EXHIBIT 2.1
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AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
HEATILATOR INC.
AND
HEAT-N-GLO FIREPLACE PRODUCTS, INC.,
DATED AS OF OCTOBER 2, 1996
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TABLE OF CONTENTS
ARTICLE I THE MERGER; EFFECTIVE TIME 2
1.1 The Merger.................................................... 2
1.2 Effective Time................................................ 2
1.3 Articles of Incorporation..................................... 2
1.4 By-Laws....................................................... 2
1.5 Directors and Officers........................................ 2
1.6 Assistance in Consummation of the Merger...................... 3
ARTICLE II MERGER CONSIDERATION; CONVERSION OR CANCELLATION OF
SHARES IN THE MERGER.................................................... 3
2.1 Merger Consideration; Conversion or Cancellation
of Shares in the Merger....................................... 3
2.2 Adjustment to Merger Consideration............................ 6
2.3 Deliveries After Effective Time; Transfer Book................ 6
2.4 Merger Consideration Allocation............................... 6
ARTICLE III CLOSING.................................................... 7
3.1 General....................................................... 7
3.2 Documents to be Delivered by Heat-N-Glo....................... 7
3.3 Documents to be Delivered by Heatilator....................... 8
3.4 Other Documents to be Delivered............................... 9
ARTICLE IV REPRESENTATIONS AND WARRANTIES.............................. 10
4.1 Representations and Warranties of Heat-N-Glo.................. 10
(a) Organization and Standing; Power and Authority........... 10
(b) Capitalization........................................... 10
(c) Ownership of Shares...................................... 11
(d) Articles and By-Laws..................................... 11
(e) Conflicts; Defaults...................................... 11
(f) Assets; Title............................................ 12
(g) Real Property Leases..................................... 12
(h) Contracts................................................ 13
(i) Financial Statements..................................... 13
(j) Liabilities.............................................. 14
(k) Accounts Receivable...................................... 14
(l) Inventories.............................................. 15
(m) Litigation............................................... 15
(n) Customers and Suppliers.................................. 15
(o) Regulatory Compliance.................................... 16
(p) Brokers, Finders and Agents.............................. 16
(q) Intellectual Property.................................... 16
(r) Permits.................................................. 17
(s) Employee Relations; Collective Bargaining Agreements..... 17
(t) Employees and Employee Plans............................. 18
(u) Environmental Matters.................................... 20
(v) Changes in Circumstances................................. 20
(w) Taxes.................................................... 22
(x) Warranties; Warranty Costs............................... 23
(y) Insurance................................................ 24
(z) Consents................................................. 24
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(aa) Absence of Certain Commercial Practices................. 25
(bb) Bank Accounts........................................... 25
(cc) Books and Records....................................... 25
(dd) Pricing Practices....................................... 25
(ee) Copies of Documents..................................... 25
(ff) Backlog................................................. 26
(gg) Insider Interests....................................... 26
(hh) Disclosure.............................................. 26
4.2 Representations and Warranties of Heatilator.................. 26
(a) Organization and Standing; Power and Authority........... 26
(b) Capitalization........................................... 27
(c) Articles and By-Laws..................................... 27
(d) Conflicts; Defaults...................................... 27
(e) Compliance with other Instruments, etc. ................. 27
(f) Financial Statements..................................... 27
(g) Litigation............................................... 28
(h) Absence of Certain Changes or Events..................... 28
(i) Brokers, Finders and Agents.............................. 29
(j) Consents................................................. 29
ARTICLE V CONDITIONS................................................... 29
5.1 Conditions to the Obligations of Heatilator................... 29
(a) Representations and Warranties........................... 29
(b) Covenants................................................ 29
(c) Material Adverse Change.................................. 29
(d) Consents................................................. 29
(e) No Proceeding or Litigation.............................. 29
(f) Other Assets and Stock................................... 30
(g) Certificate of Heat-N-Glo................................ 30
(h) Documents................................................ 30
(i) Approval by Heat-N-Glo Stockholders...................... 30
5.2 Conditions to the Obligations of Heat-N-Glo................... 30
(a) Representations and Warranties........................... 30
(b) Covenants................................................ 30
(c) Consents................................................. 30
(d) Certificate of Heatilator................................ 30
(e) Documents................................................ 31
ARTICLE VI COVENANTS................................................... 31
6.1 Conduct of Business........................................... 31
(a) Issuance of Securities................................... 31
(b) Redemption or Purchase of Securities..................... 31
(c) Reclassification and Distributions....................... 31
(d) Liquidation, Merger, Etc. ............................... 31
(e) Corporate Structure...................................... 32
(f) Obligations for Borrowed Money........................... 32
(g) Employee Matters......................................... 32
(h) Sale of Assets........................................... 32
(i) Commitments.............................................. 32
(j) Capital Commitments...................................... 32
(k) Encumbrances............................................. 32
(l) Insurance................................................ 32
(m) Litigation............................................... 33
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(n) Representations and Warranties.......................... 33
(o) Commitments............................................. 33
6.2 Disclosure Supplements....................................... 33
6.3 Regulatory Approvals......................................... 33
6.4 Closing...................................................... 33
6.5 Confidentiality.............................................. 34
6.6 No Shopping.................................................. 34
6.7 Expenses..................................................... 34
6.8 Press Releases and Disclosure................................ 34
6.9 Access; Information.......................................... 35
6.10 Tax Returns.................................................. 35
6.11 Stockholders' Vote........................................... 36
6.12 Equity and Pension Plans..................................... 36
(a) Equity Plans............................................ 36
(b) 401(k) Plan............................................. 36
(c) Defined Benefit Plan and ESOP........................... 36
ARTICLE VII TERMINATION................................................ 37
7.1 Equity and Pension Plans..................................... 37
(a) Mutual Consent.......................................... 37
(b) Closing Date............................................ 37
(c) Heat-N-Glo Misrepresentation or Breach.................. 37
(d) Heatilator Misrepresentation or Breach.................. 37
(e) Court Order............................................. 37
(f) Material Adverse Change................................. 37
(g) Heatilator's Conditions................................. 37
(h) Heat-N-Glo's Conditions................................. 37
7.2 Effect of Termination........................................ 38
ARTICLE VIII MISCELLANEOUS AND GENERAL................................ 38
8.1 Amendments................................................... 38
8.2 Entire Agreement............................................. 38
8.3 Governing Law................................................ 38
8.4 Notices...................................................... 38
8.5 Counterparts................................................. 39
8.6 Assignment................................................... 39
8.7 Waivers...................................................... 39
8.8 Third Parties................................................ 40
8.9 Schedules and Exhibits....................................... 40
8.10 Headings..................................................... 40
8.11 Certain Definitions.......................................... 40
8.12 Gender and Number............................................ 40
8.13 No Other Representations and Warranties...................... 40
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SCHEDULES AND EXHIBITS
Schedules
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Schedule 4.1 Exceptions to Heat-N-Glo Representations and
Warranties
Schedule 4.2 Exceptions to Heatilator Representations and
Warranties
Exhibits
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Exhibit 2.1(a)(i) Form of Short-Term Note
Exhibit 2.1(a)(ii) Form of Long-Term Note
Exhibit 2.1(a)(iii) Form of Convertible Debenture
Exhibit 2.1(b) Class A Merger Consideration
Exhibit 2.1(d) Class B Merger Consideration
Exhibit 3.2(b) Items to be Covered in Opinion of Counsel to Heat-N-Glo
Exhibit 3.3(c) Items to be Covered in Opinion of Counsel to Heatilator
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AGREEMENT AND PLAN OF MERGER
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THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of October 2,
1996, by and between HEATILATOR INC., an Iowa corporation ("Heatilator"), and
HEAT-N-GLO FIREPLACE PRODUCTS, INC., a Minnesota corporation ("Heat-N-Glo").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Heat-N-Glo and Precision Gas Technologies of Canada, Inc., an
Alberta (Canada) corporation ("PGT"), collectively carry on the business of
manufacturing and distributing gas and woodburning fireplaces and fireplace
products (the "Business");
WHEREAS, Gas Fire Development, Inc., a Minnesota corporation ("GFD"), is
the assignee of royalties resulting from the licensing of certain patent rights
to Heat-N-Glo for certain products manufactured and sold in connection with the
Business, as well as the licensing of said patent rights to third parties;
WHEREAS, Ronald J. Shimek, Daniel C. Shimek, Gerald T. Shimek, Steven G.
Shimek, Patricia J. Shimek, Kay N. Shimek, Ann Shimek and Lee Shimek
(individually each a "Primary Stockholder" and collectively the "Primary
Stockholders"), and the other persons on the signature page to the
Securityholders' Agreement (as hereinafter defined) (such other persons
individually each an "Additional Stockholder" and collectively the "Additional
Stockholders"; the Primary Stockholders and the Additional Stockholders are
sometimes collectively referred to as the "Stockholders") collectively own all
of the issued and outstanding capital stock of Heat-N-Glo;
WHEREAS, certain Primary Stockholders collectively own 70% of the issued
and outstanding capital stock of PGT, and two of the Primary Stockholders
collectively own 90% of the issued and outstanding capital stock of GFD;
WHEREAS, certain Primary Stockholders also own certain other assets used in
the Business;
WHEREAS, the Boards of Directors of Heatilator and Heat-N-Glo have deemed
it advisable and in the best interests of the respective stockholders of such
corporations that Heat-N-Glo be merged with and into Heatilator;
WHEREAS, the parties hereto desire to provide for the merger of Heat-N-Glo
with and into Heatilator, the sale by certain Primary Stockholders of all the
shares of capital stock of PGT owned by them, and the sale by certain Primary
Stockholders to
Heatilator and/or a wholly-owned subsidiary of Heatilator of all the shares of
capital stock of GFD owned by them; and
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with such transactions;
NOW THEREFORE, in consideration of the mutual representations, warranties,
covenants and agreements set forth herein, the parties hereto hereby agree as
follows:
ARTICLE I
THE MERGER; EFFECTIVE TIME
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1.1 The Merger. Subject to the terms and conditions of this Agreement and
in accordance with the Iowa Business Corporation Act and the Minnesota Business
Corporation Act, at the Effective Time, Heat-N-Glo shall be merged with and into
Heatilator (the "Merger"). Following the Merger, the separate existence of
Heat-N-Glo shall cease, and Heatilator as the surviving corporation in the
Merger (the "Surviving Corporation") shall continue its corporate existence
under the Iowa Business Corporation Act and shall succeed to all rights, assets,
liabilities and obligations of Heat-N-Glo.
1.2 Effective Time. Subject to the terms and conditions contained herein,
at the Closing, the parties will cause appropriate Articles of Merger (the
"Articles of Merger") and related documents, in such form or forms as may be
required by, and executed in duplicate in accordance with, applicable law, to be
filed with the Secretary of State of the State of Iowa and the Secretary of
State of the State of Minnesota. The Merger shall become effective at the date
and time (the "Effective Time") that the Articles of Merger shall have been
accepted for filing by the Secretary of State of the State of Iowa and the
Secretary of State of the State of Minnesota.
1.3 Articles of Incorporation. The Articles of Incorporation of
Heatilator, as in effect immediately prior to the Effective Time, shall be and
remain the Articles of Incorporation of the Surviving Corporation until
thereafter amended in accordance with the terms thereof and as provided by
applicable law.
1.4 By-Laws. The By-Laws of Heatilator, as in effect immediately prior to
the Effective Time, shall be and remain the By-Laws of the Surviving Corporation
until thereafter amended in accordance with the terms thereof and as provided by
applicable Law.
1.5 Directors and Officers. The directors and officers of Heatilator at
the Effective Time shall be the directors and
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officers of the Surviving Corporation, each to hold office until their
successors have been duly elected or appointed and qualified or until their
earlier death, resignation or removal in accordance with the Surviving
Corporation's Articles of Incorporation and By-Laws; provided, however, that the
Surviving Corporation shall take such action as shall be necessary so that, at
or promptly after the Effective Time, the following persons shall be appointed
to the respective offices of the Surviving Corporation set forth opposite their
names below, each to hold office until their successors have been duly elected
or appointed and qualified or until their earlier death, resignation or removal
in accordance with the Surviving Corporation's Articles of Incorporation and By-
Laws:
Daniel Shimek President
Ronald Shimek President of Heat-N-Glo Division
Stanley Askren President of Heatilator Division
Gerald Shimek Vice President of Administration
Steven Shimek Vice President of Sales of Heat-
N-Glo Division
Brad Determan Vice President of Operations of
Heat-N-Glo Division
David Stuebe Treasurer
A. Mosby Harvey, Jr. Secretary
George Ferris Assistant Treasurer
1.6 Assistance in Consummation of the Merger. Heatilator and Heat-N-Glo
shall provide all reasonable assistance to, and shall cooperate with, each other
to bring about the consummation of the Merger as soon as possible in accordance
with the terms and conditions of this Agreement.
ARTICLE II
MERGER CONSIDERATION; CONVERSION OR
CANCELLATION OF SHARES IN THE MERGER
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2.1 Merger Consideration; Conversion or Cancellation of Shares in the
Merger. Subject to the provisions of this Article II, at the Effective Time, by
virtue of the Merger and without any action on the part of the holders thereof,
the shares of the constituent corporations shall be converted as follows:
(a) Each share of Class A Common Stock, par value $1.00 per share, of
Heat-N-Glo (the "HNG Class A Shares") issued and outstanding immediately prior
to the Effective Time shall be converted into the right to receive an allocable
portion of the Class A Merger Consideration (as hereinafter defined) having an
aggregate principal amount of $37,815. For purposes of this Agreement, the
"Class A Merger Consideration" shall mean the total consideration to be
delivered by Heatilator in respect of the HNG Class A Shares, consisting of (i)
a $11,726,000 undivided interest (the "Class A Interest in the Short-Term Note")
in a $58,630,000 principal amount non-interest bearing promissory note
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of Heatilator, due and payable on the first business day after the Effective
Time, in the form of Exhibit 2.1(a)(i) attached hereto (the "Short-Term Note"),
(ii) a $1,000,000 undivided interest (the "Class A Interest in the Long-Term
Note") in a $5,000,000 principal amount five-year promissory note of Heatilator
bearing interest at the rate of 7% per annum payable annually, with the
principal amount to be paid in two equal installments due at the fourth year
anniversary and on maturity, respectively, in the form of Exhibit 2.1(a)(ii)
attached hereto (the "Long-Term Note"), and (iii) $2,400,000 in aggregate
principal amount of 7% Convertible Debentures of Heatilator, due and payable
three years after the Effective Time, bearing interest at the rate of 7% per
annum compounded annually and payable annually, convertible prior to maturity
into shares of common stock of Heatilator in the amount and manner specified
therein, in the form of Exhibit 2.1(a)(iii) attached hereto (the "Class A
Convertible Debentures").
