SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) April 12, 1996
Commission File Number 1-5581
WATSCO, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
FLORIDA
- --------------------------------------------------------------------------------
(State or other jurisdiction ofincorporation)
59-0778222
- --------------------------------------------------------------------------------
(I.R.S. Employer Identification No.)
2665 SOUTH BAYSHORE DRIVE
SUITE 901
COCONUT GROVE, FLORIDA 33133
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (305) 858-0828
(Former name or former address, if changed since last report) NOT APPLICABLE
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On April 12, 1996, TSSC Acquisition, Inc. ("TSSC Acquisition"), a
wholly-owned subsidiary of Watsco, Inc. ("Watsco") and Three States Supply Co.,
Inc. ("Three States") and UIS, Inc. (the parent company of Three States),
completed a transaction pursuant to an Asset Purchase Agreement (the
"Agreement") whereby TSSC Acquisition purchased the accounts receivable,
inventory, fixed assets, certain other operating assets and business from Three
States and assumed certain of its liabilities (such net amount of assets
purchased and liabilities assumed is referred to herein as the "Net Assets").
The purchase price for the Net Assets (expected to be approximately $14
million) is equal to the audited book value of the Net Assets at the closing
date (April 12, 1996), as determined in accordance with generally accepted
accounting principles. A cash payment of $13.7 million was made to Three States
as a preliminary payment of the purchase price. The final determination of the
purchase price will be made based on an audit of the Net Assets and a final
payment will be made by or to Three States, as applicable. Payment of the
purchase price is being made out of a portion of the net proceeds from a public
offering of Watsco's Common Stock completed on March 8, 1996.
TSSC Acquisition acquired real property and buildings as well as other
operating assets used by Three States in connection with its wholesale
distribution operations. TSSC Acquisition intends to use such assets in a manner
consistent with the historical operations of Three States.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS PAGE NO.
(a) Financial statements of Three States Supply Co., Inc.:
Report of Independent Certified Public Accountants 5
Balance Sheet as of December 31, 1995 6
Statements of Income and Retained Earnings for the
years ended December 31, 1995 and 1994 7
Statements of Cash Flows for the years ended 8
December 31, 1995 and 1994
Notes to Financial Statements 9-11
(b) Unaudited pro forma condensed consolidated financial statements:
(i) Unaudited Pro Forma Condensed Consolidated Balance Sheet as of 12
December 31, 1995 giving effect to the Three States
acquisition as if it had been consummated on December 31, 1995
(ii) Unaudited Pro Forma Condensed Consolidated Income Statements 13-14
13-14 for the Years Ended December 31, 1995 and 1994 giving
effect to the acquisition of Three States as if it had been
consummated on January 1, 1995 and 1994, respectively
(iii) Notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements 15
(c) Exhibits:
10.19. Asset Purchase Agreement dated March 27, 1996 by and among 16-53
TSSC Acquisition, Inc., Three States Supply, Co., Inc. and
UIS, Inc.
2
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
WATSCO, INC.
By: /s/ RONALD P. NEWMAN
-----------------------
Ronald P. Newman
Vice President - Finance
Date: April 19, 1996
3
ITEM 7(a)
THREE STATES SUPPLY CO., INC.
( A SUBSIDIARY OF UIS, INC.)
FINANCIAL STATEMENTS
DECEMBER 31, 1995
4
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
Three States Supply Co., Inc.
Memphis, Tennessee
We have audited the accompanying balance sheets of Three States Supply Co.,
Inc. (a subsidiary of UIS, Inc.) as of December 31, 1995 and the related
statements of income and retained earnings and cash flows for the years ended
December 31, 1995 and 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Three States Supply Co., Inc.
as of December 31, 1995 and the results of its operations and its cash flows for
the years ended December 31, 1995 and 1994 in conformity with generally accepted
accounting principles.
RHEA & IVY, PLC
Memphis, Tennessee
February 5, 1996, except for the
matter discussed in Note 8 as to
which the date is April 12, 1996.
5
THREE STATES SUPPLY CO., INC.
BALANCE SHEET
DECEMBER 31, 1995
(In thousands, except share data)
ASSETS
Current assets:
Cash $ 903
Accounts receivable, less an allowance for
doubtful accounts of $52 6,117
Notes receivable 52
Inventories 5,075
Prepaid expenses 28
Deferred income taxes 88
-------
Total current assets 12,263
-------
Property and equipment:
Land 283
Buildings and leasehold improvements 1,434
Machinery and equipment 4,271
-------
5,988
Less-Accumulated depreciation 3,242
-------
2,746
-------
Other assets 5
-------
$15,014
=======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,430
Accrued compensation and other expenses 810
Income taxes payable 907
Due to parent company 583
-------
Total current liabilities 4,730
-------
Deferred income taxes 171
Commitments (Note 6)
Shareholders' equity
Common stock - authorized, 20,000 shares of $10.00
par value; issued and outstanding, 1,000 shares 10
Retained earnings 10,103
-------
Total shareholders' equity 10,113
-------
$15,014
=======
The accompanying notes to financial statements are an integral
part of this balance sheet.
6
THREE STATES SUPPLY CO., INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
(In thousands)
1995 1994
------- -------
Net sales $47,314 $44,941
Cost of sales 35,827 34,688
------- -------
Gross profit 11,487 10,253
------- -------
Operating expenses:
Shipping and warehousing 3,143 3,050
Selling 2,537 2,511
Administrative and general 2,864 2,813
------- -------
8,544 8,374
------- -------
Income before income taxes 2,943 1,879
------- -------
Income taxes
Currently payable
Federal 908 592
State 185 131
------- -------
Total current provision 1,093 723
Deferred provision 63 15
------- -------
Total provision for income taxes 1,156 738
------- -------
Net income 1,787 1,141
Retained earnings, beginning of year 8,316 7,175
------- -------
Retained earnings, end of year $10,103 $ 8,316
======= =======
The accompanying notes to financial statements are an integral
part of these statements.
7
THREE STATES SUPPLY CO., INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
(In thousands)
1995 1994
------- -------
Cash flows from operating activities:
Net income $ 1,787 $ 1,141
------- -------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 568 531
Provision for deferred income taxes 63 15
Gain on disposal of property (13) (27)
Cash provided by (used in) changes in
assets and liabilities:
Accounts receivable (572) (674)
Notes receivable (52) 17
Prepaid expenses 19 5
Inventories 1,588 (332)
Accounts payable 1,292 (470)
Other accrued expenses 95 129
Income taxes payable 314 104
------- -------
Total adjustments 3,302 (702)
------- -------
Net cash provided by operating activities 5,089 439
------- -------
Cash flows from investing activities:
Purchases of property and equipment (509) (804)
Proceeds from sale of property and equipment 12 54
------- -------
Net cash used in investing activities (497) (750)
------- -------
Cash flows from financing activities:
Advances from parent company 1,593 1,034
Repayments of advances from parent company (5,637) (500)
------- -------
Net cash provided by (used in) financing activities (4,044) 534
------- -------
Net increase in cash 548 223
Cash, beginning of year 355 132
------- -------
Cash, end of year $ 903 $ 355
======= =======
Supplemental disclosure of cash flow information:
State income taxes paid $ 122 $ 137
======= =======
The accompanying notes to financial statements are an integral
part of these statements.
8
THREE STATES SUPPLY CO., INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE (1) - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Three States Supply Co., Inc., a Tennessee corporation (hereinafter referred
to as the "Company"), is a 99.8% owned subsidiary of UIS, Inc. The Company is
engaged in the wholesale distribution of supplies used primarily in air
conditioning and heating systems and operates in the mid-south primarily through
its branch locations in Memphis and Nashville, Tennessee; Jackson, Mississippi;
Huntsville, Alabama; Little Rock and Fort Smith, Arkansas; and St. Louis,
Missouri. Credit is granted to customers after an extensive credit review.
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows:
Use of Estimates -
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Inventories -
Inventories are stated at the lower of cost or market; cost is determined
using the last-in, first-out (LIFO) method as more fully described in Note 2.
Depreciation and Amortization
Depreciation of property and equipment is provided for in amounts sufficient
to relate the cost of depreciable assets to operations over their estimated
service lives, using the straight line method. Leasehold improvements are
amortized over the lives of the respective leases or the service lives of the
improvements, whichever is shorter. Depreciation and amortization expense was
$568,000 and $531,000 in 1995 and 1994, respectively.
The useful lives of property and equipment for purposes of computing
depreciation and amortization are:
Buildings and leasehold improvement 5 - 20 years
Machinery and equipment 3 - 10 years
Income Taxes -
The taxable income of the Company is included in the consolidated federal
income tax return of its parent and, accordingly, taxes are reported using the
separate return method under a tax sharing agreement with the parent. The
provision is based on using a 35% income tax rate.
The Company files state income tax returns separately from its parent.
9
NOTE (2) - EFFECT OF LIFO INVENTORY ON OPERATIONS
Inventories are stated at the lower of cost, determined by the last-in,
first-out (LIFO) method, or market. If the first-in, first-out (FIFO) method had
been used for all inventories, inventories would have been increased by
$2,389,000 at December 31, 1995, and cost of sales would have been decreased by
$9,000 and $394,000 in 1995 and 1994, respectively. The effect of LIFO inventory
decrements for the year ended December 31, 1995 was to reduce cost of sales by
approximately $239,000. A summary of inventory at December 31, 1995 is as
follows (in thousands):
Inventories at FIFO $ 7,464
LIFO reserve (2,389)
-------
Inventories at LIFO $ 5,075
=======
NOTE (3) - SAVINGS AND INVESTMENT PLAN
The Company maintains a defined contribution and savings and investment plan
whereby employees can elect to contribute up to 10% of their gross earnings to
the plan on a pre-tax basis. The Company, at its discretion, may match 50% of
the employees' contributions of up to 5% of the employees' gross earnings (as
defined in the plan). The Company has elected to match the maximum allowable
under the plan, and contributions of $60,000 have been provided for in the
accompanying financial statements for 1995 and 1994.
NOTE (4) - DUE TO PARENT COMPANY
This amount represents cash advances to the Company from the parent company
and is non-interest bearing.
NOTE (5) - INCOME TAXES
Deferred income taxes have been provided for temporary differences in income
tax and financial statement reporting of accumulated depreciation, allowance for
doubtful accounts and inventory capitalization. The net deferred income tax
assets and liabilities presented in the accompanying 1995 balance sheet consist
of the following (in thousands):
CURRENT LONG-TERM
------- ---------
Deferred tax assets $88 $ -
Deferred tax liabilities - (171)
--- --------
Net $88 $(171)
=== ========
Management believes that it is more likely than not that the deferred tax
assets will be utilized, accordingly, no valuation allowance has been recorded.
The provisions for income taxes computed at the federal statutory rate differ
primarily due to state income taxes.
10
NOTE (6) - COMMITMENTS
The Company conducts a portion of its operations from leased warehouses. The
following is a schedule by year of future minimum rental payments under
non-cancelable operating leases (in thousands):
Years ending December 31,
1996 $331
1997 316
1998 213
1999 25
----
Total minimum payments $885
====
Rent expense for leased facilities in 1995 and 1994 totaled $377,000 and
$365,000, respectively.
NOTE (7) - CONCENTRATIONS OF CREDIT RISK
On December 31, 1995, the Company had concentrations of credit risk in the
form of cash deposits maintained with financial institutions in excess of
federally insured amounts.
NOTE (8) - SUBSEQUENT EVENT
In April 1996, the parent completed the sale of certain of the net assets and
business of the Company to TSSC Acquisition, Inc., a wholly-owned subsidiary of
Watsco, Inc. The accompanying financial statements do not include the effects,
if any, on the carrying amount of assets and liabilities relative to the
transaction contemplated in asset purchase agreement.
11
ITEM 7(b)(i)
WATSCO, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
THREE PRO FORMA PRO FORMA
WATSCO STATES ADJUSTMENTS COMBINED
--------- --------- ----------- ----------
ASSETS Dr. (Cr.)
Current assets:
Cash and cash equivalents $ 3,751 $ 903 $ (903) (2) $ 3,751
Marketable securities 267 - 267
Accounts receivable, net 43,564 6,169 49,733
Inventories 59,724 5,075 2,389 (2) 67,188
Prepaid expenses and other current assets 5,073 116 (88) (2) 5,101
-------- ------- -------- --------
Total current assets 112,379 12,263 1,398 126,040
-------- ------- -------- --------
Property, plant and equipment, net 11,286 2,746 14,032
Intangible assets, net 16,995 - 100 (2) 17,095
Other assets 4,224 5 4,229
-------- ------- -------- --------
$144,884 $15,014 $ 1,498 $161,396
======== ======= ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations $ 2,455 $ - $ 2,455
Short-term promissory notes 4,250 - 4,250
Borrowings under revolving credit
agreements 40,185 - 40,185
Due to parent - 583 $ 583 (2) -
Accounts payable 17,229 2,430 19,659
Accrued liabilities 7,091 1,717 1,717 (2) 7,091
-------- ------- -------- --------
Total current liabilities 71,210 4,730 2,300 73,640
-------- ------- -------- --------
Long-term obligations:
Bank and other debt 3,818 - 3,818
Subordinated note 2,500 - 2,500
-------- ------- --------
6,318 - 6,318
-------- ------- --------
Deferred income taxes 978 171 171 (2) 978
Minority interests 12,622 - 12,622
Shareholders' equity:
Common Stock 2,401 10 10 (2) 2,740
(339) (4)
Class B Common Stock 740 - 740
Paid-in capital 19,479 - (13,743) (4) 33,222
Retained earnings 31,136 10,103 10,103 (2) 31,136
-------- ------- -------- --------
Total shareholders' equity 53,756 10,113 (3,969) 67,838
-------- ------- -------- --------
$144,884 $15,014 $ (1,498) $161,396
======== ======= ======== ========
The accompanying notes to unaudited pro forma condensed consolidated
financial statements are an integral part of this statement.
12
ITEM 7 (b)(ii)
WATSCO, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE PRO FORMA PRO FORMA
WATSCO STATES ADJUSTMENTS COMBINED
-------- ------- ----------- ---------
Dr. (Cr.)
Revenues $331,008 $47,314 $378,322
Cost of sales 257,710 35,827 $(9) (3) 293,528
-------- ------- --- --------
Gross profit 73,298 11,487 (9) 84,794
Selling, general and
administrative expenses 55,288 8,544 3 (2) 63,835
-------- ------- --- --------
Operating income 18,010 2,943 (6) 20,959
-------- ------- --- --------
Other income (expense):
Investment income, net 281 - 281
Interest expense (4,221) - (4,221)
-------- ------- --------
(3,940) - (3,940)
-------- ------- --------
Income before income taxes
and minority interests 14,070 2,943 (6) 17,019
Income taxes (5,234) (1,156) 2 (5) (6,392)
Minority interests (1,586) - (1,586)
-------- ------- --- --------
Net income $ 7,250 $ 1,787 $(4) $ 9,041
======== ======= === ========
Earnings per share:
Primary $1.08 $1.23
===== =====
Fully diluted $1.04 $1.18
===== =====
Weighted average shares outstanding:
Primary 6,582 678 (4) 7,260
===== === =====
Fully diluted 6,971 678 (4) 7,649
===== === =====
The accompanying notes to unaudited pro forma condensed consolidated
financial statements are an integral part of this statement.
13
ITEM 7 (b)(ii)
WATSCO, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE PRO FORMA PRO FORMA
WATSCO STATES ADJUSTMENTS COMBINED
-------- ------- ----------- ---------
Dr. (Cr.)
Revenues $283,731 $44,941 $328,672
Cost of sales 220,519 34,688 $(394) (3) 254,813
-------- ------- ----- --------
Gross profit 63,212 10,253 (394) 73,859
Selling, general and
administrative expenses 48,169 8,374 3 (2) 56,546
-------- ------- ----- --------
Operating income 15,043 1,879 (391) 17,313
-------- ------- ----- --------
Other income (expense):
Investment income, net 140 - 140
Interest expense (3,155) - (3,155)
-------- ------- --------
(3,015) - (3,015)
-------- ------- --------
Income before income taxes
and minority interests 12,028 1,879 (391) 14,298
Income taxes (4,630) (738) 149 (5) (5,517)
Minority interests (1,636) - (1,636)
-------- ------- ----- --------
Net income $ 5,762 $ 1,141 $(242) $ 7,145
======== ======= ===== ========
Earnings per share:
Primary $.89 $1.00
==== =====
Fully diluted $.87 $ .97
==== =====
Weighted average shares outstanding:
Primary 6,326 678 (4) 7,004
===== === =====
Fully diluted 6,646 678 (4) 7,324
===== === =====
The accompanying notes to unaudited pro forma condensed consolidated
financial statements are an integral part of this statement.
