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) September 30, 1997
Commission File Number 1-5581
WATSCO, INC.
(Exact name of registrant as specified in charter)
FLORIDA 59-0778222
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation)
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
Not applicable
(Former name or former address, if changed since last report)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On September 30, 1997 ("closing date"), Watsco, Inc. ("Watsco") and Trek
Corporation ("Trek") completed a transaction pursuant to a Stock Purchase
Agreement (the "Agreement") whereby Watsco purchased all of the issued and
outstanding capital stock of Baker Distributing Company ("Baker"), a
wholly-owned subsidiary of Trek. Baker is a wholesale distributor of air
conditioning, refrigeration and heating equipment and related parts and supplies
operating in the states of Alabama, Florida, Georgia, Louisiana, North Carolina,
South Carolina and Virginia.
The purchase price was approximately $65 million and is subject to
adjustment following an audit of Baker's financial statements as of the closing
date. Payment of the purchase price was funded from borrowings under Watsco's
syndicated revolving credit agreement led by NationsBank.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS PAGE NO.
- ------------------------------------------ --------
(a) Consolidated financial statements of Baker Distributing Company and
subsidiary:
Independent Auditors' Report 5
Consolidated Balance Sheets as of June 30, 1997 (unaudited) and September
30, 1996 6-7
Consolidated Statements of Income and Retained Earnings for the nine months
ended June 30, 1997 and 1996 (unaudited) and the year ended September 30,
1996 8
Consolidated Statements of Cash Flows for the nine months ended June 30,
1997 and 1996 (unaudited) and the year ended September 30, 1996 9
Notes to Consolidated Financial Statements 10-14
(b) Unaudited pro forma condensed consolidated financial statements:
(i) Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
June 30, 1997 giving effect to the acquisition of Baker as if it 15
had been consummated on June 30, 1997
(ii) Unaudited Pro Forma Condensed Consolidated Statements of Income
for the six months ended June 30, 1997 and the year ended December
31, 1996 giving effect to the acquisition of Baker as if it had
been consummated on January 1, 1997 and January 1, 1996, 16-17
respectively
(iii) Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements 18
(c) Exhibits:
10.19. Stock Purchase Agreement dated as of September 10, 1997 by and 19-83
between Watsco, Inc. and Trek Corporation
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/ BARRY S. LOGAN
-------------------------------
Barry S. Logan
Vice President and Secretary
(Chief Financial Officer)
Date: October 14, 1997
3
ITEM 7(a)
BAKER DISTRIBUTING COMPANY AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF TREK CORPORATION)
CONSOLIDATED FINANCIAL STATEMENTS
4
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholder
Baker Distributing Company
We have audited the accompanying consolidated balance sheet of Baker
Distributing Company (formerly known as Baker Bros., Inc.) and subsidiary (the
"Company"), a wholly-owned subsidiary of Trek Corporation, as of September 30,
1996, and the related consolidated statements of income and retained earnings
and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Baker Distributing Company and subsidiary as
of September 30, 1996 and the results of their operations and their cash flows
for the year then ended in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Jacksonville, Florida
November 22, 1996
(September 30, 1997 as to Note 10)
5
BAKER DISTRIBUTING COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND SEPTEMBER 30, 1996
(In thousands)
JUNE 30, SEPTEMBER 30,
1997 1996
----------- ------------
(Unaudited)
ASSETS
Current assets:
Cash $ 3,020 $ 2,213
Accounts receivable, less allowance for 15,132 17,884
doubtful accounts of $582 and $374,
respectively
Employee receivables 584 845
Inventories 23,056 23,619
Prepaid expenses 268 178
--------- ---------
Total current assets 42,060 44,739
--------- ---------
Property, plant and equipment, at cost:
Land 12 15
Buildings and improvements 290 507
Vehicles and warehouse equipment 1,789 1,872
Furniture and fixtures 1,885 2,053
Leasehold improvements 1,216 1,329
--------- ---------
5,192 5,776
Less accumulated depreciation and amortization 3,239 3,273
--------- ---------
1,953 2,503
--------- ---------
Other assets 808 952
Deferred income taxes 1,223 1,223
Due from parent, net 3,545 --
--------- ---------
Total assets $ 49,589 $ 49,417
========= =========
(continued)
6
BAKER DISTRIBUTING COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND SEPTEMBER 30, 1996
(In thousands)
June 30, September 30,
1997 1996
--------- ---------
(Unaudited)
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 11,100 $ 12,047
Accrued liabilities:
Salaries and bonuses 896 1,371
Profit-sharing plan 350 910
Other 1,624 1,380
Income taxes payable 673 194
Current portion of long-term debt 75 69
Deferred income taxes 939 939
--------- ---------
Total current liabilities 15,657 16,910
--------- ---------
Due to parent, net -- 145
Deferred compensation under stock
appreciation rights plan 2,078 2,557
Long-term debt, net of current portion 112 160
Commitments and contingencies (Notes 5 and 8)
Stockholder's equity:
Common stock - no par value; authorized, issued
and outstanding 60 shares 4,157 4,157
Retained earnings 27,585 25,488
--------- ---------
Total stockholder's equity 31,742 29,645
--------- ---------
Total liabilities and stockholder's equity $ 49,589 $ 49,417
========= =========
See notes to consolidated financial statements.
7
BAKER DISTRIBUTING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1996 AND YEAR ENDED SEPTEMBER 30, 1996
(In thousands)
NINE MONTHS ENDED
JUNE 30, YEAR ENDED
----------------------- SEPTEMBER 30,
1997 1996 1996
---------- ---------- ----------
(Unaudited)
Revenues:
Net sales $ 102,536 $ 113,507 $ 163,600
Other income 440 376 560
---------- ---------- ----------
Total revenues 102,976 113,883 164,160
---------- ---------- ----------
Cost and expenses:
Cost of sales 78,475 87,132 124,961
Selling, general and administrative expenses 20,986 22,427 32,119
---------- ---------- ----------
Total costs and expenses 99,461 109,559 157,080
---------- ---------- ----------
Operating income 3,515 4,324 7,080
Interest expense 21 208 239
---------- ---------- ----------
Income before income taxes 3,494 4,116 6,841
Provision for income taxes:
Federal 1,223 1,406 2,268
State 174 240 389
---------- ---------- ----------
Total provision for income taxes 1,397 1,646 2,657
---------- ---------- ----------
Net income 2,097 2,470 4,184
Retained earnings, beginning of period 25,488 21,304 21,304
---------- ---------- ----------
Retained earnings, end of period $ 27,585 $ 23,774 $ 25,488
========== ========== ==========
See notes to consolidated financial statements.
8
BAKER DISTRIBUTING COMPANY AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1996 AND YEAR ENDED SEPTEMBER 30, 1996
(In thousands)
NINE MONTHS ENDED
JUNE 30, YEAR ENDED
-------------------------- SEPTEMBER 30,
1997 1996 1996
----------- ----------- -----------
(Unaudited)
Cash flows from operating activities:
Net income $ 2,097 $ 2,470 $ 4,184
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 617 707 812
Loss (gain) on sale of property, plant and equipment (144) 33 56
Deferred income taxes -- (68) (83)
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable 2,752 (2,253) (1,317)
Employee receivables 261 (5) (68)
Inventories 563 (4,219) (2,560)
Prepaid expenses and other assets (95) (38) 165
Increase (decrease) in:
Accounts payable (947) 3,383 2,702
Accrued liabilities (791) (131) 416
Taxes payable 479 1,438 82
Deferred compensation under stock appreciation (479) -- 342
rights plan
----------- ----------- -----------
Net cash provided by operating activities 4,313 1,317 4,731
----------- ----------- -----------
Cash flows from investing activities:
Advances to parent (3,690) (2,808) (3,891)
Purchases of property, plant and equipment (278) (422) (497)
Proceeds from sales of property, plant and equipment 504 8 26
----------- ----------- -----------
Net cash used in investing activities (3,464) (3,222) (4,362)
----------- ----------- -----------
Cash flows from financing activities:
Payments on long-term debt (42) (4) (65)
----------- ----------- -----------
Net increase (decrease) in cash 807 (1,909) 304
Cash at beginning of year 2,213 1,909 1,909
----------- ----------- -----------
Cash at end of year $ 3,020 $ -- $ 2,213
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 21 $ 17 $ 239
=========== =========== ===========
Income taxes $ 437 $ 217 $ 270
=========== =========== ===========
Federal income taxes payable of $481, $0 and $2,281 for the nine months ended
June 30, 1997 and 1996 and the year ended September 30, 1996, respectively, were
offset against the due from (to) parent as the Company's parent made federal tax
payments on its behalf.
See notes to consolidated financial statements.
9
BAKER DISTRIBUTING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission and include the accounts of Baker Distributing Company (the
"Company") and its wholly-owned subsidiary, Booth Refrigeration Supply Co., Inc.
("Booth"). All material intercompany profits, transactions and balances have
been eliminated. The Company is a wholly-owned subsidiary of Trek Corporation
(the "Parent").
Interim Financial Information - The unaudited consolidated balance sheet as
of June 30, 1997 and the unaudited consolidated statements of income and
retained earnings and cash flows for the nine months ended June 30, 1997 and
1996 include, in the opinion of management, all adjustments necessary to present
fairly the Company's consolidated financial position, results of operations and
cash flows. The results for the nine months ended June 30, 1997 are not
necessarily indicative of the results for the year ending September 30, 1997.
The sale of the Company's products is seasonal with revenues generally
increasing during the months of May through August.
Cash - Cash includes cash on hand and on deposit at various financial
institutions.
Depreciation and Amortization - Property, plant and equipment are stated at
cost. Depreciation and amortization are computed by the straight-line method
over the estimated useful lives of the assets. When items of property are
retired or otherwise disposed of, the cost of the assets and the accumulated
depreciation are removed from the accounts. Any resulting gains or losses are
taken into income.
Discount amortization - Discounts on long term debt are being amortized on
a straight-line basis over the life of the related debt.
Income Taxes - Deferred income taxes are calculated in accordance with the
method described by the Financial Accounting Standards Board under Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes".
Accordingly, deferred income taxes are recognized for items of income and loss
recognized in different periods for financial and income tax reporting purposes
and on differences between book and tax bases of net assets acquired in purchase
transactions using presently enacted rates.
Use of Estimates - The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments - The Company believes the carrying
amount of its financial instruments (cash, accounts receivable, employee
receivables, accounts payable, deferred compensation under stock appreciation
rights plan and long-term debt) is a reasonable estimate of the fair value of
these instruments.
Future Accounting Pronouncements - In March 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 121,
"Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of" ("SFAS 121"). SFAS 121, which is effective for years beginning
after December 15, 1995, establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used for long-lived assets and certain identifiable
intangibles to be disposed of. Impairment is assessed by comparing the book
value of such assets to the estimated undiscounted future operating cash flows
expected to result from the use of the asset and its final disposition. If the
sum of the expected future cash flow is less than the carrying amount of the
asset, an impairment loss is recognized based on the fair value of the asset.
Effective October 1, 1996, the Company
10
adopted SFAS 121. The adoption of SFAS 121 did not have a material effect on the
Company's consolidated financial position or results of operations.
2. BUSINESS
Substantially all of the Company's revenue is derived from the wholesale
distribution of air conditioning, refrigeration and heating equipment,
appliances, parts and supplies. The Company's operations encompass the states of
Alabama, Florida, Georgia, Louisiana, North Carolina, South Carolina and
Virginia.
3. INVENTORIES
All inventories are valued at the lower of cost determined by the last-in,
first-out (LIFO) method or market. The LIFO method results in a more appropriate
matching of current costs with current revenues. Under the LIFO method of
inventory valuation, inventories were reduced by approximately $4,018 at
September 30, 1996.
If the first-in, first-out (FIFO) method of inventory valuation had been
used, income before income taxes would have been increased by approximately $892
for the year ended September 30, 1996.
4. LONG-TERM DEBT
Long-term debt at September 30, 1996 consists of:
Mortgage note (7-1/4% at September 30, 1996) due in
monthly installments of $6 including interest through
June, 1998 (interest rate renegotiable, not to exceed
9-1/2%) $102
5% Small Business Administration Loans - due through
2009 in monthly installments of $2 including interest,
net of unamortized discount of $88 based on imputed
interest rate of 18% of $2 including interest 127
------
229
Less current portion (69)
------
$160
======
The mortgage note is collateralized by land and a building with an
immaterial book value. The Small Business Administration loan is collateralized
by inventories and accounts receivable.
Maturities of long-term debt after September 30, 1996 are as follows:
1997 $ 69
1998 51
1999 7
2000 8
2001 8
Thereafter 86
------
$229
======
11
5. OPERATING LEASES
The Company leases certain facilities and equipment under noncancellable
long-term operating leases which expire at various dates through 2014. Future
minimum lease commitments as of September 30, 1996 were as follows:
REAL ESTATE EQUIPMENT TOTAL
----------- --------- ---------
1997 $ 3,169 $ 496 $ 3,665
1998 2,902 298 3,200
1999 2,103 103 2,206
2000 1,397 12 1,409
2001 1,149 5 1,154
Thereafter 5,481 - 5,481
--------- --------- ---------
$ 16,201 $ 914 $ 17,115
========= ========= =========
Some leases require the Company to pay property taxes, insurance and normal
maintenance and repairs and have renewal options. Total rental expense was
approximately $4,313 for the year ended September 30, 1996.
6. INCOME TAXES
The provision for income taxes has been computed as if the Company filed
tax returns separate from the Parent. The difference between the total taxes
reported for the Company and all other subsidiaries of the Parent and the
consolidated expense is reported as part of the Parent's tax expense or credit.
The Parent therefore receives the benefit of or charge for any difference
between the consolidated tax provision and separate return provisions. The
provision for income taxes for the year ended September 30, 1996 includes the
following:
Current payable $ 2,620
Deferred 37
--------
Provision for income tax $ 2,657
========
Reconciliation from the statutory U.S. Federal income tax rate to the
Company's effective rate is as follows:
Statutory tax rate 35.0%
Effect of graduated rates (1.0)
State income taxes, net of Federal
income tax benefit 3.9
Other, net .9
-----
Effective tax rate 38.8%
======
The Company's temporary differences are principally related to
depreciation, timing of deductibility of other accruals and recognition of other
gains and their related tax effects. Deferred tax assets and liabilities at
September 30, 1996 are summarized below:
Deferred tax assets $ 1,223
Deferred tax liabilities (939)
-------
Net deferred tax asset $ 284
=======
12
The Company, through its acquisition of Booth, can utilize certain tax
attributes such as a net operating loss carryforward ("NOL") for both regular
and alternative minimum tax purposes. The amount of the NOL for regular tax
purposes is $949. The utilization of such losses is limited on an annual basis
subject to certain limitations in the Internal Revenue Code and will expire in
varying amounts ending in the year 2010.
7. PROFIT-SHARING AND RETIREMENT PLANS
The Company has a trusteed, non-contributory profit sharing and retirement
plan covering substantially all employees of the Company. During the fiscal year
ended September 30, 1996, Booth's plan was merged into the Company's plan. The
annual contribution to the plan is determined at the discretion of the Board of
Directors and amounted to $910 for the year ended September 30, 1996.
8. RELATED PARTY TRANSACTIONS
The Parent provided the Company short-term advances with interest at the
prime rate during the year ended September 30, 1996. There were no outstanding
borrowings at September 30, 1996. Interest incurred on these short-term
borrowings was $218 in 1996.
The Company provides long-term and short-term advances to the Parent. The
long-term advances are non-interest bearing and totaled $2,185 at September 30,
1996.
The Company guarantees two notes aggregating $53,000 for the Parent.
Outstanding borrowings under the notes were $37,700 at September 30, 1996.
The Company incurred costs for the year ended September 30, 1996 of $1,300
for management services provided by the Parent and costs of $40 as a usage
charge for the Company's computer system, which was provided by the Parent.
The Company also guarantees a credit agreement for the Parent. Amounts
available under the agreement are adjusted periodically according to seasonal
requirements and range from $57,000 to $84,000 for operating capital, letters of
credit and bankers acceptance financing. Additionally, $165,000 may be used to
enter into foreign exchange contracts. Outstanding borrowings were $28,800 at
September 30, 1996. In addition, there were $10,790 of letters of credit and
non-discounted bankers acceptances outstanding at September 30, 1996 and the
Parent had contracts to sell foreign currencies for U.S. dollars at fixed
forward rates of $33,953 and contracts to purchase 1,150,603 Japanese yen
($10,511) at fixed forward rates.
The Company was allocated costs of $416 for the year ended September 30,
1996 for general business insurance and workmen's compensation insurance that
was obtained by the Parent for the benefit of the Company.
The Company leases one store from the profit sharing and retirement plan as
of September 30, 1996. Rental expense to the plan was approximately $29 for the
year ended September 30, 1996.
9. DEFERRED COMPENSATION UNDER APPRECIATION RIGHTS PLAN
The Parent has a deferred compensation plan under which common stock
appreciation rights may be granted. Holders of the stock appreciation rights are
entitled to receive cash in an amount equal to the increase in book value per
share over the initial value. The charge to operations under the stock
appreciation rights plan was approximately $430 for the year ended September 30,
1996.
13
10. SUBSEQUENT EVENTS
Effective June 30, 1997, Booth, the Company's wholly-owned subsidiary, was
merged with and into the Company.
On September 30, 1997, the Parent completed a transaction pursuant to a
Stock Purchase Agreement (the "Agreement") with Watsco, Inc. ("Watsco") whereby
the Parent sold all of the outstanding capital stock of the Company to Watsco.
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 the Agreement.
14
ITEM 7(b)(i)
WATSCO, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS)
PRO FORMA PRO FORMA
WATSCO BAKER ADJUSTMENTS CONSOLIDATED
----------- ----------- ----------- -----------
Dr. (Cr.)
ASSETS
Current assets:
Cash and cash equivalents $ 6,123 $ 3,020 $ $ 9,143
Accounts receivable, net 110,119 15,132 125,251
Inventories 150,115 23,056 4,393 177,564
Prepaid expenses and other current assets 9,282 852 (584)(2) 9,550
----------- ----------- ----------- -----------
Total current assets 275,639 42,060 3,809 321,508
----------- ----------- ----------- -----------
Property, plant and equipment, net 25,245 1,953 27,198
Intangible assets, net 39,279 529 31,333 71,141
Other assets 9,050 1,502 (790)(2) 9,762
Due from parent -- 3,545 (3,545)(2) --
----------- ----------- ----------- -----------
$ 349,213 $ 49,589 $ 30,807 $ 429,609
=========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term
obligations $ 994 $ 75 $ $ 1,069
Accounts payable 44,186 11,100 55,286
Accrued liabilities 16,129 3,543 (673)(2) 19,299
300 (2)
----------- ----------- ----------- -----------
Total current liabilities 61,309 14,718 (373) 75,654
----------- ----------- ----------- -----------
Long-term obligations:
Borrowings under revolving credit
agreement 57,900 -- 65,000 122,900
Bank and other debt 10,438 112 10,550
----------- ----------- ----------- -----------
68,338 112 65,000 133,450
----------- ----------- ----------- -----------
Deferred income taxes and credits 1,671 939 2,610
Preferred stock of subsidiaries 4,413 -- 4,413
Deferred compensation under stock
appreciation rights plan -- 2,078 (2,078)(2) --
Shareholders' equity:
Common Stock 7,548 4,157 (4,157)(2) 7,548
Class B Common Stock 1,086 -- 1,086
Paid-in capital 156,578 -- 156,578
Retained earnings 48,270 27,585 (27,585)(2) 48,270
----------- ----------- ----------- -----------
Total shareholders' equity 213,482 31,742 (31,742) 213,482
----------- ----------- ----------- -----------
$ 349,213 $ 49,589 $ 30,807 $ 429,609
=========== =========== =========== ===========
The accompanying notes to unaudited pro forma condensed consolidated
financial statements are an integral part of this statement.
15
ITEM 7 (b)(ii)
WATSCO, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (IN
THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA PRO FORMA
WATSCO BAKER ADJUSTMENTS CONSOLIDATED
----------- ----------- ----------- ------------
Dr. (Cr.)
Revenues $ 293,685 $ 71,183 $ $ 364,868
Cost of sales 227,344 54,249 (250)(3) 281,343
----------- ----------- --------- ---------
Gross profit 66,341 16,934 250 83,525
Selling, general and
administrative expenses 51,088 13,277 392 64,757
----------- ----------- --------- ---------
Operating income 15,253 3,657 (142) 18,768
----------- ----------- --------- ---------
Other income (expense):
Investment income, net 464 -- 464
Interest expense (1,567) -- (2,031)(4) (3,598)
----------- ----------- --------- ---------
(1,103) -- (2,031) (3,134)
----------- ----------- --------- ---------
Income before income taxes 14,150 3,657 (2,173) 15,634
Income taxes (5,505) (1,463) 837 (6,131)
----------- ----------- --------- ---------
Net income $ 8,645 $ 2,194 $ (1,336) $ 9,503
=========== =========== ========= ==========
Earnings per share:
Primary $ .50 $ .55
=========== ==========
Fully diluted $ .50 $ .55
=========== ==========
Weighted average shares and equivalent
shares used to calculate:
Primary 17,322 17,322
=========== ==========
Fully diluted 17,322 17,322
=========== ==========
The accompanying notes to unaudited pro forma condensed consolidated
financial statements are an integral part of this statement.
16
ITEM 7 (b)(ii)
WATSCO, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA PRO FORMA
WATSCO BAKER (A) ADJUSTMENTS CONSOLIDATED
----------- ----------- ----------- ------------
Dr. (Cr.)
Revenues $ 425,389 $ 164,160 $ $ 589,549
Cost of sales 329,790 124,961 (892)(3) 453,859
----------- ----------- ----------- -----------
Gross profit 95,599 39,199 892 135,690
Selling, general and
administrative expenses 71,353 32,119 (430)(2) 103,825
783 (2)
----------- ----------- ----------- -----------
Operating income 24,246 7,080 539 31,865
----------- ----------- ----------- -----------
Other income (expense):
Investment income, net 628 -- 628
Interest expense (3,656) (239) (4,063)(4) (7,958)
----------- ----------- ----------- -----------
(3,028) (239) (4,063) (7,330)
----------- ----------- ----------- -----------
Income before income taxes
and minority interests 21,218 6,841 (3,524) 24,535
Income taxes (8,110) (2,657) 1,357 (9,410)
Minority interests (116) -- (116)
----------- ----------- ----------- -----------
Net income $ 12,992 $ 4,184 $ (2,167) $ 15,009
=========== =========== =========== ===========
Earnings per share:
Primary $ .93 $ 1.09
=========== ===========
Fully diluted $ .91 $ 1.06
=========== ===========
Weighted average shares outstanding:
Primary 13,760 13,760
=========== ===========
Fully diluted 14,192 14,192
=========== ===========
The accompanying notes to unaudited pro forma condensed consolidated
financial statements are an integral part of this statement.
