquired Companies will be a
"potentially responsible party" under any Environmental Law, whether or not in
respect of any properties or assets currently owned or leased by any Acquired
Company. Except for any of the following which are not reasonably likely,
individually or in the aggregate, to result in a Material Adverse Change, (a)
none of the Acquired Companies has received any written notice from any Person,
including, without limitation, any Governmental Body, that alleges that any of
the Acquired Companies is liable under or is not in compliance with the
applicable Environmental Laws; and (b) there is no Environmental Claim pending,
or to the Knowledge of Sellers or the Acquired Companies, after due inquiry,
threatened, against any of the Acquired Companies or, to the Knowledge of
Sellers or the Acquired Companies, after due inquiry, against any Person whose
liability for any Environmental Claim the Acquired Companies have assumed by
contract or operation of law or for which they may otherwise be liable. Except
as set forth on SCHEDULE 2.14, to the Knowledge of Sellers or the Acquired
Companies, after due inquiry, none of the Acquired Companies has or is subject
to any Environmental Liabilities that individually or in the aggregate are
reasonably likely to result in a Material Adverse Change.
2.15. INTELLECTUAL PROPERTY. Except as contemplated by SECTION 5.5,
SCHEDULE 2.15 sets forth a complete list of all material Intellectual Property
of the Acquired Companies on the date hereof and of all material license
agreements pursuant to which any such Intellectual Property is licensed by or to
the Acquired Companies. The Acquired Companies do not own, license or, to the
Knowledge of Sellers or the Acquired Companies, after due inquiry, use
Intellectual Property material to the continued operation of the Acquired
Companies' Business that is not listed on SCHEDULE 2.15. Except as otherwise
indicated in SCHEDULE 2.15, the Acquired Companies own the Intellectual Property
listed in SCHEDULE 2.15 free and clear of any royalty, lien, Encumbrance or
charge. The Acquired Companies own (or possess adequate and enforceable
licenses or other rights to use) all Intellectual Property materially necessary
to the conduct of their respective businesses as presently conducted.
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Except as set forth on SCHEDULE 2.15, there are no existing or, to the Knowledge
of Sellers or the Acquired Companies, after due inquiry, threatened claims of
any third Person based on the use by, or challenging the ownership of, any of
the Acquired Companies of any of such Intellectual Property that is reasonably
likely, individually or in the aggregate, to result in a Material Adverse
Change. Except as set forth on SCHEDULE 2.15, there is no material infringing
use by any Person of the Intellectual Property on such Schedule, that is
reasonably likely, individually or in the aggregate, to result in a Material
Adverse Change. Except as set forth in SCHEDULE 2.10 or SCHEDULE 2.15, since
January 1, 1993, the Acquired Companies have not received any notice or claim
that any such Intellectual Property is not valid or enforceable, or of any
infringement upon or conflict with any Intellectual Property of any third party
by the Acquired Companies or of any claim by any third party alleging any such
infringement or conflict. Except as set forth in SCHEDULE 2.10 or SCHEDULE
2.15, since January 1, 1993, the Acquired Companies have not given (and have no
reason to give) any notice of infringement to any third party with respect to
any of the Intellectual Property listed in SCHEDULE 2.15.
2.16. BROKERS OR FINDERS. Sellers, the Acquired Companies and their
respective agents have incurred no obligation or liability, contingent or
otherwise, for brokerage or finders' fees or agents' commissions or other
similar payment in connection with this Agreement or the Contemplated
Transactions, for which Buyer or any of the Acquired Companies may be held
liable.
2.17. OWNERSHIP OF ASSETS: NO SELLER LIABILITIES. Except for certain
insurance policies set forth on SCHEDULE 2.13: (i) none of Sellers, any Related
Person of any Seller or any affiliate of any Seller (other than the Acquired
Companies) owns, leases or uses, or since January 1, 1993 has owned, leased or
used, any assets or properties, wherever located, used in or necessary for, or
of the type only used in or necessary for, the business and operations of the
Acquired Companies as currently conducted, as conducted since January 1, 1993 or
as currently contemplated to be conducted (the "Acquired Companies' Business");
and (ii) none of the Acquired Companies has any obligation or liability of any
nature (whether known or unknown, due or to become due, accrued, absolute,
contingent, inchoate or otherwise, including, without limitation, unasserted
claims) not primarily relating to and arising from the conduct of the Acquired
Companies' Business.
2.18. GOVERNMENTAL PERMITS. The Acquired Companies own, hold or
possess (or otherwise have the right to use) all foreign, federal, state, and
local governmental licenses, franchises, permits, privileges, certificates,
variances, immunities, approvals and other authorizations, which are required to
own, lease, operate and use their respective assets and properties and to carry
on and conduct their respective businesses as currently conducted (herein
collectively called "Governmental Permits"), except where the failure to own,
hold or possess (or otherwise have the right to use) is not, individually or in
the aggregate, reasonably likely to result in a Material Adverse Change. Each
of such Governmental Permits is valid, subsisting and in full force and effect
in all material respects and, to the Knowledge of Sellers or the Acquired
Companies, after due inquiry, no suspension or
19
cancellation of any of them is threatened, which such suspensions or
cancellations are, individually or in the aggregate, reasonably likely to result
in a Material Adverse Change. No written notice of cancellation, of default or
of any dispute concerning any Governmental Permit, or written notice of any
event, condition or state of facts which constitutes or, after notice or lapse
of time or both, would constitute a breach or default under any material
Governmental Permit has been received by any of Sellers or the Acquired
Companies, except for any of the foregoing which is not reasonably likely,
individually or in the aggregate, to result in a Material Adverse Change.
2.19. CERTAIN TRANSACTIONS OR ARRANGEMENTS. Except for the
agreements, arrangements or understandings described in SCHEDULE 2.19
(collectively, the "Affiliate Agreements"), none of Sellers or any of their
affiliates (other than the Acquired Companies and their wholly owned
subsidiaries) (the "Continuing Affiliates") or any present or former officer or
director of any Continuing Affiliate, or of any of the Acquired Companies (and
no Person with whom any such officer or director has any relation by blood,
marriage or adoption) and no affiliate or associate (as such terms are defined
in Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended)
of any of the foregoing is presently, or since January 1, 1993, has been,
directly or indirectly, a party to any agreement, arrangement or understanding
with the Acquired Companies, including without limitation: (i) any material
contract, agreement, understanding, commitment or other arrangement providing
for the furnishing of services or rental of real or personal property to or
from, or otherwise relating to the business or operations of, any of the
Acquired Companies; (ii) any loans or advances to or from any of the Acquired
Companies; (iii) pursuant to which any of the Acquired Companies may have any
material obligation or liability; and (iv) any transaction of a kind which would
be required to be disclosed pursuant to Item 404 of Regulation S-K, if the
Acquired Companies as a group were subject thereto. The termination of the
Affiliate Agreements is not, individually or in the aggregate, reasonably likely
to result in a Material Adverse Change, and, as of the Closing Date, all of the
Affiliate Agreements will be terminated (and shall be of no further force or
effect) without any liability or payment whatsoever by Buyer or any of the
Acquired Companies.
2.20. ACCURACY OF INFORMATION FURNISHED. To the Knowledge of Sellers
and the Acquired Companies, after due inquiry, no statement by any Seller
contained herein contains or will contain any untrue statement of a material
fact and no Seller has failed or will fail, in each case as of the respective
date made, to inform Buyer of any material fact which, when considered with
other information furnished to Buyer, is necessary to make the statements,
representations, warranties, covenants and agreements contained in this
Agreement (and the Schedules hereto) not materially misleading in the context in
which given, and which in the aggregate would result in a Material Adverse
Change. To the Knowledge of Sellers and the Acquired Companies, after due
inquiry, none of the information provided by Sellers in the Offering Memorandum,
the Data Room, any financial statement provided to Buyer, exhibit or schedule
furnished by Sellers in connection with the Contemplated Transactions contains
or will contain, in each case as of the respective date made, any untrue
statement of a material fact or omits or will omit, in each case as of the
20
date made, to state any material fact necessary to make the statements therein,
in light of the circumstances under which they were, are or will be made not
misleading, and which in the aggregate would result in a Material Adverse
Change; provided, however that with respect to any financial projections,
forecasts, or statements qualified as to management belief or words of like
import, Sellers only represent and warrant that such projections and
forecasts were prepared in good faith based upon assumptions believed by
Sellers to be reasonable.
2.21. LAGUNA NIGUEL PROPERTY. (a) Hardie US is the successor in
interest to, and the current holder of, all right, title and interest of Hydro
Rain, Inc. ("Hydro Rain") in and under (i) the General Partnership Agreement of
Hydro Pacific, a California general partnership, dated as of January 6, 1978,
between Birtcher Equities and Hydro Rain (as amended, modified or supplemented
from time to time, the "Hydro Pacific Partnership Agreement"), and (ii) a
Building Lease, dated as of January 6, 1978, between Hydro Pacific, as lessor,
and Hydro Rain, as lessee, for premises at 27671 La Paz Road, Laguna Niguel,
California (as amended, modified or supplemented from time to time, the "27671
La Paz Road Building Lease"). Hardie US is the current holder of all of the
right, title and interest of the lessee under the Lease, dated as of June 19,
1990, between Birtcher Niguel, as lessor, and Hardie US, as lessee, with respect
to the real property at 27631 La Paz Road, Laguna Niguel, California (as
amended, modified or supplemented from time to time, the "Adjacent Property
Lease").
(b) Except for the failure of Hardie US to document formally certain
consents to the replacement by Hardie US of Hydro Rain under the Laguna Niguel
Documents (as hereinafter defined), neither Hardie US nor Hydro Pacific is in
breach or violation of or default under any of the Laguna Niguel Documents and
no event has occurred and is continuing that constitutes or, with notice or the
passage of time or both, would constitute such a breach, violation or default,
nor has Hardie US or Hydro Pacific waived any rights under any of the Laguna
Niguel Documents, and, to the Knowledge of Sellers and the Acquired Companies,
after due inquiry, the other parties to the Laguna Niguel Documents are not in
breach of or in default thereunder. The term "Laguna Niguel Documents" shall
mean, collectively, the following documents and agreements: (i) the Hydro
Pacific Partnership Agreement, (ii) the 27671 La Paz Road Building Lease, (iii)
the Ground Lease, dated as of January 6, 1978, between Birtcher Niguel, as
lessor, and Hydro Pacific, as lessee (as amended, modified or supplemented from
time to time, the "La Paz Road Ground Lease"), and (iv) the Adjacent Property
Lease.
3. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers as follows:
3.1. ORGANIZATION AND GOOD STANDING. Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware.
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3.2. AUTHORITY; NO CONFLICT. (a) Buyer has full corporate power and
authority to enter into this Agreement and to consummate the Contemplated
Transactions and otherwise carry out its obligations hereunder. This Agreement
and the consummation of the Contemplated Transactions have been duly authorized,
executed and delivered by Buyer and constitute valid and legally binding
obligations of Buyer, enforceable in accordance with its terms, except as
enforcement may be limited by applicable bankruptcy, insolvency and other
similar laws affecting creditors' rights and rules of law governing specific
performance, injunctive relief and other equitable remedies. Buyer has obtained
all necessary corporate and shareholder authorizations and approvals required
for the execution and delivery of this Agreement, and the consummation of the
Contemplated Transactions.