14
ITEM 7(b)(iii)
WATSCO, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(1) The Unaudited Pro Forma Condensed Consolidated Financial Statements gives
effect to the purchase by TSSC Acquisition, Inc., a wholly owned subsidiary
of Watsco, Inc. ("Watsco") of certain assets and the assumption of certain
liabilities of Three States Supply Co., Inc. ("Three States"). The pro
forma information is based on the historical financial statements of Watsco
and Three States. The acquisition will be accounted for under the purchase
method of accounting.
The Unaudited Pro Forma Condensed Consolidated Financial Statements may not
necessarily be indicative of the results that would actually have been
obtained had the acquisition of Three States occurred on the dates
indicated or which may be obtained in the future. In the opinion of the
Company's management, all adjustments necessary to present fairly such
Unaudited Pro Forma Condensed Consolidated Financial Statements have been
included. The pro forma condensed consolidated financial statements should
be read in conjunction with the historical financial statements and related
notes of Watsco and Three States.
(2) Represents the estimated purchase price for Three States determined as
follows (in thousands):
Net assets of Three States $10,113
Write-up of inventories to fair market value 2,389 (3)
Assets not purchased (991)
Liabilities not assumed 1,888
Due to parent not assumed 583
Payment of acquisition expenses 100
-------
Pro forma purchase price $14,082
=======
Goodwill (representing acquisition expenses incurred in the transaction)
will be amortized over a 40 year period.
(3) The inventories included in the historical financial statements of Three
States are stated under the last-in, first-out method. Subsequent to the
acquisition of Three States, such inventory amounts will be stated by
Watsco based on the first-in, first-out (FIFO) method. These amounts
represent an adjustment to the cost of sales using the FIFO method as if
Three States valued inventories under the FIFO method as of the beginning
of each year presented in the accompanying pro forma condensed consolidated
financial statements.
(4) In March 1996, Watsco completed the sale of 1,570,000 shares of Common
Stock receiving net proceeds of $32,609,000. A portion of the proceeds will
be used in the acquisition of Three States. The pro forma number of shares,
based on the pro forma purchase price and the net proceeds per share of
$20.77 realized upon such sale of Common Stock, is 677,997 and 789,889 in
1995 and 1994, respectively.
Watsco intends to use the remaining proceeds from the sale of its Common
Stock to fund other potential acquisitions, to reduce debt and for general
corporate purposes.
(5) Represents pro forma income taxes at a blended statutory rate of 38%.
15
ASSET PURCHASE AGREEMENT
AMONG
TSSC ACQUISITION, INC.
THREE STATES SUPPLY CO., INC.
AND
UIS, INC.
LIST OF SCHEDULES
Schedule 1.01(a).....................Excluded Assets
Schedule 1.01(a)(i)..................Listing of Inventory
Schedule 1.01(a)(ii).................Listing of Assets
Schedule 1.01(a)(iii)................Assumed Contracts
Schedule 1.01(a)(v)..................Deposits and Prepaid Expenses
Schedule 1.01(a)(vi).................Permits and Licenses
Schedule 1.01(a)(viii)...............Real Estate
Schedule 1.01(a)(ix).................Accounts Receivable
Schedule 1.01........................Allocation of Purchase Price
Schedule 1.01(c).....................Accounts Payable and Accrued Expenses
Schedule 1.04........................Prorations
Schedule 3.01(a).....................Qualifications as Foreign Corporation
Schedule 3.01(b).....................Articles of Incorporation and Bylaws
Schedule 3.04........................Defaults or Consents
Schedule 3.05........................Violations
Schedule 3.07(a).....................Employee Arrangements
Schedule 3.07(c).....................Current Employees
Schedule 3.07(d).....................COBRA Matters
Schedule 3.08(a).....................Financial Statements
Schedule 3.08(b).....................Liabilities
Schedule 3.09(a).....................Absence of Certain Charges
Schedule 3.10........................Compliance with Laws
Schedule 3.11(1).....................Litigation
Schedule 3.11(2).....................Defaults
Schedule 3.12(a).....................Encumbrances and Restrictions
Schedule 3.12(c).....................Intangible Rights
Schedule 3.13(a).....................Commitments
Schedule 3.13(c).....................Non-Arm's Length Contracts
Schedule 3.15........................Inventory Returns and Location of Inventory
Schedule 3.17(a).....................Permits
Schedule 3.17(b).....................Environmental Claims against Seller
Schedule 3.17(c).....................Environmental Claims against Other Persons
Schedule 3.17(d).....................Hazardous Materials
Schedule 3.18........................Suppliers and Customers
Schedule 3.19........................Product Claims
Schedule 3.20........................Warranties and Returns
Schedule 3.22........................Customer Incentive Programs
Schedule 4.03........................Buyer Defaults or Consents
Schedule 10.14.......................Initial Computation Sheet
- i -
LIST OF EXHIBITS
Exhibit A - Assumption Agreement as to Assumed Payables..........
Exhibit B - Assignment of Accounts...............................
Exhibit C - Bill of Sale ........................................
Exhibit D - Forms of Special Warranty Deeds for Tennessee,
Arkansas, and Missouri ..............................
Exhibit E - Forms of Assignment and Assumption of Leases.........
Exhibit F - Environmental Indemnity Agreement ...................
Exhibit G - Guaranty of Watsco, Inc. ............................
Exhibit H - Assignment and Assumption of Labor Contract..........
Exhibit I - Assignment and Assumption of Computer Contracts......
Exhibit J - Assignment and Assumption of Service Contracts ......
Exhibit K - Trademark and Trade Name Assignment .................
- ii -
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered
into this 27th day of March, 1996, by and among TSSC Acquisition, Inc., a
Florida corporation (the "Buyer"), Three States Supply Co., Inc., a Tennessee
corporation ("Three States" or the "Seller") and UIS, Inc., a New York
corporation (the "Shareholder") (the Shareholder and the Seller collectively
referred to herein as the "Selling Parties").
RECITALS
A. Buyer desires, upon the terms and subject to the conditions set
forth herein, to (i) purchase substantially all of the assets used by the Seller
in the operation of its Business and (ii) assume certain liabilities of the
Seller as more specifically described in Article I of this Agreement.
B. The Shareholder owns all of the issued and outstanding shares of
capital stock (the "Capital Stock") of the Seller, and is entering into this
Agreement as an inducement to Buyer.
C. The Seller desires to sell such assets, and the Buyer desires to
purchase such assets and assume certain obligations, upon the terms and subject
to the conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained herein, the parties agree as follows:
ARTICLE I - SALE AND PURCHASE OF ASSETS
1.01 SALE AND PURCHASE OF ASSETS; ASSIGNMENT OF CONTRACT RIGHTS.
(a) On the terms and subject to the conditions of this
Agreement, at the Closing referred to in Section 2.01 hereof, Seller shall sell,
convey, assign, transfer and deliver to Buyer, and Buyer shall purchase, acquire
and accept delivery of all assets and properties owned or Used by the Seller in
connection with the Business, except for cash and cash equivalents (other than
petty cash) and those assets specifically listed on Schedule 1.01(a) or as
otherwise specifically excluded hereunder (such specifically excluded assets
collectively being referred to as the "Excluded Assets"), including without
limiting the generality of the foregoing:
(i) all inventories and other materials of the Seller
relating to the Business wherever located which exist as of the Closing
Date, including all inventory in transit or on order and not yet
delivered, including without limitation the inventory listed or
described on Schedule 1.01(a)(i) which remains as of the Closing Date;
(ii) all supplies, equipment, trucks, automobiles,
machinery, furniture, fixtures, leasehold improvements, buildings, land
improvements, building improvements, and other tangible property Used
by the Seller in connection with the Business which exist as of the
Closing Date, including without limitation the tangible assets listed
on Schedule 1.01(a)(ii) as they exist as of the Closing Date;
(iii) all of the Seller's right, title and interest
in and to the personal property leases, all real estate leases, and the
other Contracts listed on Schedule 1.01(a)(iii) (all of the foregoing
being collectively referred to herein as the "Assumed Contracts").
(iv) all proprietary knowledge, trade secrets,
technical information, quality control data, processes (whether secret
or not), methods, and other similar know-how or rights Used in the
conduct of the Business, including, but not limited to, the areas of
retailing, marketing,
advertising and personnel training and recruitment, together with all
other Intangible Rights (as defined in Section 3.12(c) hereof) Used in
connection with the Business;
(v) all petty cash and all utility, security and
other deposits and prepaid expenses attributable to the Business which
exist as of the Closing Date including without limitation the remaining
balances on such date of the amounts listed on Schedule 1.01(a)(v);
(vi) the Business as a going concern and its
franchises, Permits, licenses, as set forth on Schedule 1.01(a)(vi),
except those franchises, Permits and licenses identified on Schedule
1.01(a)(vi) which, by their terms, are not transferable to Buyer;
(vii) all rights of the Seller in and to all
tradenames and trademarks, service marks, logos and other commercial
symbols Used in the Business, all variants thereof and all goodwill
associated therewith, including, but not limited to the right to the
name "Three States Supply Company", and any and all variations thereof.
A copy of the Trademark and Trade Name Assignment is attached hereto as
Exhibit K ;
(viii) all real property Used by the Seller listed on
Schedule 1.01(a)(viii);
(ix) all accounts receivable and notes receivable
attributable to the Business, as they exist on the Closing Date,
including without limitation the outstanding balances as of the Closing
Date of those items set forth on Schedule 1.01(a)(ix) (whether
increased or decreased after December 31, 1995);
(x) all telephone numbers, customer lists, vendor
lists, referral lists and contracts, advertising materials and data,
restrictive covenants, choses in action (including without limitation
all actions against third parties and all warranties provided to Seller
from suppliers to the extent such warranties are assignable) and
similar obligations owing to the Seller, its officers, employees,
agents and others, together with all books, computer software, files,
papers, records and other data of the Seller relating to the assets,
properties, business and operations of the Business; and
(xi) all other property and rights of every kind or
nature Used by the Seller in the operation of the Business (other than
the Excluded Assets).
It is specifically understood and agreed by the parties hereto that the
Buyer is acquiring, and Seller is selling, all of the tangible and intangible
assets attributable to or Used by the Seller in the Business (including, without
limitation, the assets of the Seller's operating division, TSS Products), other
than the Excluded Assets. The aforesaid assets and properties to be transferred
to the Buyer hereunder are hereinafter collectively referred to as the "Assets."
The Purchase Price shall be allocated, apportioned and adjusted among the Assets
in the manner specified in IRS Form 8594, attached as Schedule 1.01 and the
parties agree to abide by such allocations for all tax reporting purposes.
(b) METHOD OF CONVEYANCE. The sale, transfer, conveyance,
assignment and delivery by the Seller of the Assets to the Buyer in accordance
with Section 1.01(a) hereof shall be effected at the Closing by Seller's
execution and delivery to the Buyer of such deeds, bills of sale, assignments,
licenses and any other conveyance documents as shall be necessary to transfer
the Assets to Buyer. At the Closing, good, valid and marketable title to all of
the Assets shall be transferred, conveyed, assigned and delivered by the Seller
to the Buyer pursuant to such conveyance documents, free and clear of any and
all liens, encumbrances, mortgages, security interests, pledges, claims,
equities and other restrictions or charges of any kind or nature whatsoever.
(c) ASSUMED OBLIGATIONS. At the Closing, the Buyer shall
assume, and shall agree to satisfy and discharge as the same shall become due
(i) the Seller's liabilities and other obligations arising subsequent to the
Closing Date under the Assumed Contracts listed on Schedule 1.01(a)(iii) to the
extent
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that the Seller's rights thereunder are effectively transferred to Buyer at
Closing, and (ii) the outstanding balances, as of the Closing Date, of all
Accounts Payable and Accrued Liabilities of the Seller set forth on Schedule
1.01(c), whether increased or decreased after December 31, 1995, including any
new Accounts Payable of the same categories which arise prior to the Closing
Date (all of the foregoing payables and liabilities being collectively referred
to as the "Assumed Payables") (the assumed obligations under subsections (i) and
(ii) being collectively referred to as the "Assumed Obligations"). Except for
the Assumed Obligations, the Buyer shall not assume or be responsible at any
time for any liability, obligation, debt or commitment of the Selling Parties,
whether absolute or contingent, accrued or unaccrued, asserted or unasserted, or
otherwise, including but not limited to any liabilities, obligations, debts or
commitments of the Selling Parties incident to, arising out of, or incurred with
respect to, this Agreement and the transactions contemplated hereby (including
any and all sales, transfer, income or other taxes arising out of the
transactions contemplated hereby). The Selling Parties expressly acknowledge and
agree that the Selling Parties shall retain, and that Buyer shall not assume or
otherwise be obligated to pay, perform, defend or discharge, except for the
Assumed Obligations, (i) any liability of the Selling Parties for Taxes (as
defined in Section 8.01 hereof), whether measured by income or otherwise, (ii)
any liability of the Selling Parties in connection with any Employee Benefits
(as defined in Section 3.07 hereof), including, without limitation, any
liability of the Selling Parties under ERISA (as defined in Section 3.07
hereof), (iii) any liability of the Selling Parties under any federal, state or
local law, rule, regulation, ordinance, program, Permit, or other Legal
Requirement relating to health, safety, hazardous substances and environmental
matters applicable to the Business and/or the facilities Used by the Seller
(whether or not owned by Seller), (iv) any liability pertaining to products sold
by Seller prior to the Closing Date, including but not limited to, product
liability and obligations under any warranty (including extended warranty)
programs, or (v) any other liabilities or obligations which otherwise arise or
are asserted by reasons of events, acts (or failures to act) or transactions
occurring, or the operation of the Business, prior to the Closing Date,
including, but not limited to, accrued bonuses or medical claims for Seller's
employees or other insurance related matters. The Selling Parties further agree
to satisfy and discharge as the same shall become due all obligations and
liabilities of the Selling Parties not specifically assumed by the Buyer
hereunder. Buyer's assumption of the Assumed Obligations shall in no way expand
the rights or remedies of third parties against Buyer as compared to the rights
and remedies which such parties would have had against Seller had this Agreement
not been consummated. A copy of the Assumption Agreement as to Assumed Payables
is attached hereto as Exhibit A.
1.02 PURCHASE PRICE; PAYMENT FOR ASSETS. The Purchase Price for the
Assets being acquired by Buyer hereunder shall be computed as provided in
Section 10.21. As a preliminary payment, Buyer shall deliver at the Closing to
the Seller, by official bank check or wire transfer in same day funds, an amount
equal to (i) the Preliminary Net Assets (as defined hereinafter), less (ii)
$200,000 (such resultant amount being referred to as the "Closing Date
Payment").
As soon as practical (and in no event later than ninety (90) days after
the Closing Date), (i) Buyer shall cause its accountants (the "Buyer's
Accountants") to prepare a written computation of the Purchase Price, together
with a final computation sheet, utilizing the same format for the computation as
the Initial Computation Sheet (the "Final Computation Sheet"), and (ii) deliver
to the Seller said computation of the Purchase Price and said Final Computation
Sheet. The Purchase Price shall become final as described in Section 1.03. If
the Purchase Price is greater than the Closing Date Payment, then such excess
amount shall be paid by Buyer to Seller in same day funds within ten (10) days
after the date on which the Purchase Price becomes final. If the Closing Date
Payment exceeds the Purchase Price, then such excess amount shall be paid by
Seller to Buyer in same day funds within ten (10) days after the date on which
the Purchase Price becomes final. Each such payment shall also be accompanied by
a payment of interest on such excess amount (by Buyer or Seller, as the case may
be) accruing as of the Closing Date, at a rate of seven percent (7%) per annum.
1.03 FINALIZATION OF PURCHASE PRICE; DISPUTES. The following clauses
set forth the procedures for resolving disputes among the parties with respect
to the determination of the Purchase Price and finalizing the Purchase Price:
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(i) Within thirty (30) days after delivery to the
Seller of Buyer's computation of the Purchase Price pursuant to Section 1.02,
the Seller may deliver to Buyer a written report (a "Seller's Report") prepared
by the Seller's accountants (the "Seller's Accountants") advising Buyer either
that the Seller's Accountants (A) agree with the Buyer's computation of the
Purchase Price, or (B) deem that one or more adjustments are required. The costs
and expenses of the services of the Seller's Accountants shall be borne by the
Seller. If Buyer's accountants ("Buyer's Accountants") shall concur with the
adjustments proposed by the Seller's Accountants, or if Buyer shall not object
thereto in writing delivered to the Seller within thirty (30) days after Buyer's
receipt of the Seller's Report, the calculations of the Purchase Price set forth
in such Seller's Report shall become final and shall not be subject to further
review, challenge or adjustment absent fraud. If the Seller does not submit a
Seller's Report within the 30-day period provided herein, then the Purchase
Price as calculated by Buyer shall become final and shall not be subject to
further review, challenge or adjustment absent fraud.