17
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 give
effect to the purchase by Watsco, Inc. ("Watsco") of all the issued and
outstanding capital stock of Baker Distributing Company ("Baker"). The pro
forma information is based on the historical financial statements of Watsco
and Baker. 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 Baker occurred on the dates indicated or
which may be obtained in the future. In the opinion of Watsco'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 Baker.
(2) The estimated purchase price for Baker is $65.3 million, including estimated
acquisition expenses. Goodwill, representing the excess cost over the net
assets acquired, will be amortized over a 40 year period. A reconciliation
of the net assets of Baker to be acquired to the total estimated purchase
price is as follows:
Fair value of net assets $31,742
Adjustment of inventory to FIFO cost basis 4,393
Assets not purchased -
Due from parent (3,545)
Employee receivables (584)
Liabilities not assumed -
Federal and state income tax liability 673
Deferred compensation under stock
appreciation rights plan, net of
related tax benefit 1,288
Excess of purchase price over net assets acquired 31,333
----------
Total $65,300
==========
(3) The inventories included in the historical financial statements of Baker are
stated under the last-in, first-out method. Subsequent to the acquisition of
Baker, such inventory amounts will be stated by Watsco based on the
first-in, first-out (FIFO) method. These amounts represent adjustments to
reflect inventories and cost of sales using the FIFO method as if Baker
valued inventories under the FIFO method as of the beginning of each year
presented in the accompanying pro forma condensed consolidated financial
statements.
(4) Watsco intends to use borrowings under its current revolving credit
agreement to fund the acquisition of Baker's capital stock.
(5) Represents pro forma income taxes at a blended statutory rate of 38.5%.
18
EXHIBIT 10.19
===============================================================================
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
WATSCO, INC.
AND
TREK CORPORATION
Dated as of September 10, 1997
===============================================================================
TABLE OF CONTENTS
ARTICLE I DEFINITIONS............................................................................1
ARTICLE II SALE AND PURCHASE OF SHARES...........................................................6
SECTION 2.1 SALE AND PURCHASE OF SHARES..................................................6
SECTION 2.2 CLOSING......................................................................6
SECTION 2.3 PURCHASE PRICE...............................................................7
SECTION 2.4 TREK CLOSING DELIVERIES.....................................................11
SECTION 2.5 WATSCO CLOSING DELIVERIES...................................................13
ARTICLE III REPRESENTATIONS AND WARRANTIES OF TREK..............................................13
SECTION 3.1 ORGANIZATION, GOOD STANDING AND AUTHORITY...................................13
SECTION 3.2 ARTICLES OF INCORPORATION; BYLAWS; MINUTE BOOKS.............................14
SECTION 3.3 DUE AUTHORIZATION, EXECUTION AND DELIVERY...................................14
SECTION 3.4 TITLE TO SHARES; CAPITALIZATION; ETC........................................14
SECTION 3.5 SUBSIDIARIES AND MERGER.....................................................15
SECTION 3.6 CONSENTS; NO CONFLICT.......................................................16
SECTION 3.7 TAX MATTERS.................................................................16
SECTION 3.8 EMPLOYEES, LABOR MATTERS, ETC...............................................18
SECTION 3.9 FINANCIAL STATEMENTS........................................................19
SECTION 3.10 CHANGES OF FINANCIAL CONDITION.............................................19
SECTION 3.11 REAL PROPERTY..............................................................19
SECTION 3.12 TANGIBLE PERSONAL PROPERTY.................................................21
SECTION 3.13 INVENTORY..................................................................21
SECTION 3.14 ACCOUNTS RECEIVABLE........................................................22
SECTION 3.15 VEHICLES...................................................................22
SECTION 3.16 CONTRACTS..................................................................22
SECTION 3.17 LITIGATION AND CLAIMS......................................................23
SECTION 3.18 COMPLIANCE WITH LAWS AND ORDERS............................................23
SECTION 3.19 EMPLOYEE BENEFITS..........................................................23
SECTION 3.20 PERMITS....................................................................26
SECTION 3.21 INSURANCE POLICIES.........................................................26
SECTION 3.22 ENVIRONMENTAL MATTERS......................................................26
SECTION 3.23 RELATIONSHIP WITH AFFILIATES...............................................27
SECTION 3.24 BROKERS....................................................................28
SECTION 3.25 NO GUARANTEES; NO POWERS OF ATTORNEY.......................................28
SECTION 3.26 BANK ACCOUNTS..............................................................28
SECTION 3.27 CUSTOMERS AND SUPPLIERS....................................................28
SECTION 3.28 WARRANTIES AND PRODUCT CLAIMS..............................................28
SECTION 3.29 INTELLECTUAL PROPERTY......................................................29
SECTION 3.30 INDEBTEDNESS...............................................................29
SECTION 3.31 ABSENCE OF UNDISCLOSED LIABILITIES.........................................29
SECTION 3.32 CONTINUANCE OF OPERATIONS..................................................30
i
SECTION 3.33 DISCLOSURE.................................................................30
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF WATSCO.............................................30
SECTION 4.1 ORGANIZATION AND AUTHORITY..................................................30
SECTION 4.2 ARTICLES OF INCORPORATION; BYLAWS...........................................30
SECTION 4.3 DUE AUTHORIZATION, EXECUTION AND DELIVERY...................................30
SECTION 4.4 CONSENTS; NO CONFLICTS......................................................31
SECTION 4.5 BROKERS.....................................................................31
SECTION 4.6 SECURITIES MATTERS..........................................................31
SECTION 4.7 DISCLOSURE..................................................................31
ARTICLE V CERTAIN AGREEMENTS OF TREK OR WATSCO..................................................32
SECTION 5.1 BAKER'S AND ISI'S OPERATION.................................................32
SECTION 5.2 ACCESS TO BOOKS AND RECORDS OF BUSINESS.....................................33
SECTION 5.3 EXCLUSIVITY.................................................................34
SECTION 5.4 QUALIFIED PLANS.............................................................34
SECTION 5.5 WELFARE BENEFIT PLANS.......................................................35
SECTION 5.6 SAR AND CERTAIN NOTES.......................................................36
SECTION 5.7 INDEMNIFICATION.............................................................36
SECTION 5.8 PAYMENT OF BONUSES..........................................................36
ARTICLE VI MUTUAL AGREEMENTS....................................................................36
SECTION 6.1 CONFIDENTIALITY.............................................................36
SECTION 6.2 FURTHER ASSURANCES..........................................................39
SECTION 6.3 HSR FILINGS.................................................................39
SECTION 6.4 TAX AGREEMENTS..............................................................39
SECTION 6.5 REASONABLE EFFORTS TO CLOSE.................................................42
SECTION 6.6 COOPERATION IN LITIGATION...................................................42
SECTION 6.7 INTRA-ENTITY OBLIGATIONS....................................................43
ARTICLE VII CONDITIONS TO OBLIGATIONS OF WATSCO.................................................43
SECTION 7.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES..................................43
SECTION 7.2 PERFORMANCE OF AGREEMENTS...................................................43
SECTION 7.3 CLOSING DELIVERIES..........................................................43
SECTION 7.4 DUE DILIGENCE...............................................................43
SECTION 7.5 MATERIAL ADVERSE CHANGE.....................................................44
SECTION 7.6 NO ADVERSE PROCEEDINGS......................................................44
SECTION 7.7 CONSENTS AND APPROVALS......................................................44
SECTION 7.8 OTHER ASSURANCES............................................................44
ARTICLE VIII CONDITIONS TO OBLIGATIONS OF TREK..................................................45
SECTION 8.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES..................................45
SECTION 8.2 PERFORMANCE OF AGREEMENTS...................................................45
SECTION 8.3 CLOSING DELIVERIES..........................................................45
SECTION 8.4 NO ADVERSE PROCEEDINGS......................................................45
SECTION 8.5 CONSENTS AND APPROVALS......................................................45
ii
SECTION 8.6 PAYMENT.....................................................................45
SECTION 8.7 OTHER ASSURANCES............................................................46
ARTICLE IX SURVIVAL AND INDEMNIFICATION.........................................................46
SECTION 9.1 SURVIVAL....................................................................46
SECTION 9.2 INDEMNIFICATION BY TREK.....................................................46
SECTION 9.3 INDEMNIFICATION BY WATSCO...................................................46
SECTION 9.4 METHOD OF ASSERTING CLAIMS..................................................47
SECTION 9.5 CONTINUED LIABILITY FOR INDEMNITY CLAIMS....................................50
SECTION 9.6 LIMITATIONS ON INDEMNIFICATION..............................................50
SECTION 9.7 TIME LIMITS ON CLAIMS.......................................................51
SECTION 9.8 REMEDIES....................................................................52
SECTION 9.9 SOURCES OF PAYMENT..........................................................52
ARTICLE X TERMINATION...........................................................................52
SECTION 10.1 GROUNDS FOR TERMINATION....................................................52
SECTION 10.2 EFFECT OF TERMINATION......................................................53
ARTICLE XI MISCELLANEOUS........................................................................53
SECTION 11.1 NOTICES....................................................................53
SECTION 11.2 FEES AND EXPENSES..........................................................54
SECTION 11.3 PUBLIC ANNOUNCEMENTS.......................................................54
SECTION 11.4 ENTIRE AGREEMENT...........................................................54
SECTION 11.5 WAIVER; REMEDIES...........................................................55
SECTION 11.6 AMENDMENT..................................................................55
SECTION 11.7 ASSIGNMENT; BENEFITS AND BINDING EFFECT....................................55
SECTION 11.8 CAPTIONS; REFERENCES.......................................................55
SECTION 11.9 EXHIBITS AND SCHEDULES.....................................................55
SECTION 11.10 GOVERNING LAW.............................................................55
SECTION 11.11 COUNTERPARTS..............................................................56
SECTION 11.12 SEVERABILITY..............................................................56
SECTION 11.13 NO THIRD PARTY BENEFICIARY................................................56
SECTION 11.14 SURVIVAL..................................................................56
SECTION 11.15 ATTORNEYS' FEES; CONSENT TO NON-EXCLUSIVE JURISDICTION....................56
SECTION 11.16 SPECIFIC PERFORMANCE......................................................56
SECTION 11.17 RIGHT TO CURE BREACHES....................................................57
SECTION 11.18 INTEREST..................................................................57
iii
LIST OF EXHIBITS
----------------
Exhibit A Stock Power
Exhibit B Noncompetition Agreement
Exhibit C Escrow Agreement
Exhibit D Trek Bringdown Certificate
Exhibit E Trek Secretary's Certificate
Exhibit F Baker Secretary's Certificate
Exhibit G ISI's Secretary's Certificate
Exhibit H Trek Legal Opinion
Exhibit I Watsco Bringdown Certificate
Exhibit J Watsco Secretary's Certificates
Exhibit K Watsco Legal Opinion
iv
LIST OF SCHEDULES
-----------------
Schedule 3.1 Qualifications to Do Business
Schedule 3.4(b) Baker Capital Stock
Schedule 3.5(b) ISI Capital Stock
Schedule 3.5(c) Booth Matters
Schedule 3.6 Consents
Schedule 3.7 Tax Matters
Schedule 3.7(b) Tax Compliance
Schedule 3.8(b) Salaries and Wages
Schedule 3.9 Financial Statements
Schedule 3.10 Changes of Condition
Schedule 3.11(a) Owned Real Property
Schedule 3.11(b)(1) Leased Real Property
Schedule 3.11(b)(2) Landlord Consents
Schedule 3.11(d) Facility Permits
Schedule 3.11(e) Current use
Schedule 3.12 Liens on Tangible Personal Property
Schedule 3.13 Liens on Inventory
Schedule 3.14 Liens on Accounts Receivable
Schedule 3.15 Vehicles
Schedule 3.16 Contracts
Schedule 3.17 Litigation and Claims
Schedule 3.18 Compliance Issues
v
Schedule 3.19(a) Benefit Plans
Schedule 3.19(b) ERISA Compliance Issues
Schedule 3.19(c) ERISA Filings
Schedule 3.19(g) Certain Transactions
Schedule 3.19(i) Stock Appreciate Rights Plan Participants
Schedule 3.19(j) Certain Benefit Plan Liabilities
Schedule 3.20 Permits
Schedule 3.21 Insurance Policies
Schedule 3.22 Environmental Matters
Schedule 3.23(a) Relationship With Affiliates
Schedule 3.23(b) Loans to Employees
Schedule 3.25 Guaranties
Schedule 3.26 Bank Accounts
Schedule 3.27 Customers and Suppliers
Schedule 3.29 Intellectual Property
Schedule 3.30 Indebtedness
Schedule 3.31 Undisclosed Liabilities
Schedule 4.4 Consents and Other Matters
Schedule 5.1 Operation of Baker and ISI Prior to Closing
Schedule 9.2(a)(ii) Special Indemnification Matters
vi
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "AGREEMENT") is made and entered into
as of the 10th day of September, 1997, by and between WATSCO, INC., a Florida
corporation ("WATSCO"), and TREK CORPORATION, a Wisconsin corporation ("TREK").
BACKGROUND
A. Trek owns all of the issued and outstanding capital stock of the
Baker Distributing Company, a Florida corporation ("BAKER"; for purposes of
clarity, it is understood that Baker includes entities that have merged with and
into Baker). Baker is engaged in the business of marketing and distributing
heating, air conditioning, and refrigeration systems parts, supplies and
equipment. Baker has 83 distribution facilities in the States of Alabama,
Florida, Georgia, Louisiana, North Carolina, South Carolina and Virginia, a
headquarters facility in Jacksonville, Florida and a central distribution
facility in Jacksonville, Florida, which collectively serve markets throughout
the Southeastern United States.
B. Baker owns all of the issued and outstanding capital stock of
Intercompany Services Inc., a Florida corporation ("ISI"). ISI is engaged in the
business of providing replacement contracts for compressors covering periods
following the expiration of the applicable manufacturer's warranty.
C. On the terms and subject to the conditions set forth herein, Watsco
desires to purchase from Trek, and Trek desires to sell to Watsco, all of the
issued and outstanding capital stock of Baker in a transaction designed to allow
the parties to make applicable elections under Section 338(h)(10) of the Code
(as hereinafter defined).
D. In order to induce Watsco to enter into this Agreement, Trek has
agreed to enter into a noncompetition agreement with Watsco. Without the
agreement of Trek to execute the noncompetition agreement, Watsco would not have
entered into this Agreement.
Accordingly, in consideration of the premises and of the mutual
covenants contained herein, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
In addition to the terms defined in the preamble, in the Background
section and in other Articles of this Agreement, as used in this Agreement, the
following terms have the meanings indicated below:
"AFFILIATE" of a Person or entity means a Person that directly or
indirectly through one or more intermediates controls, is controlled by, or is
under common control with, the first Person. "CONTROL" (including the terms
"controlled by" and "under common control with"), whether or not capitalized,
means the possession, directly or indirectly, of the power to direct or cause
the
1
direction of the management policies of a Person, whether through the
ownership of voting securities, by contract, as trustee or executor, or
otherwise. Without limiting the foregoing, for purposes of clarity, (1)
ownership of twenty-five percent (25%) or more of the voting securities of a
corporation shall be presumed to constitute control, and (2) until (but not
after) the Closing, Baker and ISI are each an Affiliate of Trek.
"AFFILIATED GROUP" means any affiliated group within the meaning of
Section 1504(a).
"BENEFIT PLAN" means any Plan established by Trek, Baker or ISI, or any
predecessor or ERISA Affiliate of Trek, Baker or ISI, existing at the Closing or
prior thereto, to which Trek, Baker or ISI has any Liability to provide any
benefits or contributions to or on behalf of any present (as of the date of this
Agreement or as of the Closing Date) or former employee, or any present or
former independent contractor, of Baker or ISI, or under which any such person
or any beneficiary thereof is covered, is eligible for coverage or has benefit
rights.
"BOOTH" means Booth Refrigeration Supply Company, Inc., a Virginia
corporation that merged with and into Baker on June 26, 1997.
"BUSINESS DAY" means any day which is not a Saturday, Sunday or legal
holiday in Miami, Florida.
"CDC FACILITY" means the Leased Facility (as hereinafter defined)
located at 8010 Westside Industrial Drive, Jacksonville, Florida 32219.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, and the rules and regulations promulgated
thereunder.
"CERCLIS" means the Comprehensive Environmental Response and Liability
Information System, as provided for by 40 C.F.R. ss.300.5.
"CLOSING DATE FINANCIAL STATEMENTS" has the meaning ascribed to such
term in Section 2.3.
"CODE" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
"CONTRACT" means all written contracts, agreements, license agreements,
leases, subleases, assignments, purchase agreements, indentures, mortgages,
instruments of indebtedness, security agreements, guaranties, purchase orders,
sales orders, and distribution agreements.
"ENVIRONMENTAL LAW" means all Laws concerning pollution or protection of
the environment, public health and safety, or employee health and safety,
including laws relating to emissions, discharges, releases, or threatened
releases of pollutants, contaminants, or chemical, industrial, hazardous, or
toxic materials or wastes into ambient air, surface water, groundwater, or lands
or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials or wastes
including, but not limited to, CERCLA, the Resource
2
Conservation and Recovery Act, as amended, the Clean Air Act, as amended, the
Clean Water Act, as amended, and the Occupational Safety and Health Act, as
amended, and similar state and local laws, rules and regulations.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"ERISA AFFILIATE" means any Person which is under common control with
Trek, Baker or ISI who, together with any of (as the case may be), is treated as
a single employer within the meanings of Sections 414(b), (c), (m) and (o) of
the Code.
"GAAP" means United States generally accepted accounting principles,
applied consistently and using the historical accounting policies of Baker and
ISI as are reflected in the audited Financial Statements.
"GOODMAN" means GMC Sales Corp. and its Affiliates, a nationally-known
manufacturer of heating and air conditioning products.
"GOVERNMENTAL AUTHORITY" means any court, tribunal, arbitrator,
authority, agency, commission, official or other instrumentality of the United
States, any foreign country or any domestic or foreign state, county, city or
other political subdivision.
"HAZARDOUS MATERIALS" means (1) any petroleum or petroleum products,
flammable or explosive materials, radioactive materials, asbestos in any form
that is friable, urea formaldehyde foam insulation and transformers or other
equipment that contain dielectric fluid containing levels of polychlorinated
biphenyls (PCBs); (2) any chemicals or other materials or substances which are
now defined as or included in the definition of "hazardous substances,"
"hazardous wastes," "hazardous materials," "extremely hazardous wastes,"
"restricted hazardous wastes," "toxic substances," "toxic pollutants" or words
of similar import under any Environmental Law; and (3) any other chemical or
other material or substance, exposure to which is now prohibited, limited or
regulated by any Governmental Authority under any Environmental Law.
"HQ FACILITY" means the Owned Facility (as hereinafter defined) located
at 7892 Baymeadows Way, Deerwood Center, Jacksonville, Florida 32256.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.
"INTELLECTUAL PROPERTY " means patents and patent rights, trademarks and
trademark rights, trade names and trade name rights, service marks and service
mark rights, service names and service name rights, brand names, copyrights and
copyright rights; pending applications for and registrations of patents,
trademarks, service marks, and copyrights; trade secrets, know how, computer
software programs; and rights in any and all of the foregoing.
"IRS" means the United States Internal Revenue Service.
3
"KNOWLEDGE OF TREK" or "KNOWN TO TREK" means the actual knowledge of any
executive officer of Trek or Baker and the Chairman of the Board of Directors of
Baker and of any person who served as an executive officer of Baker or Booth or
as the Chairman of the Board of Directors of Baker at any time after September
30, 1996.
"LAWS" means all laws, statutes, rules, regulations, ordinances, Orders
and the Knowledge such person would have had following a reasonable
investigation concerning the existence of such fact or matter and other
pronouncements having the effect of law of the United States or any state,
county, city or other political subdivision or of any Governmental Authority,
including common law.
"LIABILITIES" means all indebtedness, debt, commitments, obligations and
other liabilities of a Person (whether absolute, accrued, contingent, fixed or
otherwise, whether accrued or unaccrued, whether asserted or unasserted, whether
known or unknown, or whether due or to become due).
"LIENS" means any mortgage, pledge, assessment, security interest,
lease, lien, adverse claim, community property interest, equitable interest,
option, right of first refusal, levy, charge or other encumbrance of any kind,
or any conditional sale contract, title retention contract or other Contract to
give any of the foregoing.
"LOSSES" means any and all damages, fines, costs, fees, Liabilities,
penalties, deficiencies, losses, amounts paid in settlement, and expenses
(including, but not limited to, interest, court costs, fees and expenses of
attorneys, accountants and other experts or other expenses of litigation or
other proceedings or of any claim, default or assessment).
"MATERIAL ADVERSE EFFECT" means any effect which is materially adverse
to the assets, Liabilities, properties, Permits, businesses, operations,
financial condition or results of operations of Baker and ISI (considered on a
consolidated basis). For purposes of clarity, no Losses shall be considered to
be materially adverse unless such Loss (together with all Losses arising from
the same and similar events or circumstances) exceeds two hundred fifty thousand
dollars ($250,000).
"NET BOOK VALUE OF BAKER" means as of the Closing Date the consolidated
net book value of Baker's and ISI's assets as determined in accordance with
GAAP, as modified by this Agreement.
"NPL" means the National Priorities List under CERCLA.
"ORDER" means any writ, judgment, decree, injunction or similar order of
any Governmental Authority (in each such case, whether preliminary or final).
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business of
Baker consistent with past custom and practice (including with respect to
quantity and frequency); it being understood that such term does not include any
action which requires the approval of the Board of Directors or shareholder of
Baker.
4
"PBGC" means the Pension Benefit Guaranty Corporation established under
ERISA.
"PENSION BENEFIT PLAN" means each Benefit Plan which is an employee
pension benefit plan within the meaning of Section 3(2) of ERISA.
"PERMITS" means all licenses, permits, certificates of authority,
variances, authorizations, approvals, registrations, franchises and similar
consents granted or issued by any Governmental Authority.