(b) Except as set forth in SCHEDULE 3.2, neither the execution and
delivery of this Agreement nor the consummation or performance of any of the
Contemplated Transactions will:
(i) give any Person the right to prevent, delay, or otherwise
interfere with any of the Contemplated Transactions pursuant to:
(1) any provision of Buyer's Organizational Documents;
(2) any resolution adopted by the board of directors or the
shareholders of Buyer;
(3) any Legal Requirement or Order to which Buyer may be
subject or by which any of its assets or properties may be
bound or affected; or
(4) any Contract to which Buyer is a party or by which
Buyer may be bound or by which any of its assets or
properties may be bound or affected;
(ii) with or without the giving of notice or the lapse of time
or both, violate, conflict with, result in or constitute a breach
of or default under, or constitute an event permitting
modification, amendment or termination of, or result in any
acceleration of or increase in any payment required by, or in the
loss, revocation, impairment, suspension or forfeiture of any
rights, privileges or benefits of Buyer, or result in the
creation or imposition of any Encumbrance upon any of the
respective properties, assets or businesses of any of Buyer
under, any Organizational Document, Contract, Order or Legal
Requirement to which Buyer is a party or by which Buyer or any of
its assets or properties may be bound or affected; except for any
of the foregoing matters in this clause (ii) that are not
individually or in the aggregate reasonably likely to result in a
Material Adverse Change to Buyer.
22
Except as set forth in SCHEDULE 3.2, Buyer is not and will not be required
to obtain any Consent from any Person in connection with the execution and
delivery of this Agreement or the consummation or performance of any of the
Contemplated Transactions.
3.3. INVESTMENT INTENT. Buyer is acquiring the Shares for its own
account and not with a view to their distribution within the meaning of Section
2(11) of the Securities Act.
3.4. CERTAIN PROCEEDINGS. As of the date hereof, to the Knowledge of
Buyer, after due inquiry, there is no Proceeding that has been commenced (and
not terminated or abandoned) against Buyer that challenges, or may have the
effect of preventing, delaying, making illegal, or otherwise interfering with,
any of the Contemplated Transactions.
3.5. BROKERS OR FINDERS. Buyers and their agents have incurred no
obligation or liability, contingent or otherwise, for brokerage or finders' fees
or agents' commissions or other similar payment in connection with this
Agreement or the Contemplated Transactions, for which Sellers may be held
liable.
3.6. CONSENTS AND APPROVALS. No authorizations, consents, approvals
of or notices to any Governmental Body are required to be obtained or given
(other than those which are ministerial in nature and which will not delay or
invalidate the transactions contemplated herein) or waiting period required to
expire in order that this Agreement and the Contemplated Transactions may be
consummated, other than as set forth on the Schedules to the Agreement and the
requirements imposed by the HSR Act.
3.7. NECESSARY FUNDS. Buyer has, or will have at the Closing, the
funds necessary to consummate the Contemplated Transactions.
3.8. MATERIAL MISSTATEMENTS OR OMISSIONS. To the Knowledge of Buyer,
after due inquiry, no representation or warranty made by Buyer in this Agreement
is untrue or will be untrue or omits to state or will omit, in each case as of
the respective date made, to state a material fact necessary to make the
statement and facts contained therein not misleading.
3.9. BUYER'S INVESTIGATION. Buyer acknowledges and agrees that it:
(i) is knowledgeable about the irrigation business; (ii) has made or prior to
the Closing will have made its own inquiry and investigation into, and based
thereon has or will have formed an independent judgment concerning certain
aspects of the Acquired Companies; and (iii) has been or prior to the Closing
will have been furnished with or given access to certain of the officers and
employees of the Acquired Companies and other information about the Acquired
Companies that it has requested. Notwithstanding any right of Buyer to
investigate fully the matters contained herein, and notwithstanding SECTION 5.6,
Buyer has the right to rely fully upon the representations, warranties,
covenants and agreements of each Seller contained in
23
this Agreement, the instruments or agreements executed by any Seller pursuant to
the terms hereof or in any certificates or other documents delivered pursuant to
this Agreement. However, after the Closing Date, Buyer agrees that it will not
assert any claim against Sellers, their Related Persons or representatives, or
hold any of such persons liable for any inaccuracies, misstatements or omissions
with respect to information concerning the Acquired Companies furnished by
Sellers, their Related Persons or representatives unless such inaccuracies,
misstatements or omissions (a) constitute a breach of the terms or provisions of
this Agreement, the instruments or agreements executed by any Seller pursuant to
the terms hereof, or any certificates or other documents delivered pursuant to
this Agreement, (b) provide the basis upon which a claim (as referenced in
ARTICLE 10) can be asserted by Buyer pursuant to ARTICLE 10, or (c) constitute
intentional fraud on the part of any Seller, or (d) arise pursuant to SECTION
1.6.
4. COVENANTS AND AGREEMENTS OF SELLERS
4.1. ACCESS AND INVESTIGATION. Subject to restrictions: (i)
contained in confidentiality agreements to which any Seller or Acquired Company
is a party with respect to any information relating to any third party; (ii)
that might be necessary to protect Buyer's, Sellers' or any Acquired Companies'
attorney/client privilege; (iii) that might be necessary to avoid violation of
the Antitrust Laws; or (iv) contained in SECTION 6.1, and provided there is no
unreasonable interference with the Acquired Companies' Business, between the
date of this Agreement and the Closing Date, Sellers will, and will cause each
Acquired Company and its Representatives to, (a) afford Buyer and any Third
Party Representative and their respective Representatives and prospective
lenders and their Representatives (collectively, "Buyer's Advisors") such full
and free access to each Acquired Company's personnel, properties (including
subsurface testing, subject to SECTION 6.1), contracts, books and records, and
other documents and data, (b) furnish Buyer and Buyer's Advisors with copies of
all such contracts, books and records, and other existing documents and data as
Buyer may reasonably request, (c) furnish Buyer and Buyer's Advisors, at Buyer's
expense, access to C&L's work papers regarding the Balance Sheet and such other
information regarding the Balance Sheet as may be necessary to permit Buyer's
accountants to deliver an unqualified opinion to Buyer with respect to such
financial statements as Buyer requires for reporting purposes under the
securities laws, and (d) furnish Buyer and Buyer's Advisors with such
additional financial, operating, and other data and information as Buyer may
reasonably request. Sellers will instruct C&L to provide to Buyer, at Buyer's
expense, such audit reports and other information as Buyer requires to
satisfy reporting obligations under the securities laws.
4.2. OPERATION OF THE BUSINESSES OF THE ACQUIRED COMPANIES. Between
the date of this Agreement and the Closing Date, Sellers will, and will cause
each Acquired Company to, conduct the business of such Acquired Company only in
the Ordinary Course of Business and will use its Best Efforts to keep intact the
business organization and goodwill thereof of the Acquired Companies.
24
4.3. NEGATIVE COVENANT. Except as otherwise expressly permitted by
this Agreement, between the date of this Agreement and the Closing Date, Sellers
will not, and will cause each Acquired Company not to, take any affirmative
action, or fail to take any action within their or its control, as a result of
which any of the changes or events listed in SECTION 2.11 is reasonably likely
to occur.
4.4. APPROVALS OF GOVERNMENTAL BODIES. As promptly as practicable
after the date of this Agreement, Sellers will, and will cause each Acquired
Company to, make all filings required by Legal Requirements to be made by them
in order to consummate the Contemplated Transactions (including all filings
under the HSR Act). Sellers will, and will cause each Acquired Company to,
cooperate with Buyer with respect to all filings that Buyer elects to make or is
required by Legal Requirements to make in connection with the Contemplated
Transactions (including taking all actions reasonably requested by Buyer to
cause the expiration or early termination of any applicable waiting period under
the HSR Act).
4.5. BEST EFFORTS. Between the date of this Agreement and the
Closing Date, Sellers will use their Best Efforts to cause the conditions in
SECTIONS 7 AND 8 to be satisfied.
4.6. NO SOLICITATION. Sellers agree that neither the Acquired
Companies, Sellers, any Related Person of any Acquired Company or any Seller,
nor any of their respective subsidiaries or affiliates nor any of the officers,
directors, employees, agents or Representatives of any of the foregoing, shall
continue, initiate, solicit or encourage, directly or indirectly, any inquiries
or the making or implementation of any proposal or offer with respect to a
merger, acquisition, consolidation, joint venture or similar transaction
involving, or any purchase of all or any significant portion of the assets or
any equity securities of, any Acquired Company (any such proposal or offer being
hereinafter referred to as an "Acquisition Proposal") or engage in any
negotiations concerning, or provide any confidential information or data to, or
have any discussions with, or enter into (or authorize) any agreement or
agreement in principle with, any person relating to an Acquisition Proposal.
4.7. SELLERS' PAYMENT OF CERTAIN AMOUNTS. On or prior to the
Closing, Sellers shall pay all amounts payable pursuant to the Shadow Stock Plan
(as defined below), and any and all other amounts (except for the stay-on
bonuses for the president and senior vice-presidents of Hardie US, as set forth
on SCHEDULE 4.7, and the severance compensation as set forth on SCHEDULE 2.8(j)
and SCHEDULE 4.7, which Buyer shall pay or for which Buyer will assume
responsibility) that are or may become payable to employees, officers or
directors of any of the Acquired Companies as a result of the consummation of
the Contemplated Transactions. Subject to SECTION 6.2(a), Sellers shall pay all
costs and expenses incurred on or prior to the Closing Date by any of Sellers or
any of the Acquired Companies in connection with the Contemplated Transactions.
Sellers shall make reasonable efforts to present to Sellers' insurers workers'
compensation claims known to Sellers prior to the Closing Date.
25
4.8. LOANS PAYABLE; INTERCOMPANY ACCOUNTS PAYABLE AND RECEIVABLE.
Prior to the Closing Date, Sellers shall cause to be eliminated and converted
into capital the loans payable by the Acquired Companies to their parent or
affiliates, as the case may be, that are reflected on the Balance Sheet. In
addition, Sellers shall, prior to Closing, eliminate intercompany accounts
payable and receivable (except for inter-Acquired Company accounts payable and
receivable). Such elimination of loans payable to parent or affiliates and
intercompany accounts payable and receivable will be reflected in the
calculation of SE as of the Closing Date, and Buyer and the Acquired Companies
shall have no obligation to Sellers or their Related Persons for such loans
payable or accounts payable and receivable other than to pay the Purchase Price
and the Adjustment Amount.
4.9. LAGUNA NIGUEL PROPERTY. (a) Seller shall use reasonable and good
faith efforts to cause Birtcher Niguel (or the applicable Affiliate thereof)
(collectively, "Birtcher") to execute and deliver to Buyer an estoppel
certificate, in form and substance acceptable to Buyer in Buyer's reasonable
discretion (the "Estoppel Certificate") with respect to (i) the interest of
Hardie US under the Hydro Pacific Partnership Agreement, (ii) the interest of
Hydro Pacific, as lessee, under the La Paz Road Ground Lease, (iii) the interest
of Hardie US, as lessee, under the 27671 La Paz Road Building Lease, which
estoppel certificate shall be signed by Birtcher, as general partner of Hydro
Pacific, and (iv) the interest of Hardie US, as lessee, under the Adjacent
Property Lease.
(b) Delivery of the Estoppel Certificate is not a condition precedent
to Buyer's obligation to Close, provided, however, in the event that Sellers
shall fail to cause Birtcher to execute and deliver the Estoppel Certificate
prior to the Closing Date, then Sellers shall jointly and severally indemnify,
hold harmless and, by virtue hereof, release Buyer, the Acquired Companies,
their respective Related Persons and each of their respective Representatives,
and each of the heirs, executors, successors and assigns of any of the
foregoing, from and against, and will pay the amount of any Damages arising from
relating to or in connection with any breach of any representation or warranty
made by Sellers in SECTION 2.21 of this Agreement. Sellers' obligations under
this SECTION 4.9 shall not be subject to the limitations set forth in SECTIONS
10.1, 10.4(a) AND 10.5 of this Agreement, provided that Sellers' obligations
under this SECTION 4.9 shall be subject to the indemnification procedures
set forth in SECTION 10.6 hereof. The provisions of this SECTION 4.9 shall
survive Closing.