(b) Each holder of an HNG Class A Share shall be entitled to elect to
receive his or her allocable portion of the Class A Merger Consideration in an
undivided interest in the Class A Interest in the Short-Term Note, an undivided
interest in the Class A Interest in the Long-Term Note, Class A Convertible
Debentures or any combination thereof so long as the aggregate principal amount
of the consideration received by such holder in respect of such HNG Class A
Share is equal to $37,815; provided, however, that such election shall be
subject to adjustment by Heatilator, in its sole discretion, as necessary to
accommodate the collective elections of the holders of HNG Class A Shares. The
election of each holder of HNG Class A Shares with respect to the composition of
his or her allocable portion of the Class A Merger Consideration is set forth on
Exhibit 2.1(b).
(c) Each share of Class B Common Stock, par value $1.00 per share, of
Heat-N-Glo ("the "HNG Class B Shares") issued and outstanding immediately prior
to the Effective Time shall be converted into the right to receive an allocable
portion of the Class B Merger Consideration (as hereinafter defined) having an
aggregate principal amount of $37,815. For purposes of this Agreement, the
"Class B Merger Consideration" shall mean the total consideration to be
delivered by Heatilator in respect of the HNG Class B Shares, consisting of (i)
a $46,904,000 undivided interest in the Short-Term Note (the "Class B Interest
in the Short-Term Note"), (ii) a $4,000,000 undivided interest in the Long-Term
Note (the "Class B Interest in the Long-Term Note"), and (iii) $9,600,000 in
aggregate principal amount of 7% Convertible Debentures of Heatilator, due and
payable three years after the Effective Time, bearing interest at the rate of 7%
per annum compounded annually and payable annually, convertible prior to
maturity into shares of common stock of Heatilator in the amount and manner
specified therein, in the form of Exhibit 2.1(a)(iii) attached hereto (the
"Class B Convertible Debentures").
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(d) Each holder of an HNG Class B Share shall be entitled to elect to
receive his or her allocable portion of the Class B Merger Consideration in an
undivided interest in the Class B Interest in the Short-Term Note, an undivided
interest in the Class B Interest in the Long-Term Note, Class B Convertible
Debentures or any combination thereof so long as the aggregate principal amount
of the consideration received by such holder in respect of such HNG Class B
Share is equal to $37,815; provided, however, that such election shall be
subject to adjustment by Heatilator, in its sole discretion, as necessary to
accommodate the collective elections of the holders of HNG Class B Shares. The
election of each holder of HNG Class B Shares with respect to the composition of
his or her allocable portion of the Class B Merger Consideration is set forth on
Exhibit 2.1(d).
(e) At the Effective Time, all HNG Class A Shares and all HNG Class B
Shares (collectively, the "HNG Shares") to be converted pursuant to this Section
2.1 shall cease to be outstanding, shall be cancelled and retired and shall
cease to exist, and each holder of a certificate representing any such HNG
Shares shall thereafter cease to have any rights with respect to such HNG
Shares, except the right to receive for each of the HNG Shares, upon the
surrender of such certificate in accordance with Section 2.3, the allocable
portion of the Class A Merger Consideration specified in Section 2.1(b) or the
allocable portion of the Class B Merger Consideration specified in Section
2.1(d), as the case may be. The Class A Merger Consideration and the Class B
Merger Consideration (collectively, the "Merger Consideration") shall be subject
to adjustment as described in Section 2.2 below.
(f) HNG Shares, if any, held by Heat-N-Glo as treasury stock
immediately prior to the Effective Time shall cease to be outstanding, shall be
cancelled and retired without payment of any consideration therefor, and shall
cease to exist.
(g) Each Heatilator Share issued and outstanding immediately prior to
the Effective Time shall continue to be one share of Common Stock of the
Surviving Corporation, with the same rights, powers and privileges as such
Heatilator Share had immediately prior to the Effective Time.
2.2 Adjustment to Merger Consideration. After the Effective Time, the
Merger Consideration shall be subject to the adjustment set forth in Article II
of the Securityholders' Agreement (as hereinafter defined).
2.3 Deliveries After Effective Time; Transfer Book. After the Effective
Time, each holder of an outstanding certificate or certificates theretofore
representing HNG Shares shall be entitled, upon surrender of such certificate or
certificates to Heatilator, to receive therefor in accordance with Section 2.1
the aggregate amount of the Merger Consideration payable to such holder.
Notwithstanding the foregoing, the Class A Convertible
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Debentures and the Class B Convertible Debentures (collectively, the
"Convertible Debentures") shall not be issued and delivered to any Stockholder
until Heatilator has filed any notices which it deems appropriate under
applicable state "blue sky" laws, and any applicable waiting period for
effectiveness of the notice has passed; provided, however, that Heatilator
agrees to promptly make any such filings after the Effective Time. Until so
surrendered, each such outstanding certificate which prior to the Effective Time
represented HNG Shares shall be deemed for all corporate purposes (subject to
the further provisions of this Section 2.3) to evidence ownership of the right
to receive an allocable portion of the Merger Consideration into which such HNG
Shares shall have been so converted, determined in accordance with Section 2.1.
After the Effective Time, there shall be no further registry of transfers on the
records of the Surviving Corporation of the HNG Shares and, if certificates
representing such HNG Shares are presented to the Surviving Corporation, they
shall be cancelled and exchanged for the appropriate share of the Merger
Consideration as herein provided. No interest shall accrue or be paid on the
Merger Consideration payable to the Stockholders, except for interest on the
Long-Term Note and the Convertible Debentures as provided for therein.
2.4 Merger Consideration Allocation. The parties agree that for all Tax
(as hereinafter defined) purposes, the Merger will be treated as a taxable sale
by Heat-N-Glo of all of its assets and business to Heatilator immediately
followed by the deemed liquidation of Heat-N-Glo. The sum of (i) the Merger
Consideration, which for this purpose shall be equal to the principal amount of
the Short-Term Note, the principal amount of the Long-Term Note, and the
aggregate principal amount of the Convertible Debentures, plus (ii) the
liabilities of Heat-N-Glo assumed by the Surviving Corporation by reason of the
Merger represent the amount agreed upon by the parties to be the aggregate
consideration paid for the assets of Heat-N-Glo, and shall be allocated among
the assets of Heat-N-Glo in accordance with a schedule (the "Allocation
Schedule") to be agreed after the Closing Date by Schechter, Dokken, Kanter,
Andrews & Selcer, Ltd., the accountants for Heat-N-Glo the Primary Stockholders,
and Arthur Andersen LLP, the accountants for Heatilator and the Surviving
Corporation. Schechter, Dokken, Kanter, Andrews & Selcer, Ltd. shall prepare and
deliver the Allocation Schedule to Arthur Andersen LLP for its review and
approval within 60 days after the Closing Date, and Arthur Andersen LLP shall
propose any adjustment thereto within 30 days of its receipt of the Allocation
Schedule. The Allocation Schedule shall comply with the requirements of Section
1060 of the Internal Revenue Code of 1986, as amended (the "Code"), and the
regulations promulgated thereunder. If the adjustment to the Merger
Consideration as provided in Section 2.2 has not been determined at the time the
Allocation Schedule is agreed, any such adjustment shall be reflected as an
adjustment to the amount allocated to intangibles as set forth on the Allocation
Schedule. Each of the parties shall report the Merger, including, without
limitation, in all
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federal, state, local, foreign and other Tax Returns (as hereinafter defined)
prepared and filed by or for any of Heat-N-Glo or Heatilator, in accordance with
the allocation described in the Allocation Schedule. Heatilator shall prepare
and file asset acquisition statements on Form 8594 reflecting such allocation
with its federal income Tax Return for the taxable year that includes the
Closing Date and, pursuant to Section 6.10, the Primary Stockholders shall file
Form 8594 with the federal income Tax Return of Heat-N-Glo for the taxable year
that ends on the Closing Date.
ARTICLE III
CLOSING
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3.1 General. As used in this Agreement, the "Closing" shall mean the time
at which the Merger is consummated by the filing of the Articles of Merger as
contemplated herein following the execution and delivery by Heat-N-Glo of the
documents and instruments referred to in Sections 3.2 and 3.4 against delivery
by Heatilator of the documents and instruments referred to in Sections 3.3 and
3.4. The Closing shall take place at the offices of Jones, Day, Reavis & Pogue,
77 West Wacker Drive, Suite 3500, Chicago, Illinois 60601-1692 at 10:00 A.M. on
the later to occur of (a) the date hereof or (b) such other time and place or
such other day as shall be mutually agreed upon in writing by the parties to
this Agreement (the "Closing Date").
3.2 Documents to be Delivered by Heat-N-Glo. At the Closing, Heat-N-Glo
shall deliver to Heatilator:
(a) Copies of (i) the resolutions of the Board of Directors and the
stockholders of Heat-N-Glo authorizing and approving this Agreement and the
Merger and all other transactions and agreements contemplated hereby, (ii) Heat-
N-Glo's Articles of Incorporation, certified by the Secretary of State of
Minnesota, and (iii) Heat-N-Glo's By-Laws, each certified by the Secretary or an
Assistant Secretary of Heat-N-Glo to be true, correct, complete and in full
force and effect and unmodified as of the Closing Date;
(b) An opinion, dated as of the Closing Date, of Lommen, Nelson, Cole
& Stageberg, P.A., counsel to Heat-N-Glo, addressed to Heatilator with respect
to the matters described in Exhibit 3.2(b);
(c) A good standing certificate for Heat-N-Glo from the Secretary of
State of the State of Minnesota, dated not more than ten days prior to the
Closing;
(d) Copies of all Consents designated on Schedule 4.1(z) as material
Consents;
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(e) An incumbency certificate of the officers of Heat-N-Glo;
(f) Releases, including, without limitation, termination statements
under the Uniform Commercial Code of any financing statements filed against any
assets of Heat-N-Glo, evidencing discharge, removal and termination of all Liens
(as hereinafter defined) to which such assets are subject, other than those
Permitted Liens identified on Schedule 4.1(f) as Continuing Permitted Liens,
which releases shall be effective at or prior to the Closing;
(g) The corporate minute books, stock transfer book and corporate
seal of Heat-N-Glo;
(h) A Securityholders' Agreement among Heatilator, HON INDUSTRIES
Inc., an Iowa corporation ("HON") and each of the Stockholders, in form and
substance satisfactory to Heatilator and Heat-N-Glo (the "Securityholders'
Agreement"), duly executed by each Stockholder;
(i) Evidence of the termination of the plans referred to in Section
6.12(a) hereof, and releases executed by each of the employees subject to such
plans, in form and substance reasonably satisfactory to Heatilator; and
(j) Such other documents necessary or appropriate for the
consummation of the transactions contemplated hereby as Heatilator may
reasonably request.
3.3 Documents to be Delivered by Heatilator. At the Closing, Heatilator
shall deliver to Heat-N-Glo:
(a) A copy of the resolutions of the Board of Directors of HON
authorizing and approving the transactions contemplated by this Agreement, all
certified by the Secretary or an Assistant Secretary of HON to be true, correct,
complete and in full force and effect and unmodified as of the Closing Date;
(b) A copy of (i) the resolutions of the Board of Directors and sole
stockholder of Heatilator authorizing and approving the Merger and this
Agreement and all other transactions and agreements contemplated hereby, (ii)
Heatilator's Articles of Incorporation, certified by the Secretary of State of
Iowa, and (iii) Heatilator's By-Laws, each certified by the Secretary or an
Assistant Secretary of Heatilator to be true, correct, complete and in full
force and effect and unmodified as of the Closing Date;
(c) An opinion, dated the Closing Date, of counsel to Heatilator,
addressed to Heat-N-Glo, with respect to the matters described in Exhibit
3.3(c);
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(d) A good standing certificate for Heatilator from the Secretary of
State of the State of Iowa, dated not more than ten days prior to the Closing;
(e) An incumbency certificate of the officers of Heatilator;
(f) The Securityholders' Agreement, duly executed by Heatilator and
HON;
(g) A guaranty by HON of the payment obligations of Heatilator under
the Convertible Debentures and the Long-Term Note, in form and substance
satisfactory to Heat-N-Glo; and
(h) Such other documents necessary or appropriate for the
consummation of the transactions contemplated hereby as Heat-N-Glo may
reasonably request.
3.4 Other Documents to be Delivered. At the Closing:
(a) Heatilator shall execute and deliver, and Heat-N-Glo shall cause
Ronald Shimek, Daniel Shimek, Steven Shimek, Gerald Shimek and Brad Determan to
execute and deliver, Employment and Non-Competition Agreements in form and
substance satisfactory to Heatilator and Heat-N-Glo, providing for three-year
employment terms, except for Ronald Shimek, Gerald Shimek and Steven Shimek for
whom the employment terms shall be two years;
(b) Heatilator shall execute and deliver, and Heat-N-Glo shall cause
certain Primary Stockholders to execute and deliver, a Stock Purchase Agreement
evidencing the transfer of all shares of capital stock of PGT owned by such
Primary Stockholders to Heatilator or a wholly-owned subsidiary of Heatilator,
in form and substance satisfactory to Heatilator and Heat-N-Glo (the "Stock
Purchase Agreement");
(c) Heatilator shall execute and deliver, and Heat-N-Glo shall cause
certain Primary Stockholders to execute and deliver, a Stock Purchase Agreement
evidencing the transfer of all shares of capital stock of GFD owned by such
Primary Stockholders to Heatilator, in form and substance satisfactory to
Heatilator and Heat-N-Glo (the "GFD Agreement").
(d) Heat-N-Glo shall deliver one or more agreements or instruments,
in form and substance satisfactory to Heatilator, evidencing the transfer by
certain Primary Stockholders to Heat-N-Glo of all of the patents and trademarks,
and registrations and applications therefor, as well as any other intellectual
property rights (including, without limitation, rights under licenses) owned by
such Primary Stockholders or any of their Affiliates and relating to the
Business (collectively, the "IP Transfer Agreement" and, collectively with this
Agreement, the Stock Purchase Agreement, the GFD Agreement and the
Securityholders'
9
Agreement, and any other agreements, instruments or documents being executed in
connection therewith, the "Transaction Documents");
(e) Each of Heatilator and R&D Partnership, an Affiliate of Heat-N-
Glo, shall enter into an agreement relating to the amendment of certain leases
between R&D Partnership and Heat-N-Glo, in form and substance satisfactory to
Heatilator (the "Lease Amendment"); and
(f) Heatilator and Heat-N-Glo shall execute and deliver Articles of
Merger, in form appropriate for filing with the Secretary of State of Iowa and
the Secretary of State of Minnesota.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
------------------------------
4.1 Representations and Warranties of Heat-N-Glo. Heat-N-Glo hereby
represents and warrants to Heatilator that:
(a) Organization and Standing; Power and Authority. Heat-N-Glo is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Minnesota, and has full corporate power and authority to operate
the Business, to own or lease its assets, to carry on the Business as now being
conducted, and to enter into and perform this Agreement and the transactions and
other agreements and instruments contemplated by this Agreement. Except as set
forth on Schedule 4.1(a), Heat-N-Glo is the only enterprise which owns, leases
or uses assets related to the Business. Heat-N-Glo has no subsidiary
corporations and owns no interest, direct or indirect, in any other business
enterprise, firm or corporation. The Business is the only business carried on by
Heat-N-Glo. Heat-N-Glo is duly qualified or licensed to do business as a foreign
corporation and is in good standing in each jurisdiction in which the ownership
or lease of its assets or the operation of the Business requires such
qualification. This Agreement and all other agreements and instruments executed
and delivered or to be executed and delivered by Heat-N-Glo in connection
herewith have been, or upon execution thereof will be, duly executed and
delivered by Heat-N-Glo, as the case may be. This Agreement and the transactions
and other agreements and instruments contemplated hereby have been duly approved
by the Board of Directors of Heat-N-Glo by a unanimous vote in accordance with
applicable Law, and constitute the valid and binding obligations of Heat-N-Glo,
enforceable in accordance with their respective terms.