"PERSON" means any natural person, corporation, general partnership,
limited partnership, proprietorship, limited liability company, joint venture,
other business organization, trust, union, association or Governmental
Authority.
"PLAN" means any bonus, incentive compensation, deferred compensation,
pension, profit sharing, retirement, stock purchase, stock option, stock
ownership, stock appreciation rights, phantom stock, leave of absence, layoff,
vacation, day or dependent care, legal services, cafeteria, life, health,
accident, disability, workmen's compensation or other insurance, severance,
separation, unemployment or other employee benefit plan, practice, policy or
arrangement of any kind, whether written or oral, including, but not limited to,
any "employee benefit plan" as defined in Section 3(3) of ERISA.
"QUALIFIED PLAN" means each Benefit Plan which is intended to qualify
under Section 401(a) of the Code.
"RELATED AGREEMENTS" means the Stock Power, the Noncompetition
Agreement, the Employment Agreements, the Trek Bringdown Certificate, the Trek
Secretary's Certificate, the Baker Secretary's Certificate, the ISI Secretary's
Certificate and the Escrow Agreement.
"REPRESENTATIVES" means, with respect to any Person, such Person's
officers, directors, employees, counsel, financial advisors, consultants, and
other representatives.
"TAX" or "TAXES" means any federal, state, local or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under Code
Section 59A), customs duties, capital stock, franchise, profits, withholding,
social security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.
"TAX BENEFIT" means the amount of the reduction an Indemnified Party's
(as hereinafter defined) Liability for Taxes realized or realizable (including
increases of recoveries of Taxes and the carryover of net operating and capital
losses) as a result of the payment or accrual of any Loss or Tax. For purposes
of this paragraph, Tax Liability shall be the Liability for Taxes before
estimated Tax payments and overpayments from prior periods reflected in (i) any
consolidated federal income tax return and combined or unitary state and local
tax returns of such Indemnified Party or (ii) such Indemnified Party's separate
return if the Indemnified Party suffers any Loss or
5
Tax and does not join in the filing of a consolidated federal income tax return
or in a combined or unitary state and local tax return.
"TAX COST" means the amount of the increase in an Indemnified Party's
Liability for Taxes (including decreases in recoveries of Taxes and net
operating and capital losses) as the result of the payment or accrual of any
Loss or Tax. For purposes of this paragraph, Liability for Taxes shall be the
Tax Liability before estimated Tax payments and overpayments from prior periods
reflected in (i) the consolidated federal income Tax Return and combined or
unitary state and local Tax Returns of such Indemnified Party or (ii) such
Indemnified Party's separate return if the Indemnified Party suffers any Loss or
Tax and does not join in the filing of a consolidated federal income tax return
or in a combined or unitary state and local tax return.
"TAX RETURNS" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"TREASURY REGULATIONS" means the regulations prescribed under the Code.
"TREK'S ACCOUNTANTS" means Deloitte & Touche LLP or such other
independent and nationally recognized accounting firm as Trek may engage from
time to time in connection with this Agreement.
"WATSCO'S ACCOUNTANTS" means Arthur Andersen LLP or such other
independent and nationally recognized accounting firm as Watsco may engage from
time to time in connection with this Agreement.
ARTICLE II
SALE AND PURCHASE OF SHARES
SECTION 2.1 SALE AND PURCHASE OF SHARES.
Subject to the terms and conditions set forth herein, at the Closing (as
defined below), Trek shall sell to Watsco, free and clear of any Liens, and
Watsco shall purchase, all of the issued and outstanding capital stock of Baker,
which consists of 60 shares, no par value, of common stock (the "SHARES").
SECTION 2.2 CLOSING.
The closing of the sale and purchase of the Shares (the "CLOSING") shall
take place at the Kampong of the National Tropical Botanical Garden, 4013
Douglas Road, Coconut Grove, Florida 33133 on September 30, 1997 or such other
time and date as the parties may agree to in writing (the date on which the
Closing occurs is referred to herein as the "CLOSING DATE"). For all purposes,
the Closing shall be deemed to be effective as of the close of business on the
Closing Date. Subject to the provisions of Article X hereof, failure to
consummate the transactions contemplated by this Agreement at the above time and
place will not result in termination of this Agreement and will not relieve any
party of any of its obligations under this Agreement.
6
SECTION 2.3 PURCHASE PRICE.
(a) PURCHASE PRICE; CLOSING PAYMENT. As consideration for sale of
the Shares Watsco shall pay to Trek Sixty Five Million Dollars
($65,000,000), subject to a Purchase Price Adjustment (as adjusted, the
"PURCHASE PRICE"). At the Closing, Watsco shall pay to Trek Sixty
Million Dollars ($60,000,000) (the "CLOSING PAYMENT") and shall pay to
LaSalle National Bank, as escrow agent (the "ESCROW AGENT"), Five
Million Dollars ($5,000,000) (the "ESCROW PAYMENT") to be held and
disbursed by Escrow Agent under the terms of the Escrow Agreement (as
hereinafter defined). The costs and expenses of the Escrow Agent shall
be borne 50% by Watsco and 50% by Trek.
(b) METHOD OF PAYMENT. Payment of the Closing Payment shall be
made by Watsco on the Closing Date by wire transfer of immediately
available funds to an account designated in writing by Trek. Payment of
the Escrow Payment shall be made by Watsco on the Closing Date by wire
transfer of immediately available funds to an account designated in
writing by the Escrow Agent.
(c) CALCULATION OF PURCHASE PRICE; DISPUTES. Promptly after the
Closing and in any event no later than December 15, 1997, Trek shall
deliver to Watsco and the Escrow Agent (i) (A) an audited, consolidated
balance sheet of Baker prepared in accordance with GAAP (as modified by
this Agreement) dated as of the Closing Date with an unqualified opinion
of Trek's Accountant's thereon and (B) Trek's calculation of the Net
Book Value of Baker as of such date certified by Trek's Chief Financial
Officer as having been prepared in accordance with GAAP (as modified by
this Agreement) taking into account the adjustments described in (d)(i)
below (collectively (A) and (B) are referred to herein as the "CLOSING
DATE FINANCIAL STATEMENTS "), and (ii) a written statement of the
Intercompany Account Adjustments (as defined in (d) below) certified by
Trek's Chief Financial Officer as having been prepared in accordance
with this Agreement and GAAP (as modified by this Agreement) (the
"INTERCOMPANY ADJUSTMENTS SCHEDULE").
In connection with the foregoing, Watsco shall make employees of
Baker reasonably available to assist Trek (without charge) and such
employees shall be instructed by Watsco to reasonably cooperate with
Trek. Watsco agrees that following the Closing and until the final
resolution of the calculation of the Purchase Price, Watsco will not
take any actions with respect to the accounting books, records, policies
and procedures of Baker that are not consistent with GAAP (as modified
by this Agreement), except as otherwise provided herein.
During the ninety (90) days immediately following Watsco's
receipt of the Closing Date Financial Statements and the Intercompany
Adjustments Schedule, Watsco and Watsco's Accountants shall be entitled
to review and audit the Closing Date Financial Statements and the
Intercompany Adjustments Schedule and perform additional audit
procedures and duplicative audit procedures in connection with such
review, and review Trek's and Trek's Accountant's working papers
relating to the Closing Date Financial Statements and the Intercompany
Adjustments Schedule. The Closing Date Financial Statements and the
Intercompany Adjustments Schedule shall become final and
7
binding upon the parties on the ninetieth (90th) day following delivery
thereof to Watsco, unless Watsco gives written notice to Trek and the
Escrow Agent of its disagreement with the Closing Date Financial
Statements and/or the Intercompany Adjustments Schedule (a "NOTICE OF
DISAGREEMENT") prior to such date. Any Notice of Disagreement shall
specify in reasonable detail the nature of any disagreement so asserted
and the amount Watsco believes to be owing to it by Trek or the Escrow
Agent. Watsco may dispute the amount of any item reflected in or omitted
from the Closing Date Financial Statements and the Intercompany
Adjustments Schedule which, alone or together with similar items, is
material in relation to such item, but only on the basis that such
amount was not arrived at in accordance with GAAP and this Agreement. If
a timely Notice of Disagreement is received by Trek with respect to the
Closing Date Financial Statements and the Intercompany Adjustments
Schedule, then the Closing Date Financial Statements and the
Intercompany Adjustments Schedule (as revised in accordance with the
provisions set forth below), shall become final and binding upon the
parties on the earlier of: (1) the date the parties hereto resolve in
writing any differences they have with respect to any matter specified
in a Notice of Disagreement; or (2) the date any matters properly in
dispute are finally resolved in writing by the Settlement Accountants
(as defined below).
During the thirty (30) days immediately following the delivery of
any Notice of Disagreement, Trek and Watsco shall seek in good faith to
resolve in writing any differences which they may have with respect to
any matter specified in such Notice of Disagreement. At the end of such
30-day period, either Trek or Watsco may submit to a nationally
recognized firm of independent certified accountants (the "SETTLEMENT
ACCOUNTANTS") for review and resolution any and all matters which remain
in dispute and which were included in any Notice of Disagreement, and
the Settlement Accountants shall be instructed to resolve all matters
which remain in dispute and, after resolving such matters that are in
dispute and taking into account all matters which are not in dispute,
calculate the Net Book Value of Baker as of the Closing Date. The
Settlement Accountants shall be instructed to use reasonable efforts to
perform its services within 15 Business Days of submission of the
disputes, and in any case, as soon as practicable after such submission.
The Closing Date Financial Statements and the Intercompany Adjustments
Schedule, with such adjustments as necessary to reflect the Settlement
Accountants' resolution of the matters in dispute, shall become final
and binding on Watsco and Trek on the date the Settlement Accountants
deliver their written resolution to the parties, absent manifest error.
The Settlement Accountants shall be Price Waterhouse, or if such firm is
unable or unwilling to act, such other nationally recognized firm of
independent certified accountants (who have not performed services for
either of Trek, Watsco or their respective Affiliates within the last
five (5) years) selected by mutual agreement of Trek and Watsco. If Trek
and Watsco are unable to agree, they shall retain the American
Arbitration Association to select the Settlement Accountants. The costs
and expenses of the Settlement Accountants (and of the American
Arbitration Association, if used) shall be borne 50% by Watsco and 50%
by Trek.
8
(d) CERTAIN ADJUSTMENTS.
(i) In addition to adjustments set forth elsewhere in the
Agreement, the following adjustment shall be taken into account
in the preparation of the Closing Date Financial Statements,
notwithstanding that the amount will not be determined until
after the Closing Date: On September 30, 1997, the Board of
Directors of Baker shall declare a dividend to its shareholder of
record as of the close of business on September 29, 1997, payable
at such time as the Closing Date Financial Statements have become
final and binding on Trek and Watsco (as provided in (c) above),
equal to the amount, if any, of the "Due from Trek" intercompany
account after taking into account the effect of the Intercompany
Account Adjustments. The amount of the dividend shall be offset
against the "Due from Trek" intercompany account as of the
Closing Date which shall be reduced to zero. If the "Due from
Trek" intercompany account represents an amount owing by Baker to
Trek as of the Closing Date, Watsco shall cause Baker to pay such
amount to Trek after taking into account the effect of the
Intercompany Account Adjustments.
(ii) The following adjustments constitute the
"INTERCOMPANY ACCOUNT ADJUSTMENTS" and shall be taken into
account in the preparation of the Intercompany Adjustments
Schedule:
(A) The outstanding principal balance and all
accrued but unpaid interest of the promissory notes
listed on SCHEDULE 3.23(B) shall be reclassified and
debited to the "Due from Trek" intercompany account.
(B) Pursuant to Section 5.6, the outstanding
principal balance and all accrued but unpaid interest on
the SAR Notes (as defined in Section 5.6), shall be
reclassified and credited to the "Due from Trek"
intercompany account.
(C) Pursuant to Section 5.6, the amounts payable
to Terry Kelly, Carole Poindexter, Vernon Stacey and Jack
Faulkner under Trek's Appreciation Rights Plan shall be
reclassified and credited to the "Due from Trek"
intercompany account.
(D) The amount, if any, of "Prepaid Federal and
State Income Taxes" shall be reclassified and debited to
the "Due from Trek" intercompany account.
(E) The amount, if any, of "Accrued Federal and
State Income Taxes" shall be reclassified and credited to
the "Due from Trek" intercompany account.
(F) The amount derived by multiplying 38% by the
sum of (B) and (C) above (such amount representing the
deferred tax asset of such
9
items) shall be reclassified and debited to the "Due
from Trek" intercompany account.
(e) ADJUSTMENT TO THE PURCHASE PRICE.
(i) In the event the Net Book Value of Baker as reflected
on the Closing Date Financial Statements (as finally determined
in accordance with (c) above but excluding the effects of the
Intercompany Account Adjustments) equals or exceeds $28,750,000,
then the Escrow Agent shall remit the full amount of the Escrow
Payment and all earnings thereon to Trek, and Watsco shall pay
(or cause Baker to pay) to Trek the net amount of the
Intercompany Account Adjustments.
(ii) In the event the Net Book Value of Baker as
reflected on the Closing Date Financial Statements (as finally
determined in accordance with (c) above but excluding the effects
of the Intercompany Account Adjustments) is less than the
$28,750,000 (the amount by which it is less than $28,750,000 is
referred to herein as the "SHORTFALL"), then:
(A) if the Shortfall is less than the Escrow
Payment, (1) the Escrow Agent shall remit the amount of
the Shortfall to Watsco (together with a pro rata portion
of the earnings thereon), (2) after taking into account
(1), the Escrow Agent shall remit the balance, if any, of
the Escrow Payment to Trek (together with the remaining
earnings thereon), and (3) Watsco shall pay (or cause
Baker to pay) to Trek the net amount of the Intercompany
Account Adjustments; or
(B) if the Shortfall is more than the Escrow
Payment, (1) the Escrow Agent shall remit to Watsco the
full amount of the Escrow Payment (together will all
earnings thereon), (2) Trek shall pay to Watsco the
amount by which the Shortfall exceeds the Escrow Payment,
and (3) Watsco shall pay (or cause Baker to pay) to Trek
the net amount of the Intercompany Account Adjustments.
All payments by Trek or Watsco required to be made under this
subsection (d) shall be due and payable three (3) Business Days
after the Net Book Value of Baker is finally determined in
accordance with (c) above.
(f) COOPERATION. Watsco shall cause Watsco's Accountants, and
Trek shall cause Trek's Accountants, to cooperate with each other and
with the Settlement Accountants in connection with the resolution of any
disputes related to the calculation of the Closing Date Financial
Statements and the Intercompany Account Adjustments, including but, not
limited to, sharing of work papers.
(g) CERTAIN ACCOUNTING MATTERS. Watsco acknowledges Baker's
obligation of $240,000 payable to Mr. Jack Faulkner for the period from
October 1, 1997 through September 30, 1998 pursuant to the letter
agreement (the "FAULKNER LETTER"), which is included in SCHEDULE 3.8(B),
dated March 1, 1996 and agrees that such
10
obligation shall be funded by Baker and shall not be included in Baker's
Closing Date Financial Statements. Trek agrees and acknowledges that all
subsequent obligations enumerated in the Faulkner Letter shall be borne
by Trek.
Trek agrees and acknowledges that, if the proposed lump sum
payments that have been offered to the former employees of Booth (which
offers are described on SCHEDULE 5.1) are not accepted prior to Closing,
the obligations owing by Baker to such employees under their employment
agreements with Baker shall be accrued on the Closing Date Financial
Statements.
SECTION 2.4 TREK CLOSING DELIVERIES.
At the Closing, Trek shall deliver all of the following documents,
materials and instruments to Watsco, each in form and substance reasonably
satisfactory to Watsco:
(a) SHARES. One or more certificates representing all of the
Shares or accompanied by stock power(s) substantially in the form
attached hereto as EXHIBIT A (the "STOCK POWER"), duly executed in blank
by an authorized officer of Trek, and bearing or accompanied by any
requisite stock transfer stamps.
(b) NONCOMPETITION AGREEMENT. A noncompetition agreement in the
form of the agreement attached hereto as EXHIBIT B (the "NONCOMPETITION
AGREEMENT"), duly executed by an authorized officer of Trek.
(c) ESCROW AGREEMENT. An escrow agreement in the form of the
agreement attached hereto as EXHIBIT C (the "ESCROW AGREEMENT"), duly
executed by an authorized officer of Trek and by an authorized officer
of Escrow Agent.
(d) BRINGDOWN CERTIFICATE. A certificate in the form of the
certificate attached hereto as EXHIBIT D (the "TREK BRINGDOWN
CERTIFICATE"), duly executed by an authorized officer of Trek.
(e) SECRETARY'S CERTIFICATE. A secretary's certificate of Trek in
the form of the certificate attached hereto as EXHIBIT E (the "TREK
SECRETARY'S CERTIFICATE"), duly executed by the Secretary or an
Assistant Secretary of Trek authorized to execute and deliver such
certificate.
(f) SECRETARY'S CERTIFICATE. A secretary's certificate of Baker
in the form of the certificate attached hereto as EXHIBIT F (the "BAKER
SECRETARY'S CERTIFICATE"), duly executed by the Secretary or an
Assistant Secretary of Baker authorized to execute and deliver such
certificate.
(g) SECRETARY'S CERTIFICATE. A secretary's certificate of ISI in
the form of the certificate attached hereto as EXHIBIT G (the "ISI
SECRETARY'S CERTIFICATE"), duly executed by the Secretary or an
Assistant Secretary of ISI authorized to execute and deliver such
certificate.
11
(h) LEGAL OPINION. The opinions of counsel to Trek substantially
in the form of the opinions attached hereto as EXHIBIT H hereto
(collectively the "TREK LEGAL Opinions").
(i) MINUTE BOOKS AND SHARE CERTIFICATES. The original minute
books, the corporate seal and the stock ledger and stock books of Baker
and each entity that has merged into Baker (to the extent they exist)
and the original certificate of ISI representing the shares of its
capital stock that are owned by Baker (the "ISI SHARES").
(j) LEASED REAL PROPERTY. With respect to each Leased Facility
included on SCHEDULE 3.11(B)(2), a letter from the landlord
acknowledging consent to the proposed change in control of Baker, in
form and substance reasonably satisfactory to Watsco.
(k) OWNED REAL PROPERTY. With respect to the HQ Facility,
evidence that the appropriate documents have been filed with the
appropriate registrar of deeds to reflect that the property is owned by
"Baker Distributing Company".
(l) LIENS AND CONSENTS. Evidence that all Liens on the Shares,
the ISI Shares, the assets of Baker or ISI or otherwise affecting or
relating to Baker or ISI have been released (or in the case of the SBA
loan and the mortgage listed on SCHEDULE 3.30, pay off letters from the
applicable lenders effective through and including October 1) and that
all consents and notices required in the reasonable opinion of Watsco to
be obtained or given in connection with the consummation of the
transactions contemplated hereby have been obtained or given, including,
but not limited to, the consents and notices listed on SCHEDULE 3.6.
(m) SAR. Evidence that the actions described in Section 5.6 have
been taken including, but not limited to, the assignment by allonge to
Trek of all of the promissory notes described on SCHEDULE 3.23(B).
(n) RESIGNATION OF DIRECTORS OR OFFICERS. The resignations or
evidence of removal from office of all directors and officers of each of
Baker and ISI whose resignations shall have been requested by Watsco.
(o) PROFIT SHARING PLAN. Evidence that the Board of Directors of
Baker has begun the termination of Baker's Profit Sharing and Retirement
Plan as required by Section 5.4 hereof.
(p) GUARANTIES. Evidence of the release of Baker and ISI from any
Liabilities under the guaranties listed on SCHEDULE 3.25 other than the
Booth Guaranties (as defined in such schedule).
Trek shall also execute and deliver to Watsco at Closing such other
documents, materials and instruments as Watsco may reasonably request in order
to consummate the transactions contemplated hereby.
12
SECTION 2.5 WATSCO CLOSING DELIVERIES.
At the Closing, Watsco shall tender payment of the Closing Payment to
Trek and the Escrow Payment to the Escrow Agent in the manner described in this
Article II and deliver to Trek all of the following documents, materials and
instruments, each in form and substance reasonably satisfactory to Trek:
(a) ESCROW AGREEMENT. The Escrow Agreement, duly executed by an
authorized officer of Watsco.
(b) BRINGDOWN CERTIFICATE. A certificate in the form of the
certificate attached hereto as EXHIBIT I (the "WATSCO BRINGDOWN
CERTIFICATE"), duly executed by an authorized officer of Watsco.
(c) SECRETARY'S CERTIFICATES. A secretary's certificate of Watsco
in the form of the certificate attached hereto as EXHIBIT J (the "WATSCO
SECRETARY'S CERTIFICATE"), duly executed by the Secretary or an
Assistant Secretary of Watsco authorized to execute and deliver such
certificate.
(d) LEGAL OPINION. The opinion of Moore & Van Allen, PLLC,
special counsel to Watsco substantially in the form of the opinion
attached hereto as EXHIBIT K hereto (the "WATSCO LEGAL OPINION").
(e) CONSENTS. Evidence that all consents and notices required in
the reasonable opinion of Trek to be obtained or given in connection
with the consummation of the transactions contemplated hereby have been
obtained, including, but not limited to, the consents and notices listed
on SCHEDULE 4.4.
Watsco shall also execute and tender to Trek at Closing such other
documents, materials and instruments as Trek may reasonably request in order to
consummate the transactions contemplated hereby.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF TREK
Trek hereby makes to Watsco all of the representations and warranties
set forth in this Article III:
SECTION 3.1 ORGANIZATION, GOOD STANDING AND AUTHORITY.
Trek is duly organized, validly existing and in good standing under the
laws of the State of Wisconsin. Baker and ISI are each duly organized, validly
existing and in good standing under the laws of the State of Florida. Baker is
duly qualified to do business as a foreign corporation in the jurisdictions set
forth in SCHEDULE 3.1, which are all the jurisdictions where the character of
the properties it owns, leases or operates, or the conduct of its business,
requires such qualification except where the failure to be qualified could not
reasonably be expected to have a Material Adverse Effect. Except as disclosed on
SCHEDULE 3.1, each of Baker and ISI has
13
full corporate power and authority to own the properties and assets owned by it,
to lease the properties and assets held by it under lease, to carry on the
operation of its respective business as it is now being conducted by it, and to
operate its respective business as heretofore operated by it. Trek has full
corporate power to enter into this Agreement and the Related Agreements to which
it is a party and perform its obligations under this Agreement and such Related
Agreements.