(c) In the event that Sellers shall cause Birtcher to execute and
deliver the Estoppel Certificate prior to the Closing Date, then SECTION 4.9(b)
above shall be of no force or effect.
5. COVENANTS AND AGREEMENTS OF BUYER
5.1. APPROVALS OF GOVERNMENTAL BODIES. As promptly as practicable
after the date of this Agreement, Buyer will, and will cause each of its Related
Persons to, make all filings required by Legal Requirements to be made by them
to consummate the Contemplated
26
Transactions (including all filings under the HSR Act). Between the date of
this Agreement and the Closing Date, Buyer will, and will cause each Related
Person to, cooperate with Sellers with respect to all filings that Sellers are
required by Legal Requirements to make in connection with the Contemplated
Transactions, and cooperate with Sellers in obtaining all consents identified in
SCHEDULE 2.2 and the expiration or early termination of any applicable waiting
periods under the HSR Act.
5.2. BEST EFFORTS. Between the date of this Agreement and the Closing
Date, Buyer will use its Best Efforts to cause the conditions in SECTIONS 7 AND
8 to be satisfied.
5.3. CERTAIN EMPLOYEE BENEFIT MATTERS.
(a) On the Closing Date, Buyer shall cause the Acquired Companies to
employ each Employee who is an employee on the Closing Date (each such Employee,
a "Continuing Employee") upon substantially equivalent terms and conditions of
employment as pertained to each Employee on the day immediately preceding the
Closing Date and as are specifically described in the Schedules to this
Agreement, provided that this undertaking shall in no way diminish or alter the
Acquired Companies' rights to lay off employees or to terminate employees, to
amend, modify, supplement or terminate any Plan, or to change the compensation
or other terms and conditions of employment of any such Employee at any time
after the Closing Date. If any Employee is laid off or on leave on the Closing
Date as specifically reflected on a Schedule hereto, Buyer shall cause the
Acquired Companies to recall or reinstate such Employee in accordance with the
layoff or leave of absence policy of the Acquired Companies that is in effect on
the date of this Agreement, as specifically described in SCHEDULE 5.3, as it
applies to such Employee.
(b) Without limiting the generality of SECTION 5.3(a), except as
otherwise agreed in writing by Sellers and Buyer, where an Employee is a member
of the Sellers' Fund:
(1) The Buyer must as soon as practicable after the Closing
Date:
(i) provide to the trustee of the Sellers' Fund such
evidence as the trustee may reasonably require that the
Buyer's fund is and has been for the whole of the current
tax year applying to the Buyer's Fund a "complying
superannuation fund" for the purposes of the Australia
Income Tax Assessment Act 1936, will or has become a
"regulated superannuation fund" under the Australia
Superannuation Industry (Supervision) Act 1993 ("SIS"), and
has complied with all other relevant statutory provisions;
and
27
(ii) procure that membership effective on and from the
Closing Date of the Buyer's Fund is offered in writing to
that Employee with:
(A) the conditions of that membership being no less
favorable to the Employee than those applying to other
members of the Buyer's Fund;
(B) all amounts being transferred to the Buyer's Fund
from the Sellers' Fund being immediately vested in the
Employee as if they were a contribution by that
Employee; and
(C) the offer including the right of the Employee to
elect by notice in writing to the trustee of the
Sellers' Fund that the trustee either:
(a) transfers from the Sellers' Fund to the
Buyer's Fund the whole or part of the amount (if
any) that the terms of the Sellers' Fund permit to
be transferred to the Buyer's Fund for the
Employee ("Transfer Value"); or
(b) pays from the Sellers' Fund to the Employee a
benefit equal to the Retrenchment Benefit (as
defined for the purposes of the Sellers' Fund)
subject to any preservation requirements. Any
amount required to be preserved is to be paid at
the election of the Employee to either a complying
rollover fund or the Buyer's Fund if the Trustees
of the Buyer's Fund permit rollovers into that
fund.
(2) The Buyer acknowledges on its own behalf that the Transfer
Value in respect of each Employee who accepts the offer referred
to in SECTION 5.3(b)(1)(ii) and who takes advantage of the
opportunity referred to in SECTION 5.3 (b)(1)(ii)(C)(a) is to be
the actuarial reserve determined by the actuary to the Sellers'
Fund, being the actuarial present value of the benefits for
service and membership accrued to the Closing Date using the
assumptions adopted for the previous actuarial valuation of the
Sellers' Fund and assuming that the Sellers' Fund is neither in
surplus nor deficit. A minimum benefit equal to the Retrenchment
Benefit will be applied;
28
(3) Where the provisions of SECTION 5.3(b)(1) have been
satisfied in respect of any Employee and the Employee has taken
advantage of the opportunity referred to in SECTION
5.3(b)(1)(ii)(C)(a) the Sellers must, if the payment is permitted
by the trust deeds and rules governing both the Sellers' Fund and
the Buyer's Fund, procure the payment to the trustees of the
Buyer's Fund of the Transfer Value for the Employee (as
determined in accordance with SECTION 5.3(b)(2)) plus interest on
the Transfer Value from the Closing Date to the actual date of
transfer if that amount is transferred to the Buyer's Fund after
the Closing Date at the credited interest rate applicable to the
Sellers' Fund; and
(4) The Buyer acknowledges that no transfer of benefits can take
place pursuant to SECTION 5.3(b)(1)(ii)(C)(a) until the trustee
of the Sellers' Fund is satisfied:
(i) that the Employee has become a member of the Buyer's
Fund and has applied for the whole or part of his or her
Transfer Amount to be transferred to the Buyer's Fund; and
(ii) regarding the matters set out in SECTION 5.3(b)(1)(i).
(5) Arrears (if any) of Sellers' contributions to Sellers' Fund
in respect of the Employees will be paid by the Sellers to the
Sellers' Fund as soon as practical after the Closing Date.
(6) The actuarial reserve determined in SECTION 5.3(b)(2) will
be calculated in accordance with the terms of the Sellers' Fund
and the Sellers will indemnify the Buyer in the event that the
required amount is not transferred.
(c) As of the Closing Date: (i) all shares of Shadow Stock (as
defined in the Shadow Stock Plan) held by employees and former employees of the
Acquired Companies in the James Hardie Shadow Stock Plan (the "Shadow Stock
Plan") shall "Vest" and "Mature" (as those terms are defined in the Shadow Stock
Plan), and (ii) the value of such shares shall be paid to such employees and
former employees in accordance with the terms of the Shadow Stock Plan by Seller
pursuant to SECTION 4.7 of this Agreement. Sellers shall be solely responsible
for, and neither Buyer nor any of the Acquired Companies shall have, any
liabilities or obligations arising under or relating to the Shadow Stock Plan.
5.4. PRESERVATION OF AND ACCESS TO CERTAIN INFORMATION AND COOPERATION
AFTER CLOSING.
From and after the Closing Date, Buyer shall and shall cause the
Acquired Companies to, preserve all books and records of the Acquired Companies
until Sellers notify
29
Buyer that all statutes of limitations relating to tax periods to which such
records relate have expired, and thereafter not to destroy or dispose of such
records without notice to Sellers offering them the right to copy such records
at Sellers' expense. Except as prohibited or limited by law or regulation,
Buyer shall, and shall cause the Acquired Companies from and after the Closing
Date to, give Sellers and Sellers' employees, accountants, counsel, and
advisors, reasonable access upon reasonable notice and for proper business
purposes during normal business hours, to all officers, employees, offices,
properties, agreements, books, records and affairs of the Acquired Companies, in
a manner that does not unreasonably interfere with the normal conduct of its
business. Buyer shall ensure that Sellers and their authorized representatives
shall, at Sellers' expense, be free, during the period referred to in the first
sentence of this Section, to make copies of such books, records, files and data
concerning the Acquired Companies for the following purposes: (i) the review of
the Closing Financial Statements and the resolution of any disputes with respect
to the Closing Financial Statements, (ii) the preparation of any tax returns for
the Sellers and any Related Persons, or (iii) in anticipation of any judicial,
quasi-judicial, administrative, tax audit, or arbitration proceeding initiated
by or against third parties and relating to the Acquired Companies. Except as
may be required by law or in the bona fide prosecution of its rights under this
Agreement or any Transaction Document (in which event Sellers shall seek
appropriate confidentiality protection), Sellers shall maintain the
confidentiality of all such information and except as specifically provided
above, Sellers shall not use or disclose any such information. Sellers, upon
reasonable request of Buyer, shall enter into such other agreements and comply
with such other procedures as Buyer may deem necessary to ensure the
confidential treatment of such information.
5.5. USE OF NAME: On or prior to the first anniversary of the
Closing, Buyer shall cause the Acquired Companies to cease using the term "James
Hardie" or any similar name or variant or version thereof in connection with the
operation of the Acquired Companies or as part of any corporate, partnership, or
assumed name and shall cause the Acquired Companies to file such documents as
are necessary and appropriate to change any such assumed name to a dissimilar
name and shall promptly assume a dissimilar name for all purposes of the
Acquired Companies, PROVIDED, HOWEVER, that the Buyer, its Related Persons and
the Acquired Companies, may continue to manufacture, have made, sell and
distribute products currently manufactured, made, or marketed by the Acquired
Companies, and to sell and distribute all inventory existing on such first
anniversary of the Closing Date, any inventory manufactured prior to the first
anniversary of the Closing Date and any products manufactured prior to the first
anniversary of the Closing Date that are returned to, or otherwise come into the
possession of, any of the Acquired Companies, Buyer or any of their respective
Related Persons, in each case including labels and packaging and bearing the
name "James Hardie" or any similar name or variant or version thereof. Sellers
hereby grant, to be effective at the Closing, Buyer, its Related Persons, and
the Acquired Companies a royalty free, non-exclusive, non-transferable license
and right to use the name "James Hardie" or any similar name or variant or
version thereof solely in connection with the products currently manufactured or
marketed by the Acquired Companies until all such products, inventory, labels
and packaging described in the foregoing proviso have been sold
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and distributed, at which time the license shall expire. The foregoing
notwithstanding, immediately after the Closing, Buyer shall cause the Acquired
Companies to delete the words "James Hardie" from their formal corporate names.
5.6. NOTICE AND OPPORTUNITY TO CURE. If, on or prior to the Closing
Date, Buyer acquires actual knowledge of a material breach of any
representation, warranty, covenant or agreement made by any Seller in this
Agreement, the instruments or agreements executed by any Seller pursuant to the
terms hereof, or any certificates or other documents delivered pursuant to this
Agreement, Buyer will advise such Seller in writing of such material breach in
order to afford such Seller an opportunity to cure such breach on or prior to
the Closing Date.
5.7. STAY-ON BONUSES AND SEVERANCE. Buyer will assume responsibility
for and will pay when and if due all amounts payable as: (i) stay-on bonuses to
Hardie US' president and senior vice-presidents, as set forth on SCHEDULE 4.7;
and (ii) severance compensation as set forth on SCHEDULES 2.8(j) AND 4.7.
6. OTHER AGREEMENTS OF THE PARTIES
6.1. ENVIRONMENTAL AUDIT.
(a) Within 60 days after the date of this Agreement, Buyer may
conduct, or cause to be conducted, at its sole cost and expense, such "Phase I"
environmental audits/surveys of the real property as it may deem reasonably
necessary. The scope, methodology, timing and conduct of such activities shall
be subject to the prior written approval of Sellers, which approval shall not be
unreasonably withheld and will either be given or refused within five (5) days
of receipt by Sellers of a request from Buyer. To the extent practicable, such
environmental audits/surveys shall be conducted in a manner which will not
disrupt the operation of the Acquired Companies, and Buyer and Sellers shall
cooperate in scheduling the environmental audit work performed at the real
property pursuant to this SECTION 6.1. Buyer will begin such environmental
audits/surveys as soon as practicable and will cause all such work to be
completed within 60 days of the date hereof. If such environmental
audits/surveys identify any matter which Buyer reasonably determines makes
further investigation advisable, Buyer shall provide Sellers written notice of
such matter indicating such intention no later than 70 days from the date
hereof. Absent receipt of such notice by Sellers within such 70 day period,
Buyer may not conduct any further environmental surveys; PROVIDED HOWEVER that
the foregoing shall not be deemed to waive any other right of Buyer hereunder.
