EXHIBIT 2.2
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STOCK PURCHASE AGREEMENT
Among
HEATH HOLDING CORP.,
its SHAREHOLDERS and OPTIONHOLDERS
and
DESA INTERNATIONAL, INC.
dated as of
January 12, 1998
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Table of Contents
Page
I
REDEMPTION OF OPTIONS AND PURCHASE AND SALE OF SHARES....................................................2
1.01 Transaction Price...............................................................................2
1.02 Repurchase Transaction..........................................................................2
1.03 Sale Transaction................................................................................2
1.04 The Closing.....................................................................................3
1.05 Net Working Capital Adjustment..................................................................4
II
CONDITIONS TO CLOSING....................................................................................6
2.01 Conditions to Buyer's Obligations...............................................................6
2.02 Conditions to the Shareholders' Obligations.....................................................9
III
REPRESENTATIONS AND WARRANTIES OF
EACH SHAREHOLDER AND EACH OPTIONHOLDER..................................................................9
3.01 Execution and Delivery; Valid and Binding Agreements...........................................10
3.02 Authority......................................................................................10
3.03 Ownership of Capital Stock.....................................................................10
3.04 Brokerage......................................................................................10
3.05 Investment.....................................................................................10
3.06 Noncontravention...............................................................................11
IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY...........................................................11
4.01 Organization and Corporate Power...............................................................11
4.02 Subsidiaries...................................................................................11
4.03 Authorization; No Breach.......................................................................12
4.04 Capital Stock..................................................................................12
4.05 Financial Statements...........................................................................13
4.06 Absence of Certain Developments................................................................13
4.07 Title to Properties............................................................................15
4.08 Tax Matters....................................................................................16
4.09 Contracts and Commitments......................................................................18
4.10 Intellectual Property..........................................................................19
4.11 Litigation.....................................................................................20
4.12 Governmental Consents, etc.....................................................................21
4.13 Employee Benefit Plans.........................................................................21
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4.14 Insurance......................................................................................22
4.15 Compliance with Laws...........................................................................23
4.16 Environmental Compliance and Conditions........................................................23
4.17 Banking and Agency Arrangements................................................................23
4.18 Affiliated Transactions........................................................................24
4.19 Brokers' Fees..................................................................................24
4.20 Assets and Properties..........................................................................24
4.21 Employees......................................................................................24
4.22 Product Warranty...............................................................................24
4.23 Product Liability..............................................................................25
4.24 Undisclosed Liabilities........................................................................25
4.25 Disclosure.....................................................................................25
V
REPRESENTATIONS AND WARRANTIES OF BUYER.................................................................25
5.01 Organization and Corporate Power...............................................................25
5.02 Authorization..................................................................................25
5.03 No Violation...................................................................................26
5.04 Governmental Authorities; Consents.............................................................26
5.05 Litigation.....................................................................................26
5.06 Brokerage......................................................................................26
5.07 Investment Representation......................................................................26
5.08 Financing......................................................................................26
5.09 No Knowledge of Misrepresentations or Omissions................................................26
VI
PRE-CLOSING COVENANTS...................................................................................27
6.01 Conduct of the Business........................................................................27
6.02 Access to Books and Records....................................................................27
6.03 Regulatory Filings.............................................................................27
6.04 Conditions.....................................................................................28
6.05 Exclusive Dealing..............................................................................28
6.06 Notification...................................................................................28
6.07 Preservation of Business.......................................................................28
6.08 Topping Fees...................................................................................28
6.09 Cooperation....................................................................................28
6.10 Contribution of Assets to and Assumption of Liabilities by Spin-Off Entities;
Distribution of Equity Interests...............................................................29
6.11 Other Agreements...............................................................................29
6.12 Trademark Withdrawal...........................................................................29
6.13 Heathkit ▇▇▇▇ License Agreement. .............................................................29
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VII
COVENANTS OF BUYER......................................................................................31
7.01 Access to Books and Records....................................................................31
7.02 Notification...................................................................................31
7.03 Director and Officer Liability and Indemnification.............................................31
7.04 Conditions.....................................................................................31
7.05 Contact with Customers and Suppliers...........................................................31
7.06 Employees......................................................................................32
7.07 Employee Benefit Plans.........................................................................32
VIII
TERMINATION.............................................................................................32
8.01 Termination....................................................................................32
8.02 Effect of Termination..........................................................................33
IX
SHAREHOLDERS' REPRESENTATIVE............................................................................33
9.01 Designation....................................................................................33
9.02 Authority......................................................................................33
9.03 Exculpation....................................................................................34
X
ADDITIONAL COVENANTS....................................................................................34
10.01 Survival Period................................................................................34
10.02 Indemnification................................................................................34
10.03 Limitation of Recourse.........................................................................38
10.04 Special Trademark License Indemnification Agreement............................................38
10.05 Disclosure Generally...........................................................................39
10.06 Acknowledgment by Buyer........................................................................39
10.07 Tax Matters....................................................................................39
10.08 Further Assurances.............................................................................40
10.09 Covenant Not to Compete, Solicit or Interfere..................................................40
XI
DEFINITIONS.............................................................................................41
11.01 Definitions....................................................................................41
11.02 Cross-Reference of Other Definitions...........................................................43
XII
MISCELLANEOUS...........................................................................................45
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12.01 Press Releases and Communications..............................................................45
12.02 Expenses.......................................................................................46
12.03 Waiver of Certain Transfer Restrictions........................................................46
12.04 Knowledge Defined..............................................................................46
12.05 Notices........................................................................................46
12.06 Assignment.....................................................................................47
12.07 Severability...................................................................................47
12.08 No Strict Construction.........................................................................47
12.09 Amendment and Waiver...........................................................................47
12.10 Complete Agreement.............................................................................48
12.11 Counterparts...................................................................................48
12.12 Governing Law..................................................................................48
12.13 Specific Performance...........................................................................48
12.14 HIG Balance Sheet..............................................................................48
12.15 Jurisdiction and Venue.........................................................................48
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement," which term
includes all exhibits and schedules hereto) is made as of January 12, 1998,
among Desa International, Inc., a Delaware corporation ("Buyer"), Heath Holding
Corp., a Delaware corporation (the "Company"), the Persons listed on the
attached Shareholders Schedule - Schedule I (the "Shareholders"), and the
Persons listed on the attached Optionholders Schedule - Schedule II (the
"Optionholders"). Capitalized terms used and not otherwise defined herein have
the meanings set forth in Article XI below.
Heath Company, a Delaware corporation ("Heath"), is a
wholly-owned subsidiary of the Company which in turn (i) directly owns 99.5% of
the issued and outstanding shares (the "HK Shares") of capital stock of Heath
Company Limited, a Hong Kong corporation ("Heath Ltd.") and (ii) indirectly owns
the remaining 0.5% of the HK Shares. Heath and Heath Ltd. are engaged in the
businesses of manufacturing and marketing residential motion sensor security
lighting and decorative lighting and wireless home devices (the "Heath/Zenith
Business"). Heath also is engaged in the businesses of developing and
manufacturing educational hardware products, software products, hobby kits and
course materials (the "Heathkit Business"). Immediately prior and as a condition
to the Closing hereunder, Heath will (i) contribute (A) all of its assets,
properties and businesses attributable to, or used in connection with, the
Heathkit Business to Heathkit Company, Inc. and (B) the ▇▇▇▇▇▇ Harbor Facility
to The ▇▇▇▇▇▇ Harbor Company, Inc. (together with Heathkit Company, Inc., the
"Spin-Off Entities") in exchange for 100% of the equity interests in Heathkit
Company, Inc. (the "Heathkit Equity Interests") and 100% of the equity interests
in The ▇▇▇▇▇▇ Harbor Company, Inc. (the "▇▇▇▇▇▇ Harbor Equity Interests" and
together with the Heathkit Interests, the "Equity Interests") and (ii) then
distribute all of the Equity Interests to the Company which will in turn
distribute all of the Equity Interests to the Shareholders in exchange for
shares of capital stock of the Company (the "Exchanged Shares") (the
transactions described in the foregoing clauses (i) and (ii) are referred to
herein collectively as the "Pre-Closing Spin-Off Transactions").
The Shareholders own all of the issued and outstanding shares
of capital stock of the Company ("Shares"). The Optionholders own all of the
issued and outstanding options to acquire Shares, in the amounts set forth on
the Optionholders Schedule (the "Options").
Subject to the terms and conditions set forth herein, the
parties hereto desire to consummate the Repurchase Transactions (as described
below in Section 1.02 with respect to the outstanding Options) and the Sale
Transactions (as described below in Section 1.03 with respect to the outstanding
Shares).
NOW, THEREFORE, in consideration of the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree, on and
subject to the terms and conditions set forth herein, as follows:
ARTICLE I
REDEMPTION OF OPTIONS AND PURCHASE AND SALE OF SHARES
1.01 Transaction Price. The aggregate consideration to be
delivered by Buyer (the "Transaction Price") in connection with consummation of
the Repurchase Transactions and the Sale Transactions contemplated hereby shall
be $37,000,000 minus the outstanding amount of the Funded Indebtedness as of the
Closing, as adjusted pursuant to Section 1.05 below, payable as provided in this
Article I.
1.02 Repurchase Transaction.
(a) The Company shall repurchase all of the issued and
outstanding Options from the Optionholders for an aggregate option repurchase
price equal to the product of (i) $37,000,000 minus the outstanding amount of
the Funded Indebtedness as of the Closing, plus the aggregate Option exercise
price, multiplied by (ii) the Option Percentage (the "Base Option Repurchase
Price") as adjusted pursuant to Section 1.05 below (the "Option Repurchase
Price"), minus the aggregate exercise price of the Options.
(b) On the basis of the representations, warranties, covenants
and agreements and subject to satisfaction or waiver of the terms and conditions
set forth herein, each of the Company and the Optionholders agrees to and will
consummate (and the Shareholders agree to cause the Company to consummate), at
the Closing, the following transactions (the "Repurchase Transactions"), subject
to adjustment pursuant to Section 1.05(b)-(f): the Company shall repurchase from
each Optionholder all of the Options held by such holder and shall deliver to
each Optionholder an amount equal to such Optionholder's Option Pro Rata Portion
of the Base Option Repurchase Price (as adjusted pursuant to Section 1.05(a))
minus the aggregate exercise price of such Optionholder's Options, payable as
provided in this Article I.
1.03 Sale Transaction.
(a) The aggregate purchase price for the Shares (other than
the Exchanged Shares) shall be equal to the product of (i) $37,000,000 minus the
outstanding amount of the Funded Indebtedness as of the Closing, multiplied by
(ii) the Share Percentage (the "Base Share Purchase Price"), as adjusted
pursuant to Section 1.05 below (the "Share Purchase Price").
(b) On the basis of the representations, warranties, covenants
and agreements and subject to the satisfaction or waiver of the terms and
conditions set forth herein, each of the Shareholders covenants and agrees to
and will consummate, at the Closing, the following transactions (the "Sale
Transactions"), subject to adjustment pursuant to Section 1.05(b)-(f): the
Shareholders shall sell, assign, transfer and convey to Buyer, and Buyer shall
purchase and acquire from the Shareholders, all Shares (other than the Exchanged
Shares), free and clear of all claims, pledges, security interests, liens,
charges, encumbrances, options, proxies, voting trusts or agreements or other
restrictions of any kind, against payment at the Closing of the Base Share
Purchase Price (as adjusted pursuant to Section 1.05(a)), payable as provided in
this Article 1.
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1.04 The Closing.
(a) The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at such place as is mutually
agreeable to Buyer and the Shareholders' Representative) at 10:00 a.m. on the
third business day following full satisfaction or due waiver of all of the
closing conditions set forth in Article II hereof (other than those to be
satisfied at the Closing) or on such other date as is mutually agreeable to
Buyer and the Shareholders' Representative. The date and time of the Closing are
herein referred to as the "Closing Date."
(b) Subject to the terms and conditions set forth in this
Agreement, the parties hereto shall consummate the following transactions (the
"Closing Transactions") on the Closing Date:
(i) the Shareholders' Representative (on behalf of
the Optionholders) shall deliver to the Company the instruments (if
any) evidencing all of the Options and acknowledgments, duly executed
by the Optionholders, of the cancellation thereof, and the Company
shall cancel all of the issued and outstanding Options;
(ii) the Company shall deliver to each Optionholder
funds equal to such Optionholder's Option Pro Rata Portion of the Base
Option Repurchase Price (giving effect to such Optionholder's Option
Pro Rata Portion of the adjustment (if any) pursuant to Section
1.05(a)), minus the aggregate exercise price for such Optionholder's
Options, minus the principal amount of such Optionholder's Buyer Note,
by wire transfer of immediately available funds to one account
designated in writing by the Shareholders' Representative to Buyer at
least three (3) days prior to the Closing;
(iii) the Shareholders' Representative (on behalf of
the Shareholders) shall deliver to Buyer stock certificates
representing all of the Shares (other than the Exchanged Shares), free
and clear of all claims, pledges, security interests, liens, charges,
encumbrances, options, proxies, voting trusts or agreements or other
restrictions of any kind, duly endorsed for transfer or accompanied by
duly executed stock powers;
(iv) Buyer shall deliver to each Shareholder such
Shareholder's Share Pro Rata Portion of the Base Share Purchase Price
(giving effect to such Shareholder's Share Pro Rata Portion of the
adjustment thereto (if any) pursuant to Section 1.05(a)) minus the
principal amount of such Shareholder's Buyer Note, by wire transfer of
immediately available funds to one account designated in writing by the
Shareholders' Representative to Buyer at least three (3) days prior to
the Closing;
(v) Buyer shall repay, or cause to be repaid, on
behalf of the Company and its Subsidiaries, all amounts necessary to
discharge fully the then outstanding balance of the Funded Indebtedness
described on the attached Indebtedness Schedule - Schedule 1.04(b)(v),
by wire transfer of immediately available funds as directed in writing
by the holders of such Funded Indebtedness at or prior to the Closing,
and the Shareholders' Representative (on behalf of the Shareholders and
the Optionholders) shall cause the holders of such Funded Indebtedness
to deliver to Buyer all appropriate payoff letters, reasonably
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satisfactory in form and substance to Buyer, and shall make
arrangements reasonably satisfactory to Buyer for such holders to
deliver lien releases and canceled notes at the Closing;
(vi) Buyer shall deliver to each Shareholder and
each Optionholder such Shareholder's Share Pro Rata Portion and such
Optionholder's Option Pro Rata Portion, respectively, of the Buyer
Notes; and
(vii) Buyer, the Company and the Shareholders'
Representative (on behalf of the Shareholders and the Optionholders)
shall make such other deliveries as are required by and in accordance
with Article II hereof.
(c) For purposes hereof, the term "Funded Indebtedness" shall
mean, with respect to the Company and its Subsidiaries, the sum of (i) all
obligations, contingent or otherwise, which in accordance with GAAP should be
classified upon the Company's consolidated balance sheet as liabilities in
respect of borrowed money, notes or similar instruments, all obligations under
leases which should be capitalized on the consolidated balance sheet of the
Company or relating to the deferred purchase price of property, and all
guarantees, endorsements and other contingent obligations in respect of
indebtedness of others and (ii) accrued interest to and including the Closing
Date in respect of any of the obligations described in the foregoing clause (i)
of this definition and all premiums, penalties, charges, fees, expenses and
other amounts (including so-called "breakage" amounts) due in connection with
the payment and satisfaction in full of such obligations which will be paid or
prepaid at Closing.
1.05 Net Working Capital Adjustment.
(a) Not more than five (5) business days, but at least three
(3) business days, prior to the Closing Date, the Shareholders' Representative
(on behalf of the Shareholders and the Optionholders) in good faith shall
prepare and deliver to Buyer the Company's estimated Net Working Capital
immediately prior to the Closing (the "Estimated Closing Net Working Capital")
based on the Company's books and records and other information then available
and Buyer shall be given access to such books and records and other information
and the opportunity to consult with the Shareholders' Representative (on behalf
of the Shareholders and the Optionholders) for purposes of confirming or
disputing the Estimated Closing Net Working Capital; provided, however, that if
the Shareholders' Representative and Buyer cannot agree on the Estimated Closing
Net Working Capital, the Estimated Closing Net Working Capital shall be deemed
to be equal to the average of the Shareholders' Representative's and Buyer's
respective good faith determination thereof. At Closing:
(i) If the Estimated Closing Net Working Capital is
less than $12,500,000 (A) the aggregate Base Option Repurchase Price
shall be reduced by an amount equal to the product of the Option
Percentage multiplied by such deficiency and (B) the aggregate Base
Share Purchase Price shall be reduced by an amount equal to the product
of the Share Percentage multiplied by such deficiency.
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(ii) If the Estimated Closing Net Working Capital
exceeds $12,500,000 (A) the aggregate Base Option Repurchase Price
shall be increased by an amount equal to the product of the Option
Percentage multiplied by such excess and (B) the aggregate Base Share
Purchase Price shall be increased by an amount equal to the product of
the Share Percentage multiplied by such excess.