SECTION 3.2 ARTICLES OF INCORPORATION; BYLAWS; MINUTE BOOKS.
True and complete copies of the articles of incorporation and by-laws of
each of Baker, ISI and Trek, as amended to and including the date hereof, have
been delivered to Watsco. None of Trek, Baker or ISI is in violation of any
provision of its articles of incorporation or by-laws. The minute books, stock
books and stock transfer records of Baker, ISI and Booth that have been made
available to Watsco represent the only records in the possession of Baker or any
of its Affiliates or Representatives of the issuance or transfer of capital
stock of Baker, ISI or Booth or of meetings, consents, proceedings or other
actions of the shareholders, board of directors or committees of the board of
directors of any of Baker, ISI or Booth.
SECTION 3.3 DUE AUTHORIZATION, EXECUTION AND DELIVERY.
Subject to receipt of the approvals and consents set forth in SCHEDULE
3.6 and the applicable requirements of the HSR Act, Trek has full corporate
authority to execute and deliver this Agreement and the Related Agreements to
which it is a party, to perform its obligations hereunder and under such Related
Agreements and to consummate the transactions contemplated hereby and thereby,
and Trek has duly executed and delivered this Agreement, and this Agreement
constitutes (and, when executed and delivered, the Related Agreements to which
it is a party will constitute) the legal, valid and binding obligations of Trek
enforceable against it in accordance with its terms, except that such
enforcement (a) may be limited by bankruptcy, insolvency, moratorium or similar
laws affecting creditors' rights generally, and (b) is subject to the
availability of equitable remedies, as determined in the discretion of the court
before which such a proceeding may be brought.
SECTION 3.4 TITLE TO SHARES; CAPITALIZATION; ETC.
(a) TITLE. Trek owns beneficially and of record all of the Shares
free and clear of any Liens. Upon the delivery of and payment for the
Shares as provided for in this Agreement, Watsco will acquire good and
valid title to all the Shares, free and clear of any Lien other than any
Lien arising by any action taken by Watsco.
(b) AUTHORIZED AND ISSUED CAPITAL STOCK. The authorized and
issued capital stock of Baker is as set forth on SCHEDULE 3.4(B). The
Shares have been duly authorized and validly issued, are fully paid and
nonassessable and are the only issued and outstanding shares of capital
stock of Baker.
(c) NO EQUITY RIGHTS. There are no preemptive or similar rights
on the part of any holders of any class of securities of Baker. There
are no subscriptions, options, warrants, conversion or other rights,
agreements, commitments, arrangements or
14
understandings of any kind obligating Baker or any other Person,
contingently or otherwise, to issue or sell, or cause to be issued or
sold, any shares of capital stock of Baker, or any securities
convertible into or exchangeable for any such shares, and no
authorization therefor has been given. There are no outstanding
contractual or other rights or obligations to or of Baker or any other
Person to repurchase, redeem or otherwise acquire any outstanding shares
or other equity interests of Baker.
SECTION 3.5 SUBSIDIARIES AND MERGER.
(a) NO SUBSIDIARIES. Except for the ISI Shares, Baker does not
own, directly or indirectly, any shares of capital stock or other equity
interest (or any other interest convertible into an equity interest) in
any Person and has no commitment to contribute to the capital of, make
loans to, or share in the profits or losses of, any Person.
(b) ISI SHARES. Baker owns beneficially and of record all of the
ISI Shares free and clear of any Liens. The authorized and issued
capital stock of ISI is as set forth on SCHEDULE 3.5(B). The ISI Shares
have been duly authorized and validly issued, are fully paid and
nonassessable and are the only issued and outstanding shares of capital
stock of ISI. There are no preemptive or similar rights on the part of
any holders of any class of securities of ISI. There are no
subscriptions, options, warrants, conversion or other rights,
agreements, commitments, arrangements or understandings of any kind
obligating ISI or any other Person, contingently or otherwise, to issue
or sell, or cause to be issued or sold, any shares of capital stock of
ISI, or any securities convertible into or exchangeable for any such
shares, and no authorization therefor has been given. There are no
outstanding contractual or other rights or obligations to or of ISI or
any other Person to repurchase, redeem or otherwise acquire any
outstanding shares or other equity interests of ISI.
(c) BOOTH MERGER. The merger of Booth with and into Baker was
properly authorized by all necessary directors and shareholder action on
the part of Booth and of Baker. Booth has been merged with and into
Baker, and the separate existence of Booth has ceased. Baker possesses
all of the rights, privileges, powers, franchises and properties (real
and personal, tangible and intangible) of Booth. Except as set forth in
SCHEDULE 3.5(C) and for consents, authorizations, Permits, appraisals
and notices where the failure to have obtained or given them could not
reasonably be expected to have a Material Adverse Effect, no consent,
authorization, Permit or approval of or from, or notice to, any Person
or Governmental Authority was required as a condition to the execution
and delivery of the articles of merger and related plan of merger by
which Booth merged with and into Baker and the consummation of the
merger contemplated thereby (other than the filing of the articles of
merger with the Secretary of State of the State of Florida and with the
Secretary of State of the Commonwealth of Virginia, which filings have
been made). Except as set forth on SCHEDULE 3.5, the merger of Booth
with and into Baker did not conflict with, give rise to a right of
termination of, contravene or constitute a default under, or be an event
which with the giving of notice or passage of time or both will become a
default under, or give to others any rights of termination or
cancellation of, or give rise to a right of acceleration of the
performance required by or maturity of, or result in the creation of any
Lien, Tax, Loss, Liabilities or loss of any
15
rights with respect to Booth or Baker pursuant to any of the terms,
conditions or provisions of or under any applicable Law, the articles of
incorporation or by-laws of Booth or Baker or under any Contract binding
upon Booth or Baker, or to which any of the assets or properties of
Booth or Baker or any of the Shares is subject which conflict, default,
right, Lien, Tax, Loss, or Liabilities could reasonably be expected to
have a Material Adverse Effect on Baker. Prior to the merger of Booth
with and into Baker, Baker owned all of the issued and outstanding
shares of capital stock of Booth.
SECTION 3.6 CONSENTS; NO CONFLICT.
Except as set forth in SCHEDULE 3.6 and for applicable requirements of
the HSR Act, (a) no consent, authorization, Permit or approval of or from, or
notice to, any Person or any Governmental Authority is required as a condition
to the execution and delivery of this Agreement or the Related Agreement by Trek
and the consummation of the transactions contemplated by this Agreement and the
Related Agreements by Trek, and (b) the execution and delivery of this Agreement
and the Related Agreements by Trek and the consummation of the transactions
contemplated hereby and thereby by Trek will not conflict with, give rise to a
right of termination of, contravene or constitute a default under, or be an
event which with the giving of notice or passage of time or both will become a
default under, or give to others any rights of termination or cancellation of,
or give rise to a right of acceleration of the performance required by or
maturity of, or result in the creation of any Lien, Tax, Losses, Liabilities or
loss of any rights with respect to Trek, Baker and ISI pursuant to any of the
terms, conditions or provisions of or under any applicable Law, the articles of
incorporation or by-laws of Trek, Baker and ISI or under any material Contract
binding upon Trek, Baker and ISI, or to which any of the assets or properties of
Baker or ISI or any of the Shares or any of the ISI Shares is subject, which or
the lack of which could reasonably be expected to have a Material Adverse
Effect.
SECTION 3.7 TAX MATTERS.
(a) TAX RETURNS. Except as set forth on SCHEDULE 3.7, each of
Baker and ISI has duly and timely filed (or caused to be filed or has
timely filed for an extension) or, where permitted or required, the
Affiliated Group of which Baker and ISI are members has filed (or caused
to be filed or has timely filed for an extension), all Tax Returns that
each was required to file prior to the date hereof. All such Tax Returns
were correct and complete in all material respects. Except as disclosed
on SCHEDULE 3.7, none of Trek, Baker or ISI is currently the beneficiary
of any extension of time within which to file any Tax Return.
(b) COMPLIANCE. Except as set forth on SCHEDULE 3.7, all Taxes
that are or may become payable by either Baker or ISI or that are
chargeable as a Lien upon the Shares or the ISI Shares (whether or not
shown on any Tax Return) as of the date hereof have been duly and timely
paid or have been provided for in the Financial Statements dated June
30, 1997. Each of Baker and ISI has complied with applicable Law
relating to the reporting, payment and withholding of Taxes in
connection with amounts paid to its employees, creditors, independent
contractors or other third parties and has, within the time and in the
manner prescribed by Law, withheld from such amounts and timely paid
over to the
16
proper Governmental Authorities all such amounts required to be so
withheld and paid over under applicable Law.
(c) CLAIMS. (i) To the Knowledge of Trek, no written claim (other
than a claim that has been finally settled) is pending by a Governmental
Authority in a jurisdiction where Baker or ISI does not file Tax Returns
or pay or collect Taxes in respect of a particular type of Tax imposed
by that jurisdiction that any of Baker or ISI is or may be subject to an
obligation to file Tax Returns or pay or collect Taxes in respect of
such Tax in that jurisdiction. To the Knowledge of Trek, there is no
pending claim or issue (other than a claim or issue that has been
finally settled) concerning any Liability for Taxes of either Baker or
ISI asserted, raised or threatened by any Governmental Authority in
writing and, to the Knowledge of Trek, no such Liability for Taxes has
otherwise been threatened.
(d) WAIVERS. Neither Baker nor ISI has (i) waived any statute of
limitations, (ii) agreed to any extension of the period for assessment
or collection or (iii) executed or filed any power of attorney in each
case with respect to any Taxes, which waiver, agreement or power of
attorney is currently in force.
(e) ELECTIONS. SCHEDULE 3.7 lists all material elections for
Income Taxes affirmatively made in writing by Trek (solely relating to
Baker or ISI), Baker or ISI that are currently in force or to which any
of Trek (solely relating to Baker or ISI), Baker or ISI is bound.
(f) CONSENTS. None of Baker or ISI has filed a consent under
Section 341(f) of the Code concerning collapsible corporations.
(g) TAX SHARING AGREEMENTS. None of Baker or ISI is a party to or
bound by or has any obligation under any written Tax allocation,
sharing, indemnity or similar agreement or arrangement, and none of
Baker or ISI (i) is or has ever been a member of any group of companies
(other than the Affiliated Group) filing a consolidated, combined or
unitary Income Tax Return or (ii) has any liability for the Taxes of any
Person under Section 1.1502-6 of the Treasury Regulations (or any
similar provision of state, local or foreign law); as a transferee,
successor, indemnitor or guarantor; by contract or otherwise.
(h) U.S. REAL PROPERTY HOLDING CORPORATION. Neither Baker or ISI
is a "United States real property holding corporation" within the
meaning of Section 897(c)(2) of the Code.
(i) TAX RETURN FILINGS. SCHEDULE 3.7(I) contains a listing of
each state in which Trek (relating to Baker or ISI), Baker or ISI filed
income Tax Returns for the fiscal year ending September 30, 1996.
(j) PRE-CLOSING INCOME. Neither Baker nor ISI will be required to
include any amount in taxable income or exclude any item of deduction or
loss from taxable income for any taxable period (or portion thereof)
ending after the Closing Date as a result of (i) a change in method of
accounting for a taxable period ending on or prior to the Closing
17
Date, (ii) any "closing agreement," as described in Code Section 7121
(or any corresponding provision of state, local or foreign income Tax
law), (iii) any deferred intercompany gain described in Treasury
Regulation Sections 1.1502-13 or former Treasury Regulations Section
1.1502-14 or any excess loss account described in Treasury Regulation
Sections 1.1502-19 and 1.1502-32 (or any corresponding or similar
provision or administrative rule of federal, state, local or foreign
income tax law), (iv) any sale reported on the installment method where
such sale occurred on or prior to the Closing Date, or (v) any prepaid
amount received on or prior to the Closing Date.
SECTION 3.8 EMPLOYEES, LABOR MATTERS, ETC.
(a) Neither Trek (with respect to Baker), nor Baker is a party to
or bound by any collective bargaining or other labor agreement with or
relating to any of its employees, and there are no labor unions or other
organizations representing any employees of Baker. There has not
occurred or been threatened any material strike, slowdown, picketing,
work stoppage, concerted refusal to work overtime or other similar labor
activity with respect to any of Baker's employees. There are no labor
disputes currently subject to any grievance procedure, arbitration or
litigation and there is no representation petition pending or threatened
with respect to any employees of Baker.
(b) SCHEDULE 3.8(B) sets forth the following information for each
of Baker's employees as of immediately prior to the date hereof
(including, but not limited to, each such person on leave): Employee
name, job title, store at which employed, hourly rate, bi-weekly pay,
annual pay and hire date. SCHEDULE 3.8(B) also summarizes, under
separate heading, for fiscal year 1996, base pay, commissions, and
incentives and total compensation for executives, management, branch
managers and salesmen.
SCHEDULE 3.8(B) under separate heading also describes each
Contract to which Baker is a party, or is otherwise bound that relates
to any employment, severance, change of control, consulting, commission,
agency and representative agreement or arrangement, including, but not
limited to, all agreements and commitments relating to wages, hours,
severance, retirement benefits or annuities, or other terms or
conditions of employment (other than employment arrangements terminable
at will without payment of any contractual severance or other amount).
Except as described in SCHEDULE 3.8(B), as of the date of this
Agreement, none of the employees of Baker who are executive officers or
managers of Baker has, to the Knowledge of Trek, indicated a desire to
terminate his or her employment, or any intention to do so, in
connection with the transactions contemplated by this Agreement or
contemporaneous with or following the Closing.
(c) ISI does not have any employees.
18
SECTION 3.9 FINANCIAL STATEMENTS.
SCHEDULE 3.9 contains true and complete copies of the following
consolidated financial statements of Baker (collectively with the Closing Date
Financial Statements and the Intercompany Adjustments Schedule, the "FINANCIAL
STATEMENTS"):
(a) Unaudited Balance Sheet as of July 31, 1997;
(b) Unaudited Statement of Income of Baker for the ten (10)
months ended July 31, 1997 comparative to July 31, 1996;
(c) Audited financial statements as of and for the fiscal year
ended September 30, 1996 and 1995, together with the auditor's report
thereon.
All such Financial Statements (i) were (or, in the case of the Closing
Date Financial Statements, will be) prepared from the accounting books and
records of Baker and ISI and, in the case of the audited Financial Statements
were prepared in accordance with GAAP (as modified by this Agreement) and (ii)
fairly present (or, in the case of the Closing Date Financial Statements and the
Intercompany Adjustments Schedule, will fairly present) the consolidated
financial condition and results of operations of Baker on a consolidated basis
as of the respective dates thereof and for the respective periods covered
thereby. The accounting books and records of Baker have been maintained in
accordance with the sound business practices and accurately reflect the conduct
of business by Baker on a consolidated basis and the assets and liabilities of
Baker on a consolidated basis.
SECTION 3.10 CHANGES OF FINANCIAL CONDITION.
Except for the execution and delivery of this Agreement and the Related
Agreements and except as disclosed on SCHEDULE 3.10 hereof, since September 30,
1996, there has not been any material adverse change, or any event or
development which, individually or together with other such events or
developments, has resulted in or may result in a material adverse change in the
business prospects, business, operations, property, condition (financial or
otherwise), Losses, Liabilities or relations with labor, customers or suppliers
of Baker or ISI. Since September 30, 1996, except for the merger of Booth with
and into Baker, each of Baker and ISI has operated its business in the Ordinary
Course of Business.
SECTION 3.11 REAL PROPERTY.
(a) OWNED FACILITIES. SCHEDULE 3.11(A) contains a true and
correct list of each parcel of real property owned by Baker (each, an
"OWNED FACILITY"). Except as set forth in SCHEDULE 3.11(A), Baker has
good and marketable fee simple title to such real property, free and
clear of all Liens, except for recorded utility easements, road rights
of way and other restrictions of record which do not impair,
individually or in the aggregate, the current or continued use,
occupancy, value or marketability of title of any Owned Facility. Baker
is in full possession of all of the real property listed on SCHEDULE
3.11(A), and, except for leases to Goodman pursuant to the Contracts
between Baker and Goodman listed on SCHEDULE 3.16, is not a lessor of
any space therein.
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(b) LEASED FACILITIES. SCHEDULE 3.11(B)(1) contains a true and
correct list of each parcel of real property leased by Baker, as lessee,
under any Contract (each, a "LEASED FACILITY"). Except as disclosed on
SCHEDULE 3.11(B)(1), and except for subleases to Goodman pursuant to the
Contracts between Baker and Goodman listed on SCHEDULE 3.16, Baker does
not lease any real property as a sublessor or sublessee. (For all
purposes of this Agreement, it is understood that, the term "Leased
Facility" does not include leases of Owned Facilities or subleases of
Leased Facilities granted by Baker to Goodman pursuant to the Contracts
between Baker and Goodman listed on SCHEDULE 3.16.)
Except for Liens identified on SCHEDULE 3.11(B)(1), Baker has a
valid leasehold estate in the real properties leased by it free and
clear of all Liens but subject to the Contract relating thereto, for the
full term thereof. Except as disclosed on SCHEDULE 3.11(B)(1), each such
Contract is a legal, valid and binding agreement of Baker enforceable
against Baker and the lessor named therein in accordance with its terms
and, to the Knowledge of Trek, Baker is not, and no other party thereto
is, in default under such Contract and no event has occurred which,
after notice or lapse of time or both, would constitute a default
thereunder. Except as disclosed on SCHEDULE 3.11(B)(2), the acquisition
of the Shares by Watsco will not affect Baker's leasehold estates in any
Leased Facility or require notice to or consent of any party to that
Contract related thereto (or would with the passage of time or the
giving of notice) or give rise to any payments or increased rental or to
any right of the lessor party thereto to terminate the lease or any
renewal rights or other options related thereto. To the Knowledge of
Trek, no notice of foreclosure by a lender to a lessor of any Leased
Facility of a Lien against the underlying real property has been
received by Trek or Baker.
(c) DOCUMENTS. Trek has delivered to Watsco prior to the
execution of this Agreement true and complete copies of all Contracts
(including any amendments and renewal letters relating thereto and all
recordings thereof) with respect to any Owned Facility and any Leased
Facility. Trek has made available to Watsco prior to the execution of
this Agreement true and complete copies of any title policies, title
opinions, surveys, environmental inspection reports, soils reports,
mechanical or physical inspection reports, certificate of occupancy,
operational licenses and permits that Trek or Baker or any of their
respective Affiliates or Representatives (as hereinafter defined) have
in its or their possession with respect to any Owned Facility or any
Leased Facility.
(d) CONDITION OF IMPROVEMENTS. The improvements located on each
Owned Facility and are in good condition and in good repair, ordinary
wear and tear excepted, and, other than repairs or maintenance to be
performed in the Ordinary Course of Business and the cost of which will
not exceed $50,000 in the aggregate, there are no capital repairs or
deferred maintenance to be performed. To the Knowledge of Trek, the
improvements located on each Leased Facility are in good condition and
in good repair, ordinary wear and tear excepted, and there are no
capital repairs or deferred maintenance to be performed which could have
a Material Adverse Effect. There are no condemnation proceedings pending
or, to the Knowledge of Trek, threatened against any Owned Facility or
any or improvements thereon. To the Knowledge of Trek, there are no
20
condemnation proceedings pending or threatened against any Leased
Facility or improvements thereon. To the Knowledge of Trek, all
utilities and similar systems which are required for the operation of
Baker's business at all Owned Facilities and all Leased Facilities are
installed and operating and are sufficient to enable all real property
to continue to be used and operated in the manner currently being used
and operated by Baker. Except as disclosed on SCHEDULE 3.11(D), all
facilities on all Owned Facilities and, to the Knowledge of Trek, on all
Leased Facilities have received all approvals of Government Authorities
(including Permits) required in connection with the ownership or
operation thereof and have been operated or maintained in accordance
with applicable Laws other than such approvals the failure to which have
obtained could not reasonably be expected to have a Material Adverse
Effect. Other than the Leased Facility in Roanoke, Virginia, no Owned
Facility and, to the Knowledge of Trek, no Leased Facility is located
within a special flood hazard area.
(e) CURRENT USE. Except as disclosed on SCHEDULE 3.11(E), the
current use of the Owned Facilities and the Leased Facilities by Baker
does not violate any of the Contracts with respect to any such
properties or, to the Knowledge of Trek, any other instrument or
Contract affecting any such property. To the Knowledge of Trek, there is
no violation of any covenant, condition, restriction, easement,
agreement or order of any Governmental Authority having jurisdiction
over any of Owned Facilities that adversely affects any such real
property or the use or occupancy thereof. The use of all Owned
Facilities is a permitted use under the zoning/land use Laws applicable
to such real property. Each Owned Facility is in compliance with the
applicable zoning/land use Laws. Since September 30, 1996, no damage or
destruction has occurred with respect to any Owned Facility or any
Leased Facility which, individually or in the aggregate, has had or
resulted in, or could have or result in, a Material Adverse Effect.
(f) OTHER REAL PROPERTY INVESTMENTS. Except for the Owned
Facilities and the Leased Facilities (collectively, the "REAL
PROPERTY"), Baker does not occupy any other real property. Baker does
not have any outstanding options (other than customary renewal options)
or rights of first refusal to purchase or lease any of the real
property, or any portion thereof or interest therein; except as
reflected on SCHEDULE 3.11(A) or SCHEDULE 3.11(B)(1). ISI does not own
or lease any real property.
SECTION 3.12 TANGIBLE PERSONAL PROPERTY.
Except as described on SCHEDULE 3.12, Baker is in possession of and has
good title to, or has valid leasehold interests in or valid rights under
Contracts involving in each case an aggregate annual payment of $50,000 or more,
to use, all the tangible personal property used in the conduct of Baker's
business. All such tangible personal property is free and clear of all Liens,
except as disclosed on SCHEDULE 3.12, and is in all material respects in good
condition, ordinary wear and tear excepted. ISI does not own any tangible
personal property.
SECTION 3.13 INVENTORY.
All the inventory of Baker consists of finished goods inventory of a
quality and quantity usable and salable in the Ordinary Course of Business,
except for obsolete items or items below
21
standard quality as to which a provision determined in a manner consistent with
GAAP has been made on the books of Baker. Baker has good and marketable title
to such inventory, free and clear of all Liens, except as disclosed on SCHEDULE
3.13. Except as described on SCHEDULE 3.13, no such inventory is held under a
consignment or similar arrangement. ISI does not own any inventory.
