STOCK PURCHASE AGREEMENT
BY AND AMONG
▇▇▇▇▇▇, INC.
▇▇▇▇▇▇▇ ENCLOSURES INC.
PENTAIR, INC.
AND
FEDERAL-▇▇▇▇▇▇▇, INC.
NOVEMBER 4, 1997
TABLE OF CONTENTS
Page
AGREEMENT. . . . . . . . . . . . . . 2
ARTICLE I DEFINITIONS . . . . . 2
ARTICLE II PURCHASE AND SALE
OF THE SHARES. . 14
2.1 Purchase of the Shares from the
Seller . . . . . . . . . . 14
2.2 Further Assurances . . . . 14
2.3 Purchase Price for the Shares 14
2.4 Initial Payment of the Purchase
Price. . . . . . . . . . . 14
2.5 Closing. . . . . . . . . . 14
2.6 Closing Audit. . . . . . . 16
2.7 Determination and Payment of
Purchase Price Adjustment. 18
2.8 Payment for Special Inventory 18
ARTICLE III REPRESENTATIONS
REGARDING PENTAIR AND
FCH . . . . . . . . . 18
3.1 Title to Shares. . . . . . 18
3.2 Authorizations . . . . . . 18
3.3 Noncontravention . . . . . 19
3.4 338(h)(10) Filing Eligibility 19
3.5 Books and Records. . . . . 19
ARTICLE IV REPRESENTATIONS
REGARDING THE COMPANY 19
4.1 Organization, Qualification and
Corporate Power. . . . . . 19
4.2 Capitalization . . . . . . 19
4.3 Authorization of the Company 20
4.4 Subsidiaries . . . . . . . 20
4.5 Noncontravention . . . . . 20
4.6 Financial Statements . . . 20
4.7 Permits, Consents and Approvals 21
4.8 Undisclosed Liabilities. . 21
4.9 Litigation . . . . . . . . 21
4.10 Taxes. . . . . . . . . . . 22
4.11 Employee Benefit and Employment
Matters. . . . . . . . . . 23
4.12 Labor Agreements and Actions 25
4.13 Absence of Certain Changes 26
4.14 Books and Records. . . . . 27
4.15 Owned and Leased Personal
Property . . . . . . . . . 28
4.16 Intellectual Property. . . 28
4.17 Leased Real Property . . . 29
4.18 Owned Real Property. . . . 30
4.19 Material Contracts . . . . 31
4.20 Insurance. . . . . . . . . 32
4.21 Certain Relationships. . . 32
4.22 Environmental Matters. . . 33
4.23 Compliance with Law. . . . 33
4.24 No Other Agreements to Sell Assets
of the Company . . . . . . 33
4.25 Notes and Accounts Receivable 34
4.26 Inventories. . . . . . . . 34
4.27 Certain Payments . . . . . 34
4.28 Customers. . . . . . . . . 34
4.29 Suppliers. . . . . . . . . 35
4.30 Warranty and Product Liability 35
4.31 Banking Facilities . . . . 35
4.32 Powers of Attorney . . . . 35
4.33 Compensation of and Contracts with
Employees. . . . . . . . . 35
4.34 Product Recalls. . . . . . 36
4.35 Information Provided . . . 36
4.36 Sufficiency of Assets. . . 36
ARTICLE V REPRESENTATIONS OF THE
BUYER. . . . . . . . . . . 36
5.1 Organization and Authority 36
5.2 Authorization. . . . . . . 36
5.3 Noncontravention . . . . . 37
5.4 Investment Purpose . . . . 37
5.5 Financing. . . . . . . . . 37
5.6 Litigation . . . . . . . . 37
ARTICLE VI SEPARATION COVENANTS. 37
6.1 Separation Agreement . . . 37
6.2 Third Party Consents . . . 37
6.3 Termination and Employment of
▇▇▇▇▇▇▇ Division Employees 38
6.4 Actions and Claims . . . . 38
6.5 Insurance. . . . . . . . . 39
ARTICLE VII ADDITIONAL
COVENANTS OF THE
COMPANY, SELLER AND
BUYER . . . . . . . . 40
7.1 Public Announcements . . . 40
7.2 Payment of Retention Bonus 40
7.3 Costs and Expenses . . . . 41
7.4 Confidential Information . 41
7.5 No Solicitation or Hiring of Former
Employees. . . . . . . . . 41
7.6 Non-Competition Agreement. 42
7.7 Tax Return Preparation and
Examinations . . . . . . . 42
7.8 Access to Information and Records 44
7.9 Certain Employee Claims. . 45
7.10 MIP Bonuses. . . . . . . . 46
7.11 Severance Obligations. . . 46
7.12 Salary and Wages and Employee
Benefits.. . . . . . . . . 46
7.13 Section 338 Election . . . 51
7.14 Name Change. . . . . . . . 52
7.15 Environmental Matters. . . 53
7.16 Payment of Uncollectible Accounts
Receivable . . . . . . . . 57
7.17 Title Review . . . . . . . 57
7.18 SEC Financial Statements . 58
7.19 Third Party Consents . . . 58
7.20 Further Cooperation and Assurances 58
ARTICLE VIII SURVIVAL OF CERTAIN
PROVISIONS;
INDEMNIFICATIONS. . . 58
8.1 Survival of Representations,
Warranties, Indemnities and Other
Agreements . . . . . . . . 58
8.2 Agreement to Indemnify . . 59
8.3 Defense of Claims. . . . . 61
8.4 Representatives. . . . . . 62
8.5 Claim Method . . . . . . . 62
8.6 Limitations on Indemnification 62
ARTICLE IX DISPUTE RESOLUTION. . 63
9.1 Dispute Resolution . . . . 63
9.2 Mediation and Arbitration. 63
ARTICLE X BROKERS. . . . . . . . . . 65
10.1 For Pentair. . . . . . . . 65
10.2 For the Buyer. . . . . . . 65
ARTICLE XI NOTICES . . . . . . . 66
ARTICLE XII MISCELLANEOUS . . . . 67
12.1 Successors and Assigns . . 67
12.2 Entire Agreement; Amendments;
Attachments. . . . . . . . 67
12.3 Severability . . . . . . . 67
12.4 Governing Law. . . . . . . 68
12.5 Section Headings . . . . . 68
12.6 Counterparts . . . . . . . 68
12.7 Confidentiality Agreement. 68
12.8 Third Party Beneficiaries. 68
12.9 Cumulative Remedies. . . . 68
12.10 Construction. . . . . 68
Exhibit A Confidentiality AgreementA-1
Exhibit B Officers, Directors and Other PersonnelB-1
Exhibit C Opinion of Counsel to Pentair and FCHC-1
Exhibit D Opinion of Counsel to BuyerD-1
Exhibit E GAAP Standard for the Closing Date Net
Equity Statement . . . . . . . . . . E-1
Exhibit F Net Equity Report of Pentair's Accountants
. . . . . . . . . . . . . . . . . . F-1
Exhibit G Separation Agreement. G-1
Exhibit H Retention Bonus LetterH-1
Exhibit I Certain Actuarial AssumptionsI-1
Exhibit J Survival Periods of Representations and
Warranties . . . . . . . . . . . . . J-1
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement")
is made as of the 4th day of November, 1997, by and among
▇▇▇▇▇▇, Inc., a Delaware corporation, (the "Buyer"), and
▇▇▇▇▇▇▇ Enclosures Inc., a Minnesota corporation as
successor by merger to FC Holdings Inc., a Delaware
corporation, ("FCH"), Pentair, Inc., a Minnesota
corporation, ("Pentair") (FCH and Pentair are each
individually defined hereunder as the "Seller" and
collectively shall be referred to herein as the "Seller") and
Federal-▇▇▇▇▇▇▇, Inc., a Minnesota corporation, (the
"Company").
RECITALS
A. Pentair is the sole shareholder and corporate
parent of FCH.
B. FCH owns and holds all of the issued and
outstanding shares (the "Shares") of the Company's common
stock, $.01 par value per share (the "Common Stock").
C. The Seller operates two distinct business
divisions within the Company, one known as the "Federal
Division" and the other known as the "▇▇▇▇▇▇▇ Division".
The Federal Division, also known as Federal Cartridge Co.,
produces small arms sporting ammunition, including without
limitation shotshell, centerfire and rimfire cartridges,
ammunition components and clay targets.
D. Prior to the sale of the shares contemplated
hereby, FCH shall cause the Company to distribute to FCH
the assets and all Liabilities that are not associated with the
Business, or are not otherwise to be retained by the
Company pursuant to the terms of this Agreement or the
Separation Agreement (as defined below), in a deemed
complete liquidation under Section 332 of the Internal
Revenue Code of 1986, as amended, (the "Code") in order
to facilitate the sale of the Shares to Buyer and for which a
joint election will be made under Section 338(h)(10) of the
Code (the "Separation"). Major components involved in the
Separation include, without limitation (i) division of the
Company's Anoka site, (ii) identification and grant of
easements, access and the like, (iii) division of fences and
security, (iv) entry pattern allocation, (v) usage of office
space, (vi) permitting and other governmental consents and
licenses, and (vii) shared facilities and services, if any.
E. Upon completion of the Separation pursuant
to the Separation Agreement entered into among Pentair,
FCH and the Company which is satisfactory to Buyer in its
sole discretion, Buyer shall purchase and Seller shall sell the
Shares.
F. The Parties have complied with the premerger
notification requirements of the ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ Antitrust
Improvements Act of 1976, as amended, and received
clearance from the Department of Justice on or about
September 27, 1997.
NOW, THEREFORE, in consideration of the
foregoing Recitals, the mutual promises, covenants,
agreements and conditions hereinafter set forth and other
good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the Parties hereby agree
as follows:
AGREEMENT
ARTICLE I
DEFINITIONS
As used herein, the terms below shall have the
following meanings. Any of such terms, unless the context
otherwise requires, may be used in the singular or plural,
depending upon the reference.
"Action" shall mean any legal action, cause of
action, chose in action, claim, suit, litigation, proceeding,
labor dispute, governmental audit, criminal prosecution or
unfair labor practice charge or complaint.
"Active Employee" means any employee of the
Company who is as of the Closing Date (i) actively
employed in the Business or (ii) not so actively employed by
reason of vacation, workers' compensation, short-term
disability leave, military leave, layoff with recall rights or
other approved leave of absence, to the extent that such
employee in fact returns to work within six (6) months after
the Closing Date.
"Affiliate" or "Affiliates" shall have the meaning set
forth in the Exchange Act; provided, however, that the
Buyer and its Affiliates shall not be deemed Affiliates of the
Company until the Closing.
"Agreement" shall have the meaning set forth in the
preamble to this Agreement.
"Allocations" shall have the meaning set forth in
Section 7.13(b) hereof.
"Assets" means without limitation all right, title, and
interest in and to all of the tangible and intangible assets
relating to the Federal Division, including all of its (a)
Owned Real Property, Leases, Leased Real Property,
leasehold improvements, fixtures, and fittings thereon, and
easements, rights-of-way, and other rights appurtenant
thereto (such as appurtenant rights in and to public streets),
(b)Personal Property, (c) Intellectual Property, goodwill
associated therewith, licenses and sublicenses granted and
obtained with respect thereto, and rights thereunder,
remedies against infringements thereof, and rights to
protection of interests therein under the laws of all
applicable jurisdictions, (d) Contracts, Mortgages and other
similar arrangements, and rights thereunder, (e) accounts,
notes, and other receivables, (f) securities, (g) claims,
deposits, prepayments, refunds, choses in action, causes of
action and rights of recovery, rights of set off, and rights of
recoupment (including any such item relating to the payment
of Taxes, other than those assets related to Liabilities other
than Federal Liabilities), (h) Permits, (i) Books and
Records, (j) any cash, (k) Insurance Policies to the extent
such policies or coverage do not arise under Pentair's
captive insurance company, under which the Federal
Division, as owner, insured or otherwise, has a right to
claim, (l) rights under or pursuant to all warranties,
representations and guaranties, and (m) any of the rights of
the Company under this Agreement or the Transaction
Documents, including the Separation Agreement (or under
any side agreement between the Company on the one hand
and Pentair or FCH on the other hand entered into on or
after the date of this Agreement). In addition, Assets shall
include the corporate charter, qualifications to conduct
business as a foreign corporation, arrangements with
registered agents relating to foreign qualifications, taxpayer
and other identification numbers, seals, minute books, stock
transfer books, blank stock certificates, and other documents
relating to the organization, maintenance, and existence of
the Company as a corporation, but excluding the game farm,
the gun club and buildings 135, 136 and 137 as described in
the survey of the Owned Real Property.
"Audited Financial Statements" shall have the
meaning set forth in Section 7.18 hereof.
"Books and Records" shall mean without limitation
(a) all records of any kind or nature of the Company
pertaining to the Assets, (b) all records of any kind or
nature pertaining to the Business or customers, suppliers or
Personnel of the Federal Division, (c) product, business,
development, and marketing plans of the Federal Division,
(d) books, ledgers, files, reports, plans, drawings and
operating records of every kind maintained by the Federal
Division, and (e) all records of any kind or nature which
arise from, in connection with or incident to the Company
as a corporate entity; provided, however, that books and
records of the Company pertaining solely to the ▇▇▇▇▇▇▇
Division shall not constitute "Books and Records."
"Business" shall mean the development,
manufacture, marketing and sale of ammunition and related
products (including shotshell, centerfire and rimfire
cartridges, ammunition components and clay targets) carried
on by the Company.
"Buyer" shall have the meaning set forth in the
preamble to this Agreement.
"Buyer's Accountants" shall have the meaning set
forth in Section 2.6(c) hereof.
"CERCLA" shall mean the Comprehensive
Environmental Response, Compensation and Liability Act
(42 U.S.C. section 9601 et seq.).
"Claim" shall have the meaning set forth in Section
8.3 hereof.
"Claim Notice" shall have the meaning set forth in
Section 8.3 hereof.
"Closing" shall have the meaning set forth in Section
2.1 hereof.
"Closing Date" shall have the meaning set forth in
Section 2.5 hereof.
"Closing Date Net Equity Statement" shall have the
meaning set forth in Section 2.6(a) hereof.
"COBRA Participants" shall have the meaning set
forth in 7.12(g) hereof.
"Code" shall have the meaning set forth in the
Recitals to this Agreement.
"Common Control Entity" shall mean any Person,
trade or business which is or at any relevant time was under
"common control" with Seller or the Company, as defined
in Section 414(b) or (c) of the Code.
"Common Stock" shall have the meaning set forth in
the Recitals to this Agreement.
"Company" shall have the meaning set forth in the
Preamble to this Agreement.
"Confidential Information" shall mean all trade
secrets and confidential business information (including
ideas, research and development, know-how, formulas,
compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information,
and business and marketing plans and proposals), except for
trade secrets and information which (i) at the time of
disclosure or thereafter is generally available to the public
(other than as a result of disclosure in breach of the
Confidentiality Agreement, this Agreement or any
Transaction Document), (ii) was available to a party (against
whom any Action or claim is instituted or made) on a non-
confidential basis from a source other than such party or its
Representatives, provided that such source was not bound
by a confidentiality agreement with any Person, and in
violation thereof at the time of disclosure or (iii) has been
independently acquired or developed by a party without
violating any of its obligations under the Confidentiality
Agreement, this Agreement or any Transaction Document.
"Confidentiality Agreement" shall mean that letter
agreement between Buyer and Pentair dated February 21,
1997 attached hereto as Exhibit A.
"Contract" or "Contracts" shall mean and include
any agreement, arrangement, contract, note, loan, evidence
of indebtedness, right of payment, purchase order, letter of
credit, franchise agreement, covenant not to compete,
employment agreement, license, instrument, guarantee,
obligation or commitment arising out of or relating to the
Business or to which any of the Assets or the Shares are
subject, whether oral or written, express or implied, but
excluding all Leases and Encumbrances.
"Copyrights" shall mean registered copyrights,
copyright applications, copyrightable works and
unregistered copyrights, and all applications, registrations,
and renewals in connection therewith.
"Court Order" shall mean any judgment, award,
decision, consent decree, injunction, ruling, writ or order of
any federal, state or local court or governmental agency,
department or authority that is binding on any Person or its
property under applicable Regulation.
"Current Financial Statement" shall have the
meaning set forth in Section 4.6(a) hereof.
"Damages" shall have the meaning set forth in
Section 8.2(a) hereof.
"Deductible" shall have the meaning set forth in
Section 8.6(a) hereof.
"Default" shall mean (i) a material breach of or
default under any Contract, Lease or Encumbrance or
(ii) the occurrence of an event that without the passage of
time and without the giving of notice gives rise to a right of
termination or cancellation, renegotiation, modification or
acceleration under any Contract, Lease or Encumbrance (see
also "Potential Default").
"Defined Benefit Plan" shall mean the Pentair, Inc.
Pension Plan.
"Disclosure Schedule(s)" or "Schedule" shall mean
the schedules to this Agreement. Any Disclosure Schedule
shall be effective for disclosure hereunder as to any
representation and warranty if it clearly is able to be related
to such representation and warranty.
"Election" shall have the meaning set forth in Section
7.13 hereof.
"Employee Benefits" means any and all pension or
welfare benefit programs, plans, arrangements, agreements
and understandings which cover or otherwise benefit
employees or former employees of the Company generally
or specific individual employees of the Company and to
which the Company contributes or is a party, by which it
may be bound, or under which it may have liability,
including, without limitation, pension or retirement plans,
deferred compensation plans, bonus or incentive plans, early
retirement programs, severance pay policies, support funds,
workers' compensation, medical, dental, life and disability
insurance, and payment or reimbursement plans.
"Encumbrance" shall mean and include:
(a) with respect to any Personal Property,
any intangible property or any property other than real
property, any security or other property interest or right,
claim, lien, pledge, option, charge, security interest,
contingent or conditional sale, or other title claim or
retention agreement or lease or use agreement in the nature
thereof whether voluntarily incurred or arising by operation
of law, and including any agreement to grant or submit to
any of the foregoing in the future; and
(b) with respect to any real property
(whether and including Owned Real Property or Leased
Real Property), any Mortgage, lien, easement, interest,
right-of-way, condemnation or eminent domain proceeding,
encroachment, any building, use or other form of
restriction, encumbrance or other claim (including adverse
or prescriptive) or right of third parties (including
Governmental Agencies), any lease or sublease (other than
a Lease), boundary dispute, and agreements with respect to
any real property including: purchase, sale, right of first
refusal, option, construction, building or property service,
maintenance, property management, conditional or
contingent sale, use or occupancy, franchise or concession,
whether voluntarily incurred or arising by operation of law,
and including any agreement to grant or submit to any of the
foregoing in the future.