(b) Capitalization. The authorized capital stock of Heat-N-Glo
consists of 5,000 shares of HNG Class A Shares, of which 400 shares are
presently issued and outstanding and 20,000 shares of HNG Class B Shares, of
which 1,600 shares are presently issued and outstanding. The issued and
outstanding HNG Shares
10
have been validly issued and are fully paid and nonassessable. The HNG Class A
Shares and HNG Class B Shares have identical rights to distribution and
liquidation proceeds of Heat-N-Glo. The HNG Class B Shares have no voting rights
with respect to the Merger. Except as set forth on Schedule 4.1(b), there are no
outstanding obligations, options, warrants, preemptive rights or other
agreements or commitments (whether oral or written) to which Heat-N-Glo is a
party, or by which Heat-N-Glo is otherwise bound, or to which any of the
Stockholders is a party or by which they are otherwise bound, providing for the
issuance of any additional shares of capital stock of Heat-N-Glo, the repurchase
of shares of capital stock of Heat-N-Glo or otherwise relating to capital stock
of Heat-N-Glo.
(c) Ownership of Shares. The HNG Shares are owned beneficially and
of record by the persons listed in Schedule 4.1(c), in each case with valid
marketable title thereto, free and clear of all Liens (as hereinafter defined).
Each stockholder listed in Schedule 4.1(c) has the full legal right and power,
and all authorization and approval, if any, required by Law to cause such HNG
Shares to be converted into the Merger Consideration at the Effective Time.
(d) Articles and By-Laws. The copy of the Articles of Incorporation
of Heat-N-Glo, certified by the Secretary of State of the State of Minnesota,
and the By-Laws of Heat-N-Glo, furnished to Heatilator are true, correct and
complete.
(e) Conflicts; Defaults. Except as set forth on Schedule 4.1(e),
neither the execution and delivery of this Agreement and the other agreements
and instruments executed or to be executed in connection herewith by Heat-N-Glo,
nor the performance by Heat-N-Glo of the transactions contemplated hereby or
thereby, will (i) violate, conflict with, or constitute a default under, any of
the terms of Heat-N-Glo's Articles of Incorporation or Heat-N-Glo's By-Laws, or
any provisions of, or result in the acceleration of any obligation under, any
contract, sales commitment, license, purchase order, security agreement,
mortgage, note, deed, lien, lease, agreement or instrument, or any order,
judgment or decree, relating to the Business or the assets of Heat-N-Glo, or by
which Heat-N-Glo or any of its assets are bound, (ii) result in the creation or
imposition of any Liens (as hereinafter defined) in favor of any other
individual, partnership, corporation, association, joint stock company, trust,
joint venture, limited liability company or Governmental Authority (as
hereinafter defined) (collectively, "Person") upon any assets of Heat-N-Glo,
(iii) violate any law, statute, judgment, decree, order, code, ordinance, rule
or regulation (collectively, "Laws") of any foreign, United States, state or
local governmental entity or municipality or subdivision thereof or any
authority, department, commission, board, bureau, agency, court or
instrumentality (collectively, "Governmental Authorities"), (iv) constitute an
event which, after notice or lapse of time or otherwise would result in such
violation,
11
conflict, default, acceleration, or creation or imposition of Liens (as
hereinafter defined), or (v) constitute an event which, after notice of lapse of
time or otherwise would create, or cause to be exercisable or enforceable, any
option, agreement or right of any kind to purchase any of Heat-N-Glo's assets or
any of the HNG Shares. No consent, novation, approval, filing or authorization
will be required to be obtained or satisfied for the continued performance by
Heatilator following the Closing of any Contract (as hereinafter defined). Heat-
N-Glo is not in violation of or in default under its Articles of Incorporation
or By-Laws, or any provision of any contract, security agreement, mortgage,
note, deed, lien, lease, agreement or instrument, or any order, judgment or
decree, relating to the Business or the assets of Heat-N-Glo, or by which
Heat-N-Glo or any of its assets is bound, or in the payment of any of Heat-N-
Glo's monetary obligations or debts and, to the knowledge of Heat-N-Glo, there
exists no condition or event which, after notice or lapse of time or both would
result in any such violation or default.
(f) Assets; Title. Heat-N-Glo owns, or has the right to use, all
tangible assets, properties, rights and interests reasonably necessary to
conduct the Business in substantially the same manner as conducted by Heat-N-Glo
prior to the date of this Agreement. All of the tangible assets necessary for
the operation of the Business (including, without limitation, the tangible
assets reflected on the Balance Sheet) are in good operating condition and
repair (normal wear and tear excepted), and are adequate for the uses to which
they are put in the Business. None of such assets has any defects or is in need
of maintenance or repair, except for ordinary, routine maintenance and repairs
which are not material in nature or cost. Heat-N-Glo has good, marketable and
exclusive title to, and the valid and enforceable power and unqualified right to
use, all of its assets free and clear of all liens, equities, claims, prior
assignments, mortgages, charges, security interests, pledges, conditional sales
contracts, collateral security arrangements and other title retention
arrangements, restrictions or encumbrances whatsoever (collectively, "Liens"),
except for Liens listed on Schedule 4.1(f) (the "Permitted Liens").
(g) Real Property Leases. Schedule 4.1(g) contains a true, correct
and complete list of all instruments and agreements creating any interest or
right in real property leased by Heat-N-Glo. Each such instrument and agreement
is in full force and effect and is a legal, binding and enforceable obligation
of the parties thereto and, to the knowledge of Heat-N-Glo, no event has
occurred which constitutes or, with the giving of notice or passage of time, or
both, would constitute a default or breach thereunder. Heat-N-Glo currently has
the right to quiet enjoyment of all real property listed on such Schedule. There
has been no disturbance of or challenge to Heat-N-Glo's quiet possession under
each such lease, and to Heat-N-Glo's knowledge no leasehold or other interest of
Heat-N-Glo in such real property is subject to or subordinate to any Liens
except
12
Permitted Liens. All buildings, structures, fixtures and appurtenances
comprising part of the real properties leased by Heat-N-Glo are in good
operating condition and repair, normal wear and tear excepted. Heat-N-Glo does
not own, or have any rights or obligations to acquire, any real property.
(h) Contracts. Schedule 4.1(h) attached hereto contains a complete
list or description of (i) each license, contract, agreement, commitment and
undertaking (whether written or oral) (A) to which Heat-N-Glo is a party which
involves aggregate future payments in excess of $25,000 (other than purchase
orders involving aggregate future payments of less than $50,000), or which
extends for a term of more than six months and cannot be cancelled by Heat-N-Glo
without further payment or penalty, or (B) with any distributors, manufacturers'
representatives or sales representatives used or retained in connection with the
Business, or pursuant to which Heat-N-Glo sells or distributes its products,
(ii) each loan or credit agreement, security agreement, guaranty, indenture,
mortgage, pledge or other agreement or instrument evidencing indebtedness of
Heat-N-Glo to which Heat-N-Glo is a party, (iii) any conditional sale or other
title retention agreement or lease purchase agreement involving (in the
aggregate) amounts in excess of $25,000 to which Heat-N-Glo is a party, (iv) any
power of attorney given by Heat-N-Glo to any Person, (v) any non-competition,
restrictive covenant or other agreement that restricts Heat-N-Glo from
conducting the Business anywhere in the world, (vi) each contract, agreement,
commitment or undertaking presently in effect, whether or not fully performed,
between Heat-N-Glo and any current or former officer, director, consultant or
other employee retained or employed by Heat-N-Glo, or any current or former
stockholder of Heat-N-Glo, and (vii) any other contract, agreement, commitment
or undertaking which is material to the condition, (financial or otherwise),
results of operations, properties, assets, liabilities, business or prospects of
Heat-N-Glo (the items described in clauses (i) through (vii) being herein
collectively referred to as the "Contracts"). Heat-N-Glo has performed all
obligations required to be performed by it to date under the Contracts, and
neither Heat-N-Glo nor any other party to any Contract has breached or
improperly terminated any Contract or is in default under any Contract by which
it is bound and there exists no condition or event which after notice or lapse
of time or both would constitute any such breach, termination or default. Each
of the Contracts is in full force and effect, and is a legal, binding and
enforceable obligation of or against Heat-N-Glo and the other parties thereto.
(i) Financial Statements. Heat-N-Glo has heretofore delivered to
Heatilator (i) the audited Balance Sheet of Heat-N-Glo (the "Balance Sheet") as
of December 31, 1995 (the "Balance Sheet Date"), the audited Balance Sheets of
Heat-N-Glo as of December 31, 1994 and December 31, 1993, and the audited
Statements of Income, Statements of Stockholders' Equity and
13
Statements of Cash Flows of Heat-N-Glo for the twelve months ended December 31,
1995, December 31, 1994 and December 31, 1993, each as certified by Schechter
Dokken Kanter Andrews & Selcer Ltd. (collectively, the "Audited Financial
Statements") and (ii) the unaudited Balance Sheet of Heat-N-Glo as of August 31,
1996 and the unaudited Statement of Income of Heat-N-Glo for the eight months
ended August 31, 1996 (the "Interim Financial Statements" and, collectively with
the Audited Financial Statements, the "Financial Statements"). Each of the
Financial Statements is true, complete and correct, was prepared from the books
and records kept by Heat-N-Glo, and fairly presents the financial position of
Heat-N-Glo as of such dates, and the results of operations of Heat-N-Glo and
Heat-N-Glo's cash flows for the periods then ended in accordance with U.S.
generally accepted accounting principles ("GAAP") consistently applied and in
accordance with the related internal accounting practices and policies of
Heat-N-Glo disclosed in the Financial Statements or in Schedule 4.1(i), except
that the Interim Financial Statements (x) do not contain normal year-end
adjustments required by GAAP and (y) omit footnote disclosures required by GAAP.
(j) Liabilities. Heat-N-Glo has no liabilities or obligations of any
nature whatsoever, whether absolute, accrued, contingent or otherwise, and
whether known or unknown, including, without limitation, liabilities for Taxes,
unusual forward or long-term commitments, or unrealized or anticipated losses
from any unfavorable conditions or occurrences, except for those (i) reflected
or reserved on the Balance Sheet, or (ii) liabilities incurred or accrued since
the Balance Sheet Date in the ordinary and normal course of the Business, which
transactions are consistent with the representations, warranties, covenants,
obligations and agreements contained in this Agreement, and (iii) set forth on
Schedule 4.1(j) attached hereto, and there exists no event or circumstance
which, after notice or lapse of time or both, might create any other obligations
or liabilities of Heat-N-Glo. Heat-N-Glo has not experienced or suffered undue
delay in its payment of its liabilities and obligations to its trade creditors
(including suppliers) or trade debt.
(k) Accounts Receivable. Except for accounts receivable with respect
to which applicable reserves are set forth on the Financial Statements, all
accounts receivable of Heat-N-Glo represent sales actually made in the ordinary
and normal course of business, and are current and collectible in full. To the
best of Heat-N-Glo's knowledge, other than as provided for in reserves as
contemplated above, there are no counterclaims or setoffs against (or any basis
therefor), or any other matter or condition likely to interfere with full and
timely collection of, any such outstanding accounts receivable. Schedule 4.1(k)
attached hereto sets forth an aged listing by customer of the accounts
receivable of Heat-N-Glo that are outstanding as of August 31, 1996.
14
(l) Inventories. All of Heat-N-Glo's inventories are of a quality
and quantities usable or salable in the ordinary and normal course of business,
and there are no damaged or obsolete items or items of below standard quality
included therein. The value at which Heat-N-Glo's inventories are carried on the
Balance Sheet reflects the lower of cost or market value on a last-in, first out
basis and reflects writeoffs or writedowns for damaged or obsolete items, or
items of below standard quality, in accordance with the historical inventory
policy and practices of Heat-N-Glo, a complete and accurate description of which
is included in the description of Heat-N-Glo's accounting practices set forth in
Schedule 4.1(i) attached hereto. Heat-N-Glo's inventories are not excessive in
kind or amount in light of the ordinary and normal course of conduct and
reasonably anticipated needs of the Business. To the best of Heat-N-Glo's
knowledge, Heat-N-Glo's inventories are in quantities sufficient to meet the
reasonably anticipated needs of the Business.
(m) Litigation. Except as set forth on Schedule 4.1(m), Heat-N-Glo
is not subject to any order of, or written agreement or memorandum of
understanding with, any Governmental Authority, and there exists no litigation,
action, suit, claim or proceeding pending, or, to the best of Heat-N-Glo's
knowledge, threatened, against or affecting Heat-N-Glo or any of its assets or
any assets (including, without limitation, any patents or other intellectual
property) used by Heat-N-Glo, or any employee associated with Heat-N-Glo, or
which would affect the transactions contemplated by this Agreement, at law or in
equity or before any Governmental Authority, including, without limitation,
claims for anti-trust, unfair competition, price discrimination or other
liability or obligation relating to services rendered by or on behalf of, or
products sold by or on behalf of, Heat-N-Glo or which would adversely affect the
transactions contemplated by this Agreement, and, to the best knowledge of Heat-
N-Glo, no one has grounds to assert any such litigation, action, suit, claim or
proceeding.
(n) Customers and Suppliers. Except as set forth in Schedule 4.1(n),
Heat-N-Glo is not involved in any controversy with any of its customers or
suppliers. Schedule 4.1(n) sets forth a true, correct and complete list of (i)
Heat-N-Glo's ten (10) largest customers in terms of sales during the twelve-
month period ended June 30, 1996 and (ii) Heat-N-Glo's ten (10) largest
suppliers in terms of purchases during the twelve-month period ended June 30,
1996. Heat-N-Glo has not been advised by any customer or supplier (representing
purchases and sales of $50,000 or more during the twelve-month period ended June
30, 1996) that such customer or supplier was or is intending to terminate its
relationship with Heat-N-Glo or would not continue to purchase products from or
provide supplies or services to Heat-N-Glo for further periods on account of any
dissatisfaction with Heat-N-Glo's performance or as a result of the transactions
contemplated by this Agreement.