SECTION 3.14 ACCOUNTS RECEIVABLE.
The accounts receivable of Baker and ISI on the Closing Date (a) arose
from BONA FIDE sales transactions in the Ordinary Course of Business; and (b)
are collectible in the Ordinary Course of Business in the aggregate recorded
amounts thereof, subject to annual write-off adjustments consistent with prior
practice. Each of Baker and ISI has good title to all of its accounts
receivable, free and clear of any Liens, except as disclosed on SCHEDULE 3.14.
(The foregoing representations do not apply to or extend to notes receivable
from officers or employees of Baker which are described on SCHEDULE 3.23.)
SECTION 3.15 VEHICLES.
SCHEDULE 3.15 hereof contains a true and complete list of all vehicles
used by Baker or any of its employees in the Business or which are owned by
Baker and indicate which such vehicles are owned or leased. Baker has good and
valid title to, or has valid leasehold interests in or valid rights under
Contract to use, all such vehicles, free and clear of all Liens, except as set
forth on SCHEDULE 3.15. ISI does not own or lease any vehicles.
SECTION 3.16 CONTRACTS.
(a) DESCRIPTION OF CONTRACTS. SCHEDULE 3.16 contains a true and
complete list of each of the following Contracts (true and complete
copies of which, together with all amendments and supplements thereto,
have been delivered to Watsco prior to the execution of this Agreement)
to which Baker is a party or by which Baker's business may be bound
following the Closing:
(i) All Contracts with any Person containing any
provision or covenant prohibiting or materially limiting the
ability of Baker to engage in any business activity or compete
with any Person or prohibiting or materially limiting the ability
of any Person to compete with Baker;
(ii) all partnership and joint venture Contracts with
any Person;
(iii) all Contracts with manufacturers, distributors,
dealers, manufacturer's representatives, or sales agents with
whom Baker deals which in any case involve the payment or
contingent payment, pursuant to the terms of any such Contract,
by or to Baker of more than $50,000 in fiscal year 1996 or is
expected to exceed $50,000 in fiscal year 1997;
(iv) all Contracts relating to the future disposition
or acquisition of any assets of or by Baker (other than the sale
of inventory in the Ordinary Course
22
of Business, the sale of assets in connection with store closings
prior to date hereof, or the sale of other assets not exceeding
$50,000 in fiscal year 1996 or fiscal year 1997);
(v) all guarantees executed by or for the benefit of
Baker;
(vi) all powers of attorney executed by Baker;
(vii) all other Contracts (other than Benefit Plans,
real estate leases listed on SCHEDULE 3.11(B)(1) and insurance
policies listed in SCHEDULE 3.21) to which Baker is a party that
(A) involve the payment or potential payment, pursuant to the
terms of any such Contract, by or to Baker of more than $50,000
in fiscal year 1996 or fiscal year 1997, and (B) cannot be
terminated within thirty (30) days after giving notice of
termination without resulting in any Material Adverse Effect.
(b) STATUS OF CONTRACTS. To the Knowledge of Trek, each Contract
required to be disclosed in SCHEDULE 3.16 is in full force and effect.
Except as disclosed in SCHEDULE 3.16, to the Knowledge of Trek, neither
Baker nor any other party to any such Contract is in violation or breach
of or default under any such Contract (or with notice or lapse of time
or both, would be in violation or breach of or default under any such
Contract) the effect of which, individually or in the aggregate, could
have a Material Adverse Effect.
SECTION 3.17 LITIGATION AND CLAIMS.
SCHEDULE 3.17 discloses each instance in which Baker or ISI is a party
to or, to the Knowledge of Trek, is threatened to be made a party to, any
charge, complaint, action, suit, arbitration, proceeding, hearing, or
investigation. SCHEDULE 3.17 also discloses under separate heading each instance
in which Trek is a party to or, to the Knowledge of Trek, is threatened to be a
party to, any charge, complaint, action, suit, arbitration, proceeding, hearing,
or investigation, which, individually or in the aggregate with all other such
items, could if adversely determined have a Material Adverse Effect.
SECTION 3.18 COMPLIANCE WITH LAWS AND ORDERS.
Except as disclosed on SCHEDULE 3.18, to the Knowledge of Trek, neither
Baker nor ISI is in violation of or in default under any Law applicable to it
the effect of which, individually or in the aggregate with other such violations
and defaults, could have a Material Adverse Effect.
SECTION 3.19 EMPLOYEE BENEFITS.
(a) DESCRIPTION OF BENEFIT PLANS. SCHEDULE 3.19(A) contains a
true and complete list of the Benefit Plans of Baker which covers any of
the employees of Baker and identifies each Benefit Plan that is a
Qualified Plan. Except as disclosed on SCHEDULE 3.19(A), no Benefit Plan
provides health or other welfare benefits to former Employees (except as
required under Part 6 of Subtitle B of Title I of ERISA and Code Section
23
4980B(f). Except as disclosed on SCHEDULE 3.19(A) hereto, none of the
Benefit Plans obligate Baker to pay any separation, severance,
termination or similar benefit solely as a result of any transaction
contemplated by this Agreement.
(b) COMPLIANCE. Except as disclosed on SCHEDULE 3.19(B), (i) each
Benefit Plan (and each related trust or insurance contract) complies in
form and in operation in all material respects with its respective
governing documents and the applicable requirements of ERISA and the
Code, any applicable collective bargaining agreements and any other
applicable laws and regulations; (ii) there has been no application for
or waiver of the minimum funding standards imposed by Section 412 of the
Code with respect to any Benefit Plan, and Trek is not aware of any
facts or circumstances that would materially change the funded status of
any such Benefit Plan; (iii) no asset of Baker that is to be acquired by
Watsco, directly or indirectly, pursuant to this Agreement is subject to
any Lien which arose with respect to any Benefit Plan under ERISA or the
Code; (iv) neither Baker nor Trek has incurred any Liabilities under
Title IV of ERISA (other than for contributions not yet due) or to the
PBGC (other than for payment of premiums not yet due); and (v) to the
Knowledge of Trek, there are no pending or threatened actions, suits,
investigations or claims with respect to any Benefit Plan (other than
routine claims for benefits) which could result in liability to Watsco
or Baker (whether direct or indirect) or any facts which could give rise
to (or be expected to give rise to) any such actions, suits,
investigations or claims.
(c) FILINGS. Except as disclosed on SCHEDULE 3.19(C), all
required reports and descriptions (including without limitation Form
5500 Annual Reports, Summary Annual Reports, PBGC-1's, and Summary Plan
Descriptions) have been filed or distributed in a timely manner with
respect to each Benefit Plan. The requirements of Part 6 of Subtitle B
of Title I of ERISA and of Code Sec. 4980B(f) have been met with respect
to each group health plan.
(d) CONTRIBUTIONS. All contributions (including all employer
contributions and employee salary reduction contributions) which are due
have been paid to each Pension Benefit Plan and all contributions for
any period ending on or before the Closing Date which are not yet due
have been paid to each Pension Benefit Plan or accrued in accordance
with the past custom and practice of Trek and Baker. All premiums or
other payments for all periods ending on or before the date hereof have
been paid with respect to each Welfare Benefit Plan (as defined in ERISA
Section 3(1)).
(e) DETERMINATION LETTERS. Each Pension Benefit Plan which is a
Qualified Plan satisfies the requirements of Code Section 401(a) and has
received a favorable determination letter from the IRS regarding such
status and has not, since receipt of the most recent favorable
determination letter, been amended or operated in a way which would
adversely affect such qualified status.
(f) ASSET VALUATION. No Pension Benefit Plan (other than any
Multiemployer Plan) has an underfunded benefit obligation as determined
under FASB Statement of Financial Accounting Standards No. 87. No
Pension Benefit Plan (other than any Multiemployer Plan) has been
completely or partially terminated or been the subject of a
24
reportable event as to which notices would be required to be filed with
the PBGC. No proceeding by the PBGC to terminate any Pension Benefit
Plan (other than any Multiemployer Plan) has been instituted or, to the
Knowledge of Trek, threatened.
(g) NO PROHIBITED TRANSACTIONS. To the Knowledge of Trek, except
as disclosed on SCHEDULE 3.19(G), there has been no Prohibited
Transaction (as defined in ERISA Section 406 and Code Section 4975) with
respect to any Benefit Plan. To the Knowledge of Trek, no fiduciary with
respect to any Benefit Plan has any Liability for breach of fiduciary
duty or any other failure to act or comply in connection with the
administration or investment of the assets of any Benefit Plan. No
material charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand with respect to any Benefit Plan (other
than routine claims for benefits) is pending against Trek or Baker and,
to the Knowledge of Trek, there is no basis for any such charge,
complaint, action, suit, proceeding, hearing, investigation, claim, or
demand.
(h) DOCUMENTATION. Trek has delivered to Watsco true and complete
copies of (i) the plan documents and summary plan descriptions for each
Benefit Plan to which it or Baker is a party, (ii) the most recent
determination letters received from the Internal Revenue Service for
each Qualified Plan applicable to Baker, (iii) the most recent Forms
5500 Annual Report for each Benefit Plan applicable to Baker and (iv)
all related trust agreements, insurance contracts, and other funding
agreements with respect to each Benefit Plan applicable to Baker.
(i) SAR. SCHEDULE 3.19(I) sets forth employees of Baker who are
participants in Trek's Appreciation Rights Plan, and their respective
vested balances in such Plan as of June 30, 1997.
(j) MISCELLANEOUS. Neither Trek nor Baker is, and neither of them
have ever been, a member of a controlled group of corporations that,
contributes to, ever has contributed to, or ever has been required to
contribute to any multiemployer plan (as defined in Section 4001(a)(3)
of ERISA) (a "MULTIEMPLOYER PLAN") and does not have any Liability
(including "withdrawal liability as such term is defined in Section 4201
of ERISA) under any Multiemployer Plan. Neither Trek nor Baker has
incurred, and none of them has any reason to expect that any of them
will incur, and there are no events or circumstances which could
reasonably be expected to result in any Liability to the PBGC (other
than PBGC premium payments) or otherwise under Title IV of ERISA
(including any withdrawal Liability) or under the Code with respect to
any Pension Benefit Plan that Trek or Baker or any controlled group of
corporations which includes Trek or Baker maintains or have ever
maintained or to which any of them contributes, has ever contributed, or
has ever been required to contribute. The actions contemplated by this
Agreement will not give rise to any Liability with respect to any
"employee welfare benefit plan" (as such term is defined in Section 3(1)
of ERISA) that is a "multiemployer plan" (as such term is defined in
Section 3(37) of ERISA). Neither Baker nor ISI has any Liability with
respect to any "employee benefit plan" (as defined in Section 3(3) of
ERISA) solely by reason of being considered a single employer under
Section 414 of the Code with any trade, business, or entity other than
each other. Except as set forth
25
in SCHEDULE 3.19(J), neither execution nor consummation of the
transactions contemplated by this Agreement will create, accelerate, or
increase any Liability or right under any Benefit Plan.
SECTION 3.20 PERMITS.
Except as set forth in SCHEDULE 3.20, to the Knowledge of Trek, each of
Baker and ISI holds and maintains all Permits which it is required to hold or
maintain under applicable Law other than those Permits where the failure to have
obtained them could not reasonably be expected to have a Material Adverse
Effect. To the Knowledge of Trek, each of Baker and ISI has and is in compliance
with the terms of each such Permit.
SECTION 3.21 INSURANCE POLICIES.
SCHEDULE 3.21 contains a true and complete list of all Insurance
Policies maintained by Trek (with respect to Baker or ISI), ISI or Baker.
SCHEDULE 3.21 also sets forth for the current policy years and the two preceding
policy years a summary of the loss experience for claims under each insurance
policy, and claims exceeding $25,000 per claim that were self insured. SCHEDULE
3.21 also indicates the owner of each such policy. Each such Insurance Policy is
in full force and effect and all premiums due thereunder have been paid. None of
Trek, Baker or any of their Affiliates has received any notice of cancellation
or termination with respect to any such Insurance Policy and, none of Trek,
Baker or any of their Affiliates, is in default thereunder in any material
respect.
SECTION 3.22 ENVIRONMENTAL MATTERS.
(a) Except as disclosed on SCHEDULE 3.22, to the Knowledge of
Trek, Baker has obtained, and complied with all the terms and conditions
of, all Permits required to be obtained by it by any Environmental Law
except where the failure to obtain or comply with any such Permit could
not reasonably be expected to have a Material Adverse Effect. Each such
Permit is in full force and effect. Except as disclosed on SCHEDULE
3.22, Baker is in substantial compliance with all applicable
Environmental Laws.
(b) No Owned Facility or, to the Knowledge of Trek, Leased
Facility is listed on the NPL, CERCLIS or any similar state or local
list of sites.
(c) To the Knowledge of Trek, no written notice or any other
communication from Governmental Authority of any alleged violation of
any Environmental Law has been received by Trek (with respect to Baker
or ISI), Baker or ISI, except for notices or communications that have
been complied with in all material respects.
(d) To the Knowledge of Trek, neither this Agreement nor the
consummation of the transactions contemplated hereby shall impose any
obligations on Watsco, Baker or ISI for site investigation or cleanup,
or notification to or consent of any Governmental Authority or third
parties under any Environmental Laws (including, but not limited to, any
so-called "transaction triggered" or "responsible party transfer" laws
and regulations).
26
(e) To the Knowledge of Trek, none of the following exists at
any Owned Facility or Leased Facility:
(i) Underground storage tanks or surface
impoundments;
(ii) asbestos-containing materials in any form or
condition regulated under any Environmental Law; or
(iii) materials or equipment containing polychlorinated
biphenyls regulated under any Environmental Law.
(f) To the Knowledge of Trek, except as disclosed on SCHEDULE
3.22, neither Baker nor ISI has treated, stored, disposed of, arranged
for or permitted the disposal of, transported, handled or released any
substance (including, but not limited to, any Hazardous Substance) or
owned, occupied or operated any facility or property so as to give rise
to Liabilities of Baker or ISI for response costs, natural resource
damages or attorneys' fees, pursuant to CERCLA or any other
Environmental Law.
(g) To the Knowledge of Trek, there are no facts, events or
conditions which presently exist relating to any Owned Facility which
prevent, hinder or limit continued substantial compliance with
Environmental Laws, give rise to any corrective, investigatory or
remedial obligations pursuant to Environmental Laws, to the Knowledge of
Trek, give rise to any other Liabilities pursuant to Environmental Laws
(including, but not limited to, those Liabilities relating to onsite or
offsite releases or threatened releases of Hazardous Materials,
substances or wastes, personal injury, property damage or natural
resource damage) that could reasonably be expected to have a Material
Adverse Effect.
(h) To the Knowledge of Trek, neither Baker nor ISI has either
expressly or by operation of Law, assumed or undertaken any Liability or
corrective, investigatory or remedial obligation of any other Person
relating to any Environmental Laws. To the Knowledge of Trek, no Lien,
whether recorded or unrecorded, in favor of any Governmental Authority,
relating to any Liability of Baker or ISI arising under any
Environmental Laws, has attached to any Owned Facility or any Leased
Facility.
(i) For purposes of the representations and warranties made in
this Section 3.22, it is acknowledged by the parties that Trek undertook
no investigation with respect to any of the Leased Facilities.
SECTION 3.23 RELATIONSHIP WITH AFFILIATES.
Except as disclosed in SCHEDULE 3.23(A), neither Trek nor any Affiliate
of Trek provides or supplies assets, services or facilities which are
individually or in the aggregate material to the operation of Baker or ISI.
Except as disclosed on SCHEDULE 3.23(B), Baker has not loaned funds to any of
its employees other than advances of expenses in the Ordinary Course of
Business. Except as disclosed on SCHEDULE 3.23(B), each of the transactions
listed in SCHEDULE 3.23(A) AND (B) is or was engaged in on an arm's-length
basis.
27
SECTION 3.24 BROKERS.
No broker or other representative has acted on behalf of Trek, Baker or
ISI in connection with the transaction contemplated hereby in such manner as to
give rise to any valid claim by any Person against Watsco, Baker or ISI for a
finder's fee, brokerage commission or similar payment.
SECTION 3.25 NO GUARANTEES; NO POWERS OF ATTORNEY.
Except as disclosed on SCHEDULE 3.25, (a) no Liabilities of Trek or any
of its Affiliates is guaranteed by or subject to a similar contingent obligation
of Baker or ISI, and (b) neither Baker nor ISI has given or granted any powers
of attorney to any Person to act on behalf of, or bind, Baker or ISI.
SECTION 3.26 BANK ACCOUNTS.
SCHEDULE 3.26 sets forth a complete and correct list containing the
names of each bank in which Baker or ISI has an account or safe deposit or lock
box, the account or box number, as the case may be, and the name of every Person
authorized to draw thereon or having access thereto.
SECTION 3.27 CUSTOMERS AND SUPPLIERS.
SCHEDULE 3.27 hereto lists the twenty-five (25) largest vendors and the
twenty-five (25) largest customers of Baker and of ISI during the nine (9) month
period ending June 30, 1997, together with the dollar amount of goods purchased
by each such customer or, in the case of vendors, the dollar amount of goods or
services purchased from such vendor during such period. Except as disclosed on
SCHEDULE 3.27, since September 30, 1996, no Person listed on SCHEDULE 3.27 has
materially decreased the amount of business that it does with Baker or ISI and,
to the Knowledge of Trek, no Person listed on SCHEDULE 3.27 has indicated or
threatened that it intends to materially decrease the amount of business that it
does with Baker or ISI.
To the Knowledge of Trek, Baker does not offer or use any current
customer incentive programs, whether written or oral and whether or not deemed
or considered to be legally enforceable, which involve the payment of refunds by
Baker or the sharing of marketing expenses by Baker.
SECTION 3.28 WARRANTIES AND PRODUCT CLAIMS.
Except as disclosed on SCHEDULE 3.17, to the Knowledge of Trek, there is
not presently, nor has there been in the past three (3) years, any failure of
any product sold by Baker or ISI which did, or which reasonably could be
expected to, require a general recall or repair or replacement campaign that
could have a Material Adverse Effect.
Except as disclosed on SCHEDULE 3.17, to the Knowledge of Trek, with the
exception of product claims covered by the manufacturer's warranties, no product
liability claim is pending or, to the Knowledge of Trek, threatened against
Baker or ISI.
28
SECTION 3.29 INTELLECTUAL PROPERTY.
(a) SCHEDULE 3.29 hereof describes all Intellectual Property used
by Baker or ISI in the conduct of the business of Baker or of ISI, each
item of which Baker or ISI (as the case may be) either has all right,
title and interest in or rights under Contract to use. Except as
disclosed in SCHEDULE 3.29, (i) all registrations with and applications
to Governmental Authorities in respect of Intellectual Property owned by
Baker and ISI and disclosed in SCHEDULE 3.29 are valid and in full force
and effect, and (ii) to the Knowledge of Trek, neither Baker nor ISI is,
neither of them has received any notice that it is in default (or with
the giving of notice or lapse of time or both, would be in default) in
any material respect under any Contract by which it has the right to
Intellectual Property. To the Knowledge of Trek, neither Baker nor ISI
is infringing any Intellectual Property of any other Person the effect
of which, in the aggregate, could reasonably be expected to have a
Material Adverse Effect on Baker or ISI.
(b) With respect to the implementation and development of Baker's
new Mincron software package (the "MINCRON SYSTEM"), no event has
occurred (or failed to occur) that is likely to result in the Mincron
System not being used for the purpose originally envisioned for it when
the implementation process began. Following the consummation of the
transactions contemplated hereby, Baker shall be entitled at no
additional cost to use the Mincron System for the purpose originally
designed for it when the implementation process began. To the Knowledge
of Trek, Baker and each other party thereto, is in compliance with all
terms of any Contract relating to the Mincron System. Except as
disclosed on SCHEDULE 3.6, the consummation of the transactions
contemplated by this Agreement shall not, with respect to any Contract
relating to the Mincron System: (i) require the consent of any party or
(ii) result in any party having a right to terminate such Contract.
SECTION 3.30 INDEBTEDNESS.
Except as disclosed on SCHEDULE 3.30, neither Baker nor ISI has any
indebtedness for borrowed money.
SECTION 3.31 ABSENCE OF UNDISCLOSED LIABILITIES.
Except as set forth on SCHEDULE 3.31, to the Knowledge of Trek, neither
Baker nor ISI has any Liability arising out of transactions entered into prior
to the Closing, or any action or inaction prior to the Closing, or any state of
facts existing prior to the Closing other than: (a) Liabilities reflected on the
Financial Statements dated June 30, 1997; (b) Liabilities which have arisen
after the date of such Financial Statements in the Ordinary Course of Business
(none of which is a liability resulting from breach of contract, breach of
warranty, tort, infringement, claim or lawsuit); (c) other Liabilities expressly
disclosed in this Agreement or in the other Schedules to this Agreement or of
the type that would be required to be disclosed in this Agreement or the
Schedules hereto but for the materiality qualifications contained herein; (d)
Liabilities that have been repaid, discharged or otherwise extinguished; or (e)
Liabilities that do not exceed, individually, $100,000 or, collectively,
$1,000,000.
29
SECTION 3.32 CONTINUANCE OF OPERATIONS.
After the Closing, the assets owned by Baker together with the assets
which Baker has a right under Contract to use shall be sufficient for Baker to
continue to operate in the same manner as Baker operated prior to the Closing,
without incurring any additional material expense or Liability.
SECTION 3.33 DISCLOSURE.
The representations and warranties of Trek contained in this Agreement
and in any schedule, certificate, or agreement furnished by Trek, Baker or ISI
to Watsco pursuant to this Agreement do not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements herein or therein, in the light of the circumstances under which they
were made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF WATSCO
Watsco hereby represents and warrants to Trek:
SECTION 4.1 ORGANIZATION AND AUTHORITY.
Watsco is a corporation duly organized, validity existing and in good
standing under the laws of the State of Florida. Watsco is duly qualified as a
foreign corporation and is in good standing in each jurisdiction where the
character of their respective properties owned or held under lease or the nature
of their respective activities makes such qualification necessary and where the
failure to so qualify would have a Material Adverse Effect upon Watsco. Watsco
has full corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated herein.
SECTION 4.2 ARTICLES OF INCORPORATION; BYLAWS.