(ii) In the event that the Seller submits a Seller's
Report and Buyer's Accountants and the Seller's Accountants are unable to
resolve the disagreements set forth in such report within (30) days after the
date of the Seller's Report, then such disagreements shall be referred to a
recognized firm of independent certified public accountants experienced in
auditing companies in the Business and selected by mutual agreement of the
Seller's Accountants and Buyer's Accountants (the "Settlement Accountants"), and
the determination of the Settlement Accountants shall be final and shall not be
subject to further review, challenge or adjustment absent fraud. The Settlement
Accountants shall use their best efforts to reach a determination not more than
forty-five (45) days after such referral. The costs and expenses of the services
of the Settlement Accountants shall be paid in equal amounts by Buyer and
Seller.
1.04 PRORATIONS AND ADJUSTMENTS. The operation of the Business and all
income and expenses attributable thereto through the close of business on the
day of the Closing Date shall be for the account of Seller and thereafter shall
be for the account of Buyer. In computing the Purchase Price, expenses such as
power and utility charges, property assessments, rents, license fees, dues,
subscriptions and other charges, prepaid and deferred items, ad valorem or
personal property taxes and other items of income and expense (unless
specifically excluded otherwise in this Agreement) relating to the Business and
covering periods of time both before and after Closing Date shall be prorated
between Seller and Buyer as of the Closing Date by Buyer's Accountants. Such
proration attributable to the Seller for such items of income and expenses shall
be included by Buyer's Accountants in the Final Computation Sheet. A schedule of
such prorations and the computations thereof will be attached to the Final
Computation Sheet. Within sixty (60) days after the Closing Date, Buyer will
cause all accounts being assumed by Buyer to be transferred to Buyer's name.
1.05 SALE OF ACCOUNTS AND NOTES WITHOUT RECOURSE. The Buyer
acknowledges that the Selling Parties are not guaranteeing (i) the
collectability of the accounts receivable or notes receivable which constitute
Assets being sold hereunder, or (ii) the creditworthiness of the persons and
entities who owe such receivables or notes. THE ACCOUNTS RECEIVABLE ARE BEING
SOLD TO BUYER AT CLOSING WITHOUT RECOURSE, EXCEPT FOR THE REPRESENTATIONS AND
WARRANTIES CONTAINED HEREIN. A copy of the Assignment of Accounts is attached
hereto as Exhibit B.
1.06 HART-SCOTT-RODINO FILING. The parties acknowledge that the
transactions contemplated hereby are covered by the federal Hart-Scott-Rodino
Act ("Hart-Scott"), and that accordingly, as a condition precedent to the
Closing, a Hart-Scott notification filing (the "Hart-Scott Filing") will need to
be filed with the appropriate federal agencies prior to the Closing, and the
applicable notification period will need to elapse prior to the Closing without
any injunctions, objections, or cease and desist orders being issued or procured
by such federal agencies (unless clearance of the transaction is received by the
parties from such federal agencies prior to the elapsing of such notification
period). The Selling Parties and Buyer agree to mutually cooperate in the
preparation and filing of the Hart-Scott Filing, and to each pay their
respective fees and expenses incurred in the preparation of such filing. The
filing fee for the Hart-Scott Filing shall be paid by the Buyer.
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ARTICLE II - CLOSING
2.01 CLOSING. Subject to the conditions stated in Article VI of this
Agreement, the closing of the transactions contemplated hereby (the "Closing")
shall be held on or before April 12, 1996, or, if the conditions set forth in
Sections 6.01 or 6.02 have not been satisfied or waived on such date, no later
than seven (7) days after all conditions shall have been satisfied or waived
(but in no event later than April 30, 1996, unless the parties otherwise agree
in writing), at the offices of Martin, Tate, Morrow & Marston, P.C., 22 North
Front Street, 11th Floor, Memphis, Tennessee 38103. The date and time upon which
the Closing occurs is hereinafter referred to as the "Closing Date" and the
Closing shall be deemed completed as of 11:59 p.m. Memphis time on the day of
the Closing.
2.02 DELIVERIES BY SELLER. At or prior to the Closing, the Seller shall
deliver to Buyer:
(i) the Bill of Sale, duly executed by Seller, substantially
in the form of Exhibit C hereto;
(ii) special warranty deeds duly executed by Seller and
evidence of title with respect to each parcel of real estate owned by Seller as
described in Section 6.02(e). The Special Warranty Deeds will be in
substantially the form attached as collective Exhibit D.
(iii) any conveyance instruments with respect to the Seller's
transfer to Buyer of the Assumed Contracts and Intangible Rights included in the
Assets as Buyer may reasonably request;
(iv) all originals and copies of agreements, instruments,
documents, deeds, surveys, books, records, files, tax returns and other data and
information within the possession of the Seller or any Affiliate of any Seller
pertaining to the Business (collectively, the "Records"), provided, however,
that the term Records shall not be deemed to include the corporate charter,
by-laws, minutes, stock certificates, stock ledger, stockholder distribution
records, shareholder agreements, voting agreements, or other similar corporate
documents or records of the Seller;
(v) originals of any title or registration certificates for
any vehicles or titled equipment or assets included within the Assets, duly
endorsed in order to transfer ownership thereof to Buyer;
(vi) evidence, in form and substance satisfactory to Buyer, of
the termination or release, at or prior to Closing, of any and all liens that
encumber the Assets;
(vii) duly executed assignments and consents of landlords to the
assignment of the leases for branch locations listed on Schedule 1.01(a)(iii)
substantially in the forms attached as collective Exhibit E hereto,
(viii) an original of an amendment to the Articles of
Incorporation of the Seller duly executed by the appropriate officers of the
Seller, and in form suitable for filing with the State of Tennessee Secretary of
State, to effect the change in the name of Three States to "TSC Memphis, Inc."
(or any other name not confusingly similar to Three States Supply Co., Inc.);
(ix) the opinion of Waring Cox, counsel to the Seller, dated as
of the Closing Date, in form and substance reasonably satisfactory to the Buyer
with respect to the matters set forth in Sections 3.01, 3.02, 3.04, 3.05, and
3.06 as they relate to the Selling Parties. In rendering such opinion, Waring
Cox may rely as to factual matters on certificates of officers and directors of
Seller and on certificates of governmental officials (provided, however, no
opinion shall be required as to Environmental Laws, Hazardous Materials,
covenants against competition or restrictive covenants);
(x) a certificate executed by the Seller to the effect that
the conditions set forth in Sections 6.02(a) and 6.02(d) have been satisfied;
5
(xi) the Environmental Indemnity Agreement, duly executed by
Seller, substantially in the form of Exhibit F hereto (the "Environmental
Indemnity Agreement"); and
(xii) originals of any promissory notes evidencing the balances
of the notes receivable constituting Assets, duly endorsed in order to transfer
ownership thereof to Buyer.
2.03 DELIVERIES BY BUYER. At or prior to the Closing, Buyer shall
deliver:
(i) to Seller by (i) cashier's or other official bank check or
(ii) bank or wire transfer in same day funds to an account of Seller (designated
in writing to Buyer at least three business days prior to the Closing), in the
amount described in Section 1.02 as being required to be paid by Buyer to Seller
at Closing;
(ii) a Guaranty from Watsco, Inc., the parent corporation of
Buyer of the effect set forth in, and substantially in the form of Exhibit G
hereto, guaranteeing the prompt and full payment and performance of all
obligations and covenants of Buyer set forth in this Agreement or the Collateral
Agreements;
(iii) an opinion of Martin, Tate, Morrow & Marston, P.C.,
special counsel to Buyer, dated as of the Closing Date, in form and substance
reasonably satisfactory to the Seller, with respect to the matters set forth in
Sections 4.01, 4.02, 4.03, and 4.04, and with respect to those same matters as
they relate to Watsco, Inc. and the Guaranty. In rendering such opinion, Martin,
Tate, Morrow & Marston, P.C. may rely as to factual matters on certificates of
officers and directors of Buyer and on certificates of governmental officials,
and as to matters of Florida corporate law on the opinion of Greenberg, Traurig,
Hoffman, Lipoff, Rosen & Quentel; and
(iv) a certificate executed by an authorized officer of the
Buyer, on behalf of the Buyer, to the effect that the conditions set forth in
Section 6.01(b) have been satisfied.
ARTICLE III - REPRESENTATIONS AND WARRANTIES
OF THE SELLING PARTIES
Each of the Selling Parties hereby jointly and severally represents and
warrants to Buyer that:
3.01 CORPORATE EXISTENCE AND QUALIFICATION. The Seller is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Tennessee; the Seller has the corporate power to own, manage, lease and
hold its Assets and to carry on its business as and where such Assets are
presently located and such business is presently conducted; and neither the
character of the Seller's Assets nor the nature of the Seller's Business
requires the Seller to be duly qualified to do business in any jurisdiction
outside those identified in Schedule 3.01(a) attached hereto, and the Seller is
qualified and in good standing in each listed jurisdiction. Attached hereto as
Schedule 3.01(b) are true and correct copies of the Seller's Articles of
Incorporation and Bylaws, as amended to date (collectively, the "Charter
Documents").
3.02 AUTHORITY, APPROVAL AND ENFORCEABILITY. This Agreement has been
duly executed and delivered by each of the Selling Parties and each such party
has all requisite power and legal capacity to execute and deliver this Agreement
and all Collateral Agreements executed and delivered or to be executed and
delivered in connection with the transactions provided for hereby, to consummate
the transactions contemplated hereby and by the Collateral Agreements, and to
perform its obligations hereunder and under
6
the Collateral Agreements. The execution, delivery and performance of this
Agreement and the Collateral Agreements have been authorized by proper corporate
action (including all necessary shareholder approval). This Agreement and each
Collateral Agreement to which a Selling Party is a party constitutes, or upon
execution and delivery will constitute, the legal, valid and binding obligation
of such party, enforceable against such party in accordance with its terms,
except as such enforcement may be limited by general equitable principles or by
applicable bankruptcy, insolvency, moratorium, or similar laws and judicial
decisions from time to time in effect which affect creditors' rights generally.
3.03 OWNERSHIP. The Shareholder owns all of the issued and outstanding
Capital Stock of Seller, free and clear of any and all liens, mortgages, adverse
claims, charges, security interests, encumbrances or other restrictions or
limitations whatsoever.
3.04 NO DEFAULTS OR CONSENTS. Except as disclosed on Schedule 3.04, the
execution and delivery of this Agreement and the Collateral Agreements by the
Selling Parties and the performance by the Selling Parties of their obligations
hereunder and thereunder will not violate any provision of law or any judgment,
award, decree, indenture, agreement or other instrument to which a Selling Party
is a party, or by which a Selling Party or any properties or assets of a Selling
Party are bound or affected, and such execution, delivery and performance of
this Agreement and the Collateral Agreements will not conflict with, result in a
breach of or constitute (with due notice or lapse of time or both) a default
under, any such indenture, agreement or other instrument. NOTWITHSTANDING THE
FOREGOING, OR ANYTHING TO THE CONTRARY IN THIS AGREEMENT, THE SELLING PARTIES
AND BUYER EXPRESSLY ACKNOWLEDGE AND AGREE THAT ALTHOUGH THE SERVICE CONTRACTS
PROVIDE THAT THEY MAY NOT BE ASSIGNED OR ASSUMED WITHOUT THE CONSENT OF THE
OTHER PARTIES THERETO, THE SELLING PARTIES AND BUYER WILL NOT OBTAIN SUCH
CONSENT IN CONNECTION WITH THE ASSIGNMENT OR ASSUMPTION THEREOF BY THE SELLING
PARTIES PURSUANT TO THIS AGREEMENT. ACCORDINGLY, NOTWITHSTANDING ANYTHING TO THE
CONTRARY HEREIN, THE SELLING PARTIES MAKE NO REPRESENTATIONS, WARRANTIES OR
COVENANTS TO THE BUYER REGARDING THE PROCUREMENT OF SUCH CONSENTS, OR AS TO THE
STATUS OR CONSEQUENCES OF FAILING TO PROCURE SUCH CONSENTS, AND TO THE EXTENT
ANY OTHER PROVISIONS OF THIS AGREEMENT MAY BY THEIR TERMS PURPORT TO COVER OR
INCLUDE SUCH MATTERS, THEN ALL PARTIES HERETO EXPRESSLY EXCLUDE SUCH MATTERS
FROM SUCH PROVISIONS. However, if after the Closing Date, any of the other
parties to the Service Contracts refuse to recognize the assignment or
assumption thereof, then in such a case, the Selling Parties shall cooperate
with Buyer and Buyer shall cooperate with the Selling Parties in any reasonable
back-to-back arrangements proposed by the Buyer or Selling Parties in order to
provide for the Buyer the benefits intended to be assigned under any such
Service Contract (unless such other party thereto rightfully terminates or
cancels such Service Contract), including, without limitation, the enforcement
for the benefit of the Buyer of any and all rights of the Selling Parties
against such other party to any such Service Contract arising out of the breach
by such party or otherwise.
3.05 NO VIOLATIONS. Except as disclosed on Schedule 3.05, neither the
execution and delivery of this Agreement nor the carrying out of any of the
transactions contemplated hereby will:
(i) violate or conflict with any of the terms, conditions
or provisions of the Seller's Charter Documents;
(ii) violate any Legal Requirements applicable to the Seller
or the Business;
(iii) violate, conflict with, result in a breach of,
constitute a default under (whether with or without notice or the lapse of time
or both), or accelerate or permit the acceleration of the performance required
by, or give any other party the right to terminate, any Assumed Contracts or any
Permit binding upon or applicable to the Seller or the Business;
(iv) result in the creation of any lien, charge or other
encumbrance on any Assets; or
7
(v) require any of the Selling Parties to obtain or make
any waiver, consent, action, approval or authorization of, or registration,
declaration, notice or filing with, any private non-governmental third party or
any Governmental Authority.
3.06 NO PROCEEDINGS. No suit, action or other proceeding is pending or,
to the Knowledge of the Seller, threatened before any Governmental Authority
seeking to restrain any of the Selling Parties or prohibit their entry into this
Agreement or prohibit the Closing, or seeking damages against any of the Selling
Parties, as a result of the consummation of this Agreement.
3.07 EMPLOYEE BENEFIT MATTERS.
(a) Schedule 3.07(a) provides a description of the Seller's
employee benefits and benefit plans (collectively the "Employee Benefits"),
including, but not limited to, (i) any "employee benefit plan," as such term is
defined in Section 3(b) of the Employee Retirement Income Security Act of 1974
("ERISA"), (ii) any personnel policy, stock option plan, collective bargaining
agreement, bonus plan or arrangement (including accrued bonuses), incentive
award plan or arrangement, vacation policy, severance pay policy or agreement,
deferred compensation agreement or arrangement, consulting agreement, employment
contract and each other employee benefit plan, agreement, arrangement, program,
practice or understanding which is not an ERISA plan, and (iii) any agreement,
policy or practice, requiring the Seller to make a payment or provide any other
form or compensation or benefit to any person performing services for the Seller
upon termination of such services which would not be payable or provided in the
absence of the consummation of this Agreement. All filings required to be made
with any agency with respect to the Employee Benefits have been timely filed.
(b) Seller shall be responsible for (and Buyer shall not
assume the obligation of) all employee wages, benefits (including payments for
accrued bonuses, vacation or sick pay, unemployment compensation, employment
taxes, medical claims or similar payments), contributions under any benefit
program or agreement, severance pay obligations and other related employee costs
arising as a result of any events, acts (or failures to act) prior to the
Closing Date, whether or not disclosed on the schedules to this Agreement.
(c) Schedule 3.07(c) sets forth a true and complete list of
all employees, together with each such employee's birth date, date of hire, and
current salary (including bonuses) or a classified hourly wage schedule for all
nonsalaried employees of the Seller. Except as described more fully in Schedule
3.07(c), none of said employees are subject to union or collective bargaining
agreements and that Seller has not at any time had or, to the Knowledge of the
Seller, been threatened with any work stoppages or other labor disputes or
controversies with respect to its employees.
(d) Seller retains all liability and responsibility for
fulfilling all federal and/or state COBRA and continuation of coverage
requirements with respect to the Seller's current or former employees (and their
dependents). Schedule 3.07(d) sets forth all of the Seller's administrative
obligations with respect to the former employees of Seller listed on Schedule
3.07(d).