In the event Buyer provides such notice to Sellers, Buyer may conduct, subject
to Sellers' further consent, which shall not be unreasonably withheld, and at
Buyer's expense, such further environmental studies or surveys as Buyer deems
reasonably necessary; provided, however, that any such further study or survey
must be completed within 120 days after the execution of this Agreement.
Sellers' environmental expert or other representative shall be entitled to
accompany Buyer's expert on any audit or survey.
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(b) Buyer shall remedy any damage to the real property which is
caused by any environmental audit/survey performed on Buyer's behalf at the real
property pursuant to this SECTION 6.1.
6.2. CERTAIN OTHER OBLIGATIONS.
(a) Buyer and Sellers must use their respective Best Efforts to
consummate the Contemplated Transactions. Buyer shall pay (i) all of Sellers'
reasonable documented "outside" costs and expenses associated with seeking HSR
Act approval and/or expiration of any applicable waiting period under the HSR
Act, including, but not limited to, lawyers, experts, and consultants' fees; and
(ii) all of Sellers' costs of defense, if any, incurred in defending an action
described in SECTION 6.2(c), unless such action relates solely to an act of
any Seller or a Related Person of any Seller, in an amount up to US$125,000, and
thereafter shall pay one-half of such costs and expenses; PROVIDED, that the
aggregate amount payable to Sellers pursuant to Sections 6.2(a)(i) AND (ii)
shall not exceed US$375,000. Notwithstanding the foregoing, if the parties do
not consummate the Contemplated Transactions as a result of a challenge by the
Federal Trade Commission or the Department of Justice, Buyer shall pay all of
Sellers' costs and expenses pursuant to Sections 6.2(a)(i) AND (ii) up to a
maximum of $500,000. Subject to the following provisions, Buyer and Sellers
will use their Best Efforts to facilitate early termination or expiration of the
applicable waiting period under the HSR Act.
(1) Notwithstanding any other provision of this Agreement or the
Transaction Documents, the Sellers and Buyer specifically intend,
understand and agree that Buyer shall not be able, prior to March 31,
1997, to terminate or withdraw from the Contemplated Transactions or
discontinue its efforts to close the Contemplated Transactions and
acquire the Acquired Companies because of or as a result of any action
or Proceeding taken or threatened by the Federal Trade Commission or
the Antitrust Division of the Department of Justice, which action,
Proceeding or threat challenges or threatens to challenge the
Contemplated Transactions or any part of them on the grounds that the
Contemplated Transactions would have an anticompetitive effect in any
line of commerce or on any related or similar grounds. Buyer agrees
that, if it is necessary to do so in order to avoid the commencement
of a suit by the Federal Trade Commission or the Antitrust Division of
the Department of Justice, Buyer will enter into a consent agreement
of the usual kind and form required by such Governmental Body, which
consent agreement will, to the extent required by the Federal Trade
Commission or the Antitrust Division of the Department of Justice,
provide for the sale of Buyer's residential/commercial controller and
valve business and/or the Acquired Companies' fixed spray and rotor
business, and, subject to SECTION 6.5, will bear any adverse economic
impact resulting from such a consent agreement, so long as such
consent agreement does not require Buyer or any Related Person of
Buyer (i) to divest or not acquire any of Sellers' or the Acquired
32
Companies' controller and valve businesses, or any of Buyer or any
Related Person of Buyer's other businesses; (ii) to sell any plant or
equipment (other than molds or fixtures and such equipment as may be
unique to the use of said molds or fixtures); (iii) to sell, license
or otherwise transfer the name "Toro" or the name "Hardie" (or any
similar name or variant or version thereof (collectively, the "Covered
Names"), to any unaffiliated third party; or (iv) to consent to any
restrictions on either (x) the ability of Buyer or any Related Person
of Buyer or any Acquired Company to use any Covered Name (except in
the case of the "Hardie" name as expressly set forth in section 5.5
hereof) or (y) the ability of Buyer or any Related Person of Buyer or
any of the Acquired Companies to own or operate any business, product
line or other asset not sold pursuant to this SECTION 6.2(a) other
than pursuant to the usual and customary form of interim "hold-
separate" order. Buyer shall offer to enter into the foregoing
consent agreement no later than a date which will enable the
Contemplated Transactions to close, subject to the satisfaction of the
other conditions of this Agreement, by March 31, 1997; and
(2) Sellers and Buyer mutually recognize that Buyer will have
primary authority for addressing and resolving any issues with respect
to the Contemplated Transactions that may arise in the course of the
HSR review process. Sellers and Buyer mutually commit to instruct
their respective counsel to cooperate with each other in Best Efforts
to facilitate and expedite the identification and resolution of any
such issues and, consequently, expiration of the applicable HSR
waiting period at the earliest practicable date. Said Best Efforts
and cooperation include but are not limited to counsel's undertaking
(a) to keep each other appropriately informed of all communications
from and to personnel of the reviewing Governmental Body, and (b) to
confer with each other regarding appropriate contacts with and
responses to personnel of said Governmental Body.
(b) Without limiting the generality of the foregoing, each of the
Sellers and Buyer shall (i) comply at the earliest practicable date with any
formal or informal request for additional information, documents, or other
material received by such party or any of its Subsidiaries from the Federal
Trade Commission or the Department of Justice in respect of such filings or such
transactions, including, but not limited to a so-called "second request" (even
during the initial 30 day waiting period), and (ii) cooperate with the other
party in connection with any such filing and in connection with resolving any
investigation or other inquiry of any such agency or other Governmental Body
under any Antitrust Laws (as defined below) with respect to any such filing or
any such transaction, including, but not limited to, making reasonably
available to each other's respective counsel on a confidential basis such
information and documents relating to their respective businesses as may be
reasonably requested to facilitate and expedite the review process. Each party
shall promptly inform the other party of any communication with any Governmental
Body regarding any such filings or any Contemplated Transaction. Sellers shall
not (x) participate in any meeting
33
with any Governmental Body in respect of any such filings, investigation, or
other inquiry without giving Buyer notice of the meeting and, to the extent
permitted by such Governmental Body, the opportunity to attend and participate,
or (y) enter into any proposed understanding, undertaking or agreement with any
Governmental Body in connection with the Contemplated Transactions without the
consent of Buyer.
(c) Each of the Sellers and Buyer shall use Best Efforts to resolve
such objections, if any, and to defend against such claims, if any, as may be
asserted by any Governmental Body or in any civil litigation with respect to the
Contemplated Transactions under the HSR Act, the Sherman Act, as amended, the
Clayton Act, as amended, the Federal Trade Commission Act, as amended, and any
other Federal, state or foreign statutes, rules, regulations, orders or decrees
that are designed to prohibit, restrict or regulate actions having the purpose
or effect of monopolization or restraint of trade (collectively, "Antitrust
Laws").
6.3. TAX MATTERS. The following provisions shall govern the
allocation of responsibility as between Buyer and Sellers for certain tax
matters after the Closing:
(a) TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE. Sellers shall
prepare or cause to be prepared and file or cause to be filed all Tax Returns on
a basis consistent with prior years except for changes required by changes in
law, for the Acquired Companies for all periods ending on or prior to the
Closing Date which are filed after the Closing Date, including income Tax
Returns with respect to periods for which a consolidated, unitary or combined
income Tax Return of any Seller will include the operations of the Acquired
Companies. Sellers shall permit the Buyer and its representatives to review and
comment on each such Tax Return of such Acquired Company described in the
preceding sentence prior to filing. Sellers shall timely pay all Taxes of the
Acquired Companies with respect to such periods.
(b) TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE CLOSING DATE.
Buyer shall prepare or cause to be prepared and file or cause to be filed any
Tax Returns of the Acquired Companies for Tax periods which begin before the
Closing Date and end after the Closing Date. Buyer shall permit the Seller of
an Acquired Company and its representatives to review and comment on each such
Tax Return of such Acquired Company described in the preceding sentence prior to
filing. Sellers shall pay to Buyer within ten (10) days after the date on which
Taxes are paid with respect to such periods an amount equal to the portion of
such Taxes which relates to the portion of such taxable period ending on the
Closing Date to the extent such Taxes are not reflected in the reserve for Tax
liability shown on the Closing Balance Sheet. For purposes of this
SECTION 6.3(b), in the case of any Taxes that are imposed on a periodic basis
and are payable for a taxable period that includes (but does not end on) the
Closing Date, the portion of such Tax which relates to the portion of such
taxable period ending on the Closing Date shall (x) in the case of any Taxes
other than Taxes based upon or related to income or receipts, be deemed to be
the amount of such Tax for the entire taxable period multiplied by a fraction
the numerator of which is the number of days in the taxable period ending on the
Closing Date and the denominator of which is the number
34
of days in the entire taxable period, and (y) in the case of any Tax based upon
or related to income or receipts be deemed equal to the amount which would be
payable if the relevant taxable period ended on the Closing Date. Any credits
relating to a taxable period that begins before and ends after the Closing Date
shall be taken into account as though the relevant taxable period ended on the
Closing Date. All determinations necessary to give effect to the foregoing
allocations shall be made in a manner consistent with prior practice of the
Acquired Companies.
(c) COOPERATION ON TAX MATTERS.
(i) Buyer, Sellers and their respective subsidiaries 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 SECTION 6.3 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 without charge on
a mutually convenient basis to provide additional information and explanation of
any material provided hereunder. Sellers, the Acquired Companies and Buyers
agree (x) to retain all books and records with respect to Tax matters pertinent
to the Acquired 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 Sellers, any extensions thereof) of the respective
taxable periods, and to abide by all record retention agreements entered into
with any Governmental Authority, and (y) 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 Acquired Companies or
Sellers, as the case may be, shall allow the other party to take possession of
such books and records.
(ii) Buyer and Sellers further agree, upon request, to use their Best
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).
(d) TAX SHARING AGREEMENTS. All tax sharing agreements or similar
agreements with respect to or involving the Acquired Companies shall be
terminated as of the Closing Date and, after the Closing Date, the Acquired
Companies shall not be bound thereby or have any liability thereunder.
(e) CERTAIN TAXES. The first US$100,000 of any transfer,
documentary, sales, use, stamp, registration and other such Taxes and fees
(including any penalties and interest) incurred in connection with this
Agreement and the Contemplated Transactions, shall be paid by Buyer when due.
Sellers shall each pay all amounts of such Taxes and fees over US$100,000.
Buyer will, at its own expense, file all necessary Tax Returns and other
documentation with respect to all such transfer, documentary, sales, use, stamp,
registration
35
and other Taxes and fees, and, if required by applicable law, Sellers will, and
will cause their affiliates to, join in the execution of any such Tax Returns
and other documentation.
(f) TIMING ADJUSTMENTS. Notwithstanding SECTIONS 6.3 OR 10.7, in the
event that a final determination (which shall include the execution of Form 870-
AD or successor form) results in a timing difference (for example, an
acceleration of deductions or a deferral of income) that allows either Buyer or
Sellers to realize a United States Tax benefit, the party realizing such Tax
benefit shall pay over to the other party the amount of such benefit as and when
the party realizing the Tax benefit actually realizes the benefit resulting from
the timing difference (or under such other method for determining the present
value of any such anticipated Tax benefit as agreed to by the parties). For any
tax year, the Tax benefit shall be computed by comparing a party's actual Tax
liability incurred giving effect to such timing difference to the party's
theoretical Tax liability that would have been incurred but for the timing
difference. Even if a timing adjustment may result in a future payment from
Buyer to Sellers, Sellers shall indemnify Buyer under SECTION 10.7 hereof for
any increase in Taxes (i) for any Tax year or portion thereof ending on or
before the Closing Date, and (ii) for any Tax year beginning before and ending
after the Closing Date (to the extent allocable (determined in a manner
consistent with SECTION 6.3 hereof to the portion of such period beginning
before and ending on the Closing Date)) and Sellers shall not receive any
payment from Buyer until Buyer realizes a corresponding Tax benefit as provided
in this SECTION 6.3(f).