(b) As promptly as practicable, but in no event later than
ninety (90) days after the Closing Date, Buyer in good faith shall prepare and
deliver to the Shareholders' Representative, a consolidated balance sheet of the
Company as of the close of business on the Closing Date prepared in accordance
with GAAP, together with a report thereon prepared by the Company's accountants
(the "Closing Balance Sheet"), setting forth Buyer's calculation of the Net
Working Capital as of the Closing Date (the "Closing Net Working Capital").
(c) The Company shall, and shall cause its accountants to,
permit the Shareholders' Representative to have full access to the books,
records and other documents (including work papers) pertaining to or used in
connection with preparation of the Closing Balance Sheet and Buyer's calculation
of the Closing Net Working Capital and provide the Shareholders' Representative
with copies thereof (as reasonably requested by the Shareholders'
Representative). If the Shareholders' Representative (on behalf of the
Shareholders and the Optionholders) disagrees with Buyer's calculation of the
Closing Net Working Capital as set forth on the Closing Balance Sheet, the
Shareholders' Representative will notify Buyer in writing of such disagreement
(the "Objection Notice") (such Objection Notice setting forth the basis for such
disagreement in reasonable detail) within fifteen (15) business days after
Buyer's delivery of the Closing Balance Sheet to the Shareholders'
Representative. If the Shareholders' Representative fails to deliver an
Objection Notice within such fifteen (15) business day period, Buyer's
calculation of the Closing Net Working Capital shall be conclusive and binding
upon the Shareholders, the Optionholders, the Shareholders' Representative and
Buyer. If the Shareholders' Representative delivers an Objection Notice within
such fifteen (15) business day period, Buyer and the Shareholders'
Representative thereafter shall negotiate in good faith to resolve any such
disagreements with respect to the computation of the Closing Net Working
Capital. If Buyer and the Shareholders' Representative resolve in writing all
disagreements with respect to the computation of the Closing Net Working
Capital, such written resolution of the Closing Net Working Capital shall be
conclusive and binding upon the Shareholders, the Optionholders, the
Shareholders' Representative and Buyer. If Buyer and the Shareholders'
Representative are unable to resolve any such disagreements within fifteen (15)
days after the Shareholders' Representative's delivery of its Objection Notice
to Buyer, Buyer and the Shareholders' Representative shall submit the dispute to
a "Big Six" public accounting firm jointly selected by Buyer and the
Shareholders' Representative (the "Auditor") for resolution. If Buyer and the
Shareholders' Representative are unable to agree upon the Auditor, the Auditor
shall be a "Big Six" accounting firm selected by lot (after Buyer and the
Shareholders' Representative each exclude one such accounting firm).
(d) Buyer and the Shareholders' Representative shall use their
respective commercially reasonable efforts to cause the Auditor to resolve all
disagreements the Closing Net Working Capital as soon as practicable, but in any
event shall direct the Auditor to render a determination within forty-five (45)
days of its retention. The Auditor shall consider only those items and amounts
in the Closing Balance Sheet which are identified in the Objection Notice as
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being items which Buyer and the Shareholders' Representative are unable to
resolve. The determination of the Auditor will be conclusive and binding upon
the Shareholders, the Optionholders, the Shareholders' Representative and Buyer.
(e) The Auditor will determine the allocation of its costs and
expenses in determining the Closing Net Working Capital based upon the
percentage which the portion of the contested amount not awarded to each party
bears to the amount actually contested by such party. For example, if Buyer
claims the Closing Net Working Capital is $1000 less than the amount determined
by the Shareholders' Representative, and the Shareholders' Representative
contests only $500 of the amount claimed by Buyer, and if the Auditor ultimately
resolves the dispute by awarding Buyer $300 of the $500 contested, then the
costs and expenses of arbitration will be allocated 60% (i.e., 300 / 500) to the
Shareholders and 40% (i.e., 200 / 500) to Buyer.
(f) Within five (5) business days after the Closing Net
Working Capital is conclusively determined pursuant to this Section 1.05:
(i) If the Closing Net Working Capital is less than
the Estimated Net Working Capital, (A) each Shareholder shall pay to
Buyer an amount equal to such Shareholder's Share Pro Rata Portion of
the product of the Share Percentage, multiplied by such difference and
(B) each Optionholder shall pay to Buyer an amount equal to the product
of such Optionholder's Option Pro Rata Portion of the Option
Percentage, multiplied by such difference, in each case by wire
transfer of immediately available funds to an account designated by
Buyer.
(ii) If the Closing Net Working Capital is greater
than the Estimated Net Working Capital, (A) Buyer shall pay to each
Shareholder an amount equal to such Shareholder's Share Pro Rata
Portion of the product of the Share Percentage, multiplied by such
excess and (B) Buyer shall pay to each Optionholder an amount equal to
the product of such Optionholder's Option Pro Rata Portion of the
Option Percentage, multiplied by such excess, in each case by wire
transfer of immediately available funds to one account designated in
writing by the Shareholders' Representative (on behalf of the
Shareholders and the Optionholders).
ARTICLE II
CONDITIONS TO CLOSING
2.01 Conditions to Buyer's Obligations. The obligation of
Buyer to consummate the transactions contemplated by this Agreement is subject
to the satisfaction of the following conditions as of the Closing Date:
(a) The representations and warranties set forth in Articles
III and IV hereof shall be true and correct in all material respects (except for
any such representations and warranties that are qualified as to materiality,
which representations and warranties shall be true and correct in all
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respects) at and as of the Closing Date as though then made and as though the
Closing Date was substituted for the date of this Agreement throughout such
representations and warranties;
(b) The Company, the Shareholders, the Optionholders and the
Shareholders' Representative shall have performed in all material respects all
of the covenants and agreements required to be performed by them under this
Agreement at or prior to the Closing;
(c) All consents which are set forth on the Third-Party
Consents Schedule - Schedule 4.09(c) attached hereto shall have been obtained;
(d) The applicable waiting periods, if any, under the HSR Act
shall have expired or been terminated, and all other governmental filings,
consents, authorizations and approvals that are required for the consummation of
the transactions contemplated hereby (all of which items are set forth on the
Governmental Consents Schedule - Schedule 4.12 attached hereto) shall have been
made and obtained;
(e) No law shall have been enacted which would, and no action
or proceeding before any court or government body shall be pending wherein an
unfavorable judgment, decree or order would, prevent the performance of this
Agreement or the consummation of any of the transactions contemplated hereby,
declare unlawful the transactions contemplated by this Agreement or cause such
transactions to be rescinded, cause a Material Adverse Effect or require the
Company, any Subsidiary or Buyer to dispose of any material assets;
(f) The Company and the Shareholders shall have entered into a
transition services agreement in the form set forth as Exhibit A attached hereto
(the "Transition Agreement"), which Transition Agreement shall be in full force
and effect as of the Closing; and
(g) The Company or the Shareholders' Representative (on behalf
of the Shareholders and the Optionholders), as the case may be, shall have
delivered to Buyer each of the following:
(i) evidence of consummation of the Pre-Closing
Spin-Off Transactions (including but not limited to evidence of the due
execution and delivery of the Heathkit Business Contribution Agreement
and The ▇▇▇▇▇▇ Harbor Facility Contribution Agreement by the respective
parties thereto);
(ii) a certificate of the Company in the form set forth
in Exhibit B attached hereto, dated the Closing Date, stating that the
conditions specified in subsections (a) and (b) of this Section,
inclusive, as they relate to the Company have been satisfied;
(iii) a certificate of the Shareholders' Representative
(on behalf of the Shareholders and the Optionholders) in the form of
Exhibit C attached hereto, dated the Closing Date, stating that the
conditions specified in subsections (a) and (b) of this Section as they
relate to the Shareholders, the Optionholders and the Shareholders'
Representative have been satisfied;
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(iv) copies of the third party and governmental
consents required by subsections (c) and (d) above;
(v) the stock certificates representing all Shares
(other than the Exchanged Shares duly transferred to the Company in
connection with the Pre-Closing Spin-off Transactions) from the
Shareholders, in each case duly endorsed for transfer by the
Shareholders or accompanied by stock powers duly executed by the
Shareholders and the instruments evidencing the Options accompanied by
acknowledgments, duly executed by the Optionholders, of the
cancellation thereof;
(vi) all minute books, stock books, ledgers and
registers, corporate seals and other corporate records relating to the
organization, ownership and maintenance of the Company and its
Subsidiaries;
(vii) resignations effective as of the Closing Date from
such officers and directors of the Company or its Subsidiaries as Buyer
shall have requested in writing not less than three days prior to the
Closing Date; and
(viii) a long form Certificate of Legal Existence and
Good Standing, dated within three (3) days prior to the Closing Date,
issued by, and a copy of the Certificate of Incorporation (including
all amendments thereto) of each of the Company and its Subsidiaries,
dated within three (3) days prior to the Closing Date, certified by the
secretary of state (or, in the case of Heath Ltd., the registrar of
companies) of its jurisdiction of incorporation or organization, as the
case may be, and Certificates of Good Standing from the Secretary of
State of Michigan, evidencing the Company's good standing in such
jurisdiction, and certificates of good standing and legal existence (if
available) or other comparable certification from the secretary of
state (or other applicable governmental authority) of each state
wherein the Subsidiary is duly qualified evidencing the Subsidiary's
good standing therein.
(h) Buyer shall have received from counsel to the Company, the
Shareholders, the Optionholders and the Shareholders' Representative an opinion
in form and substance reasonably satisfactory to Buyer and shall have received
from counsel to H.I.G. Investment Group, L.P. with respect to Cayman Islands law
an opinion in form and substance reasonably satisfactory to Buyer, and each of
the foregoing shall be addressed to Buyer and dated as of the Closing Date;
(i) All actions to be taken by the Shareholders and the
Optionholders, respectively, in connection with consummation of the transactions
contemplated hereby and all certificates, opinions, instruments and other
documents required to effect the transactions contemplated hereby shall be
reasonably satisfactory in form and substance to Buyer;
(j) The Company shall have delivered to Buyer copies of the
resolutions duly adopted by the Company's board of directors authorizing the
execution, delivery and performance of this Agreement and each of the
Transaction Documents and copies of the Company's and Heath Ltd.'s bylaws, and
each of the foregoing shall be certified by the secretary or an assistant
secretary of the Company or Heath Ltd., as applicable; and
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(k) The ▇▇▇▇▇▇ Harbor Company, Inc. shall have duly executed
and delivered a lease agreement in the form of lease agreement attached hereto
as Exhibit D (the "Lease Agreement").
2.02 Conditions to the Shareholders' Obligations. The
obligations of the Shareholders to consummate the transactions contemplated by
this Agreement are subject to the satisfaction of the following conditions as of
the Closing Date:
(a) The Pre-Closing Spin-Off Transactions shall have been
consummated;
(b) The representations and warranties set forth in Article V
hereof shall be true and correct in all material respects at (except for any
such representations and warranties that are qualified as to materiality, which
representations and warranties shall be true and correct in all respects) and as
of the Closing as though then made and as though the Closing Date was
substituted for the date of this Agreement throughout such representations and
warranties;
(c) Buyer shall have performed in all material respects all
the covenants and agreements required to be performed by it under this Agreement
at or prior to the Closing;
(d) No legal action or proceeding before any court or
government body shall be pending wherein an unfavorable judgment, decree or
order would prevent the performance of this Agreement or the consummation of any
of the transactions contemplated hereby, declare unlawful the transactions
contemplated by this Agreement or cause such transactions to be rescinded;
(e) The applicable waiting periods, if any, under the HSR Act
shall have expired or been terminated, and all other governmental filings,
consents, authorizations and approvals that are required for the consummation of
the transactions contemplated hereby shall have been duly made and obtained;
(f) Buyer shall have delivered to the Shareholders'
Representative certified copies of the resolutions duly adopted by Buyer's board
of directors authorizing the execution, delivery and performance of this
Agreement;
(g) Seller shall have received from counsel to Buyer an
opinion in form and substance reasonably satisfactory to the Shareholders'
Representative concerning the due authorization, execution, delivery and
enforceability of this Agreement and the Buyer Notes; and
(h) Buyer shall have delivered to the Shareholders'
Representative (on behalf of the Shareholders and the Optionholders) a
certificate in the form set forth as Exhibit E attached hereto, dated the
Closing Date, stating that the preconditions specified in subsections (b) and
(c) hereof have been satisfied.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
EACH SHAREHOLDER AND EACH OPTIONHOLDER
Each Shareholder and each Optionholder, solely for himself or
itself (on a several, and not joint and several basis), represents and warrants
to Buyer as follows:
3.01 Execution and Delivery; Valid and Binding Agreements. If
any Shareholder or any Optionholder is a corporation, partnership, business
trust, limited liability company or other entity, such Shareholder or such
Optionholder (as the case may be) is duly organized, validly existing, and in
good standing under the laws of the jurisdiction of its organization, and the
execution, delivery and performance of this Agreement and the transactions
contemplated hereby have been duly authorized by all requisite corporate,
partnership, business trust, limited liability company or other action on behalf
of such Shareholder or such Optionholder. This Agreement has been duly executed
and delivered by such Shareholder or such Optionholder (as the case may be), and
assuming that this Agreement is the valid and binding agreement of Buyer, this
Agreement constitutes the valid and binding obligation of such Shareholder or
such Optionholder (as the case may be), enforceable in accordance with its
terms.
3.02 Authority. Such Shareholder or such Optionholder (as the
case may be) has all requisite power and authority and full legal capacity to
execute and deliver this Agreement and to perform his or its obligations
hereunder (including, without limitation, all right, power, capacity and
authority to sell, transfer and convey his or its Shares or Options, as the case
maybe, as provided by this Agreement, subject to applicable federal and state
securities law restrictions).
3.03 Ownership of Capital Stock. Such Shareholder or such
Optionholder (as the case may be) is the record owner of the number of Shares or
Options, as applicable, as set forth opposite his or its name on the
Shareholders Schedule or the Optionholder Schedule, as the case may be, free and
clear of all claims, pledges, security interests, liens, charges, encumbrances,
options, proxies, voting trusts or agreements or other restrictions of any kind,
except as set forth on the Shareholders Schedule. On the Closing Date, such
Shareholder shall transfer to Buyer good title to such Shares and such
Optionholder shall surrender for cancellation such Options to the Company, in
either case free and clear of all claims, pledges, security interests, liens,
charges, encumbrances, options, proxies, voting trusts or agreements and other
restrictions and limitations of any kind, other than applicable federal and
state securities law restrictions.
3.04 Brokerage. Except for the fees and expenses of ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & Co. (which the Shareholders agree shall be paid by the
Shareholders), there are no claims for brokerage commissions, finders' fees or
similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement made by or on behalf of any
Shareholder, any Optionholder, the Company or any Affiliate of any of the
foregoing Persons.
3.05 Investment. Such Shareholder or such Optionholder (a)
understands that the Buyer Notes have not been, and will not be, registered
under the Securities Act, or under any state securities laws, and are being
offered and sold in reliance upon federal and state exemptions for
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transactions not involving any public offering, (b) is acquiring such
Shareholder's or such Optionholder's (as the case may be) Buyer Notes solely for
his or its own account for investment purposes, and not with a view to the
distribution thereof, (c) is a sophisticated investor with knowledge and
experience in business and financial matters and (d) is able to bear the
economic risk and lack of liquidity inherent in holding such Shareholder's or
such Optionholder's (as the case may be) Buyer Notes.
3.06 Noncontravention. Neither the execution and delivery of
this Agreement, nor the consummation of the transactions contemplated hereby,
will (a) violate any law, statute, regulation, rule, judgment, order, decree
stipulation, injunction, charge or other restriction of any government,
governmental agency, or court to which such Shareholder or such Optionholder is
subject or, if applicable, any provision of its charter, bylaws or other such
constituent documents, or (b) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice or consent under
any contract, lease, sublease, license, sublicense, franchise, permit,
indenture, agreement or mortgage for borrowed money, instrument of indebtedness,
security interest, or other arrangement to which such Shareholder or such
Optionholder is a party or by which such Shareholder or such Optionholder is
bound or to which any of his or its assets is subject.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Buyer that:
4.01 Organization and Corporate Power. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, and the Company has all requisite corporate power and
authority and all authorizations, licenses and permits necessary to own and
operate its properties and to carry on its businesses as now conducted, except
where the failure to hold such authorizations, licenses and permits would not,
individually or in the aggregate, have a material adverse effect upon the
assets, liabilities, business, condition (financial or other), operations,
results of operations or prospects of the Company and its Subsidiaries, taken as
a whole (a "Material Adverse Effect"). The Company is qualified to do business
in every jurisdiction in which its ownership of property or the conduct of
business as now conducted requires it to qualify, except where the failure to be
so qualified would not, individually or in the aggregate, have a Material
Adverse Effect.