(e) The Shareholder shall cause the Seller to take all actions
necessary to terminate the Three States Supply Co., Inc. Savings and Investment
Plan (the "Plan") effective as of the Closing Date, including, but not limited
to: (i) the adoption on or before the Closing Date of a valid resolution of the
Seller's board of directors terminating the Plan, (ii) all actions necessary to
provide participants in the Plan with pro-rata employer matching or profit
sharing contributions through the Closing Date, (iii) all actions necessary to
provide for the timely distribution of assets from the trust that is part of the
Plan, including written directions from the Seller to the trustee of the trust,
(iv) all actions necessary to allow the timely preparation and filing with the
Internal Revenue Service of an application for a determination letter that the
Plan is qualified at the time of its termination, and (v) following the receipt
of such determination of the Plan's qualified status, if favorable, take
necessary action or direct such action of the Plan Administrator to
8
allow the participants of the Plan to: (1) elect to make a direct rollover to
the Watsco, Inc. Profit Sharing Retirement Plan & Trust (for those participants
employed by Buyer at the time that such election becomes available), (2) elect
to make a direct rollover to any other qualified plan or to an I.R.A. under the
then existing rules and regulations under the Code, and (3) elect to receive an
early distribution to the extent allowable under the Code. If an unfavorable
determination as to the Plan's qualified status is received, then the Seller
shall take any and all necessary steps to obtain a favorable determination as to
the Plan's qualified status and the foregoing alternatives shall be made
available to the participants of the Plan as of the date such elections become
available.
(f) The Buyer shall neither assume any liability under any
Employee Benefits which was incurred prior to the Closing Date, nor be construed
as the sponsor or administrator of such Employee Benefits existing prior to the
Closing Date.
3.08 FINANCIAL STATEMENTS.
(a) The Seller has delivered to Buyer true and complete copies
of audited financial statements with respect to the Business as of and for the
years ended December 31, 1992, 1993, 1994 and 1995 (the "Audited Financial
Statements") and unaudited financial statements as of and for the period ended
January 31, 1996 (the "Latest Financial Statement") (the Audited Financial
Statements, together with the Latest Financial Statement, are collectively
referred to as the "Financial Statements"), and said Financial Statements are
attached hereto as Schedule 3.08(a). All of such Financial Statements, together
with the notes thereto, (i) are in accordance with the books and records of
Seller which books and records are complete and accurate, (ii) present or will
present fairly and accurately the financial condition of Seller as of the dates
of the balance sheets, (iii) present fairly and accurately, in accordance with
GAAP, the results of operations of the Business for the periods covered by such
statements, (iv) have been prepared on a basis consistent with the preparations
of Seller's prior years' financial statements, (v) include all adjustments which
are necessary for a fair presentation of the financial condition of Seller and
of the results of operations of the Business for the periods covered by such
statements, and (vi) make full and adequate provisions for all liabilities or
obligations of Seller, whether accrued, absolute, contingent or otherwise. The
Financial Statements present fairly the financial condition and results of
operations of the Business for the dates or periods indicated thereon. Except
for the omission of certain notes and the absence of year-end adjustments
(consisting only of normal recurring adjustments) in the Latest Financial
Statement, all of such Financial Statements have been prepared in accordance
with GAAP (as qualified in the opinions to the Financial Statements) applied on
a consistent basis throughout the periods indicated.
(b) Except as otherwise set forth in Schedule 3.08(b) attached
hereto, or in the Financial Statements, the Seller does not have any liabilities
or obligations (whether accrued, absolute, contingent, known, unknown or
otherwise, and of a nature required to be reflected or reserved against in a
balance sheet in accordance with GAAP) that individually or in the aggregate
exceeds $25,000, which relate to the Business.
(c) The accounts and notes receivable reflected on the Latest
Financial Statement and all of the Seller's accounts and notes receivable
arising since the date of the Latest Financial Statement arose from bona fide
transactions in the ordinary course of business, and the goods and services
involved have been sold, delivered and performed to the account obligors, and no
further filings (with governmental agencies, insurers or others) are required to
be made, no further goods are required to be provided and no further services
are required to be rendered in order to complete the sales and fully render the
services and to entitle the Seller to collect the accounts and notes receivable
in full. No such account has been assigned or pledged to any other person, firm
or corporation and no defense or set-off to any such account has been asserted
by the account obligor or exists.
3.09 ABSENCE OF CERTAIN CHANGES.
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(a) Except as described in Schedule 3.09(a), since December
31, 1995, there has not been:
(i) any change in circumstances that had or might
have a Material Adverse Effect on the Business, the Assets, or the operations,
prospects, financial condition or working capital of the Business;
(ii) any damage, destruction or loss (whether or not
covered by insurance) that had or might reasonably be expected to have a
Material Adverse Effect on the Business, the Assets, or the operations,
prospects, financial condition or working capital of the Business; or
(iii) any change in the sales patterns, pricing
policies, employee compensation or status, accounts receivable or accounts
payable that had or might reasonably be expected to have a Material Adverse
Effect on the Business;
(b) Since December 31, 1995, the Seller has not done any of
the following:
(i) acquired the business or substantially all of
the assets of any Person;
(ii) purchased any securities of any Person;
(iii) sold, transferred, leased, mortgaged,
encumbered or otherwise disposed of, or agreed to sell, transfer, lease,
mortgage, encumber or otherwise dispose of any Assets, except (i) in the
ordinary course of business, or (ii) pursuant to any agreement specified in
Schedule 3.13(a);
(iv) settled any claim or litigation, or filed any
motions, orders, briefs or settlement agreements in any proceeding before any
Governmental Authority or any arbitrator other than in the ordinary course of
business;
(v) other than in the ordinary course of business,
incurred or approved, or entered into any agreement or commitment to make, any
expenditures in excess of $25,000 (other than those required pursuant to any
agreement specified in Schedule 3.13(a));
(vi) maintained its books of account other than in
the usual, regular and ordinary manner in accordance with GAAP and on a basis
consistent with prior periods or made any change in any of its accounting
methods or practices that would be required to be disclosed under GAAP;
(vii) engaged in any one or more activities or
transactions outside the ordinary course of business;
(viii) other than in the ordinary course of business,
made any increase in (a) the rate of compensation payable or to become payable
by the Seller to its employees engaged in the Business, or (b) the payment of
any bonus, payment or arrangement made to, for or with any employees of the
Seller engaged in the Business, except as required in the agreements set forth
in Schedule 3.13(a) or by any Employee Benefits set forth in Schedule 3.07(a);
(ix) made any material and adverse change, whether
oral or written, to any agreement or understanding with any of the suppliers
listed or required to be listed on Schedule 3.18, or entered into any new
agreements or understandings with suppliers other than as set forth in Schedule
3.13(a);
(x) incurred or approved, or entered into any
customer incentive program that could result in savings to any and all such
customers that exceed $5,000 in the aggregate; or
(xi) committed to do any of the foregoing.
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3.10 COMPLIANCE WITH LAWS. Except as described in Schedule 3.10, the
Seller is and has been in compliance in all respects with any and all Legal
Requirements applicable to the Business. None of the Selling Parties has
received or entered into any citations, complaints, consent orders, compliance
schedules, or other similar enforcement orders or received any written notice
from any Governmental Authority or any other written notice that would indicate
that the Seller is not currently in compliance with all such Legal Requirements
with respect to the Business. Without limiting the generality of the foregoing,
none of the Selling Parties has received notice of, and to the Knowledge of the
Seller, there is no basis for any claim, action, suit, investigation or
proceeding that might result in a finding that the Seller is not or has not been
in compliance with the Foreign Corrupt Practices Act of 1977, as amended, and
the rules and regulations promulgated thereunder.
3.11 LITIGATION; DEFAULT. Except as otherwise set forth in Schedule
3.11(1), there are no claims, actions, suits, investigations or proceedings
against the Seller pending or, to the Knowledge of the Seller, threatened in any
court or before or by any Governmental Authority, or before any arbitrator, that
might reasonably be expected to have a Material Adverse Effect (whether covered
by insurance or not) on the Business, the Assets, or the operations, prospects,
working capital or financial condition of the Business and, to the Knowledge of
the Seller, there is no basis for any such claim, action, suit, investigation or
proceeding that is reasonably likely to result in a judgment, decree or order
having a Material Adverse Effect on the Business, the Assets, or the operations,
prospects, working capital or financial condition of the Business. Except as
other wise set forth in Schedule 3.11(2), the Seller is not in default under,
and no condition exists (whether covered by insurance or not) that with or
without notice, or lapse of time, or both, would (i) constitute a default under,
or breach or violation of, any Legal Requirement, Permit or Contract applicable
to the Business, or (ii) accelerate or permit the acceleration of the
performance required under, or give any other party the right to terminate, any
of the Assumed Contracts.
3.12 OWNERSHIP OF ASSETS.
(a) Except as describe in Schedule 3.12(a), the Seller has and
will have as of the Closing Date legal and beneficial ownership of the Assets,
free and clear of any and all liens, mortgages, pledges, adverse claims,
encumbrances or other restrictions or limitations whatsoever; PROVIDED, however,
that with respect to all parcels of real estate to be sold pursuant to Section
1.01(a)(viii), the Seller shall only warrant the title thereto against the
lawful claims of all Persons claiming the same by, through or under a conveyance
from the Seller but not further or otherwise.
(b) None of Seller's Affiliates has directly or indirectly
acquired any interests in any of the Assets or any rights or interests related
to any of the Assets.
(c) To the knowledge of the Seller, the Seller has the right
to use and shall as of the Closing Date have the right to use any and all
information, trade secrets, patents, copyrights, trademarks, trade names and
other intangible properties that are necessary or customarily Used by the Seller
for the ownership, management or operation of the Business ("Intangible Rights")
including, but not limited to, the Intangible Rights listed on Schedule 3.12(c).
Except as listed on Schedule 3.12(c), Seller has received no written notice of a
basis for the assertion of any claims based upon an improper or unauthorized use
of Intangible Rights by the Seller.
3.13 COMMITMENTS.
(a) Except as otherwise set forth in Schedule 3.13(a), the
Seller is not a party to or bound by any of the following, whether written or
oral, relating to the Business:
(i) any contract or commitment for capital
expenditures by the Seller in excess of $25,000 per calendar quarter in the
aggregate;
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(ii) any lease or license with respect to any
Assets, real or personal, whether as landlord, tenant, licensor or licensee,
including the Leases;
(iii) any partnership agreement;
(iv) any contract with any Affiliate of Seller
relating to the provision of goods or services by or to the Seller;
(v) agreement for the sale of any Assets that in
the aggregate have a net book value on the Seller's books of greater than
$25,000 other than for the sale of inventory in the ordinary course of business;
(vi) agreement that purports to limit the Seller's
freedom to compete freely in any line of business or in any geographic area; or
(vii) preferential purchase right, right of first
refusal, or similar agreement;
(b) All of the Assumed Contracts are valid, binding and in
full force and effect, with no material defaults in existence, and none of the
Selling Parties has been notified or advised by any party thereto of such
party's intention or desire to terminate or modify any such Assumed Contract in
any respect. Following the Closing, Buyer will be entitled to all of the
benefits of Seller under the Assumed Contracts. True, correct and complete
copies of the Assumed Contracts have been delivered to Buyer.
(c) Except as otherwise set forth in Schedule 3.13(c), the
Seller is not a party to or bound by any Contract or Contracts relating to the
Business, the terms of which were arrived at by or otherwise reflect
less-than-arm's-length negotiations or bargaining.
3.14 INSURANCE. The CNA Industrial Risk Information System Report,
dated October 13, 1995, previously delivered to Buyer, contains a list of all
claims during the last three (3) years, whether or not insured, in respect to
casualty losses or occurrences, property damage or liability for personal injury
or otherwise, whether made by Seller against any insurer or made against Seller
by any person or entity (including any customer or employee) relating to the
Business or the Assets.
3.15 INVENTORIES. The inventory of the Seller as of the Closing Date
shall be usable and saleable in the ordinary and usual course of business. Such
inventory is carried on the Seller's books of account in accordance with GAAP
(on the FIFO cost, lower of cost or market, basis) (the "FIFO Cost Inventory").
Except as set forth on Schedule 3.15, the Seller is not under any liability or
obligation with respect to the return of Seller's inventory or merchandise in
the possession of wholesalers, distributors, retailers or other customers. All
inventory is located at the locations set forth on Schedule 3.15.
3.16 EQUIPMENT AND OTHER TANGIBLE PROPERTY. The Seller's equipment,
computers, furniture, machinery, structures, fixtures and other tangible
Property included in the Assets (the "Tangible Business Assets"), other than
inventory, is in good operating condition and repair, except for ordinary wear
and tear, and except for such Tangible Business Assets as shall have been taken
out of service on a temporary basis for repairs or replacement consistent with
the Seller's prior practices.
3.17 PERMITS; ENVIRONMENTAL MATTERS.
(a) Except as otherwise set forth in Schedule 3.17(a), to the
Actual Knowledge of the Seller, the Seller has all material Permits necessary
for the Seller to construct, own, operate, use and/or maintain its Assets and to
conduct the Business as presently conducted. All such Permits of Seller are set
forth in Schedule 3.17(a). Except as otherwise set forth in Schedule 3.17(a),
all such Permits are in effect, no proceeding is pending, or to the Knowledge of
the Seller threatened, against the Seller to modify, suspend or revoke,
withdraw, terminate, or otherwise limit any such Permits, and no administrative
or
12
governmental actions have been taken, or to the Knowledge of the Seller
threatened, against the Seller, in connection with the expiration or renewal of
such Permits which could adversely affect the ability of the Seller to own,
operate, use or maintain any of its Assets or to conduct the Business as
presently conducted. Except as otherwise set forth in Schedule 3.17(a), no
violations have occurred that remain uncured, unwaived, or otherwise unresolved,
or are occurring in respect of any such Permits, other than inconsequential
violations.
(b) Except as otherwise set forth on Schedule 3.17(b), there
are no claims, investigations, litigation, or administrative proceedings
pending, or to the Knowledge of the Seller, threatened against the Seller, and
there are no judgments or decrees to which the Seller is a party, relating to
the generation, storage, location, transport, release or migration of Hazardous
Materials on, under or from the Owned Real Estate or the Leased Real Estate
(collectively called "Environmental Claims").
(c) Except as otherwise set forth in Schedule 3.17(c), to the
Actual Knowledge of the Seller, there are no claims, investigations, litigation,
or administrative proceedings pending or threatened against any Person other
than the Seller, and there are no judgments or decrees to which any other Person
is a party, relating to the generation, storage, location, transport, release or
migration of Hazardous Materials on, under, or from the Owned Real Estate or the
Leased Real Estate.
(d) Except as otherwise set forth in Schedule 3.17(d), to the
Actual Knowledge of the Seller, no Hazardous Materials are or have been
generated, stored, located, transported, released or migrated on, under or from
the Owned Real Estate or the Leased Real Estate in violation of any
Environmental Laws.
(e) NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS
AGREEMENT, THE REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS SECTION 3.17
SHALL BE DEEMED TO CONSTITUTE THE SOLE REPRESENTATIONS AND WARRANTIES MADE BY
THE SELLING PARTIES TO THE BUYER WITH RESPECT TO HAZARDOUS MATERIALS AND
ENVIRONMENTAL LAWS, AND IF AND TO THE EXTENT ANY OTHER PROVISIONS OF THIS
AGREEMENT MAY BY THEIR TERMS PURPORT TO COVER OR INCLUDE HAZARDOUS MATERIALS OR
ENVIRONMENTAL LAWS, THEN ALL PARTIES HEREBY EXPRESSLY EXCLUDE FROM SUCH
PROVISIONS ANY COVERAGE OR INCLUSION OF HAZARDOUS MATERIALS AND ENVIRONMENTAL
LAWS. THE FOREGOING SHALL NOT BE DEEMED TO RESTRICT THE PROVISIONS OF THE
ENVIRONMENTAL INDEMNITY AGREEMENT.
3.18 SUPPLIERS AND CUSTOMERS. Schedule 3.18 sets forth the fifty (50)
principal suppliers of the Seller for the calendar year 1995 and twenty-five
(25) principal customers for each branch of the Seller during each of calendar
years 1994 and 1995 together with the dollar amount of goods purchased by the
Seller from each such supplier and sold by the Seller to each such customer
during each such periods. Except as otherwise set forth in Schedule 3.18, the
Seller maintains good relations with all suppliers and customers listed or
required to be listed in Schedule 3.18, and no such party has canceled,
terminated or made any threat to any Selling Party to cancel or otherwise
terminate its relationship with the Seller or to materially decrease its
services or supplies to the Seller or its direct or indirect purchase or usage
of the products or services of the Seller.