(g) MATERIALITY. Notwithstanding this SECTION 6.3 or SECTION 10.7,
Sellers shall have no obligation to make any payment to Buyer or the Acquired
Companies for any Tax liability described in this SECTION 6.3 unless the
aggregate of all such Tax liability exceeds US$100,000. If such Tax liability
does not exceed US$100,000 in the aggregate, Buyer or the Acquired Companies
shall pay the entire amount of such Tax liability. If such Tax liability
exceeds US$100,000 in the aggregate, Sellers shall be obligated to pay the
entire amount of such Tax liability.
6.4. LETTERS OF CREDIT. As soon as practicable after the Closing
Date, but in no event later than 60 days thereafter, Buyer will either replace
Sellers and any of Sellers' Related Persons (other than the Acquired Companies)
as guarantors, indemnitors, or obligors under outstanding letters of credit
listed on SCHEDULE 2.12 (or hereafter issued for the benefit of any Acquired
Company in the ordinary course of Business), and shall defend, indemnify and
hold harmless Sellers and any of Sellers' Related Persons from and against any
and all Damages arising out of or related to said letters of credit. Further,
Buyer shall, without deduction or offset, reimburse any Seller or any Related
Persons of Sellers (other than the Acquired Companies) for any amounts drawn
against such letters of credit during such 60-day period or at any time prior to
Buyer's replacement of Sellers with respect to such letters of credit.
6.5. COVERED RISK. In the event that Buyer, or any Related Person of
Buyer, discontinues, divests, or otherwise disposes of its valve and controller
business and/or the
36
Acquired Companies' fixed spray and rotor business and/or any product line or
other asset of Buyer, the Acquired Companies, or any of their Related Persons to
facilitate the receipt of approvals, clearances or the termination of applicable
waiting periods under any of the Antitrust Laws, whether or not actually
required by the terms of a consent order (collectively, the "Covered Assets")
Sellers shall pay Buyer an amount equal to one-half of Buyer's Actual Covered
Loss (as hereinafter defined), provided, however, that the aggregate amount
payable by Sellers pursuant to this SECTION 6.5 shall not exceed US$6,000,000.
Sellers shall pay Buyer Sellers' share of the Actual Covered Loss within 30 days
after Sellers' receipt of a certificate from Buyer's independent auditors
certifying to Sellers the amount of Buyer's Actual Covered Loss, subject to
Sellers' right to contest such certification as herein provided. Regardless of
whether Sellers contest the certification, Sellers shall pay any uncontested
amount. With respect to any contested amount determined to be owed to Buyer,
Sellers shall pay interest from and after the date of such certification at the
statutory rate on any such additional amount. Buyer will provide Sellers and
their representatives such information as they reasonably request and as may be
necessary for Sellers to confirm the Value of the Covered Assets and the sale or
disposition price, and to determine the Actual Covered Loss. In the event
Sellers disagree with Buyer's determination of the Value (as hereinafter
defined) of the Actual Covered Loss, Sellers shall, within 30 days of receipt of
the certification, notify Buyer of such disagreement and the parties shall
attempt informally to resolve such disagreement. "Actual Covered Loss" means
the excess, if any, of the product of 2.3 times the Gross Margin, as calculated
and reflected in Buyer or Sellers' (as the case may be) financial reports and
accounts with respect to the Covered Assets for the twelve months ending August
31, 1996 (the "Value") over the total Consideration received by Buyer or any
Related Person of Buyer for such Covered Assets. The term "Gross Margin" shall
mean revenue (i.e. invoice price less cash, settlement, or other discounts
applicable to such invoice) attributable to such Covered Assets after excluding
intra-company sales, less the direct cost of goods sold (including an allocation
for freight) attributable to such Covered Assets less allocated fixed and
variable costs attributable to such Covered Assets, all as reflected in the
inventory costing systems and accounts of Buyer or Seller (as the case may be),
maintained in accordance with GAAP and in the ordinary course of business. The
term consideration shall mean the sum of the cash received for the Covered
Assets at the closing of the transaction contemplated by this SECTION 6.5 plus
the fair market value of any other consideration received, less the sum of
reasonable transaction costs of any such sale (excluding taxes), and the amount
of any reserves established in accordance with GAAP by Buyers or the Acquired
Companies in connection with said transaction.
6.6. NOTICE AND OPPORTUNITY TO CURE RE CONDITIONS. If, on or prior
to the Closing Date, Buyer or Sellers determine that it is likely that there
will be a failure of any condition precedent to their respective obligations to
close the Contemplated Transactions, other than as may arise in connection with
the Antitrust Laws, Buyer and Sellers shall endeavor to advise the other in
writing of such a likely failure in order to afford an opportunity to cure such
failure on or prior to the Closing Date.
37
7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to purchase the Shares and to take the other
actions required to be taken by Buyer at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by Buyer, in whole or in part):
7.1. ACCURACY OF REPRESENTATIONS. The representations and warranties
of Sellers in this Agreement shall be true and correct in all material respects
(unless qualified herein as to materiality or as to Material Adverse Change in
which case such representations or warranties shall be true and correct after
taking into account such qualification) on and as of the Closing Date with the
same effect as though such representations and warranties had been made on and
as of such date except for representations and warranties that speak as of a
specific date or time other than the Closing Date (which need only be true and
correct as of such date or time).
7.2. SELLERS' PERFORMANCE. Sellers shall have satisfied in all
material respects the covenants, agreements, and conditions required by this
Agreement to be performed or complied with by Sellers on or before the Closing
Date.
7.3. CONSENTS. Sellers and the Acquired Companies shall have
obtained all necessary material agreements and consents to the consummation of
the transaction contemplated by this Agreement, or otherwise pertaining to the
matters covered by it.
7.4. NO INJUNCTION. At the Closing Date, there shall be no pending
or threatened litigation by the Federal Trade Commission or the Antitrust
Division of the Department of Justice, and no temporary, preliminary or
permanent injunction, restraining order or decree of any nature of any
Governmental Body of competent jurisdiction, that (i) restrains or prohibits the
consummation of the Contemplated Transactions, or (ii) imposes conditions that
would require Buyer, any of Buyer's Related Persons, Sellers, or any Acquired
Entity to take actions that are not expressly contemplated by SECTION 6.2(a). In
the event a temporary, preliminary or permanent injunction, restraining order or
decree of any nature is issued other than at the behest of the Federal Trade
Commission or the Antitrust Division of the Department of Justice, Buyer will
use its Best Efforts to vacate or dissolve such injunction, order or decree.
7.5. NO PROHIBITION. Neither the consummation nor the performance of
any of the Contemplated Transactions will, directly or indirectly, materially
contravene, or conflict with, or result in a material violation of, or cause
Buyer or any Person affiliated with Buyer to suffer any material adverse
consequence under, any Legal Requirement or Order that has been published,
introduced, or otherwise formally proposed by or before any Governmental Body
since the date of this Agreement.
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7.6. ENVIRONMENTAL MATTERS. Provided Buyer has complied in all
material respects with its obligations pursuant to Section 6.1, Buyer shall be
reasonably satisfied that the Acquired Companies have no material Environmental
Liabilities that are not reflected on the Balance Sheet or that will not be
reflected on the Closing Balance Sheet.
8. CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE
Sellers' obligation to sell the Shares and to take the other actions
required to be taken by Sellers at the Closing is subject to the satisfaction,
at or prior to the Closing, of each of the following conditions (any of which
may be waived by Sellers, in whole or in part):
8.1. ACCURACY OF REPRESENTATIONS. The representations and warranties
of Buyer in this Agreement shall be true and correct in all material respects
(unless qualified herein as to materiality or as to Material Adverse Change in
which case such representations or warranties shall be true and correct) on and
as of the Closing Date with the same effect as though such representations and
warranties had been made on and as of such date except for representations and
warranties that speak as of a specific date or time other than the Closing Date
(which need only be true and correct in all material respects as of such date or
time).
8.2. BUYER'S PERFORMANCE. Buyer shall have satisfied in all material
respects all covenants and agreements, and satisfied all conditions that it is
required by this Agreement to perform, comply with, or satisfy, before or at the
Closing.
8.3. NO INJUNCTION. At the Closing Date, no temporary, preliminary
or permanent injunction, restraining or other order of a court or governmental
or regulatory agency of competent jurisdiction shall be in effect against
Sellers directing that the transactions contemplated herein, or any of them, not
be consummated or imposing conditions thereto upon Sellers which would prohibit
the transaction contemplated in this Agreement. In the event a temporary,
preliminary or permanent injunction, restraining order or decree of any nature
is issued other at the behest of the Federal Trade Commission or the
Antitrust Division of the Department of Justice, Sellers will use their Best
Efforts to vacate or dissolve such injunction, order or decree.
8.4. CONSENTS. Buyer shall have obtained all necessary material
agreements and consents to the consummation of the transaction contemplated by
this Agreement, or otherwise pertaining to the matters covered by it.
39
9. TERMINATION
9.1. TERMINATION EVENTS. This Agreement may, by notice given prior
to or at the Closing, be terminated:
(a) by either Buyer or Sellers if a material breach of any provision
of this Agreement has been committed by the other party and such
breach has not been waived, or, after notice and a reasonable
opportunity to cure, has not been cured;
b) other than as a result of matters relating to Antitrust Laws, (i)
by Buyer if any of the conditions in SECTION 7 has not been satisfied
as of the Closing Date or if satisfaction of such a condition is or
becomes impossible (other than through the failure of Buyer to comply
in any material respect with its obligations under this Agreement) and
Buyer has not waived such condition on or before the Closing Date; or
(ii) by Sellers, if any of the conditions in SECTION 8 has not been
satisfied as of the Closing Date or if satisfaction of such a
condition is or becomes impossible (other than through the failure of
Sellers to comply in any material respect with their obligations under
this Agreement) and Sellers have not waived such condition on or
before the Closing Date;
c) by mutual consent of Buyer and Sellers, set forth in a written
instrument executed by such parties; or
d) by either Buyer or Sellers if the Closing has not occurred (other
than through the failure of any party seeking to terminate this
Agreement to comply in any material respect with its obligations under
this Agreement) on or before March 31, 1997, or such later date as the
parties may agree upon.
9.2. EFFECT OF TERMINATION. Each party's right of termination
under SECTION 9.1 is in addition to any other rights it may have under this
Agreement or otherwise, and the exercise of a right of termination will not
be an election of remedies. If this Agreement is terminated pursuant to
SECTION 9.1, all further obligations of the parties under this Agreement
will terminate, except that the obligations in SECTIONS 11.1, 11.3 . AND
11.5 will survive; provided, however, that if this Agreement is terminated
by a party pursuant to SECTIONS 9.1(a) OR 9.1(b), the terminating party's
right to pursue all legal remedies will survive such termination unimpaired.