True and complete copies of the articles of incorporation and by-laws of
Watsco, as amended to and including the date hereof, have been delivered to
Trek.
SECTION 4.3 DUE AUTHORIZATION, EXECUTION AND DELIVERY.
Subject to receipt of the approvals and consents set forth in SCHEDULE
4.4 and the applicable requirements and the HSR Act, Watsco has full corporate
authority to execute and deliver this Agreement and the Related Agreements to
which it is party, to perform its obligations hereunder and under the Related
Agreements and to consummate the transactions contemplated hereby and thereby,
and Watsco has duly executed and delivered this Agreement. This Agreement
constitutes (and, when executed and delivered, the Related Agreements to which
it is a party will constitute) the legal, valid and binding obligations of
Watsco enforceable against it in accordance with its terms, except that such
enforcement (a) may be limited by bankruptcy, insolvency, moratorium or similar
laws affecting creditors' rights generally, and (b) is subject to
30
the availability of equitable remedies, as determined in the discretion of the
court before which such a proceeding may be brought.
SECTION 4.4 CONSENTS; NO CONFLICTS.
Except as set forth in SCHEDULE 4.4 and for applicable requirements of
the HSR Act and consents and notices that have been obtained or given, (a) no
consent, authorization, Permit or approval of or from or notice to any Person or
any Governmental Authority is required as a condition to the execution and
delivery of this Agreement by Watsco or any of the Related Agreements to which
it is a party and the consummation of the transactions contemplated by this
Agreement and such Related Agreements by Watsco, and (b) the execution and
delivery of this Agreement and such Related Agreements by Watsco and the
consummation of the transactions contemplated hereby and thereby by Watsco, will
not conflict with, give rise to a right of termination of, contravene or
constitute a default under, or be an event which with the giving of notice or
passage of time or both will become a default under, or give to others any
rights of termination or cancellation of, or give rise to a right of
acceleration of the performance required by or maturity of, or result in the
creation of any Lien, Liabilities or loss of any rights with respect to Watsco
(which could reasonably be expected to have a Material Adverse Effect on Watsco)
pursuant to any of the terms, conditions or provisions of or under, any
applicable Law, the articles of incorporation or by-laws of Watsco, or under any
Contract binding upon Watsco or to which any of the assets or properties of
Watsco is subject.
SECTION 4.5 BROKERS.
No broker or other representative has acted on behalf of Watsco in
connection with the transaction contemplated hereby in such manner as to give
rise to any valid claim by any Person against Trek for a finder's fee, brokerage
commission or similar payment.
SECTION 4.6 SECURITIES MATTERS.
Watsco has received, read and are familiar with all information
concerning the Shares and the business and operations of Baker that have been
provided to it for the purpose of making an informed investment decision with
respect to the Shares. Watsco recognizes the highly speculative nature of an
investment in the Shares. Watsco is an "accredited investor" as that term is
defined in Rule 506 of Regulation D promulgated under the Securities Act of
1933, as amended, (the "1933 ACT"). Watsco has sufficient knowledge and
experience in financial and business matters such that Watsco is capable of
evaluating the merits and risks of an investment in the Shares. Watsco will
acquire the Shares for Watsco's own account for investment and not with a view
to, or for resale in connection with, any distribution of the Shares within the
meaning of the 1933 Act. Watsco acknowledges that the Shares are not registered
under the 1933 Act and may not be transferred, assigned or otherwise disposed of
unless the Shares are subsequently registered under the 1933 Act or an exemption
from such registration is available.
SECTION 4.7 DISCLOSURE.
The representations and warranties of Watsco contained in this
Agreement, and in any schedule, certificate or agreement furnished by Watsco
pursuant to this Agreement do not
31
contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements herein or therein, in light of
the circumstances under which they were made, not misleading.
ARTICLE V
CERTAIN AGREEMENTS OF TREK OR WATSCO
SECTION 5.1 BAKER'S AND ISI'S OPERATION.
From the date hereof until the Closing Date, except as set forth in
SCHEDULE 5.1 or as otherwise contemplated by this Agreement, and to the extent
Watsco otherwise agrees in writing:
(a) Trek shall (and shall cause Baker and ISI to) operate the
business of Baker and ISI only in the Ordinary Course of Business and
use reasonable commercial efforts to preserve the present business
organization and present relationships with Persons having material
business dealings with of Baker and ISI and to retain all employees
currently employed by Baker.
(b) Trek shall not (and shall cause of Baker and ISI not to) take
any action or fail to take any action that would cause any of the
representations and warranties made by Trek in this Agreement not to
remain true and correct in all material respects as if made at and as of
the Closing Date, unless the failure to take such action or not to take
such action would be commercially unreasonable.
(c) Trek shall give prompt written notice to Watsco (i) of any
material development affecting either of Baker or ISI, the assets or
Liabilities of Baker or ISI, or the financial condition, operations and
results of operations of Baker or ISI, (ii) if any representation or
warranty of Trek is or becomes no longer true in any material respect,
and (iii) of any material development affecting the ability of Trek to
consummate the transactions contemplated by this Agreement.
(d) Unless the failure to take such action would be commercially
unreasonable, Trek shall not (and shall cause Baker and ISI not to)
engage in any activity other than in the Ordinary Course of Business
which would (i) accelerate the collection of accounts or notes
receivable of Baker or ISI (other than the notes receivable listed on
SCHEDULE 3.23(B)), (ii) delay the payment or performance of accounts
payable of Baker or ISI, (iii) delay capital expenditures of Baker or
ISI, (iv) reduce or otherwise restrict, or unduly increase, the amount
of inventory of Baker or (v) terminate, hire or relocate any officers or
management level employees of Baker.
(e) Trek shall cause Baker and ISI not to:
(i) Remove from, sell or otherwise dispose of, any
assets located at any business location of Baker other than cash
transfers to Trek in the Ordinary Course of
32
Business, the write off of accounts receivable in the Ordinary
Course of Business, inventory sold in the Ordinary Course of
Business or other assets with an aggregate value of less than
$250,000;
(ii) acquire, enter into an option to acquire or lease
or exercise an option or Contract to acquire or, except in the
Ordinary Course of Business, lease additional real property,
incur additional indebtedness for borrowed money or encumber
assets, other than purchase money security interests and leases
with Goodman;
(iii) (A) amend the Articles of Incorporation or Bylaws
of Baker or ISI; (B) issue, transfer from treasury or allocate
any additional shares of capital stock, effect any stock split,
reverse stock split, stock dividend, recapitalization or other
similar transaction with respect to Baker or ISI; or (C) grant,
confer or award any option, warrant, conversion right or other
right not existing on the date hereof to acquire any shares of
the capital stock of Baker or ISI;
(iv) other than annual adjustments in compensation
made in the Ordinary Course of Business, increase any
compensation or enter into or amend any Contract with any
employee of Baker or adopt any new Benefit Plan covering any
employee of Baker, amend any existing Benefit Plan covering any
employee or the individual benefits provided to any individual
employee of Baker in any material respect, except for changes
which are less favorable to participants in such plans, or
terminate any existing Benefit Plan covering any employee of
Baker except as contemplated by this Agreement;
(v) declare or set aside any dividend or any other
distribution or payment with respect to any shares of the capital
stock of Baker, or make any commitment for any such action which
would be distributed after Closing, except for the dividend
described in Section 2.3(d);
(vi) make any loans, advances or capital contributions
to, or investments in, any other Person other than advances of
expenses to employees in the Ordinary Course of Business and cash
transfers to Trek in the Ordinary Course of Business;
(vii) amend, extend or allow to lapse any Contract
listed on SCHEDULE 3.16, other than amendments, extensions and
expirations of real property leases in the Ordinary Course of
Business; or
(viii) enter into any Contract that would have been
required to be disclosed on SCHEDULE 3.16, other than real
property leases entered into in the Ordinary Course of Business.
SECTION 5.2 ACCESS TO BOOKS AND RECORDS OF BUSINESS.
From the date hereof until the Closing Date or any earlier termination
of this Agreement, Trek shall (and shall cause Baker and ISI to) give Watsco and
its Representatives access upon
33
reasonable notice and during normal business hours to the appropriate employees
of Trek and Baker, to Trek's, Baker's and ISI's accountants, to Trek's and
Baker's premises and to furnish Watsco, subject to Section 6.1 of this
Agreement, with all such information concerning Trek, Baker and ISI as Watsco
may reasonably request in order to review the legal, financial and business
condition and affairs of Baker and ISI.
SECTION 5.3 EXCLUSIVITY.
Until Closing or until this Agreement is terminated by its terms, Trek
shall not (and shall not cause or permit any of its Affiliates or
Representatives or any other Person acting on behalf of Trek or any of its
Affiliates to) (a) solicit, initiate or encourage the submission of any proposal
or offer from any Person relating to any (i) liquidation, dissolution or
recapitalization of Baker or ISI, (ii) merger or consolidation of Baker or ISI
with or into any other Person, (iii) acquisition or purchase of any of the
Shares or of any assets of Baker (other than sales of inventory in the Ordinary
Course of Business) or the ISI Shares or of any assets of ISI, or of any equity
interest in, or any rights to acquire equity interests in or of Baker or ISI or
(iv) any similar transaction or business combination involving Baker or ISI or
(b) participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or facilitate in any
other manner any effort or attempt by any other Person to do or seek any of the
foregoing. Trek shall (and Trek shall cause each of its Affiliates and
Representatives to) discontinue immediately any negotiations or discussion with
respect to any of the foregoing.
SECTION 5.4 QUALIFIED PLANS.
(a) On or before the Closing Date, Trek shall take (or cause to
be taken) all action necessary or otherwise appropriate to initiate the
process of terminating, effective as of the Closing Date, the Baker
Bros., Inc. Profit Sharing and Retirement Plan and any other Qualified
Plan maintained by Baker, including, but not limited to (i) the timely
adoption of valid resolutions of the board of directors of Baker
terminating such plans; (ii) providing timely notice of the termination
of such plans to participants therein, to the extent required by such
plans; (iii) fully vesting all accrued benefits of participants in such
plans; (iv) amending such plans, to the extent necessary, to provide for
an allocation of any employer contributions for the period through the
Closing Date to plan participants who otherwise would have been entitled
to an allocation of any contributions made with respect to such plans at
the end of the current plan year; (v) making the employer contributions
described in (iv) in a manner consistent with Section 5.4(c); and (vii)
taking all actions necessary to assist Watsco, Baker or ISI with the
timely preparation and filing with the Internal Revenue Service after
the Closing Date of an application for a determination letter with
respect to the qualified status upon termination of such plans.
(b) Effective as of the day following the Closing Date, Watsco
shall take (or cause to be taken) all action necessary or otherwise
appropriate to have Baker adopt and become a participating employer in
any employee pension benefit plan (within the meaning of Section 3(2) of
ERISA) which is intended to comply with Code Section 401(a) that is
generally available to employees of Watsco and its Affiliates (the
"WATSCO QUALIFIED PLAN"), and shall amend such plan, to the extent
necessary, to (i) recognize for eligibility and vesting purposes under
the Watsco Qualified Plan all service of Baker
34
employees counted for such purposes under the Baker Bros., Inc. Profit
Sharing and Retirement Plan, and (ii) enable Baker employees to enroll
under the Watsco Qualified Plan as soon as practicable after the Closing
Date.
(c) After the Closing but prior to the delivery of the Closing
Date Financial Statements to Watsco pursuant to Section 2.3(c) hereof,
Trek shall determine the total amount of Baker's contribution to the
Baker Bros., Inc. Profit Sharing and Retirement Plan for the plan year
ended September 30, 1997, and the amount of such contribution shall be
accrued on the Closing Date Financial Statements. Watsco shall cause
Baker to contribute to the Baker Bros., Inc. Profit Sharing Retirement
Plan no later than January 15, 1998, an amount equal to the liability
accrued on the Closing Date Financial Statements for the plan
contribution for the plan year ended September 30, 1997, and shall cause
the plan to treat such contribution as a contribution for such plan
year.
SECTION 5.5 WELFARE BENEFIT PLANS.
(a) Effective as of the Closing and continuing through the second
anniversary of the Closing Date, Watsco shall cause Baker to maintain,
or cause to be maintained for the benefit of Baker employees and former
employees (and their dependents) employee welfare benefit plans,
policies, and arrangements (including, without limitation, health,
hospitalization, dental, vision, drug prescription, accidental death and
dismemberment, life insurance and disability benefits) on terms and
conditions which, when taken as a whole, are substantially comparable or
superior to those benefits provided to Baker employees and former
employees (and their dependents) immediately prior to the Closing Date;
PROVIDED, HOWEVER, Watsco shall not be obligated to maintain any
specific employee benefit plan, policy, or arrangement to the extent so
doing would be in violation of any applicable law. Watsco shall cause
each of the employee welfare benefit plans, policies, and arrangements
covering Baker employees to recognize for eligibility and vesting
purposes all service of such employees counted for such purposes under
the corresponding plans provided to such employees by Baker immediately
prior to the Closing Date.
(b) With respect to any "group health plan" within the meaning of
Section 5000(b)(1) of the Code, Watsco shall cause such plan to give
credit to the Baker employees or former employees (and their dependents)
for amounts paid under the corresponding plans provided to such
individuals by Baker immediately prior to the Closing Date toward any
applicable deductibles, co-payments, and out-of-pocket limits for the
current plan year as though such amounts had been paid in accordance
with the terms and conditions of Watsco's welfare benefit plans.
(c) Effective as of the day following the Closing Date, Watsco
shall take (or cause to be taken) all action necessary to otherwise
appropriate to have Baker adopt and become a participating employer in a
cafeteria plan within the meaning of Section 125 of the Code maintained
for the benefit of employees of Watsco and its Affiliates (the "WATSCO
CAFETERIA PLAN"), and shall amend such plan, to the extent necessary, to
assume and recognize for purposes of the Watsco Cafeteria Plan any
before-tax salary deferral elections for the current plan year with
respect to the payment of employee premium
35
expenses for the current plan year made by any Baker employees under the
cafeteria plan maintained by Baker or Trek immediately prior to the
Closing Date.
SECTION 5.6 SAR AND CERTAIN NOTES.
On or before the Closing Date, Trek shall cause any and all obligations
of Baker and of ISI under the Appreciation Rights Plan of Trek and any and all
obligations of Baker under the promissory notes described on SCHEDULE 3.30 under
the heading "SAR Notes" (the "SAR Notes"), at Trek's option, either to be
transferred to and assumed by Trek or to be fully discharged, with all of the
following results (a) none of Watsco, Baker or ISI shall have any Liability
under or related to such plan, and (b) none of Watsco, Baker or ISI shall have
any Liability under or related to the SAR Notes, and (c) neither the
Appreciation Rights Plan of Trek nor the SAR Notes will be reflected on the
Closing Date Financial Statements (other than as a result of being included in
the Intercompany Adjustments Schedule).
SECTION 5.7 INDEMNIFICATION.
Watsco agrees that all rights to indemnification now existing in favor
of the employees, agents, directors or officers of Baker and ISI, that are in
their respective articles of incorporation or by-laws shall survive the Closing
and shall continue in full force and effect, as obligations of Baker and ISI,
for a period of not less than six years from the Closing Date. Watsco further
agrees, for a period of six years, not to amend the articles of incorporation,
by-laws or other constitutive documents of Baker or ISI to reduce the scope of
the directors' and officers' indemnification provided for therein; PROVIDED,
HOWEVER, that in the event any claim or claims are asserted or made within such
six-year period, all rights to indemnification with respect to any such claim or
claims.
SECTION 5.8 PAYMENT OF BONUSES.
Watsco shall cause Baker to pay, no later than December 15, 1997,
bonuses for the fiscal year ended September 30, 1997, to such employees and
former employees of Baker and in such amounts as Trek shall reasonably
designate; PROVIDED, HOWEVER, that the total amount of such bonuses shall not
exceed the total amount of bonuses accrued as Liabilities on the Closing Date
Financial Statements.
ARTICLE VI
MUTUAL AGREEMENTS
SECTION 6.1 CONFIDENTIALITY.
(a) For purposes of this Agreement, the term "CONFIDENTIAL INFORMATION"
means all information furnished or made available to Watsco and its
Affiliates and Representatives by Trek and its Affiliates and
Representatives concerning Baker or ISI including, without limitation,
customer and vendor information, financial statements, sales, sales
volume, marketing strategy, business or financial plans or projections,
and information concerning the identity, employees, facilities,
operations, or ownership of Baker or ISI. Confidential
36
Information may be oral or in written, electronic or other form.
Notwithstanding the foregoing, information which is or becomes generally
available to the public other than as a result of a disclosure by Watsco
or its Affiliates or Representatives does not for purposes of the
Agreement constitute "Confidential Information".
(b) From the date hereof until the Closing Date or, if the
Closing does not occur, until July 21, 2002, without the prior written
consent of Trek, Watsco shall not:
(i) Disclose or divulge in any manner or to any Person
any of the Confidential Information; PROVIDED, HOWEVER, that
Confidential Information may be disclosed to Watsco's
Representatives who have a need to know such Confidential
Information in connection with the transactions and matters
contemplated by this Agreement (it being understood that
Purchaser shall advise such Representatives of the existence of
this Agreement and obtain their agreement to be bound by the
terms hereof and shall not disclose the Confidential Information
to any other person); or
(ii) copy or use Confidential Information for any purpose
other than for purposes contemplated by this Agreement.
Unless the Closing occurs (in which case, Trek shall no longer
own any Confidential Information and all Confidential Information shall
be the property of Baker), all Confidential Information shall remain the
property of Baker or Trek, as the case may be.
Until the Closing or, if the Closing does not occur, until July
21, 2002, Watsco shall keep a record in reasonable detail of the
Confidential Information and of the location of all such Confidential
Information. As soon as possible upon the written request of Baker or
Trek or following the termination of this Agreement by Watsco or Trek,
Watsco shall (and shall cause its Affiliates and Representatives to)
return to Baker or Trek, as the case may be, all tangible Confidential
Information and will destroy (or, at Watsco's option, return to Baker or
Trek) all Confidential Information prepared by Watsco or any of its
Affiliates or Representatives. Such destruction (or return) will be
confirmed in writing to Baker and Trek. Any Confidential Information not
so destroyed (or returned) shall remain subject to this Agreement.
If, prior to Closing or, if the Closing does not occur, prior to
July 22, 2002, Watsco or its Affiliates or Representatives are requested
or become legally compelled (by oral questions, interrogatories, request
for information or documents subpoena, civil investigative demand or
similar process), in the written opinion of Watsco's legal counsel, to
disclose any Confidential Information, Watsco shall provide Baker and
Trek with prompt notice of such request or requirement and the documents
requested or required and cooperate with Baker and Trek so that Baker
and Trek may seek a protective order or other appropriate remedy and/or
waive compliance with the provisions of this Agreement and consult with
Baker and Trek as to the advisability of taking legally available steps
to resist or narrow such request. In the event that such protective
order or other remedy is not obtained or Baker or Trek waives compliance
with the provisions of
37
this Agreement, Watsco shall furnish only that Confidential Information
which is legally required and shall, prior to such disclosure, consult
with Baker and Trek as to the nature and wording thereof. Watsco will
also, at Trek's direction, exercise reasonable efforts to obtain
assurance that confidential treatment will be accorded the Confidential
Information so disclosed.
If Watsco or its Affiliates or Representatives shall breach or
threaten to breach any of the provisions of this Section 6.1, Baker and
Trek shall each immediately be entitled to injunctive relief without
having to prove actual damages. It is specifically agreed that Baker or
Trek may incur incalculable and irreparable damage from any such breach,
and that neither Baker nor Trek would have adequate remedy at law and
would be entitled to injunctive relief for any such actual or threatened
breach. Nothing herein contained shall be construed as prohibiting Baker
or Trek from pursuing any other remedies available to either on account
of any breach or threatened breach of the provisions of this Section 6.1
by Watsco or its Affiliates or Representatives, including recovery of
money damages, and Watsco shall indemnify Baker and Trek and hold each
harmless from and against any loss, damage, liability and expense,
including attorney's fees, incurred by either Baker or Trek arising out
of or relating to the breach of this Section 6.1 by Watsco or its
Affiliates or Representatives or disclosure of Confidential Information
by Watsco's Representatives unauthorized by Baker or Trek.
Prior to Closing, Watsco hereby irrevocably and unconditionally
consents to submit to the jurisdiction of both the courts of the state
of Wisconsin and of the United Sates of America located in the State of
Wisconsin for any actions, suits or proceedings arising out of or
relating to this Section 6.1 (and agrees not to commence any action,
suit or proceeding relating thereto except in such courts), and further
agrees that service of any process, summons, notice or document by U.S.
registered mail to Watsco's address set forth in Section 11.1 shall be
effective service of process for any action, suits or proceedings
brought against Watsco in any such court. Prior to Closing, Watsco
irrevocably and unconditionally: (a) waives any objection to the laying
out of venue of any action, suit or proceeding arising out of this
Section 6.1, in either the courts of the State of Wisconsin or of the
United States of America located in Wisconsin, and (b) waives and agrees
not to plead or claim in any such court that any action, suit or
proceeding bought in any such court has been brought in an inconvenient
forum.
(c) Watsco agrees that, unless the Closing occurs, neither it nor
any of its Affiliates may at any time prior to June 22, 1998, seek to
employ or employ any person (other than hourly or non-exempt employees)
who is at any time during such period employed by Baker or Trek, or
otherwise directly or indirectly induce any employee of Trek or Baker to
leave his or her employment, without the consent of Trek or Baker.
(d) Following the Closing, the terms and conditions of Sections
6.1(b) and 6.1(c) shall be void and of no force or effect.
38
SECTION 6.2 FURTHER ASSURANCES.
Each party agrees to cooperate fully with the other parties hereto and
to execute and deliver or cause to be executed and delivered at all reasonable
times and places such additional instruments and documents as the other party
may reasonably request for the purpose of carrying out this Agreement.
SECTION 6.3 HSR FILINGS.
The parties acknowledge that they have made all filings, reports and
documents as may be necessary to comply with the HSR Act in connection with the
transaction contemplated by this Agreement. The parties shall cooperate with and
assist one another to take such action as may be reasonably required and as
permitted under Law in connection with such filings.
SECTION 6.4 TAX AGREEMENTS.