3.19 PRODUCT CLAIMS. No material product or service liability claim is
pending or, to the Knowledge of the Seller, threatened against the Seller or
against any other party with respect to the products or services of the Seller.
Schedule 3.19 lists all product and service liability claims seeking damages in
excess of $2,500 asserted against the Seller (or in respect of which the Seller
received written notice) with respect to the products or services of the Seller
during the last two years. Product and service liability claims not listed in
Schedule 3.19 because of the threshold amount do not aggregate more than
$25,000.
3.20 WARRANTIES AND RETURNS. Schedule 3.20 sets forth a summary of the
present practices and policies followed by the Seller with respect to
guarantees, warranties, extended warranties, servicing or
13
repairs of any products sold and services rendered by Seller, whether such
practices are oral or in writing or are deemed to be legally enforceable. Except
as set forth in Schedule 3.20, there is not presently, nor has there been within
the last three (3) years, any failure of a product sold by the Seller which, to
the Knowledge of the Seller, may require a general recall or replacement
campaign with respect to such product or a reformulation or change of such
product, nor, to the Knowledge of the Seller, has there been any acceptance of
returned defective goods of the Seller in excess of $50,000 for all such
products sold by the Seller since 1993.
3.21 SUFFICIENCY OF TRANSFERRED ASSETS. The Assets represent and
constitute all assets, rights and privileges owned by the Seller in connection
with or which have been Used in the Business (other than the Excluded Assets).
To the knowledge of the Selling Parties, there are no existing or announced
changes in the policies of any of the Seller's suppliers or customers which
would have a Material Adverse Effect on Seller or the Business. The Assets
constitute and represent all material assets and rights of the Seller Used in
the Business.
3.22 CUSTOMER INCENTIVE PROGRAMS. Schedule 3.22 sets forth a summary of
all customer incentive programs, whether oral or in writing or deemed to be
legally enforceable, including (i) the name of the customer subject to such
program, (ii) a summary of the terms of such program, and (iii) the amount of
incentives received by such customer under such program to date.
3.23 SOLVENCY. Seller is solvent and able (and, after giving effect to
the consummation of this Agreement, will be solvent and able) to pay its debts
as they become due.
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to the Selling Parties that:
4.01 CORPORATE EXISTENCE AND QUALIFICATION. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Florida; has the corporate power to own, manage, lease and hold its properties
and to carry on its business as and where such properties are presently located
and such business is presently conducted; and is duly qualified to do business
and is in good standing in each of the jurisdictions where the character of its
properties or the nature of its business requires it to be so qualified.
4.02 AUTHORITY, APPROVAL AND ENFORCEABILITY. This Agreement has been
duly executed and delivered by Buyer and Buyer has all requisite corporate power
and legal capacity to execute and deliver this Agreement and all Collateral
Agreements executed and delivered or to be executed and delivered by Buyer in
connection with the transactions provided for hereby, to consummate the
transactions contemplated hereby and by the Collateral Agreements, and to
perform its obligations hereunder and under the Collateral Agree ments. The
execution and delivery of this Agreement and the Collateral Agreements and the
performance of the transactions contemplated hereby and thereby have been duly
and validly authorized and approved by all corporate action necessary on behalf
of Buyer. This Agreement and each Collateral Agreement to which Buyer is a party
constitutes, or upon execution and delivery will constitute, the legal, valid
and binding obligation of Buyer, enforceable against it in accordance with its
terms, except as such enforcement may be limited by general equitable principles
or by applicable bankruptcy, insolvency, moratorium, or similar laws and
judicial decisions from time to time in effect which affect creditors' rights
generally.
4.03 NO DEFAULT OR CONSENTS. Except as otherwise set forth in Schedule
4.03, neither the execution and delivery of this Agreement nor the carrying out
of the transactions contemplated hereby will:
(i) violate or conflict with any of the terms, conditions
or provisions of Buyer's articles of incorporation or bylaws;
14
(ii) violate any Legal Requirements applicable to Buyer;
(iii) violate, conflict with, result in a breach of,
constitute a default under (whether with or without notice or the lapse of time
or both), or accelerate or permit the acceleration of the performance required
by, or give any other party the right to terminate, any contract or Permit
applicable to Buyer;
(iv) result in the creation of any lien, charge or other
encumbrance on any property of Buyer; or
(v) require Buyer to obtain or make any waiver, consent,
action, approval or authorization of, or registration, declaration, notice or
filing with, any private non-governmental third party or any Governmental
Authority that has not heretofore been obtained or waived.
4.04 NO PROCEEDINGS. No suit, action or other proceeding is pending or,
to Buyer's Knowledge, threatened before any Governmental Authority seeking to
restrain Buyer or prohibit its entry into this Agreement or prohibit the
Closing, or seeking Damages against Buyer or its properties as a result of the
consummation of this Agreement.
4.05 SOLVENCY. Buyer is solvent and able (and, after giving effect to
the consummation of this Agreement, will be solvent and able) to pay its debts
as they become due.
ARTICLE V - OBLIGATIONS PRIOR TO CLOSING
From the date of this Agreement through the Closing:
5.01 BUYER'S ACCESS TO INFORMATION AND ASSETS. The Seller shall permit
Buyer and its authorized employees, agents, accountants, legal counsel and other
representatives to have access to the books, records, employees, accountants,
engineers and other representatives of the Seller at all times reasonably
requested by Buyer for the purpose of conducting an investigation of the
Business, the Assumed Obligations, the Assets and the Seller's financial
condition, operations and prospects. The Seller shall make available to Buyer
for examination all documents and data of every kind and character relating to
the Business, the Assets and the Assumed Obligations in possession or control
of, or subject to reasonable access by, the Seller, including, without
limitation, all files, records, data and information (whether stored in paper,
magnetic or other storage media) and all agreements, instruments, contracts,
assignments, certificates, orders, and amendments thereto. Also, the Seller
shall allow Buyer access to, and the right to inspect, all of the Assets, except
to the extent that such Assets are operated by a third-party operator, in which
case the Seller shall use its best efforts to cause the operator of such Assets
to allow Buyer access to, and the right to inspect, such Assets.
5.02 SELLER'S CONDUCT OF BUSINESS AND OPERATIONS. The Seller shall keep
Buyer advised as to all material operations and proposed material operations
relating to the Business. The Seller shall (a) conduct its Business in the
ordinary course, (b) maintain and operate its Assets in a good and workmanlike
manner, (c) pay or cause to be paid all costs and expenses (including but not
limited to insurance premiums) incurred in connection therewith in a timely
manner, (d) comply with all of the covenants contained in all Assumed Contracts,
(e) maintain in force until the Closing Date insurance policies equivalent to
those in effect on the date hereof, and (f) comply in all material respects with
all applicable Legal Requirements. Except as otherwise contemplated in this
Agreement, the Seller will use its best efforts to preserve the present
relationships of the Seller with persons having significant business relations
therewith.
5.03 GENERAL RESTRICTIONS. Except as otherwise expressly permitted in
this Agreement, without the prior written consent of Buyer, which consent shall
not be unreasonably withheld, the Seller shall not (as it relates to the
Business):
15
(i) acquire the business or substantially all of the assets
of any Person;
(ii) purchase any securities of any Person;
(iii) create, incur, assume, guarantee or otherwise become
liable or obligated with respect to any indebtedness, or make any loan or
advance to, or any investment in, any Person, except in each case in the
ordinary course of business;
(iv) make any change in any existing election, or make any
new election, with respect to any tax law in any jurisdiction which election
could have an effect on the tax treatment of the Business;
(v) enter into, amend or terminate any Assumed Contract
relating to the Business;
(vi) sell, transfer, lease, mortgage, encumber, settle,
collect, or otherwise dispose of, or agree to sell, transfer, lease, mortgage,
encumber, settle, collect, or otherwise dispose of, any Assets except (i) in the
ordinary course of business, or (ii) pursuant to any agreement specified in
Schedule 3.13(a);
(vii) other than in the ordinary course of Business, settle
any material claim or litigation, or file any material motions, orders, briefs
or settlement agreements in any proceeding before any Governmental Authority or
any arbitrator;
(viii) other than in the ordinary course of Business, incur or
approve, or enter into any agreement or commitment to make, any expenditures in
excess of $25,000 (other than those required pursuant to any agreement specified
in Schedule 3.13(a));
(ix) maintain its books of account other than in the
ordinary manner in which they have been maintained and on a basis consistent
with prior periods;
(x) adopt any Employee Benefits;
(xi) become a party to or bound by any of the arrangements
of the type described in Section 3.13(a), whether written or oral;
(xii) engage in any one or more activities or transactions
outside the ordinary course of business;
(xiii) other than in the ordinary course of Business, make any
increase in (a) the rate of compensation payable or to become payable to its
employees engaged in the Business, or (b) the payment of any bonus, payment or
arrangement made to, for or with any of employees engaged in the Business,
except as required in an agreement set forth in Schedule 3.13(a) or by any
Employee Benefits set forth in Schedule 3.07(a);
(xiv) make any change, whether oral or written, to any
agreement or understanding with any of the suppliers listed or required to be
listed on Schedule 3.18, or enter into any new agreements or understandings with
suppliers;
(xv) enter into any transaction or make any commitment which
could result in any of the representations, warranties or covenants of the
Selling Parties contained in this Agreement not being true and correct after the
occurrence of such transaction or event;
(xvi) incur or approve, or enter into any customer incentive
program; or
(xvii) commit to do any of the foregoing.
16
5.04 NOTICE REGARDING CHANGES. The Seller shall promptly inform Buyer
in writing of any change in facts and circumstances of which it acquires actual
knowledge that could reasonably be expected to render any of the representations
and warranties made herein by the Selling Parties materially inaccurate or
misleading if such representations and warranties had been made upon the
occurrence of the fact or circumstance in question.
5.05 ENSURE CONDITIONS MET.
(a) The Selling Parties shall use good faith efforts to cause
the conditions to Buyer's obligations at Closing to be satisfied on or before
the Closing Date and shall specifically use their good faith efforts to obtain
all Seller Third Party Consents and to cause to be assigned to Buyer the Assumed
Contracts (and any and all necessary Permits for the conduct of the Seller's
Business) and shall cooperate with Buyer with regard to obtaining all such
assignments.
(b) Buyer shall co-operate with Seller in causing the
conditions to Seller's obligations at Closing to be satisfied on or before the
Closing Date, and shall use its good faith efforts to obtain all Buyer Third
Party Consents.
5.06 CASUALTY LOSS. If, between the date of this Agreement and the
Closing, any of the Assets shall be destroyed or damaged in whole or in part by
fire, earthquake, flood, other casualty or any other cause, then the Seller
shall, at Buyer's election, (i) cause such Assets to be repaired or replaced
prior to the Closing with Assets of substantially the same condition and
function, (ii) deposit in a separate account an amount suffi cient to cause such
Assets to be so repaired or replaced, or (iii) enter into contractual
arrangements satisfactory to Buyer so that the Business will have at the Closing
the same economic value as if such casualty had not occurred.
5.07 EMPLOYEE MATTERS.
(a) The Seller shall permit Buyer to contact and make
arrangements with Seller's employees for the purpose of assuring their
employment by Buyer after the Closing Date and for the purpose of ensuring the
continuity of the Business, and the Seller agrees not to discourage any such
employees from being employed by or consulting with Buyer.
(b) The Seller shall use its good faith efforts to keep
available the services of its present employees through the Closing Date.
5.08 ASSETS AND LIABILITIES. The Seller shall not acquire any Assets or
become liable for any liabilities outside the ordinary course of business.
ARTICLE VI - CONDITIONS TO SELLING PARTIES'
AND BUYER'S OBLIGATIONS
6.01 CONDITIONS TO OBLIGATIONS OF THE SELLING PARTIES. The obligations
of the Selling Parties to carry out the transactions contemplated by this
Agreement are subject, at the option of the Selling Parties, to the satisfaction
or waiver of the following conditions:
(a) Buyer shall have furnished Seller with a certified copy of
all necessary corporate action on its behalf approving its execution, delivery
and performance of this Agreement.
(b) All representations and warranties of Buyer contained in
this Agreement shall be true and correct in all material respects at and as of
the Closing Date as if such representations and warranties were made at and as
of the Closing Date, except for changes contemplated by the terms of this
Agreement, and Buyer shall have performed and satisfied in all material respects
all covenants and
17
agreements required by this Agreement to be performed and satisfied by Buyer at
or prior to the Closing Date.
(c) As of the Closing Date, no suit, action or other
proceeding (excluding any such matter initiated by or on behalf of the Seller)
shall be pending or threatened before any Governmental Authority seeking to
restrain any Selling Party or prohibit the Closing or seeking Damages against
any Selling Party as a result of the consummation of this Agreement.
(d) Seller shall have received the opinion of Martin, Tate,
Morrow & Marston, P.C., special counsel to Buyer in accordance with the
provisions of Section 2.03(iii).
(e) Buyer shall have delivered the items required to be
delivered as set forth in Section 2.03 hereof.
(f) Seller shall have received in writing all Seller Third
Party Consents, and Buyer shall have received in writing all Buyer Third Party
Consents.
(g) The Hart-Scott Filing shall have been duly filed, and the
required notification period shall have expired without adverse governmental
action (or waiver of such period has been granted by the appropriate federal
agencies).
6.02 CONDITIONS TO OBLIGATIONS OF BUYER. The obligations of Buyer to
carry out the transactions contemplated by this Agreement are subject, at the
option of Buyer, to the satisfaction or waiver by Buyer, of the following
conditions:
(a) All representations and warranties of the Seller contained
in this Agreement shall be true and correct in all material respects at and as
of the Closing Date as if such representations and warranties were made at and
as of the Closing Date, except for changes contemplated by the terms of this
Agreement, and the Selling Parties shall have performed and satisfied in all
material respects all agreements and cov enants required by this Agreement to be
performed and satisfied by them at or prior to the Closing Date.
(b) As of the Closing Date, no suit, action or other
proceeding (excluding any such matter initiated by or on behalf of Buyer) shall
be pending or threatened before any court or governmental agency seeking to
restrain Buyer or prohibit the Closing or seeking Damages against Buyer, the
Seller, the Business or the Assets as a result of the consummation of this
Agreement.
(c) All notices required to be given in connection with the
transactions contemplated by this Agreement shall have been duly and timely
given.
(d) Except for matters disclosed in Schedule 3.09(a) attached
hereto, since December 31, 1995 and up to and including the Closing Date, there
shall not have been:
(i) any change in the Business, the Assets or the
operations, prospects, working capital or financial condition of the Seller that
had or might reasonably be expected to have a Material Adverse Effect on the
Business, the Assets or the operations, prospects, working capital or financial
condition of the Business;
(ii) any damage, destruction or loss to the Seller
(whether or not covered by insurance) that had or might reasonably be expected
to have a Material Adverse Effect on the Business, the Assets or the operations,
prospects, working capital or financial condition of the Business.
(e) Buyer shall have made a determination satisfactory to
Buyer that Seller shall have on the Closing Date good, marketable and
indefeasible fee simple title to such real estate free and clear of
18
all liens, encroachments, covenants, easements, restrictions and other matters
which could reasonably be expected to materially and adversely affect the
current use, occupancy or value, or the marketability of title, of the real
estate (except for matters which have been expressly approved, in writing, by
Buyer). With respect to such determination, the parties agree as follows:
(i) Seller agrees to promptly furnish title searches
or abstracts for the real property in Memphis, Tennessee from Security Title
Company, Inc., for purpose of obtaining title commitments, and will furnish
title insurance commitments (the title commitments and the title insurance
commitments will be effectively referred to herein as "Title Commitments") for
the real property located in Little Rock, Arkansas and St. Louis, Missouri,
issued by a title insurance company selected by Buyer, committing to insure fee
simple marketable title to all parcels of real estate in the amount of the value
of each such parcel of real estate as reasonably established by Buyer and in
Buyer's name (the title commitments and the title insurance commitments will be
collectively referred to herein as "Title Commitments"). Upon receipt of the
Title Commitments, Buyer shall have fifteen (15) days to examine the same and
inform Seller in writing of Buyer's objection to any exception contained in or
title defect revealed by any such Title Commitment which violates the first
sentence of Section 6.02(e) above.