10. INDEMNIFICATION; REMEDIES
10.1. SURVIVAL. Unless otherwise stated herein, the representations,
warranties, covenants, and agreements made by the parties each to the other in
this Agreement (other than those made in SECTION 5.4 (Preservation of and Access
to Certain
40
Information and Cooperation After Closing) and Section 11.5 (Confidentiality))
shall survive for a period of 24 months after the Closing Date; provided,
however, that the representations and warranties set forth in SECTION 2.3
(Capitalization) and SECTION 2.8 (Employee Benefits) shall survive the Closing
for a period of five years after the Closing Date and the representations and
warranties set forth in SECTION 2.6 (Taxes) shall survive until six months after
the expiration of the applicable statutes of limitation. Notwithstanding the
immediately preceding sentence, any representation, warranty, covenant,
agreement or obligation in respect of which indemnity may be sought under any
section of this Agreement shall survive the time at which it would otherwise
terminate pursuant to this Agreement, if notice of the breach of the
representation, warranty, covenant, agreement or obligation giving rise to such
indemnity shall have been given prior to such time. Subject to the foregoing
limitation, all covenants, agreements and obligations of the parties contained
in this Agreement shall survive the Closing.
10.2. INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLERS. Effective
from and after the Closing, and subject to the other provisions of this ARTICLE
10, Sellers, shall jointly and severally indemnify, hold harmless and, by virtue
hereof, release Buyer, the Acquired Companies, their respective Related Persons
and each of their respective Representatives, and each of the heirs, executors,
successors and assigns of any of the foregoing, from and against, and will pay
the amount of, any loss, liability, claim, damage, obligation, fine, proceeding,
expense (including reasonable costs and expenses of investigation and defense
and reasonable attorneys' fees and other incident costs and expenses)
(collectively, "Damages"), arising from, relating to or in connection with:
(a) any breach of any representation or warranty made by Sellers in this
Agreement (other than those made in Section 2.14 relating to Environmental
matters) or in any certificate delivered by any Seller pursuant to this
Agreement or any other Transaction Document; (b) any breach by any Seller of any
covenant or obligation of any Seller in this Agreement; (c) any claim by any
Person, regardless of whether such claim is completely without merit, arising
out of, relating to or resulting from any business or operations of any Seller
or any Related Person of any Seller other than the Acquired Companies, to the
extent not relating to the business or operations of the Acquired Companies; (d)
any claim by any Person, regardless of whether such claim is completely without
merit, arising out of, relating to or resulting from any business or operations
of any Acquired Company, which business or operation has been discontinued,
divested, or otherwise terminated, including, but not limited to, Wallace
O'Connor, Inc., (except for any business or operation divested in accordance
with SECTION 6.2); (e) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by any such Person with any Seller or any Acquired
Company (or any Person acting on their behalf) in connection with any of the
Contemplated Transactions; and (f) any and all actions, suits, proceedings,
claims, demands, assessments, judgments, costs and expenses (including
reasonable legal fees and expenses) incident to any of the foregoing or incurred
in investigating or attempting to avoid the same or to oppose the imposition
thereof or in enforcing this indemnity.
41
10.3. INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER. Effective
from and after the Closing, and subject to the other provisions of this ARTICLE
10, Buyer will indemnify, hold harmless and, by virtue hereof, release Sellers
and their Related Persons and Representatives, and each of the heirs, executors,
successors and assigns of any of the foregoing, from and against, and will pay
the amount of any Damages arising from, relating to or in connection with (a)
any breach of any representation or warranty made by Buyer in this Agreement or
in any certificate delivered by Buyer pursuant to this Agreement or any
Transaction Document; (b) any breach by Buyer of any covenant or obligation of
Buyer in this Agreement; (c) any claim by any Person, regardless of whether such
claim is completely without merit, arising out of the operations or activities
of the Acquired Companies, including, but not limited to, employment related
claims, and claims regarding Environmental Liabilities (to the extent not
resulting from any breach of any representation, warranty, covenant or agreement
of any Seller in this Agreement or in any Transaction Document or not relating
to a matter for which Buyer is indemnified hereunder), regardless of when the
act giving rise to such claim occurred, provided, however, that with respect to
claims regarding Environmental Liabilities, the amount of such indemnity shall
not exceed US$750,000 in the aggregate, including the costs of defense; (d) any
claim by any Person for brokerage or finder's fees or commissions or similar
payments based upon any agreement or understanding alleged to have been made by
such Person with Buyer (or any Person acting on its behalf) in connection with
any of the Contemplated Transactions; or (e) any and all actions, suits,
proceedings, claims, demands, assessments, judgments, costs and expenses
(including reasonable legal fees and expenses) incident to any of the foregoing
or incurred in investigating or attempting to avoid the same or to oppose the
imposition thereof or in enforcing this indemnity. The indemnity provisions of
Section 10.3(c) are the only indemnity obligations between the parties with
respect to Environmental Liabilities.
10.4. TIME LIMITATIONS.
(a) If the Closing occurs, Sellers will have no liability pursuant to
SECTION 10.2(a) with respect to any representation or warranty, SECTION 10.2(b)
(other than to the extent relating to SECTION 5.4 (Preservation of and Access to
Certain Information and Cooperation After Closing) or SECTION 11.5
(Confidentiality)) with respect to any covenant or obligation, or SECTIONS
10.2(e), unless on or before that date which is 24 months after the Closing
Date, Buyer notifies Sellers of a claim specifying the factual basis of that
claim in reasonable detail to the extent then known by Buyer. The foregoing
notwithstanding, the aforementioned 24 month period shall instead be five years
for the representations and warranties set forth in SECTION 2.3 (Capitalization)
and SECTION 2.8 (Employee Benefits), and shall be the length of the applicable
statutes of limitation plus six months for the representation and warranty set
forth in SECTION 2.6 (Taxes). Claims made pursuant to SECTIONS 10.2(c) AND
10.2(d) shall not be subject to this SECTION 10.4, and the time limitation with
respect to claims made pursuant to SECTION 10.2(f) will follow the time
limitation for the underlying claim.
(b) If the Closing occurs, Buyer will have no liability pursuant to
SECTION 10.3(a) with respect to any representation or warranty, SECTION 10.3(b)
(other than to the extent
42
relating to SECTION 5.4 (Preservation of and Access to Certain Information and
Cooperation After Closing) or SECTION 11.5 (Confidentiality)) with respect to
any covenant or obligation, or SECTION 10.3(d), unless on or before that date
which is 24 months after the Closing Date, Sellers notify Buyer of a claim
specifying the factual basis of that claim in reasonable detail to the extent
then known by Sellers. Claims made pursuant to Section 10.3(c) shall not be
subject to this SECTION 10.4, and the time limitation with respect to claims
made pursuant to SECTION 10.3(e) will follow the time limitation for the
underlying claim.
10.5. LIMITATIONS ON AMOUNT.
(a) Buyer shall not assert, and Sellers shall not be liable for, any
claim pursuant to SECTION 10.2(a) of this Agreement unless and until the amount
of Damages incurred or sustained by Buyer with respect to any individual matter
exceeds US$150,000, or the aggregate of such claims exceeds $500,000, and
thereafter Buyer shall be entitled to indemnity from Sellers hereunder only with
respect to such amounts in excess of US$500,000. Notwithstanding anything in
this Agreement to the contrary, Sellers' maximum aggregate obligation to Buyer
pursuant to this SECTION 10.5 for any claims made pursuant to SECTION 10.2(a) of
this Agreement shall not exceed US$5,000,000. Claims made with respect to the
representations and warranties made by Sellers IN SECTION 2.4 (Financial
Statements), SECTION 2.5 (Title to Properties; Encumbrances), SECTION 2,6
(Taxes) and SECTION 10.7 are not subject to this SECTION 10.5.
(b) The liability of Sellers under this SECTION 10.5 shall be offset
dollar for dollar by: (i) any insurance proceeds received or recoverable by
Buyer or the Acquired Companies after the Closing in respect of the item of
indemnifiable damages involved; (ii) any other recovery made or recoverable by
Buyer or the Acquired Companies from any third party on account of the item of
indemnifiable damages involved; (iii) any tax benefit realizable by Buyer or any
affiliate of Buyer on account of the item of indemnifiable damages involved;
(iv) any amount already reserved on the Closing Balance Sheet; and (v) any
adjustment to the Purchase Price on account of the item of indemnifiable damages
involved.
10.6. PROCEDURE FOR INDEMNIFICATION -- THIRD PARTY CLAIMS
(a) Promptly after receipt by an Indemnified Person under SECTION
10.2 OR 10.3 of notice of the commencement of any Proceeding against it by a
third party, such Indemnified Person will, if a claim is to be made against an
indemnifying party, give notice to the indemnifying party of the commencement of
such claim, but the failure to notify the indemnifying party will not relieve
the indemnifying party of any liability that it may have to any Indemnified
Person, except to the extent that the indemnifying party demonstrates that the
defense of such action is prejudiced by the Indemnified Person's failure to give
such notice.
43
(b) Subject to SECTION 10.6 (c), if any Proceeding referred to in
SECTION 10.6(a) is brought against an Indemnified Person and it gives notice to
the indemnifying party of the commencement of such Proceeding, the indemnifying
party will, unless the claim involves a Proceeding for Taxes commenced by a
Governmental Body, be entitled to participate in such Proceeding and, to the
extent that it wishes (unless the indemnifying party is also a party to such
Proceeding and the Indemnified Person determines in good faith that joint
representation would be inappropriate), and if it notifies the Indemnified
Person of such election within 10 days of notice from the Indemnified Person, to
assume the defense of such Proceeding and, after such notice from the indemni-
fying party to the Indemnified Person of its election to assume the defense of
such Proceeding, the indemnifying party will not, as long as it diligently
conducts such defense, be liable to the Indemnified Person under this SECTION 10
for any fees of other counsel or any other expenses with respect to the defense
of such Proceeding, in each case subsequently incurred by the Indemnified Person
in connection with the defense of such Proceeding, other than reasonable costs
of investigation. The indemnifying party may not settle any such matter without
the consent of the Indemnified Person, which consent shall not be unreasonably
withheld.
(c)(i) Notwithstanding the foregoing, if an Indemnified Person
determines in good faith that there is a reasonable probability that a
Proceeding may adversely affect it or its affiliates other than as a result of
monetary damages for which it would be entitled to full indemnification under
this Agreement, the Indemnified Person may, by notice to the indemnifying party,
assume the exclusive right to defend, compromise, or settle such Proceeding, but
the indemnifying party will not be bound by any settlement effected without its
consent, which consent shall not be unreasonably withheld.
(ii) If the indemnifying parties do not timely give the notice
described in SECTION 10.6(b) or do not assume the defense of such Proceeding,
the Indemnified Persons shall have the right to defend, contest, settle or
compromise such claim, action, suit or Proceeding in the exercise of their
reasonable discretion, and the indemnifying parties shall, upon request from the
Indemnified Persons, promptly pay to such Indemnified Persons in accordance with
the other terms of this ARTICLE 10 the amount of any liabilities for which
indemnification is required hereunder. If the indemnifying party gives the
foregoing notice and so assumes the defense of any such claim, action, suit or
proceeding, the Indemnified Person shall have the right to employ separate
counsel and to participate in (but, subject to SECTION 10.6(c)(i), not control)
the defense, compromise, or settlement thereof, but the reasonable fees and
expenses of such counsel shall be the expense of such Indemnified Person unless
(i) any relief other than the payment of money damages is sought against any
Indemnified Person or (ii) such Indemnified Person shall have been advised by
its counsel that there may be one or more legal defenses available to it which
are different from or additional to those available to the indemnifying party,
and in any such case the reasonable fees and expenses of such separate counsel
shall be borne by the indemnifying party. The indemnifying party shall not,
without the written consent of such Indemnified Person, settle or compromise or
consent to entry of any judgment with respect to any such claim, action, suit or
proceeding if the effect thereof is to permit any injunction, declaratory
judgment,
44
other order or other nonmonetary relief to be entered, directly or indirectly,
against any Indemnified Person or to require any payment by any Indemnified
Person or if such settlement, compromise or consent does not include as an
unconditional term thereof the giving by the claimant, plaintiff or petitioner
to such Indemnified Person of a release from all liability with respect to such
claim, action, suit or proceeding.