"Environmental Claims" shall mean administrative,
regulatory or judicial actions, suits, demands, demand
letters, claims, liens, notices of non-compliance or violation,
investigations or proceedings, consent decrees, judgments,
administrative orders or agreements, arising under any
Environmental Law or any permit issued under any such
Law, including (i) Environmental Claims by Governmental
Agencies for enforcement, cleanup, removal, response,
remedial or other actions or Damages pursuant to any
applicable Environmental Law, and (ii) Environmental
Claims by any third party seeking Damages or injunctive
relief resulting from Environmental Conditions or arising
from alleged injury or threat of injury to health, safety or
the environment.
"Environmental Conditions" shall mean the presence
or introduction into the environment of any Hazardous
Materials (and any resulting air, soil, groundwater or
surface water contamination without regard to location to
which such resulting contamination has migrated or spread)
as a result of which the Federal Division has or may become
liable to any Person or by reason of which the Federal
Division or any assets of the Federal Division may suffer or
be subjected to any Encumbrance or Damages.
"Environmental Laws" shall mean any federal, state
or local statute, law, rule, regulation, ordinance, code,
policy or rule of common law in effect and in each case as
amended from time-to-time and any judicial or
administrative interpretation thereof, including any judicial
or administrative order, consent decree or judgment, that (i)
regulates or relates to the protection or clean-up of the
environment; the use, treatment, storage, transportation,
handling, disposal or Release of Hazardous Materials, the
preservation or protection of waterways, groundwater,
drinking water, air, wildlife, plants or other natural
resources; or the health and safety of Persons or property,
including protection of the health and safety of employees
insofar as such health and safety laws may apply to matters
affecting the natural environment; or (ii) imposes Liability
with respect to any of the foregoing, including CERCLA;
RCRA; the Federal Water Pollution Control Act, as
amended, 33 U.S.C. section 1251 et seq.; the Toxic Substances
Control Act, 15 U.S.C. section 2601 et seq.; the Clean Air Act,
42 U.S.C. section 7401 et seq.; the Safe Drinking Water Act, 42
U.S.C. section 300f et seq.; the Oil Pollution Act of 1990, 33
U.S.C. section 2701 et seq.; and the Occupational Safety and
Health Act of 1970, as amended, as it applies to an effect
upon the natural environment, 29 U.S.C. section 651 et seq.; or
any other federal, state or local law of similar effect, each
as amended from time to time; provided, however, that no
change in any Environmental Law after the Closing Date
shall be deemed to amend the definition herein of the term
"Hazardous Materials," nor shall any subsequent change in
any Environmental Law be deemed to require reopening of
any Environmental Condition theretofore deemed closed
prior to such change in accordance with the provisions of
Section 7.15 hereof.
"Equipment" shall mean all of the furniture, trade
fixtures, furnishings, machinery, vehicles, tractors, trailers,
spare parts, supplies, equipment, snow removal equipment
and vehicles, tooling, jigs, molds, patterns, dies and other
tangible Personal Property owned by the Federal Division
or primarily used in the Business (including leased
equipment), wherever located and including any equipment
in the possession of any supplier to or Affiliate of the
Federal Division, including all warranty rights with respect
thereto.
"ERISA" shall mean the Employee Retirement
Income Security Act of 1974, and the rules and Regulations
promulgated thereunder, as amended.
"ERISA Affiliate" shall mean any entity which is (or
at any relevant time was) a member of a "controlled group
of corporations" with, or under "common control" with, or
a member of an "Affiliated service group" with, the
Company, as defined in Section 414(b), (c), (m) or (o) of
the Code.
"Exceptions" shall mean, with respect to Owned
Real Property, Liabilities and Encumbrances that encumber
such real estate or to which such Real Estate is subject.
"FCH" shall have the meaning set forth in the
Preamble of this Agreement.
"Federal Division" shall mean the division of the
Company, also known as Federal Cartridge Co., that is
engaged primarily in the Business and consists of the assets
(including the Assets) utilized therein and the Federal
Liabilities, and shall include the Company acting solely on
behalf of the Federal Division where the context is
appropriate, especially in cases of ownership and title.
After the Closing "Federal Division" shall be deemed to
refer hereunder to the "Company." The Federal Division
shall not include, without limitation, any operation,
undertaking, Liability, asset, Encumbrance, Action or other
matter arising from, incident to or in connection with the
▇▇▇▇▇▇▇ Division, Pentair or FCH or any Affiliate of such
Persons, or that which is not otherwise associated with the
business of the Federal Division.
"Federal Liabilities" means, except as excluded by
or stated to the contrary in this Agreement, all of the
liabilities of the Federal Division, including (a) the
Liabilities of the Federal Division set forth on the face of
the Final Closing Date Net Equity Statement, (b) all
Liabilities (including Taxes) of the Company which arise
after the Closing Date, (c) Liabilities of the Federal Division
directly related to the assets of the Federal Division
referenced in the definition of "Assets", such as, for
example, those Liabilities (excluding Defaults) arising under
the terms of Contracts and Leases, (d) Liabilities arising
under Employee Benefits for Active Employees, but only to
the extent provided by the terms of this Agreement or the
Transaction Documents, (e) all obligations of the Company
on behalf of the Federal Division to indemnify any Person
(other than Pentair, FCH or any Affiliate) by reason of the
fact that such Person was a director, officer, employee or
agent of the Company on behalf of the Federal Division or
was serving as a partner, trustee, director, officer, employee
or agent of another entity (whether such indemnification is
for judgments, Damages, penalties, fines, costs, amounts
paid in settlement, losses, expenses, or otherwise and
whether such indemnification is pursuant to any statute,
charter document, bylaw, agreement, or otherwise), with
respect to any Federal Liability to the extent such
indemnification extends to obligations otherwise constituting
Federal Liabilities, (f) other obligations of the Federal
Division set forth in the Disclosure Schedules or not
required to be set forth therein pursuant to the terms of this
Agreement and (g) Liabilities of the Federal Division
specifically described in this Agreement.
Notwithstanding any other provision contained in
this definition, but without duplication, Federal Liabilities
shall not include, without limitation, (i) any Liability of the
Company for unpaid Taxes and insurance premiums (with
respect to the Federal Division or otherwise) for periods on
or before the Closing Date, (ii) any Liability of the
Company for income, transfer, sales, use, and other Taxes
arising in connection with the consummation of the
Transactions, including the transfer of non-Federal Division
assets and liabilities, including the assets and liabilities of
the ▇▇▇▇▇▇▇ Division, or the deemed transfer of the Assets
of the Federal Division pursuant to the Election, or any
excess loss account in the stock of the Company, or any
deferred gain on any deferred intercompany transaction),
(iii) any Liability of the Company for the unpaid Taxes of
any Person other than the Company under Treas. Reg.
section 1.1502-6 (or any similar provision of state, local, or
foreign law), as a transferee or successor, by contract or
otherwise, (iv) any obligation of the Company to indemnify
any Person by reason of the fact that such Person was a
director, officer, employee, or agent of the Company or was
serving at the request of the Company as a partner, trustee,
director, officer, employee, or agent of another entity
(whether such indemnification is for judgment, damages,
penalties, fines, costs, amounts paid in settlement, losses,
expenses, or otherwise and whether such indemnification is
pursuant to any statute, charter document, bylaw,
agreement, or otherwise) to the extent such indemnification
extends to obligations not otherwise constituting Federal
Liabilities, (v) any Liability of the Company for costs and
expenses incurred in connection with this Agreement and the
Transactions other than as specifically set forth in the
Separation Agreement, (vi) any Liability or obligation of the
Company (other than a Liability of the Federal Division)
under this Agreement (or under any side agreement between
the Company on the one hand and Pentair or FCH on the
other hand entered into without the Knowledge and prior
written consent of Buyer), (vii) any Liability for Special
Claims under Section 8.2(a) of this Agreement and (viii) any
Liability for any other matter for which the Buyer (or the
Company) is indemnified pursuant to this Agreement.
"Final Closing Date Net Equity Statement" shall
have the meaning set forth in Section 2.6(e) hereof.
"Final Net Equity" shall have the meaning set forth
in Section 2.6(e) hereof.
"Financial Statements" shall have the meaning set
forth in Section 4.6(b) hereof.
"GAAP" shall mean generally accepted accounting
principles in the United States of America, applied on a
consistent basis.
"Governmental Agency" or "Governmental
Agencies" shall mean any federal, state, local or foreign
governments or their political subdivisions, courts, agencies,
authorities, commissions, boards or bureaus having
jurisdiction over the Company or the Business.
"Hazardous Materials" shall mean (i) any petroleum
or petroleum products, asbestos in any form, and
polychlorinated biphenyls; (ii) any radioactive substance;
(iii) any toxic, infectious, reactive, corrosive, ignitible or
flammable chemical or chemical compound; and (iv) any
chemicals, materials or substances, whether solid, liquid or
gas defined as or included in the definition of "hazardous
substances," "hazardous wastes," "hazardous materials,"
"extremely hazardous wastes," "restricted hazardous
wastes," "toxic substances," "toxic pollutants," or words of
similar import, under any applicable Environmental Law, as
amended to the Closing Date.
"▇▇▇▇▇▇▇ Division" shall mean the division of the
Company that is engaged primarily in the business of
development, manufacture, marketing and sale of electrical
and electronic enclosures and related products.
"IRS" shall mean the Internal Revenue Service
department of the Treasury Department.
"Indemnification Threshold" shall have the meaning
set forth in Section 8.6(a) hereof.
"Insurance Policies" shall have the meaning set forth
in Section 4.20 hereof.
"Intellectual Property" shall mean (a) all inventions
(whether patentable or unpatentable and whether or not
reduced to practice), all improvements thereto, and all
Patents, (b) all Trademarks, (c) all Copyrights, (d) all mask
works and all applications, registrations, and renewals in
connection therewith, (e) all Confidential Information, (f) all
computer software and software licenses (including data and
related documentation), (g) all other similar proprietary
rights, and (h) all copies and tangible embodiments thereof
(in whatever form or medium).
"Interim Unaudited Financial Statements" shall have
the meaning set forth in Section 7.18 hereof.
"Inventory" or "Inventories" shall include all of the
inventories of finished goods, raw materials, work in
process, spare parts, labeling, wrapping, supply and
packaging items, of the Federal Division wherever located,
and, as applied to Special Inventory, shall include all
finished goods and all inventories of raw materials, work in
process, labeling, wrapping and packaging items usable only
for such products.
"Knowledge" or "best Knowledge" of Pentair, FCH
or the Company, when modifying any provision of this
Agreement, including a representation or warranty, shall
mean that no Person listed on Exhibit B hereto has any
knowledge that such representation or warranty is not true
and correct to the same extent as provided therein, and that:
(i) Pentair, FCH and the Company have
directed the personnel set forth on Exhibit B to
review diligently their respective books and records
with respect to the representations and warranties set
forth herein; and
(ii) nothing has come to the attention of
such personnel in the course of such investigation
and review or otherwise which should reasonably
cause such Person, in the exercise of due diligence,
to believe such representation and warranty is not
complete, true or correct.
The foregoing shall have a cognate meaning with
respect to Buyer in Section 5.6 as to the Buyer personnel set
forth on Exhibit B hereto.
"Leased Real Property" shall have the meaning set
forth in Section 4.17 hereof.
"Leases" shall mean all of the leases, subleases,
leasehold estates and subleaseholds therein with respect to
the personal or real property of or associated with the
Company on behalf of the Federal Division and constituting
Assets.
"Liability" shall mean without limitation any direct
or indirect liability, indebtedness, obligation, commitment,
expense, claim, deficiency, guaranty or endorsement of or
by any Person of any type, whether accrued, absolute,
contingent, matured or unmatured, known or unknown.
"MADSP" shall have the meaning set forth in
Section 7.13(b) hereof.
"Material Adverse Effect" or "Material Adverse
Change" shall mean (a) any significant and substantial
adverse effect or change in the condition (financial or
other), Business, results of operations, Assets, Federal
Liabilities or operations of the Federal Division, or (b) any
event or condition which would, with reasonable certainty
with the passage of time, constitute a "Material Adverse
Effect" or "Material Adverse Change."
"Mortgages" shall mean all deeds of trust, mortgages
or other debt Encumbrances on Owned Real Property.
"Net Equity" shall mean (a) Assets (excluding
Special Inventory) minus (b) Federal Liabilities, as shown
on the Final Closing Net Equity Statement determined in
accordance with Section 2.6 hereof.
"Ordinary Course of Business" or "ordinary course"
or any similar phrase shall mean the ordinary course of the
Business consistent with the past practice and custom.
"Owned Real Property" shall mean all real property
owned in fee by the Federal Division listed on Schedule
4.18, including without limitation all rights, easements and
privileges appertaining or relating thereto, and all buildings,
fixtures and improvements located thereon.
"Party" or "Parties" shall mean, in the singular, each
of the Buyer, Company, Pentair and FCH and, in the plural,
collectively, the Buyer, Company, Pentair and FCH, as
determined herein by the context in which used.
"Patents" shall mean all patents and patent
disclosures and applications, and registered design and
registered design applications, together with all reissuances,
continuations, continuations-in-part, revisions, extensions
and re-examinations thereof.
"PBGC" shall mean the Pension Benefit Guaranty
Corporation.
"Pension Plan" shall mean the Defined Benefit Plan
and any "employee pension benefit plan" within the meaning
of section 3(2) of ERISA provided to employees of the Federal
Division.
"Pentair" shall have the meaning set forth in the
Preamble of this Agreement.
"Pentair's Accountants" shall have the meaning set
forth in Section 2.6(a) hereof.
"Permits" shall mean all licenses, certificates,
permits, franchises, approvals, authorizations, consents or
orders of, or filings with, any Governmental Agency,
whether foreign, federal, state or local, or any other Person,
relating to the conduct of or the operation of the Business.
"Permitted Encumbrances" shall mean:
(a) with respect to Owned Real Property
(i) ad valorem real property Taxes not yet due and payable,
(ii) Exceptions of record as to which there is no Default,
and (iii) building, zoning and subdivision ordinances, and
(b) with respect to Personal Property,
intangible property and other non-real property (i) minor
imperfections of title and encumbrances which, individually
or in the aggregate, are not material in amount and do not
materially detract from the value of or impair the use of the
Assets to which they relate, (ii) retention of title agreements
with suppliers or capital or operating leases entered into in
the Ordinary Course of Business as to which there is no
Default, (iii) liens securing any Liabilities set forth in the
Final Closing Date Net Equity Statement, (iv) liens for
Taxes not yet due and payable, and (v) notwithstanding any
contrary provision of this Agreement, liens set forth on
Schedule 4.15.
"Person" shall mean an individual, a partnership, a
corporation, an association, a joint stock company, a trust,
a joint venture, an unincorporated organization, or a
governmental entity (or any department, agency, or political
subdivision thereof).
"Personal Property" shall mean the personal property
owned by the Federal Division or used in the Business,
including tangible personal property, such as sales and
promotional literature, customer, supplier and distribution
lists, art work, display units, Equipment and Inventory, and
all general intangibles such as telephone and fax numbers,
but excluding Intellectual Property.
"Personnel" shall have the meaning set forth in
Section 4.13(c) hereof.
"Plan Asset Transfer" shall have the meaning set
forth in Section 7.12(b)(i) hereof.
"Potential Default" shall mean (i) the occurrence of
an event that with the passage of time or the giving of notice
or both would constitute a Default, or (ii) the occurrence of
an event that with the passage of time or with the giving of
notice or both would give rise to a right of termination or
cancellation, renegotiation, modification or acceleration
under any Contract, Lease or Encumbrance.
"Purchase Price" shall have the meaning set forth in
Section 2.3 hereof.
"RCRA" shall mean the Resource Conservation &
Recovery Act (42 U.S.C. section 6901 et seq.).
"Referral Firm" shall mean the Minneapolis,
Minnesota office of Ernst & Young LLP or such other
nationally recognized firm of independent certified public
accounts selected by Buyer and Seller with whom none of
the Company, Buyer, Pentair or FCH, or any of their
respective Affiliates, have engaged within three (3) years
prior to the Closing Date.
"Regulations" shall mean any laws, statutes,
ordinances, code, regulations, rules, notice requirements,
court decisions and orders of any Governmental Agency,
including Environmental Laws, and those regulations
concerning energy, motor vehicle safety, public utility,
zoning, building and health codes, occupational safety and
health and laws respecting employment practices, employee
documentation, terms and conditions of employment and
wages and hours.
"Release" shall mean and include any spilling,
leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leaching, dumping, migrating within the
environment or disposing into the environment or the work-place
of any Hazardous Material, and otherwise as defined
in any Environmental Law.
"Report" shall have the meaning set forth in Section
7.13 hereof.
"Representative" shall mean any officer, director,
principal, attorney, agent, employee or other representative.
"Securities Act" shall mean the Securities Act of
1933, as amended, and the rules and Regulations
promulgated thereunder.
"Seller" shall have the meaning set forth in the
preamble to this Agreement.
"Separation" shall have the meaning set forth in the
Recitals to this Agreement.
"Separation Agreement" shall have the meaning set
forth in Section 6.1 hereof.
"Shares" shall have the meaning set forth in the
Recitals to this Agreement.
"Special Claims" shall have the meanings set forth in
Section 8.2.
"Special Inventory" shall mean the Inventory,
wherever located, of .22 Gold Medal Match and Ultra
Match products, which are in excess of one year's projected
usage as agreed between the parties.
"Specified Rate" shall mean, for any day, the prime
rate established by ▇▇▇▇▇▇ Guaranty Trust Company of
New York from time-to-time from and including the Closing
Date to the date of payment.
"Subsidiary" means any corporation with respect to
which a specified Person (or a Subsidiary thereof) owns a
majority of the common stock or has the power to vote or
direct the voting of sufficient securities to elect a majority
of the directors.
"Successor Plan" shall have the meaning set forth in
Section 7.12(b)(i) hereof.
"Tax" or "Taxes" shall mean, except where the
usage or context otherwise dictates, any federal, state, local,
foreign or other tax, levy, impost, fee, assessment or other
government charge, including income, excise, custom, duty,
contribution obligation relating thereto, estimated income,
business, occupation, franchise, property, payroll, personal
property, sales, transfer, use, employment, commercial rent,
occupancy, franchise or withholding taxes, and any interest,
penalties and additions in connection therewith for which the
Company may be liable.
"Tax Returns" shall mean and include, unless the
usage or context otherwise dictates, any federal, state, local
and foreign tax returns, declarations, elections, statements,
reports, schedules and information returns or the refiling of
any such Tax Returns previously filed.
"TCAAP" shall mean the Twin Cities Army
Ammunition Plant, and, where appropriate, the government-owned,
contractor-operated relationship between the Federal
Division and the United States Army or Department of
Defense pertaining to such plant.