15
(o) Regulatory Compliance. Except as set forth in Schedule 4.1(o),
Heat-N-Glo has been operated, and currently is, in compliance with all
applicable Laws (including, without limitation, all Laws relating to civil
rights, equal employment opportunities, labor, occupational health and safety,
antitrust, equal opportunity), and no expenditures are or will be required to
comply with any such Laws. Heat-N-Glo is not in default under, and no event has
occurred which, with the lapse of time or action by a third party, could result
in default under, the terms of any judgment, decree, order, writ or injunction
of any Governmental Authority, whether at law or in equity. Heat-N-Glo has
timely filed all reports, documents and other materials that are or were
required to be filed (and the information contained therein was correct and
complete in all material respects as of the time of such filing) under all
applicable Laws. No notice or claim inconsistent with the representations and
warranties of Heat-N-Glo in this Section 4.1(o) has been received by Heat-N-Glo.
(p) Brokers, Finders and Agents. Except for its arrangements with
Dain Bosworth Incorporated, Heat-N-Glo is not directly or indirectly obligated
to anyone acting as a broker, finder or in any other similar capacity in
connection with this Agreement or the transactions contemplated hereby.
(q) Intellectual Property. Schedule 4.1(q) sets forth a complete and
correct list (with an indication of the record owner and identifying number) of
all patents, trademarks, service marks, tradenames and copyrights for which
registrations have been obtained (and all applications for, or extensions or
reissuances of, any of the foregoing) which are or have been used in the conduct
of, or which relate to, the Business or which are owned by Heat-N-Glo or, to the
best knowledge of Heat-N-Glo, any of the Stockholders or any of their
Affiliates. True, correct and complete copies of such patents, trademarks,
service marks, trade names and copyrights (and all applications for, or
extensions or reissuance of, any of the foregoing) identified on such Schedule
have been delivered to Heatilator. Except as listed on Schedule 4.1(q), Heat-N-
Glo is the sole owner and has the exclusive right to use, free and clear of any
payment, restriction or encumbrance, all such patents, trademarks, service
marks, trade names and copyrights. Except as listed on Schedule 4.1(q), no
patents, trademarks, service marks, trade names and copyrights (or applications
for, or extensions or reissuances of any of the foregoing) which are or have
been used in the conduct of, or which relate to, the Business are owned
otherwise than by Heat-N-Glo. There is no claim or demand of any Person
pertaining to, or any proceedings which are pending or, to the best of Heat-N-
Glo's knowledge, threatened, which challenge (i) the exclusive rights of Heat-N-
Glo (or other owner listed on Schedule 4.1(q)) in respect of any patents,
trademarks, service marks, trade names or copyrights (or applications for, or
extensions or reissuances of, any of the foregoing) which are or have been used
in the conduct of, or which relate to, the Business or which are owned
16
by Heat-N-Glo, or (ii) the rights of Heat-N-Glo (or other owner listed on
Schedule 4.1(q)) in respect of any processes, formulas, confidential
information, trade secrets, know-how, engineering data, technology or other
intellectual property which are or have been used in the conduct of, or which
relate to, the Business or which are owned by Heat-N-Glo. No patent, trademark,
service mark, trade name, copyright, process, formula, confidential information,
trade secret, know-how, engineering data, technology or other intellectual
property which is owned by Heat-N-Glo or which is or has been used in the
conduct of, or which relates to, the Business, is subject to any outstanding
order, ruling, decree, judgment or stipulation by or with any Governmental
Authority or any contract, agreement, commitment or undertaking with any Person,
or infringes or, to the best of Heat-N-Glo's knowledge, is being infringed by
others or is used by others (whether or not such use constitutes infringement).
All patents, trademarks, service marks, trade names or copyrights (or
applications for, or extensions or reissuance of, any of the foregoing) or
processes, formulas, confidential information, trade secrets, know-how,
engineering data, technology or other intellectual property, or rights thereto
(other than rights held by GFD), owned or held, directly or indirectly, by any
officer, director, shareholder, employee or any Affiliate of Heat-N-Glo
(including, without limitation, any of the Primary Stockholders) have been duly
and effectively transferred to Heat-N-Glo. Set forth on Schedule 4.1(q) is a
description of all litigation, actions, suits, investigations, claims and
proceedings asserted, brought or threatened against Heat-N-Glo or, to the best
knowledge of Heat-N-Glo, against any of the Stockholders or any of their
Affiliates, within the five years preceding the date hereof, or otherwise
currently pending or unresolved, together with a description of the outcome or
present status thereof, relating to any patent, trademark, service mark, trade
name, copyright, process, formula, confidential information, trade secret, know-
how, engineering data, technology or other intellectual property. Each of the
products of Heat-N-Glo listed on Schedule 4.1(q)(A) is covered by at least one
claim of one of the patents and/or pending patent applications listed on
Schedule 4.1(q).
(r) Permits. Schedule 4.1(r) contains a true, correct and complete
list of all licenses, permits, approvals, certifications, variances, waivers or
consents (collectively, the "Permits") issued to Heat-N-Glo by any Governmental
Authority which are currently used by Heat-N-Glo. Heat-N-Glo has, and is in
full compliance with, all Permits which are necessary or required for the
operation of the Business as it is currently being operated and its present
activities on its properties and facilities, all of which Permits are in full
force and effect.
(s) Employee Relations; Collective Bargaining Agreements. There are
no controversies, including strikes, disputes, slowdowns or work stoppages,
pending, or to the best of Heat-N-Glo's knowledge, threatened which involve any
employees
17
employed by Heat-N-Glo. Heat-N-Glo has complied and is complying with all Laws
relating to the employment of labor, including, without limitation, any
provision thereof relating to wages, hours, collective bargaining, employee
health, safety and welfare, and the payment of social security and similar
taxes. Heat-N-Glo has not experienced any labor difficulties, including,
without limitation, strikes, slowdowns, or work stoppages, within the five-year
period preceding the date hereof. Heat-N-Glo is not a party to any collective
bargaining or union contract, and to the best of Heat-N-Glo's knowledge, there
exists no current union organizational effort with respect to any of Heat-N-
Glo's employees.
(t) Employees and Employee Plans. Schedule 4.1(t) contains a true
and complete list of (a) all employees of Heat-N-Glo, together with a
description of their respective job titles and responsibilities and annual
compensation (including salaries, bonuses, consulting or directors' fees and
incentive or deferred compensation) and listing any employees currently on
disability leave, (b) all "employee benefit plans" (within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) or any other bonus, stock option, stock appreciation, stock purchase,
severance, termination, lay-off, leave of absence, disability, workers
compensation, pension, profit sharing, retirement, vacation or holiday pay,
insurance, deferred compensation or other employee or welfare benefit plan,
agreement or arrangement of Heat-N-Glo, whether formal or informal, applicable
to Heat-N-Glo's past or present employees (collectively, the "Employee Plans")
and (c) employment Contracts to which Heat-N-Glo is a party. Heat-N-Glo has
never previously maintained any plans, agreements or arrangements referred to in
clause (b) above with respect to which it has obligations ("Prior Employee
Plans") other than the Employee Plans. Neither Heat-N-Glo nor any officers,
directors, employees or agents of Heat-N-Glo have taken any action directly or
indirectly to obligate Heat-N-Glo to institute any Employee Plan applicable to
employees of the Business other than those Employee Plans set forth in Schedule
4.1(t), or to amend any such Employee Plan. Except as set forth on Schedule
4.1(t), all Employee Plans intended to be qualified plans (the "Qualified
Plans") within the meaning of Sections 401(a) and 501(a) of the Code have been
determined by the Internal Revenue Service to be so qualified and has received a
favorable determination letter covering the Tax Reform Act of 1986. No
"reportable event" (as such term is defined in Section 4043(b) of ERISA) or
"prohibited transaction" (as such term is defined in Section 406 of ERISA and
Section 4975(c) of the Code and respect to which an excise tax under Section
4975 of the Code would be assessable) or any breach of duty imposed by Title I
or ERISA has occurred with respect to any Employee Plan or any Prior Employee
Plan. There is no fact or circumstance which would adversely affect the
Employee Plans' qualified status or compliance as described above. Heat-N-Glo
has reserved all rights necessary to amend or terminate each of the Employee
Plans. All insurance premiums required to be paid by Heat-N-Glo
18
with respect to any Employee Plan, and all benefits, expenses and other amounts
due and payable by Heat-N-Glo under any Employee Plan, and all contributions,
transfers or payments required to be made by Heat-N-Glo to any Employee Plan
through or before the Closing Date have been paid, made or accrued as
liabilities on the latest balance sheet included in the Financial Statements.
All liabilities and obligations of Heat-N-Glo under its Equity Participation
Plan and its Phantom Stock Plan are fully accrued on the Financial Statements.
Each Employee Plan and Prior Employee Plan has been maintained, operated and
administered in full compliance with its terms and in full compliance with all
Laws, including without limitation, ERISA and the Code, of all Governmental
Authorities, and all notices, reports and other filings required to be delivered
or filed under applicable Laws. With respect to any insurance policy providing
funding for benefits under any Employee Plan, there will be no liability of
Heat-N-Glo in the nature of a retroactive rate adjustment arising wholly or
partially out of events occurring prior to the Closing Date. Except as
described on Schedule 4.1(t), no Employee Plan or Prior Employee Plan (i) is or
at any time was funded through a "welfare benefit fund" as defined in Section
419(e) of the Code; (ii) is or at any time was subject to Title IV of ERISA; or
(iii) is or at any time was a "multiemployer plan" within the meaning of Section
3(37) or Section 4001(a)(13) of ERISA, or Section 414(f) of the Code, or a
"multiple employer plan" within the meaning of Section 413(c) of the Code. Each
Employee Plan that is or at any time was subject to the minimum funding
standards of Section 302 of ERISA or Section 412 of the Code is and has always
been in compliance with the requirements of such sections and has incurred no
"accumulated funding deficiency" within the meaning of such sections. Except as
described on Schedule 4.1(t), Heat-N-Glo is not and has never been under common
control with any other trade or business within the meaning of Section
4001(b)(1) of ERISA, and Heat-N-Glo has never been treated, along with any other
trade or business, as a single employer for purposes of Section 414(b), 414(c),
414(m), 414(n), or 414(o) of the Code. Each Employee Plan that is a group health
plan is in compliance with and has at all times been in compliance with (i) the
continuation coverage requirements of Section 4980B of the Code and Part 6 of
Subtitle B of Title I of ERISA, and (ii) the secondary payer requirements of
Section 1862(b)(1) of the Social Security Act. No Employee Plan provides medical
benefits beyond termination of service or retirement other than medical coverage
mandated by law. No claim for medical expenses has been incurred that would
result in payments under any Employee Plan or Prior Employee Plan in excess of
$25,000. No facts or circumstances exist, no actions have been taken or omitted
to be taken, nothing has occurred, and nothing will occur as a result of the
execution and performance of this Agreement and the transactions contemplated
hereby, such that Heat-N-Glo could be subject (directly or indirectly) to any
material liability for any claims, judgments, damages, penalties, taxes
(including excise taxes), assessments or similar items with respect to any of
the Employee Plans or Prior Employee Plans
19
covering any employee or former employee of Heat-N-Glo (other than liability for
benefit payments incurred in the normal operations of any such plan), nor does
Heat-N-Glo have any such liability. Heat-N-Glo has provided Heatilator with
true, correct and complete copies of each of the employee benefit plans
described on Schedule 4.1(t) and any trust agreements or other funding vehicles
relating to such plans.
(u) Environmental Matters. Except as described on Schedule 4.1(u),
(i) Heat-N-Glo has obtained all Permits which are required to be obtained under
all applicable federal, state, local or foreign laws or any regulation, code,
plan, order, decree, judgment, notice or demand letter issued, entered,
promulgated or approved thereunder relating to pollution or protection of the
environment ("Environmental Laws"), including laws relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants, or
Hazardous Materials (as hereinafter defined) into ambient air, surface water,
ground water, or land or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants or hazardous or toxic materials or wastes by Heat-N-Glo
(or its agents); (ii) Heat-N-Glo is in full compliance with all terms and
conditions of such required Permits, and also is in full compliance with all
other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in applicable
Environmental Laws; (iii) neither Heat-N-Glo, nor any other previous owner,
tenant, occupant or user of the Leased Property nor any other Person has engaged
in or permitted any operations or activities upon, or any use or occupancy of
the Leased Property, or any portion thereof, resulting in the emission, release,
discharge, dumping or disposal of any Hazardous Materials (as hereinafter
defined) on, under, in or about the Leased Property, nor have any Hazardous
Materials migrated from the Leased Property to, upon, about or beneath other
properties, nor have any Hazardous Materials migrated or threatened to migrate
from other properties to, upon, about or beneath the Leased Property; (iv) there
are no past or present violations of Environmental Laws on the Leased Property
or elsewhere, nor any event, condition, circumstance, activity, practice,
incident, action or plan which is reasonably likely to interfere with or prevent
continued compliance with or which gives rise to any common law or statutory
liability, or otherwise form the basis of any claim, action, suit, or
proceeding, against Heat-N-Glo based on or resulting from the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling, or the emission, discharge or release into the environment, of any
Hazardous Materials; (v) no underground improvements, including but not limited
to treatment or storage tanks, sumps or water, gas or oil wells, are or have
been located on the Leased Property; and (vi) Heat-N-Glo has taken all actions
necessary under applicable Environmental Laws to register any products or
materials required to be registered by Heat-N-Glo (or its agents) thereunder.
As used herein, the term "Hazardous
20
Materials" means any chemical, substance, material, waste or combination thereof
hazardous to human health or safety or to the environment and regulated by any
Environmental Law.