(iii) If any party becomes obligated to indemnify another party with
respect to any claim pursuant to this ARTICLE 10, and the amount of liability
with respect thereto shall have been finally determined, the indemnifying party
shall pay such amount to the Indemnified Person in immediately available funds
within 15 days following written demand by the Indemnified Person.
10.7. TAX INDEMNITY. Subiect to SECTIONS 6.3(f) AND 6.3(g), each of
the Sellers agrees jointly and severally to indemnify Buyer from and against the
entirety of any Tax liability or penalty any Acquired Company may suffer
resulting from, arising out of, relating to, in the nature of, or caused by, any
Tax liability of any of the Acquired Companies (x) for any Taxes with respect to
any Tax year 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 (determined in a manner consistent with SECTION 6.3 hereof to the
portion of such period beginning before and ending on the Closing Date), to the
extent such Taxes are not included in the Closing Balance Sheet, and (y) for the
unpaid Taxes of any person under Treas. Reg. Section 1.1502-6 (or any similar
provision of state, local, or foreign law), as a transferee or successor, by
contract, or otherwise. The indemnity obligations of Sellers pursuant to this
SECTION 10.7 shall expire six months after the expiration of the applicable
statutes of limitation with respect to the Tax involved, unless Buyer has
previously submitted a Claim. with respect to such Tax liability.
11. MISCELLANEOUS
11.1. DISCLAIMER OF 0THER REPRESENTATIONS AND WARRANTIES BY SELLER.
The parties hereto acknowledge and agree that Sellers do not make, and have not
made, any representations or warranties relating to Sellers, the Acquired
Companies, or any of Sellers' affiliates or any of the Contemplated Transactions
(together, the "Relevant Matters") other than the representations and warranties
expressly set forth in this Agreement. Without limiting the generality of the
disclaimer set forth in the preceding sentence, and except as set forth in
SECTION 2.19, Sellers do not make, have not made and shall not be deemed to have
made any representations or warranties in the Offering Memorandum, in any
presentation relating to the businesses of the Acquired Companies given in
connection with the transactions contemplated by this Agreement, or in any other
information provided to or made available to Buyer or its Related Persons or
Representatives and not included in the Schedules to this Agreement, and no
statement contained in the Offering Memorandum or made or contained in any such
presentation, filing, or information shall be deemed a representation or
warranty hereunder or otherwise. No person has been authorized by Sellers,
their Related Persons or the Acquired Companies to make any representation or
45
warranty in respect of Sellers, their affiliates or the Acquired Companies in
connection with the Contemplated Transactions.
11.2. DISCLOSURE. Notwithstanding any provision to the contrary
contained in this Agreement, the Exhibits or the Schedules, any information
disclosed in one Schedule shall be deemed to be disclosed in all Schedules, if
the applicability of the information is reasonably apparent from the face of the
Schedule. Certain information set forth in the Schedules has been included and
disclosed solely for informational purposes and may not be required to be
disclosed pursuant to the terms and conditions of the Agreement. The disclosure
of any information shall not be deemed to constitute an acknowledgment or
agreement that the information is required to be disclosed in connection with
the representations and warranties made in this Agreement or that the
information is material, nor shall any information so included and disclosed be
deemed to establish a standard of materiality or otherwise used to determine
whether any other information is material.
11.3. EXPENSES. Except as otherwise expressly provided in this
Agreement, each party to this Agreement will bear its respective expenses
incurred in connection with the preparation, execution, and performance of this
Agreement and the Contemplated Transactions, including all fees and expenses of
agents, representatives, counsel, and accountants. Sellers shall reimburse the
Acquired Companies for any such amounts incurred but not accrued on the Closing
Balance Sheet by any Acquired Company on behalf of any Seller or a Related Party
of Seller.
11.4. PUBLIC ANNOUNCEMENTS. Neither Sellers nor Buyer shall make,
nor permit any Related Person or representative to make, any public statements,
including, without limitation, any press releases, with respect to this
Agreement and the Contemplated Transactions without the prior written consent of
the other parties hereto except as may be required by law or the rules of any
relevant stock exchange. Sellers and Buyer will consult with each other
concerning the means by which the Acquired Companies' employees, customers, and
suppliers and others having dealings with the Acquired Companies will be
informed of the Contemplated Transactions, and Buyer will have the right to be
present for any such communication.
11.5. CONFIDENTIALITY. Between the date of this Agreement and the
Closing Date, Buyer and Sellers will maintain in confidence, and will cause the
directors, officers, employees, agents, and advisors of Buyer and the Acquired
Companies to maintain in confidence, any written, oral, or other information
obtained in confidence from another party or an Acquired Company in connection
with this Agreement or the Contemplated Transactions, or of which Buyer becomes
aware pursuant to the procedures referenced in SECTION 6.1, unless (a) such
information is already known to such party or to others not bound by a duty of
confidentiality or such information becomes publicly available through no fault
of such party, (b) the use of such information is necessary or appropriate in
making any filing or obtaining any consent or approval required for the
consummation of the
46
Contemplated Transactions, or (c) the furnishing or use of such information is
required by, or necessary or appropriate in connection with, law or legal
proceedings.
If the Contemplated Transactions are not consummated, each party will
return or destroy as much of such written information as the other party may
reasonably request. After the Closing, except as required by law, Sellers will,
and will cause their respective Representatives to, maintain in confidence all
written, oral, or other information in their possession or control regarding the
Acquired Companies or the Acquired Company Business.
11.6. NOTICES. All notices, consents, waivers, and other
communications under this Agreement must be in writing and will be deemed to
have been duly given when (a) delivered by hand (with written confirmation of
receipt), (b) sent by telecopier (with written confirmation of receipt),
provided that a copy is mailed by registered mail, return receipt requested, or
(c) when received by the addressee, if sent by a nationally recognized overnight
delivery service (receipt requested), in each case to the appropriate addresses
and telecopier numbers set forth below (or to such other addresses and
telecopier numbers as a party may designate by notice to the other parties):
Sellers:
James Hardie (USA) Inc.
26300 La Alameda
Ste. 250
Mission Viejo, CA 92691
Attention: Mr. Bryon Borgardt
Telecopy No. (714) 367-1294
with a copy to:
Barnhorst, Schreiner & Goonan
550 West C Street
San Diego, CA 92101
Attention: Howard J. Barnhorst, Esq.
Telecopy No. (619) 544-0703
Buyer:
The Toro Company
8111 Lyndale Avenue South
Minneapolis, MN 55420-1196
Attention: Lawrence McIntyre
Telecopy No. (612) 887-8920
47
11.7. JURISDICTION; SERVICE OF PROCESS. Any action or proceeding
seeking to enforce any provision of, or based on any right arising out of, this
Agreement may be brought against any of the parties in the federal or state
courts of the State of California, and each of the parties consents to the
jurisdiction of such courts (and of the appropriate appellate courts) in any
such action or proceeding and waives any objection to venue laid therein.
Process in any action or proceeding referred to in the preceding sentence may be
served on any party anywhere in the world.
11.8. FURTHER ASSURANCES. The parties agree to use their Best
Efforts (a) to furnish upon request to each other such further information, (b)
to execute and deliver to each other such other documents, and (c) to do such
other acts and things, all as the other party may reasonably request for the
purpose of carrying out the intent of this Agreement and the documents referred
to in this Agreement.
11.9. WAIVER. The rights and remedies of the parties to this
Agreement are cumulative and not alternative. Neither the failure nor any delay
by any party in exercising any right, power, or privilege under this Agreement
or the documents referred to in this Agreement will operate as a waiver of such
right, power, or privilege, and no single or partial exercise of any such right,
power, or privilege will preclude any other or further exercise of such right,
power, or privilege or the exercise of any other right, power, or privilege. (a)
No claim or right arising out of this Agreement or the documents referred to in
this Agreement can be discharged by one party, in whole or in part, by a waiver
or renunciation of the claim or right unless in writing signed by the waiving or
discharging party; (b) no waiver that may be given by a party will be applicable
except in the specific instance for which it is given; and (c) no notice to or
demand on one party will be deemed to be a waiver of any obligation of such
party or of the right of the party giving such notice or demand to take further
action without notice or demand as provided in this Agreement or the documents
referred to in this Agreement.
11.10. ENTIRE AGREEMENT AND MODIFICATION. This Agreement supersedes
all prior agreements between the parties with respect to its subject matter and
constitutes (along with the documents referred to in this Agreement) a complete
and exclusive statement of the terms of the agreement between the parties with
respect to its subject matter. This Agreement may not be amended except by a
written agreement executed by the party to be charged with the amendment.
11.11. ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS. Neither
party may assign any of its rights under this Agreement without the prior
consent of the other parties except that Buyer may assign any of its rights (but
not its obligations) under this Agreement to any Subsidiary of Buyer. Subject
to the preceding sentence, this Agreement will apply to, be binding in all
respects upon, and inure to the benefit of the successors and permitted assigns
of the parties. Nothing expressed or referred to in this Agreement will be
construed to give any Person other than the parties to this Agreement any legal
or equitable right, remedy, or claim under or with respect to this Agreement or
any provision of this
48
Agreement, other than Persons entitled to indemnification pursuant to ARTICLE
10. This Agreement and all of its provisions and conditions are for the sole
and exclusive benefit of the parties to this Agreement and their successors and
assigns, and there are no intended third party beneficiaries of this Agreement.
Prior to the Closing, Sellers will assign to Buyer all rights and remedies of
any Seller or any Related Party of any Seller under any confidentiality or other
agreement entered into in connection with any of the Acquired Companies.
11.12. SEVERABILITY. If any provision of this Agreement is held
invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full force and effect. Any
provision of this Agreement held invalid or unenforceable only in part or degree
will remain in full force and effect to the extent not held invalid or
unenforceable.
11.13. SECTION HEADINGS, CONSTRUCTION. The headings of Sections in
this Agreement are provided for convenience only and will not affect its
construction or interpretation. All references to "Section" or "Sections" refer
to the corresponding Section or Sections of this Agreement. All words used in
this Agreement will be construed to be of such gender or number as the
circumstances require. Unless otherwise expressly provided, the word
"including" does not limit the preceding words or terms.
11.14. TIME OF ESSENCE. With regard to all dates and time periods set
forth or referred to in this Agreement, time is of the essence.
11.15. GOVERNING LAW. This Agreement will be governed by the laws of
the State of California without regard to conflicts of laws principles.
49
11.16 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
THE TORO COMPANY
- ------------------------------
By: /s/ Kendrick B. Melrose
-------------------------
Its: CEO/Chairman of the Board
-------------------------
JAMES HARDIE (USA) INC.
B. G. Borgardt
- ------------------------------
By: /s/ B. G Borgardt
-------------------------
Its: President
-------------------------
JAMES HARDIE INDUSTRIES LIMITED
B. G. Borgardt
- ------------------------------
By: /s/ B. G. Borgardt
-------------------------
Its: Attorney In Fact
-------------------------
RCI PTY. LTD.
B. G. Borgardt
- ------------------------------
By: /s/ B. G. Borgardt
-------------------------
Its: Attorney In Fact
-------------------------
50
APPENDIX
DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Appendix:
"ACQUIRED COMPANIES" -- as defined in the Recitals of this Agreement.
"ACQUIRED COMPANIES' BUSINESS" -- as defined in SECTION 2.17.
"ADJUSTMENT AMOUNT" -- as defined in SECTION 1.5.