4.02 Subsidiaries. Except as set forth on the attached
Subsidiary Schedule Schedule 4.02, neither the Company nor any of its
Subsidiaries owns or holds the right to acquire any stock, partnership interest
or joint venture interest or other equity ownership interest in any other
corporation, organization or entity. Each of the Subsidiaries identified on the
Subsidiary Schedule Schedule 4.02 is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation, has all
requisite corporate power and authority and, except as set forth on the attached
Subsidiary Schedule - Schedule 4.02, all authorizations, licenses and permits
necessary to own its properties and to carry on its businesses as now conducted
and is qualified to
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do business in every jurisdiction in which its ownership of property or the
conduct of businesses as now conducted requires it to qualify, except where the
failure to hold such authorizations, licenses and permits or to be so qualified
would not, individually or in the aggregate, have a Material Adverse Effect. For
purposes of this Agreement, the term "Subsidiary" shall mean any corporation of
which the securities having a majority of the ordinary voting power in electing
the board of directors are, at the time of such determination, owned by the
Company or another Subsidiary and shall include Heath Company, a Delaware
corporation, and Heath Company Limited, a Hong Kong corporation formerly known
as Prokit Electronics Company Limited. All of the Company's Subsidiaries are
expressly identified on the attached Subsidiary Schedule.
4.03 Authorization; No Breach. Except as set forth on the
attached Authorization Schedule - Schedule 4.03, the execution, delivery and
performance of this Agreement by the Company and the Shareholders and the
consummation of the transactions contemplated hereby have been duly authorized
by all corporate and other action on the part of the Company and do not conflict
with or result in any breach of, constitute a default under, result in a
violation of, result in the creation of any lien, security interest, charge or
encumbrance upon any assets of the Company or any of its Subsidiaries, or
require any authorization, consent, approval, exemption or other action by or
notice to any court or other governmental body or other Person, under (a) the
provisions of the Company's or any Subsidiary's certificate of incorporation or
bylaws or (b) any indenture, mortgage, lease, loan agreement or other material
agreement or instrument to which the Company or any of its Subsidiaries is
bound, or any law, statute, rule or regulation or order, judgment or decree to
which the Company or any of its Subsidiaries is subject, except, with respect to
the items set forth in clause (b) of this Section 4.03, such conflicts,
breaches, defaults, violations, liens, security interests, charges and
encumbrances as would not, individually or in the aggregate, have a Material
Adverse Effect. Assuming that this Agreement is a valid and binding obligation
of Buyer, this Agreement constitutes a valid and binding obligation of the
Company, enforceable in accordance with its terms.
4.04 Capital Stock.
(a) The authorized number of shares of capital stock of the
Company consists of 2,500,000 shares of the Company's common stock, par value
$.01 per share ("Common Stock"). As of the date hereof, 1,500,000 shares of
Common Stock are issued and outstanding and are owned of record by the
Shareholders in the amounts as set forth on the attached Shareholders Schedule.
All of the outstanding shares of capital stock of the Company have been duly
authorized and are validly issued, fully paid and nonassessable. Except as set
forth on the attached Capital Stock Schedule - Schedule 4.04, the Company does
not have any other capital stock, equity securities or securities containing any
equity features authorized, issued or outstanding, and there are no agreements,
options, warrants or other rights or arrangements existing or outstanding which
provide for the sale or issuance of any of the foregoing by the Company. Except
as set forth on the attached Capital Stock Schedule - Schedule 4.04, there are
no rights, subscriptions, warrants, options, conversion rights or agreements of
any kind outstanding to purchase or otherwise acquire any shares of capital
stock or other equity securities of the Company of any kind. Except as set forth
on the Capital Stock Schedule - Schedule 4.04, there are no agreements or other
obligations (contingent or otherwise) which require the Company or any
Subsidiary to repurchase or otherwise acquire any shares of the Company's
capital stock or other equity securities.
-12-
(b) The attached Subsidiary Schedule - Schedule 4.02 correctly
sets forth the name of each Subsidiary of the Company, the jurisdiction of its
incorporation or organization, the Persons owning, of record and beneficially,
the outstanding capital stock or other equity securities of such Subsidiary and
the jurisdiction in which each such Subsidiary is qualified to do business. Each
Subsidiary of the Company (i) is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
and (ii) possesses all requisite corporate power and authority and, except as
set forth on the attached Subsidiary Schedule Schedule 4.02, has all licenses,
permits and authorizations necessary to own its properties and to carry on its
businesses as now being conducted. All of the outstanding shares of capital
stock of each Subsidiary of the Company that is a corporation are validly
issued, fully paid and nonassess able. Except as set forth on the Capital Stock
Schedule - Schedule 4.04, all shares of capital stock or other equity interests
of each of the Company's Subsidiaries are owned of record and beneficially by
the Company or one of its Subsidiaries in the respective amounts set forth in
the Subsidiary Schedule - Schedule 4.02, free and clear of all claims, pledges,
security interests, liens, charges, encumbrances, options, proxies, voting
trusts or agreement and other restrictions of any kind and are not subject to
any option or right to purchase any such shares or equity interests. Except as
set forth on the Capital Stock Schedule - Schedule 4.04, neither the Company nor
any of its Subsidiaries owns or holds the right to acquire any shares of stock
or any other security or interest in any other Person. The Company beneficially
owns, indirectly through Heath and ▇▇▇▇▇▇▇ ▇▇▇▇▇, in trust for Heath, all of the
outstanding beneficial and other interests in Heath Ltd. After giving effect to
the transactions contemplated by this Agreement, Buyer will own all of the
outstanding equity interests in each of the Company, Heath and Heath Ltd., free
and clear of all liens and encumbrances.
4.05 Financial Statements. The Company has furnished to Buyer
true and complete copies of the following financial statements of Company and
its Subsidiaries (collectively, the "Financial Statements"); (i) the unaudited
consolidated balance sheet (the "Latest Balance Sheet") and related consolidated
statement of income (together with the Latest Balance Sheet, the "Latest
Financial Statements") for the Heath/Zenith Business of the Company and its
Subsidiaries as at and for the eleven-month period ended November 30, 1997; (ii)
the audited consolidated balance sheet and related consolidated statement of
income for the Heath/Zenith Business of the Company and its Subsidiaries and The
▇▇▇▇▇▇ Harbor Facility as at and for the fiscal year ended December 31, 1996
(the "1996 Heath/Zenith Financial Statements"); and (iii) the audited
consolidated balance sheet and related consolidated statement of income for the
Company and its Subsidiaries as at and for the fiscal years ended December 31,
1996 and 1995. The Financial Statements, including in each case the notes (if
any) thereto, have been prepared in accordance with GAAP applied on a consistent
basis throughout the periods covered thereby, are true, complete and correct in
all material respects and are consistent with the books and records of the
Company and its Subsidiaries (which books and records are correct and complete
in all material respects) in all material respects, and present fairly the
consolidated financial condition and results of operations, in the case of the
Latest Financial Statements and the 1996 Heath/Zenith Financial Statements, of
the Heath/Zenith Business of the Company and its Subsidiaries (including, in the
case of the 1996 Heath/Zenith Financial Statements, The ▇▇▇▇▇▇ Harbor Facility),
on the bases therein stated, as of the respective dates thereof and for the
respective periods covered thereby and, in the case of the other Financial
Statements, of the Company and its Subsidiaries, on the bases therein stated, as
of the respective dates thereof and for the respective periods covered thereby;
provided, however, that (A) the Latest Financial Statements are subject to
normal year-end adjustments and lack of footnote
-13-
disclosure and (B) the Latest Financial Statements and the 1996 Heath/Zenith
Financial Statements have been prepared on a pro forma basis in accordance with
GAAP giving effect to the Pre-Closing Spin-Off Transactions as if they had
occurred on December 31, 1996, except in the case of the 1996 Heath/Zenith
Financial Statements which include The ▇▇▇▇▇▇ Harbor Facility.
4.06 Absence of Certain Developments. Since December 31, 1996,
there has not been any Material Adverse Effect. There has occurred or arisen or
exists no change or event or condition or circumstance that, individually or in
the aggregate, would have or result in a Material Adverse Effect other than as
may result from general economic or political conditions or any change therein.
Except as set forth on the attached Developments Schedule - Schedule 4.06 and
except as expressly contemplated by this Agreement, since December 31, 1996,
neither the Company nor any Subsidiary has:
(a) created, incurred, assumed or guaranteed any
indebtedness (including capitalized lease obligations) either involving
more than $50,000 singly or $100,000 in the aggregate or outside the
ordinary course of business (which term, as used in this Agreement,
shall be deemed to mean the ordinary course of business of the Company
and its Subsidiaries consistent with their practices in the past year);
(b) mortgaged, pledged or subjected to any lien,
charge or other encumbrance, any portion of its assets, except liens
for current property taxes not yet due and payable;
(c) sold, assigned or transferred any of its tangible
assets, except in the ordinary course of business;
(d) sold, assigned or transferred any patents,
certificates of plant variety protection, trademarks, trade names,
copyrights, trade secrets or other intangible assets;
(e) experienced any damage, destruction or loss
(whether or not covered by insurance) to its property, or canceled,
compromised, waived, or released any right or claim (or series of
related rights and claims) outside the ordinary course of business or
in excess of $50,000 in the aggregate;
(f) issued, sold or transferred any of its capital
stock or other equity securities, securities convertible into its
capital stock or other equity securities or warrants, options or other
rights to acquire its capital stock or other equity securities, or any
bonds or debt securities;
(g) made any material capital expenditures or
commitments therefor outside the ordinary course of business or which
are not consistent with the Capital Expenditures Budget of the Company
and its Subsidiaries for fiscal year 1997, a true and complete copy of
which is attached as the Capital Expenditures Schedule - Schedule
4.06(g);
-14-
(h) entered into any contract, lease, sublease,
license or sublicense (or series of related contracts, leases,
subleases, licenses and sublicenses) outside the ordinary course of
business or involving in excess of $50,000 or relating to Intellectual
Property;
(i) accelerated, terminated, modified, or canceled
any contract, lease, sublease, license or sublicense (or series of
related contracts, leases, subleases, licenses and sublicenses) to
which any of the Company and its Subsidiaries is a party or by which
any of them is bound outside the ordinary course of business or
involving in excess of $50,000 in the aggregate or relating to
Intellectual Property;
(j) made any capital investment in, any loan to, or
any acquisition of the securities or assets of any other Person (or
series of related capital investments, loans and acquisitions) outside
the ordinary course of business;
(k) granted any license or sublicense of any rights
under or with respect to any Intellectual Property;
(l) made or authorized any change in the charter or
bylaws of any of the Company and its Subsidiaries;
(m) declared, set aside, or paid any dividend or
distribution with respect to its capital stock or redeemed, purchased
or otherwise acquired any of its capital stock;
(n) made any loan to, or entered into any other
transaction with, any of its directors, officers, and employees outside
the ordinary course of business;
(o) entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms
of any such existing contract or agreement;
(p) granted any increase outside the ordinary course
of business in the base compensation of any of its directors, officers
and employees;
(q) adopted any (i) bonus, (ii) profit-sharing, (iii)
incentive compensation, (iv) pension, (v) retirement, (vi) medical,
hospitalization, life or other insurance, (vii) severance, or (viii)
other plan, contract or commitment for any of its directors, officers
and employees, or modified or terminated any existing such plan
contract or commitment;
(r) made any other change in employment terms for any
of its directors, officers and employees;
(s) made or pledged to make any charitable or other
capital contribution outside the ordinary course of business;
(t) entered into any other material transaction,
except in the ordinary course of business; or
-15-
(u) committed to or agreed to do any of the
foregoing.
4.07 Title to Properties.
(a) The Company owns good and marketable title to all of the
personal property shown on the Latest Balance Sheet, free and clear of all
liens, security interests and other encumbrances, except for liens relating to
current taxes not yet due and payable and liens and encumbrances set forth on
the attached Liens Schedule - Schedule 4.07(a).
(b) The real property demised by the leases described on the
attached Leased Real Property Schedule - Schedule 4.07(b) constitutes all of the
real property leased by the Company or any of its Subsidiaries. The leases
described on the Leased Real Property Schedule - Schedule 4.07(b) are valid and
enforceable against the Company or its Subsidiary that is party thereto and in
full force and effect, and the Company or a Subsidiary holds a valid and
existing leasehold interest under each of the leases for the term set forth on
the Leased Real Property Schedule. Except as set forth on the Leased Real
Property Schedule - Schedule 4.07(b), each of such leases will continue to be
legal, valid, binding, and enforceable and in full force and effect on identical
terms following the Closing, and the consummation of the transactions
contemplated by this Agreement will not conflict with or result in any breach or
violation of any of such leases. The Company has delivered to Buyer complete and
accurate copies of each of the leases described on the Leased Real Property
Schedule, and none of the leases have been modified in any material respect,
except to the extent that such modifications are disclosed by the copies
delivered to Buyer. Neither the Company nor any Subsidiary nor, to the Company's
knowledge, any other Person is in default in any material respect under any of
such leases.
(c) After giving effect to the Pre-Closing Spin-Off
Transactions, neither the Company nor any of its Subsidiaries owns any real
property.
4.08 Tax Matters. Except as set forth in the attached Taxes
Schedule - Schedule 4.08:
(a) Each of the Company and its Subsidiaries has filed all Tax
Returns that it was required to file. All such Tax Returns were correct and
complete in all material respects. All Taxes owed by any of the Company and its
Subsidiaries (whether or not shown on any Tax Return) have been paid. None of
the Company and its Subsidiaries currently is the beneficiary of any extension
of time within which to file any Tax Return. No claim has ever been made in
writing addressed specifically to the Company by an authority in a jurisdiction
where any of the Company and its Subsidiaries does not file Tax Returns that it
is or may be subject to taxation by that jurisdiction.
(b) Each of the Company and its Subsidiaries has withheld,
collected and paid over all Taxes required to have been withheld, collected and
paid over in connection with amounts paid or owing to any employee, creditor,
independent contractor, or other third party, including without limitation all
sales, use and withholding taxes.
(c) There is no dispute or claim concerning any Tax Liability
of any of the Company and its Subsidiaries either (i) claimed or raised by any
authority in writing, or (ii) as to
-16-
which any of the Shareholders or the directors, officers and employees
responsible for Tax matters of the Company and its Subsidiaries has knowledge
based upon personal contact with any agent of such authority. The Taxes Schedule
- Schedule 4.08 lists all federal, state, local, and foreign income Tax Returns
filed with respect to any of the Company and its Subsidiaries for taxable
periods ended on or after December 31, 1994, and indicates (other than with
respect to separate company Tax Returns included in a consolidated, combined or
unitary group other than a group the common parent of which was the Company) (i)
those Tax Returns that have been audited and (ii) those Tax Returns that
currently are the subject of audit.
(d) The Company has delivered to the Buyer correct and
complete copies of all income Tax Returns of the Company and its Subsidiaries
for taxable periods ending on or after 12/31/94, and all examination reports and
statements of deficiencies assessed against or agreed to by any of the Company
and its Subsidiaries since December 31, 1994.
(e) None of the Company and its Subsidiaries has waived any
statute of limitations in respect of Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency.
(f) No liens, security interests or other encumbrances for
Taxes exist with respect to any of the assets or properties of the Company or
any Subsidiaries, except for statutory liens for Taxes not yet due or payable or
that are being contested in good faith;
(g) The unpaid Taxes of the Company and its Subsidiaries will
not exceed the reserve for Tax Liability (rather than any reserve for deferred
Taxes established to reflect timing differences between book and Tax income) set
forth in the Closing Balance Sheet (rather than in any notes thereto), which
reserve shall be established in accordance with the past custom and practice of
the Company and its Subsidiaries in filing their Tax Returns.
(h) None of the Company and its Subsidiaries has filed a
consent under Code Section 341(f) concerning collapsible corporations.
(i) None of the Company and its Subsidiaries has made any
payments, is obligated to make any payments, or is a party to any agreement that
under certain circumstances could obligate it to make any payments, that will
not be deductible due to Code Section 280G.
(j) None of the Company and its Subsidiaries has been a United
States real property holding corporation within the meaning of Code Section
897(c)(2) during the applicable period specified in Code Section
897(c)(1)(A)(ii).
(k) Other than with respect to Tax sharing agreements to which
no Person other than the Company or any of the Subsidiaries is a party, (A)
there is no existing or previously effective Tax sharing agreement that may or
will require that any payment be made by the Company or any of its Subsidiaries
on or after the Closing Date and all Tax sharing agreements to which the Company
or any of its Subsidiaries is a party shall be canceled as of the Closing Date
and thereafter the Company shall have no obligation thereunder, and (B) any
payments to which the Company or any of its Subsidiaries is or would be entitled
on or prior to the Closing Date under any such Tax
-17-
sharing agreement has been or will be paid to the Company or any such Subsidiary
on or prior to the Closing Date.
(l) Since January 25, 1995, none of the Company and its
Subsidiaries has been a member of an affiliated group of corporations other than
a group the common parent of which was the Company.