"Trademarks" shall mean registered or unregistered
trademarks, registered or unregistered service marks, all
goodwill, translations, adaptations, deviations,
combinations, applications, registrations and renewals in
connection with any registered or unregistered trademark or
service ▇▇▇▇, and all trade dress and logos.
"Transaction Documents" shall mean this Agreement
and the ancillary agreements and instruments executed, filed
or otherwise prepared, exchanged or delivered in
accordance with this Agreement, including the Separation
Agreement.
"Transactions" shall mean the purchase of the Shares
and the other transactions contemplated by the Transaction
Documents.
"Treasury" or "Treasury Department" shall mean the
Department of the Treasury of the United States of America.
"Unaudited Financial Statements" shall have the
meaning set forth in Section 4.6(a) hereof.
"WARN Act" shall mean the Worker Adjustment
and Retraining Notification Act (P.L. 100-379), as
amended, and any similar Regulation of any Governmental
Agency.
"Welfare Plan" shall mean any "employee welfare
benefit plan" within the meaning of section 3(1) of ERISA
provided to employees of the Federal Division, but
excluding any multiemployer plan.
ARTICLE II
PURCHASE AND SALE OF THE SHARES
2.1 Purchase of the Shares from the Seller.
Subject to and upon the terms and conditions of this
Agreement, at the Closing of the Transactions contemplated
by this Agreement (the "Closing"), the Seller shall sell,
transfer, convey, assign and deliver to the Buyer, and the
Buyer shall purchase, acquire and accept from the Seller, all
the Shares. Such sale, transfer, conveyance, assignment and
delivery of the Shares shall convey good and marketable
title free and clear of any and all Encumbrances, and at such
time the Shares shall be fully paid and non-assessable. At
the Closing the Seller shall deliver to the Buyer certificates
evidencing the Shares duly endorsed in blank or with stock
powers duly executed by the Seller.
2.2 Further Assurances. At any time and from
time to time after the Closing, at the Buyer's request and
without further consideration, the Seller shall promptly
execute and deliver such instruments of sale, transfer,
conveyance, assignment and confirmation, and take all such
other action as the Buyer may reasonably request, more
effectively to transfer, convey and assign to the Buyer, and
to confirm the Buyer's title to, all of the Shares to be
conveyed by the Seller, to put the Buyer in actual possession
and operating control of the Business.
2.3 Purchase Price for the Shares. The
aggregate purchase price to be paid by the Buyer for the
Shares shall be (i) $112 million, plus or minus (ii) the
amount of the adjustment calculated pursuant to Section 2.7
hereof, plus (iii) the amount of the separate payments in
accordance with Section 2.8 hereof (the "Purchase Price").
2.4 Initial Payment of the Purchase Price. At
the Closing, the Buyer shall deliver to FCH the sum of $112
million by wire transfer of immediately available funds to an
account as designated by Pentair at least three (3) business
days prior to Closing.
2.5 Closing. The Closing shall take place at the
offices of ▇▇▇▇▇▇ and ▇▇▇▇▇▇, Professional Association,
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, or such other
place and time as the Parties may agree, at 10:00 a.m., local
time, on November 4, 1997, effective as of the close of
business on October 31, 1997 (the "Closing Date"). All
transactions occurring after the Closing Date shall be for the
account of Buyer or the Company.
(a) Seller Deliveries. The Seller shall
deliver to the Buyer at the Closing the following closing
documents, instruments and certificates:
(i) certificates representing the Shares
duly endorsed in accordance with Section 2.1 of this
Agreement;
(ii) certificates of good standing dated
within twenty (20) days of the Closing for (1) the
Company (including all Tax clearance certificates
other than for Ontario) from each jurisdiction in
which the Company is organized or qualified to do
business and (2) Pentair and FCH from the
jurisdictions in which they are organized;
(iii) certificates of (1) the Secretary of the
Company attesting to the incumbency and authority
of the Company's officers, and the authenticity and
continuing validity of the charter documents
delivered to Buyer, and (2) of the Secretary of each
of Pentair and FCH attesting to the incumbency and
authority of Pentair's and FCH's signatories to the
Transaction Documents;
(iv) where required by any material Lease,
an estoppel certificate from each lessor from whom
the ▇▇▇▇▇▇▇ Division leases real or personal
property consenting to the assignment of such Lease
to FCH, and, to the extent reasonably obtainable,
representing that there are no outstanding claims
against the Company under such Lease;
(v) resignation of each member of the
Board of Directors and all officers (who are not
employees of the Federal Division) of the Company;
(vi) a certificate of the Secretary of each
of Pentair and FCH attesting to the authenticity of
and attaching the resolutions of Pentair and FCH
authorizing the Transactions contemplated by this
Agreement and the Transaction Documents;
(vii) a cross receipt executed by the Buyer
and the Seller;
(viii) an opinion of counsel to Pentair,
dated as of the Closing, in substantially the form
attached as Exhibit C;
(ix) within a reasonable time prior to the
Closing a summary of, and copies of, search reports
which shall include without limitation all recorded
Encumbrances, including security interests, tax liens
and judgments relating to the Federal Division of the
Company; and
(x) All Transaction Documents duly
executed by Seller or its Representatives (as
required) not set forth above.
(b) Buyer Deliveries. The Buyer shall
deliver to the Seller at the Closing the following closing
documents, instruments and certificates:
(i) payment of that portion of the
Purchase Price required by Section 2.4 hereof to be
delivered at the Closing;
(ii) certificate of good standing dated
within twenty (20) days of the Closing for the Buyer
from the jurisdiction in which it is organized;
(iii) a certificate of the Secretary of the
Buyer attesting to the incumbency and authority of
the Buyer's signatories to the Transaction
Documents;
(iv) a certificate of the Secretary of Buyer
attesting to the authenticity of and attaching the
resolutions of Buyer authorizing the Transactions
contemplated by this Agreement and the Transaction
Documents;
(v) a cross receipt executed by the Buyer
and the Seller;
(vi) an opinion of counsel to Buyer, dated
as of the Closing, in substantially the form attached
as Exhibit D; and
(vii) all Transaction Documents duly
executed by Buyer or its Representatives (as
required) not set forth above.
2.6 Closing Audit. Pentair shall cause to be
completed an audit of the Net Equity of the Federal Division
as follows:
(a) Promptly following the Closing Date,
Pentair shall prepare and cause Deloitte & Touche, LLP, its
independent certified public accountants, ("Pentair's
Accountants") to audit a statement of net equity of the
Federal Division as of the Closing Date (the "Closing Date
Net Equity Statement"). In connection with the audit of the
Closing Date Net Equity Statement, Representatives of
Pentair's Accountants acting for Pentair have observed the
physical inventory of the Federal Division on September 27,
1997. Buyer reviewed the inventory observation plan and
participated in the observation of the Federal Division
physical inventory by Pentair's Accountants. The Company
shall reconcile the activity occurring from the September 27,
1997 physical inventory to the Closing Date in accordance
with the Federal Division's normal practice and financial
records. For purposes of the Closing Date Net Equity
Statement, inventory will be valued in accordance with
Exhibit E.
(b) The Closing Date Net Equity
Statement shall be prepared in accordance with GAAP, but
also as GAAP is modified and superseded by the
instructions set forth in Exhibit E hereto. The final draft of
(i) the Closing Date Net Equity Statement, (ii) a calculation
of Net Equity based on the Closing Date Net Equity
Statement setting forth in reasonable detail the computation
of the adjustment to the Purchase Price in accordance with
Section 2.7, and (iii) the report, including the opinion, of
Pentair's Accountants in form attached as Exhibit F, shall be
delivered to the Buyer and its counsel for review as soon as
reasonably possible but in any event no later than 60 days
after the Closing Date.
(c) In connection with the preparation of
the Closing Date Net Equity Statement, Buyer and the
Company shall afford Pentair and its Representatives
reasonable access to the Books and Records, Personnel and
facilities of the Federal Division to permit it to prepare, and
Pentair's Accountants to audit, the Closing Date Net Equity
Statement. Buyer shall also cooperate with Pentair to
request that the persons who were officers and employees of
the Federal Division prior to the Closing, sign and deliver
to Pentair's Accountants a standard representation statement
relating to the Closing Date Net Equity Statement. The
parties agree with respect to the foregoing sentence that (i)
such officers and employees shall have the right to review
such Books and Records and workpapers prepared by
Pentair and Pentair's Accountants as reasonably necessary
to enable such officers and employees to sign the standard
representation letter, and (ii) the standard representation
letter shall not be used and shall have no value as evidence
in the event the Referral Firm is required to make a
determination under Section 2.6(d) hereof. The Buyer and
Buyer's independent certified public accountants ("Buyer's
Accountants") shall have the right (i) immediately upon the
deliveries described in Section 2.6(b), to obtain copies and
to review the work papers of Pentair's Accountants
underlying or utilized in preparing the Closing Date Net
Equity Statement and the calculation of Net Equity,
including without limitation the trial balance, all adjustments
and all other underlying books, records, and other relevant
documents and memoranda of the Company, Pentair and
FCH (as to Pentair and FCH to the extent reasonably
necessary for Buyer's review), and (ii) to utilize Personnel
of FCH or Pentair for purposes of such review, each of (i)
and (ii) immediately above as reasonably necessary to verify
the accuracy and fairness in conformity with GAAP as
modified and superseded by the instructions set forth in
Exhibit E hereto of the presentation of the Closing Date Net
Equity Statement and calculation of Net Equity. Buyer shall
make available to Pentair (upon request following the giving
of objections to the Closing Date Net Equity Statement) its
workpapers generated in connection with its review of the
Closing Date Net Equity Statement.
(d) Within 30 days after its receipt of the
final draft of the Closing Date Net Equity Statement, Buyer
shall either inform Pentair in writing that the Closing Date
Net Equity Statement is acceptable or object thereto in
writing, setting forth a specific description of each of its
objections. If the Buyer so objects, any such objection that
the Buyer and Pentair cannot resolve within 30 days from
the date Buyer notifies the Seller of any such objection shall
be referred to the Referral Firm for final determination,
which final determination shall be made by the Referral
Firm on or before 30 days after referral. The final
determination of the adjustments to the Closing Date Net
Equity Statement and the calculation of Net Equity made by
the Referral Firm shall be conclusive and binding upon the
Buyer, Pentair and FCH. In resolving any disputed item,
the Referral Firm (i) shall be bound by the provisions of this
Section 2.6 and (ii) may not assign a value to any item
greater than the greatest value claimed for such item by
either Buyer or Pentair or less than the smallest value for
such item claimed by either Party.
(e) If by agreement of the Buyer and the
Seller or by determination pursuant to Section 2.6(d), any
amount shown in the Closing Date Net Equity Statement or
calculation of Net Equity is determined to be inaccurate or
not authorized by application of GAAP as modified and
superseded by the instructions set forth in Exhibit E hereto,
such inaccurate amount or unauthorized presentation or
treatment shall be corrected and the correct amount,
presentation or treatment shall be inserted in lieu thereof.
The Closing Date Net Equity Statement, including the
calculation of Net Equity, as so corrected or, as accepted if
undisputed by Buyer (within the period set forth in Section
2.6(d)), shall constitute the "Final Closing Date Net Equity
Statement" and "Final Net Equity" for purposes of this
Agreement.
(f) The Buyer shall pay the fees and
disbursements of the Buyer's Accountants. Pentair shall pay
the fees and disbursements of Pentair's Accountants. The
fees and disbursements, if any, of the Referral Firm shall be
paid one-half by the Buyer and one-half by the Seller.
2.7 Determination and Payment of Purchase
Price Adjustment. Upon the determination of the Final
Closing Date Net Equity Statement and Final Net Equity in
accordance with Section 2.6(e), the Purchase Price and
payment thereof shall be adjusted, up or down, as follows:
(a) if Final Net Equity is greater than $98.737 million, the
amount of such difference shall be paid by Buyer to FCH
and (b) if Final Net Equity is less than $98.737 million, the
amount of such difference shall be paid by Seller to Buyer.
Such payments, if any, shall be made by wire transfer of
immediately available funds within five business days after
the date upon which such amount is finally determined
hereunder to an account as designated by the receiving
party, together with interest thereon from the Closing Date
to the date of payment, calculated at the Specified Rate.
2.8 Payment for Special Inventory. The standard
cost of the Special Inventory shall be determined as of the
Closing Date in accordance with the instructions set forth in
Exhibit E hereto. As a part of the Purchase Price, Buyer
shall pay to Seller an amount equal to eighty percent (80%)
of the value computed at such standard cost of the Special
Inventory in three (3) equal payments, without interest, on
the first, second and third anniversaries of the Closing Date.
ARTICLE III
REPRESENTATIONS REGARDING PENTAIR AND
FCH
As a material inducement to Buyer to enter into this
Agreement, Pentair, for itself and FCH, represents and
warrants to the Buyer that the following representations and
warranties are, as of the date hereof, true, complete and
correct:
3.1 Title to Shares. FCH has good and
marketable legal and beneficial title to the Shares, free and
clear of any and all covenants, conditions, voting trust
arrangements, options or Encumbrances whatsoever.
3.2 Authorizations.
(a) FCH has the full right, power and
authority to transfer, convey and sell the Shares to the Buyer
at the Closing and, upon consummation of the Transactions,
the Buyer will acquire from FCH good and marketable title
to such Shares, free and clear of any and all Encumbrances.
(b) Pentair and FCH represent and
warrant that each has the requisite power and authority, and
each has taken all action necessary to execute and deliver
this Agreement and the other Transaction Documents to
which it is a party and to perform their respective
obligations hereunder and thereunder. This Agreement and
the other Transaction Documents to which each is a party
constitute their respective valid and legally binding
obligations and, assuming due execution of this Agreement
by the other Parties hereto and of such other Transaction
Documents by the Parties thereto, are enforceable against
Pentair and FCH in accordance with their respective terms
and conditions.
3.3 Noncontravention. Except as listed in
Schedule 3.3, neither the execution, delivery or performance
of this Agreement or the Transaction Documents by Pentair
or FCH, nor the consummation of the Transactions, will (a)
violate, conflict with or result in any breach of any
provision of the articles or certificate of incorporation or
bylaws of either Pentair or FCH, (b) violate any Regulation
or Court Order to which either Pentair or FCH is subject,
(c) violate, conflict with, constitute a Default under, result
in the creation of any Encumbrance upon any of the Assets
or require any notice under any, without limitation,
contract, lease, mortgage or other instrument to which either
Pentair or FCH is a party, by which either of them is bound
or to which any of their respective assets is subject.
3.4 338(h)(10) Filing Eligibility. Pentair is
eligible to join in a filing of an election under Section
338(h)(10) of the Code as described in Section 7.13 hereof.
3.5 Books and Records. Neither Pentair nor
FCH presently maintain, generate or have possession of
Books and Records, except copies thereof.
ARTICLE IV
REPRESENTATIONS REGARDING THE
COMPANY
As a material inducement to Buyer to enter into this
Agreement, Pentair, for itself and FCH, represents and
warrants to Buyer that the following are, as of the date
hereof true, complete and correct:
4.1 Organization, Qualification and Corporate
Power. The Company is a corporation duly organized,
validly existing, and in good standing under the laws of the
State of Minnesota. Except as set forth on Schedule 4.1, the
Company is duly qualified to conduct business, properly
licensed and is in good standing under the laws of each
jurisdiction where such qualification and licensing is
required. Schedule 4.1 contains an accurate and complete
list of all jurisdictions in which Company is qualified to do
business as a foreign corporation. Schedule 4.1 contains
copies of the articles of incorporation and bylaws of
Company, and all amendments thereto, which are accurate
and complete.
4.2 Capitalization. The entire authorized capital
stock of the Company consists of one class of capital stock,
which is the Company Common Stock and of which 99
Shares are issued and outstanding. All of the issued and
outstanding shares of Common Stock have been duly
authorized and are validly issued, fully paid, and
nonassessable. There are no outstanding or authorized
interests, options, warrants, rights, or other encumbrances,
or Contracts that could require the Company to issue, sell,
or otherwise cause to become outstanding, any of its capital
stock, or any other commitments of any kind for the
issuance of additional shares of capital stock or other
securities issued by the Company. There are no other
outstanding or authorized stock appreciation, phantom stock,
profit participation, or similar rights with respect to the
Common Stock.
4.3 Authorization of the Company. The
Company has full power and authority (including full
corporate power and authority), and has taken all corporate
action necessary, to own, lease and operate the Assets, to
conduct the Business as it is presently being conducted, and
to conduct the business of the ▇▇▇▇▇▇▇ Division as
conducted prior to the effectiveness of the Separation
Agreement. The Company has not conducted any business
other than the business relating to the Federal Division
(including the operation of TCAAP), the ▇▇▇▇▇▇▇ Division
and the Subsidiaries of the Company.
4.4 Subsidiaries. Except for ▇▇▇▇▇▇▇
Engineering S.A. de C.V. and Federal-▇▇▇▇▇▇▇
International, Inc. which have been transferred to FCH or
an Affiliate thereof in connection with the Separation, the
Company does not, directly or indirectly, currently own,
possess, control or have any equity interest in, and has no
Liability with respect to any current or former Subsidiary or
other such Person.
4.5 Noncontravention. Except as set forth on
Schedule 4.5, neither the execution, delivery or performance
of this Agreement or the other Transaction Documents, nor
the consummation of the Transactions, will (i) violate or
conflict with any provision of the articles of incorporation
or bylaws of the Company, (ii) violate any Regulation or
Court Order to which the Company is subject, (iii) result in
a violation of, constitute a Default under or require any
notice under any Contract, Lease, or Permit, to which the
Company is a party or by which the Company is bound or
to which any of the Assets is subject or (iv) impose any
Encumbrance on the Assets.
4.6 Financial Statements.
(a) The Seller has previously delivered to
the Buyer the unaudited balance sheet of the Federal
Division as of December 31, 1996, December 31, 1995 and
December 31, 1994 and the related statements of income,
shareholder equity, retained earnings and cash flow of the
Federal Division for the fiscal years then ended
(collectively, the "Unaudited Financial Statements"). The
Seller has also previously delivered to the Buyer the
unaudited balance sheet of the Federal Division as of
September 27, 1997, and the related statements of income
of the Federal Division for the month ending September 27,
1997 and for the nine (9) month period then ended (the
"Current Financial Statement").
(b) The Unaudited Financial Statements
and the Current Financial Statement (collectively, the
"Financial Statements") have been prepared in accordance
with the books and records of the Federal Division which
were used in preparation of Pentair's consolidated financial
statements for corresponding periods. The Financial
Statements are true and complete, and present fairly and
disclose the financial position and results of operations of
the Federal Division. Except as set forth on Schedule 4.6,
the Financial Statements have been prepared in accordance
with GAAP, but do not include (i) certain statements as well
as income statement, balance sheet and footnote disclosures
required by GAAP for completeness (but not accuracy) of
financial statements or (ii) certain tax and related accruals
and other such information not applicable for proper
presentation of financial statements of a consolidated
subsidiary.