(a) SECTION 338(H)(10) ELECTION. Trek shall file and join (i)
Watsco in timely making an election under Section 338(h)(10) of the Code
(and any comparable election under state or local Tax Law) (collectively
a "SECTION 338(H)(10) ELECTION") with respect to the purchase and sale
of the Shares and (ii) and cooperate with Watsco in the completion and
timely filing of such elections in accordance with the provisions of
Treasury Regulations Section 1.338(h)(10)-1 (or any comparable
provisions of state or local Tax Law) or any successor provision. Watsco
will prepare and forward to Trek the appropriate forms and documentation
related to such election within sixty (60) days after the final
determination of the purchase price pursuant to Article II hereof. Each
of Trek and Watsco represent and warrant to the other that it is
qualified to make such an election. Trek shall pay any Tax attributable
to the making of the Section 338(h)(10) Election and will indemnify
Watsco, Baker and ISI against any Losses and Liabilities arising out of
any failure to pay such Tax. Trek, with respect to the sale of the
Shares and with respect to (i) those states or local jurisdictions whose
laws adopt the provisions of the Code or whose laws provide for an
election substantially similar to the election available under Section
338(h)(10) of the Code shall pay any state or local Tax and indemnify
Watsco, Baker and ISI against any Losses and Liabilities arising out of
any failure to pay Tax attributable to such election (or which results
from the making of such election) and (ii) those states or local
jurisdictions whose laws do not adopt the provisions of the Code and do
not provide for an election substantially similar to the election
available under Section 338(h)(10) of the Code, shall pay any State
Section 338(h)(10) Proxy Tax and indemnify Watsco, Baker and ISI against
any Losses and Liabilities arising out of any failure to pay such State
Section 338(h)(10) Proxy Tax. As used herein, "STATE SECTION 338(H)(10)
PROXY TAX" shall mean the lesser of (x) any state or local Tax
attributable to an election or deemed election under state or local law
substantially similar to an election available under Section 338(g) of
the Code (or which results from the making of an election under Section
338(g) of the Code) with respect to the sale of the Shares, or (y) the
actual amount of any state or local Tax imposed on Trek, Baker and ISI
with respect to the sale of the Shares.
39
(b) ALLOCATION OF PURCHASE PRICE. Trek and Watsco agree that the
Purchase Price and the liabilities of Baker and ISI (plus other relevant
items) will be allocated to the assets of Baker for all purposes
(including Tax and financial accounting purposes) in a manner consistent
with the fair market values of the assets. Within sixty (60) days of the
date that the Purchase Price is finally determined in accordance with
Article II, Watsco shall deliver to Trek, for its review and approval, a
Schedule setting forth the allocation of the Purchase Price among the
assets of Baker and ISI (the "ALLOCATION"). If Watsco and Trek are not
able to agree to the Allocation within thirty (30) days, either of them
may submit any unresolved matter related to the Allocation to the
Settlement Accountants to resolve all unresolved matters related to the
Allocation, and such resolution shall be binding on both parties. The
fees and expenses of the Settlement Accountants shall be shared equally
by Watsco and Trek. Trek and Watsco will file all Tax Returns (including
amended returns and claims for refund) and information reports in a
manner consistent with the Allocation.
(c) ELECTION TO FILE A CONSOLIDATED TAX RETURN. The Affiliated
Group of which Trek is the parent will file a federal consolidated tax
return within the meaning of Treasury Regulations ss.1.1502-75 for the
taxable year in which the sale of the Shares occurs.
(d) RETURNS AND INCLUSION OF INCOME FOR PERIODS THROUGH THE
CLOSING DATE. Trek shall file the Tax Returns for and include the income
of Trek, Baker and ISI, respectively, (including any deferred income
triggered into income by Regulation Section 1.1502-13 and Regulation
Section 1.1502-14 and any excess loss accounts taken into income under
Regulation Section 1.1502-19) on Trek's federal consolidated Tax Returns
and on all other Tax Returns for all periods through the Closing Date
and pay any Taxes attributable to such income. Except as otherwise
expressly provided herein, Trek shall be responsible for and indemnify
Watsco for all Taxes of Baker and ISI and for preparing and filing all
Tax Returns with respect to Baker and ISI for all periods prior to or
ending on the Closing Date, and Watsco shall be responsible for and
indemnify Trek for all Taxes of Baker and ISI and for preparing and
filing all Tax Returns with respect to Baker and ISI for all period
commencing after the Closing Date. Any refunds in respect of Tax Returns
with respect to Baker and ISI filed for all periods commencing prior to
and ending on the Closing Date shall be for the account of Trek. Any
refunds in respect of such Tax Returns filed for all periods commencing
on the Closing Date and ending thereafter shall be for the account of
Watsco. With respect to any Tax period that begins on or before and ends
after the Closing Date (a "STRADDLE PERIOD"), for purposes of
apportioning a Tax with respect to Baker and ISI, the portion of such
Tax period that ends on the Closing Date shall be apportioned to Trek
and the parties shall treat the Closing Date as the last day of such
period; and the Tax for the Tax period that is allocated to that portion
of the Tax period ending on the Closing Date shall be (i) in the case of
a Tax that is based on income or gross receipts, the Tax that would be
due with respect to the period ending on (and including) the Closing
Date, based on actual operations of Baker and ISI during such period as
shown on their books and records, and (ii) in the case of a Tax that is
not based on income or gross receipts (E.G., real estate or franchise
tax), the total Tax for the Straddle Period multiplied by a fraction,
the numerator of which is the number of
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days in the Tax period ending on (and including) the Closing Date and
the denominator of which is the total number of days in the Straddle
Period.
(e) COOPERATION. Trek and Watsco shall reasonably cooperate, and
shall cause their respective Affiliates, officers, employees, agents,
auditors and Representatives reasonably to cooperate, in preparing and
filing all Tax Returns, including, but not limited to, maintaining and
making available to each other all records necessary in connection with
Taxes and in resolving all disputes and audits with respect to all
taxable periods relating to Taxes. Watsco shall furnish Tax information
to Trek for inclusion in all Trek's Tax Returns for all periods which
include the Closing Date. Without limiting the generality of the
forgoing, Watsco shall retain, and shall cause Baker and ISI to retain,
and Trek shall retain, until the applicable statute of limitations
(including any extensions) have expired, copies of all Tax Returns,
supporting work schedules, and other records or information that may be
relevant to such Tax Returns for all tax periods or portions thereof
ending before or including the Closing Date and shall not destroy or
otherwise dispose of any such records without first providing the other
party with a reasonable opportunity to review and copy same at the cost
of such other party. Watsco shall give Trek prompt notice of any audit
or similar investigation or proceeding in which the IRS or any other
Governmental Authority makes or proposes to make, or in which Watsco has
reason to believe that the IRS or any other Governmental Authority will
make, or proposes to make, a Tax adjustment affecting the liability of
Taxes of Trek, Baker, ISI or any Affiliate of Trek with respect to a
pre-Closing tax period. If such Tax adjustment or the manner in which it
is to be settled or compromised relates solely to or solely affects the
liability for Taxes or any item or income, deduction, credit, basis, tax
accounting method, gain, or loss ("TAX ATTRIBUTES") of Trek, Baker or
ISI for any period ending on or prior to the Closing Date, Trek shall
conduct and control all aspects of the Audit, including the settlement
or compromise thereof. Furthermore, in the event any such Tax adjustment
with respect to Trek, Baker or ISI results in a refund of Taxes to
Watsco, Baker, ISI or any of their Affiliates with respect to any period
ending on or prior to the Closing Date or in the event Watsco, Baker or
ISI or any of their Affiliates receives a refund of Taxes with respect
to any Tax Attribute of Trek, Baker or ISI for any such period, the
amount of such refund shall be paid within five days to Trek by Watsco
or an Affiliate of Watsco upon receipt of such refund by Watsco, Baker
or ISI or any of their Affiliates.
(f) AMENDED RETURNS. Trek shall be responsible for filing any
amended consolidated, combined or unitary Tax Returns related to Baker
or ISI for all periods ending on or before the Closing Date which are
required as a result of examination adjustments made by the Internal
Revenue Service or by the applicable state, local or foreign taxing
authorities for such taxable years as finally determined. For those
jurisdictions in which separate Tax Returns are filed by Baker or ISI,
any required amended returns resulting from such examination
adjustments, as finally determined, shall be prepared by Trek and
furnished to Watsco, or its successor, for approval (which approval
shall not be unreasonably withheld or delayed), signature and filing at
least 30 days prior to the due date for filing such returns. Nothing in
this Agreement shall require Trek to amend any Tax Return, other than as
set forth above.
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(g) ORDINARY CONDUCT. On the Closing Date, Watsco shall cause
Baker and ISI to conduct its businesses in the ordinary course in
substantially the same manner as presently conducted and on the Closing
Date shall not permit Baker and ISI to effect any extraordinary
transactions on the Closing Date (other than any such transactions
expressly required by applicable law or expressly permitted by this
Agreement) that could result in Tax Liability to Baker or ISI for
periods on or before the Closing Date in excess of Tax Liability
associated with the conduct of its business in the Ordinary Course of
Business.
(h) TAX SHARING AGREEMENTS. Trek shall cause the provisions of
any Tax sharing agreement or policy between Trek and any of its
Affiliates (other than Baker or ISI), on the one hand, and Baker, on the
other hand, to be terminated on or before the Closing Date.
(i) TAXES OF OTHER PERSONS. Trek shall be responsible for and pay
any Liability of Baker and ISI for Taxes of Trek or any of its
Affiliates other than Baker and ISI under Regulation Section 1.1502-6
(or any similar provisions of state, local or foreign law attributable
to periods ending on or prior to the Closing Date).
SECTION 6.5 REASONABLE EFFORTS TO CLOSE.
Each party shall use commercially reasonable efforts to (a) take or
cause to be taken all actions, and do or cause to be done all things, which are
necessary, proper or advisable to cause any other party's conditions set forth
in Articles VII and VIII to be fully satisfied (but not waived), including, but
not limited to, in the case of Trek, making commercially reasonable efforts to
obtain the consents listed on SCHEDULE 3.11(B)(2), and (b) consummate and make
effective as promptly as practicable the transactions contemplated by this
Agreement, including using commercially reasonable efforts to obtain the
consents and approvals referred to in Sections 7.7 and 8.6.
SECTION 6.6 COOPERATION IN LITIGATION.
Each party hereto will reasonably cooperate with the other party hereto
in the defense or prosecution of any litigation or proceeding (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 business of Baker or of ISI 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, but not limited to, reasonable attorneys' fees and expenses) of the
party providing such cooperation and of its employees and agents reasonably
incurred in connection with 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 6.6 shall not apply to any litigation which is the
subject of a claim for indemnification pursuant to Article IX hereof.
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SECTION 6.7 INTRA-ENTITY OBLIGATIONS.
Effective as of the Closing and after taking into account the dividend
described in Section 2.3(d), all amounts due and owing by Trek to Baker or to
ISI, and all monies owing by Baker or ISI to Trek (other than amounts owing
under this Agreement or the Related Agreements and the matters contemplated by
Article II), will be forgiven and canceled without any further action by Trek or
by Watsco, Baker or ISI. All other obligations of Trek to Baker or to ISI, or of
ISI or Baker to Trek, will be terminated effective as of Closing (other than the
obligations set forth in this Agreement or Related Agreements and the matters
contemplated by Article II) without any further action by Trek or by Watsco,
Baker or ISI.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF WATSCO
The obligations of Watsco to consummate the transactions provided for
herein on the Closing Date are subject to the fulfillment on or before the
Closing Date of each of the following conditions, except to the extent that
Watsco may, in its absolute discretion, waive one or more thereof in writing in
whole or in part:
SECTION 7.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties of Trek contained herein shall be
true in all material respects on and as of the Closing Date with the same force
and effect as if made on and as of such date.
SECTION 7.2 PERFORMANCE OF AGREEMENTS.
Trek shall have performed in all material respects all obligations and
agreements, and complied in all material respects with all covenants, contained
in this Agreement and the Related Agreements, to be performed and complied with
by Trek at or prior to the Closing Date.
SECTION 7.3 CLOSING DELIVERIES.
Trek shall have delivered to Watsco the documents and instruments
described in Section 2.4 hereof.
SECTION 7.4 DUE DILIGENCE.
Watsco shall have completed its due diligence investigation and during
the course of that due diligence investigation Watsco shall not have discovered
any matter (including, but not limited to, any matters disclosed on the
Schedules hereto) that subjects Baker or ISI to any Liabilities which could
reasonably be expected to have a Material Adverse Effect or that subjects Watsco
to any material Liability. For purposes of this Section 7.4, with respect only
to matters not Known to Trek prior to the date hereof and those that first
occurred or arose after the date hereof, no Losses shall be considered to be
materially adverse for purposes of the definition of
43
"Material Adverse Effect" unless such Loss (together with all Losses arising
from the same and similar events or circumstances) exceeds one million dollars
($1,000,000).
SECTION 7.5 MATERIAL ADVERSE CHANGE.
No event, circumstance or change shall have occurred in the business,
operations, properties, condition (financial or otherwise), business prospects,
Liabilities, Losses or relations with labor, customers or suppliers of Baker or
ISI (in each case, as it existed on the date hereof), whether or not arising in
the Ordinary Course of Business, that could reasonably be expected to have a
Material Adverse Effect. For purposes of this Section 7.5, with respect only to
matters not Known to Trek prior to the date hereof and those that first occurred
or arose after the date hereof, no Losses shall be considered to be materially
adverse for purposes of the definition of "Material Adverse Effect" unless such
Loss (together with all Losses arising from the same and similar events or
circumstances) exceeds one million dollars ($1,000,000).
SECTION 7.6 NO ADVERSE PROCEEDINGS.
No action, suit or proceeding before any Governmental Authority shall
have been commenced, no investigation by any Governmental Authority shall have
been commenced, and no action, suit or proceeding by any Governmental Authority
shall have been threatened, against any of the parties to this Agreement or any
of their Affiliates, in each case which remains unresolved wherein an
unfavorable judgment, order, decree, stipulation or injunction would (a) prevent
consummation of any of the transactions contemplated by this Agreement, (b)
cause any of the transactions contemplated by this Agreement to be rescinded
following consummation, or (c) adversely affect the right of Watsco to own,
operate, or control Baker or ISI or the Shares following Closing (and no such
judgment, order, decree, stipulation, injunction, or charge shall be in effect).
SECTION 7.7 CONSENTS AND APPROVALS.
The consents described on SCHEDULE 3.6, under the heading "Core Business
Distribution Agreement", shall have been obtained and shall be in full force and
effect on the Closing Date, and the applicable waiting period under the HSR Act
shall have expired or been terminated.
SECTION 7.8 OTHER ASSURANCES.
Trek shall have delivered to Watsco such other and further certificates,
assurances and documents as Watsco may reasonably request in order to evidence
the accuracy of the representations and warranties of Trek, the performance of
covenants and agreements to be performed by Trek and its Affiliates pursuant
hereto at or prior to the Closing, and the fulfillment of the conditions to the
obligations of Trek.
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ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF TREK
The obligations of Trek to consummate the transactions provided for
herein on the Closing Date are subject to the fulfillment on or before the
Closing Date of each of the following conditions, except to the extent that Trek
may, in its absolute discretion, waive one or more thereof in writing in whole
or in part:
SECTION 8.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties of Watsco contained herein shall be
true in all material respects on and as of the Closing Date with the same force
and effect as if made on and as of such date.
SECTION 8.2 PERFORMANCE OF AGREEMENTS.
Watsco shall have performed in all material respects all obligations and
agreements, and complied in all material respects with all covenants, contained
in this Agreement or the Related Agreements, to be performed and complied with
by Watsco at or prior to the Closing Date.
SECTION 8.3 CLOSING DELIVERIES.
Watsco shall have delivered to Trek all of the documents and other
deliveries referred to in Section 2.5 hereof.
SECTION 8.4 NO ADVERSE PROCEEDINGS.
No action, suit or proceeding before any Governmental Authority shall
have been commenced, no investigation by any Governmental Authority shall have
been commenced, and no action, suit or proceeding by any Governmental Authority
shall have been threatened, against any of the parties to this Agreement or any
of their Affiliates, in each case which remains unresolved wherein an
unfavorable judgment, order, decree, stipulation or injunction would (a) prevent
consummation of any of the transactions contemplated by this Agreement, or (b)
cause any of the transactions contemplated by this Agreement to be rescinded
following consummation (and no such judgment, order, decree, stipulation,
injunction, or charge shall be in effect.)
SECTION 8.5 CONSENTS AND APPROVALS.
All consents, waivers, authorizations and approvals of any Governmental
Authority, domestic or foreign, and of any other Person required in connection
with the execution, delivery and performance of this Agreement, shall have been
obtained and shall be in full force and effect on the Closing Date and the
applicable waiting period under the HSR Act shall have expired or been
terminated.
SECTION 8.6 PAYMENT.
The Closing Payment and the Escrow Payment shall have been paid as
provided in Article II hereof.
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SECTION 8.7 OTHER ASSURANCES.
Watsco shall have delivered to Trek such other and further certificates,
assurances and documents as Trek may reasonably request in order to evidence the
accuracy of the representations and warranties of Watsco, the performance of
covenants and agreements to be performed by Watsco pursuant hereto at or prior
to the Closing, and the fulfillment of the conditions to the obligations of
Trek.
ARTICLE IX
SURVIVAL AND INDEMNIFICATION
SECTION 9.1 SURVIVAL.
Subject to an except as otherwise provided in Section 9.7 hereof, the
parties hereto agree that their respective representations and warranties,
covenants and agreements contained in this Agreement shall survive the Closing
until April 30, 1998.
SECTION 9.2 INDEMNIFICATION BY TREK.
Subject to the other provisions of this Article IX, Trek shall indemnify
and hold harmless Watsco and its Affiliates from and against any and all Losses
suffered or incurred by Watsco and its Affiliates after the Closing as a result
of or arising out of:
(a) (i) The falsity or incorrectness of or breach of any
representation or warranty of Trek or any of its Affiliates in this
Agreement, any Related Agreement or in any schedule, certificate or
agreement furnished to Watsco by or on behalf of Trek or any of its
Affiliates pursuant to this Agreement or (ii) the matters described on
SCHEDULE 9.2(A)(II); or
(b) the failure by Trek or any of its Affiliates to perform any
covenant or agreement of Trek or any of its Affiliates under this
Agreement, any Related Agreement or under any schedule, certificate or
agreement furnished to Watsco by or on behalf of Trek or any of its
Affiliates pursuant to this Agreement.
SECTION 9.3 INDEMNIFICATION BY WATSCO.
Subject to the other provisions of this Article IX, Watsco shall
indemnify and hold harmless Trek and its Affiliates (other than Baker and ISI)
from and against any and all Losses suffered or incurred by Trek and its
Affiliates (other than Baker and ISI) after the Closing as a result of or
arising out of:
(a) The falsity or incorrectness of or breach of any
representation or warranty of Watsco or any of its Affiliates in this
Agreement, any Related Agreement or in any schedule, certificate or
agreement furnished to Trek by or on behalf of Watsco or any of its
Affiliates pursuant to this Agreement; or
46
(b) the failure by Watsco or any of its Affiliates to perform any
covenant or agreement of Watsco or any of its Affiliates under this
Agreement, any Related Agreement or under any schedule, certificate or
agreement furnished to Trek by or on behalf of Watsco or any of its
Affiliates pursuant to this Agreement.
SECTION 9.4 METHOD OF ASSERTING CLAIMS.
All claims for indemnification by any Indemnified Party under this
Article IX shall be asserted and resolved as follows:
(a) THIRD PARTY CLAIMS. If any claim or demand in respect of
which an Indemnified Party might seek indemnity under this Article IX is
asserted against such Indemnified Party by a Person (a "THIRD PARTY
CLAIM") other than Trek or Watsco (it being understood that claims of
Affiliates of Trek and Watsco shall not be considered Third Party
Claims), the Indemnified Party shall give written notice and the details
thereof including copies of all relevant pleadings, documents and
information and (if then known) the amount or the method of computation
of the amount of such claim (collectively a "THIRD PARTY CLAIM NOTICE")
to the Indemnifying Party within a period of thirty (30) days following
the assertion of the Third Party Claim against the Indemnified Party
(the "THIRD PARTY CLAIM NOTICE PERIOD"), PROVIDED, that a Third Party
Claim Notice in respect of any action at law or suit in equity by or
against a third person as to which indemnification will be sought shall
be given as promptly as practicable after the action or suit is
commenced. If the Indemnified Party fails to provide the Third Party
Claim Notice within the Third Party Claim Notice Period, the
Indemnifying Party will not be obligated to indemnify the Indemnified
Party with respect to such Third Party Claim to the extent that the
Indemnifying Party's ability to defend has been prejudiced by such
failure of the Indemnified Party. The Indemnifying Party will notify the
Indemnified Party within a period of thirty (30) days after its receipt
of the Third Party Claim Notice by the Indemnifying Party (the "THIRD
PARTY CLAIM RESPONSE PERIOD"):
(i) Whether the Indemnifying Party disputes its
liability to the Indemnified Party under this Article IX with
respect to such Third Party Claim; and
(ii) whether the Indemnifying Party desires, at its
sole cost and expense, to defend the Indemnified Party against
such Third Party Claim.
If the Indemnifying Party notifies the Indemnified Party within
the Third Party Claim Response Period that the Indemnifying Party
desires to defend the Indemnified Party against the Third Party Claim,
then the Indemnifying Party at its sole cost and expense shall defend,
with counsel reasonably satisfactory to the Indemnified Party, such
Third Party Claim by all appropriate proceedings, which proceedings will
be diligently prosecuted to a final conclusion or, at the discretion of
the Indemnifying Party, will be paid, compromised, or settled (with the
consent of the Indemnified Party which shall not be unreasonably
withheld or delayed). The Indemnified Party will cooperate in such
defense at the sole cost and expense of the Indemnifying Party and shall
furnish records, information and testimony and attend such conferences,
discovery proceedings, hearings,
47
trials and appeals as may be reasonably requested by the Indemnifying
Party in connection therewith. The Indemnified Party may, at its sole
cost and expense, at any time prior to the Indemnifying Party's delivery
of the notice referred to in the last sentence of the preceding
paragraph, file any pleadings or take any other action that the
Indemnified Party reasonably believes to be necessary or appropriate to
protect its interests. The Indemnified Party, at its expense, may
participate in, but not control, any defense or settlement of any Third
Party Claim conducted by the Indemnifying Party pursuant to this Section
9.4(a).