"ADJUSTMENT AMOUNT DETERMINATION DATE" -- the earliest of: (1) if
Buyer has not given Sellers written notice of its objection to the Closing
Financial Statements, sixty days after delivery of the Closing Financial
Statements to Buyer; (2) the date on which Buyer notifies Sellers in writing
that Buyer does not object to the Closing Financial Statements; (3) if Buyer has
given Sellers written notice of its objection to the Closing Financial
Statements and the parties' accountants are able to resolve the dispute, the
date on which such dispute is resolved; or (4) if Buyer has given Sellers
written notice of its objection to the Closing Financial Statements and the
parties' accountants are unable to resolve the dispute, the date on which the
Accountants deliver their determination.
"BALANCE SHEET" -- as defined in SECTION 2.4.
"BEST EFFORTS" -- the efforts that a prudent Person desirous of
achieving a result would use in similar circumstances to ensure that such result
is achieved as expeditiously as possible; PROVIDED, HOWEVER, that an obligation
to use Best Efforts under this Agreement does not require the Person subject to
that obligation to take actions that would, in such Person's good faith
judgment, result in a Material Adverse Change in the benefits to such Person of
this Agreement and the Contemplated Transactions; provided, however, that with
respect to matters relating to the HSR Act or other Antitrust Laws, Buyer shall
not be required to take any action not contemplated by SECTION 6.2(a)(1).
"BUYER" -- as defined in the first paragraph of this Agreement.
"BUYER'S FUND" -- the superannuation fund nominated by the Buyer as
the fund to which the Employees' entitlements under the Sellers' Fund (if any)
are transferred, if the Employees so choose.
"CLOSING" -- as defined in SECTION 1.3.
"CLOSING DATE" -- the date and time as of which the Closing actually
takes place.
"CLOSING FINANCIAL STATEMENTS" -- as defined in SECTION 1.6(a).
"CODE" means the Internal Revenue Code of 1986, as amended, and the
Treasury regulations thereunder.
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"CONSENT" -- any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
"CONTEMPLATED TRANSACTIONS" -- all of the transactions contemplated by
this Agreement, including:
(a) the sale of the Shares by Sellers to Buyer;
(b) the execution and delivery of the Transaction Documents;
(c) the performance by Buyer and Sellers of their respective
covenants and obligations under this Agreement; and
(d) Buyer's acquisition and ownership of the Shares.
"CONTRACT" -- means any contract, commitment, arrangement, note, bond,
indenture, mortgage, deed of trust, lien, lease, franchise, permit, item of
intellectual property, license, instrument or other agreement, whether or not in
writing.
"CONTROLLED GROUP LIABILITY" means any and all liabilities under (i)
Title IV of ERISA, (ii) section 302 of ERISA, (iii) sections 412 and 4971 of the
Code, (iv) the continuation coverage requirements of section 601 et seq. of
ERISA and section 4980B of the Code, and (v) corresponding or similar provisions
of foreign laws or regulations, other than such liabilities that arise solely
out of, or relate solely to, the Plans.
"DAMAGES" -- as defined in SECTION 10.2.
"EMPLOYEE" -- an Employee of an Acquired Company.
"ENCUMBRANCE" -- any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income, or exercise of any other attribute of
ownership.
"ENVIRONMENTAL CLAIM" -- means any notice by any Person alleging
potential liability (including, without limitation, potential liability for
investigatory costs, cleanup costs, governmental response costs, natural
resources damages, property damages, personal injuries, fines or penalties)
arising out of, or resulting from the violation of any Environmental Law or the
presence, or release into the environment, of any hazardous substances.
"ENVIRONMENTAL LAW" -- means any foreign, federal, state, local,
municipal or international statute, ordinance, rule, regulation, code, license,
permit, authorization, approval, consent, common law (including tort and
environmental nuisance law), order, judgment, decree, injunction, or agreement
with any Governmental Body, heretofore or now in effect relating to health,
safety, pollution or the environment (including ambient air, surface water,
groundwater, land surface or subsurface strata) or to emissions, discharges,
releases or threatened releases of any substance currently listed, defined,
designated or classified as hazardous, toxic, waste, radioactive or dangerous,
or otherwise regulated, under any of the foregoing, or otherwise relating to the
manufacture, processing, distribution, use,
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treatment, storage, disposal, discharge, transport or handling of any such
substances, including the Clean Air Act, the Federal Water Pollution Control
Act, the Toxic Substances Control Act, the Comprehensive Environmental Response,
Compensation and Liability Act, the Superfund Amendments and Reauthorization Act
and the Resource Conservation and Recovery Act and comparable provisions in
state, county, local, foreign or international law.
"ENVIRONMENTAL LIABILITIES" -- means all liabilities and obligations
relating to, arising out of or resulting from any Environmental Law or contract
or agreement relating to environmental, health or safety matters (including all
removal, remediation or cleanup costs, investigatory costs, governmental
response costs, natural resources damages, property damages, personal injury
damages, costs of compliance with any settlement, judgment or other
determination of liability and indemnity, contribution or similar obligations)
and all costs and expenses, interest, fines, penalties or other monetary
sanctions in connection therewith.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the regulations thereunder.
"ERISA AFFILIATE" means, with respect to any entity, trade or
business, any other entity, trade or business that is a member of a group
described in Section 414(b), (c), (m) or (o) of the Code or Section 4001(b)(1)
of ERISA that includes the first entity, trade or business, or that is a member
of the same "controlled group" as the first entity, trade or business pursuant
to Section 4001(a)(14) of ERISA.
"GAAP" -- United States generally accepted accounting principles,
applied on a basis consistent with the basis on which the Balance Sheet and the
other financial statements referred to in SECTION 2.4(b) were prepared.
"GOVERNMENTAL AUTHORIZATION" -- any approval, consent, license,
permit, waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
"GOVERNMENTAL BODY" -- any:
(a) county, municipal, provincial, federal, state, local, foreign, or
other government;
(b) governmental or quasi-governmental authority of any nature
(including any governmental agency, subdivision, branch, department,
official, or entity and any court or other tribunal).
"HSR ACT" -- the Hart-Scott-Rodino Antitrust Improvements Act of 1976
or any successor law, and regulations and rules issued pursuant to that Act or
any successor law.
"INDEMNIFIED PERSONS" -- any Person entitled to indemnity pursuant to
SECTION 10.2 OR 10.3.
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"INTELLECTUAL PROPERTY" -- shall mean United States and foreign
patents (including utility and design patents, industrial designs and utility
models), patent applications (including docketed patent or invention disclosures
awaiting filing, requests for reexamination, reissues, divisions, continuations
in part, patents of addition and extensions), patent or invention disclosures
awaiting filing determination, trademarks, service marks, trade names, trade
dress, logos, business and product names, slogans, and registrations and
applications for registration thereof; copyrights (including software) and
registrations thereof; inventions, processes, designs, formulae, trade secrets,
know-how, industrial models, confidential and technical information,
manufacturing, engineering and technical drawings, product specifications and
confidential business information; mask work and other semiconductor chip rights
and registrations thereof, intellectual property rights similar to any of the
foregoing; copies and tangible embodiments thereof (in whatever form or medium,
including electronic media).
"IRS" -- the United States Internal Revenue Service or any successor
agency, and, to the extent relevant, the United States Department of the
Treasury.
"KNOWLEDGE" -- an individual will be deemed to have "Knowledge" of a
particular fact or other matter if, and only if, such individual is actually
aware of such fact or other matter. A Person (other than an individual) will be
deemed to have "Knowledge" of a particular fact or other matter if any
individual who is serving as a director or officer or trustee (or in any similar
capacity) of such Person (or of any Related Person of such Person) has Knowledge
of such fact or other matter.
"LAGUNA NIGUEL DOCUMENTS" -- as defined in SECTION 2.21(b).
"LEGAL REQUIREMENT" -- any federal, state, local, provincial,
municipal, foreign, international, multinational, or other administrative order,
constitution, law, ordinance, principle of common law, rule, regulation,
statute, or treaty.
"MATERIAL ADVERSE CHANGE" -- a material adverse effect on the
businesses, properties, assets, liabilities, results of operations, or condition
(financial or other) of the Acquired Companies taken as a whole.
"ORDER" -- any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
"ORDINARY COURSE OF BUSINESS" -- an action taken by a Person will be
deemed to have been taken in the "Ordinary Course of Business" only if such
action is generally consistent with the past practices of such Person and is
taken in good faith in the ordinary course of the normal day-to-day operations
of such Person.
"ORGANIZATIONAL DOCUMENTS" -- (a) the articles or certificate of
incorporation and the bylaws of a corporation; (b) the partnership agreement and
any statement of partnership of a general partnership; (c) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership; (d) any charter or similar document adopted or filed in connection
with the creation, formation, or organization of a Person; and (e) any
amendment to any of the foregoing.
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"PERSON" -- any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"PROCEEDING" -- any action, arbitration, audit, hearing,
investigation, litigation, or suit (whether civil, criminal, administrative,
investigative, or informal) commenced, brought, conducted, or heard by or
before, or otherwise involving, any Governmental Body or arbitrator.
"RELATED PERSON" --
(a) any Person that directly or indirectly controls, is
directly or indirectly controlled by, or is directly or indirectly under
common control with such specified Person;
(b) any Person that holds a Material Interest in such
specified Person;
(c) each Person that serves as a director, officer, partner,
executor, or trustee of such specified Person (or in a similar capacity);
(d) any Person in which such specified Person holds a
Material Interest;
(e) any Person with respect to which such specified Person
serves as a general partner or a trustee (or in a similar capacity); and
(f) any Related Person of any individual described in clause
(b) or (c).
For purposes of this definition, "Material Interest" means direct or indirect
beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act
of 1934) of voting securities or other voting interests representing at least
35% of the outstanding voting power of a Person or equity securities or other
equity interests representing at least 35% of the outstanding equity securities
or equity interests in a Person.
"RELEVANT MATTERS" -- as defined in SECTION 11.1.
"REPRESENTATIVE" -- with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, or other representative of such
Person, including legal counsel, accountants, and financial advisors.
"SECURITIES ACT" -- the Securities Act of 1933 or any successor law,
and regulations and rules issued pursuant to that Act or any successor law.
"SELLERS" -- as defined in the first paragraph of this Agreement.
"SELLERS' FUND" -- (a) in the case of executive Employees - the James
Hardie Executive Superannuation Plan established by a trust deed dated December
4, 1980; and (b)
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in the case of non-executive Employees -- the James Hardie Securiplan
established by a trust deed dated March 27, 1956.
"SHAREHOLDERS' EQUITY" -- Total assets minus total liabilities (not
including the value of the Carson City property).
"SHARES" -- as defined in the Recitals of this Agreement.
"SUBSIDIARY" -- any corporation or other Person in which a Person owns
or controls, directly or indirectly, capital stock or other equity interests
representing at least 50% of the outstanding voting stock or other equity
interests.
"TAX" -- any tax of any nature whatsoever (including any income tax,
capital gains tax, franchise, value-added tax, sales tax, property tax, gift
tax, or estate tax), levy, assessment, tariff, duty (including any customs
duty), deficiency, license, withholding, stamp, environmental, occupation or
other fee, and any related charge or amount (including any fine, penalty,
interest, or addition to tax), imposed, assessed, or collected by or under the
authority of any Governmental Body or payable pursuant to any tax-sharing
agreement or any other Contract relating to the sharing or payment of any such
tax, levy, assessment, tariff, duty, deficiency, or fee.
"TAX RETURN" -- any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any Governmental
Body or other authority in connection with the determination, assessment,
collection, or payment of any Tax or in connection with the administration,
implementation, or enforcement of or compliance with any Legal Requirement
relating to any Tax.
"THIRD PARTY REPRESENTATIVE" -- means any Person (and all
Representatives of such Person) to whom Buyer deems it necessary or advisable to
provide information in order to assist Buyer in the consummation of the
Contemplated Transactions.
"TRANSACTION DOCUMENTS" -- this Agreement, the schedules supplied
herewith, and any other documents necessary and appropriate for the completion
of the Contemplated Transactions.
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