4.7 Permits, Consents and Approvals.
Schedule 4.7 sets forth a complete list of all material
Permits used or necessary (in whole or in part) in the
operation of the Business or otherwise held by the Company
in connection with the operation of the Federal Division.
Each Permit listed on Schedule 4.7 is valid, binding and in
full force and effect. The Company has, and at all times has
had, all Permits required under any Regulation (including
Environmental Laws) in the operation of the Business.
Except as set forth on Schedule 4.7, (i) the Federal Division
has all requisite Permits to operate the Business, (ii) the
Federal Division is not in Default with respect to any
material Permit, (iii) to the Knowledge of Company, Pentair
and FCH, the material Permits are renewable and will
continue in force without any special qualification, notice,
or compliance procedures that arise from consummation of
the Transactions, (iv) and except as set forth in the
Separation Agreement, no Affiliate of the Company,
including the ▇▇▇▇▇▇▇ Division, has any direct or indirect
interest in any Permit required to operate the Business, and
(v) neither the Company, FCH nor Pentair has been advised
of, nor to the Knowledge of any of them is there, a
reasonable probability of (A) any revocation or anticipated
revocation of any Permits, or (B) any changes or charges to
or in connection with existing or pending Permits which
would materially and adversely affect the conduct of the
Business of the Federal Division as presently conducted.
4.8 Undisclosed Liabilities. Except as set forth
on Schedule 4.8 or other Disclosure Schedules (or not
required to be set forth therein under the terms hereof) or as
reflected or reserved for in the unaudited balance sheet of
the Federal Division dated as of December 31, 1996, there
are no liabilities of the Federal Division except those (i)
reflected or reserved for on the Final Closing Date Net
Equity Statement, (ii) incurred in the Ordinary Course of
Business since December 31, 1996, or (iii) otherwise
specifically disclosed and provided for herein.
4.9 Litigation.
(a) Except as set forth on Schedule 4.9 (i)
there are no pending proceedings before any Governmental
Agency, (ii) the Company is not subject to any outstanding
Court Order; (iii) the Company, to the Knowledge of the
Company, FCH or Pentair, has not been threatened to be
made a party to any Action involving more than $25,000,
(iv) there is no Action or Court Order that involves the risk
of criminal liability, (v) there is no Action that involves the
Federal Division as a plaintiff, including any derivative suit
and (vi) there is no proceeding pending, or to the
Knowledge of the Company, FCH or Pentair threatened,
that seeks to delay, limit or enjoin the Transactions. The
Company is not in Default with respect to any Court Order,
and there are no unsatisfied judgments against the Company.
(b) Except as set forth on Schedule 4.11,
Schedule 4.9 or as addressed in Section 7.15, there are no
known or unknown contingent liabilities arising out of or
based upon the Company's contract(s) with the Department
of the Army or the Department of Defense to operate
TCAAP that are not fully covered by insurance or
indemnification under such contract(s). This paragraph
4.9(b) shall not survive the Closing Date. Section 6.4 and
Article VIII provides indemnification with respect to
TCAAP.
4.10 Taxes.
(a) All Tax Returns (including
consolidated or combined Tax Returns including the
Company) required to be filed on or before the Closing Date
with respect to the Company have been or will be filed
timely (including within the time permitted by any extension
that is filed timely) by or on behalf of the Company and all
Taxes shown to be due on such Tax Returns have been or
shall be timely paid.
(b) From and after January 1, 1989, the
Company has not been a member of an affiliated group
(within the meaning of Section 1504 of the Code) filing a
consolidated federal Return, other than a group the common
parent of which is Pentair.
(c) Schedule 4.10 lists all Tax Returns
filed with respect to the Company for taxable periods which
remain open, indicates those returns that have been audited
and indicates those Tax Returns that are currently the
subject of audit or scheduled for an examination by any
relevant taxing authority.
(d) Except as disclosed in Schedule 4.10:
(i) no notice or claim has been
made by a Governmental Agency in a jurisdiction
where the Company does not file Tax Returns that it
is or may be subject to Taxes in that jurisdiction;
(ii) no extension of the statute of
limitations with respect to any assessment or claim
for Taxes has been granted by or on behalf of the
Company;
(iii) there are no liens for Taxes
upon the assets of the Company except liens for
Taxes not yet due;
(iv) no amended Tax Returns or
refund claims have been or are scheduled to be filed
by or on behalf of the Company;
(v) all Taxes and other liabilities
with respect to completed and settled audits,
examinations or concluded litigation have been paid;
and
(vi) there are no pending appeals
or other administrative proceeding with respect to
any Tax Return of the Company, and there is no
deficiency or refund litigation with respect to any
Tax Return of the Company. No material issues
have been raised by any relevant taxing authorities
on audit of the Tax Returns of the Company. The
Company has not received any notice of any Tax
deficiency or assessment.
(e) The Company has not filed or had
filed on its behalf a consent to the application of Section
341(f) of the Code.
(f) Except as disclosed in Schedule 4.10,
the Company is not a party to any contractual obligation
requiring the indemnification or reimbursement of any
person with respect to the payment of any Taxes. Except as
disclosed in Schedule 4.10, no claim has been asserted,
which has not been resolved or satisfied, for any payment
under any such agreement.
(g) Except as disclosed in Schedule 4.10,
the Company is not a party to or a beneficiary of any
financing, the interest on which is tax-exempt under the
Code, and none of the assets of the Company is "tax-exempt
use property."
(h) As of the Closing Date, the Company
is not a party to any agreement, contract, arrangement, or
plan that has resulted in or would result, separately or in the
aggregate, in the payment of any "excess parachute
payments" within the meaning of Section 280G of the Code.
(i) The Company is a "United States
person" within the meaning of the Code. The Company has
not been a United States real property holding corporation
within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Section 897(c)(1)(A)(ii) of
the Code. The Transactions are not subject to the tax
withholding provisions of Section 3406 of the Code, or of
Subchapter A of Chapter 3 of the Code, or of any other
provision of law. Except as disclosed in Schedule 4.10, the
Company does not have and did not have a branch in any
foreign country.
(j) The Company is not a party to any
joint venture, partnership, or other arrangement or contract
that could be treated as a partnership for federal income Tax
purposes.
(k) The Company has withheld and paid
all Taxes required to have been withheld and paid, including
(i) amounts paid to any employee or statutory employee or
any foreign person or entity; and (ii) any backup
withholding required under Section 3406 of the Code.
4.11 Employee Benefit and Employment
Matters.
(a) Schedule 4.11 contains a complete list
of Employee Benefits which cover employees or former
employees of the Company employed by the Federal
Division. Except as set forth on Schedule 4.11, (i) the costs
of all such Employee Benefits that are paid currently by the
Federal Division are reflected as expenses in the Financial
Statements; and (ii) the cost of such Employee Benefits
which are, in whole or in part, not paid currently are
adequately reserved for in the Financial Statements.
(b) Seller has delivered to Buyer accurate
and complete copies of (i) the Pension Plans, (ii) the two
most recent annual reports on Form 5500 filed with the
Internal Revenue Service with respect to the Pension Plans,
(if any such report was required), (iii) each trust agreement
and group annuity contract relating to the Pension Plans,
(iv) certified financial statements, if any, for the Pension
Plans and (v) the two most recent actuarial reports prepared
in connection with the Pension Plans and their funded status.
(c) All contributions to, and payments
from, the Defined Benefit Plan required to have been made
in accordance with the Defined Benefit Plan and, if
applicable, Section 302 of ERISA or Section 412 of the
Code, have been timely made. The funding method used in
connection with the Defined Benefit Plan is acceptable under
ERISA, and the actuarial assumptions used in connection
with such funding, in the aggregate, are reasonable.
(d) Except as set forth on Schedule 4.11,
the Pension Plans (and any related trust agreement or
annuity contract or any other funding instrument) materially
comply currently, and have materially complied in the past,
both as to form and operation, with the provisions of ERISA
and the Code (including Section 410(b) of the Code relating
to coverage), where required in order to be tax-qualified
under Section 401(a) of the Code, and all other applicable
laws, rules and regulations; all necessary governmental
approvals for such plans have been obtained. Except as set
forth in Schedule 4.11, the Pension Plans have received a
determination letter from the Internal Revenue Service to the
effect that the Pension Plans (and any related trust
agreements or annuity contracts or other funding instrument)
are qualified and exempt from Federal income taxes under
Sections 401(a) and 501(a), respectively, of the Code, and
no such determination letter has been revoked nor, to the
best knowledge of Seller, has revocation been threatened,
nor has any Pension Plan been amended since the date of its
most recent determination letter or application therefor in
any respect which would adversely affect its qualification or
materially increase its cost.
(e) Except as set forth on Schedule 4.11,
the Pension Plans, and all other Employee Benefits, have
been administered to date in material compliance with the
requirements of the Code and ERISA. All reports, returns
and similar documents with respect to such Employee
Benefits required to be filed with any Governmental Agency
or distributed to any such Employee Benefits participant
have been duly and timely filed or distributed. Except as set
forth in Schedule 4.11, there are no investigations by any
Governmental Agency, termination proceedings or other
claims (except claims for benefits payable in the normal
operation of the Employee Benefits), suits or proceedings
against or involving any of the Employee Benefits or
asserting any rights or claims to benefits under any
Employee Benefits that could give rise to any material
liability, nor, to the best knowledge of Seller, are there any
facts that could give rise to any material liability in the event
of any such investigation, claim, suit or proceeding. No
event has occurred and no condition exists under any
Employee Benefits that would subject Company or Buyer to
any tax under Code Sections 4971, 4972, 4977 or 4979 or
to a fine under ERISA Section 502(c).
(f) Except as set forth on Schedule 4.11,
all premiums (and interest charges and penalties for late
payment, if applicable) due to the PBGC have been paid for
each plan year thereof for which such premiums are
required with respect to the Defined Benefit Plan. No
liability to the PBGC has been incurred by Seller, Company
or any Common Control Entity on account of any
termination of an employee pension benefit plan subject to
Title IV of ERISA. Except as set forth in Schedule 4.11, no
filing has been made by Seller or any Common Control
Entity with the PBGC (and no proceeding has been
commenced by the PBGC) to terminate any employee
pension benefit plan subject to Title IV of ERISA
maintained, or wholly or partially funded, by Seller or any
Common Control Entity. Neither Seller nor any Common
Control Entity has (i) ceased operations at a facility so as to
become subject to the provisions of Section 4062(e) of
ERISA, (ii) withdrawn as a substantial employer so as to
become subject to the provisions of Section 4063 of ERISA,
or (iii) ceased making contributions on or before the Closing
Date to any employee pension benefit plan subject to Section
4064(a) of ERISA to which Seller or any Common Control
Entity made contributions during the five (5) years prior to
the Closing Date. No employee pension benefit plan of
Seller or any Common Control Entity subject to Title IV of
ERISA has incurred any material liability to the PBGC other
than for the payment of premiums, all of which have been
paid when due. No employee pension benefit plan of Seller
or any Common Control Entity has applied for or received
a waiver of the minimum funding standards imposed by
Section 412 of the Code, and no employee pension benefit
plan has an "accumulated funding deficiency" within the
meaning of Section 412(a) of the Code as of the most recent
plan year.
(g) Except as disclosed on Schedule 4.11,
no "prohibited transaction" (as defined in Section 4975 of
the Code or Section 406 of ERISA) has occurred which
involves the assets of the Pension Plans or Employee
Benefits and which could subject Company or its employees,
or a trustee, administrator or other fiduciary of any trusts
created under the Pension Plans to the tax or penalty on
prohibited transactions imposed by Section 4975 of the Code
or the sanctions imposed under Title I of ERISA. Except as
set forth on Schedule 4.11, no "reportable events" (as
defined in Section 4043 of ERISA and the regulations
thereunder) have occurred with respect to the Pension Plans,
except (i) such events for which no filing with the PBGC
was required (e.g., plan merger) and (ii) such events which
may occur as a result of the transactions contemplated
hereby. Neither Seller or any ERISA Affiliate, nor any
trustee, administrator or other fiduciary of the Pension Plans
or the Employee Benefits nor any agent of any of the
foregoing, has engaged in any transaction or acted or failed
to act in a manner which could subject Company or Buyer
to any material liability for breach of fiduciary duty under
ERISA or any other applicable law.
(h) Multiemployer Plans. Except as set
forth on Schedule 4.11, at no time has Seller or any
Common Control Entity been required to contribute to any
multiemployer pension plan within the meaning of Section
4001 of ERISA or incurred any withdrawal liability, within
the meaning of Section 4201 of ERISA, or announced an
intention to withdraw, but not yet completed such
withdrawal, from any such multiemployer pension plan.
4.12 Labor Agreements and Actions. Schedule
4.12 contains a list of all collective bargaining agreements
to which the Company is a party which relate to the Federal
Division. Except as set forth on Schedule 4.12, in the past
five years, the Federal Division has not experienced any
attempt to organize any of its employees for the purpose of
collectively bargaining or entering into a labor Contract on
behalf of such employees. As of the date hereof, there is no
concerted employee activity materially adverse to the
Federal Division, including labor strikes or disturbances,
pending or, to the Knowledge of Company, FCH or Pentair,
threatened against the Federal Division. Except as set forth
on Schedule 4.12, there are no disputes or grievances
subject to any grievance procedure, unfair labor practice
proceedings, arbitration or litigation under such agreements,
or as a result of such attempts to organize, which have not
been finally resolved, settled or otherwise disposed of. The
Federal Division is in compliance in all material respects
with all applicable Regulations respecting employment
practices, employment documentation, terms and conditions
of employment and wages and hours. There are no unfair
labor practice charges or complaints against or affecting the
Federal Division pending before any applicable
Governmental Agency and, to the Knowledge of the
Company, Pentair or FCH, there are no material facts or
information which would have a reasonable probability of
giving rise thereto.
4.13 Absence of Certain Changes. Except for
matters referenced in the Separation Agreement or as set
forth on Schedule 4.13, since December 31, 1996 with
respect to the Federal Division there has not been:
(a) any Material Adverse Change;
(b) except for the operation of the cash
management system by Pentair with respect to the Federal
Division, any declaration, setting aside or payment of any
dividend or other distribution in respect of the Common
Stock or any redemption, purchase or other acquisition of
any shares of the capital stock of the Company or any fee or
other payment to or on behalf of Pentair, FCH or any
Affiliate including any payment of principal or interest on
any debt owed to any Affiliate, other than the normal
corporate charges of the type reflected on the Financial
Statements;
(c) except as disclosed on Schedule 4.11
and except for increases occurring in the Ordinary Course
of Business (which shall include normal periodic
performance reviews and related compensation and benefit
increases) any (i) increase in the rate or terms of
compensation or bonus payable or to become payable or
benefit due or to become due by the Federal Division to its
respective current and former directors, officers, employees
or agents (collectively, "Personnel"), (ii) adoption, creation
or amendment of any plan providing Employee Benefits, or
(iii) other change in employment terms for any of the
officers, employees or agents of the Federal Division, other
than in connection with the retention bonuses and severance
arrangements referenced in Sections 7.2 and 7.11 hereof;
(d) any issuance of or commitment to
issue any (i) shares of Common Stock or (ii) rights, options,
warrants or other securities exercisable for or exchangeable
or convertible into any capital stock of the Company;
(e) any payment, discharge, compromise,
waiver, forgiveness or release of any rights or claims (or
series of related rights or claims) or any obligation or
Liability involving more than $50,000 and outside the
Ordinary Course of Business;
(f) except as disclosed on Schedule 4.19,
any amendment, modification, acceleration, cancellation,
termination, or, to the Knowledge of the Company, Pentair
or FCH any threatened cancellation or termination of any
Lease, Mortgage or Contract of the Federal Division that
(i) involves payments by or to the Company in excess of
$50,000 and (ii) is outside of the Ordinary Course of
Business or which otherwise would have a Material Adverse
Effect;
(g) except as disclosed on Schedule 4.19,
any capital expenditure or the incurring of Liability therefor
by the Federal Division involving payments in excess of
$50,000;
(h) any delay or failure to repay when due
any material obligation of the Federal Division;
(i) except as disclosed on Schedule 4.6,
any change by the Federal Division, or by Pentair with
respect to the Federal Division, in accounting methods,
principles or practices of the Federal Division, including
any increase or change in any assumptions underlying or
methods of calculating any bad debt, contingency or other
reserves or any revaluation of the Assets or Federal
Liabilities;
(j) any material Encumbrance of any of
the Assets other than in the Ordinary Course of Business;
(k) any indebtedness incurred (contingent
or otherwise) by the Federal Division for borrowed money
or any commitment to borrow money entered into by the
Federal Division, or any loans or guarantees made, agreed
to be made by, or obligating the Federal Division (other
than loans and advances made by Pentair to the Federal
Division);
(l) any capital investment in, loan to, or
acquisition of the securities or substantially all of the assets
of any other Person (i) involving an Affiliate of the
Company, (ii) involving more than $50,000 in the
aggregate, or (iii) outside the Ordinary Course of Business;
(m) except as set forth in Schedule 4.16,
any grant of any Contract rights under or with respect to
any Intellectual Property of the Federal Division except in
the Ordinary Course of Business; or
(n) to the Knowledge of the Company,
FCH or Pentair, any oral agreements by or obligating the
Federal Division, or any of its Personnel to do any of the
foregoing.
4.14 Books and Records. The Company has
made and kept books and records and accounts, which, in
reasonable detail, accurately and fairly reflect the activities
of the Company and the separate business and financial
activities of each of the Federal Division and ▇▇▇▇▇▇▇
Division so that the books and records of such divisions are
able to be separated, audited and traced. The minute books
of the Company, as previously made available to the Buyer
and its Representatives, contain accurate and adequate
records of all meetings of, and corporate actions taken by
(including action taken by written consent), the stockholder
and Board of Directors of the Company. The copies of the
stock book records of the Company heretofore delivered to
the Buyer completely and accurately reflect all transactions
effected by or on behalf of the Company, or to which it is
or may be bound. At Closing all of the Books and Records
will be owned by and in the possession of the Company.
The Books and Records are sufficient to operate the
Business as a stand-alone company. All Books and Records
have been maintained in all material respects in accordance
with all applicable Regulations and good business practices.