If the Indemnifying Party fails to notify the Indemnified Party
within the Third Party Claim Response Period that the Indemnifying Party
desires to defend the Third Party Claim or if the Indemnifying Party
gives such notice but fails to prosecute diligently or settle the Third
Party Claim, then the Indemnified Party shall defend, at the sole cost
and expense of the Indemnifying Party, the Third Party Claim by all
appropriate proceedings, which proceedings will be prosecuted by the
Indemnified Party in a reasonable manner and in good faith and will not
be paid, compromised or settled (without the consent of the Indemnifying
Party which shall not be unreasonably withheld or delayed). The
Indemnifying Party shall, at its sole cost and expense, cooperate in
such defense and shall furnish records, information and testimony and
attend such conferences, discovery proceedings, hearings, trials and
appeals as may be reasonably requested by the Indemnifying Party in
connection therewith. Notwithstanding the foregoing provisions of this
paragraph, if the Indemnifying Party is determined not to be liable for
such Third Party Claim pursuant to the last paragraph of this Section
9.4(a) and Section 9.4(c), the Indemnifying Party will not be required
to bear the costs and expenses of the Indemnified Party's defense or the
Indemnifying Party's participation therein pursuant to this paragraph,
and the Indemnified Party will reimburse the Indemnifying Party in full
for all reasonable costs and expenses incurred by the Indemnifying Party
in connection with such defense.
If the Indemnifying Party notifies the Indemnified Party that it
does not dispute its liability to the Indemnified Party with respect to
the Third Party Claim under this Article IX or fails to notify the
Indemnified Party within the Third Party Claim Response Period whether
the Indemnifying Party disputes its liability to the Indemnified Party
with respect to such Third Party Claim, the actual Losses of the
Indemnified Party as finally determined will be conclusively deemed a
liability of the Indemnifying Party under this Article IX, and the
Indemnifying Party shall pay the amount of such Losses to the
Indemnified Party on demand. If the Indemnifying Party notifies the
Indemnified Party within the Third Party Claim Response Period that the
Indemnifying Party disputes its liability to the Indemnified Party with
respect to such claim, the Indemnifying Party and the Indemnified Party
will proceed in good faith to negotiate a resolution of such dispute,
and if not resolved through negotiations within a period of thirty (30)
days from the date of such notice, either party may require that such
dispute be resolved by arbitration in accordance with Section 9.4(c)
hereof.
Notwithstanding anything in Section 9.4(a) to the contrary, with
respect to the matters subject to indemnification under Section
9.2(a)(ii), (i) no Third Party Claims Notice need be given by Watsco,
and (ii) Watsco shall control the negotiations and any
48
defense of such matters in a reasonable manner and in good faith, and
shall not pay, compromise or settle any such matter without the prior
written consent of Trek (which shall not be unreasonably withheld or
delayed), it being understood that costs and expenses incurred by Watsco
related to such matters shall be Losses for which Watsco shall be
entitled to indemnification under Section 9.2(a)(ii), subject to Section
9.6.
(b) OTHER CLAIMS. In the event any Indemnified Party should have
a claim under this Article IX against any Indemnifying Party that does
not involve a Third Party Claim or a claim under Article II for a
purchase price adjustment (which Article contains its own applicable
dispute resolution mechanism), the Indemnified Party shall promptly give
written notice and the details thereof, including copies of all relevant
information and documents and (if then known) the amount or method of
computation of the amount of such claim (collectively, an "INDEMNITY
NOTICE"), to the Indemnifying Party within a period of thirty (30) days
following the discovery of the claim by the Indemnified Party (the
"CLAIM NOTICE PERIOD") and shall furnish records, information and
testimony and attend such conferences, discovery proceedings, hearings,
trials and appeals as may be reasonably requested by the Indemnifying
Party in connection therewith. The failure by any Indemnified Party to
give the Indemnity Notice within the Claim Notice Period shall not
impair the Indemnified Party's rights hereunder except to the extent
that an Indemnifying Party demonstrates that it has been prejudiced
thereby. The Indemnifying Party shall notify the Indemnified Party
within a period of thirty (30) days after the receipt of the Indemnity
Notice by the Indemnifying Party (the "INDEMNITY RESPONSE PERIOD")
whether the Indemnifying Party disputes its liability to the Indemnified
Party under this Article IX with respect to such claim. If the
Indemnifying Party notifies the Indemnified Party that it does not
dispute the claim described in such Indemnity Notice or fails to notify
the Indemnified Party within the Indemnity Response Period whether the
Indemnifying Party disputes the claim described in such Indemnity
Notice, the actual Losses as finally determined will be conclusively
deemed to be a liability of the Indemnifying Party under this Article IX
and the Indemnifying Party shall pay the amount of such Losses to the
Indemnified Party on demand. If the Indemnifying Party notifies the
Indemnified Party within the Indemnity Response Period that the
Indemnifying Party disputes its liability with respect to such claim,
the Indemnifying Party and the Indemnified Party shall proceed in good
faith to negotiate a resolution of such dispute, and if not resolved
through negotiations within a period of thirty (30) days from the date
of such notice, either party may require that such dispute be resolved
by arbitration in accordance with Section 9.4(c) hereof.
(c) RESOLUTION OF DISPUTES. Any dispute to be submitted to
arbitration pursuant to this Section 9.4 shall be finally and
conclusively determined in accordance with the Commercial Arbitration
Rules of the American Arbitration Association (the "RULES OF
ARBITRATION") then in effect by the decision of one (1) arbitrator (the
"BOARD OF ARBITRATION") selected in accordance with the Rules of
Arbitration. The Arbitration shall be held in Coconut Grove, Florida and
the arbitrator shall render its decision in writing with respect to and
stating the amount, if any, which the Indemnifying Party is required to
pay to the Indemnified Party in respect of the claim made by the
Indemnified Party. To the extent practical, the decision of the
arbitrator shall be rendered no more than thirty (30) days following
commencement of proceedings with respect thereto. The arbitrator
49
shall cause its written decision to be delivered to the Indemnified
Party and the Indemnifying Party. Any decision made by the arbitrator
(either prior to or after the expiration of such thirty (30) day period)
shall be final, binding and conclusive on the Indemnified Party and the
Indemnifying Party and entitled to be enforced to the fullest extent
permitted by law and entered in any court of competent jurisdiction.
Trek and Watsco each hereby consent to the non-exclusive
jurisdiction of the foregoing arbitrator and to the non-exclusive
jurisdiction of any local, state or federal court located in the State
of Florida for the purpose of enforcing the decision or award of the
arbitrator or otherwise. Trek and Watsco agree that all service of
process may be made on any such party by personal delivery or by
registered or certified mail addressed to the appropriate party at the
address for such party set forth in Section 11.1 hereof.
All fees, costs and expenses of the Indemnified Party and the
Indemnifying Party in relation to the arbitration, including, but not
limited to, attorneys' fees shall be paid by such parties as determined
by the arbitrator. Each and every arbitration proceeding commenced
pursuant to this Section 9.4(c) shall be consolidated with any
arbitration proceeding simultaneously or previously commenced under this
Section 9.4(c).
SECTION 9.5 CONTINUED LIABILITY FOR INDEMNITY CLAIMS.
The liability of any Indemnifying Party hereunder with respect to claims
hereunder shall continue for so long as any claims for indemnification may be
made hereunder pursuant to Section 9.7 hereof and, with respect to any such
indemnification claims duly and timely made, thereafter until the Indemnifying
Party's liability therefor is finally determined and satisfied.
SECTION 9.6 LIMITATIONS ON INDEMNIFICATION.
(a) CERTAIN TYPES OF DAMAGES. No Indemnifying Party shall
be liable for special or consequential damages, other than those sought
to be recovered against an Indemnified Party in a Third Party Claim.
(b) THRESHOLD AMOUNT. (i) No amount of indemnity shall be payable
in the case of a claim by Watsco under Section 9.2(a)(i) or Section
9.2(b) (other than with respect to Sections 5.3, 5.4, 5.5 or 6.4 or
Article II or with respect to the Noncompetition Agreement) unless,
until and only to the extent that Watsco and its Affiliates have
suffered or incurred Losses aggregating in excess of Two Hundred Fifty
Thousand Dollars ($250,000) as a result of or arising out of the matters
described in Section 9.2(a)(i) and Section 9.2(b); (ii) no amount of
indemnity shall be payable in the case of a claim by Watsco under
Section 9.2(a)(ii) unless, until and only to the extent that Watsco and
its Affiliates have suffered or incurred Losses aggregating in excess of
Two Hundred Fifty Thousand Dollars ($250,000) as a result of or arising
out of the matters described in Section 9.2(a)(ii); and (iii) no amount
of indemnity shall be payable in the case of a claim by Trek under
Section 9.3 unless, until and only to the extent that Trek and its
Affiliates has suffered or incurred Losses aggregating in excess of Two
Hundred Fifty Thousand Dollars ($250,000) as a result of or arising out
of the matters described in Section 9.3.
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(c) LIMITATION ON RECOVERY. Recovery by Watsco and its Affiliates
under Section 9.2 shall be limited, in the aggregate, to no more than
Five Million Dollars ($5,000,000), with the exception of claims based
upon Section 3.7, Section 3.19 (only to the extent it relates to a
defined contribution plan), the representations and warranties regarding
matters of title to the Shares included in the Section 3.4(a), Sections
5.3, 5.4, 5.5 and 6.4, Article II and the Noncompetition Agreement.
There shall be no such limitation for any indemnification payments with
respect to Section 3.7, Section 3.19 (only to the extent it relates to a
defined contribution plan), representations and warranties regarding
matters of title to the Shares in Section 2.4(a), Section 5.3, Section
5.4, Section 5.5, Section 6.4, Aritcle II or the Noncompetition
Agreement.
(d) LOSSES NET OF TAXES AND INSURANCE. The amount of any Loss for
which indemnification is provided under this Article IX shall be (i)
increased to take account of any net Tax Cost incurred by the
Indemnified Party arising from the receipt of indemnity payments
hereunder (grossed up for any Tax incurred on such increase) and (ii)
reduced to take account of any proceeds of insurance received by the
Indemnified Party and of any net Tax Benefit realized or realizable by
the Indemnified Party arising from the incurrence or payment of any such
Loss. In computing the amount of any such Tax Cost or Tax Benefit, the
Indemnified Party shall be deemed to have recognized all other items of
income, gain, loss, deduction or credit before recognizing any item
arising from the receipt of any indemnity payment hereunder or the
incurrence or payment of any indemnified claim.
(e) ADDITIONAL LIMITATIONS ON INDEMNIFICATION. To the extent that
Watsco has or gains knowledge prior to the Closing Date of any breach of
any representation or warranty set forth in Article III hereof other
than from Trek or Baker, Watsco shall promptly notify Trek of such
breach, and in the event Watsco does not so notify Trek, the amount of
Losses incurred in connection with or arising from such breach shall be
reduced by the amount of Losses, if any, that could reasonably have been
prevented by Trek if it had received prompt notice of such breach. For
purposes of this Section 9.6, the knowledge of Watsco shall mean the
actual knowledge of executive officers of Watsco.
(f) ADDITIONAL LIMITATIONS REGARDING 9.2(A)(II). Recovery by
Watsco and its Affiliates under Section 9.2(a)(ii) shall be limited, in
the aggregate, to no more than One Million Five Hundred Thousand Dollars
($1,500,000). In addition, once the $250,000 threshold limitation
established in Section 9.6(b)(ii) has been satisfied, Watsco and its
Affiliates shall only be entitled to indemnification for 50% of its and
their Losses under Section 9.2(a)(ii).
SECTION 9.7 TIME LIMITS ON CLAIMS.
Notwithstanding anything in this Agreement to the contrary, a claim by
any Indemnified Party under Section 9.2(a)(i), 9.2(b) or 9.3 may be made only
prior to May 1, 1998 with the exception of (a) Sections 3.7 and 3.19 (only with
respect to a defined contribution plan) with respect to which such
representations and warranties shall survive and claims thereon may be made
until the expiration of the applicable statute of limitation; (b) Section 3.22
with respect to which such representations and warranties shall survive and
claims thereon may be made for
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three (3) years following the Closing Date; and (c) representations and
warranties regarding matters of title to the Shares included Section 3.4(a) of
this Agreement with respect to which such representations and warranties shall
survive and claims thereon may be made without any limitation as to time.
Notwithstanding anything in this Agreement to the contrary, a claim by any
Indemnified Party under Section 9.2(a)(ii) may only be made for three (3) years
following the Closing Date.
Notwithstanding anything in this Agreement to the contrary, any claim
pursuant to Sections 9.2 or 9.3 not made within the foregoing relevant time
period shall expire and be forever barred thereafter.
SECTION 9.8 REMEDIES.
Notwithstanding anything contained herein to the contrary, it is
specifically understood and agreed that in the event a misrepresentation or
breach of warranty or covenant by Trek is discovered by Watsco after the
Closing, the remedy of Watsco shall be limited to the indemnification as set
forth in Article IX, and Watsco shall not be entitled to a recession of this
Agreement.
SECTION 9.9 SOURCES OF PAYMENT.
To the extent any party hereto or any of its Affiliates is entitled to
indemnification for Losses under this Article IX and such entitlement has either
not been disputed by the other party hereto within the time periods established
in this Article IX or any dispute related thereto has been resolved in favor of
such party in accordance with this Article IX (and such resolution has become
final and non-appealable), then such party or Affiliate may (but shall not be
required to) set off such amounts against (and deduct them from) any amounts
owing to the other party or any of its Affiliates under this Agreement or any
Related Agreement but only with respect to any indemnification right which has
been so resolved and become final and non-appealable. The foregoing right is in
addition to any other rights that the parties may have for indemnification.
ARTICLE X
TERMINATION
SECTION 10.1 GROUNDS FOR TERMINATION.
This Agreement may, by written notice given prior to or at the Closing,
be terminated:
(a) By either Watsco or Trek if a material breach of any
provision of this Agreement has been committed by the other party and
such breach has not been waived or has not been cured within ten (10)
Business Days of the date such notice was given;
(b)(i) by Watsco if any of the conditions in Article VII have not
been satisfied as of the Closing Date or if satisfaction of such
condition is or becomes impossible (other than through the failure of
Watsco to comply with its obligations under this Agreement) and Watsco
has not waived such condition in writing on or before the Closing Date;
or
52
(ii) by Trek, if any of the conditions in Article VIII have not been
satisfied as of the Closing Date or if satisfaction of such a condition
is or becomes impossible (other than through the failure of Trek to
comply with its obligations under this Agreement) and Trek has not
waived such a condition in writing on or before the Closing Date;
(c) by mutual consent of Watsco and Trek; or
(d) by either Watsco or Trek if the Closing has not occurred
(other than through the failure of any party seeking to terminate this
Agreement to comply fully with its obligations under this Agreement) on
or before December 31, 1997, or such later date as the parties may agree
upon.
SECTION 10.2 EFFECT OF TERMINATION.
Each party's right of termination under Section 10.1 is in addition to
any other rights it may have under this Agreement or otherwise, and the exercise
of a right of termination will not be an election of remedies. If this Agreement
is terminated pursuant to Section 10.1, all further obligations of the parties
under this Agreement will terminate, except that the obligations in Sections 6.1
and 11.2 will survive termination unimpaired; PROVIDED, HOWEVER, that, if this
Agreement is terminated by a party because of the breach of the Agreement by the
other party or because one or more of the conditions to the terminating party's
obligations under this Agreement is not satisfied as a result of the other
party's failure to comply with its obligations under this Agreement, the
terminating party's right to pursue the legal remedies will survive such
termination unimpaired.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 NOTICES.
All notices, requests and other communications hereunder shall be in
writing and will be deemed to have been duly given (a) when personally
delivered, (b) when sent by telefax to a party at the number listed below for
such party (provided that evidence of successful transmission is obtained), (c)
two (2) Business Days after the day on which the same has been delivered prepaid
to a national courier service providing evidence of delivery, or (d) three (3)
Business Days after the deposit in the United States mail, registered or
certified, return receipt requested, postage prepaid, in each case addressed to
the party to whom such notice is to be given at the following address for such
party:
If to Watsco: Watsco, Inc.
2665 South Bayshore Drive, Suite 901
Coconut Grove, Florida 33133
Attention: Barry S. Logan, Chief Financial Officer
Telefax No.: (305) 858-4492
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With a copy to: Moore & Van Allen, PLLC
NationsBank Corporate Center
100 North Tryon Street, Floor 47
Charlotte, North Carolina 28202
Attn: Aaron D. Cowell, Jr.
Telefax No.: (704) 331-1159
If to Trek: Trek Corporation
801 West Madison
Waterloo, Wisconsin 53594
Attn: Richard A. Burke, President
Telefax No.: (920) 478-4200
With a copy to: Lord, Bissell & Brook
Suites 2600-3600 Harris Bank Building
115 South LaSalle Street
Chicago, Illinois 60603
Attn: Kay W. McCurdy
Telefax No.: (312) 443-0336
Any party from time to time may change its address, telefax number or
other information for the purpose of notices to that party by giving notice
specifying such change to the other parties hereto.
SECTION 11.2 FEES AND EXPENSES.
Trek and Watsco shall each bear its own expenses in connection with the
negotiation and preparation of this Agreement and the Related Agreements, all
documents and instruments contemplated hereby, and the consummation of the
transactions contemplated hereby, including without limitation the fees and
expenses of their respective counsel, accountants, investment bankers, finders
and consultants. Trek shall not permit or allow Baker or ISI to bear or pay any
such expenses or agree to bear or pay any such expenses.
SECTION 11.3 PUBLIC ANNOUNCEMENTS.
Except as otherwise required by Law, neither Trek nor Watsco shall (and
each shall cause its respective Affiliates and Representatives not to) issue any
press release or make any other public announcement with respect to the
transactions contemplated hereby without the approval of the other party, which
approval shall not be unreasonably withheld or delayed.
SECTION 11.4 ENTIRE AGREEMENT.
This Agreement supersedes all prior and contemporaneous discussions and
all prior written agreements between the parties with respect to the subject
matter hereof and contains the sole and entire agreement between the parties
hereto with respect to the subject matter hereof.
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SECTION 11.5 WAIVER; REMEDIES.
Any term or condition of this Agreement may be waived at any time by the
party that is entitled to the benefit thereof, but no such waiver shall be
effective unless set forth in a written instrument duly executed by or on behalf
of the party waiving such term or condition. No waiver by any party of any term
or condition of this Agreement, in any one or more instances, shall be deemed to
be or construed as a waiver of the same or any other term or condition of this
Agreement on any future occasion. All remedies, either under this Agreement or
by Law or otherwise afforded, will be cumulative and not alternative.
SECTION 11.6 AMENDMENT.
This Agreement may be amended, supplemented or modified only by a
written instrument duly executed by or on behalf of each party hereto.
SECTION 11.7 ASSIGNMENT; BENEFITS AND BINDING EFFECT.
Neither this Agreement nor any right, interest or obligation hereunder
may be assigned by any party hereto without the prior written consent of the
other parties hereto and any attempt to do so will be void, provided that Watsco
may assign its rights hereunder for collateral security purposes to any lenders
providing financing to Watsco or any of its Affiliates. Subject to the preceding
sentence, this Agreement is binding upon, inures to the benefit of and is
enforceable by the parties hereto and their respective successors and permitted
assigns.
SECTION 11.8 CAPTIONS; REFERENCES.
The captions used in this Agreement (including the exhibits and
schedules hereto) have been inserted for convenience of reference only and do
not define or limit the provisions hereof. Whenever required by the context, and
as used in this 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 and specific named statutes and 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.
SECTION 11.9 EXHIBITS AND SCHEDULES.
All exhibits and schedules referred to in this Agreement, all
attachments to exhibits or schedules, and any other attachment to this Agreement
are hereby incorporated by reference into this Agreement and hereby are made a
part of this Agreement as if set out in full.
SECTION 11.10 GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the
Laws of the State of Florida applicable to a contract executed and performed in
such State, without giving effect to the conflicts of laws principles thereof.
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SECTION 11.11 COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together will constitute one
and the same instrument.
SECTION 11.12 SEVERABILITY.
Any provision of this Agreement which is prohibited or unenforceable in
any jurisdiction, shall as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
SECTION 11.13 NO THIRD PARTY BENEFICIARY.
This Agreement shall not confer any rights or remedies upon any Person
or entity other than the parties hereto and their respective successors and
permitted assigns.
SECTION 11.14 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 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.
SECTION 11.15 ATTORNEYS' FEES; CONSENT TO NON-EXCLUSIVE JURISDICTION.
In the event any suit or other legal proceeding is brought for the
enforcement of any of the provisions of this 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. Each party to this Agreement
consents to the non-exclusive jurisdiction of the state courts of the State of
Florida and to the U.S. District Courts for any district in Florida (and to the
appropriate appellate courts) in any action or proceeding seeking to enforce any
provision hereof, or based on any right arising out of, this Agreement, and each
party waives any objection to venue laid therein.
SECTION 11.16 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
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in any court of competent jurisdiction to enforce specific performance of such
covenant or agreement or seek any other equitable relief.
SECTION 11.17 RIGHT TO CURE BREACHES.
Either party shall have the right to seek to cure any breach of any
representation, warranty or covenant made by it in this Agreement to the
attachments hereto; PROVIDED, that no such cure shall affect any rights to
indemnification for Losses incurred in connection with or arising out of any
such breach and PROVIDED FURTHER that any such cure shall be effected within ten
(10) Business Days following notice of such breach. Each party shall cooperate
with the other in connection with any attempt to cure any such breach,
including, but not limited to, providing such other party, its employees and
representatives, access to any necessary books and records and making available
any necessary personnel at the breaching party's sole cost and expense.
SECTION 11.18 INTEREST.
All payments owing under this Agreement by any party which are not paid
when due shall bear interest calculated at a per annum rate of 7% (or, if less,
the highest rate allowed by applicable Law) from the due date thereof until
paid. (It is understood by the parties this Section 11.18 is not intended to,
and does not, mean that interest shall be owing by one party to the other with
respect to funds while they are held by the Escrow Agent under the Escrow
Agreement.)
[The remainder of this page has been left blank intentionally]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
WATSCO, INC.
By:/S/ BARRY S. LOGAN
-------------------------------
Name: Barry S. Logan
Title: Vice President, Finance and
Chief Financial Officer
TREK CORPORATION
By:/S/ JOSEPH R. SIEFKES
-------------------------------
Name: Joseph R. Siefkes
Title: Vice President, Finance
58