(v) Changes in Circumstances. Except as disclosed in Schedule 4.1(v)
or as otherwise contemplated by this Agreement, since December 31, 1995, Heat-N-
Glo has not (i) sold, transferred or otherwise disposed of any of its properties
or assets outside the ordinary and normal course of business or for less than
fair market value; (ii) mortgaged, pledged or subjected to any Lien, any of its
properties or assets; (iii) acquired any property or assets outside the ordinary
and normal course of business or for more than fair market value; (iv) sustained
any damage, loss or destruction of or to any of its properties or assets
(whether or not covered by insurance); (v) entered into any transaction other
than in the ordinary and normal course of business; (vi) granted any salary
increase or bonus or permitted any advance to any employee, instituted or
granted any general salary increase to its employees or entered into any new, or
altered or amended any existing, Employee Plan or any employment or consulting
agreement other than in the ordinary and normal course of business consistent
with past practices; (vii) made any borrowing, whether or not in the ordinary
and normal course of business, or refinanced any existing borrowings other than
trade payables incurred in the ordinary and normal course of business; (viii)
paid any obligation or liability (fixed or contingent), other than in the
ordinary and normal course of business, discharged or satisfied any Liens, or
settled any claim, liability or suit pending or threatened against Heat-N-Glo or
any of its properties or assets other than in the ordinary and normal course of
business; (ix) made any loans or gifts; (x) modified, amended, cancelled or
terminated any contracts or commitments under circumstances which would
materially and adversely affect the condition (financial or otherwise), results
of operations, business, properties, assets, liabilities or prospects of Heat-N-
Glo; (xi) other than in the ordinary and normal course of business, made capital
expenditures or commitments for additions to property, plant or equipment; (xii)
other than in the ordinary and normal course of business, cancelled any debts or
claims or waived any rights of substantial value; (xiii) paid, accrued or
incurred any management or similar fees to any Related Party (as hereinafter
defined) or made any other payment or incurred any other liability to a Related
Party or paid any amounts to or in respect of, or sold or transferred any assets
to, any company or other entity, a substantial portion of the equity ownership
interest of which is owned by a Related Party individually or as a group, other
than salaries payable to Related Parties and rent paid to the lessor of the
Leased Property; (xiv) taken or omitted to take any action which would cause to
be breached any of the representations, warranties, covenants, obligations and
agreements of Heat-N-Glo contained herein if the same were made anew immediately
after such act or omission; (xv) suffered any change in the condition (financial
or otherwise), results of operations, properties, assets, liabilities, business
or
21
prospects of Heat-N-Glo, except for usual and normal changes in the ordinary
course of business which have not, individually or in the aggregate, been
materially adverse; or (xvi) agreed to, or obligated itself to, do anything
identified in (i) through (xv) above. For purposes of this Agreement, a "Related
Party" is any trust, corporation or any entity in which any Stockholders or any
of their Affiliates individually or collectively own over twenty-five percent of
the ownership interests.
(w) Taxes. Heat-N-Glo is an S corporation within the meaning of
Section 1361(a)(1) of the Code for which a valid election under Section 1362(a)
was made for the taxable year commencing January 1, 1990 and such election has
remained in effect at all times since January 1, 1990. Heat-N-Glo will be an S
corporation at all times during its taxable year commencing on January 1, 1996
and ending at the Effective Time. Heat-N-Glo has duly and timely filed all Tax
Returns (as hereinafter defined) required to be filed by it with any
Governmental Authority under applicable Law or requests for extensions to file
such Tax Returns have been timely filed and granted and have not expired. All
such Tax Returns were at the time of filing and are true, complete and correct
in all material respects. Heat-N-Glo has, within the time and in the manner
prescribed by law, paid in full all Taxes (as hereinafter defined) that are
currently due and payable as of immediately prior to the Effective Time,
including without limitation any Taxes required to be paid without the filing of
a Tax Return, except for those Taxes being contested in good faith and for which
adequate reserves have been taken. The Financial Statements reflect adequate
reserves for all Taxes payable by Heat-N-Glo for all taxable periods and
portions thereof accrued through the respective dates of such Financial
Statements. Except as set forth in Schedule 4.1(w), the statute of limitations
for the assessment of all Taxes has expired for all applicable Tax Returns of
Heat-N-Glo or those Tax Returns have been examined by the appropriate taxing
authorities for all periods through the date hereof, and no deficiency for any
Taxes has been proposed, asserted or assessed against Heat-N-Glo that has not
been resolved and paid in full. Neither Heat-N-Glo nor any of the Stockholders
is a party to any pending audit, action or proceeding, nor, to the knowledge of
Heat-N-Glo is any such audit, action or proceeding threatened, by any
Governmental Authority for the determination, assessment or collection of any
Taxes of Heat-N-Glo or attributable or otherwise relating to any of its assets,
income, operations or activities or any Taxes of the Stockholders attributable
or otherwise relating in any way to Heat-N-Glo or any of its assets, income,
operations or activities. Neither Heat-N-Glo nor any of its officers (including
the officer responsible for Tax matters) has any reasonable basis to believe
that any Governmental Authority will assess any additional Taxes on Heat-N-Glo
or attributable or otherwise relating to any of its assets, income, operations
or activities for any taxable period or portion thereof ending at any time prior
to the Effective Time. Neither Heat-N-Glo nor any of the Stockholders is subject
to any agreement, waiver or
22
other arrangement extending the period for assessment, levy or collection of any
Taxes. There are no liens for Taxes upon any property or asset of Heat-N-Glo,
except for liens for Taxes not yet due and payable. All Taxes that Heat-N-Glo is
required by Law to withhold or to collect have been withheld or collected and
paid over to the proper Governmental Authorities or segregated and set aside for
such payment. Heat-N-Glo has not, with regard to any assets or property held,
acquired or to be acquired by it, filed a consent to the application of Section
341(f) of the Code. Heat-N-Glo is not a party to any agreement, contract or
arrangement that could result, on account of the transactions contemplated by
this Agreement, in the payment of any "excess parachute payments" within the
meaning of Section 280G of the Code. Heat-N-Glo is not a party to or bound by
any agreement providing for the allocation or sharing of Taxes with any Person.
Heat-N-Glo has never been a member of any affiliated or combined group of
companies that files a consolidated, affiliated, or other combined group Tax
Return, and Heat-N-Glo has no liability for the Taxes of any Person under
Treasury Regulation (S) 1.1502-6 (or any similar provision of state, local or
foreign law) as a transferee or successor, by contract, or otherwise. Since
January 1, 1990, Heat-N-Glo has not acquired any asset where Heat-N-Glo's basis
in such asset has been determined (in whole or in part) by reference to the
basis of such asset (or any other property) in the hands of a "C corporation"
within the meaning of Section 1361(a)(2) of the Code, except for the assets
acquired on April 27, 1992 in the merger of Gas Technologies, Inc. with and into
Heat-N-Glo (the "GTI Merger"). The GTI Merger qualified for federal income tax
purposes as a "reorganization" within the meaning of Section 368(a) of the Code.
Neither the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby on the terms and subject to the conditions set
forth herein, including without limitation the receipt by the Stockholders of
the Merger Consideration, will jeopardize the status of the Heat-N-Glo as an S
corporation within the meaning of Section 1361(a)(1) of the Code. Schedule
4.1(w) sets forth each state in which Heat-N-Glo (i) filed an income or
franchise tax return for the taxable year ended December 31, 1995, and (ii)
collected and remitted any sales and/or use taxes as of December 31, 1995. For
purposes of this Agreement, the term "Tax" or "Taxes" shall mean all taxes,
charges, fees, levies or other assessments, including without limitation all net
income, gross income, franchise, sales and use, service and service use, ad
valorem, transfer, recording, gains, profits, excise, franchise, real and
personal property, gross receipts, capital stock, production, business and
occupation, disability, social security, employment, payroll, license,
estimated, alternative minimum, stamp, custom duties, severance or withholding
taxes or charges imposed by any Governmental Authority and shall include any
interest, fines, penalties or additional amounts attributable to or imposed with
respect to any such taxes, charges, fees, levies or other assessments. For
purposes of this Agreement, the term "Tax Return" shall mean any return, report,
declaration or other
23
document or information required to be supplied to any Governmental Authority
with respect to Taxes.
(x) Warranties; Warranty Costs. Except for written product
warranties made by Heat-N-Glo in its statements of warranty and on its sales
order forms, packages and product catalogues, true, accurate and complete copies
of which have been provided to Heatilator, Heat-N-Glo makes no express product
warranties in connection with the sale of its products. Schedule 4.1(x) sets
forth a description of all litigation, actions, suits, investigations, claims
and proceedings asserted, brought or threatened against Heat-N-Glo within the
last five years preceding the date hereof, together with a description of the
outcome or present status thereof, relating to any claim for warranty costs
involving amounts in excess of $10,000, individually or in the aggregate. Claims
for warranty costs (individually or in the aggregate) during the twelve month
period ended June 30, 1996 did not exceed the amount specified in Schedule
4.1(x), and there are no outstanding or, to the best of Heat-N-Glo's knowledge,
threatened claims for any such costs which would exceed $10,000 (individually or
in the aggregate). As used herein, "warranty costs" means the costs and expenses
of servicing, repairing, returning and/or replacing, or allowances for service,
repair, return or replacement, of defective or allegedly defective or improperly
selected or shipped products or parts or components thereof manufactured or sold
by Heat-N-Glo and the costs of materials and expenses of replacing materials or
correcting any jobs or materials inadequately performed or manufactured by Heat-
N-Glo, together with such legal liability, if any, as may exist in connection
with sales of products, whether such costs and expenses relate to or arise out
of claims or causes of action which assert causes sounding in tort, contract or
warranty, or any combination of the foregoing.
(y) Insurance. Schedule 4.1(y) contains a list of all insurance
policies (specifying the location, insured, insurer, amount of coverage, type of
insurance and policy number) maintained by Heat-N-Glo. All such policies are in
full force and effect, all premiums with respect thereto covering all periods up
to and including the date of Closing have been paid, and no notice of
cancellation or termination has been received with respect to any such policy.
Such policies (i) are sufficient for compliance with all requirements of Law and
of all agreements to which Heat-N-Glo is a party; (ii) are valid and enforceable
policies; (iii) provide adequate insurance coverage for the assets and
operations of Heat-N-Glo; (iv) will remain in full force and effect through the
respective dates set forth in Schedule 4.1(y) without the payment of additional
premiums and (v) will not in any way be affected by, or terminate or lapse by
reason of, the transactions contemplated by this Agreement. Schedule 4.1(y)
identifies all risks which Heat-N-Glo, its Board or Directors or its officers
have designated as being self-insured.
24
(z) Consents. Schedule 4.1(z) sets forth a list of all consents,
novations, approvals, authorizations, requirements (including filing and
registration requirements), waivers and agreements (collectively, "Consents")
prescribed by any law or any contract, agreement, commitment or undertaking and
which must be obtained or satisfied by Heat-N-Glo in order for Heat-N-Glo to
consummate the transactions contemplated by this Agreement or the other
agreements to be executed and delivered in connection herewith. All Consents
prescribed by any Law or any contract, agreement, commitment or undertaking, and
which must be obtained or satisfied by Heat-N-Glo for the consummation of the
transactions contemplated by this Agreement, or for the continued performance by
it of its rights and obligations thereunder, have been, or shall by the Closing
have been, made, obtained and satisfied.
(aa) Absence of Certain Commercial Practices. Neither Heat-N-Glo,
nor any officer, director, employee or agent of Heat-N-Glo (or any Person acting
on behalf of any of the foregoing) has given or agreed to give (i) any gift or
similar benefit of more than nominal value to any customer, supplier,
Governmental Authority (including any governmental employee or official) or any
other Person who is or may be in a position to help, hinder or assist Heat-N-
Glo, the Business or the Person giving such gift or benefit in connection with
any actual or proposed transaction relating to the Business, which gifts or
similar benefits would individually or in the aggregate subject Heat-N-Glo or
any officer, director, employee, or agent of Heat-N-Glo to any fine, penalty,
cost or expense or to any criminal sanctions, (ii) receipts from or payments to
any governmental officials or employees, (iii) commercial bribes or kick-backs,
(iv) political contributions, or (v) any receipts or disbursements in connection
with any unlawful boycott.
(bb) Bank Accounts. Schedule 4.1(bb) attached hereto sets forth the
names and locations of all banks, trust companies, savings and loan associations
and other financial institutions at which Heat-N-Glo maintains any safe deposit
boxes or accounts (specifying the identifying numbers), and the names of all
persons authorized to draw thereon, make withdrawals therefrom or have access
thereto.
(cc) Books and Records. The books and records of Heat-N-Glo and the
Business, including, without limitation, (i) books and records relating to the
purchase of materials and supplies, manufacture or processing of products, sales
of products, dealings with customers, invoices, customer lists, inventories,
supplier lists, personnel records, Taxes (including, without limitation, Tax
work papers), patents, intellectual property and license rights and agreements,
and (ii) computer software and data in computer readable and human readable form
used to maintain such books and records (together with the media on which such
software and data are stored and all documentation relating thereto) accurately
record all transactions relating to
25
the Business in all material respects, and have been maintained consistent with
good business practice.
(dd) Pricing Practices. Except as set forth on Schedule 4.1(dd), the
prices to be received or paid by Heat-N-Glo under all outstanding contracts,
agreements, commitments and undertakings with its customers and suppliers and
others have been determined in accordance with Heat-N-Glo's established past
pricing policies, and there are no outstanding contracts, agreements,
commitments or undertakings that individually or in the aggregate are expected
to result in any material loss to Heat-N-Glo or the Business.
(ee) Copies of Documents. Heat-N-Glo has delivered to Heatilator
true, correct and complete copies of all contracts, agreements and other
documents listed in the Heat-N-Glo Schedules to, or referenced in, this
Agreement, and all modifications and amendments thereto.
(ff) Backlog. Heat-N-Glo has delivered to Heatilator a Statement of
Backlog dated as of a recent date, setting forth a true, complete and correct
list of the backlog of firm orders as of the date thereof in all material
respects. Since the Balance Sheet Date, there has been no material cancellation
of orders or deferral of deliveries thereunder.
(gg) Insider Interests. Except as set forth in Schedule 4.1(gg), no
officer, director or employee of Heat-N-Glo (i) has any interest in any
property, real or personal, tangible or intangible, including without
limitation, inventions, patents, trademarks or trade names, used in or
pertaining to Heat-N-Glo or the Business, (ii) has any interest in any entity
that engages in transactions with or on behalf of Heat-N-Glo or any of its
Affiliates, or (iii) is a party to any agreement, contract or understanding,
whether written or oral, with Heat-N-Glo or any of its Affiliates.
(hh) Disclosure. No representation or warranty made by Heat-N-Glo
contained in this Agreement or in any other writing furnished pursuant hereto
contains an untrue statement of a material fact or omits to state a material
fact necessary to make the statements and facts contained herein or therein, in
light of the circumstances in which they were or are made, not false or
misleading.
4.2 Representations and Warranties of Heatilator. Heatilator hereby
represents and warrants to Heat-N-Glo that:
(a) Organization and Standing; Power and Authority. Heatilator is a
corporation duly organized, validly existing and in good standing under the laws
of Iowa, and has full corporate power and authority to operate its business, to
own or lease its assets and to enter into and perform this Agreement and the
transactions and other agreements and instruments contemplated by
26
this Agreement. Heatilator is duly qualified or licensed to do business as a
foreign corporation and is in good standing in each jurisdiction in which the
ownership or lease of its assets or the operation of its business requires such
qualification, except where the failure to be so qualified or licensed would not
have a material adverse effect on its business, financial condition or
operations. This Agreement and all other Transaction Documents to be executed
and delivered by Heatilator in connection herewith have been, or upon execution
thereof will be, duly executed and delivered by Heatilator. This Agreement and
the transactions and other agreements and instruments contemplated hereby have
been duly approved by the Board of Directors of Heatilator, in accordance with
applicable law, and constitute the valid and binding obligations of Heatilator,
enforceable in accordance with their respective terms.