4.15 Owned and Leased Personal Property.
Schedule 4.15 attached hereto contains a true, correct and
complete copy of the asset register of the Federal Division
as of September 27, 1997. Schedule 4.15 also sets forth all
items of Personal Property not owned by Company, but in
the possession of or used in the Business, including Leases
of Personal Property having rental payments therefor in
excess of $25,000 per year. Except as disclosed on
Schedule 4.15:
(a) The Federal Division has good and
marketable title to each item of Personal Property listed in
the asset register or acquired (and not disposed of) in the
Ordinary Course of Business thereafter free and clear of all
Encumbrances, except for Permitted Encumbrances; and
(b) The Equipment is in good operating
condition and repair, normal wear and tear excepted, is
currently used in the Business in the ordinary course and
normal maintenance has been consistently performed with
respect to the Equipment.
4.16 Intellectual Property.
(a) Possession, Rights and Ownership.
The Federal Division possesses all Intellectual Property
necessary for the conduct of its Business as presently
conducted, including all licenses and rights to use any
Intellectual Property necessary for the Business as presently
conducted. The Federal Division is the sole and exclusive
owner of all right, title and interest in and to the Intellectual
Property owned by it, free and clear of all Encumbrances,
other than as set forth on Schedule 4.16 hereof. Except as
set forth on Schedule 4.16, no right of the Company in the
Intellectual Property used in the Business will be impaired
or Encumbered in any material way by reason of the
consummation of the Transactions.
(b) No Proceedings, Disclosure or
Infringement. Neither the Company, Pentair or FCH has
received any notice of any event, inquiry, investigation or
proceeding threatening the validity or exclusivity, where
applicable, of any Intellectual Property used by the Federal
Division. The Federal Division has taken all reasonable and
prudent steps to protect the Intellectual Property listed on
Schedule 4.16, from infringement by any other Person.
Except as set forth on Schedule 4.16 no other Person (i) has
the right (including a license) to use any of the Intellectual
Property of the Company with respect to the goods and
services on which they are now being used in the Business
either in identical form or in such near resemblance thereto
as to be likely, when applied to the goods of any such
Person, to cause confusion with such Intellectual Property
or to cause a mistake or to deceive, (ii) has notified the
Company, Pentair or FCH that it claims any ownership of
or right to use such Intellectual Property, or (iii) to the
Knowledge of the Company, FCH or Pentair is infringing
upon any Intellectual Property in any material respect.
Except as set forth in Schedule 4.16, the Federal Division
has full ownership rights and interests in and to all of the
trade secrets used in the Business, which trade secrets have
not been used, disclosed, or appropriated, and, to the
Knowledge of the Company, Pentair or FCH, are not now
being used, disclosed or appropriated, by any Person. The
use of the Intellectual Property used in the Business has not
conflicted and does not now conflict with, infringe upon or
otherwise violate, in any material respect, the rights of any
third party. Except as set forth in Schedule 4.16, no legal
proceeding has been instituted against, or notice or claim
received by, nor to the Knowledge of Company, Pentair or
FCH, is there a reasonable probability thereof, that alleges
that the use by the Federal Division of the Intellectual
Property (or any intellectual property or process) used in the
Business infringes upon or otherwise violates any rights of
a third party, other than any such legal proceeding or notice
or claim that has been disposed of without the imposition of
any continuing adverse condition on the Business.
(c) Proprietary Rights. Schedule 4.16
identifies each Patent, Trademark and registered Copyright
owned or used by the Federal Division. Schedule 4.16 also
sets forth: (i) for each Patent, the issue number, issue date,
normal expiration date (if available) and subject matter for
each country in which such Patent has been issued, or, if
applicable, the application number and date of filing for
each country, (ii) for each Trademark, (A) the description,
the application, serial number or registration number, the
class of goods covered and the issue and expiration or
renewal (as applicable) date for each country in which a
Trademark has been applied for or registered, (B) the
description of each Trademark for which registration has not
been sought, (iii) for each registered Copyright, the
application or issue number and date of filing for each
country in which a Copyright has been registered. True and
correct copies of all Patents, Trademarks and Copyrights
(including all pending applications) evidencing Intellectual
Property which have been registered or issued by an
applicable Governmental Agency to or for the Federal
Division have been provided to the Buyer. Except for
applications pending, all of the Patents, registered
Trademarks and registered Copyrights listed on Schedule
4.16 have been duly and validly issued. All of the pending
Patent applications have been duly filed. Schedule 4.16 also
identifies all material licenses and license rights to which the
Federal Division is a party or pursuant to which it is bound.
4.17 Leased Real Property. Schedule 4.17
attached hereto sets forth a true, correct and complete list as
of the date hereof of all Leases of real property, identifying
separately each ground lease, to which the Federal Division
is a party or pursuant to which it is bound (collectively, the
"Leased Real Property"). True, correct and complete copies
of all Leases pertaining to the Leased Real Property and all
amendments, modifications and supplemental agreements
thereto, have previously been delivered to the Buyer. The
Leased Real Property Leases are in full force and effect, are
binding and enforceable against the Federal Division, and,
to the Knowledge of the Company, Pentair and FCH,
against each of the other parties thereto in accordance with
their respective terms. Except as set forth on Schedule
4.17, the Leased Real Property Leases have not been
modified or amended since the date of delivery to the Buyer.
No party to any Lease has sent written notice to the other
claiming that such party is in Default thereunder or that such
Default remains uncured. There has not occurred any
Default in the performance of any covenant, agreement or
condition contained in any Lease, nor to the Knowledge of
the Company, Pentair or FCH has there occurred any
Potential Default. Neither the execution, delivery or
performance of this Agreement or any other agreements or
Transactions require the consent or approval of any party to
any Lease, nor will such execution, delivery or performance
constitute or result in a breach of or Default in the
performance of any covenant, agreement or condition
contained in any Lease. Except as reflected on the Final
Closing Net Equity Statement, no Encumbrances with
respect to any of the Leased Real Property remains to be
paid for or to be performed by the Federal Division and
there exist no other Encumbrances, other than Permitted
Encumbrances.
4.18 Owned Real Property. Schedule 4.18
attached hereto contains a true, correct and complete list of
(i) the legal descriptions of all Owned Real Property and (ii)
all Exceptions of which Pentair, FCH or the Company have
Knowledge. Seller has caused to be prepared and delivered
to Buyer a preliminary title commitment. Except for (A)
Permitted Encumbrances, (B) matters set forth on Schedule
4.18, or (C) matters disclosed on the surveys of all Owned
Real Property previously delivered to Buyer:
(a) No work has been performed on or
materials supplied to the Owned Real Property within any
applicable statutory period that could give rise to any
mechanic's or materialman's lien or other Encumbrances,
except in the Ordinary Course of Business.
(b) There is no pending or, to the
Knowledge of the Seller, threatened condemnation or
eminent domain proceeding with respect to the Owned Real
Property.
(c) Except as may be incurred in effecting
the provisions of the Separation Agreement (and then, only
to the extent set forth therein), there are no Encumbrances,
including (i) Taxes pending or payable against the Owned
Real Property, (ii) contingencies existing under which any
assessment for real estate Taxes may be retroactively filed
against the Owned Real Property, and (ii) Taxes, Permit
fees or connection fees that must be paid respecting existing
curb cuts, sewer hook-ups, water-main hook-ups or services
of a like nature.
(d) The Owned Real Property is, or Seller
shall cause it to be after the date hereof, legally subdivided
and, except as may relate to any such prospective
subdivision, consists of separate tax lots so that it is assessed
separately and apart from any other real property of Seller.
(e) Except as may be incurred in effecting
the provisions of the Separation Agreement (and then, only
to the extent set forth therein), all installation charges for
utility systems serving the Owned Real Property and all
service charges therefor that are due and payable on or
before the Closing Date have been paid by the Company on
behalf of the Federal Division before the Closing Date, or
appropriate provision therefor on the Closing Date Net
Equity Statement will be made, to and including the Closing
Date.
(f) Except as set forth in Schedule 4.18,
the Owned Real Property complies in all material respects
with all applicable municipal zoning and building codes and
ordinances; and there is no Action pending or, to the
Knowledge of the Company, Seller and Pentair, threatened
by any Governmental Agencies (or any other third party)
claiming that the Owned Real Property violates any such
codes or ordinances.
(g) All buildings (including their
respective utility systems) actively used in the administration
of the Business and the manufacture and warehousing of the
products of the Business are in good operating condition and
repair, and the operation thereof as presently conducted is
not in material violation of any applicable Regulations,
including any building code or zoning ordinance. Other
buildings located on the Owned Real Property if not actively
used are excluded from this representation.
(h) Seller has delivered to Buyer copies of
all title insurance policies and commitments and surveys,
heretofore prepared for the Federal Division with respect to
the Owned Real Property.
No representation or warranty regarding the title to Owned
Real Property shall survive Closing.
Section 4.19 Material Contracts.
(a) Contracts. Except for (i) purchase
orders, invoices, confirmations, trade payables and similar
documents and arrangements entered into by the Federal
Division in the Ordinary Course of Business, (ii) Leases,
(iii) licenses of Intellectual Property, (iv) Employee Benefits
and (v) the Separation Agreement, Schedule 4.19 lists, as of
the date hereof, all of the following material Contracts to
which the Federal Division is a party:
(1) Contracts not in the Ordinary Course
of Business;
(2) Contracts pertaining to the borrowing
of money;
(3) Contracts creating Encumbrances,
other than Permitted Encumbrances;
(4) Contracts creating a guarantee of
performance or payment;
(5) Contracts relating to material
licensing (other than of Intellectual Property),
management or consulting services, including
agency, marketing (including sales representation,
distributor or dealer arrangements) or advertising
arrangements;
(6) Contracts relating to material capital
expenditures;
(7) Contracts limiting the freedom of the
Federal Division to engage in or compete with any
business;
(8) Contracts for the acquisition or
disposition of real property or any business or line of
business or for any merger or consolidation;
(9) Contracts concerning any joint
enterprise, venture or partnership in which Federal
Division has an interest;
(10) Contracts that individually require
after the date hereof (A) the payment of $100,000 or
more during any 12-month period and that cannot be
terminated without cause within a period of one (1)
year after the Closing Date, (B) the Federal Division
to indemnify any Person, or (C) the payment of
$250,000 or more during any 12-month period;
(11) Contracts for the purchase of raw
materials or supplies (including consignment,
hedging and similar Contracts) for, or the furnishing
of services to, the Federal Division, (A) for which,
to the Knowledge of the Company, comparable
goods and services are not readily available in the
Ordinary Course of Business on comparable terms
and conditions or (B) the quantities of which are in
excess of the normal requirements of the Business.
Pentair, FCH and the Federal Division have made available
to the Buyer true, correct and complete copies of the written
Contracts listed on Schedule 4.19, including all amendments
and supplements thereto.
(b) Absence of Breaches and Defaults.
Except as set forth on Schedule 4.19, each Contract set forth
thereon is in full force and effect and there exists no Default
thereunder and to the Knowledge of Company or Seller,
there is no Potential Default. All of the Contracts set forth
on Schedule 4.19 and, all of the other Contracts to which
the Federal Division, or the Company on behalf of the
Federal Division, is a Party or by which it or any of the
Assets is bound or affected, are enforceable in accordance
with their terms.
4.20 Insurance. Schedule 4.20 sets forth a
summary of all policies of property, fire and casualty,
general liability, products liability, workers' compensation,
business interruption, automobile and other forms of
insurance owned, held by or purchased for the benefit of the
Federal Division or Pentair with respect to the Business, or
their respective employees, for the past five (5) years (the
"Insurance Policies"), other than insurance policies relating
to Employee Benefits. All Insurance Policies are occurrence
policies and not claims made policies, except for executive
risk (D&O) policies. To the Knowledge of Company,
Pentair or FCH, the Federal Division has not received
(i) any notice of cancellation of any policy described in
Schedule 4.20, (ii) any notice that any issuer of such policy
has filed for protection under applicable bankruptcy laws or
is otherwise in the process of liquidating or has been
liquidated, or (iii) any other written notice that such policies
are no longer in full force or effect or that the issuer of any
such policy is no longer willing or able to perform its
obligations thereunder. Schedule 4.20 sets forth all material
outstanding unpaid claims under any of the Insurance
Policies. All policies and binders for the current policy year
are in force on the date hereof.
4.21 Certain Relationships. Except for the cash
management system operated by Pentair with respect to the
Federal Division and except for the arrangements and
ownership of assets set forth in the Separation Agreement,
(i) no Affiliate of the Company has been involved in any
material business arrangement with the Federal Division
since December 31, 1995 and (ii) no Affiliate of the
Company owns any material asset, tangible or intangible,
which is used in the Business.
4.22 Environmental Matters. To the Knowledge
of the Company, Seller or Pentair, except as set forth on
Schedule 4.22:
(a) Hazardous Materials. Hazardous
Materials are and have been handled, transported, used,
treated and stored on the Owned Real Property as a part of
the Ordinary Course of Business of the Federal Division.
(b) Permits. The Company has, and at all
times has had, all material Permits required under any
Environmental Law. The Federal Division is and has been
in material compliance with Environmental Laws and the
requirements of Permits issued thereunder with respect to
the Owned Real Property.
(c) Pending Actions. There are no
pending or, to the Knowledge of the Company, Seller or
Pentair, threatened Environmental Claims against the
Federal Division.
(d) Environmental Audits or Assessments.
The Company has delivered to the Buyer true, complete and
correct copies of all material correspondence and written
reports in its possession relating to all environmental audits
or assessments which have been conducted with respect to
the Owned Real Property within the last five (5) years.
The warranties and representations contained in this Section
4.22 shall not survive the Closing; Section 7.15 and Article
VIII of this Agreement provides for the remediation of and
indemnification with respect to Environmental Conditions
and certain claims under the Environmental Laws.
4.23 Compliance with Law.
(a) Except as set forth on Schedule 4.23,
the Company is in material compliance with all Regulations
applicable to the Business, other than with respect to
Environmental Laws which are covered separately in
Sections 4.22 and 7.15. Neither the Company, Pentair nor
FCH has received any notice to the effect that, or otherwise
been advised that, the Company is not in material
compliance with any Regulations or Court Orders affecting
the Business, and the Company, Pentair and FCH have no
Knowledge that any existing circumstances are reasonably
likely to result in violations of any of the foregoing.
(b) The Company is in material
compliance with all Regulations relating to the disposition
of solid waste, as defined under applicable Regulations.
Neither the Company, Pentair nor FCH has received any
notice to the effect that, or otherwise been advised that, the
Company is not in material compliance with Regulations and
Court Orders relating to solid waste, and the Company,
Pentair and FCH have no Knowledge that there is a
reasonable probability of any such violations.
4.24 No Other Agreements to Sell Assets of the
Company. Other than as contemplated by this Agreement,
neither the Company, Pentair or FCH, has made any
Contract with any other Person to sell, assign, transfer or
effect a sale of all or substantially all of the Assets, the
Shares, or any capital stock of or other equity interest in the
Company, to effect any merger, consolidation, liquidation,
dissolution or other reorganization of the Company, or
agreed to enter into any Contract with respect to any of the
foregoing.
4.25 Notes and Accounts Receivable. The notes
and accounts receivable reflected on the Financial
Statements and the Final Closing Date Net Equity
Statement, do and will represent bona fide claims of the
Company against debtors for sales, services performed or
other charges in connection with the Business arising on or
before the date hereof. Said notes and accounts receivable
are subject to no defenses, counterclaims or rights of set-off
and are fully collectible in the Ordinary Course of Business.
The warranty and representation contained in this Section
4.25 shall not survive the Closing; Section 7.16 provides for
the disposition of claims between the Company and Pentair
with respect to uncollectible accounts receivable following
the Closing.
4.26 Inventories. Except as set forth on Schedule
4.26 and subject to the reserves therefor on the Final
Closing Date Net Equity Statement (a) all Inventories of the
Business are of good, usable and merchantable quality in all
material respects and do not include obsolete or discontinued
items, (b) all such Inventories are of such quality as to meet
the usual and customary quality control standards of the
Business and any applicable governmental quality control
standards, (c) all such Inventories that are finished goods are
saleable as current Inventories in the Ordinary Course of
Business, and (d) all such Inventories are recorded on the
financial records of the Federal Division in accordance with
GAAP. Schedule 4.26 lists the location of all such
Inventories. The Company has followed all Company
policies with respect to excess and obsolete inventory,
including any changes therein set forth on Schedule 4.6.
Special Inventory is hereby excluded from the
representations and warranties set forth in paragraphs (c)
and (d) of this Section 4.26; Section 2.8 hereof provides for
separate treatment and payment for the Special Inventory.
4.27 Certain Payments. The Company, Seller
and their Affiliates have not (i) directly or indirectly, paid
or delivered any fee, commission or other sum of money or
item or property, however characterized, or have agreed to
do any of the foregoing, to any Person, in the United States
or any other country, which is in any manner related to the
Business, which was illegal when made or consummated
under any federal, state or local laws of the United States
(including without limitation the U.S. Foreign Corrupt
Practices Act) or any other country having jurisdiction, (ii)
participated, directly or indirectly, in any boycotts or other
similar practices affecting any of its actual or potential
customers, or (iii) established or maintained any unrecorded
fund or asset for any purpose or made any false entries on
the Books and Records.
4.28 Customers. Schedule 4.28 attached hereto
sets forth a true, correct and complete list of the names of
each customer of the Business who purchased $500,000 or
more from the Federal Division in the fiscal year ended
December 31, 1996. None of the Federal Division, Pentair
or FCH has received any written or, to the Knowledge of
the Company, Pentair or FCH, oral notice that any such
customer (i) will cease to buy or use the products, goods or
services of the Federal Division, or (ii) will substantially
reduce the purchase or use of products, goods or services of
the Federal Division, in either case after the consummation
of the Transactions.
4.29 Suppliers. Schedule 4.29 attached hereto
sets forth a true, correct and complete list of the names of
each of the suppliers of the Federal Division that accounted
for a dollar volume of purchases of $500,000 or more for
the fiscal year ended December 31, 1996. None of the
Company, Pentair or FCH have any Knowledge that any
supplier will not continue to sell to it raw materials,
supplies, merchandise and other goods or services on terms
and conditions similar to those applicable to its current sales
to the Federal Division, subject to general and customary
price increases, product shortages or allocations or other
disruptions of supply outside the control of the Federal
Division after the consummation of the Transactions.
4.30 Warranty and Product Liability. Schedule
4.30 attached hereto contains a true, correct and complete
list of all warranty claims in excess of $5,000 and all
product liability claims made against the Business through
the date hereof that remain outstanding and the current
status of each such claim. Except as set forth on Schedule
4.30 there are no pending or, to the Knowledge of the
Company, threatened claims with respect to any material
warranty or product liability, nor, to the Knowledge of the
Company, Pentair, or FCH, is there any reasonable
probability thereof. All information (to the extent available)
relative to such warranty and product liability claims has
been made available to the Buyer. Except as set forth in
Schedule 4.30 and except for warranties under applicable
Regulation, the Company has given no warranties, express
or implied, written or oral with respect to the products of
the Business.