(m) Neither the Company nor any of its Subsidiaries is bound
by any currently effective private ruling, closing agreement or similar
agreement with any taxing authority relating to a material amount of Taxes.
(n) Neither the Company nor any of its Subsidiaries will be
required to include, in a taxable period ending after the Closing Date, any
taxable income that economically accrued in a prior taxable period as a result
of Section 481 of the Code, the installment method of accounting, the like-kind
exchange provisions of Section 1031 of the Code, or any comparable provision of
state or local Tax law. Immediately following the Closing Date, neither the
Company nor any of its Subsidiaries will have any material amount of income or
gain that has been deferred under Treasury Regulation Section 1.1502-13.
(o) No property owned by the Company or its Subsidiaries is
property that the Company is or will be required to treat as being owned by
another Person pursuant to the provisions of Section 168(f)(8) of the Internal
Revenue Code of 1954, as amended and in effect immediately before the enactment
of the Tax Reform Act of 1986, or is "tax-exempt use property" within the
meaning of Section 168(h)(1) of the Code.
(p) No material amount of assets of the Company or any of its
Subsidiaries is subject to a lease under Section 7701(h) of the Code.
(q) Except for Heath's ownership of the HK Shares, neither the
Company nor any of its Subsidiaries owns an interest in any (i) domestic
international sales corporation, (ii) foreign sales corporation, (iii)
controlled foreign corporation, or (iv) passive foreign investment company.
4.09 Contracts and Commitments.
(a) Except as set forth on the attached Contracts Schedule -
Schedule 4.09(a), neither the Company nor any Subsidiary is party to any: (i)
collective bargaining agreement or contract with any labor union; (ii) bonus,
pension, profit sharing, retirement or other form of deferred compensation plan,
other than as described in Section 4.13 or the schedules relating thereto; (iii)
stock purchase, stock option or similar plan; (iv) contract for the employment
of any officer, individual employee or other person on a full-time, part-time or
consulting basis; (v) agreement, document, instrument or indenture evidencing or
relating to the borrowing of money or to mortgaging, pledging or otherwise
placing a lien on any material portion of the Company's or any Subsidiary's
assets (including any such document evidencing or relating to Funded
Indebtedness); (vi) guaranty of any obligation for borrowed money or other
material guaranty; (vii) lease or agreement under which it is lessee of, or
holds or operates any personal property owned by any other party, for which the
annual rental exceeds $25,000; (viii) lease or agreement under which it is
lessor
-18-
of or permits any third party to hold or operate any property, real or personal,
for which the annual rental exceeds $25,000; (ix) contract or group of related
contracts with the same party for the purchase of products or services, under
which the undelivered balance of such products and services has a selling price
in excess of $25,000; (x) contract or group of related contracts with the same
party for the sale of products or services under which the undelivered balance
of such products or services has a sales price in excess of $25,000; (xi)
noncompetition or other contract which prohibits or restricts the Company or any
Subsidiary from freely engaging in operations or business anywhere in the world;
(xii) written arrangement concerning a partnership or joint venture; (xiii)
written or other arrangement concerning confidentiality; (xiv) written or other
arrangement involving any of the Shareholders or the Optionholders and their
respective Affiliates; (xv) written arrangement under which the consequences of
a default or termination could have a Material Adverse Effect; (xvi) license,
sublicense, agreement or permission to use any patent, patent application,
trademark, service ▇▇▇▇, trade dress, trade name or corporate name or
registration or application for registration thereof, or any other item of
material Intellectual Property owned by any third party and used by any of the
Company or its Subsidiaries; or (xvii) other material written arrangement (or
group of related written arrangements) or any written agreement not entered into
in the ordinary course of business.
(b) Buyer has been supplied with a true and correct copy of
all written contracts which are referred to on the Contracts Schedule - Schedule
4.09(a), together with all amendments, waivers or other changes thereto.
(c) With respect to each agreement, contract, plan, document,
instrument, indenture or arrangement so listed on the attached Contracts
Schedule - Schedule 4.09(a) (collectively, the "Material Contracts"): (i) such
Material Contract is legal, valid, binding and enforceable and in full force and
effect against the Company or the Subsidiary that is party thereto and, to the
Company's knowledge, against each Person (other than the Company or any of its
Subsidiaries) that is party thereto; (ii) subject to the Company's obtaining the
consents set forth on the attached Third-Party Consents Schedule - Schedule
4.09(c), such Material Contract will continue to be legal, valid, binding, and
enforceable against the Company or the Subsidiary that is party thereto and, to
the Company's knowledge, against each Person (other than the Company or any of
its Subsidiaries) that is party thereto and in full force and effect on
identical terms following the Closing; (iii) subject to the Company's obtaining
the consents indicated on the Third Party Consents Schedule - Schedule 4.09(c),
the consummation of the transactions contemplated by this Agreement will not
result in any breach or violation of such Material Contract; and (iv) the
Company is not in breach of or default under such contract, and to the Company's
knowledge, no event has occurred which, with notice or lapse of time would
constitute a breach of or default under or permit termination, modification, or
acceleration under, such contract.
(d) None of the Company and its Subsidiaries is a party to any
oral contract, agreement, or other arrangement which, if reduced to written
form, would be required to be listed in the Contracts Schedule - Schedule
4.09(c) under the terms of this Section 4.09.
(e) To the Company's knowledge, since December 31, 1996, there
is no unresolved threat by (i) any supplier or vendor of any of the Company and
its Subsidiaries that such supplier or vendor will stop, or materially decrease
the rate of, supplying materials, products, or
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services to any of them or (ii) by any customer of any of the Company and its
Subsidiaries that such customer will stop or materially decrease the rate of
buying material or products from any of them.
4.10 Intellectual Property.
(a) All (i) patents, patent applications, patent disclosures
and improvements thereto (ii) trademarks, service marks, logos, trade names, and
corporate names and registrations and applications for registration thereof,
(iii) copyrights and registrations and applications for registration thereof,
(iv) material mask works and registrations and applications for registration
thereof, (v) material computer software and (vi) material trade secrets and
proprietary manufacturing and production processes (collectively, "Intellectual
Property") owned or used by the Company or any of its Subsidiaries are set forth
on the attached Intellectual Property Schedule - Schedule 4.10. Except as set
forth on the Intellectual Property Schedule - Schedule 4.10, (a) the Company and
its Subsidiaries, as the case may be, owns and possesses all right, title and
interest in and to, or possesses the valid right to use, the Intellectual
Property set forth on the Intellectual Property Schedule - Schedule 4.10; (b)
neither the Company nor any Subsidiary has received any written notices of any
claim of ownership (in whole or in part), theft, license, shop right,
infringement or misappropriation from any third party with respect to the
Intellectual Property set forth on the Intellectual Property Schedule - Schedule
4.10 and neither the Company nor any Subsidiary has received any written notice
of the existence of any patent or patent application purportedly owned by any
third Person which relates to any product marketed by the Company or any
Subsidiary; and (c) neither the Company nor any of its Subsidiaries has
infringed or is currently infringing on the Intellectual Property of any other
Person, except for any nonconformance with clauses (a), (b) and (c) above which
would not, individually or in the aggregate, have a Material Adverse Effect.
Other than those items of Intellectual Property set forth on the Schedules to
the Heathkit Business Contribution Agreement, each item of Intellectual Property
owned or used by any of the Company and its Subsidiaries immediately prior to
the Closing hereunder will be owned or available for use by the Company or its
Subsidiaries on identical terms and conditions immediately subsequent to the
Closing hereunder. Except as described on the attached Intellectual Property
Schedule - Schedule 4.10, to the Company's knowledge, no third party has
interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any Intellectual Property rights of any of the Company and its
Subsidiaries which interference, infringement or misappropriation is likely,
individually or in the aggregate, to have a Material Adverse Effect.
(b) Except as described on the attached Intellectual Property
Schedule - Schedule 4.10, to the Company's knowledge, each of the Company and
its Subsidiaries has taken all necessary or desirable action to protect each
item of Intellectual Property that it owns or uses.
(c) The Intellectual Property Schedule - Schedule 4.10
identifies each patent or trademark or registration therefor which has been
owned by any of the Company and its Subsidiaries with respect to any of its
Intellectual Property, identifies each pending patent or trademark application
or application for registration which any of the Company and its Subsidiaries
has made or owns with respect to any of its Intellectual Property, and
identifies each license, agreement, or other permission which any of the Company
and its Subsidiaries has granted to any third party with respect to any of its
Intellectual Property (together with any exceptions).
-20-
(d) The Intellectual Property Schedule - Schedule 4.10 also
identifies each item of Intellectual Property that any third party owns and that
any of the Company and its Subsidiaries uses pursuant to any license,
sublicense, agreement or permission.
4.11 Litigation. Except as set forth on the attached
Litigation Schedule, there are no actions, suits or proceedings pending or, to
the Company's knowledge, threatened against the Company or any Subsidiary, at
law or in equity, or before or by any foreign, federal, state, municipal or
other governmental department, commission, office, board, bureau, agency or
instrumentality, domestic or foreign, and neither the Company nor any Subsidiary
is subject to any outstanding judgment, order or decree of any court or
governmental body.
4.12 Governmental Consents, etc. Except for the applicable
requirements of the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of ▇▇▇▇ (▇▇▇
"▇▇▇ ▇▇▇") and, except as set forth on the attached Governmental Consents
Schedule - Schedule 4.12, no permit, consent, approval or authorization of, or
declaration to or filing with, any governmental or regulatory authority is
required in connection with any of the execution, delivery or performance of
this Agreement by the Company, the Shareholders or the Optionholders or the
consummation by the Company, the Shareholders or the Optionholders of any other
transaction contemplated hereby.
4.13 Employee Benefit Plans.
(a) The attached Employee Benefits Schedule - Schedule 4.13
lists all employee benefit plans, as defined in Section 3(3) of ERISA, and all
other deferred compensation, bonus or other incentive compensation, stock
purchase, severance pay, salary continuation for disability or other leave of
absence, supplemental unemployment benefits, layoff or reduction in force,
change in control or educational assistance plans, arrangements or policies
including, but not limited to, any benefit arrangement, policy or practice, in
which any employee of the Company or any Subsidiary (including, but not limited
to, the President and its chief financial officer) participates on the date
hereof (collectively, the "Benefit Plans"). None of the Benefit Plans is (i) a
"defined benefit pension plan" as defined in Section 3(35) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), (ii) a
"multiemployer plan," as defined in Section 3(37) of ERISA, (iii) a "multiple
employer plan," as defined in ERISA or the Internal Revenue Code of 1986, as
amended (the "Code"), or (iv) a funded welfare benefit plan, as defined in
Section 419 of the Code. Each of the Company and its Subsidiaries has no
agreement or commitment to create any additional Benefit Plan or to modify or
change any Benefit Plan.
(b) With respect to each Benefit Plan, the Company has
heretofore delivered or made available to Buyer true, correct and complete
copies of (i) all documents which comprise the most current version of each such
Benefit Plan, including any related trust agreements, insurance contracts, or
other funding or investment agreements and any amendments thereto, and (ii) with
respect to each Benefit Plan that is an "employee benefit plan," as defined in
Section 3(3) of ERISA, (A) the two most recent Annual Reports (Form 5500 Series)
and accompanying schedules for each of the Benefit Plans for which such a report
is required, (B) the most current summary plan description (and any summary of
material modifications), (C) the most recent certified financial statements for
each of the Benefit Plans for which such a statement is required or was prepared
and (D) for each Benefit Plan intended to be "qualified" within the meaning of
Section 401(a) of the
-21-
Code, the current IRS determination letter issued with respect to such Plan.
Except as set forth in the Employee Benefits Schedule - Schedule 4.13, since the
date of the documents so delivered to Buyer, there has not been any material
change in the assets or liabilities of any of the Benefit Plans or any change in
their terms and operations which could reasonably be expected to affect or alter
the tax status or materially affect the cost of maintaining such Plan, and none
of the Benefit Plans has been or will be amended prior to the Closing Date.
(c) Each of the Company and its Subsidiaries has performed and
complied in all material respects with its obligations under and with respect to
the Benefit Plans and each of the Benefit Plans has, at all times, in form,
operation and administration complied in all material respects with its terms,
and, where applicable, the requirements of the Code, ERISA and all other
applicable laws.
(d) There are no unpaid contributions with respect to any
Benefit Plan that are required to have been made under its terms and provisions,
any related insurance contract or any applicable law.
(e) Neither the Company, any Subsidiary, nor any other
"disqualified person" or "party in interest," as defined in Section 4975 of the
Code and Section 3(14) of ERISA, respectively, has engaged in any "prohibited
transaction," as defined in Section 4975 of the Code or Section 406 of ERISA,
with respect to any Benefit Plan, nor have there been any fiduciary violations
under ERISA which could subject the Company or any Subsidiary (or any officer,
director or employee thereof) to any penalty or tax under Section 502(i) of
ERISA or Sections 4971 and 4975 of the Code.
(f) Except as set forth in the Employee Benefits Schedule -
Schedule 4.13, there is not, with respect to any Benefit Plan: (i) any filing,
application or other matter pending with the IRS, the United States Department
of Labor or any other governmental authority, (ii) any pending action, suit or
claim other than routine claims for benefits, or (iii) any outstanding
liabilities for Taxes, penalties or fees.
(g) Neither the execution and delivery of this Agreement, nor
the consummation of any or all of the contemplated transactions will: (i)
entitle any employee or former employee of the Company or any Subsidiary to
severance pay, unemployment compensation or any similar payment, (ii) accelerate
the time of payment or vesting or increase the amount of any compensation due to
any employee or former employee, or (iii) directly or indirectly cause any
payment made or to be made to or on behalf of any person to constitute a
"parachute payment" within the meaning of Section 280G of the Code.
(h) Each employee benefit plan and compensation arrangement,
or benefit arrangement of any type, maintained by any Subsidiary of the Company
with respect to nonresident alien employees, has been maintained in accordance
with all applicable law (whether foreign or otherwise), and has been disclosed
on the Employee Benefit Schedule - Schedule 4.13.
(i) No party has failed to comply with the continuation health
care coverage requirements of Section 4980B of the Code and Section 601 through
607 of ERISA in respect of the Benefit Plans.
-22-
4.14 Insurance. The attached Insurance Schedule - Schedule
4.14 lists each insurance policy maintained by the Company and its Subsidiaries
and any self-insurance arrangements affecting any of the Company its
Subsidiaries. All of such insurance policies are in full force and effect, and
to the Company's knowledge, neither the Company nor any Subsidiary is in default
with respect to its obligations under any of such insurance policies.
4.15 Compliance with Laws. Each of the Company and each
Subsidiary has complied in all material respects with all applicable laws and
regulations of foreign, federal, state and local governments and all agencies
thereof, and no charge, complaint, action, suit, proceeding, investigation,
claim, demand, or notice has been filed or commenced against any of the Company
and its Subsidiaries alleging any failure to comply with any such law or
regulation and, to the Company's knowledge, there are no threatened actions or
investigations and no basis for any of the foregoing.
4.16 Environmental Compliance and Conditions.
(a) The Company and its Subsidiaries have obtained and possess
all permits, licenses and other authorizations required under federal, state,
local and foreign laws and regulations concerning public health and safety,
worker health and safety, and pollution or protection of the environment in
effect on or prior to the Closing Date, including all such laws and regulations
relating to the emission, discharge, release or threatened release of any
chemicals, petroleum, pollutants, contaminants or hazardous or toxic materials,
substances 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 any chemicals, petroleum,
pollutants, contaminants or hazardous or toxic materials, substances or waste
("Environmental and Safety Requirements"), except where the failure to possess
such licenses, permits and authorizations would not, individually or in the
aggregate, have a Material Adverse Effect.
(b) Except as set forth on the attached Environmental
Compliance Schedule Schedule 4.16, the Company and its Subsidiaries are in
compliance with all terms and conditions of such permits, licenses and
authorizations and are also in compliance with all other Environmental and
Safety Requirements or any written notice or demand letter issued, entered,
promulgated or approved thereunder, except where the failure to comply would
not, individually or in the aggregate, have a Material Adverse Effect.
(c) (i) None of the Company and its Subsidiaries has any
material Liability under any Environment and Safety Requirements and (ii) none
of the Company or its Subsidiaries has handled or disposed of any Hazardous
Materials or arranged for the disposal of any Hazardous Materials in a manner
that would reasonably be anticipated to give rise to any such Liability. There
are no underground storage tanks, underground injection ▇▇▇▇▇, asbestos or
equipment containing polychlorinated biphenyls located at any site currently
operated by the Company or any Subsidiary. None of the Company and its
Subsidiaries has any material Liability (i) under the Occupational Safety and
Health Act, as amended, or any other law (or rule or regulation thereunder) of
any federal, state, local or foreign government (or agency thereof) concerning
employee health and safety or (ii) for any illness of or personal injury to any
employee.