(b) Capitalization. The authorized capital stock of Heatilator
consists of 100,000 shares of common stock, $1.00 par value per share, of which
5,000 shares are issued and outstanding. All of the issued and outstanding
shares of Heatilator are owned by HON. All issued shares have been validly
issued and are fully paid and nonassessable. There are no outstanding
obligations, options, warrants, preemptive rights or other agreements or
commitments (whether oral or written) to which Heatilator is a party, or by
which Heatilator is otherwise bound, providing for the issuance of any
additional shares of capital stock of Heatilator, the repurchase of shares of
capital stock of Heatilator or otherwise relating to capital stock of
Heatilator.
(c) Articles and By-Laws. The copy of the Articles of Incorporation
of Heatilator, certified by the Secretary of State of the State of Iowa, and the
By-Laws of Heatilator, furnished to Heat-N-Glo are true, correct and complete.
(d) Conflicts; Defaults. Neither the execution and delivery of this
Agreement and the other agreements and instruments executed or to be executed in
connection herewith by Heatilator, nor the performance by Heatilator of the
transactions contemplated hereby or thereby, will (i) violate, conflict with, or
constitute a default under, any of the terms of Heatilator's charter or By-Laws,
or any provisions of, or result in the acceleration of any obligation under, any
material contract, license, security agreement, mortgage, note, deed, lease,
agreement or instrument, or any order, judgment or decree by which Heatilator or
any of its assets are bound, (ii) violate any Law, or (iii) constitute an event
which, after notice of lapse of time or otherwise would create, or cause to be
exercisable or enforceable, any option, agreement or right of any kind to
purchase any of Heatilator's assets or capital stock.
(e) Compliance with other Instruments, etc. Heatilator is not in
violation of any terms of (i) its charter or By-laws, (ii) any agreement or
instrument related to indebtedness
27
for borrowed money or any other agreement to which it is a party or by which it
is bound, (iii) any applicable Law or (iv) any applicable order, judgment or
decree of any court, arbitrator or Governmental Authority, the consequences of
which violation, whether individually or in the aggregate, have or would be
reasonably expected (so far as can be foreseen at the time) to (x) have a
material adverse effect on the business, properties, operations or financial
condition of Heatilator, or (y) have the effect of preventing or materially
delaying the performance by Heatilator of its obligations under this Agreement.
(f) Financial Statements. Heatilator has heretofore delivered to
Heat-N-Glo (i) the unaudited Balance Sheet of Heatilator (the "Heatilator
Balance Sheet") as of December 31, 1995 (the "Heatilator Balance Sheet Date"),
the unaudited Balance Sheets of Heatilator as of December 31, 1994 and December
31, 1993, and the unaudited Statements of Income, Statements of Stockholders'
Equity and Statements of Cash Flows of Heatilator for the twelve months ended
December 31, 1995, December 31, 1994 and December 31, 1993 (collectively, the
"Annual Heatilator Financial Statements") and (ii) the unaudited Balance Sheet
of Heatilator as of August 31, 1996 and the unaudited Statement of Income and
Statement of Cash Flows of Heatilator for the eight months ended August 31, 1996
(the "Interim Heatilator Financial Statements" and, collectively with the Annual
Heatilator Financial Statements, the "Heatilator Financial Statements"). Each
of the Heatilator Financial Statements is true, complete and correct, was
prepared from the books and records kept by Heatilator, and fairly presents the
financial position of Heatilator as of such dates, and the results of operations
of Heatilator and Heatilator's cash flows for the periods then ended in
accordance with GAAP consistently applied and in accordance with the related
internal accounting practices and policies of Heatilator disclosed in the
Heatilator Financial Statements or in Schedule 4.2(f), except that the
Heatilator Interim Financial Statements do not contain normal year-end
adjustments required by GAAP and the Heatilator Financial Statements omit
footnote disclosures required by GAAP.
(g) Litigation. There are no actions, suits, investigations or
proceedings pending or, to the knowledge of Heatilator, threatened against
Heatilator in any court or before any arbitrator of any kind or before or by any
Governmental Authority, except actions, suits, investigations or proceedings
which, in the aggregate, do not have and would not be reasonably expected (so
far as can be foreseen at the time) to (a) have a material adverse effect on the
business, properties, operations or financial condition of Heatilator or (b)
have the effect of preventing or materially delaying the performance by
Heatilator of its obligations under this Agreement.
(h) Absence of Certain Changes or Events. During the period since
December 31, 1995, the business of Heatilator has been conducted only in the
ordinary course, consistent with past
28
practice, and Heatilator has not entered into any material transaction other
than in the ordinary course, consistent with past practice, and there has not
been (i) any change in the business, financial condition, results of operations,
properties, assets or liabilities of Heatilator that, individually or in the
aggregate, has or would reasonably be expected to have (so far as can be
foreseen at the time) a material adverse effect on the business, properties,
operations or financial condition of Heatilator, (ii) any damage, destruction or
loss (whether or not covered by insurance) with respect to any property or asset
of Heatilator which, individually or in the aggregate, has or would reasonably
be expected (so far as can be foreseen at the time) to have a material adverse
effect on the business, properties, operations or financial condition of
Heatilator or (iii) any declaration, setting aside or payment of any dividend or
distribution in respect of any capital stock of Heatilator.
(i) Brokers, Finders and Agents. Heatilator is not directly or
indirectly obligated to anyone acting as a broker, finder or in any other
similar capacity in connection with this Agreement or the transactions
contemplated hereby.
(j) Consents. Schedule 4.2(j) sets forth a list of all Consents
prescribed by law or any contract, agreement, commitment or undertaking and
which must be obtained or satisfied by Heatilator in order for Heatilator to
consummate the transactions contemplated by this Agreement or the other
agreements to be executed and delivered in connection herewith. All Consents
prescribed by any Law or any contract, agreement, commitment or undertaking, and
which must be obtained or satisfied by Heatilator for the consummation of the
transactions contemplated by this Agreement, or for the continued performance by
it of its rights and obligations thereunder, have been, or shall by the Closing
have been, made, obtained and satisfied.
ARTICLE V
CONDITIONS
----------
5.1 Conditions to the Obligations of Heatilator. The obligation of
Heatilator to consummate the transactions provided for by this Agreement are
subject to the satisfaction, on or prior to the Closing Date, of each of the
following conditions, any of which may be waived by Heatilator except for the
conditions set forth in subsection (d) (as to Consents of Governmental
Authorities) of this Section 5.1:
(a) Representations and Warranties. Each of the representations and
warranties of Heat-N-Glo made in Section 4.1 of this Agreement of this Agreement
shall be true and correct in all material respects both on the date hereof and
as of the Closing Date as though made at such time.
29
(b) Covenants. Heat-N-Glo shall have performed and complied with all
covenants and agreements required to be performed or complied with by it at or
prior to the Closing Date.
(c) Material Adverse Change. Since the date hereof, there shall have
occurred no material adverse change, or discovery of a condition or occurrence
of any event which might result in any such change, in the condition (financial
or otherwise), business, assets, properties, operations or prospects of Heat-N-
Glo or the Business.
(d) Consents. All Consents of Governmental Authorities and third
parties described in Schedule 4.1(z) which are either noted thereon as material
or are otherwise necessary to consummate the transactions contemplated hereunder
shall have been obtained and satisfied.
(e) No Proceeding or Litigation. No litigation, action, suit,
investigation, claim or proceeding challenging the legality of, or seeking to
restrain, prohibit or materially modify, the transactions provided for in this
Agreement shall have been instituted and not settled or otherwise terminated.
(f) Other Assets and Stock. The acquisition of the assets of the
Business covered by the GFD Agreement and the IP Transfer Agreement, and the
acquisition of the stock of PGT covered by the Stock Purchase Agreement, shall
have been consummated.
(g) Certificate of Heat-N-Glo. At the Closing, Heat-N-Glo shall have
delivered to Heatilator a Certificate signed by Heat-N-Glo's President or Vice-
President, and attested to by its Secretary or an Assistant Secretary, and dated
the Closing Date, to the effect that to the best of the knowledge and belief of
such officers the conditions specified in Sections 5.1(a), (b), (c), (d) and (e)
have been fulfilled.
(h) Documents. Heat-N-Glo, the Stockholders and the other Persons
shall have delivered the certificates, opinion of counsel and other documents
required by Sections 3.2 and 3.4.
(i) Approval by Heat-N-Glo Stockholders. To the extent required by
applicable Law, this Agreement and the transactions contemplated hereby shall
have been approved by the requisite vote of stockholders of Heat-N-Glo.
5.2 Conditions to the Obligations of Heat-N-Glo. The obligation of Heat-N-
Glo to consummate the transactions provided for by this Agreement is subject to
the satisfaction, on or prior to the Closing Date, of each of the following
conditions, any of which may be waived by Heat-N-Glo, except for the conditions
set forth in subsection (c) (as to Consents of Governmental Authorities) of this
Section 5.2:
30
(a) Representations and Warranties. Each of the representations and
warranties of Heatilator made in Section 4.2 of this Agreement shall be true and
correct in all material respects both on the date hereof and as of the Closing
Date as though made at such time.
(b) Covenants. Heatilator shall have performed and complied with all
covenants and agreements required to be performed or complied with by it at or
prior to the Closing Date.
(c) Consents. All Consents of Governmental Authorities and third
parties described in Schedule 4.2(j) and necessary to consummate the
transactions contemplated hereunder shall have been obtained and satisfied.
(d) Certificate of Heatilator. At the Closing, Heatilator shall have
delivered to Heat-N-Glo a Certificate signed by Heatilator's President or Vice-
President, and attested to by its Secretary or an Assistant Secretary, and dated
the Closing Date, to the effect that to the best of the knowledge and belief of
such officers the conditions specified in Sections 5.2(a), (b) and (c) have been
fulfilled.
(e) Documents. Heatilator and the other Persons shall have delivered
the certificates, opinion of counsel and other documents required by Sections
3.3 and 3.4.
ARTICLE VI
COVENANTS
---------
6.1 Conduct of Business. During the period from the date hereof through
the Closing Date, Heat-N-Glo shall conduct the Business diligently and in the
ordinary and normal course and consistent with past practice (including, without
limitation, using its best efforts to preserve beneficial relationships with its
customers, lessors and suppliers and to maintain its offices and properties).
Heat-N-Glo shall engage in no transactions with any of its Affiliates from the
date hereof until the Closing other than (i) transactions approved by Heatilator
in writing; or (ii) transactions on terms no more favorable to Affiliates of
Heat-N-Glo than would have been obtainable in arm's-length dealing. Without
limiting the generality of the foregoing and except as otherwise expressly
provided in this Agreement, during the period from the date hereof through the
Closing Date, Heat-N-Glo shall not:
(a) Issuance of Securities. Issue, deliver, sell, dispose of,
pledge or otherwise encumber, or authorize or propose the issuance, sale,
disposition or pledge or other encumbrance of (i) any shares of its capital
stock of any class (including the HNG Shares), or any securities or rights
convertible into, exchangeable for, or evidencing the right to subscribe for any
shares of its capital stock, or any rights, warrants, options,
31
calls, commitments or any other agreements of any character to purchase or
acquire any shares of its capital stock or any securities or rights convertible
into, exchangeable for, or evidencing the right to subscribe for, any shares of
its capital stock, or (ii) any other securities in respect of, in lieu of, or in
substitution for, HNG Shares outstanding on the date hereof;
(b) Redemption or Purchase of Securities. Redeem, purchase or
otherwise acquire, or propose to redeem, purchase or otherwise acquire, any of
its outstanding securities (including the HNG Shares);
(c) Reclassification and Distributions. Split, combine, subdivide or
reclassify any shares of its capital stock or declare, set aside for payment or
pay any dividend, or make any other actual, constructive or deemed distribution
in respect of any shares of its capital stock or otherwise make any payments to
stockholders in their capacity as such;
(d) Liquidation, Merger, Etc. Adopt a plan of complete or partial
liquidation, dissolution, merger, consolidation, restructuring, recapitalization
or other reorganization of Heat-N-Glo (other than the Merger);
(e) Corporate Structure. Adopt any amendments to its Articles of
Incorporation or By-Laws or alter through merger, liquidation, reorganization,
restructuring or in any other fashion its corporate structure;
(f) Obligations for Borrowed Money. (i) Create, incur or assume any
debt (including obligations in respect of capital leases) or any debt for money
borrowed (whether long- or short-term); (ii) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other Person; or (iii) make any loans,
advances or capital contributions to any other Person;
(g) Employee Matters. (i) Increase in any manner the rate of
compensation of any of its employees, (ii) make or agree to make any payment
pursuant to any Employee Plan, including, without limitation, any payment of any
pension, retirement allowance, severance or other employee benefit, except as
required by any existing Employee Plan disclosed on the Schedules to this
Agreement, to any such officers or employees, whether past or present; (iii)
enter into or modify any collective bargaining agreement, except as required by
Law; or (iv) commit itself to any additional Employee Plan, or employment or
consulting agreement with a Person employed or retained by the Company, or amend
any of such Plans or agreements, except as required by Law;
(h) Sale of Assets. Sell, transfer, license or otherwise dispose of
or agree to sell, transfer, license or otherwise dispose of any of its assets,
except inventory in the
32
ordinary and normal course of business consistent with past practice;
(i) Commitments. Enter into, or amend or modify, any agreement with
Heat-N-Glo International, Inc., or any other agreements, commitments, contracts
or undertakings whatsoever, except those made in the ordinary and normal course
of business consistent with past practice and the representations and warranties
of Heat-N-Glo contained in Section 4.1 and the Schedules therewith of this
Agreement and consistent with past practice;
(j) Capital Commitments. Enter into any capital commitments in
excess of $100,000;
(k) Encumbrances. Encumber or grant or create a Lien on any of its
assets;
(l) Insurance. Cause any of the policies of insurance referred to in
Section 4.1(y) to terminate, lapse or be cancelled, unless equivalent
replacement policies, without lapse of coverage, shall be put in place;
(m) Litigation. Enter into any compromise or settlement of any
litigation, action, suit, claim, proceeding or investigation;
(n) Representations and Warranties. Take any action the taking of
which, or omit to take any action the omission of which, would cause any of the
representations and warranties contained in Section 4.1 to fail to be true and
correct as of the Closing as though made at and as of the Closing; and
(o) Commitments. Agree or commit to do any of the foregoing.
6.2 Disclosure Supplements. From time to time prior to the Closing, Heat-
N-Glo and Heatilator shall promptly supplement or amend the Schedules to this
Agreement with respect to any matter (i) which may arise hereafter and which, if
existing or occurring at or prior to the date hereof, would have been required
to be set forth or described in the Schedules to this Agreement, or (ii) which
makes it necessary to correct any information in the Schedules to this Agreement
or in any representation and warranty made by it which has been rendered
inaccurate thereby. No supplement or amendment to the Schedules to this
Agreement or any delivery of Schedules after the date hereof, unless expressly
consented in writing by Heatilator or Heat-N-Glo (as applicable), shall be
deemed to cure any breach of any representation or warranty made in this
Agreement, or modify, affect or diminish right of any party to terminate this
Agreement pursuant to Section 7.1.