4.31 Banking Facilities. Schedule 4.31 attached
hereto sets forth a true, correct and complete list of:
(a) each bank, savings and loan or similar
financial institution in which the Federal Division, has an
account or safety deposit box and the numbers of the
accounts or safety deposit boxes maintained by the Federal
Division, or the Company, FCH or Pentair on behalf of the
Federal Division, thereat; and
(b) the names of all persons authorized to
draw on each such account or to have access to any such
safety deposit box facility, together with a description of the
authority (and conditions thereof, if any) of each such
person with respect thereto.
4.32 Powers of Attorney. Except as set forth on
Schedule 4.32, the Company has no general or special
powers of attorney outstanding (whether as grantor or
grantee), other than for freight forwarders and customs
brokers for the purpose of making customs and similar
declarations for products of the Federal Division and the
▇▇▇▇▇▇▇ Division.
4.33 Compensation of and Contracts with
Employees. The Buyer has been provided with an accurate
and complete list showing the names of all employees of the
Federal Division who (i) participate in a Pentair
management incentive plan or (ii) received more than
$75,000 in 1996 cash compensation (including salary,
commission and normal bonus (other than MIP)). Except as
set forth in Schedule 4.33, the Company has not entered into
written employment, severance, "golden parachute"
termination or similar contracts with any employee of the
Federal Division. It is the policy of the Company to engage
employees of the Business in at-will, unwritten employment
arrangements. The employee manual of the Federal
Division has been delivered to Buyer and, as of the date
delivered, was true, complete and accurate, and no material
modification has been made since that date.
4.34 Product Recalls. Except as set forth on
Schedule 4.34, there have not been, within the past 5 years,
nor are there currently pending, or, to the Knowledge of the
Company, Pentair or FCH, is there any reasonable
probability of, any market withdrawals or recalls of any
goods sold by the Federal Division that have been
announced either to its distributors, retail accounts or
ultimate consumers, or to the industry in which the Business
operates, or to the general public.
4.35 Information Provided. The information
concerning the Company set forth in this Agreement, the
Exhibits and Schedules attached hereto and any document,
statement or certificate specifically referred to herein or
therein and furnished or to be furnished to the Buyer
pursuant hereto, does not and will not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated herein or therein or necessary to make
the statements and facts contained herein or therein, in light
of the circumstances in which they are made, not false and
misleading. The Disclosure Schedules have been prepared
in good faith and are contemplated to provide reasonable
disclosure to Buyer of the matters referenced therein.
Copies of all documents heretofore or hereafter delivered or
made available to the Buyer pursuant to this Agreement
were or will be complete and accurate copies of such
documents.
4.36 Sufficiency of Assets. The Assets are
sufficient to operate the Business in the same manner as
conducted by the Federal Division on December 31, 1996
and as of the Closing Date.
ARTICLE V
REPRESENTATIONS OF THE BUYER
The Buyer represents and warrants to Pentair that the
following representations and warranties are, as of the date
hereof, true, complete and correct:
5.1 Organization and Authority. The Buyer is
a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and has all
requisite power and authority (corporate and other) to own
its properties and to carry on its business as now being
conducted. The Buyer has full power to execute and deliver
this Agreement and the agreements contemplated herein, and
to consummate the Transactions contemplated hereby and
thereby.
5.2 Authorization. The execution and delivery
of this Agreement by the Buyer, and the agreements
provided for herein, and the consummation by the Buyer of
the Transactions contemplated hereby and thereby, have
been duly authorized by all requisite corporate action. This
Agreement and all other Transaction Documents constitute
the valid and legally binding obligations of the Buyer,
enforceable against the Buyer in accordance with their
respective terms.
5.3 Noncontravention. Except as listed in
Schedule 5.3, neither the execution, delivery or performance
by Buyer of this Agreement or the other Transaction
Documents, nor the consummation of the Transactions, will
(i) violate, conflict with or result in any breach of any
provision of the Articles of Incorporation or by-laws of the
Buyer, (ii) violate any Regulation or Court Order to which
the Buyer is subject or (iii) result in a material violation of
or constitute a Default under, or require any notice under,
any Contract, Lease or other instrument to which the Buyer
is a party or by which the Buyer is bound or to which any
of its assets is subject.
5.4 Investment Purpose. The Buyer is acquiring
the Shares for investment, for its own account only, and not
with a view to, or for resale in connection with, any
"distribution" thereof (within the meaning of the Securities
Act or other applicable securities laws).
5.5 Financing. Buyer has the financial capability
to purchase the Shares and to consummate the Transactions
on the terms and subject to the conditions set forth in this
Agreement and in the other Transaction Documents.
5.6 Litigation. Except as set forth in Schedule
5.6, there is no proceeding pending, nor to the Buyer's
Knowledge threatened, that seeks to limit, delay or enjoin
the Transactions.
ARTICLE VI
SEPARATION COVENANTS
6.1 Separation Agreement. The Company and
FCH have entered into an agreement whereby the Federal
Division and the ▇▇▇▇▇▇▇ Division are being separated by
transferring all of the assets and Liabilities of the Company
other than those of the Federal Division to FCH or an entity
owned or controlled by FCH (the "Separation Agreement").
The Separation Agreement is incorporated in to this
Agreement as Exhibit G. The transfer of assets and
assumption of Liabilities specified therein shall be deemed
to have taken place immediately prior to the effective time
of the transfer of the Shares from FCH to Buyer hereunder.
Pentair covenants to cause the due performance of, and FCH
acknowledges its obligation to perform, the duties and
obligations of FCH that arise from, are incident to, or occur
in connection with the Separation Agreement. The Buyer
covenants to cause the due performance of, and the
Company acknowledges its obligation to perform, the duties
and obligations of the Company that arise from, are incident
to, or occur in connection with the Separation Agreement.
6.2 Third Party Consents. Prior to the Closing
Date, the Company shall have obtained all consents and
authorizations necessary in connection with the Transactions
for any and all Contracts, Permits, Leases, Mortgages,
Employee Benefits or Regulations to which the ▇▇▇▇▇▇▇
Division is a party or is bound, under which it has or may
have an obligation under, or those which, if not so obtained,
would have subjected the Company to any material
Liability, caused interruption of the operations of the
Business or otherwise materially and adversely affected the
Business.
6.3 Termination and Employment of ▇▇▇▇▇▇▇
Division Employees. In connection with the Separation,
Pentair and FCH shall have directed the Company, at the
sole cost and expense of FCH and in compliance with
applicable Regulations, to cause all employees of the
Company who are not Active Employees to cease to be
employees of the Company as of the Closing Date, and FCH
has engaged all current employees of the Company other
than Active Employees as employees of FCH. FCH, with
no financial assistance from Company, agrees to make or
cause to be made a clean cut-off of payroll and payroll tax
reporting with respect to employees of the Company other
than Active Employees and shall pay over to the federal,
state and city governments those amounts respectively
withheld or required to be withheld for periods of
employment ending on or prior to the Closing Date. FCH
also agrees to issue or cause to be issued timely Forms W-2
for wages paid to former employees of the Company who
are not Active Employees through the Closing Date, unless
some other less burdensome method of reporting is allowed
by the Code or other applicable Regulations.
6.4 Actions and Claims.
(a) Federal Liabilities include, and,
following Closing, the Company shall have responsibility
for and liability with respect to, all third-party Actions
relating to the Business or the Federal Division, regardless
of the type of claim or the date on which the claim arose or
was brought to the attention of the Company, except for
(i) workers' compensation claims
for which the occurrence took place on or before the
Closing Date;
(ii) product liability claims based
on occurrences (and not the date of manufacture of
the product involved nor the date such claims are
made) arising on or before the Closing Date;
(iii) claims arising, whether or not
prior to Closing, with respect to Environmental
Conditions to the extent covered in Section 7.15
hereof;
(iv) claims for Taxes for which
Seller is responsible under Section 7.7 hereof,
arising with respect to periods prior to the Closing;
(v) claims based on occurrences
on or before the Closing Date for which the Federal
Division has available to it coverage under the
Insurance Policies (without regard to deductibles,
retained limits, self-insured amounts or the like) and
any claim under paragraph 1a. of Schedule 4.9
regardless of insurance coverage; and
(vi) claims arising out of or with
respect to TCAAP to the extent not reimbursed to
the Federal Division by insurance or indemnification
by any third party.
which shall be assumed by FCH following the Closing. The
retention by the Company of any responsibility or liability
with respect to any Actions pursuant to the foregoing shall
not be deemed to limit the ability of the Company or the
Buyer to recover Damages for any breach of representation
or warranty under Article IV hereof, if otherwise permitted
hereunder.
(b) The parties acknowledge and agree
that some or all of such Actions to be assumed by the FCH
may not be validly or legally transferable from the Company
to FCH. Defense of all such Actions shall nonetheless be
irrevocably undertaken by FCH after the Closing Date, all
at the sole cost and expense of FCH, including all costs of
judgment or settlement. The Company shall have no
responsibility to defend, indemnify, incur costs or expenses
or otherwise participate in any such Actions; provided,
however, the Company shall be required to provide
reasonable assistance and cooperation to FCH in the defense
thereof by making Personnel of the Federal Division
available and providing continuing access to the Books and
Records of the Federal Division and other documentation
that was not transferred from the Company to FCH pursuant
to this Agreement, for which assistance FCH will pay to the
Federal Division all reasonable out-of-pocket expenses and
straight hourly time personnel costs incurred. In the event
that FCH fails to undertake and diligently defend any such
Action, the Company shall be entitled to do so in
accordance with the indemnification procedures and
remedies set forth in this Agreement.
(c) Subject to the Federal Division's
rights pursuant to Section 6.4(a) above, and any
corresponding right of Seller pursuant to Section 8.3 hereof,
defense of all other Actions that are retained by the Federal
Division under paragraph (a) hereof shall be undertaken by
the Company after the Closing Date, all at the sole cost and
expense of the Company, including all costs of judgment or
settlement. FCH shall have no responsibility to defend,
indemnify, incur costs or expenses or otherwise participate
in any such Actions; provided, however, Pentair and FCH
shall be required to provide reasonable assistance and
cooperation to the Company in the defense thereof by
making their respective Personnel available, for which
assistance the Company will pay to the Seller all reasonable
out-of-pocket expenses and straight hourly time personnel
costs incurred.
6.5 Insurance. The parties intend and hereby
agree that notwithstanding anything to the contrary
contained herein, that the policies of insurance issued by
Pentair's captive insurance company in any event and all
policies in excess of such captive policies except as
otherwise provided in this Section 6.5 are not available to
the Company. Further, the parties agree that any primary
policies (other than such captive policies) and excess
policies related to such primary policies are available to the
extent applicable. Therefore, in furtherance of such intent
and agreement, after the Closing:
(a) The Company shall have no right to
make claims under policies of insurance issued by Pentair's
captive insurance company which may have provided
coverage to the Company as an Affiliate of Pentair prior to
the Closing Date. As of the Closing, the Federal Division
shall be removed as a named or an additional insured from
all such insurance policies and the prospective insurance
requirements of the Federal Division will be the sole
responsibility of the Buyer.
(b) To the extent, however, that any
claims arise under separate policies of insurance issued by
third parties and owned by or covering the Federal Division
with respect to occurrences arising on or before the Closing
Date, the Federal Division may make claims under such
policies without regard to any other provision hereof, but
subject to such conditions contained in any such policies,
including all reporting and notice requirements thereof. The
Company shall not have the right to claim directly against
Seller for any "self-insured" program of risk management or
the amount of any deductible or self-insured retention for
any loss suffered by the Company on or before the Closing
Date, regardless of the date on which the claim is made
subsequent to the Closing Date. The Federal Division shall
be responsible for and shall pay all expenses relating to
services for claims administration, investigation, appraisals
and claim review incurred on or after the Closing with
respect to claims under such insurance policies.
(c) To the extent any claim made by the
Federal Division following the Closing Date pursuant to
paragraph (b) above exceeds any such separate policy's
limits, the Federal Division shall be entitled to an aggregate
amount of coverage for each policy year equal to ten percent
(10%) of Pentair's aggregate umbrella and excess coverage
available with respect to such separate insurance policy
under which the Federal Division has a right to claim
hereunder. Buyer and the Company agree promptly to
tender to Pentair the amount of any proceeds thereof
received from any of such excess or umbrella carriers in
excess of such percentage.
(d) Except as set forth above in Section
4.20, neither Pentair nor FCH make any representations or
warranties regarding the scope, availability or amount of
coverage under any Insurance Policy. The Parties agree that
neither Pentair nor FCH have any responsibility, and shall
not be held liable, for the actions of the insurers under the
Insurance Policies regarding claims submitted by Buyer or
the Federal Division.
ARTICLE VII
ADDITIONAL COVENANTS OF THE COMPANY,
SELLER AND BUYER
7.1 Public Announcements. Buyer and Pentair
shall cooperate in the preparation of any announcements
regarding the Transactions. Except as required by
applicable Regulations, neither Party shall issue any
announcement regarding the Transactions without the prior
consent of the other Party, which consent shall not be
unreasonably withheld, delayed or conditioned; provided,
further, that if any disclosure regarding the Transactions is
required by applicable Regulation, the Parties shall, to the
extent reasonably practicable, consult prior to disclosure on
the form and content thereof. The covenants set forth in
this Section 7.1 shall be enforceable in law or at equity by
either party.
7.2 Payment of Retention Bonus. Pentair shall
cause all retention bonus arrangements to be honored in
accordance with the terms of the letter agreements entered
into with employees eligible therefor, which letter
agreements are substantially in the form set forth on Exhibit
H.
7.3 Costs and Expenses. Each of the Parties
will bear its own expenses incurred in connection with the
preparation, execution and delivery of this Agreement or the
consummation of any Transaction contemplated by this
Agreement. Except as otherwise provided in the Separation
Agreement, the Parties agree that any and all professional
costs and expenses of any Representative of the Company in
connection with this Agreement and the Transactions shall
be properly chargeable to Seller, including the preparation
and delivery of the Separation Agreement. The expenses
incurred as a result of implementing the terms and
conditions of the Separation Agreement shall be allocated as
set forth therein.
7.4 Confidential Information.
(a) Pentair and each of its Affiliates shall
hold in confidence and shall use their best efforts to have all
officers, directors and personnel hold in confidence all
Confidential Information with respect to the Business and
not to disclose, publish or make use of the same without the
consent of the Buyer. If (i) the employment of an officer,
director or other employee of Pentair or any Affiliate
thereof, to whom Confidential Information of the Business
has been disclosed, is terminated and (ii) such individual is
subject to an obligation to maintain such information in
confidence after such termination, Pentair shall, upon
request by the Buyer, take all reasonable steps at Pentair's
sole cost and expense, to enforce such confidentiality
obligation in the event of an actual or threatened breach
thereof.
(b) Buyer and each of its Affiliates shall
hold in confidence and shall use their best efforts to have all
officers, directors and personnel hold in confidence all
confidential information with respect to the ▇▇▇▇▇▇▇
Division and not to disclose, publish or make use of the
same without the consent of Pentair. If (i) the employment
of an officer, director or other employee of the Company or
any post-closing Affiliate thereof, to whom confidential
information of the ▇▇▇▇▇▇▇ Division has been disclosed, is
terminated and (ii) such individual is subject to an obligation
to maintain such information in confidence after such
termination, the Company shall, upon request by Pentair,
take all reasonable steps at Buyer's sole cost and expense,
to enforce such confidentiality obligation in the event of an
actual or threatened breach thereof.
(c) The parties agree that the remedy at
law for any breach of this Section 7.4 would be inadequate
and that the injured party shall be entitled to injunctive relief
in addition to any other remedy it may have upon breach of
any provision of this Section.
7.5 No Solicitation or Hiring of Former
Employees. Without the Company's prior written consent,
for a period of two (2) years after the Closing Date, neither
Pentair nor any Affiliate shall (a) solicit for employment as
an employee or consultant any Person who was an employee
of the Federal Division on the Closing Date, (b) offer to or
discuss with any Person, who was such an employee on the
Closing Date, employment as an employee or consultant,
unless such employee has not been employed by the Federal
Division for a period of ninety (90) days or more, or (c)
offer or pay compensation, directly or indirectly, to any
such Person with reference to such ninety (90) day period.
7.6 Non-Competition Agreement.
(a) As part of the consideration and
ancillary to the sale of the Shares to Buyer for a period of
five (5) years after the Closing Date, neither Pentair nor any
Affiliate shall: (i) develop, manufacture, market or sell any
product that competes with any existing or proposed product
manufactured (or proposed to be manufactured) in the
Business on or prior to the Closing Date, or (ii) engage in
any business competitive with the Business as conducted on
the date hereof or on the Closing Date, in the United States
or any other country in which the Federal Division has
conducted its business during the two (2) years prior to the
Closing Date, unless and to the extent that any such
competitive activity may have arisen in connection with the
acquisition by Pentair of any Person who engaged in such
competitive activity prior to such acquisition, provided that
Pentair shall make best efforts after the consummation of the
acquisition transaction to dispose of such competitive
activity or competing product as soon as reasonably and
prudently possible.
(b) The Parties hereto agree that the
duration and geographic scope of the non-competition
provision set forth in this Section 7.6 are reasonable. In the
event that any court of competent jurisdiction or arbitrator
determines that the duration or the geographic scope, or
both, are unreasonable and that such provision is to that
extent unenforceable, the Parties hereto agree that the
provision shall remain in full force and effect for the
greatest time period and in the greatest area that would not
render it unenforceable. The Parties intend that this non-
competition provision shall be deemed to be a series of
separate covenants, one for each and every county of each
and every state of the United States of America and each
and every political subdivision of each and every country
outside the United States of America where this provision is
intended to be effective. Pentair agrees that damages are an
inadequate remedy for any breach of this provision and that
the Buyer shall, whether or not it is pursuing any potential
remedies at law, be entitled to equitable relief in the form of
preliminary and permanent injunctions without bond or
other security upon any actual or threatened breach of this
non-competition provision.
7.7 Tax Return Preparation and Examinations.
(a) Pentair shall prepare or cause to be
prepared and shall timely file all income Tax Returns
(including any amendments thereto) relating to the Company
with respect to any tax period ending on or before the
Closing Date. Pentair or FCH shall pay or cause to be paid
all Taxes of Company with respect to any period ending on
or before the Closing Date as determined in accordance with
Section 7.7(b), and shall reimburse the Company or Buyer
for other Taxes paid as determined in accordance with
Section 7.7(c) to the extent not reflected on the Final
Closing Date Net Equity Statement.