-23-
4.17 Banking and Agency Arrangements.
(a) The attached Banking/Agency Schedule - Schedule 4.17 sets
forth a correct and complete list of:
(i) each bank, savings and loan or similar financial
institution in which the Company or any Subsidiary has an account or
safe deposit box or other custodial arrangement and the numbers of such
accounts or safe deposit boxes maintained by the Company or any
Subsidiary, as the case may be; and
(ii) the names of all Persons authorized to draw on
each such account or to have access to any such safe deposit box
facility.
(b) Except as set forth on the attached Banking/Agency
Schedule, neither the Company nor any Subsidiary has granted any general or
special powers of attorney or any other agency arrangement.
4.18 Affiliated Transactions. Except as set forth on the
attached Affiliated Transactions Schedule - Schedule 4.18, to the Company's
knowledge, no officer, director, Shareholder, Optionholder or Affiliate of the
Company or any individual in such officer's, director's, Shareholder's or
Optionholder's immediate family is a party to any agreement, contract,
commitment or transaction with the Company or any of its Subsidiaries or has any
interest in any property used by the Company or any of its Subsidiaries.
4.19 Brokers' Fees. Except for the fees and expenses of ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & Co. (which shall be paid by the Shareholders (to the extent
not previously paid as of the Closing)), none of the Company and its
Subsidiaries has any liability or obligation to pay any fees or commissions to
any broker, finder or agent with respect to the transactions contemplated by
this Agreement.
4.20 Assets and Properties. The tangible and intangible assets
and properties of the Company and its Subsidiaries constitute all of the
tangible and intangible assets and properties necessary to carry on the business
of the Company and its Subsidiaries as presently conducted (other than the
Heathkit Business). Each such tangible asset is in good operating condition and
repair (subject to normal wear and tear) and is suitable for the purposes for
which it presently is used.
4.21 Employees. To the Company's knowledge, no key employee or
group of employees has any plans to terminate employment with any of the Company
and any Subsidiary. Except as set forth on the attached Employee Schedule -
Schedule 4.21, (a) neither the Company nor any Subsidiary is a party to or bound
by any collective bargaining agreement, nor has any of them experienced any
strikes, grievances, claims of unfair labor practices, or other collective
bargaining disputes; (b) neither the Company nor any Subsidiary has committed
any unfair labor practice; and (c) to the Company's knowledge, there is no
organizational effort presently being made or threatened by or on behalf of any
labor union with respect to employees of either Company or any Subsidiary.
-24-
4.22 Product Warranty. To the Company's knowledge, each
product manufactured, distributed, sold, serviced, leased or delivered by any of
the Company or any Subsidiary has been in conformity in all material respects
with all applicable contractual commitments and all express and implied
warranties and neither the Company nor any Subsidiary has any Liability for
replacement or repair thereof or other damages in connection therewith, subject
only to the reserve for product warranty claims set forth in the Latest Balance
Sheet, as adjusted for the passage of time through the Closing Date or in the
ordinary course of business of the Company and its Subsidiaries. No product
manufactured, sold, distributed, serviced, leased, or delivered by any of the
Company or any of its Subsidiaries is subject to any guaranty, warranty or other
indemnity of the Company or any Subsidiary beyond the applicable standard terms
and conditions of sale or lease.
4.23 Product Liability. Except as described on the attached
Product Liability Schedule - Schedule 4.23, to the Company's knowledge, neither
the Company nor any Subsidiary has any Liability (and there is no basis for any
present or future charge, complaint, action, suit, proceeding, investigation,
claim or demand against any of them giving rise to any Liability) arising out of
any injury to any Person or property as a result of the ownership, possession,
or use of any product manufactured, distributed, sold, leased, serviced or
delivered by the Company or any of its Subsidiaries.
4.24 Undisclosed Liabilities. To the Company's knowledge,
neither the Company nor any Subsidiary has any material Liability except for (i)
Liabilities set forth in the Latest Balance Sheet, (ii) Liabilities which have
arisen after the most recent fiscal year end in the ordinary course of business
(none of which relates to any breach of contract, breach of warranty, tort,
infringement, or violation of law or arose out of any charge, complaint, action,
suit, proceeding, hearing, investigation, claim, or demand) and (iii)
Liabilities identified on the attached Liabilities Schedule Schedule 4.24.
4.25 Disclosure. To the Company's knowledge, the
representations and warranties contained in this Article IV do not contain any
untrue statement of a fact or omit to state any fact necessary in order to make
the statements and information contained in this Article IV not misleading in
any material respect.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Shareholders and the
Company that:
5.01 Organization and Corporate Power. Buyer is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, with full corporate power and authority to enter into this
Agreement and perform its obligations hereunder.
5.02 Authorization. The execution, delivery and performance of
this Agreement by Buyer and the consummation of the transactions contemplated
hereby have been duly and validly authorized by all requisite corporate action,
and no other corporate proceedings on its part are
-25-
necessary to authorize the execution, delivery or performance of this Agreement.
Assuming that this Agreement is a valid and binding obligation of the
Shareholders, the Optionholders, the Shareholders' Representative and the
Company, this Agreement constitutes a valid and binding obligation of Buyer,
enforceable in accordance with its terms.
5.03 No Violation. Buyer is not subject to or obligated under
its certificate of incorporation, its bylaws, any applicable law (other than the
HSR Act), or rule or regulation of any governmental authority, or any material
agreement or instrument, or any license, franchise or permit, or subject to any
order, writ, injunction or decree, which would be breached or violated in any
material respect by Buyer's execution, delivery or performance of this
Agreement.
5.04 Governmental Authorities; Consents. Except for the
applicable requirements of the HSR Act, Buyer is not required to submit any
notice, report or other filing with any governmental authority in connection
with the execution, delivery or performance by it of this Agreement or the
consummation of the transactions contemplated hereby other than such notices,
reports or other filings the failure of which to submit would not, individually
or in the aggregate, materially adversely affect Buyer's performance of this
Agreement or the consummation of the transactions contemplated hereby. Except
for the required consent of the Buyer's senior lenders under its senior credit
agreement, no consent, approval or authorization of any governmental or
regulatory authority or any other party or Person is required to be obtained by
Buyer in connection with its execution, delivery and performance of this
Agreement or the consummation of the transactions contemplated hereby other than
such consents, approvals or authorizations the failure of which to obtain would
not, individually or in the aggregate, materially adversely affect Buyer's
performance of this Agreement or the consummation of the transactions
contemplated hereby.
5.05 Litigation. There are no actions, suits or proceedings
pending or, to the Buyer's knowledge, overtly threatened against or affecting
Buyer at law or in equity, or before or by any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, which would materially adversely affect
Buyer's performance under this Agreement or the consummation of the transactions
contemplated hereby.
5.06 Brokerage. There are no claims for brokerage commissions,
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by or
on behalf of Buyer.
5.07 Investment Representation. Buyer is purchasing the Shares
for its own account with the present intention of holding such securities for
investment purposes and not with a view to or for sale in connection with any
public distribution of such securities in violation of any federal or state
securities laws.
5.08 Financing. Buyer has and shall have at the Closing
sufficient cash and available credit facilities (and has provided evidence
thereof satisfactory to the Shareholders' Representative) to pay the full
consideration payable to the Shareholders hereunder, to make all other necessary
payments by it in connection with the purchase of the Shares and to pay all of
its related fees and expenses.
-26-
5.09 No Knowledge of Misrepresentations or Omissions. As of
the date of execution of this Agreement, Buyer has no actual knowledge that the
representations and warranties of the Company or the Shareholders in this
Agreement and the schedules hereto are not true and correct in all material
respects, and Buyer has no actual knowledge of any material errors in, or
material omissions from, the schedules to this Agreement.
ARTICLE VI
PRE-CLOSING COVENANTS
6.01 Conduct of the Business.
(a) From the date hereof until the Closing Date, except as
otherwise permitted by this Agreement, the Company shall, and the Shareholders
shall cause the Company to, carry on its and each Subsidiary's business
according to its ordinary and usual course of business and substantially in the
same manner as heretofore conducted; provided that, the foregoing
notwithstanding, the Company may (i) use all available cash to repay any Funded
Indebtedness prior to the Closing, and (ii) take all actions necessary in
connection with the consummation the Pre-Closing Spin-Off Transactions.
(b) From the date hereof until the Closing Date, except as
otherwise provided for by this Agreement or consented to in writing by Buyer,
the Company shall not, and shall not permit its Subsidiaries to, (i) issue, sell
or deliver any shares of its or any Subsidiary's capital stock or other equity
interests in the Company or any Subsidiary or issue or sell any securities
convertible into, or options with respect to, or warrants to purchase or rights
to subscribe for, any shares of its or any Subsidiary's capital stock; (ii)
effect any recapitalization, reclassification, stock dividend, stock split,
reverse stock split, stock combination or like change in its capitalization;
(iii) amend its or any Subsidiary's certificate of incorporation (or other
charter documents) or bylaws; (iv) make any redemption or purchase of any shares
of its or any Subsidiary's capital stock; (v) declare, set aside or pay any
dividend or distribution with respect to its capital stock (other than as
expressly provided herein with respect to the Pre-Closing Spin-Off Transactions)
or redeem, purchase, or otherwise acquire any of its capital stock, or (vi) take
action, embark on any course of inaction, or enter into any transaction of the
sort described in Section 4.06 above.
6.02 Access to Books and Records. From the date hereof until
the Closing Date, the Company shall provide Buyer and its authorized
representatives ("Buyer's Representatives") with full access at all reasonable
times and upon reasonable notice to the offices, properties, personnel, books
and records of the Company and its Subsidiaries in order for Buyer to have the
opportunity to make such investigation as it shall reasonably desire to make of
the affairs of the Company and its Subsidiaries. Buyer acknowledges that it
remains bound by the Confidentiality Agreement, dated September 3, 1997, with
the Company (the "Confidentiality Agreement").
6.03 Regulatory Filings. Each party hereto shall coordinate
and cooperate with each of the other parties in exchanging such information and
assistance as such other parties may reasonably request in connection with all
filings and submissions required to be made under the HSR
-27-
Act and any other material laws or regulations applicable to any party hereto
for the consummation of the transactions contemplated herein. Each party agrees
to use its commercially reasonable efforts to make the initial filings required
to be made under the HSR Act in connection with the transactions contemplated
herein as soon as practicable after the date of execution of this Agreement but,
in any event, no later than five business days following such date.
6.04 Conditions. The Company and the Shareholders shall
diligently pursue and use all commercially reasonable efforts to cause the
conditions set forth in Section 2.01 to be satisfied and to consummate the
transactions contemplated herein as soon as reasonably possible after the
satisfaction or waiver by Buyer of all of the conditions set forth in Article II
(other than those to be satisfied at the Closing); provided that neither the
Company, any Subsidiary nor any Shareholder shall be required to expend any
funds (other than filing fees and other amounts (a) required under existing
agreements or applicable law or (b) amounts or fees that are not outside of the
ordinary course of business of the Company and its Subsidiaries) to obtain any
third-party or governmental consents required under Section 2.01(c) or (d).
6.05 Exclusive Dealing. During the period from the date of
this Agreement through the Closing or the earlier termination of this Agreement
pursuant to Section 8.01, other than the Pre-Closing Spin-Off Transactions, each
Shareholder and each Optionholder shall not take or permit any other Person on
its behalf to take, and the Company shall not, and shall not permit its
Subsidiaries to, take any action to encourage, initiate or engage in discussions
or negotiations or enter into any agreements with, or provide any information
to, any Person (other than Buyer and its permitted assigns) concerning any
purchase of Shares or the Options or any merger or consolidation, liquidation,
distribution or recapitalization, sale of substantial assets or similar
transaction or business combination involving the Company, any Subsidiary or the
Heath/Zenith Business (other than assets sold in the ordinary course of business
and The ▇▇▇▇▇▇ Harbor Facility transferred in connection with the Pre-Closing
Spin-Off Transactions immediately prior to the Closing). Each of the Company,
the Shareholders, the Optionholders and Shareholders' Representative shall
promptly advise Buyer of any proposal it may receive relating to any transaction
of the type described in the preceding sentence, and the identity of the Person
making it.
6.06 Notification. From the date hereof until the Closing
Date, the Company shall disclose to Buyer in writing any material variances from
the representations and warranties contained in Article IV promptly upon
discovery thereof.
6.07 Preservation of Business. The Company will, and the
Shareholders will cause the Company to, use commercially reasonable efforts to
cause the Company to keep its business and properties substantially intact,
including its relationships with lessors, licensors, suppliers, customers,
officers and employees.
6.08 Topping Fees. The Company represents, warrants and
covenants that it is not obligated to, and will not pay, or enter into an
agreement to pay or indemnify, any topping or similar fees.
6.09 Cooperation. Each of the parties hereto covenants and
agrees that it or he will not take any action, omit to take any action or enter
into any transaction which reasonably could be
-28-
expected to render any representation or warranty or covenant contained in this
Agreement untrue or incorrect in any material respect (except to the extent a
representation or warranty or covenant is qualified by materiality, in which
case the parties will refrain from taking any action that would render such
representation or warranty or covenant untrue or incorrect in any respect) as of
the Closing.
6.10 Contribution of Assets to and Assumption of Liabilities
by Spin-Off Entities; Distribution of Equity Interests.
(a) Prior to the Closing and pursuant to the terms of the
Contribution and Assumption Agreement to be entered into by the Company and the
Spin-Off Entities in the forms attached hereto as Exhibit F (the "Heathkit
Business Contribution Agreement") and Exhibit G (the "▇▇▇▇▇▇ Harbor Facility
Contribution Agreement" and, together with the Heathkit Business Contribution
Agreement, the "Contribution Agreements"), Heath shall (and the Company and the
Shareholders agree to cause the Company to) (i) contribute and transfer (the
"Heathkit Contribution") to Heathkit Company, Inc. as is where is, all of
Heath's right, title and interest in and to any and all assets of Heath used
principally in the Heathkit Business, identified in Exhibit A to the Heathkit
Business Contribution Agreement, and (ii) contribute and transfer (the "▇▇▇▇▇▇
Harbor Facility Contribution" and, together with the Heathkit Contribution, the
"Contributions") to The ▇▇▇▇▇▇ Harbor Company, as is where is, the ▇▇▇▇▇▇ Harbor
Facility.
(b) Concurrently with the Contributions, the Spin-Off Entities
will use all reasonable efforts to cause the Company and its Subsidiaries to be
released by all applicable third parties from any Liability to be assumed by the
Spin-Off Entities pursuant to the Contribution Agreements that is (i) debt for
borrowed money and similar monetary obligations (including letter of credit
reimbursement obligations) evidenced by bonds, notes, debentures, letters of
credit or other instruments, other than trade accounts payable in the ordinary
course of business or (ii) guaranties, endorsements, and other contingent
obligations, whether direct or indirect, in respect of liabilities of others or
any of the types described in clause (i).
(c) Following the Contributions and prior to the Closing,
pursuant to an Exchange Agreement between the Company and the Stockholders in
the form attached hereto as Exhibit H, (i) Heath shall (and the Company and the
Shareholders agree to cause Heath to) distribute (the "Distribution") all of the
Equity Interests in the Spin-Off Entities to the Company and (ii) the Company
shall (and the Shareholders agree to cause the Company to) distribute all of the
Equity Interests in the Spin-Off Entities to the Shareholders in exchange for
the Exchanged Shares.
6.11 Other Agreements. At the Closing, the Shareholders will
cause The ▇▇▇▇▇▇ Harbor Company, Inc. to execute and deliver to Buyer the Lease
Agreement and Heathkit Company, Inc. to execute and deliver to Buyer the
Transition Agreement. As of the Closing, the Company will, and the Shareholders
and the Optionholders will cause the Company to, terminate each of the
Shareholders Agreement and the letter agreement dated January 26, 1995 between
H.I.G. Capital Management, Inc. ("H.I.G. Capital") and Heath regarding certain
management services to be provided to Heath by H.I.G. Capital.
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6.12 Trademark Withdrawal. On or as of the Closing, the
Company will withdraw or abandon the application submitted to the United States
Patent and Trademark Office in November 1997 with respect to the registration of
the "Heath Zenith" ▇▇▇▇.