33
6.3 Regulatory Approvals. Heat-N-Glo and Heatilator shall use their best
efforts to obtain any authorizations, consents, orders and approvals of any
Governmental Authority necessary for the performance of its respective
obligations pursuant to this Agreement and any of the other Transaction
Documents, and the consummation of the transactions contemplated hereby and
thereby, and will cooperate fully with each other in all reasonable respects in
promptly seeking to obtain such authorizations, consents, orders and approvals.
Neither Heat-N-Glo nor Heatilator will take any action that will have the effect
of delaying, impairing or impeding the receipt of any required regulatory
approvals. Heat-N-Glo and Heatilator have filed with the Federal Trade
Commission and the U.S. Department of Justice pursuant to the Hart-Scott Rodino
Antitrust Improvements Act of 1976 (the "HSR Act") the notification and
documentary material required in connection with the Merger, and the applicable
waiting period under the HSR Act expired on September 13, 1996.
6.4 Closing. Heat-N-Glo shall use its best efforts to cause the
conditions set forth in Section 5.1 to be satisfied by the Closing Date.
Heatilator shall use its best efforts to cause the conditions set forth in
Section 5.2 to be satisfied by the Closing Date.
6.5 Confidentiality. Heat-N-Glo shall, and Heat-N-Glo shall use its best
efforts to cause its Affiliates, employees, stockholders, representatives,
consultants and advisors to, hold in confidence and not use any confidential
information concerning the Business and Heat-N-Glo, pursuant to the Mutual
Confidentiality Agreement, dated July 11, 1995, by and between HON and its
divisions, subsidiaries, and affiliates, and Heat-N-Glo. Heat-N-Glo shall not
release or disclose any such information to any Person other than HON,
Heatilator and their authorized representatives. Notwithstanding the foregoing,
the confidentiality obligations of this Section shall not apply to information:
(a) which Heat-N-Glo is compelled to disclose by judicial or
administrative process, or, in the opinion of counsel, by other mandatory
requirements of Law;
(b) which can be shown to have been generally available to the public
other than as a result of a breach of this Section; or
(c) which can be shown to have been provided to Heat-N-Glo by a third
party who obtained such information other than from Heat-N-Glo or other than as
a result of a breach of this Section.
6.6 No Shopping. From the date hereof through and until the earlier of
termination of this Agreement pursuant to Article VII or Closing, neither
Heat-N-Glo nor any of its Affiliates, stockholders, employees, officers,
directors, agents
34
or advisors shall, directly or indirectly, (a) solicit, initiate or encourage
any inquiries, proposals or offers from any Person relating to any acquisition
of Heat-N-Glo or the Business, or (b) with respect to any effort or attempt by
any other Person to do or seek any of the foregoing, (i) participate in any
discussions or negotiations, (ii) furnish to any other Person any information
with respect to, or afford access to the properties, books or records of or
relating to, Heat-N-Glo or the Business, or (iii) otherwise cooperate in any way
with, or assist or participate in, or facilitate or encourage any such effort.
Heat-N-Glo shall promptly notify Heatilator if any such proposal or offer or any
inquiry or contact with any Person with respect thereto is made.
6.7 [Intentionally omitted.]
6.8 Press Releases and Disclosure. Neither Heat-N-Glo, Heatilator nor
their respective Affiliates shall issue or cause publication of any press
release or other announcement or public communication with respect to this
Agreement or the transactions contemplated hereby or otherwise disclose this
Agreement or the transactions contemplated hereby to any third party (other than
their respective attorneys, advisors and accountants) without the consent of the
other party hereto, which consent shall not be unreasonably withheld; provided,
that nothing herein shall prohibit any party from issuing or causing publication
of any press release, announcement or public communication to the extent that
such party deems such action to be required by Law or by stock exchange rule;
provided further that such party shall, whenever practicable consult with the
other party concerning the timing and content of such press release,
announcement or communication before the same is issued or published.
6.9 Access; Information. From the date hereof through the Closing Date,
(a) Heatilator and its Affiliates, and their counsel, accountants,
representatives, lenders and agents (including, without limitation,
environmental consultants and engineers) shall have reasonable access during
normal business hours upon reasonable advance notice to all personnel, offices,
properties, books and records of Heat-N-Glo and the Business and shall be
furnished all information concerning the business, finances, affairs and
properties of Heat-N-Glo and the Business as they may reasonably request; and
(b) Heat-N-Glo shall promptly notify Heatilator of (x) any change, condition or
event which has, or would reasonably be expected to have, a material adverse
effect on the assets, business, financial condition or results of operations of
Heat-N-Glo or the Business, (y) the institution or settlement of any litigation,
complaint, investigation, action, suit, claim or proceeding involving Heat-N-Glo
or the Business and (z) the receipt of any notice from any Governmental
Authority or third party alleging Heatilator is liable or responsible for costs
associated with the response to cleanup, stabilization or neutralization of any
environmental deficiency or that Heat-N-Glo is in violation of any Environmental
Law. Neither the results of
35
any such access and investigation, nor the giving of any such notice, shall
affect Heatilator's rights to rely upon the representations and warranties set
forth in Section 4.1
6.10 Tax Returns. Heat-N-Glo shall be responsible for preparing and
filing on a timely basis any and all Tax Returns in respect of Heat-N-Glo or any
of its assets, income, operations or activities that are required to be filed
prior to the Effective Time. The Primary Stockholders shall be responsible for
preparing and filing on a timely basis any and all Tax Returns in respect of
Heat-N-Glo or any of its assets, income, operations or activities that are
required to be filed after the Effective Time. Any and all such Tax Returns
shall be prepared and filed on a basis that is consistent with the past filing
practices of Heat-N-Glo. Notwithstanding the foregoing, the Primary Stockholders
shall deliver to the Surviving Corporation copies of any and all such Tax
Returns required to be filed after the Effective Time no later than 30 days
before the due date for filing any such Tax Return (including any applicable
extensions), and the Surviving Corporation shall have the right to review such
Tax Returns before filing. If the Surviving Corporation objects to any position
taken on any such Tax Return that in any way affects a corporate-level Tax that
would be imposed on Heat-N-Glo and for which the Surviving Corporation would
have liability as the successor in interest to Heat-N-Glo, the Tax Return shall
be revised to reflect the Surviving Corporation's objection, and the Tax Return
actually filed shall incorporate such revision. The Primary Stockholders shall
be responsible for the payment of any Taxes due with respect to any and all Tax
Returns in respect of Heat-N-Glo or any of its assets, income, operations or
activities that are required to be filed after the Effective Date with any state
or local taxing authority.
6.11 Stockholders' Vote. As soon as practicable, Heat-N-Glo shall cause
to be taken all stockholder action necessary in accordance with applicable law
and the charter and by-laws of Heat-N-Glo to approve this Agreement and the
Merger. The Board of Directors of Heat-N-Glo will recommend and declare
advisable such approval. Heat-N-Glo and Heatilator shall cooperate with each
other in the preparation of any materials to be delivered to the stockholders of
Heat-N-Glo in connection with any such stockholder action. Heat-N-Glo shall
promptly provide to Heatilator copies of all notices, letters and other
materials delivered to the stockholders of Heat-N-Glo in connection with such
stockholder action, and will keep Heatilator apprised of the status of such
stockholder action.
6.12 Equity and Pension Plans. (a) Equity Plans. Prior to or at the
Closing, Heat-N-Glo will cause all Equity Phantom Stock Plans, Equity
Participation Plans and any similar equity or stock participation plans or
agreements with its employees (including without limitation, the Key Employee
Equity Participation Plan, effective January 1, 1995, between Heat-N-Glo and
Brad Determan; and the Key Employee Phantom Stock Plans,
36
effective January 1, 1995, between Heat-N-Glo and each of Michael Mady, David
Cribb, Mark Schroeder, Sharla Wagy, Myron Anderson and Randall Saver) to be
terminated pursuant to written agreements with such employees in form and
substance reasonably satisfactory to Heatilator that release Heat-N-Glo,
Heatilator and its and their successors from any and all obligations thereunder
and that do not require Heat-N-Glo, Heatilator or its or their successors to
make any payments to such employees at any time after the Effective Time, other
than the obligation to pay the actual amount due to each such employee as a
result of termination of such plans, such amount not to exceed the sum of
$1,200,000 in the aggregate for all such employees, by October 31, 1996.
(b) 401(k) Plan. Heat-N-Glo acknowledges that after the Effective
Time, Heatilator intends to discontinue contributions to the Heat-N-Glo 401(k)
Profit Sharing Plan (the "401(k) Plan"). Section 4.3 of the Securityholders'
Agreement sets forth certain indemnification obligations of the Primary
Stockholders to Heatilator, including without limitation, with respect to the
Mutual Benefit Life Guaranteed Investment Contract investment of the 401(k)
Plan.
(c) Defined Benefit Plan and ESOP. Heat-N-Glo acknowledges that as
soon as practicable after the Effective Time, Heatilator intends to terminate
the Heat-N-Glo Fireplaces, Inc. Defined Benefit Pension Plan and (to the extent
not already terminated prior to the Closing) the Heat-N-Glo Fireplace Products,
Inc. Employee Stock Ownership Plan and Trust. Article II of the Securityholders'
Agreement sets forth certain adjustments to the Merger Consideration relating to
such terminations.
ARTICLE VII
TERMINATION
-----------
7.1 Termination. This Agreement and the transactions contemplated hereby
may be terminated at any time prior to the Closing, whether before or after any
vote or consent of Heat-N-Glo stockholders:
(a) Mutual Consent. By mutual written consent of Heat-N-Glo and
Heatilator;
(b) Closing Date. By (i) Heat-N-Glo or (ii) Heatilator, if the
Closing shall not have occurred on or before October 31, 1996 (the "Termination
Date"), so long as this is not the result of any action or inaction by such
party;
(c) Heat-N-Glo Misrepresentation or Breach. By Heatilator, if there
has been a material breach by Heat-N-Glo of any of its representations,
warranties, covenants, obligations or
37
agreements set forth in this Agreement or in any writing delivered pursuant
hereto by Heat-N-Glo;
(d) Heatilator Misrepresentation or Breach. By Heat-N-Glo, if there
has been a material breach by Heatilator of any of its representations,
warranties, covenants, obligations or agreements set forth in this Agreement or
in any writing delivered pursuant hereto by Heatilator;
(e) Court Order. By Heat-N-Glo or Heatilator if consummation of the
transactions contemplated hereby shall violate any non-appealable final order,
decree or judgment of any court or Governmental Authority having competent
jurisdiction;
(f) Material Adverse Change. By Heatilator, if since the Balance
Sheet Date there has been a material adverse change, or the occurrence of a
condition or event which might result in a material adverse change, in the
condition (financial or otherwise), business, assets, properties, operations or
prospects of Heat-N-Glo;
(g) Heatilator's Conditions. By Heatilator, if any condition
precedent to Heatilator's obligation to effect the Closing as set forth in
Section 5.1 is not satisfied, or shall have become incapable of fulfillment, and
such condition is not waived, if waivable, by Heatilator on or prior to the
Termination Date; and
(h) Heat-N-Glo's Conditions. By Heat-N-Glo, if any condition
precedent to Heat-N-Glo's obligation to effect the Closing as set forth in
Section 5.2 is not satisfied, or shall have become incapable of fulfillment, and
such condition is not waived, if waivable, by Heat-N-Glo on or prior to the
Termination Date.
7.2 Effect of Termination. If this Agreement is terminated pursuant to
Section 7.1, written notice thereof shall forthwith be given to the other party
and this Agreement shall thereafter become void and have no further force and
effect and all further obligations of Heat-N-Glo and Heatilator under this
Agreement shall terminate without further liability of such parties, except that
(a) each party will return all documents, work papers and other material of any
other parties relating to the transactions contemplated hereby, whether so
obtained before or after the execution hereof, to the party furnishing the same,
and all confidential information received by any party hereto with respect to
the business of any other party shall be treated in accordance with Section 6.5
and the Mutual Confidentiality Agreement; (b) the obligations of Heat-N-Glo and
Heatilator under Section 6.8 shall survive such termination; and (c) such
termination shall not constitute a waiver by any party of any claim it may have
for damages caused by reason of, or relieve any party from liability for, any
breach of this Agreement prior to termination under Section 7.1.
38
ARTICLE VIII
MISCELLANEOUS AND GENERAL
-------------------------
8.1 Amendments. This Agreement may be amended only by a writing executed
by all of the parties hereto, subject to any requirements of applicable Law
regarding approval of the Boards of Directors and stockholders of Heat-N-Glo and
Heatilator.
8.2 Entire Agreement. This Agreement and the other agreements expressly
provided for herein, set forth the entire understanding of the parties hereto
with respect to the subject matter hereof, and supersede all prior contracts,
agreements, arrangements, communications, discussions, representations and
warranties, whether oral or written, between the parties.
8.3 Governing Law. This Agreement shall in all respects be governed by
and construed in accordance with the laws of the State of Iowa, without regard
to its conflicts of law doctrine.
8.4 Notices. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given (a) when received if personally delivered, (b) within 5 days after being
sent by registered or certified mail, return receipt requested, postage prepaid,
(c) within 12 hours after being sent by telecopy, with confirmed answerback, or
(d) within 1 business day of being sent by priority delivery by established
overnight courier, to the parties at their respective addresses set forth below.
If to Heat-N-Glo:
Heat-N-Glo Fireplace Products, Inc.
6665 West Highway 13
Savage, Minnesota 55378
Attn: Gerald T. Shimek
Telecopy: (612) 890-3525
With a copy to:
Roger V. Stageberg, Esq.
Lommen, Nelson, Cole & Stageberg, P.A.
1800 IDS Center
80 South 8th Street
Minneapolis, MN 55402
Telecopy: (612) 339-8064
39
If to Heatilator:
Heatilator Inc.
1915 West Saunders Street
Mt. Pleasant, IA 52641
Attn: President
Telecopy: (319) 385-5829
With a copy to:
HON INDUSTRIES Inc.
414 East Third Street
Muscatine, Iowa 52761
Attn: Secretary
Telecopy: (319) 264-7237
Any party by written notice to the others given in accordance with this Section
8.4 may change the address or the Persons to whom notices or copies thereof
shall be directed.
8.5 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
together will constitute one and the same instrument.
8.6 Assignment. This Agreement shall be binding upon and inure to the
benefit of the successors and assigns of each party hereto, but no rights,
obligations or liabilities hereunder shall be assignable by any party without
the prior written consent of the other parties.