(b) Pentair or its continuing subsidiaries
shall include or cause to be included the income of
Company (including any deferred income and any excess
loss accounts pursuant to relevant rules and regulations of
the Internal Revenue Service) on Pentair's or its continuing
subsidiaries' federal and state income Tax Returns for all
periods through on or before the Closing Date and shall pay
any federal and state income Taxes attributable to such
income. Company will furnish all tax information requested
by Pentair for inclusion in such income Tax Returns for the
period which includes the Closing Date in accordance with
Pentair's past custom and practice. The income of the
Company will be apportioned up to and including the
Closing Date and the period after the Closing Date by
closing the books of Company at the close of business on
the Closing Date.
(c) In the case of any Taxes other than
those described in Section 7.7(b) and which are imposed on
a periodic basis and are payable for a period that begins
before the Closing Date and ends after the Closing Date,
Pentair or FCH shall reimburse Buyer or the Company for
the portion of such Taxes allocable to the period ending on
the Closing Date. For sales and use Taxes, excise Taxes,
payroll Taxes and other Taxes related to a specific taxable
transaction or event, the portion so allocable shall be such
Taxes for which the relevant taxable transaction or event
occurs on or before the Closing Date. For ad valorem
property Taxes and the like (e.g., real estate Tax), the
portion of such Taxes payable for the period ending on the
Closing Date shall be deemed to be the amount of such
Taxes for the entire period multiplied by a fraction, the
numerator of which is the number of days in the period
ending on the Closing Date, and the denominator of which
is the number of days in the entire period. The preceding
sentence shall be applied with respect to Taxes relating to
capital (including net worth or long-term debt) or intangibles
by reference to the level of such items on the Closing Date.
(d) Notwithstanding anything to the
contrary in this Agreement whether expressed or implied, to
the extent not reflected in the Final Closing Date Net Equity
Statement, Pentair and FCH, jointly and severally, shall
indemnify and hold harmless Buyer and Company against:
(i) all Taxes imposed on Company with
respect to any period ending on or before the
Closing Date;
(ii) all Taxes imposed on Buyer or on
Company with respect to any period which begins
before the Closing Date and ends after the Closing
Date to the extent allocated to the portion of such
period ending on the Closing Date, determined in
accordance with Section 7.7(c);
(iii) all Taxes imposed on Buyer or on
Company with respect to income earned by
Company for the period beginning January 1, 1997
and ending on the Closing Date, determined in
accordance with Section 7.7(b);
(iv) all Taxes imposed on Seller or
Company as a result of the Section 338(h)(10)
Election contemplated by Section 7.13;
(v) all Taxes imposed on any member of
an affiliated, consolidated, combined or unitary
group which includes or has included Company with
respect to any taxable period that ends on or before
the Closing Date;
(vi) all liability resulting from or
attributable to a breach of the representations,
warranties and covenants contained in Section 4.10
and this Section 7.7; and
(vii) any claim under Treas. Reg. section 1.1502-6
by the Internal Revenue Service against Company
as a member of Pentair's consolidated group prior to
the Closing Date with respect to any federal income
tax liability of Pentair for any period ending on or
prior to December 31, 1997.
(e) Pentair shall have the right, at its own
expense, to control any audit or determination by any taxing
authority, initiate any claim for refund or amended Tax
Return and contest, resolve and defend against any
assessment, notice of deficiency or other adjustment or
proposed adjustment of Taxes for any taxable period for
which Pentair is charged with responsibility for filing or
causing to be filed a Tax Return under this Agreement or
for which Buyer or the Company claims a right to indemnify
pursuant to Section 7.7(d). Each party will allow the other
and its counsel (at its or their own expense) to be
represented during any audits of income Tax Returns to the
extent that disputed items therein relate to Company.
(f) Each of Buyer and Seller shall provide
the other, and Buyer shall following the Closing cause
Company to provide to Seller, with the right, at reasonable
times and upon reasonable notice, to have access to
personnel, and to copy and use, any records or information
that may be relevant in connection with the preparation of
any Tax Returns, any audit or other examination by any
taxing authority or any litigation relating to liability for
Taxes. Information required in the filing of any Tax Return
shall be provided to the other party not less than thirty (30)
days before such Tax Return is due. Seller will allow Buyer
an opportunity to review and comment upon any Tax
Returns referred to in Section 7.7(a) (including any amended
returns) to the extent that they relate to Company. Seller
and Buyer shall retain all records relating to Taxes for as
long as the statute of limitations with respect thereto shall
remain open.
(g) All sales and transfer Taxes (including
all stock transfer taxes, if any) incurred in connection with
the transactions contemplated hereby will be borne by the
Seller. If required by applicable law, Buyer or the
Company, as the case may be, will join in the preparation
and execution of any Tax Returns or other documentation
related to the payment of any such sales or transfer Taxes.
(h) The Parties recognize that for federal
income tax purposes, and for purposes of state and local
income taxes which adopt federal income tax or similar
rules, the payment terms for the Special Inventory may
result in the deemed reduction of the sales price for and
basis in such inventory and the imputation of original
discount income to Seller and a corresponding interest
deduction to Buyer or the Company.
7.8 Access to Information and Records. (a)
After the Closing Date, Pentair and FCH acknowledge and
agree to provide Buyer and the Company with full and
complete access to any and all books and records of either
or both Pentair and FCH relating to the Federal Division.
Pentair and FCH shall also provide to Buyer or the
Company reasonable access to employees and other
Representatives to interpret or explain such books and
records, and to assist in defending or pursuing any Action
affecting the Business resulting from the operation of the
Federal Division prior to the Closing Date. Pentair and
FCH agree to respond timely to all inquiries and requests
for documents and information made by Buyer or Company
with respect to such matters. Notwithstanding any provision
of this Agreement or the Transaction Documents to the
contrary, this covenant shall indefinitely survive the Closing
Date.
(b) After the Closing Date, Buyer and the
Company acknowledge and agree to provide Pentair or FCH
with full and complete access to any and all books and
records of the Company relating to the Federal Division and
the ▇▇▇▇▇▇▇ Division. Buyer and the Company shall also
provide to Pentair and FCH reasonable access to employees
and other Representatives to interpret or explain such books
and records, and to assist in defending or pursuing any
Action resulting from the operation of the ▇▇▇▇▇▇▇ Division
prior to the Closing Date. Buyer and the Company agree to
respond timely to all inquiries and requests for documents
and information made by Pentair or FCH with respect to
such matters. Notwithstanding any provision of this
Agreement or the Transaction Documents to the contrary,
this covenant shall indefinitely survive the Closing Date.
7.9 Certain Employee Claims.
(a) Seller shall be responsible for all
wages, salaries and post-employment/ post-retirement
benefits payable to current, former or retired employees of
the Company other than Active Employees. Except as
provided in Section 7.12(g) with respect to certain COBRA
responsibilities, Seller shall be responsible for all
obligations to give notice of and to provide continuation
health coverage for such persons and their dependents and
any other qualified beneficiaries of such individuals in
accordance with the requirements of COBRA, including all
Liabilities and Taxes imposed upon, incurred by, or
assessed against Buyer or any Affiliate, and their employees
arising by reason of any failure of Seller to comply with
COBRA requirements applicable to current, former or
retired employees of the Company (and their dependents)
other than Active Employees with respect to any qualifying
event occurring prior to or in connection with the
Transactions.
(b) Seller agrees to indemnify and hold
harmless Buyer from and against any and all claims
regarding any Employee Benefits made by current, former
or retired employees of the Company (and their dependents)
other than Active Employees for actions taken up and
through the Closing Date. Seller agrees to satisfy, or cause
to be satisfied, all claims for benefits, whether insured or
otherwise (including unemployment compensation, life
insurance, medical and disability programs), or whether
payable under the Company's Employee Benefits, brought
by, or in respect of, current, former or retired employees of
the Company (and their dependents), other than Active
Employees (and their dependents), in accordance with the
terms and conditions of such programs or applicable
Regulations.
(c) With respect to Active Employees
who are not actively employed on the Closing Date, and
who do not subsequently return to active employment with
the Federal Division within six (6) months following the
Closing Date, and thereby no longer qualify as Active
Employees, the responsibility of the Federal Division for
such employees shall cease and FCH shall have the
responsibility therefor as of the Closing Date, as if such
Person had not qualified as an Active Employee. Buyer or
the Company shall provide Pentair with a written list of
such individuals. Further, FCH shall reimburse the Federal
Division for the amounts paid by it to or on behalf of such
Person during the period between the Closing Date and the
date such Person no longer qualifies as an Active Employee.
7.10 MIP Bonuses. Pursuant to the Management
Incentive Plan ("MIP") adopted by Pentair and the terms of
the employee letters sent to participating employees in the
MIP, in substantially the form set forth in Exhibit H, the
Federal Division shall pay all MIP bonuses earned for the
portion of the year from January 1, 1997 to the Closing
Date to the Active Employees eligible therefor. For this
purpose, there shall be accrued on the Final Closing Date
Net Equity Statement an amount equal to the amount of such
bonuses through the Closing Date. If any amount accrued
therefor is not paid by the Federal Division to such
employees, such amount shall be promptly reimbursed to
Seller following the date on which bonuses are payable in
accordance with the terms of Exhibit H.
7.11 Severance Obligations. Except as provided
below, Buyer shall honor, satisfy and pay when due all
Closing Date severance obligations to employees of the
Federal Division separated from employment other than for
cause in contemplation of or following the Closing.
Severance obligations shall be computed in accordance with
the Federal Division's policies and procedures as of the
Closing Date; provided, however, no severance benefits
shall be payable to any employee who is or becomes an
employee of Seller or any Affiliate of Seller. Seller or its
Affiliates may, however, at their sole expense with no
charge to Buyer or the Federal Division, offer
supplementary severance benefits for selected employees (in
accordance with Exhibit H to this Agreement).
Notwithstanding the foregoing, in order for a Federal
Division employee to receive severance pay under such
current policies and procedures, such employee's
termination must occur within 12 months after the Closing
Date. Within the first 12 months following the Closing
Date employees of the Company may enter into individual
written employment agreements with the Company, which
agreements may contain a severance pay provision, which
shall govern with respect to severance issues. After 12
months from the Closing Date, employees without such
employment agreements shall be subject to the Company's
severance policies, as in effect from time-to-time.
7.12 Salary and Wages and Employee Benefits.
(a) General Standard. Subject to the
other provisions of this Section 7.12 and Sections 7.9 and
7.11, it is Buyer's intention to offer or cause Company to
offer salary and wages and Employee Benefits which are
comparable in the aggregate to the salary and wages and
Employee Benefits provided to Active Employees as of the
Closing Date. In applying this standard, Employee Benefits
provided under or pursuant to the Pentair Sidekick (the
"Sidekick"), the Pentair Supplemental Employee Retirement
Plan (the "SERP"), and the Federal-▇▇▇▇▇▇▇ Employee
Stock Ownership Plan (the "F-H ESOP") shall be
disregarded.
(b) Pension Plan. (i) Plan Asset
Transfer. Within ninety (90) days after complete
compilation and transmittal by Federal Division personnel
of relevant information to determine the amount of the Plan
Asset Transfer for Active Employees, and assuming (A)
compliance with Code Section 6058(b) relating to thirty (30)
days advance notice of certain plan transactions, and (B)
establishment of the Successor Plan and a letter from
Buyer's counsel evidencing such establishment and a
commitment by Buyer to take or cause to be taken all steps
necessary to request and receive a favorable determination
letter from the IRS with respect to the Successor Plan and
related funding vehicle as of the date of their establishment,
the appropriate fiduciary under the Defined Benefit Plan
shall cause such plan to wire transfer in immediately
available funds, to the trust for the successor defined benefit
plan established and maintained by Buyer or the Company
(the "Successor Plan"), an amount determined in accordance
with Exhibit I (the "Plan Asset Transfer"). Before or
coincident with the Plan Asset Transfer, Seller's actuary
shall provide such other information as may be reasonably
necessary to confirm the calculation of such amount,
including information which separately shows the amount of
the Plan Asset Transfer allocable to individuals described in
Section 7.9(c). The initial amount so transferred shall not
take into account such individuals and the transfer, if any
based upon whether such individual is ultimately determined
to be an Active Employee, of the amount allocable to such
individuals shall be made as soon as reasonably possible
after six (6) months following the Closing Date. In no event
shall the Plan Asset Transfer be less than the amount
necessary to satisfy Code Section 414(l).
Within thirty (30) days after the Plan Asset
Transfer, Buyer through its actuary shall provide in writing
to Seller through its actuary any and all objections related to
the amount so transferred. The Parties through their
actuaries shall attempt to resolve any such objections. In the
event the Parties cannot resolve such objections within thirty
(30) days of receipt of such objections, each Party through
its actuary shall agree to the appointment of an independent
third actuary to resolve such objections in a manner, to the
extent relevant, which corresponds to the dispute resolution
procedures provided for in Section 2.6(d) and (f).
Notwithstanding the pending Plan Asset
Transfer, an Active Employee, or the beneficiary of an
Active Employee (e.g., a surviving spouse), shall be entitled
to commence receiving benefits under the Defined Benefit
Plan, in accordance with and as otherwise provided
thereunder, in the event the Active Employee retires,
terminates employment, or otherwise is entitled to receive
benefits under the Defined Benefit Plan (e.g., benefits
payable by reason of Code Section 401(a)(9)) and has a
benefit commencement date under the Defined Benefit Plan
before the date of the Plan Asset Transfer; provided,
however, an Active Employee shall not be considered to
have retired or terminated employment so long as he or she
is employed by the Company, the Buyer, or any ERISA
Affiliate of Buyer. In such event, the Defined Benefit Plan
shall pay such benefits in accordance with its terms and
provisions for the period ending with the last day of the
calendar month immediately following the calendar month
which includes the date of the Plan Asset Transfer, and the
amount of such benefits paid or payable by the Defined
Benefit Plan shall be deducted from the amount of the Plan
Asset Transfer. Thereafter, the Successor Plan shall pay all
benefits related to the Defined Benefit Plan for such Active
Employees or their beneficiaries.
Also, notwithstanding the Plan Asset
Transfer, Pentair shall hold Buyer and Company harmless
from any breach of fiduciary duty or other violations of
ERISA for any pre-transfer act or omission committed by a
fiduciary with respect to the Defined Benefit Plan as to
Active Employees or the assets and benefits transferred, and
Buyer shall hold Pentair harmless from any breach of
fiduciary duty or other violations of ERISA for any post-
transfer act or omission committed by a fiduciary with
respect to the Successor Plan as to Active Employees or the
assets and benefits received and assumed.
By the later of (a) six months after the
Closing Date or (b) 30 days after acceptance or resolution
of the Plan Asset Transfer, Pentair will provide to Buyer, to
the extent not already provided, a list showing other relevant
pension information (e.g., each Active Employee's accrued
benefit as of the Closing Date under the Defined Benefit
Plan) for Active Employees whose benefits were taken into
account in determining the Plan Asset Transfer.
(ii) Successor Plan. Effective
immediately following the Closing Buyer shall establish and
maintain or cause to be established and maintained a defined
benefit plan which is identical to, in all relevant and
substantive respects, the Defined Benefit Plan as of the
Closing Date, taking into account the features and special
rules thereunder which apply to Active Employees. The
Successor Plan shall cover all Active Employees who are
participants under the Defined Benefit Plan as of the Closing
Date or who, as of the Closing Date, are eligible to
participate under the Defined Benefit Plan upon satisfaction
of applicable age, service and other such requirements.
The Successor Plan shall provide a vested
accrued benefit and related ancillary benefits to each Active
Employee who is a participant thereunder which is no less
than such benefits earned (regardless of whether vested) by
such employee as of the Closing Date under the Defined
Benefit Plan. The Successor Plan shall provide benefits
(including normal and early retirement benefits, and pre-
retirement death benefits) for Active Employees with respect
to post-Closing covered service and compensation by taking
into account all service and other relevant items taken into
account under the Defined Benefit Plan.
(iii) Comparability of Retirement Benefits.
It is Buyer's intention is to provide or cause Company to
provide retirement benefits, including the Successor Plan,
retiree medical benefits and the ▇▇▇▇▇▇ Savings Plan, which
are comparable taken as a whole to the retirement benefits,
including the Defined Benefit Plan, retiree medical benefits
and the RSSIP, provided to Active Employees as of the
Closing Date. In applying this standard those benefits that
are excluded by operation of Section 7.12(a) shall be
disregarded.
(iv) Miscellaneous. Effective immediately
following the Closing Date, the Company or its successor in
interest shall no longer be a participating employer under
the Defined Benefit Plan and Active Employees shall no
longer accrue benefits thereunder with respect to post-
Closing service and compensation. Consistent with past
practice, after the Closing the Company and Seller shall
cooperate with each other to insure continued coordination
of benefit payments under the Defined Benefit Plan and the
Successor Plan in conjunction with benefits provided to
Company employees or former employees under the Aetna
Group Annuity Contract, GA-7641, purchased as part of the
1985 termination of the Federal Cartridge Pension Plan.
(c) RSSIP and ▇▇▇▇▇▇ Savings Plan. (i)
RSSIP. After the Closing, the Company or its successor in
interest shall no longer be a participating employer under
the Pentair Retirement Savings and Stock Incentive Plan (the
"RSSIP") and Active Employees shall not be entitled to
make or authorize contributions thereunder; provided,
however, otherwise eligible Active Employees shall be
entitled to receive a matching contribution for 1997
consistent with past practice and the terms of the RSSIP and
such matching contribution shall be paid by Seller or Pentair
and shall not be reflected as a liability on the Closing Date
Net Equity Statement. Consistent with past practice, after
Closing the Company shall assist FCH and Pentair in
gathering and transmitting such information as may be
reasonably necessary to determine such match and the
contributions made or authorized by Active Employees
under the RSSIP for relevant periods ending with or before
the Closing Date.
As soon as reasonably possible in 1998, but
in no event before the date by which matching contributions
for 1997 have been made and allocated and available
account balances of Active Employees have been finally
determined under the RSSIP, Active Employees with
account balances under the RSSIP shall be entitled to request
a lump sum distribution of such account balances and, if
requested by the participant concerned, The ▇▇▇▇▇▇ 401(K)
Retirement Savings Plan (the "▇▇▇▇▇▇ Savings Plan") shall
accept a direct rollover transfer of such account balance
pursuant to Code Section 401(a)(31); provided, however, (i)
no such distribution or transfer shall be made solely by
reason of the sale of the Stock to the extent such a
distribution or transfer may adversely affect the tax-qualified
status of the RSSIP (see, e.g., Treas. Reg. section 1.401(k)-1(d)(4)(iii)),
or the ▇▇▇▇▇▇ Savings Plan, (ii) any such
distribution or transfer shall be subject to the otherwise
applicable benefit payment rules and procedures under the
RSSIP, and (iii) in no event shall the ▇▇▇▇▇▇ Savings Plan be
obligated to accept a direct rollover transfer unless made in
cash or a cash equivalent (e.g., check or wire transfer).