6.13 Heathkit ▇▇▇▇ License Agreement. Buyer and Heathkit
Company, Inc. shall negotiate, and Heathkit Company, Inc., will and Buyer will
cause Heath to enter into, a mutually agreeable license agreement, pursuant to
which Heath shall license to Heathkit Company, Inc. the trademark HEATHKIT (the
"▇▇▇▇") and all registrations thereof in the countries set forth on the attached
Associated Countries Schedule - Schedule 6.13 (the "Associated Countries"),
which license agreement shall contain the following terms and conditions and
such other terms and conditions as are customary (including, but not limited to,
customary indemnification provisions in favor of Heath) for an agreement of its
type: (i) Heath shall grant Heathkit Company, Inc. an exclusive, royalty-free,
perpetual, irrevocable and transferrable license (with the right to grant
sublicenses) to use the ▇▇▇▇ and any composite marks containing the ▇▇▇▇; (ii)
Heathkit Company, Inc. shall have the right to enforce the ▇▇▇▇ in the
Associated Countries in its own name and, at Heathkit Company, Inc.'s request,
Heath shall cooperate with or join Heathkit Company, Inc. in such enforcement,
all at Heathkit Company, Inc.'s sole cost and expense; (iii) Heath shall not
grant any voluntary liens, security interests and other encumbrances or
restrictions on the ▇▇▇▇; (iv) Heath shall not assign any of the ▇▇▇▇ or such
license agreement other than to any Affiliate of Heath or in connection with any
disposition of all or substantially all of the Heath/Zenith Business; (v) Heath
shall take all actions reasonably requested by Heathkit Company, Inc. to
maintain and protect the ▇▇▇▇, including renewing registrations thereof and
filing new applications therefor, all at Heathkit Company, Inc.'s sole cost and
expense; (vi) Heathkit shall covenant that it will not and it will not permit
any other Person (whether by assignment, license or otherwise) to use the name
or ▇▇▇▇ "Heathkit" (either alone or in a combination of or with words, names,
symbols or devices) in connection with any product, service or business other
than in connection with those products manufactured, distributed, serviced,
marketed or sold by Heathkit prior to and as of the Closing ("Current Heathkit
Products") or after the Closing which relate to the Current Heathkit Products or
the Heathkit Business or any reasonably related development or extension
thereof, and Heath shall covenant with Heathkit that it will not, and it will
not authorize any other Person (whether by assignment, license or otherwise) to,
use the name "Heath" (either alone or in a combination of or with words, names,
symbols or devices) in connection with any Current Heathkit Products or any
other product (or service or business in connection therewith) which relates to
the Current Heathkit Products or the Heathkit Business or any reasonably related
development or extension thereof in any of the Associated Countries; and (vii)
each party shall have the right, upon thirty (30) days prior written notice to
such party, to enforce such party's rights described in the foregoing clause
(vi) by actions for injunctive relief and/or specific performance to the extent
permitted by law and shall agree to waive any requirement for security or the
posting of any bond or other surety in connection with any temporary or
permanent award of injunctive, mandatory or other equitable relief. Heath
covenants and agrees to take all actions reasonably requested by Heathkit
Company, Inc. after the Closing to dissolve the association between the
registrations for the ▇▇▇▇ and the registrations for the trademark HEATH, all at
Heathkit Company, Inc.'s sole cost and expense. In the event any such
association is dissolved or upon a determination that no such association
exists, Buyer shall assign to Heathkit Company, Inc. all right, title and
interest in and to the ▇▇▇▇ and the relevant registrations in the Associated
Countries, together with all goodwill associated therewith, free and clear of
all liens and security
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interests and other encumbrances or restrictions of any kind, other than the
limitations on the use of the ▇▇▇▇ as described in the foregoing clause (vi) of
this Section 6.13.
ARTICLE VII
COVENANTS OF BUYER
7.01 Access to Books and Records. From and after the Closing,
Buyer shall, and shall cause the Company to, provide the Shareholders'
Representative, the Shareholders, the Optionholders and their agents with
reasonable access (for the purpose of examining and copying), during normal
business hours, to the books and records of the Company and its Subsidiaries
with respect to periods or occurrences prior to the Closing Date in connection
with any matter whether or not relating to or arising out of this Agreement or
the transactions contemplated hereby. Unless otherwise consented to in writing
by the Shareholders' Representative, the Company shall not, for a period of five
years following the Closing Date, destroy, alter or otherwise dispose of any of
the books and records of the Company for the period prior to the Closing Date
without first offering to surrender to the Shareholders' Representative (on
behalf of the Shareholders and the Optionholders) such books and records or any
portion thereof which Buyer or the Company may intend to destroy, alter or
dispose of.
7.02 Notification. Prior to the Closing, upon discovery Buyer
shall promptly inform the Company and the Shareholders' Representative in
writing of any material variances from Buyer's representations and warranties
contained in Article V, and Buyer shall promptly notify the Shareholders'
Representative if Buyer obtains actual knowledge that the representations and
warranties of the Shareholders or the Company in this Agreement and the
schedules hereto are not true and correct in all material respects, or if Buyer
obtains actual knowledge of any material errors in, or omissions from, the
schedules to this Agreement.
7.03 Director and Officer Liability and Indemnification. For a
period of six years after the Closing, Buyer shall not, and shall not permit the
Company or any of its Subsidiaries to amend, repeal or modify any provision in
the Company's or any of its Subsidiaries' certificate of incorporation or bylaws
relating to the exculpation or indemnification for any officers and directors
(in their respective capacities as such) (unless required by law) with respect
to matters effected at or prior to the Closing, it being the intent of the
parties that the officers and directors of the Company and its Subsidiaries (in
their respective capacities as such) shall continue to be entitled to such
exculpation and indemnification to the full extent of the law.
7.04 Conditions. Buyer shall use all commercially reasonable
efforts to cause the conditions set forth in Section 2.02(c), (f) and (g) to be
satisfied and to consummate the transactions contemplated herein as soon
reasonably possible after the satisfaction (or waiver by the Shareholders'
Representative) of the conditions set forth in Article II (other than those to
be satisfied at the Closing).
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7.05 Contact with Customers and Suppliers. Prior to the
Closing, Buyer and Buyer's representatives shall contact and communicate with
the customers and suppliers of the Company and its Subsidiaries in connection
with the transactions contemplated hereby only with the prior written consent of
the Company or the Shareholders' Representative, which consent shall not be
unreasonably withheld.
7.06 Employees. In connection with the Pre-Closing Spin-Off
Transactions, Heath shall terminate, without liability to Heath or the Company,
the employment of all of the employees identified as "Heathkit Employees" on the
Employee Schedule - Schedule 7.06 immediately prior to the Closing and all of
the employees identified as "Heath/Zenith Employees" on the Employee Schedule -
Schedule 7.06 shall remain employed by Heath.
7.07 Employee Benefit Plans. As soon as practicable after the
Closing and in no event later than 90 days after the Closing, Heath shall take
such actions and the Company shall cause Heath to take such actions as are
necessary to (a) spin-off a portion of the Heath Company Retirement Savings Plan
assets consisting of the account balances for all current and former Heath
employees who are not identified as "Heath/Zenith Employees" on the Employee
Schedule Schedule 7.06 and who are not employees of Heath Ltd., (b) transfer the
assets relating to such account balances under the Heath Company Retirement
Savings Plan to the underlying trust of a qualified retirement plan sponsored by
Heathkit Company, Inc. (provided that evidence reasonably satisfactory to Buyer
that such retirement plan is qualified under Section 401(a) of the Code shall
have been furnished to Buyer), (iii) spin-off a portion of the Heath Company
Flexible Benefits Plan assets consisting of the employee contribution account
balances for all current and former Heath employees who are not identified as
"Heath/Zenith Employees" on the Employee Schedule Schedule 7.06 and who are not
employees of Heath Ltd., and (iv) transfer the assets relating to such account
balances under the Heath Company Flexible Benefits Plan to a flexible spending
account plan sponsored by Heathkit Company, Inc.
ARTICLE VIII
TERMINATION
8.01 Termination. This Agreement may be terminated at any time
prior to the Closing:
(a) by the mutual consent of Buyer and the
Shareholders' Representative (on behalf of the Shareholders and the
Optionholders);
(b) by Buyer, if there has been a violation or breach
in any material respect by the Company, the Shareholders'
Representative, the Optionholders or the Shareholders of any covenant,
representation or warranty contained in this Agreement and such
violation or breach has not been waived by Buyer or, in the case of a
covenant breach susceptible of cure prior to February 26, 1998, cured
by the Company, the Optionholders or the Shareholders within ten days
after written notice thereof from Buyer or by the Closing Date,
whichever comes first;
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(c) by the Shareholders' Representative (on behalf of
a Shareholder or an Optionholder), if there has been a violation or
breach in any material respect by Buyer of any covenant, representation
or warranty contained in this Agreement which has prevented the
satisfaction of any condition to the obligations of the Shareholders or
the Optionholders at the Closing and such violation or breach has not
been waived by the Shareholders' Representative or, with respect to a
covenant breach susceptible of cure prior to February 26, 1998, cured
by Buyer within ten days after written notice thereof from the
Shareholders' Representative, any Shareholder or any Optionholder or by
the Closing Date, whichever comes first; or
(d) by either Buyer or the Shareholders'
Representative if the transactions contemplated hereby have not been
consummated by February 26, 1998; provided that (i) neither Buyer nor
the Shareholders' Representative shall be entitled to terminate this
Agreement pursuant to this Section 8.01(d) if such Person (or, in the
case of termination by the Shareholders' Representative, any
Shareholder or any Optionholder) is in breach or default of this
Agreement in any material respect.
8.02 Effect of Termination. In the event of termination of
this Agreement by either Buyer or the Shareholders' Representative as provided
above, the provisions of this Agreement shall immediately become void and of no
further force and effect (other than this Section 8.02 and Article XII hereof
which shall survive the termination of this Agreement), and there shall be no
liability on the part of either Buyer, the Company, any Shareholder, any
Optionholder or the Shareholders' Representative to any other party to this
Agreement, except for breaches of this Agreement prior to the time of such
termination.
ARTICLE IX
SHAREHOLDERS' REPRESENTATIVE
9.01 Designation. H.I.G. Investment Group, L.P. (the
"Shareholders' Representative") is hereby designated by each Shareholder and
each Optionholder to serve as the representative of such Shareholder or such
Optionholder, as the case may be, with respect to the matters expressly set
forth in this Agreement to be performed by the Shareholders' Representative.
9.02 Authority. Each of the Shareholders and the
Optionholders, by the execution of this Agreement, hereby irrevocably appoints
the Shareholders' Representative as the agent, proxy and attorney-in-fact for
such Shareholder or such Optionholder, as the case may be, for all purposes of
this Agreement (including the full power and authority on such Shareholder's and
such Optionholder's behalf (i) to consummate the transactions contemplated
herein; (ii) to pay such Shareholder's and such Optionholder's expenses incurred
in connection with the negotiation and performance of this Agreement (whether
incurred on or after the date hereof); (iii) to disburse any funds received
hereunder to such Shareholder or such Optionholder and each other Shareholder or
Optionholder; (iv) to hold such Shareholder's or such Optionholder's pro rata
portion of $2,850,000 of the aggregate Transaction Price (including all or a
portion of the Buyer Notes) in an agency fund to satisfy indemnification
obligations of the Shareholders and the Optionholders in accordance with
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the provisions of Article X hereof; (v) to execute and deliver any certificates
representing the Shares and execution of such further instruments of assignment
as Buyer shall reasonably request; (vi) to execute and deliver on behalf of such
Shareholder and such Optionholder any amendment or waiver hereto; (vii) to take
all other actions to be taken by or on behalf of such Shareholder or such
Optionholder in connection herewith; (viii) to negotiate, settle, compromise and
otherwise handle the Net Working Capital adjustment; and (ix) to do each and
every act and exercise any and all rights which such Shareholder or the
Shareholders or such Optionholder or the Optionholders collectively are
permitted or required to do or exercise under this Agreement). Each of the
Shareholders and each of the Optionholders agrees that such agency and proxy are
coupled with an interest, are therefore irrevocable without the consent of the
Shareholders' Representative and shall survive the death, incapacity,
bankruptcy, dissolution or liquidation of any Shareholder or any Optionholder.
9.03 Exculpation. Neither the Shareholders' Representative nor
any agent employed by it shall incur any liability to any Shareholder or any
Optionholder by virtue of the failure or refusal of the Shareholders'
Representative for any reason to consummate the transactions contemplated hereby
or relating to the performance of its other duties hereunder, except for actions
or omissions constituting fraud or bad faith.
ARTICLE X
ADDITIONAL COVENANTS
10.01 Survival Period. The representations and warranties set
forth in this Agreement or in any certificates, instruments or documents
delivered at the Closing in connection with this Agreement shall survive for a
period (the "Survival Period") that will continue (i) with respect to the
representations and warranties in Section 4.08 (taxes) until the actual
expiration of the applicable statue of limitations, (ii) with respect to the
representations and warranties in Sections 3.01 (validity and binding effect),
3.02 (authority), (ownership of capital stock), the first sentence of 4.01
(organization and corporate power), the last sentence of 4.03 (authority), and
4.04 (capital stock), forever, (iii) with respect to Section 4.16
(environmental), until the third anniversary of the Closing, and (iv) with
respect to all other representations and warranties, until the second
anniversary of the Closing and shall thereafter be of no further force or
effect, unless and to the extent a notice of claim has been given prior to the
expiration of the applicable Survival Period.
10.02 Indemnification. Following and subject to the Closing:
(a) Subject to the provisions of this Section 10.02 and
Section 10.03 below, the Shareholders and the Optionholders, jointly and
severally, shall indemnify and hold Buyer, Desa Holdings Corporation, the
Company and its Subsidiaries (the "Buyer Indemnified Parties") harmless against
any actual loss, liability, damage or expense (including reasonable legal fees
and expenses) (collectively, "Losses" and individually, a "Loss") which any
Buyer Indemnified Party suffers, sustains or becomes subject to as a result of
(i) any breach of any of the covenants, representations and warranties of the
Company set forth herein or in any certificates, instruments or documents
delivered by the Company at the Closing (but expressly not including any
provision of the Lease, the Transition Agreement, the Contribution Agreements
and the Exchange Agreement) or (ii) the
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matters set forth in items a. through d. of Part V of the Intellectual Property
Schedule - Schedule 4.10 but only to the extent such Loss is attributable to
events, conditions or occurrences existing or arising prior to the Closing (in
the case of this clause (ii), whether or not such Loss is attributable to any
breach of any of the representations or warranties of the Company set forth
herein or in any certificates, instruments or documents delivered by the Company
at the Closing) (a "Specified IP Loss); provided that
(i) no Buyer Indemnified Party shall be entitled to
indemnification under this Section 10.02(a) with respect to any Loss
(other than due to a breach of any covenant) arising from or relating
to a breach of any representation or warranty of the Company in this
Agreement (other than a breach of Section 4.04(a)) or with respect to
any Specified IP Loss, to the extent such Loss together with all other
such Losses exceeds $2,850,000 (the "Cap");
(ii) the Buyer Indemnified Parties' right to
indemnification with respect to any Loss (other than due to a breach of
any covenant) from or relating to a breach of any representation or
warranty of the Company in this Agreement (other than a breach of
Section 4.04(a)) or with respect to any Specified IP Loss shall be
limited solely to (A) in the first instance, its right of set-off
against the Buyer Notes (including all accrued and unpaid interest
thereon) and (B) in the second instance, to the extent the aggregate of
such Losses exceeds the amount theretofore set off against the Buyer
Notes pursuant to the foregoing clause (A), up to an amount equal to
the Cap minus any amounts set-off against the Buyer Notes;
(iii) except as provided in clause (iv) of this
Section 10.02(a) with respect to Losses (other than due to a breach of
any covenant) arising out of any breach of Section 4.22 (collectively,
"Warranty Losses" and individually, a "Warranty Loss"), no Buyer
Indemnified Party shall be entitled to indemnification with respect to
any individual Loss from or relating to a breach of any representation
or warranty of the Company in this Agreement (other than any Warranty
Loss) or any individual Specified IP Loss unless such Loss, together
with (A) all other such Losses and (B) the excess of all other Warranty
Losses over $100,000, exceeds $200,000, in which case such Buyer
Indemnified Party shall be entitled to indemnification only for the
amount of such excess; and
(iv) no Buyer Indemnified Party shall be entitled to
indemnification with respect to any individual Warranty Loss until such
Warranty Loss, together with all other Warranty Losses, exceeds the sum
of
(A) $100,000 plus
(B) any amount by which the sum of all
Losses (other than Warranty Losses) plus the amount by which
all Warranty Losses exceed $100,000, is less than $100,000,
in which case such Buyer Indemnified Party shall only be entitled to
the amount of such excess.
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For purposes of the foregoing calculation, if the result of (B) is
negative, such result shall be deemed to be zero. The Buyer Indemnified
Parties shall not be entitled to indemnification with respect to any
Loss of which Buyer or its representatives or agents had actual
knowledge on or prior to the date of execution of this Agreement.
The following is an example of the effect of clauses (iii) and (iv) above on
Buyer's right to indemnification hereunder: assuming Buyer is entitled to
indemnification for Losses (other than Warranty Losses) which, in the aggregate
equal $140,000 and Warranty Losses which in the aggregate equal $220,000. In
this example, Buyer is not entitled to any indemnity payment hereunder with
respect to the Losses (other than Warranty Losses) because the aggregate amount
of such Losses ($140,000) do not exceed the $200,000 deductible described in
clause (iii) of this Section 10.02(a). Buyer is entitled to an indemnity payment
of $120,000 with respect to the Warranty Losses because $220,000 exceeds the
result of (i) $100,000, plus (ii) $100,000, minus ($120,000 (the amount of
Warranty Losses in excess of $100,000, plus $140,000 (the amount of Losses other
than Warranty Losses) (the result of this clause (ii) is negative and therefore
deemed to be zero). If, in the foregoing example there were no Losses other than
Warranty Losses, Buyer would be entitled to an indemnity payment of $20,000 with
respect to such Warranty Losses because $220,000 exceeds the result of (i)
$100,000, plus (ii) $100,000, minus ($120,000 (the amount of Warranty Losses in
excess of $100,000, plus $0 (the amount of Losses other than Warranty Losses)).