(ii) If, after examining the Title Commitments, Buyer
notifies Seller in writing of an exception in the Title Commitment which
violates the first sentence of Section 6.02(e) and which the issuing title
company either refuses to delete or provide satisfactory coverage against,
Seller shall have until the Closing Date to (i) have any such exception removed
or to provide assurance to Buyer that such exception will be removed upon
issuance of the final policy or (ii) to deliver a commitment from another title
insurance company acceptable to Buyer with an office in the county in which such
real estate is located to issue a title insurance policy with such exception to
be deleted or insured upon issuance of the final title policy. If prior to the
Closing Date, Seller is unable to have any such exception removed or to provide
Buyer with assurance that the exception will be removed upon issuance of the
final policy, or to procure a commitment from another such title company to
delete such exception, or insure over it upon issuance of the final policy,
Buyer will have the option to accept title without removal or rectification of
the matter objected to or Buyer may terminate this Agreement.
(f) The Buyer shall have received the opinion of Waring Cox,
counsel to the Seller, in accordance with the provisions of Section 2.02(ix).
(g) The Selling Parties shall have furnished Buyer with a
certified copy of all corporate action on its behalf approving the execution,
delivery and performance of this Agreement.
(h) Buyer shall have completed its due diligence
investigation, and the results thereof shall not have revealed that any of the
representations and warranties of the Selling Parties set forth herein are
untrue or incorrect in any material respect or that any condition or matter
exists that might reasonably be expected to have a material and adverse effect
on the ownership, operation, value, or prospects of the Assets or Business,
including without limitation the results of all environmental investigations
with respect to the real estate currently being leased by Seller or being
acquired by the Buyer hereunder.
(i) All proceedings to be taken by the Selling Parties in
connection with the transactions contemplated hereby and all documents incident
thereto shall be reasonably satisfactory in substance to Buyer and its counsel,
and Buyer and said counsel shall have received all such counterpart originals or
certified or other copies of such documents as it or they may have reasonably
requested in advance.
(j) Buyer shall have received in writing all Buyer Third Party
Consents, and Seller shall have received in writing all Seller Third Party
Consents.
19
(k) The Hart-Scott Filing shall have been duly filed, and the
required notification period shall have expired without adverse governmental
action (or waiver of such period has been granted by the appropriate federal
agencies).
(l) Buyer shall have received written evidence, in form and
substance satisfactory to Buyer, of the consent to the transactions contemplated
by this Agreement of all other governmental, quasi-governmental and private
third parties where the absence of any such consent would result in a violation
of law or a breach or default under any Contract.
(m) Buyer shall have received written evidence in form and
substance satisfactory to Buyer, of the termination, at or prior to the Closing,
of any and all liens that encumber the Assets.
(n) Seller shall have delivered the items required to be
delivered as set forth in Section 2.02 hereof.
ARTICLE VII - POST-CLOSING OBLIGATIONS
7.01 FURTHER ASSURANCES. Following the Closing, the Selling Parties and
the Buyer shall execute and deliver such documents, and take such other action,
as shall be reasonably requested by any other party hereto to carry out the
transactions contemplated by this Agreement.
7.02 PUBLICITY. None of the Selling Parties shall issue or make, or
cause to have issued or made, any public release or announcement concerning this
Agreement or the transactions contemplated hereby, without the advance approval
in writing of the form and substance thereof by the Buyer, except as required by
law (in which case, so far as possible, there shall be consultation between the
parties prior to such announcement).
7.03 NON-COMPETITION.
(a) GENERAL. In consideration of the payment of the Purchase
Price, and in order to induce the Buyer to enter into this Agreement and to
consummate the transactions contemplated hereby, each of the Selling Parties
hereby covenants and agrees as follows:
(i) None of the Selling Parties, without the prior
written consent of Buyer, shall for a period of three (3) years from and after
the Closing Date, directly or indirectly, for itself or for any other Person,
firm, corporation, partnership, association or other entity, employ or attempt
to employ any employee of the Seller, the Buyer or any of Buyer's Affiliates
until at least one year after the date such employee was not employed by the
Seller, the Buyer or any of their Affiliates.
(ii) None of the Selling Parties, nor any of their
Affiliates, shall, without the prior written consent of the Buyer and for a
period of three (3) years from and after the Closing Date, (A) directly or
indirectly acquire or own in any manner any interest in any Person, firm,
partnership, corporation, association or other entity which is engaged in any
facet of the Business or which competes in the Business in any way with the
Buyer or any of its subsidiaries or Affiliates, anywhere within the States of
Tennessee, Arkansas, Missouri, Alabama or Mississippi (the "Territory") (except
for acquiring ownership of any stocks, bonds, or securities of any publicly
traded company, so long as the Selling Parties and their Affiliates do not
jointly or severally own more than ten (10%) percent of the issued and
outstanding amounts of such stocks, bonds or securities), or (B) be employed by
or serve as an employee, agent, officer, director of, or as a consultant to, any
Person, firm, partnership, corporation, association or other entity which is
engaged in any facet of the Business or which competes in the Business in any
way with the Buyer, or any of its subsidiaries or Affiliates, within the
Territory. It is further agreed that if at any time it shall be determined that
this covenant is unreasonable as to time or area, or both, by any court of
competent jurisdiction, Buyer shall be
20
entitled to enforce this covenant for such period of time and within such area
as may be determined to be reasonable by such court.
(b) NONDISCLOSURE. From and after the Closing Date, each of
the Selling Parties hereby agrees that it shall not at any time, disclose,
directly or indirectly, to any Person, firm, corporation, partnership,
association or other entity, any confidential information relating to the
Business, the Buyer or its subsidiaries or Affiliates, or any information
concerning their respective financial condition, customers, sources of leads and
methods of obtaining new business or the methods generally of doing and
operating their respective businesses, except to the extent that such
information is a matter of public knowledge or is required to be disclosed by
law or judicial or administrative process or is generally known in the industry
or is readily ascertainable by lawful inquiry or means.
(c) INJUNCTION. It is recognized and hereby acknowledged by
the parties hereto that a breach or violation by any of the Selling Parties or
any of their Affiliates of any or all of the covenants and agreements contained
in this Section 7.03 may cause irreparable harm and damage to Buyer in a
monetary amount which may be virtually impossible to ascertain. As a result,
each of the Selling Parties recognizes and hereby acknowledges that Buyer shall
be entitled to an injunction from any court of competent jurisdiction enjoining
and restraining any breach or violation of any or all of the covenants and
agreements contained in this Section 7.03 by the Selling Parties and/or its
associates, Affiliates, partners or agents, either directly or indirectly, and
that such right to injunction shall be cumulative and in addition to whatever
other rights or remedies the Buyer may possess hereunder, at law or in equity.
Nothing contained in this Section 7.03 shall be construed to prevent Buyer from
seeking and recovering from the Selling Parties damages sustained by it as a
result of any breach or violation by any of them of any of the covenants or
agreements contained herein.
7.04 MAINTENANCE AND ACCESS TO RECORDS.
(a) From and after the Closing Date and upon reasonable notice
and during regular business hours, the Seller shall (i) permit Buyer and its
authorized employees, agents, accountants, legal counsel and other
representatives to have access to any books, records, files, agreements and
other information relating to the Business in the possession of the Selling
Parties or their respective Affiliates and at Buyer's expense to allow copies
made thereof, and (ii) use its best efforts to permit Buyer and its authorized
employees, agents, accountants, legal counsel and other representatives to have
access to the employees, counsel, accountants and other representatives of the
Selling Parties and their respective Affiliates, in each case to the extent and
at all times reasonably requested by Buyer for the purpose of investigating or
defending any claim made against the Buyer with respect to the Business in
connection with periods ending on or before the Closing Date.
(b) Buyer shall maintain the Records for at least ten (10)
years after the Closing Date. During such period, and upon reasonable notice and
during regular business hours, Buyer shall (i) permit the Seller and its
authorized employees, agents, accountants, legal counsel and other
representatives to have access to the Records and at Seller's expense to allow
copies made thereof, and (ii) use its best efforts to permit the Seller and its
authorized employees, agents, accountants, legal counsel and other
representatives to have access to the employees, counsel, accountants,
engineers, and other representatives of the Buyer and its Affiliates, in each
case to the extent and at all times reasonably requested by the Seller for the
purpose of investigating or defending any claim made against the Buyer for which
the Selling Parties are responsible hereunder or for the purpose of responding
to any Internal Revenue Service audit applicable to the Business prior to the
Closing Date.
7.05 CONSENTS. To the extent that an attempted assignment or transfer
of any Assumed Contract, Permit or Intangible Right to be transferred to and
assumed by the Buyer hereunder without the consent of a Person other than the
Seller, would constitute a breach thereof, this Agreement shall not constitute
an assignment or attempted assignment thereof. If Seller is unable to obtain
prior to the Closing any such consent necessary for the assignment or transfer
of any Assumed Contract (other than Service
21
Contracts) or Intangible Rights, and Buyer and Seller then mutually waive in
writing the requirement that such consent be obtained prior to the Closing, then
in such a case, at or following the Closing Date, the Selling Parties shall
cooperate with the Buyer and the Buyer shall cooperate with the Selling Parties
in any reasonable back-to-back arrangements proposed by the Buyer or Selling
Parties in order to provide for the Buyer the benefits intended to be assigned
under any such Assumed Contract (unless the third party thereto rightfully
terminates or cancels such Contract), or Intangible Right, including, without
limitation, the enforcement for the benefit of the Buyer of any and all rights
of the Selling Parties against a third party to any such Assumed Contract, or
Intangible Right arising out of the breach by such third party or otherwise.
7.06 COOPERATION IN LITIGATION. Each party hereto will fully cooperate
with all other parties hereto in the defense or prosecution of any litigation or
proceeding initiated by third parties (or order or settlement in connection
therewith) already instituted or which may be instituted hereafter against or by
any party hereto relating to or arising out of the conduct of the Business prior
to the date hereof (other than litigation arising out of the transactions
contemplated by this Agreement). The party requesting such cooperation shall pay
the out-of-pocket expenses (including reasonable attorneys' fees and expenses)
of the party providing such cooperation, but shall not be responsible to
reimburse the party providing such cooperation for the salaries or costs of
fringe benefits or other similar expenses paid by the party providing such
cooperation to its employees and agents while assisting in the defense or
prosecution of any such litigation or proceeding. Notwithstanding the foregoing,
this Section 7.06 shall not apply to any litigation which is the subject of a
claim for indemnification pursuant to Article VIII hereof.
7.07 NAME CHANGE. The Selling Parties agree not to use on and after the
Closing Date the names "Three States Supply Co., Inc.," "Three States Supply,
Inc., or any other name, trademark, service mark, tradename, logo or
identification substantially or confusingly similar to "Three States Supply Co.,
Inc.," "Three States Supply, Inc., or any other name, trademark, service mark,
tradename or logo or identification that is substantially or confusingly similar
to any other trademark, service mark, tradename or logo used by the Seller in
connection with the Business.
7.08 PAYMENT OF RETAINED LIABILITIES. The Selling Parties covenant and
agree that they will pay, perform and discharge any and all liabilities and
obligations of Seller that are not included among the Assumed Obligations as and
when such payments, performances or discharges are required to be paid,
performed or granted, except to the extent a good faith dispute exists or occurs
as to Seller's liability to pay, perform, or discharge any such liabilities or
obligations and Seller diligently contests its liability or obligations with
respect thereto.
7.09 POST-CLOSING RECEIPTS. Following the Closing, the Seller shall
hold in trust for, and immediately remit to the Buyer, any amounts collected or
received by the Seller that relate to sales made on or following the Closing
Date or which relate to any of the Accounts Receivable or other Assets.
7.10 NONDISCOURAGEMENT. The Selling Parties shall not discourage any of
the Seller's employees from accepting employment offers from Buyer or from
accepting offers to serve as consultants for Buyer.
7.11 EMPLOYMENT EXPERIENCE RATING. If requested, Seller will assign to
Buyer its experience rating with the Tennessee Department of Employment
Security, together with similar experience ratings in other applicable states,
to the extent permitted by applicable law.
7.12 EMPLOYMENT MATTERS OF BUYER AFTER CLOSING.
(a) Buyer agrees to make employment offers to substantially
all of the employees of Seller (effective the day after the Closing Date)
offering to employ them commencing as of the day after the Closing Date at their
present employment locations. With respect to all such employees who accept such
employment offers, such employees will become employed by Buyer, subject in all
respects to Buyer's employment policies and practices from time to time in
effect (including without limitation the right to
22
discharge such employees). Buyer agrees that if and to the extent it takes any
action with respect to such employees on or after the Closing Date which would
require any notices to be given to the employees or any governmental agency or
authority, under 29 U.S.C. 2101 ET SEQ. (the WARN Act), or under any similar
state law relating to mass lay-offs, plant closings, work hour reductions, or
employee terminations, Buyer will give all notices with respect thereto as may
be required by any applicable federal or state laws. Buyer represents to Seller
that Buyer does not presently plan to take any such actions with respect to such
employees which would require such notices.
(b) Notwithstanding the fact that the employees of the
Business will be employed by Seller through the Closing Date, Buyer agrees that
pursuant to and in accordance with I.R.S. Revenue Procedure 84-77, 1984-2,
CB753, as amended, Buyer shall prepare and file the federal W-2 forms for all
persons who were employees of the Business at any time during the calendar year
1996, covering the period consisting of the entire calendar year 1996 (I.E.,
including the portions of such year prior to the Closing Date). Buyer's sole
obligation hereunder shall be to file said W-2 forms and Buyer shall have no
responsibility for (i) the preparation or filing of any other tax forms relating
to any of Seller's employees for the period of time prior to the Closing Date,
or (ii) the payment of any tax related thereto.
ARTICLE VIII -- TAX AND INDEMNIFICATION PROVISIONS
8.01 REPRESENTATIONS AND OBLIGATIONS REGARDING TAXES. Each of the
Selling Parties hereby represents and warrants, jointly and severally, to and
agrees with the Buyer as follows:
(a) All returns and reports, including without limitation,
information, sales tax, franchise tax and withholding returns and reports ("Tax
Returns") of or relating to any foreign, federal, state, franchise, excise or
local tax assessment or other governmental charge (all herein referred to
collectively as "Taxes" or singularly as a "Tax") that are required to be filed
on or before the Closing Date by or with respect to the Business, have been duly
and timely filed, (ii) all items of income, gain, loss, deduction and credit or
other items required to be included in such Tax Returns have been so included,
(iii) all information provided in such Tax Returns is true, correct and
complete, (iv) all Taxes that have become due with respect to the taxable years
covered by such Tax Returns have been timely paid in full, (v) no penalty,
interest or other charge is or will become due with respect to the late filing
of any such Tax Return or late payment of any such Tax, and (vi) all withholding
Tax requirements imposed on the Seller for all taxable periods through the close
of business on the Closing Date have been satisfied in full in all respects.
(b) There is no claim against any of the Selling Parties with
respect to any Taxes and no assessment, deficiency or adjustment has been
asserted or proposed with respect to any Tax Return of or with respect to any of
the Selling Parties, in each case relating to the Business.
(c) Except for federal and state tax returns for the year
1995, there is not in force any extension of time with respect to the date on
which any Tax Return of or with respect to the Business is due to be or have
been filed, or any waivers or agreements by or with respect to the Seller of or
for any extension of time for the assessment or payment of any Tax.
(d) The Seller shall grant to Buyer or its designees access at
all reasonable times to all of its books and records (including tax workpapers
and returns and correspondence with tax authorities) insofar as they relate to
the operations of the Business, including the right to take extracts therefrom
and make copies thereof, to the extent such books and records relate to taxable
periods ending on or prior to or that include the Closing Date.
(e) Seller has on file current and valid resale certificates
for all customers that are exempt from payment of sales taxes for goods
purchased from Seller, and Seller has delivered true and correct copies of all
such resale certificates to Buyer.
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8.02 INDEMNIFICATION PROVISIONS.
(a) Each of the Selling Parties hereby jointly and severally
agrees to indemnify Buyer against, and agrees to protect, save and hold harmless
Buyer from and against any and all Damages resulting from:
(i) A claim by any taxing authority for any Taxes
of the Seller relating to the Business allocable to any period ending on or
prior to the Closing Date;
(ii) A claim by any taxing authority for any Taxes
of the Seller arising from or occasioned by the sale of the Assets pursuant to
this Agreement (other than any sales tax);
(iii) Except with respect to the representations and
warranties contained in Section 3.17 (or any other matters relating to Hazardous
Materials or Environmental Laws) any breach of, or the failure to perform or
satisfy any of the representations, warranties, covenants or agreements made by
any of the Selling Parties in this Agreement or any Collateral Agreement.
(iv) Except with respect to any liability or
obligation arising from or relating to Hazardous Materials or Environmental
Laws, the existence of any liabilities or obligations of the Selling Parties
(whether accrued, absolute, contingent, known or unknown, or otherwise, and
whether or not of a nature appropriate for inclusion in a balance sheet in
accordance with GAAP) relating to the Business, other than the Assumed
Obligations.