8.7 Waivers. Except as otherwise provided herein, Heat-N-Glo and
Heatilator may waive in writing compliance by any of the other parties hereto
(to the extent such compliance is for the benefit of the party giving such
waiver) with any of the terms, covenants or conditions contained in this
Agreement or in any of the other Transaction Documents (except such as may be
imposed by law). Any waiver by any party of any violation of, breach of, or
default under, any provision of this Agreement or any of the other Transaction
Documents, by any other party shall not be construed as, or constitute, a
continuing waiver of such provision, or waiver of any other violation of, breach
of or default under any other provision of this Agreement or any of the other
Transaction Documents.
8.8 Third Parties. Nothing expressed or implied in this Agreement is
intended, or shall be construed, to confer upon or give any Person other than
Heat-N-Glo and Heatilator any rights or remedies under or by reason of this
Agreement, except as may otherwise be specifically provided for in the
Securityholders' Agreement.
40
8.9 Schedules and Exhibits. The Schedules and Exhibits attached to this
Agreement are incorporated herein and shall be part of this Agreement for all
purposes.
8.10 Headings. The headings in this Agreement are solely for convenience
of reference and shall not be given any effect in the construction or
interpretation of this Agreement.
8.11 Certain Definitions.
(a) For purposes of this Agreement, the term "Affiliate" shall mean
any Person that directly, or indirectly through one or more Persons, controls,
is controlled by, or is under common control with, the Person specified.
(b) For purposes of this Agreement and of any other Transaction
Document, the phrases, "to the best of Heat-N-Glo's knowledge", "Heat-N-Glo's
knowledge" and similar phrases relating to Heat-N-Glo's knowledge shall be
deemed to include all information that is actually known or, in the exercise of
reasonable diligence in the normal course of their employment and/or assigned
duties, should be known, by any of the Primary Stockholders, Chris Shimek or
Brad Determan.
8.12 Gender and Number. The masculine, feminine or neuter gender and the
singular or plural number shall each be deemed to include the others whenever
the context so indicates.
8.13 No Other Representations and Warranties. Without limiting the
generality of Section 8.2, each party agrees that neither it nor any Affiliate
or stockholder thereof, nor any of their respective officers, directors,
employees or representatives makes, has made or shall be deemed to have made,
any representation or warranty, express or implied, to any other party or to any
Affiliate or stockholder thereof or any of their respective partners, officers,
directors, employees or representatives with respect to (a) the execution and
delivery of this Agreement or the transactions contemplated hereby; (b) any
financial projections heretofore or hereafter delivered to or made available to
any such Persons or their counsel, accountants, advisors, representatives or
Affiliates, and agrees that it has not and will not rely on such financial
projections in connection with its evaluation of any other party or the Merger;
or (c) any information, statement or document heretofore or hereafter delivered
to or made available to any such Persons or their counsel, accountants,
advisors, representatives or Affiliates with respect to any other party or the
businesses, operations or affairs of any other party, except (with respect to
clauses (a) and (c) only), to the extent and as expressly covered by a
representation and warranty contained in Article IV hereof or the other
agreements expressly referred to herein or therein.
41
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties set forth below.
HEATILATOR INC.
By: /s/ David C. Stuebe
------------------------------------
Name: David C. Stuebe
Title: Vice President
HEAT-N-GLO FIREPLACE PRODUCTS, INC.
By: /s/ Ronald J. Shimek
-------------------------------------
Name: Ronald J. Shimek
Title: President
42
Exhibit 2.1(a)(i)
-----------------
Form of Short-Term Note
See attachment
NON-NEGOTIABLE PROMISSORY NOTE
------------------------------
(Short-Term Note)
$58,630,000 Chicago, Illinois
October 2, 1996
FOR VALUE RECEIVED, the undersigned, HEATILATOR INC., an Iowa
corporation (the "Maker"), promises to pay to the persons (collectively, the
"Payees") identified as Stockholders in the Agreement and Plan of Merger dated
October 2, 1996 (the "Merger Agreement") between Maker and Heat-N-Glo Fireplace
Products, Inc., a Minnesota corporation ("Heat-N-Glo"), collectively (and not
individually), pro-rata in accordance with their respective principal portions
of the "Short-Term Note" specified in Exhibits 2.1(b) and 2.1(d) to the Merger
Agreement, the principal sum of $58,630,000, on October 3, 1996, without
interest, by wire transfer to the account of Dain Bosworth, Minneapolis,
Minnesota, as Payee's representative, specified in writing by Payee to Maker on
or before the date hereof, or if no such specification is made, by check sent by
overnight courier service to the address of such Payee's representative.
The Maker hereby waives presentment for payment, notice of dishonor
and notice of protest.
This Note shall be binding upon the Maker's successors and assigns.
This Note and the obligations hereunder shall be governed by and
construed under the laws of the State of Iowa.
This Note is the Short-Term Note referred to the Agreement and Plan of
Merger dated October 2, 1996 between the Maker and Heat-N-Glo Fireplace
Products, Inc., and is entitled to the benefits thereof.
HEATILATOR INC.
By: _____________________________________
Exhibit 2.1(a)(ii)
------------------
Form of Long-Term Note
See attachment
NON-NEGOTIABLE PROMISSORY NOTE
------------------------------
(Long-Term Note)
$5,000,000 Chicago, Illinois
October 2, 1996
FOR VALUE RECEIVED, the undersigned, HEATILATOR INC., an Iowa
corporation (the "Maker"), promises to pay to the persons (collectively, the
"Payees") identified as Primary Stockholders in the Agreement and Plan of Merger
dated October 2, 1996 (the "Merger Agreement") between Maker and Heat-N-Glo
Fireplace Products, Inc., a Minnesota corporation ("Heat-N-Glo"), collectively
(and not individually), pro-rata in accordance with their respective principal
portions of the "Long-Term Note" specified in Exhibits 2.1(b) and 2.1(d) to the
Merger Agreement, the principal sum of FIVE MILLION DOLLARS ($5,000,000), in two
installments as follows:
October 1, 2000.............................. $2,500,000
October 1, 2001...............................$2,500,000
plus interest on the unpaid balance of principal at the rate of seven percent
(7%) per annum, such interest to be payable on an annual basis on the
anniversary date of this Note. All payments on account of the indebtedness
represented by this Note shall be applied first to accrued and unpaid interest
and the remainder to principal. Payments of principal and interest under this
Note shall be made to each of the Payees, pro rata in accordance with their
respective principal portions of the "Long-Term Note" specified in Exhibits
2.1(b) and 2.1(d) to the Merger Agreement, c/o Gerald T. Shimek, as Payees'
representative (or such other person as may be named by written notice to Maker
signed by Payees holding more than 50% of the outstanding principal amount of
this Note), at 6665 West Highway 13, Savage, MN 55378 (or such other address as
such Payees' representative may specify by written notice to Maker).
Beginning on the third anniversary of the date of this Note (but not
before), the Maker shall have the right, at any time and from time to time, to
prepay all or any part of the principal indebtedness evidenced hereby, without
premium or penalty, but with accrued interest at the aforementioned interest
rate on the amount so prepaid to the date of prepayment. All such prepayments of
principal shall be applied on the installments hereunder in the inverse order of
their maturity.
In addition to any and all other remedies under the Securityholders'
Agreement dated the date hereof among the Maker and certain of its
securityholders (including the Payees) (the "Securityholders' Agreement") or at
law or equity, the Maker shall have the right to recover any indemnification
payment due from any of the Payees to the Maker under the terms of the
Securityholders' Agreement by retaining and setting off the amount of such
payment (whether such amount is liquidated or reduced to judgment) against any
amounts due or to become due from the Maker to the Payees hereunder.
It is expressly understood and agreed that, if default be made in
required payment of principal or interest when due and remain unpaid for fifteen
business days or in the event the Maker becomes a Bankrupt (as hereinafter
defined), the whole sum of principal (and accrued interest thereon) evidenced by
this Note shall, at the option of the Payees, become immediately due and
payable. Bankrupt shall mean the occurrence of any of the following: (a) the
making by the Maker of an assignment for the benefit of creditors; (b) the
voluntary filing by the Maker of a petition seeking an adjudication of
bankruptcy; (c) the filing by the Maker of a pleading in any court admitting its
inability to pay its debts as they come due or admitting the material
allegations of an involuntary petition for adjudication of bankruptcy; or (d) an
order, judgment or decree by any court of competent jurisdiction adjudicating
the Maker a bankrupt or appointing a receiver, trustee or other administrator of
its assets which continues in effect and unstayed for a period of sixty days.
The Maker hereby waives presentment for payment, notice of dishonor
and notice of protest.
This Note shall be binding upon the Maker's successors and assigns.
This Note and the obligations hereunder shall be governed by and
construed under the laws of the State of Iowa.
This Note is the Long-Term Note referred to the Securityholders'
Agreement and in the Merger Agreement, and is entitled to the benefits thereof.
This Note is the Long-Term Note referred to in the Guaranty of even date made by
HON INDUSTRIES Inc. and is entitled to the benefits thereof.
HEATILATOR INC.
By: _____________________________________
Exhibit 2.1(a)(iii)
-------------------
Form of Convertible Debenture
See attachment
NOTICE: THIS CERTIFICATE AND THE RIGHTS REPRESENTED
HEREBY ARE SUBJECT TO THE RESTRICTIONS AND OPTIONS
STATED IN, AND MAY NOT BE SOLD, TRANSFERRED,
ENCUMBERED, OR OTHERWISE DISPOSED OF IN ANY MANNER,
VOLUNTARILY OR INVOLUNTARILY, EXCEPT UPON COMPLIANCE
WITH THE PROVISIONS OF, THE SECURITYHOLDERS' AGREEMENT
(AND ANY AMENDMENTS THERETO) DATED OCTOBER 2, 1996, BY
AND AMONG HEATILATOR INC. AND CERTAIN SECURITYHOLDERS
THEREOF. COPIES OF SUCH AGREEMENT ARE ON FILE IN THE
OFFICES OF HEATILATOR INC., AND THE PROVISIONS OF SUCH
AGREEMENT ARE INCORPORATED HEREIN BY REFERENCE.
No. __ $__________
HEATILATOR INC.
7% Convertible Debenture due October 1, 1999
FOR VALUE RECEIVED, the undersigned, HEATILATOR INC., an Iowa
corporation (the "Company"), promises to pay to _______________________ (the
"Holder") the principal sum of $_______________, on October 1, 1999, plus
interest on the unpaid balance of principal at the rate of seven percent (7%)
per annum, such interest to be payable on an annual basis on December 31, 1996,
December 31, 1997, December 31, 1998 and at maturity. Payments of principal and
interest hereunder shall be made to the Payee c/o Gerald T. Shimek, as Payee's
representative (or such other person as may be named by written notice to Maker
signed by Payee), at 6665 West Highway 13, Savage, MN 55378 (or such other
address as such Payee's representative may specify by written notice to Maker).
This Debenture is the duly authorized and issued Debenture of
the Company known as its "7% Convertible Debentures due October 1, 1999" (herein
referred to as the "Debentures"), limited to the aggregate principal amount of
Twelve Million Dollars ($12,000,000), issued pursuant to the Agreement and Plan
of Merger, dated as of October 2, 1996, between the Company and Heat-N-Glo
Fireplace Products, Inc. (the "Merger Agreement").
It is expressly understood and agreed that in the event the
Company becomes a Bankrupt (as hereinafter defined), the whole sum of principal
(and accrued interest thereon) evidenced by this Debenture shall, at the
election of the Holder, become immediately due and payable. Bankrupt shall mean
the occurrence of any of the following: (a) the making by the Company of an
assignment for the benefit of creditors; (b) the voluntary filing by the Company
of a petition seeking an adjudication of bankruptcy; (c) the filing by the
Company of a pleading in any court admitting its inability to pay its debts as
they come due or admitting the material allegations of an involuntary petition
for adjudication of bankruptcy; or (d) an order, judgment or decree by any court
of competent jurisdiction adjudicating the Company a bankrupt or appointing a
receiver, trustee or other
1
2
administrator of its assets which continues in effect and unstayed for a period
of sixty days.
Subject to the provisions hereof, the Holder is entitled at any time
prior to maturity hereof to convert all, but not less than all, of the Debenture
into shares of Common Stock of the Company at the rate of 0.0463 shares of
Common Stock for each $1,000.00 in principal amount of Debenture (the
"Conversion Rate"), upon surrender of this Debenture to the Company at the
offices of the Company in Mt. Pleasant, Iowa, accompanied by written notice of
election to convert in the form attached to this Debenture, in form satisfactory
to the Company, duly executed by the registered holder or by his duly authorized
attorney. The Conversion Rate shall be adjusted up or down from time to time to
take into account any stock split, stock dividend or similar recapitalization or
reorganization of the Company that results in a change in the issued and
outstanding shares of the Company.
Prior to maturity or conversion of this Debenture, the Company shall
not pay any dividend on its shares of Common Stock consisting of cash or other
property of the Company (other than a stock dividend) unless it has given the
holder of this Debenture at least thirty (30) days prior written notice thereof.
Prior to maturity or conversion of this Debenture, the Company shall
not issue any additional shares of capital stock (other than upon conversion of
other Debentures issued in connection with the Merger Agreement and other than a
stock split or stock dividend) unless it has given the holder of this Debenture
(a) at least thirty (30) days prior written notice thereof and (b) the
opportunity to purchase that number of shares of capital stock of the Company
equal to (w) the number of additional shares proposed to be issued, multiplied
by (x) 10%, multiplied by (y) the outstanding principal amount of this
Debenture, divided by (z) $12,000,000, at the same price per share and on the
same terms as the additional shares to be issued.
This Debenture shall be binding upon the Company's successors and
assigns.
This Debenture and the obligations hereunder shall be governed by and
construed under the laws of the State of Iowa.
This Debenture is one of the Debentures referred to in the
Securityholders' Agreement of even date among the Company and certain of its
securityholders, and is entitled to the benefits thereof and is subject to the
restrictions therein. This Debenture is one of the Debentures referred to in the
Guaranty of even date made by HON INDUSTRIES Inc. and is entitled to the
benefits thereof.
3
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed as of the date indicated below.
Dated: October 2, 1996
HEATILATOR INC.
By:
------------------------------
4
CONVERSION NOTICE
-----------------
To: Heatilator Inc.
1915 West Saunders Street
Mt. Pleasant, IA 52641
Attention: President
The undersigned holder of this Debenture hereby irrevocably exercises his
option to convert this Debenture into shares of Common Stock of Heatilator Inc.
in accordance with the terms of this Debenture, and directs that the shares
issuable and deliverable upon the conversion, be issued and delivered to the
registered holder hereof.
Dated:
---------------------------- -----------------------------------
Signature
Fill in for registration of (must conform in all respects
shares of Common Stock to name(s) of holder(s)
appearing on face hereof).
Signature guarantee
- ----------------------------------
(Name of Holder)
- ---------------------------------- -----------------------------------
(Address) (signature (s) must be
guaranteed by a commercial bank
or trust company or by a brokerage
firm having a membership in one of
the major stock exchanges)
- ----------------------------------
Please print name and address
(including zip code number)
Social Security or Other
Taxpayer Identifying Number
-----------------------------------