Anything herein to the contrary notwithstanding, clauses (i) through (iv) of
this Section 10.02(a) shall not apply to indemnification obligations of the
Shareholders and the Optionholders under Section 10.02(b) or 10.07(b).
(b) Subject to the provisions of Section 10.02(d) below, each
Shareholder and each Optionholder shall solely for himself or itself severally
(and not jointly and severally) indemnify Buyer and hold it harmless against any
Loss which Buyer suffers, sustains or becomes subject to as a result of the
breach by such Shareholder or such Optionholder (as the case may be) of any of
his or its representations and warranties and covenants and agreements contained
in this Agreement or in any certificates, instruments or documents delivered by
the Shareholders' Representative (on behalf of such Shareholder or such
Optionholder (as the case may be)) at the Closing; provided that any Shareholder
or any Optionholder shall not be liable under this Section 10.02(b) for more
than the portion of the Transaction Price actually received by such Shareholder
or such Optionholder (as the case may be).
(c) Subject to the provisions of Section 10.02(d) below, Buyer
shall indemnify each Shareholder and each Optionholder and hold him or it
harmless against any Loss which any such Shareholder or such Optionholder (as
the case may be) suffers, sustains or becomes subject to as a result of (i) any
breach by Buyer of its covenants, representations and warranties set forth
herein and as restated in any certificates delivered by Buyer at the Closing
(including, without limitation, Buyer's obligations under Section 10.07) and
(ii) the operations of the Company and its Subsidiaries following the Closing.
(d) No Person shall be liable for any claim for
indemnification under subsections (a), (b) or (c) above unless written notice
specifying in reasonable detail the nature of the claim for indemnification is
delivered by the Person seeking indemnification to the Person from whom
indemnification is sought prior to the expiration of the applicable Survival
Period.
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(e) Promptly after the assertion by any third party of any
claim (a "Third Party Claim") against any Person entitled to indemnification
under this Section 10.02 (the "Indemnitee") that results or may result in the
incurrence by such Indemnitee of any Loss for which such Indemnitee would be
entitled to indemnification pursuant to this Agreement, such Indemnitee shall
promptly notify the parties from whom such indemnification could be sought (the
"Indemnitors") and the Shareholders' Representative of such Third Party Claim;
provided, however, that no delay on the part of the Indemnitee in notifying any
Indemnitor shall relieve the Indemnitor from any liability hereunder unless (and
then solely to the extent) the Indemnitor is actually prejudiced thereby. The
Shareholders' Representative shall act on behalf of all Indemnitors in the case
of all Third Party Claims with respect to which Buyer is seeking indemnification
under subsection (a) above and may, at its option, assume the defense of the
Indemnitee against such Third Party Claim (including the employment of counsel
reasonably acceptable to Buyer) so long as, in any case where Buyer is the
Indemnitee, the aggregate Losses that Buyer could suffer or incur as a result of
Third Party Claims would not exceed the Cap; provided that, in the case of a
Third Party Claim arising out of a Specified IP Loss, the Shareholders'
Representative shall not be entitled to assume such defense, but will be
entitled to approve of counsel to be employed by Buyer in connection with the
defense of such Third Party Claim, such approval not to be unreasonably withheld
(it being understood that the employment of ▇▇▇▇▇, Day, ▇▇▇▇▇▇ & ▇▇▇▇▇ shall be
deemed to be satisfactory to Buyer). Any Indemnitee shall have the right to
employ separate counsel in any such Third Party Claim and to participate in the
defense thereof, but the fees and expenses of such counsel shall not be an
expense of the Indemnitor unless (i) the Indemnitor shall have failed, within a
reasonable time after having been notified by the Indemnitee of the existence of
such Third Party Claim as provided in the preceding sentence, to assume the
defense of such Third Party Claim or (ii) the employment of such counsel has
been specifically authorized by the Indemnitor and/or the Shareholders'
Representative in the case of all Third Party Claims with respect to which the
Buyer is entitled to indemnification under subsection (a) above. Anything herein
to the contrary notwithstanding, if there are one or more legal defenses
available to the Indemnitee that conflict with those available to any
Indemnitor, the Indemnitee shall have the right, at the expense of the
Indemnitor, to assume the defense of the Third Party Claim; provided, however,
that the Indemnitee may not settle such Third Party Claim without the consent of
the Indemnitor, which consent shall not be unreasonably withheld or delayed. If
the Indemnitor assumes the defense of any Third Party Claim, it shall not settle
such Third Party Claim without the prior written consent of the Indemnitee
(which consent shall not be unreasonably withheld or delayed).
(f) Subject to the following sentence, the amount of any
indemnity payment which any Indemnitee shall be entitled to receive under this
Section 10 as a result of any Losses shall be reduced by any Tax benefit
actually received by such Indemnitee as a result of such Losses (after giving
effect to the tax effect of the receipt of the indemnification payments).
Notwithstanding the foregoing, the amount of any indemnity payment which any
Indemnitee shall be entitled to receive shall be reduced pursuant to this
subsection 10.02(f) only if, as and when, and only to the extent that, any net
Tax Benefit is actually realized by such Indemnitee. For purposes of determining
whether such Indemnitee realizes a net Tax benefit with respect to a Tax Period,
such Indemnitee's actual Tax Liability for such period shall be compared by such
Indemnitee's hypothetical Tax Liability for such period determined by excluding
in all periods all items attributable to the Losses and indemnification
payments. Further, an Indemnitor shall not be obligated to make any payment or
otherwise indemnify an Indemnitee for Losses arising out of or
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due to items covered by Section 10.02, to the extent that such Indemnitee has
actually received any insurance proceeds attributable to such Losses. If such
Indemnitee actually receives any insurance proceeds attributable to certain
Losses following an indemnification payment by an Indemnitor, and such insurance
proceeds are attributable to the Losses for which the indemnification payment
was made, such Indemnitee shall return the indemnification payment to such
Indemnitor (but not more than the actual amount of insurance proceeds received).
(g) Notwithstanding anything to the contrary contained in this
Section 10.02, there shall be no recovery for any Loss by Buyer under this
Section 10.02, and the Loss shall not be included in meeting the stated
thresholds hereunder, to the extent such item has been included in the
calculation of the Closing Net Working Capital as determined pursuant to Section
1.05 hereof.
10.03 Limitation of Recourse. Following and subject to the
Closing:
(a) Except with respect to claims based upon fraud, the
indemnification provided by Section 10.02(a) shall be the sole and exclusive
remedy for any Losses of Buyer, the Company or its Subsidiaries with respect to
any misrepresentation or inaccuracy in, or breach of, any representations or
warranties made by the Company in this Agreement or in any exhibit or schedules
hereto or any certificate delivered hereunder.
(b) Except as provided in Section 10.02(a) or (b), no claim
shall be brought or maintained by Buyer, the Company or any of its Subsidiaries
or their respective successors or permitted assigns against any officer,
director or employee (present or former), solely in his or her respective
capacity as such, of the Company or any of its Subsidiaries, and no recourse
shall be brought or granted against any of them, by virtue of or based upon any
alleged misrepresentation or inaccuracy in or breach of any of the
representations, warranties or covenants of the Company or set forth or
contained in this Agreement or any exhibit or schedule hereto or any certificate
delivered hereunder, except to the extent that the same shall have been the
result of fraud by any such Person (and in the event of such fraud, such
recourse shall be brought or granted solely against the Person or Persons
committing such fraud).
10.04 Special Trademark License Indemnification Agreement. The
Shareholders and the Optionholders, jointly and severally, shall indemnify and
hold the Buyer Indemnified Parties harmless against any Loss which any Buyer
Indemnified Party suffers or becomes subject to (a) as a result of or in
connection with preserving, protecting or defending its license to use the
"Heath/Zenith" ▇▇▇▇ or name, as licensee, under that certain Trademark License
Agreement, dated as of January 25, 1995, among Zenith Electronic Corporation
("ZEC"), Heath and the Company in accordance with the terms of such Agreement in
the event that ZEC is or becomes a debtor in a proceeding (whether voluntarily
or involuntarily) under the United States Bankruptcy Code (a "ZEC Bankruptcy
Proceeding") (including, without limitation, expenses associated with product
recall from customer shelves or private or public warehouses or like inventory
storage or product replacement); (b) solely due to the submission to the United
States Patent and Trademark Office by Heath in November 1997 of an application
for the registration of the "Heath Zenith" ▇▇▇▇ or (c) as a result of Heath's
use of the ▇▇▇▇ or name "Heath-Zenith" or the ▇▇▇▇ or name "Heath Zenith" in
lieu of the ▇▇▇▇ or name "Heath/Zenith" prior to the Closing or within one year
thereafter (provided that any such post-closing use by the Buyer or its
Affiliates of the name or ▇▇▇▇ "▇▇▇▇▇-Zenith" or
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"Heath Zenith" is the result of the use of packaging and related materials and
products existing as of the Closing or received by the Company or any of its
Subsidiaries prior to the end of the three-month period following the Closing
containing the name or ▇▇▇▇ "▇▇▇▇▇ Zenith" or name or ▇▇▇▇ "Heath-Zenith");
provided that such Buyer Indemnified Party submits an indemnification claim with
respect to any such Loss to the Shareholders' Representative on or prior to the
fourth anniversary of the Closing, except that, the foregoing notwithstanding,
in the event that a ZEC Bankruptcy Proceeding is commenced within the four year
period following the Closing, such Buyer Indemnified Party may submit a claim
for indemnification pursuant to clause (a) of this Section 10.04 through the
sixth anniversary of the Closing; provided further that, notwithstanding any
provision herein to the contrary, the Buyer Indemnified Parties' right to seek
indemnification under this Section 10.04 shall be limited solely to its right to
set off against the Buyer Notes and, notwithstanding anything to the contrary in
this Section 10.04, all rights of any Buyer Indemnified Party to indemnification
under this Section 10.04 shall terminate at any time that the Buyer Notes have
been paid in full or the obligations thereunder have otherwise been satisfied.
10.05 Disclosure Generally. If and to the extent any
information required to be furnished in any schedule is contained in this
Agreement or in any Schedule attached hereto, such information shall be deemed
to be included in all other Schedules in which the information is required to be
included in each case to the extent that appropriate cross-references thereto
are made in such other Schedules or that it is otherwise reasonably evident that
such information was intended by the Company to be included in such other
Schedules. The inclusion of any information in any Schedule attached hereto
shall not be deemed to be an admission or acknowledgment by the Company or the
Shareholders, in and of itself, that such information is material to or outside
the ordinary course of the business of the Company.
10.06 Acknowledgment by Buyer. THE REPRESENTATIONS AND
WARRANTIES SET FORTH IN THIS AGREEMENT BY THE COMPANY AND THE SHAREHOLDERS AND
THE OPTIONHOLDERS CONSTITUTE THE SOLE AND EXCLUSIVE REPRESENTATIONS AND
WARRANTIES OF THE COMPANY, THE SHAREHOLDERS AND THE OPTIONHOLDERS TO BUYER IN
CONNECTION WITH THE TRANSACTIONS CONTEMPLATED HEREBY, AND BUYER UNDERSTANDS,
ACKNOWLEDGES AND AGREES THAT ALL OTHER REPRESENTATIONS AND WARRANTIES OF ANY
KIND OR NATURE EXPRESSED OR IMPLIED (INCLUDING, BUT NOT LIMITED TO, ANY RELATING
TO THE FUTURE OR HISTORICAL FINANCIAL CONDITION, RESULTS OF OPERATIONS, ASSETS
OR LIABILITIES OF THE COMPANY) ARE (OTHER THAN CLAIMS OF FRAUD) DISCLAIMED BY
THE COMPANY, THE SHAREHOLDERS AND THE OPTIONHOLDERS.
10.07 Tax Matters.
(a) Responsibility for Filing Tax Returns. Buyer shall prepare
or cause to be prepared and file or cause to be filed all Tax Returns for the
Company for all periods ending prior to or including the Closing Date which are
filed after the Closing Date. At least 15 days prior to the date on which each
such Tax Return is filed, Buyer shall submit a draft of such Tax Return to the
Shareholders' Representative for the Shareholders' Representative's review and
approval, which approval shall not be withheld if the filing of such Tax Return,
as prepared by the Buyer, is not
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reasonably expected by the Shareholders' Representative to adversely affect the
Tax liability of any Shareholder or any Optionholder. Buyer agrees and
acknowledges that, without limitation, the Tax liability of each Shareholder and
each Optionholder will be adversely affected by (i) reporting on any such Tax
Return that (A) the value of the Heathkit Equity Interests exceeded $3.0 million
on the date that the Pre-Closing Spin-Off Transactions were consummated, (B) the
value of the ▇▇▇▇▇▇ Harbor Equity Interests exceeded $2.1 million on the date
that the Pre-Closing Spin-Off Transactions were consummated or (C) the
Pre-Closing Spin-Off Transactions did not constitute a redemption of Company
stock treated as a distribution in exchange for Company stock qualifying under
Section 302(a) and (b) of the Code or (ii) failing to claim any allowable
deductions attributable to the consummation of the Repurchase Transactions on
the federal (and applicable state or local) income Tax Returns of the Company
and its Subsidiaries for the short taxable period ending on the Closing Date.
(b) Indemnification Against Certain Income Taxes. The
Shareholder and Optionholders shall, jointly and severally, indemnify the Buyer
Indemnified Parties and hold them harmless against any Taxes (including any
interest thereon) payable by the Company for any taxable period (or portion
thereof) ending on or prior to the Closing Date to the extent that such Taxes or
Liabilities would not have been payable by the Company but for the consummation
of the Pre-Closing Spin-Off Transactions.
10.08 Further Assurances. From time to time, as and when
requested by any party hereto and at such party's expense, any other party shall
execute and deliver, or cause to be executed and delivered, all such documents
and instruments and shall take, or cause to be taken, all such further or other
actions as such other party may reasonably deem necessary or desirable to
evidence and effectuate the transactions contemplated by this Agreement.
10.09 Covenant Not to Compete, Solicit or Interfere.
(i) During the three-year period commencing with the
date hereof (the "Non-Compete Period"), each Stockholder and
Optionholder agrees that such Stockholder or Optionholder shall not
(and shall not direct or assist others to) contact or solicit, offer
employment to, hire, or otherwise attempt to hire any Heath/Zenith
Employee unless such Heath/Zenith Employee's employment by Buyer and
its Affiliates has been terminated or Buyer otherwise consents. The
Stockholders shall not encourage, induce or assist others in inducing
any Heath/Zenith Employee to terminate such Stockholder's employment
with the Company or in any way interfere with the Company's or the
Buyer's respective relationships with their employees.
(ii) During the Non-Compete Period, the Stockholders
and Optionholders agree that they shall not contact or solicit, direct
or assist others to contact or solicit any customers, suppliers or
other business associates of the Company if such contact or
solicitation relates to the Heath/Zenith Business; and shall not
otherwise interfere with the relationships between the Company or the
Buyer, and their respective customers, suppliers or business associates
in the Heath/Zenith Business, it being understood that the foregoing
shall not prohibit the Stockholders or Optionholders or their
respective Affiliates from contacting or soliciting any of the
Company's customers, suppliers or other business
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associates, if and only to the extent that such customers or suppliers
are involved in, or have or may develop a relationship with the
Stockholders or their Affiliates in, businesses other than the
Heath/Zenith Business.
(iii) During the Non-Compete Period, the Stockholders
and Optionholders shall not directly or indirectly compete with the
Company or the Buyer in the Heath/Zenith Business in any manner
anywhere in the United States or Canada; provided that such restriction
on competition will be limited to those businesses of the Company in
which the Company was engaged prior to the date of this Agreement;
provided further that, notwithstanding the foregoing, any Stockholder
or Optionholder may make passive investments of no more than two
percent (2%) of the outstanding shares of, or any other equity interest
in, any company or entity engaged in the Heath/Zenith Business listed
or traded on a national securities exchange or in an over-the-counter
securities market.
ARTICLE XI
DEFINITIONS
11.01 Definitions. For purposes hereof, the following terms,
when used herein with initial capital letters, shall have the respective
meanings set forth herein:
"AAA" means the American Arbitration Association.
"Affiliated Group" means any affiliated group within the
meaning of Code Section 1504(a).
"Affiliates" of any particular Person means any other Person
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
direct the management and policies of a Person whether through the ownership of
voting securities, contract or otherwise.