(b) Buyer hereby agrees to indemnify the Selling Parties
against, and agrees to protect, save and hold harmless the Selling Parties from
and against, any and all Damages resulting from a breach of, or the failure to
perform or satisfy any of the representations, warranties, covenants, or
agreements made by Buyer in this Agreement or any Collateral Agreement.
(c) For purposes of this Article VIII, a party making a claim
for indemnity is referred to as the "Indemnified Party" and the party against
whom such claim is asserted is referred to as the "Indemnifying Party."
8.03 INDEMNIFICATION PROCEDURES FOR TAXING AUTHORITIES AND THIRD PARTY
CLAIMS.
(a) TAXES.
(i) If a claim shall be made by any taxing
authority for any Tax that, if successful, would result in the indemnification
of an Indemnified Party, the Indemnified Party shall promptly notify the Seller
in writing of such fact; provided, however, that any failure to give such notice
will not waive any rights of the Indemnified Party except to the extent the
rights of the Indemnifying Party are actually prejudiced.
(ii) Subject to the resolution of any Tax contest
pursuant to this Section 8.03, upon notice from Buyer to the Seller that an
Indemnified Party is entitled to an indemnification payment for Damages pursuant
to Section 8.02, the Seller (or the Shareholder) shall thereupon pay to the
Indemnified Party an amount that, net of any Taxes imposed on the Indemnified
Party with respect to such payment, will indemnify and hold the Indemnified
Party harmless from such Damages.
(iii) The Indemnified Party shall take such action in
connection with contesting such claim as the Seller shall reasonably request in
writing from time to time; provided that (A) within 30 days (or such earlier
date that any payment of Taxes is due by the Indemnified Party) after the notice
described in (i) above has been delivered, the Seller requests that such claim
be contested, (B) the Seller shall have agreed to pay to the Indemnified Party
on demand all costs and expenses that the Indemnified Party may incur in
connection with contesting such claim, including, without limitation, reasonable
attorneys'
24
and accountants' fees and disbursements, and (C) if the Indemnified Party is
requested to pay the Tax claimed and sue for a refund, the Seller (or the
Shareholder) shall have advanced to the Indemnified Party, on an interest free
basis, the amount of such claim. In the case of any such claim referred to
above, the Indemnified Party shall not make payment of such claim for at least
30 days (or such shorter period as (A) may be required by applicable law) after
the giving of the notice required by (i) above, (B) shall give to the Seller any
information reasonably requested relating to such claim, and (C) otherwise shall
cooperate with the Seller in good faith in order to contest effectively any such
claim.
(iv) Subject to the provisions of paragraph (iii)
above, the Indemnified Party shall prosecute such contest to a determination in
a court of initial jurisdiction, and if the Seller shall reasonably request, the
Indemnified Party shall prosecute such contest to a determination in an
appellate court.
(v) If, after actual receipt by the Indemnified
Party of an amount advanced by Seller (or the Shareholder) pursuant to paragraph
(ii) above, the extent of the liability of the Indemnified Party with respect to
the indemnified matter shall be established by the final judgment or decree of a
court or a final or binding settlement with an administrative agency having
jurisdiction thereof, the Indemnified Party shall promptly pay to Seller (or the
Shareholder) any refund received by or credited to the Indemnified Party with
respect to the indemnified matter (together with any interest paid or credited
thereon by the taxing authority and any recovery of legal fees from such taxing
authority). Notwithstanding the foregoing, the Indemnified Party shall not be
required to make any payment hereunder before such time as the Seller shall have
made all payments or indemnities then due with respect to Indemnified Party
pursuant to this Article VIII.
(b) THIRD PARTY CLAIMS OTHER THAN TAXES.
(i) If any claim relating to any matter (other than
a claim by a taxing authority for any Tax) for which an Indemnifying Party would
be liable to an Indemnified Party is asserted against or sought to be collected
from such Indemnified Party by a third party, said Indemnified Party shall with
reasonable promptness notify in writing the Indemnifying Party of such claim
stating with reasonable specificity the circumstances of the Indemnified Party's
claim for indemnification; provided, however, that any failure to give such
notice will not waive any rights of the Indemnified Party except to the extent
the rights of the Indemnifying Party are actually prejudiced or to the extent
that any applicable period set forth in Section 8.04 has expired without such
notice being given.
(ii) After receipt by the Indemnifying Party of such
notice, then upon reasonable notice from the Indemnifying Party to the
Indemnified Party, or upon the request of the Indemnified Party, the
Indemnifying Party shall, at its cost and expense, defend, manage and conduct
any proceedings, negotiations or communications involving any claimant whose
claim is the subject of the Indemnified Party's notice to the Indemnifying Party
as set forth above, and shall take all actions necessary, including but not
limited to the retention of counsel reasonably satisfactory to the Indemnified
Party, and the posting of such bond or other security as may be required by any
Governmental Authority, so as to enable the claim to be defended against or
resolved without expense or other action by the Indemnified Party. In the event
that the Indemnifying Party shall fail to initiate a defense of such claim
within ten days of the date of the notice to the Indemnifying Party, or in the
event that in the reasonable judgment of the Buyer, the Indemnifying Party is
not adequately defending such claim, then the Indemnified Party shall retain
counsel and conduct the defense of such claim as it may in its discretion deem
proper, at the cost and expense of the Indemnifying Party. Upon request of the
Indemnifying Party, the Indemnified Party shall, to the extent it may legally do
so and to the extent that it is compensated in advance by the Indemnifying Party
for any costs and expenses thereby incurred,
(A) take such action as the Indemnifying Party may
reasonably request in connection with such action,
25
(B) allow the Indemnifying Party to dispute such
action in the name of the Indemnified Party and to conduct a defense to such
action on behalf of the Indemnified Party, and
(C) render to the Indemnifying Party all such
assistance as the Indemnifying Party may reasonably request in connection with
such dispute and defense.
8.04 LIMITATION ON LIABILITY.
(a) The representations, warranties, covenants, and
agreements, (including, without limitation, the indemnities) of the Selling
Parties set forth in this Agreement or made in connection with the transactions
contemplated hereby, shall survive the Closing, except as expressly provided in
Section 8.04(b).
(b) Except as set forth in clauses (i), (ii), and (Iii) below,
all representations and warranties of the Selling Parties contained in this
Agreement shall expire, terminate and be of no force and effect (or provide the
basis for any claim) and no party shall have any obligation to indemnify for a
breach of any representation or warranty, unless written notice of the claim
resulting from the breach is received by the Selling Parties prior to December
31, 1998; provided, however, that (i) with respect to claims resulting from a
breach of any representation or warranty contained in Section 8.01 (a "Tax
Claim"), written notice of any such Tax Claim must be received prior to the
expiration of the statutory period during which any taxing authority may bring a
claim against Buyer for Taxes which are the subject of any such Tax Claim or,
such longer statutory period if requested by the Internal Revenue Service, (ii)
with respect to any claim of actual fraud against any of the Selling Parties or
any claim relating to a breach of any representation or warranty set forth in
Section 3.07, written notice of any such claim must be received prior to
December 31, 2004, and (iii) all representations and warranties set forth in
Section 3.17 shall expire, terminate and be of no force and effect (or provide
the basis for any claim) ten years after the date hereof (and the parties
acknowledge and agree that the applicable procedures and time periods for the
Buyer to seek indemnification with respect to any breaches thereof are governed
by the Environmental Indemnity Agreement.
(c) Notwithstanding anything to the contrary herein, (i) the
Selling Parties shall be obligated to indemnify, protect, save, and hold
harmless the Buyer as and to the extent provided in Article VIII of this
Agreement or in Section 4 of the Environmental Indemnity Agreement (all of the
foregoing obligations being collectively referred to as the "Indemnity
Obligations") or be otherwise liable to Buyer for breach of this Agreement, any
Collateral Agreement, or Section 4 of the Indemnity Agreement, only to the
extent that the aggregate of all of the Damages claimed or submitted by the
Buyer against the Selling Parties under the Indemnity Obligations and otherwise
asserted by Buyer against the Selling Parties exceeds $50,000, it being
understood that said $50,000 figure is to serve as a "basket" for the liability
of the Selling Parties hereunder and thereunder, i.e., as a "deductible" (for
example, if the Damages for which the Selling Parties would, but for the
provisions of this paragraph (c) be liable, aggregate $51,000, then the Selling
Parties would be liable only for the $1,000 in excess of the $50,000 basket),
and (ii) the aggregate of all Damages for which the Selling Parties shall be
obligated or liable to the Buyer under the foregoing is expressly limited to,
and the Buyer shall have no right to seek, recover, set-off or assert any
amounts in excess of, the dollar sum equal to the Purchase Price plus the
Assumed Payables.
8.05 SET-OFF.
(a) To the extent the Buyer is entitled to indemnification for
any Damages under Section 8.02 under this Agreement with respect to any matter,
then the Buyer may (but shall not be required to) set off against (and deduct
from) any payments owing to the Seller under this Agreement or any Collateral
Agreement all or any part of such Damages. To the extent that there remain
unsatisfied claims after the set-offs described above, Buyer shall have full
recourse against the Selling Parties for payment of such claims.
26
(b) To the extent the Seller is entitled to indemnification
for any Damages under Section 8.02 under this Agreement with respect to any
matter, then the Seller may (but shall not be required to) set-off against (and
deduct from) any payments owing to the Buyer under this Agreement or any
Collateral Agreement all or any part of such Damages. To the extent that there
remain unsatisfied claims after the set-offs described above, Seller shall have
full recourse against the Buyer for payment of such claims.
8.06 SOLE AND EXCLUSIVE REMEDIES. Notwithstanding anything to the
contrary in this Agreement, the parties expressly agree that the Environmental
Indemnity Agreement constitutes the sole and exclusive remedy, indemnification
agreement and procedure of the Buyer with respect to any breach by the Selling
Parties of any of the representations or warranties contained in Section 3.17
hereof or any other matters relating to Hazardous Materials or Environmental
Laws.
ARTICLE IX - MISCELLANEOUS
9.01 CONFIDENTIALITY. Each party hereto shall, and shall cause its
Affiliates and their respective employees, agents, accountants, legal counsel
and other representatives and advisers to, hold in strict confidence all, and
not divulge or disclose any, information of any kind concerning the transactions
contemplated by this Agreement, the Seller, the Buyer, their affiliates or their
respective businesses; provided, however, that the foregoing obligation of
confidentiality shall not apply to (i) information that is or becomes generally
available to the public other than as a result of a disclosure by any of the
parties or their Affiliates or any of their respective employees, agents,
accountants, legal counsel or other representatives or advisers, (ii)
information that is or becomes available to any of the parties or their
Affiliates or any of their respective employees, agents, accountants, legal
counsel or other representatives or advisers after the Closing Date on a
nonconfidential basis prior to its disclosure by any of the parties or their
Affiliates or any of their respective employees, agents, accountants, legal
counsel or other representatives or advisers, and (iii) information that is
required to be disclosed by any of the parties or their Affiliates or any of
their respective employees, agents, accountants, legal counsel or other
representatives or advisers as a result of any applicable law, rule or
regulation of any Governmental Authority; and provided further that each party
shall promptly shall notify the other parties of any disclosure pursuant to
clause (iii) of this Section 9.01.
9.02 BROKERS. Regardless of whether the Closing shall occur, (i) the
Selling Parties shall jointly and severally indemnify and hold harmless Buyer
from and against any and all liability for any broker's or finders' fees arising
with respect to brokers or finders retained or engaged by the Selling Parties in
respect of the transactions contemplated by this Agreement, and (ii) Buyer shall
indemnify and hold harmless the Selling Parties from and against any and all
liability for any brokers' or finders' fees arising with respect to brokers or
finders retained or engaged by Buyer in respect of the transactions contemplated
by this Agreement.
9.03 COSTS AND EXPENSES. Each of the parties to this Agreement shall
bear its own expenses incurred in connection with the negotiation, preparation,
execution and closing of this Agreement and the transactions contemplated
hereby. With respect to the real estate to be sold pursuant to Section
1.01(a)(viii), Seller shall pay for the costs of preparation of the deed and the
title search (or abstract) for the issuance of the title commitment. Buyer shall
pay for the costs of surveys (if any), transfer taxes (if any), recording and
register's fees, and the title insurance premiums. With respect to the transfer
of the Assets hereunder, Buyer shall pay any sales taxes related thereto.
9.04 NOTICES. Any notice, request, instruction, correspondence or other
document to be given hereunder or under any Collateral Agreement by any party
thereto to another (herein collectively called "Notice") shall be in writing and
delivered personally or mailed by certified mail, postage prepaid and return
receipt requested, or by telecopier, as follows:
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BUYER: TSSC Acquisition, Inc.
2665 South Bayshore Drive, Suite 901
Miami, Florida 33133
Telecopy No. (305) 858-4492
WITH A COPY TO:
Martin, Tate, Morrow & Marston, P.C.
22 North Front Street, Suite 1100
Memphis, Tennessee 38103-1182
Attention: W. Emmett Marston
Telecopy No. (901) 527-3746
SELLING PARTIES: Three States Supply Co., Inc. and UIS, Inc.
15 Exchange Place
Jersey City, New Jersey 07302
Attention: Joseph F. Arrigo
Telecopy No. (201) 946-2600
WITH A COPY TO:
Waring Cox, P.L.C.
50 North Front Street, Suite 1300
Memphis, Tennessee
Attention: Sam D. Chafetz, Esq.
Telecopy No. (901) 543-8000
Each of the above addresses for Notice purposes may be changed by providing
appropriate notice hereunder. Notice given by personal delivery or certified
mail shall be effective upon actual receipt. Notice given by telecopier shall be
effective upon actual receipt if received during the recipient's normal business
hours, or at the beginning of the recipient's next normal business day after
receipt if not received during the recipient's normal business hours. All
Notices by telecopier shall be confirmed by the sender thereof promptly after
transmission in writing by certified mail or personal delivery.
9.05 NO NEGOTIATIONS. The Selling Parties shall not, and shall cause
its Affiliates and all of its and its Affiliates' respective officers,
directors, employees, partners, agents and advisors not to, directly or
indirectly, encourage, solicit or engage in discussions or negotiations with, or
provide any information to, or consider any proposal or offer presented by, any
party concerning any sale of the Business or any of the Assets while this
Agreement is in effect. During such period, no party hereto shall enter into any
agreement or take any action that by its terms or effect could reasonably be
expected to affect adversely the ability of the parties hereto to consummate the
transactions contemplated hereby.
9.06 GOVERNING LAW. The provisions of this Agreement and the Collateral
Agreements shall be governed by and construed in accordance with the laws of the
State of Tennessee (excluding any conflict of law rule or principle that would
refer to the laws of another jurisdiction). Each party hereto consents to the
nonexclusive jurisdiction of the United States District Court for the Southern
District of Florida and of the United States District Court for the Western
District of Tennessee, Western Section, and hereby consents to the venue of any
such counts. Each party hereto consents to service of process by any means
authorized by the applicable law of the forum in any action brought under or
arising out of this Agreement or any of the Collateral Agreements.
9.07 REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of each of the parties to this Agreement shall be deemed to have been
made, and the certificates delivered pursuant to
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clause (x) of Section 2.02 and clause (iv) of Section 2.03 by a party, are
agreed to and shall be deemed to constitute the making of such representations
and warranties, again at and as of the Closing Date by and on behalf of the
party on behalf of whom such certificates are delivered.
9.08 ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This Agreement, together
with all exhibits and schedules attached hereto, constitutes the entire
agreement between and among the parties hereto pertaining to the subject matter
hereof and supersedes all prior agreements, understandings, negotiations and
discussions, whether oral or written, of the parties, and there are no
warranties, representations or other agreements between the parties in
connection with the subject matter hereof except as set forth specifically
herein or contemplated hereby. No supplement, modification or waiver of this
Agreement or any Collateral Agreement shall be binding unless executed in
writing by the party to be bound thereby. No waiver of any of the provisions of
this Agreement or any Collateral Agreement shall be deemed or shall constitute a
waiver of any other provision thereof (regardless of whether similar), nor shall
any such waiver constitute a continuing waiver unless otherwise expressly
provided.
9.09 BINDING EFFECT AND ASSIGNMENT. This Agreement and the Collateral
Agreements shall be binding upon and inure to the benefit of the parties thereto
and their respective successors and assigns; but neither this Agreement, nor any
Collateral Agreement, nor any of the rights, benefits, obligations or
liabilities thereunder shall be assigned (by operation of law or otherwise), by
any party thereto without the prior written consent of the other parties
thereto, PROVIDED; however, that (i) any party may at any time, without such
consent, make any such assignment to any of its Affiliates (but such an
assignment shall not be deemed to release such party from any of said
obligations or liabilities), or (ii) the Seller may at any time, without such
consent, dissolve and liquidate into the Shareholder (but only if the
Shareholder fully assumes in writing all of said obligations and liabilities of
Seller), or (iii) any party may at any time, without such consent, merge with or
into any Person (but only if the survivor or such merger (x) has a GAAP net
worth immediately following the merger, which is greater than or equal to the
GAAP net worth of such party immediately prior to the merger and (y) fully
assumes by operation of law or otherwise all of said obligations and liabilities
of said party). If any of the foregoing permitted assignments occur, the party
performing such assignment (or its successor or assignee) shall give written
notice to the other parties hereto within thirty (30) days after such
occurrence. Nothing in this Agreement, express or implied, is intended to confer
upon any person or entity other than the parties hereto and their respective
successors and permitted assigns, any rights, benefits or obligations hereunder.
9.10 REMEDIES. Subject to the provisions of Section 8.06, the rights
and remedies provided by this Agreement are cumulative, and the use of any one
right or remedy by any party hereto shall not preclude or constitute a waiver of
its right to use any or all other remedies and such rights and remedies are
given in addition to any other rights and remedies a party may have by law,
statute, equity or otherwise.
9.11 EXHIBITS AND SCHEDULES. The Exhibits and Schedules referred to
herein are attached hereto and incorporated herein by this reference. Disclosure
of a specific item in any one Schedule shall be deemed restricted only to the
Section to which such disclosure specifically relates except where (i) there is
an explicit cross-reference to another Schedule, or (ii) the disclosure is such
that a reasonable person would recognize that the disclosure modifies a
disclosure made elsewhere.
9.12 MULTIPLE COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.13 REFERENCES. Whenever required by the context, and as used in this
Agreement or any Collateral Agreement, the singular number shall include the
plural and pronouns and any variations thereof shall be deemed to refer to the
masculine, feminine, neuter, singular or plural, as the identification the
person may require. References to monetary amounts, specific named statutes and
generally accepted accounting principles are intended to be and shall be
construed as references to United States dollars, statutes of the United States
of the stated name and United States generally accepted accounting principles,
29
respectively, unless the context otherwise requires. As used in this Agreement,
the words "herein", "hereof" and words of similar import mean this Agreement and
not merely a particular section, paragraph or sentence thereof.
9.14 SURVIVAL. Any provision of this Agreement which contemplates
performance or the existence of obligations after the Closing Date, and any and
all representations and warranties set forth in this Agreement, shall not be
deemed to be merged into or waived by the execution and delivery of the
instruments executed at the Closing, but shall expressly survive the Closing and
shall be binding upon the party or parties obligated thereby in accordance with
the terms of this Agreement, subject to any limitations expressly set forth in
this Agreement.
9.15 ATTORNEYS' FEES. In the event any suit or other legal proceeding
is brought for the enforcement of any of the provisions of this Agreement or any
Collateral Agreement, the parties hereto agree that the prevailing party or
parties shall be entitled to recover from the other party or parties upon final
judgment on the merits reasonable attorneys' fees (and sales taxes thereon, if
any), including attorneys' fees for any appeal, and costs incurred in bringing
such suit or proceeding.
9.16 RISK OF LOSS. Prior to the Closing, the risk of loss or damage to,
or destruction of, any and all of the Assets shall remain with the Seller, and
the legal doctrine known as the "Doctrine of Equitable Conversion" shall not be
applicable to this Agreement or to any of the transactions contemplated hereby.
9.17 SPECIFIC PERFORMANCE. Each of the parties hereto acknowledges that
the rights of each other party to consummate the transactions contemplated by
this Agreement are special, unique and of extraordinary character and that, in
the event that a party violates or fails and refuses to perform any covenant or
agreement made by it in this Agreement, then each other party may be without an
adequate remedy at law. Each party agrees, therefore, that in the event it
violates or fails and refuses to perform any covenant or agreement made by it in
this Agreement, each other party may, in addition to any remedies hereunder for
damages or other relief, institute and prosecute an action in any court of
competent jurisdiction to enforce specific performance of such covenant or
agreement or seek any other injunctive relief.
9.18 BULK TRANSFER COMPLIANCE. The Selling Parties and the Buyer hereby
waive compliance with the provisions of Article 6 of the Uniform Commercial
Code, entitled "Uniform Commercial Code -- Bulk Transfers" or comparable laws
relating to bulk transfers as adopted in the various jurisdictions in which the
Assets are located, to the extent applicable to the transactions contemplated
hereby. The Selling Parties shall jointly and severally indemnify and save
harmless the Buyer from and against any and all Damages arising out of
noncompliance with said bulk transfer laws.
9.19 SEVERABILITY. If any provisions hereof are unenforceable for any
reason, then they shall be deemed to be fully severable and the remaining
provisions hereof shall continue to be fully enforceable.
ARTICLE X - DEFINITIONS
Capitalized terms used in this Agreement are used as defined in this
Article X or elsewhere in this Agreement.
10.01 ACTUAL KNOWLEDGE OF THE SELLER. The term "Actual Knowledge" when
used in connection with the Seller, means the actual knowledge of the directors,
officers or managerial personnel of the Selling Parties, with respect to the
matter in question.
10.02 AFFILIATE. The term "Affiliate" shall mean, with respect to any
Person, any other Person controlling, controlled by or under common control with
such Person. The term "Control" as used in the preceding sentence means, with
respect to a corporation, the right to exercise, directly or indirectly, more
30
than 50% of the voting rights attributable to the shares of the controlled
corporation and, with respect to any Person other than a corporation, the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person.
10.03 BUSINESS. The term "Business" shall mean the business of (i)
selling and distributing (at wholesale and retail) heating, ventilation, and air
conditioning parts, supplies, and materials, and (ii) manufacturing, selling,
and distributing (at wholesale and retail) ductwork for heating, ventilation,
and air conditioning, and (iii) selling and distributing (at wholesale and
retail) products and services related to the foregoing, as conducted by Seller
on the date hereof and through the Closing Date.
10.04 BUYER THIRD PARTY CONSENTS. The term "Buyer Third Party Consents"
shall mean all consents to the transactions contemplated by this Agreement of
all governmental, quasi-governmental, and private third parties, as to which the
absence of any such consent would result in a violation of any Legal Requirement
by Buyer, or a breach or default by Buyer under any Contract.
10.05 CLOSING DATE INVENTORY. The term "Closing Date Inventory" shall
mean the inventory of the Seller on the Closing Date, valued on the FIFO cost,
lower of cost or market, basis, as determined by the Buyer's Accountants in
accordance with GAAP.
10.06 CODE. The term "Code" shall mean the Internal Revenue Code of
1986, as amended.
10.07 COLLATERAL AGREEMENTS. The term "Collateral Agreements" shall
mean (i) any or all of the exhibits to this Agreement and any and all other
agreements, instruments, certificates or documents executed and delivered by any
of the parties hereto in connection with the transactions contemplated by this
Agreement, and (ii) the Guaranty.
10.08 CONTRACTS. The term "Contracts", when described as being those of
or applicable to any Person, shall mean any and all contracts, agreements,
franchises, understandings, arrangements, leases, licenses, registrations,
authorizations, easements, servitudes, rights of way, mortgages, bonds, notes,
guarantees, liens, indebtedness, approvals or other instruments or undertakings
to which such person is a party or to which or by which such person or the
property of such person is subject or bound, excluding any Permits.
10.09 DAMAGES. The term "Damages" shall mean any and all damages,
liabilities, obligations, penalties, fines, judgments, claims, deficiencies,
losses, costs, expenses and assessments (including without limitation income
taxes and other taxes, interest, penalties and reasonable attorneys' and
accountants' fees and disbursements), including, without limitation, those
suffered or incurred directly by any party hereto and those asserted against any
party hereto by any other Person.
10.10 ENVIRONMENTAL LAWS. The term "Environmental Laws" shall mean any
and all laws (statutory, judicial or otherwise), ordinances, regulations,
judgments, orders, directives, injunctions, writs, decrees, or awards of, and
any Contracts with, any Governmental Authority, relating to the generation,
storage, location, transport, release, migration, exposure, or threatened or
potential migrations, exposures or releases of (or liability or Damages arising
for) Hazardous Materials.
10.11 GAAP. The term "GAAP" shall mean United States generally
accepted accounting principles.
10.12 GOVERNMENTAL AUTHORITIES. The term "Governmental Authorities"
shall mean any nation or country (including but not limited to the United
States) and any commonwealth, territory or possession thereof and any political
subdivision of any of the foregoing, including but not limited to courts,
departments, commissions, boards, bureaus, agencies, ministries or other
instrumentalities.
31
10.13 HAZARDOUS MATERIAL. The term "Hazardous Material" means all or
any of the following: (a) substances that are defined or listed in, or otherwise
classified pursuant to, any applicable federal, state or local laws or
regulations as "hazardous substances," "hazardous materials," "hazardous
wastes," "toxic substances" or any other formulation intended to define, list or
classify substances by reason of deleterious properties such as ignitability,
corrositivity, reactivity, carcinogenicity, reproductive toxicity or "EP
toxicity"; (b) oil, petroleum or fraction thereof, or petroleum derived
substances, natural gas, natural gas liquids or synthetic gas and drilling
fluids, produced waters and other wastes associated with the exploration,
development or production of crude oil, natural gas or geothermal resources; (c)
any flammable substances or explosives or any radioactive materials; and (d)
asbestos in any form or electrical equipment which contains any oil or
dielectric fluid containing levels of polychlorinated biphenyls in excess of
fifty parts per million.
10.14 INITIAL COMPUTATION SHEET. The term "Initial Computation Sheet"
means that certain list of assets, liabilities, and computations, based on the
trial balances of the Seller as of December 31, 1995, a copy of which is
attached hereto as Schedule 10.14, upon and by which the parties have mutually
computed the Preliminary Net Assets.
10.15 KNOWLEDGE OF THE BUYER. The term "Knowledge of the Buyer" shall
mean the actual knowledge of the directors, officers or managerial personnel of
the Buyer with respect to the matter in question, and such knowledge as any of
them reasonably should have obtained in the ordinary course of business using
reasonable care in the operation of its business.
10.16 KNOWLEDGE OF THE SELLER. The term "Knowledge of the Seller" shall
mean the actual knowledge of the directors, officers or managerial personnel of
any Selling Party with respect to the matter in question, and such knowledge as
any of them reasonably should have obtained in the ordinary course of business
using reasonable care in the operation of the Business.
10.17 LEASED REAL ESTATE. The term "Leased Real Estate" shall mean the
real estate leased by the Seller at the six particular Business locations, the
leases of which are to be assigned to the Buyer hereunder, as more particularly
described on Schedule 1.01(a)(iii) hereof.
10.18 LEGAL REQUIREMENTS. The term "Legal Requirements", when described
as being applicable to any Person, shall mean the requirements set forth in any
and all laws (statutory, judicial or otherwise), ordinances, regulations,
judgments, orders, directives, injunctions, writs, decrees or awards of, and in
any Contracts with any Governmental Authority (excluding any present or future
Environmental Laws), in each case as and to the extent applicable to such Person
or such Person's business, operations or properties.
10.19 MATERIAL ADVERSE EFFECT. The term "Material Adverse Effect" shall
mean any event (or series of events) that results or could result in (a) a
liability or loss to the Business, the Assets, or operations, prospects,
financial condition or working capital of the Business which individually or in
the aggregate exceeds $50,000 (it being understood that any representation in
this Agreement which references this term shall, for purposes of calculating
this $50,000 amount, include all events that occur or could occur under all
representations using this term under this Agreement, (not just the
representation in which such term is used), (b) the material impairment of the
material rights or remedies of Buyer under this Agreement, or (c) the inability
of any Selling Party to perform its, material obligations under this Agreement.
10.20 OWNED REAL ESTATE. The term "Owned Real Estate" shall mean the
real estate owned by the Seller at the four particular business locations to be
sold to the Buyer hereunder, as more particularly described on Schedule
1.01(a)(viii) hereof
10.21 PURCHASE PRICE. The term "Purchase Price" shall mean the dollar
amount equal to the sum of the following items, each of which shall be
calculated as of the Closing Date by the Buyer's
32
Accountants, in accordance with GAAP, in a manner consistent with that utilized
by the Seller for prior periods:
(a) the Closing Date Inventory as defined in Section 10.05;
PLUS: (b) the book value of the Assets described in Section
1.01(a)(ii) hereof, reduced by accumulated depreciation;
PLUS: (c) the book value of the Assets described in Section
1.01(a)(v) hereof;
PLUS: (d) the book value of the Assets described in Section
1.01(a)(viii) hereof;
PLUS: (e) the book value of the Assets described in Section
1.01(a)(ix) hereof, reduced by the allowance for doubtful accounts;
LESS: (f) the amount of the Assumed Payables.
In connection with the foregoing, the parties specifically agree that to the
extent that the groups of assets identified in the Initial Computation Sheet as
assets to be purchased contain any particular types of assets which do not fall
within the specific groups itemized in (a) through (e) above, such particular
types of assets shall nonetheless be included in the computation of the Purchase
Price, in the same manner as they were included in the computation of the
Preliminary Net Assets.
10.22 PERMITS. The term "Permits" shall mean any and all permits, legal
status, orders or Contracts under any Legal Requirement or otherwise granted by
any Governmental Authority.
10.23 PERSON. The term "Person" shall mean any natural person, firm,
corporation, unincorporated organization, partnership, association, joint-stock
company, joint venture, trust or government, or any agency or political
subdivision of any government.
10.24 PRELIMINARY NET ASSETS. The term "Preliminary Net Assets" shall
mean the dollar amount equal to the sum of the following items, calculated as of
December 31, 1995, utilizing the trial balances on the Seller's books and
records:
(a) the book value of the Assets listed in Schedule 1.01(a)(i)
hereof (valued on a FIFO cost basis);
PLUS: (b) the book value of the Assets listed in Schedule
1.01(a)(ii) hereof, reduced by accumulated depreciation;
PLUS: (c) the book value of the Assets listed in Schedule 1.01(a)(v)
hereof;
PLUS: (d) the book value of the Assets listed in Schedule
1.01(a)(viii) hereof;
PLUS: (e) the book value of the Assets described in Schedule
1.01(a)(ix) hereof, reduced by the allowance for doubtful accounts;
LESS: (f) the amount of the Assumed Payables, as listed in Schedule
1.01(c).
In connection with the foregoing, the parties specifically acknowledge
that they have computed the foregoing items as set forth on the Initial
Computation Sheet, and the dollar amount of the Preliminary Net Assets is
$13,945,996.
10.25 REGULATIONS. The term "Regulations" shall mean any and all
regulations promulgated by the Department of the Treasury pursuant to the Code.
33
10.26 SELLER THIRD PARTY CONSENTS. The term "Seller Third Party
Consents" shall mean all consents to the transactions contemplated by this
Agreement of all governmental, quasi-governmental, and private third parties, as
to which the absence of any such consent would result in a violation of any
Legal Requirement by Seller, or a breach or default by Seller under any
Contract. Such term shall include, without limitation, (i) the consents of the
landlords of Seller to the Assignments and Assumptions of Leases (in
substantially the form attached hereto as Exhibit E), (ii) the consent of the
employees' union at the Seller's St. Louis, Missouri location to the Assignment
and Assumption of Labor Contract (in substantially the form attached hereto as
Exhibit H), and (iii) the consent of Ultimate Data Systems to the Assignment and
Assumption of Computer Contracts (in substantially the form attached hereto as
Exhibit I).
10.27 SERVICE CONTRACT. The term "Service Contracts" shall mean the
particular Assumed Contracts listed on Schedule 1.01(a)(iii) hereof which are
separately itemized under the category of Service Contracts. A copy of the
Assignment and Assumption of Service Contracts is attached hereto as Exhibit J.
10.28 USED. The term "Used" shall mean, with respect to the Assets or
the Business (other than the Excluded Assets), those assets owned, leased,
licensed or otherwise held by the Seller which were acquired for use or held for
use by the Seller in connection with the Business, whether or not reflected on
the Seller's books of account.
34
EXECUTED as of the date first written above.
BUYER:
TSSC ACQUISITION, INC.
By: /s/ BARRY S. LOGAN
---------------------------------------
PRESIDENT
---------------------------------------
SELLER:
THREE STATES SUPPLY CO., INC.
By: /s/ JOSEPH F. ARRIGO
---------------------------------------
EXECUTIVE V.P. & TREASURER
---------------------------------------
UIS, INC.
By: /s/ JOSEPH F. ARRIGO
---------------------------------------
EXECUTIVE V.P. & TREASURER
---------------------------------------
35