"▇▇▇▇▇▇ Harbor Facility" means the real property and related
facility owned by the Company and located in Benton Harbor, Michigan.
"Buyer Notes" means, collectively, the promissory notes issued
to each of the Optionholders and the Shareholders, in the form of Exhibit I
hereto, in the aggregate principal amount equal to $2,000,000. Each
Optionholder's Buyer Note shall be in an amount equal to such Optionholder's
Option Pro Rata Portion of $2,000,000 and each Shareholder's Buyer Note shall be
in an amount equal to such Shareholder's Share Pro Rata Portion of $2,000,000.
"GAAP" means United States generally accepted accounting
principles consistently applied.
"Hazardous Materials" means any substance or material (a) the
presence of which requires investigation, removal or remediation under any
Environmental and Safety Requirement,
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(b) that is defined as a "hazardous waste", "hazardous material" or "hazardous
substance" under any Environment and Safety Requirement including but not
limited to the Resource Conservation and Recovery Act of 1976, 42 U.S.C. ss.6091
et. seq., as amended, and the rules and regulations promulgated thereunder and
the comprehensive Environmental Response, Compensation and Liability Act of
1980, 42 U.S.C. 9601 et seq., as amended and the rules and regulations
promulgated thereunder ("CERCLA" or "Superfund").
"Liability" means any liability (whether known or unknown,
whether absolute or contingent, whether liquidated or unliquidated, and whether
due, or to be come due, including any liability for Taxes.
"Net Working Capital" means the result, without duplication,
of (i) cash or cash equivalents held by the Company or any Subsidiary, plus (ii)
the excess of the value of the Company's and its Subsidiaries' trade accounts
receivable over the aggregate amount reserved for bad trade accounts receivable
on the Company's balance sheet, plus (iii) the excess of the value of the
Company's and its Subsidiaries' inventory over the aggregate amount reserved for
bad inventory on the Company's balance sheet, plus (iv) other current
receivables of the Company and its Subsidiaries, plus (v) prepayments, prepaid
costs and expenses of the Company and its Subsidiaries, in each case to the
extent required to be reflected as current assets on the Company's balance sheet
in accordance with GAAP minus (vi) accounts payable of the Company and its
Subsidiaries, minus (vii) accrued merchandising costs of the Company and its
Subsidiaries, minus (viii) accrued and unpaid compensation and commissions of
the Company and its Subsidiaries, minus (ix) accrued warranty liabilities of the
Company and its Subsidiaries, minus (x) Other Accruals, minus (xi) other current
liabilities and provisions and reserves (other than the current portion of
Funded Indebtedness), minus (xii) all unpaid investment banking and financial
advisor fees payable by the Company or any Subsidiary incurred in connection
with the transactions contemplated by this Agreement and all transaction and
other fees and expenses incurred or payable by or on behalf of the Company or
any Subsidiary in connection with the transactions contemplated by this
Agreement (including, but not limited to, attorneys', accountants', actuaries',
consultants', experts' fees and expenses and all fees and expenses of any other
Persons engaged by or on behalf of the Company or any Subsidiary in connection
with this Agreement and the transactions contemplated hereby), minus (xiii) all
unpaid management and other fees and expenses incurred by or payable by the
Company or any Subsidiary to H.I.G. Investment Group, L.P. or any of its
Affiliates pursuant to the terms of any management or similar agreement or
otherwise, in each case calculated in accordance with GAAP consistently applied,
except as otherwise specified below. If any item on (or which should be
reflected on) the Latest Balance Sheet is not reflected in accordance with GAAP
consistently applied in effect as of the Closing Date (based upon authoritative
accounting pronouncements and literature), the Net Working Capital shall
nonetheless be computed in accordance with GAAP in effect as of the Closing Date
(except as otherwise provided herein) consistently applied. In computing Net
Working Capital, (w) all accounting entries shall be taken into account
regardless of their amount, all known errors and omissions shall be corrected,
(x) all known proper adjustments shall be made and (y) accounts receivable,
inventory, accounts payable, and all items contributed to or assumed by either
of the Spin-Off Entities pursuant to the Contribution Agreements will not be
taken into account.
"Non-Compete Period" has the meaning set forth in Section
10.08.
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"Other Accruals" means the following items which are
designated as "other accruals" on the Company's balance sheet: accrued Taxes,
medical benefits, worker's compensation, group life insurance, long term
disability insurance, inbound and outbound freight, customer refunds, utilities,
employee flexible spending, AD&D, unclaimed checks and miscellaneous reserves,
in each case to the extent required to be reflected as a current liability on
the Company's balance sheet in accordance with GAAP.
"Option Percentage" means the percentage equivalent of a
fraction, determined immediately prior to the Closing hereunder, the numerator
of which is the aggregate amount of outstanding Options and the denominator of
which is the aggregate amount of outstanding Shares and Options.
"Option Pro Rata Portion" means, with respect to each holder
of the Options, the pro rata portion of such Optionholder as set forth on the
Optionholders Schedule.
"Other Transaction Documents" means collectively, the Lease
Agreement, the Transition Agreement, the Contribution Agreements.
"Person" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Share Percentage" means the percentage equivalent of a
fraction, determined immediately prior to the Closing hereunder, the numerator
of which is the aggregate amount of outstanding Shares and the denominator of
which is the aggregate amount of outstanding Shares and Options.
"Share Pro Rata Portion" means, with respect to each holder of
the Shares, the pro rata portion of such Shareholder as set forth on the
Shareholders Schedule.
"Tax" or "Taxes" means any federal, state, local or foreign
income, gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental, customs duties, capital
stock, franchise, profits, withholding, social security, unemployment,
disability, real property, ad valorem/personal property, stamp, excise,
occupation, sales, use, transfer, registration, value added, add-on, alternative
minimum, estimated or other tax of any kind whatsoever, including any interest,
penalty or addition thereto, whether disputed or not.
"Tax Returns" means any return, report, information return or
other document (including schedules or any related or supporting information)
filed or required to be filed with any governmental entity or other authority in
connection with the determination, assessment or collection of any Tax or the
administration of any laws, regulations or administrative requirements relating
to any Tax.
11.02 Cross-Reference of Other Definitions. Each capitalized
term listed below is defined in the corresponding Section of this Agreement:
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Term Section No.
1996 Heath/Zenith Financial Statements 4.05
Agreement Preamble
Associated Countries 6.13
Auditor 1.05(c)
Base Share Purchase Price 1.03(a)
Base Option Repurchase Price 1.02(a)
Benefit Plans 4.13
▇▇▇▇▇▇ Harbor Contribution 6.10(a)
▇▇▇▇▇▇ Harbor Equity Interests Preamble
▇▇▇▇▇▇ Harbor Facility Contribution Agreement 6.10(a)
Buyer Preamble
Buyer Indemnified Parties 10.02(a)
Buyer's Representative 6.02
Cap 10.02(a)
Closing 1.04(a)
Closing Balance Sheet 1.05(b)
Closing Date 1.04(a)
Closing Net Working Capital 1.05(b)
Closing Transaction 1.04(b)
Code 4.14(a)
Common Stock 4.04
Company Preamble
Confidentiality Agreement 6.02
Contribution 6.10(a)
Contribution Agreements 6.10(a)
Current Heathkit Products 6.13
Distribution 6.10(c)
Environmental and Safety Requirements 4.17(a)
Equity Interests Preamble
Estimated Net Working Capital 1.05(b)
Exchanged Shares Preamble
ERISA 4.14(a)
Financial Statements 4.05
Funded Indebtedness 1.04(c)
Heath Preamble
Heath Ltd. Preamble
Heathkit Business Preamble
Heathkit Business Contribution Agreement 6.10(c)
Heathkit Contribution 6.10(a)
Heathkit Equity Interests Preamble
Heath/Zenith Business Preamble
HIG 12.14
HIG Balance Sheet 12.14
H.I.G. Capital 6.11
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HK Shares Preamble
HSR Act 4.13
Indemnitee 10.08(c)
Indemnitors 10.08(c)
Intellectual Property 4.10
Latest Financial Statements 4.05
Latest Balance Sheet 4.05
Lease Agreement 2.01(k)
Losses 10.02(a)
▇▇▇▇ 6.13
Material Adverse Effect 4.01
Material Contracts 4.09(c)
Non-Compete Period 10.09
Objection Notice 1.05(c)
Option Repurchase Price 1.02(a)
Optionholders Preamble
Options Preamble
Pre-Closing Spin-Off Transactions Preamble
Repurchase Transactions 1.02(b)
Sale Transactions 1.03(b)
Share Purchase Price 1.03(a)
Shares Preamble
Shareholders Preamble
Shareholders Agreement 12.03
Shareholders' Representative 9.01
Shares Preamble
Special IP Loss 10.02(a)
Spin-Off Entities Preamble
Subsidiary 4.02
Survival Period 10.01
Third Party Claim 10.02(e)
Transaction Price 1.01
Transition Agreement 2.01(f)
Warranty Loss 10.02(a)
ZEC 10.04
ZEC Bankruptcy Proceeding 10.04
ARTICLE XII
MISCELLANEOUS
12.01 Press Releases and Communications. No press release or
public announcement related to this Agreement or the transactions contemplated
herein, or prior to the Closing any other announcement or communication to the
employees, customers or suppliers of the Company, shall be issued or made
without the joint approval of Buyer and the Shareholders'
-45-
Representative, unless required by law (in the reasonable opinion of counsel) in
which case Buyer and the Shareholders' Representative shall have the right to
review, to the extent reasonably practicable, such press release or announcement
prior to publication.
12.02 Expenses. Except as otherwise expressly provided herein,
the Company and Buyer shall pay all of their own expenses (including attorneys'
and accountants' fees and expenses) in connection with the negotiation of this
Agreement, the performance of their respective obligations hereunder and the
consummation of the transactions contemplated by this Agreement (whether
consummated or not).
12.03 Waiver of Certain Transfer Restrictions. Concurrently
with the Closing, the Company and the Shareholders hereby expressly waive all of
their rights to purchase Shares in connection with the transactions contemplated
in this Agreement under (a) the Shareholders Agreement, dated January 25, 1995,
between the Company and the shareholders of the Company (the "Shareholders
Agreement") and (b) the Company's by-laws. The Shareholders Agreement shall
terminate and be of no further force and effect as of the Closing.
12.04 Knowledge Defined. For purposes of this Agreement, the
term "the Company's knowledge" or "the knowledge of the Company" as used herein
shall mean the knowledge, after due inquiry (or what would reasonably be the
knowledge if due inquiry were made), of ▇▇▇▇▇▇▇ ▇. Tamer, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇. ▇. ▇▇▇.
12.05 Notices. All notices, demands and other communications
to be given or delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given when personally
delivered, delivered by Federal Express or similar overnight courier service or
mailed by first class mail, return receipt requested. Notices, demands and
communications to Buyer, the Company and the Shareholders shall, unless another
address is specified in writing, be sent to the address indicated below:
Notices to Buyer:
Desa International, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: President
with a copy to:
▇▇▇▇▇▇▇▇ & Worcester
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
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Notices to Shareholders:
H.I.G. Investment Group, L.P.
c/o H.I.G. Capital Management, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. Tamer
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. Learner
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Notices to Company:
Heath Holding Co.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: President
12.06 Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the Parties and their
respective successors and permitted assigns, except that, prior to the Closing,
neither this Agreement nor any of the rights, interests or obligations hereunder
may be assigned or delegated by Buyer (other than to Desa Holdings Corporation
or any Affiliate thereof), without the prior written consent of the
Shareholders' Representative.
12.07 Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Agreement.
12.08 No Strict Construction. The language used in this
Agreement shall be deemed to be the language chosen by the parties hereto to
express their mutual intent, and no rule of strict construction shall be applied
against any Person.
12.09 Amendment and Waiver. Any provision of this Agreement or
the schedules or exhibits hereto may be amended or waived only in writing signed
by Buyer, the Company and the Shareholders' Representative. No waiver of any
provision hereunder or any breach or default thereof shall extend to or affect
in any way any other provision or prior or subsequent breach or default.
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12.10 Complete Agreement. This Agreement and the documents
referred to herein (including the Confidentiality Agreement) contain the
complete agreement between the parties hereto and supersede any prior
understandings, agreements or representations by or between the parties, written
or oral, which may have related to the subject matter hereof in any way.
12.11 Counterparts. This Agreement may be executed in multiple
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together shall constitute one and the
same instrument.
12.12 Governing Law. All matters relating to the
interpretation, construction, validity and enforcement of this Agreement shall
be governed by and construed in accordance with the domestic laws of the State
of Illinois without giving effect to any choice or conflict of law provision or
rule (whether of the State of Illinois or any other jurisdiction) that would
cause the application of laws of any jurisdiction other than the State of
Illinois.
12.13 Specific Performance. The parties recognize that certain
of their rights under this Agreement are unique and, accordingly, any party
hereto shall (except solely as otherwise expressly provided in Section 10.03
hereof), in addition to such other remedies as may be available to it at law or
in equity, have the right to enforce its rights hereunder by actions for
injunctive relief and specific performance to the extent permitted by law. The
parties hereby waive any requirement for security or the posting of any bond or
other surety in connection with any temporary or permanent award of injunctive,
mandatory or other equitable relief. The rights and remedies of the parties
under this Agreement are cumulative and are not in lieu of, but are in addition
to, any other rights and remedies which the parties shall have under or by
virtue of any statute, rule or regulation or any rule of law, or in equity, or
any other agreement or obligation between the parties or any of them.
12.14 HIG Balance Sheet. H.I.G. Investment Group, L.P. ("HIG")
represents and warrants that it has furnished to the Buyer a true and complete
copy of the audited consolidated balance sheet of HIG and its subsidiaries as at
December 31, 1996 (the "HIG Balance Sheet") and that the HIG Balance Sheet has
been prepared in accordance with GAAP, is true, complete and correct and is
consistent with the books and records of HIG in all material respects, and
presents fairly the consolidated financial condition of HIG as of the date
thereof.
12.15 Jurisdiction and Venue. Each party to this Agreement
hereby irrevocably agrees that any legal action, suit or proceeding arising out
of or relating to this Agreement or any other agreements or transactions
contemplated hereby may be brought in any federal or state court in Florida,
Illinois, Kentucky or Massachusetts and each party hereto agrees not to assert,
by way of motion, as a defense or otherwise, in any such action, suit or
proceeding any claim that it is not subject personally to the jurisdiction of
such court, that the action, suit or proceeding is brought in an inconvenient
forum, that the venue of the action, suit or proceeding is improper or that this
Agreement, any other agreement or transaction or the subject matter hereof or
thereof may not be enforced in or by such court. Each party hereto further and
irrevocably submits to the jurisdiction of such court in any action, suit or
proceeding.
* * * *
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the day and year first above written.
HEATH HOLDING CORP.
By_________________________
Its________________________
DESA INTERNATIONAL, INC.
By_________________________
Its________________________
SHAREHOLDERS:
(Signature Page to Stock Purchase Agreement)
HIG INVESTMENT GROUP, L.P.
By_________________________
Its________________________
(Signature Page to Stock Purchase Agreement)
KACTUS INVESTMENT CORPORATION
By_________________________
Its________________________
(Signature Page to Stock Purchase Agreement)
__________________________________
▇▇▇▇ ▇▇▇▇▇▇▇▇
(Signature Page to Stock Purchase Agreement)
__________________________________
▇▇▇▇▇ ▇▇▇▇▇▇▇▇
(Signature Page to Stock Purchase Agreement)
__________________________________
▇▇▇▇▇▇ ▇▇▇▇▇▇
(Signature Page to Stock Purchase Agreement)
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(Signature Page to Stock Purchase Agreement)
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(Signature Page to Stock Purchase Agreement)
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(Signature Page to Stock Purchase Agreement)
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(Signature Page to Stock Purchase Agreement)
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(Signature Page to Stock Purchase Agreement)
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(Signature Page to Stock Purchase Agreement)
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(Signature Page to Stock Purchase Agreement)
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(Signature Page to Stock Purchase Agreement)
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(Signature Page to Stock Purchase Agreement)
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(Signature Page to Stock Purchase Agreement)
EXHIBITS
Exhibit A Transition Agreement
Exhibit B Company Certificate
Exhibit C Shareholders' Representative Certificate
Exhibit D Form of Lease Agreement
Exhibit E Buyer Certificate
Exhibit F Form of Heathkit Business Contribution Agreement
Exhibit G Form of ▇▇▇▇▇▇ Harbor Facility Contribution Agreement
Exhibit H Form of Exchange Agreement
Exhibit I Form of Buyer Note
SCHEDULES
Associated Countries
Affiliated Transactions
Authorization
Banking and Agency
Capital Expenditures
Capital Stock
Contracts
Developments
Employee Benefits
Employee
Environmental Compliance
Governmental Consents
Indebtedness
Insurance
Intellectual Property
Leased Real Property
Liabilities
Liens
Litigation
Optionholders
Product Liability
Shareholders
Subsidiary
Taxes
Third-Party Consents
Undisclosed Liabilities