Pending such a distribution or transfer or in the event such
a distribution or transfer is not made, Active Employees
shall be entitled to retain their benefits under the RSSIP
subject to such rules, procedures and limitations which
otherwise apply thereunder to terminated vested
participants.
(ii) Extension of ▇▇▇▇▇▇ Plan.
Immediately following the Closing Date, Buyer shall extend
or cause to be extended the ▇▇▇▇▇▇ Savings Plan to Active
Employees who are eligible to participate in the RSSIP as of
the Closing Date. Such Active Employees shall be entitled
to authorize salary reduction or other employee
contributions to the ▇▇▇▇▇▇ Savings Plan, to the extent
otherwise allowed under such plan, and shall be entitled to
receive employer contributions thereunder in accordance
with the applicable plan formula and by taking into account
pre-Closing service with the Company or any other ERISA
Affiliate. Prior to Closing, Buyer shall be entitled to
communicate the relevant terms and provisions of the ▇▇▇▇▇▇
Savings Plan to Active Employees and provide such
enrollment and other forms as may be necessary or
appropriate to allow such employees to participate
thereunder.
(d) F-H ESOP. After the Closing, the
Company or its successor in interest shall no longer be a
participating employer under the F-H ESOP. As soon as
reasonably possible after Closing, Active Employees with
account balances under the F-H ESOP shall be entitled to
request a lump sum distribution of such account balances
and, if requested by the participant concerned, the ▇▇▇▇▇▇
Savings Plan shall accept a direct rollover transfer of such
account balance pursuant to Code Section 401(a)(31);
provided, however, (i) no such distribution or transfer will
be made solely by reason of the sale of the Stock to the
extent such a distribution or transfer may adversely affect
the tax-qualified status of the F-H ESOP, (ii) any such
distribution or transfer shall be subject to otherwise
applicable benefit payment rules and procedures under the
F-H ESOP or the ▇▇▇▇▇▇ Savings Plan, and (iii) in no event
shall the ▇▇▇▇▇▇ Savings Plan be obligated to accept a direct
rollover transfer unless made in cash or a cash equivalent
(e.g., check or wire transfer). Pending such a distribution
or transfer or in the event such a distribution or transfer is
not made, Active Employees shall be entitled to retain their
benefits under the F-H ESOP subject to such rules,
procedures and limitations which otherwise apply thereunder
to terminated vested participants.
Immediately prior to the Closing FCH shall
have caused the Active Employees who serve on the
administrative committee provided for under the F-H ESOP
to resign and FCH shall be solely responsible to appoint
their successors, if any. Nothing herein shall limit (i) the
right of FCH after Closing to terminate in whole or part the
F-H ESOP, or (ii) Pentair's right after Closing to call the
preferred shares owned by the F-H ESOP.
(e) Benefits Under Sidekick and SERP.
Seller shall assume the Company's obligation to provide
benefits under the Sidekick to an Active Employee or any
other employee or former employee of the Company, and
any assets held to pay such benefits shall be retained by the
grantor trust related to the Sidekick.
Seller or Pentair shall assume the Company's
obligation, if any, to provide benefits under the SERP to an
Active Employee or any other employee or former employee
of the Company.
The liability to pay the benefits under the
Sidekick or the SERP and any assets held to provide such
benefits shall not be taken into account in determining the
Closing Date Net Equity Statement.
(f) Other Employee Benefits. The
Federal Division or Pentair provides those additional
Employee Benefits listed on Schedule 4.11 to Active
Employees and former employees. Except for retiree
medical benefits, the Company and the Buyer shall use
commercially reasonable efforts to continue such benefits
under such plans or insurance policies, to the extent such
plans or policies are transferable, until December 31, 1997.
Thereafter, the Company and Buyer shall have the complete
discretion to offer such Employee Benefits as they may
deem fit, subject to the statements of intent set forth in
paragraphs 7.12(a) and 7.12(b)(iii) above.
(g) COBRA Responsibilities. Certain
former employees of the Federal Division and certain
dependents of current or former employees of the Federal
Division have elected to purchase medical and dental
coverage pursuant to applicable provisions of state and
federal law (the "COBRA Participants"). Buyer agrees to
use reasonable commercial efforts to cause the Company to
maintain the current contractual arrangements to provide
such medical and dental coverage to the COBRA
Participants through December 31, 1997.
After December 31, 1997, COBRA
Participants as of the Closing Date shall have the right to
participate under those medical and dental plans that are
applicable to Active Employees. Such COBRA Participants
shall pay the premium amounts charged to them by
Company or Buyer, as the case may be. Seller shall
reimburse the Federal Division for the cost of claims
incurred by each COBRA Participant to the extent that such
cost exceeds the aggregate premiums paid by such COBRA
Participant (and his or her covered dependents).
(h) Performance Bonus Plan. Active
Employees shall be entitled to a bonus payment based on the
calendar year 1997 results of the Federal Division (to the
Closing Date) and the Company (from the Closing Date to
December 31, 1997) as determined under the provisions of
the Company's Performance Bonus Plan. Consistent with
past Company practice, profit for purposes of calculating
bonus payments shall be determined without regard to
accounting changes required to reflect the sale of Stock
(i.e., without regard to Accounting Principles Board
Opinion No. 16). Pentair and the Company shall share and
allocate the cost of the 1997 Performance Bonus Plan, such
to be allocated between Pentair and the Company based on
profitability to and through the Closing Date, which will be
allocated to Pentair and appropriately accrued on the Final
Closing Date Net Equity Statement, and after the Closing
Date, which shall be allocated to the Company. If any
amount accrued therefore is not paid to such employees,
such amount shall be promptly reimbursed to Seller
following the date on which such bonuses are paid.
(i) Cooperation. The Parties shall
reasonably cooperate with each other (i) in sharing before
distribution written communications of general application
directed to Active Employees with respect to the impact of
the Stock sale on Employee Benefits and transition issues
related thereto, (ii) sharing before filing with the IRS their
respective notices under Section 6058(b), (iii) in gathering
information necessary for each party to file annual reports
with the IRS or such other governmental filings as may be
required with respect to Employee Benefits for reporting
periods ending in or with 1997, and (iv) in taking or in
refraining to take such actions as may be necessary to
effectuate the provisions of this Section 7.12, but only to the
extent otherwise consistent with each party's duties and
responsibilities with respect to Employee Benefits under
applicable law.
7.13 Section 338 Election. Pentair agrees to file
jointly with Buyer the election (the "Election") provided for
by Section 338(h)(10) of the Code and the corresponding
election under applicable state or local tax law with respect
to the sale of the Shares. In connection with the Election:
(a) Buyer and Pentair shall each provide
to the other all necessary information, including information
as to tax basis, to permit the Election to be made and its
consequences to be accurately reflected for all relevant
accounting and tax reporting purposes, and to take all other
actions necessary to enable Buyer and Pentair to make the
Election.
(b) Buyer shall retain at Buyer's cost an
appraiser to prepare a report (a "Report") appraising the
value of the Assets to determine the proper allocations (the
"Allocations") of the "adjusted grossed-up basis" (within the
meaning of Treasury Regulation section 1.338(b)-1) and the
modified adjusted deemed sale price ("MADSP") (within the
meaning of Treasury Regulation section 1.338(h)(10)-1) among
the Assets in accordance with Section 338(b)(5) and (h)(10)
of the Code and Treasury Regulations thereunder. Pentair
and Company and their respective employees shall cooperate
fully with Buyer and its appraiser in connection with the
appraisal.
(c) The Report shall be finalized no later
than 120 days after the Closing Date. At least 30 days
before such Report is finalized, Buyer shall provide Pentair
a copy of the appraiser's preliminary report or indication of
the Allocations. After receipt of such preliminary report or
indication, Pentair shall give to Buyer in writing any
objections or questions which Pentair may have to such
preliminary report or indication, and the parties shall
thereafter use their best efforts to resolve such objections or
questions so that the Report is finalized no later than 120
days after the Closing Date and the Election is timely made.
(d) Buyer and Pentair shall jointly prepare
an IRS Form 8023-A, together with all required
attachments, and the corresponding forms required or
appropriate under state tax laws in a manner consistent with
the Allocations.
(e) As promptly as practicable after the
Closing Date, Buyer and Pentair shall take all action and file
all documents to effect and preserve a timely Election.
(f) Pentair shall allocate the MADSP
resulting from the Election in a manner consistent with the
Allocations and shall not take any position inconsistent with
the Election or the Allocations in connection with any Tax
Return; provided, however, that Pentair may take into
account its and FCH's transaction costs when calculating
such MADSP.
(g) Buyer shall allocate the "adjusted
grossed-up basis" of the Shares among the Assets in a
manner consistent with the Allocations and shall not take
any position inconsistent with the Election or the Allocations
in any Tax Return or otherwise; provided, however, that
Buyer may add its transaction costs to the "adjusted grossed-up basis"
of the Shares for purposes of allocating such costs
among the Assets.
(h) Pentair and Buyer acknowledge that
for federal income tax purposes (and for state income tax
purposes in those states whose income tax provisions follow
the federal income tax treatment), the sale of the Shares to
Buyer will be treated as a sale of Assets by Company to an
unrelated buyer followed by a complete liquidation of
Company with and into FCH, and the parties agree to report
the transaction in a manner consistent with this treatment
and to take no positions inconsistent with this treatment.
The parties also agree that neither Buyer nor Company shall
be liable for any Taxes resulting from the sale of the Shares.
7.14 Name Change. On or immediately following
the Closing Date Buyer shall legally cause Company to
change its corporate name from Federal-▇▇▇▇▇▇▇, Inc. to
Federal Cartridge Company (or such other corporate name
as determined in the sole discretion of Buyer or the
Company); Buyer covenants and agrees that it shall not use
"▇▇▇▇▇▇▇" in its corporate or any assumed name. FCH
shall legally change its corporate name from FC Holdings,
Inc. to ▇▇▇▇▇▇▇ Enclosures, Inc. (or such other name as
determined in the sole discretion of Seller); Seller covenants
that it shall not use "Federal" or "Cartridge" in its corporate
or any assumed name.
7.15 Environmental Matters.
(a) Environmental Conditions. The
Parties acknowledge and agree that:
(i) the Company may become the
subject of any claim by a third party, including any
Governmental Agency, for contribution to or
participation in any investigation or remediation of
any Environmental Condition, not located on any
Owned Real Property, which is attributable, in
whole or in part, to the disposition, spill or release
of any Hazardous Materials by the Company prior to
the Closing Date.
(ii) certain Environmental
Conditions are known to exist on the Owned Real
Property.
(iii) other Environmental
Conditions may exist on the Owned Real Property
which were attributable to the Company or any
predecessor in interest, in whole or in part, prior to
the Closing Date and may thereafter become the
subject of an Environmental Claim.
(iv) Conditions may exist on the
Owned Real Property, whether or not falling within
the strict definition of Environmental Conditions
relating to Hazardous Material, such as primer mix
residue in sewer pipes (A) which are not in current
use in the Business or (B) connect Buildings 135,
136 and/or 137 to Building 169, as reflected on the
survey of the Owned Real Property.
(b) Seller's Duty Regarding
Environmental Conditions. (i) With respect to the
Environmental Conditions described in Section
7.15(a) (i) to (iii) above, Seller, upon receipt of
Buyer's notice as provided hereinafter, shall take
control of the investigation, remediation, restoration
or cleanup of such Environmental Conditions, with
the active assistance of the Company, but at the
direction of the Seller (including all communications
with third parties and Governmental Agencies), and
Seller shall promptly pay, when due, subject to
Seller's rights to challenge or appeal, all amounts
required in connection therewith.
(ii) As to any such Environmental
Conditions, Buyer may give notice to Seller, in
accordance with the provisions of Section 8.3 and
Article XI hereof, that such Environmental
Condition(s) is the subject of (A) an Environmental
Claim by a third party, including a Governmental
Agency, or (B) an opinion from Buyer's Counsel
that Buyer has a duty to act or (C) advice of counsel
that it is proper environmental compliance practice
or necessary for Buyer to act to avoid the risk of
either noncompliance with Environmental Law or
for the avoidance or mitigation of an Environmental
Claim, or both.
(iii) If and only if an
Environmental Condition had previously been closed
pursuant to any applicable Regulation or Court
Order prior to any change in Environmental Law,
the Seller shall have no obligation under this Section
7.15 or otherwise to remediate or take any other
action with respect to such Environmental Condition
which may arise as a result of any subsequent
change in Environmental Law.
(iv) With respect to the conditions
described in paragraph 7.15(a)(iv)(A) above, Seller
shall be obligated to remediate or take any other
action with respect thereto upon receiving notice
from Buyer or the Company in accordance with
subparagraph 7.15(b)(ii) above. With respect to the
conditions described in paragraph 7.15(a)(iv)(B)
above, if Seller is required or determines to
remediate or take any other action with respect to the
sewer lines on the ▇▇▇▇▇▇▇ Division site designated
in paragraph 7.15(a)(iv)(B), Seller shall be obligated
to remediate or take any such other action with
respect to the extensions of such sewer lines which
are on the Federal Division site.
(c) Exacerbation or Mitigation of
Environmental Conditions. To the extent that any
Environmental Condition requiring remediation has been
materially exacerbated or the costs thereof materially
increased by any affirmative acts or omissions (excluding
the mere passage of time) of the Company or any of its
Affiliates following the Closing Date, the Company shall be
responsible for, and shall indemnify Seller against, any
increase in costs or expenses attributable thereto, except to
the extent that Buyer or Company (i) has not mitigated or
avoided such costs or (ii) exacerbates any Environmental
Condition requiring remediation, because of (as to (i) and
(ii) immediately preceding) the limitations in Section 7.15(i)
hereof.
(d) Allocation of Investigation and Remediation
Costs.
(i) Contribution from the
Company. As to Environmental Conditions
provided above in Section 7.15(a)(i) or (iii), the
Company shall be required to contribute to the costs
and expenses of Seller therefor in the proportion that
(A) Hazardous Materials deposited, spilled or
released at a site by the Company following the
Closing Date, bears to (B) like Hazardous Materials
deposited, spilled or released by the Company, at the
same site, both prior to and following the Closing
Date, considering relative volumes, toxicity and
similar equitable factors.
(ii) Performance by the Company.
The Company shall have the sole responsibility for,
and bear all of the expense of, remediation or other
required action with respect to primer mix residue
which may be found in any sewer line which is used
in the Business as of the Closing Date (other than
those lines described in paragraph 7.15(a)(iv)(B)
above) or elsewhere on the Owned Real Property.
(iii) Co-pay Provisions. In the
event of any request or demand made by the
Company or Buyer with respect to any single
Environmental Condition pursuant only to paragraph
7.15(b)(ii)(C) above, the costs and expenses of all
actions taken pursuant thereto shall be borne in the
following manner:
(A) the first $10,000 of expenses
shall be paid in the first instance by the
Company, which shall be reimbursed fifty
percent (50%) by the Seller, when the
aggregate costs with respect to such
Environmental Condition shall exceed
$10,000;
(B) the next $90,000 of expenses
with respect to such Environmental
Condition shall be borne one-half by the
Company and one-half by the Seller;
(C) the remainder of such
expenses shall be borne by the Seller.
The maximum aggregate amount payable by the
Company under this paragraph 7.15(d)(iii) shall not
exceed $250,000 with respect to all Environmental
Conditions.
(e) Access to the Owned Real Property.
The Company, its Affiliates and all of its successors in
interest at the Anoka site shall, following the Closing and
until the completion of Seller's obligations under this
Section 7.15 and any Court Orders pertaining thereto for
which Seller has any responsibility:
(i) permit Seller and its
contractors, consultants and Representatives
reasonable access to and freedom of movement on
the Owned Real Property in order to perform all
activities required to be performed by Seller after the
Closing Date pursuant to this Section 7.15, including
performance of any cleanup, installation of ground
water monitoring ▇▇▇▇▇, sampling of ground water,
surface water, surface and subsurface soil, air and
other environmental media, excavation of soil,
installation of pollution control and/or monitoring
equipment, capping of or restriction of access to
contaminated areas, installation of groundwater
collection, treatment, pumping and piping systems
and such other measures as may be reasonably
necessary;
(ii) permit any duly designated
employee, consultant, contractor, agent or
Representative of any Governmental Agency access
to the Owned Real Property for purposes of
inspection, sampling and other activities necessary to
effectuate the oversight of Seller's activities under
this Section 7.15;
(iii) provide Seller and its
Representatives reasonable access to its books and
records, including the Books and Records for the
purpose of enabling Seller to perform its
undertakings under this Section 7.15.
(f) Conduct of Investigations or
Cleanups. All investigations and cleanups of Environmental
Conditions under this Section 7.15 shall be undertaken with
the active assistance of the Company and its environmental
managers but acting under Seller's control. Seller and the
Company shall schedule the cleanup of the Environmental
Conditions in accordance with any Court Order in a
reasonable and cost-effective manner. The remediation of
such Environmental Conditions shall be designed to achieve
compliance in all material respects with Environmental
Laws, taking into account, to the extent permitted by such
Regulations, that the Owned Real Property is used for
industrial purposes. Seller's remediation activities on the
Owned Real Property shall be conducted in a manner so as
to minimize the disruption to the Company's operations.
No plan to remediate any Environmental Condition will be
finalized, and no Action or appealable Court Order shall be
compromised or otherwise settled without the written
consent of the Company, which consent shall not be
unreasonably delayed or withheld.
(g) Company Rights and Obligations. In
the event Seller fails diligently to pursue the remediation of
any Environmental Condition for which it has responsibility
hereunder, the Company shall have the right to undertake,
at Seller's cost and expense, the investigation, review,
assessment and remediation of such Environmental
Condition. Following the Closing Date, the Company shall
continue to be responsible for, and for payment of, any and
all costs of monitoring ground and/or surface water on the
Owned Real Property described in the Company's current
and any future Part B Hazardous Waste Permit (or similar
successor Permit or Court Order).
(h) Third Party Claims. In the event any
Environmental Claim is brought against the Company or
Buyer or any of their Affiliates with respect to any
Environmental Condition for which Seller has responsibility
hereunder, Seller shall defend and indemnify each of them
in accordance with the provisions of Article VIII and, in
particular, Section 8.3 hereof.
(i) Post-Closing Investigations.
Following the Closing, neither the Company nor any
Affiliate nor any of their Representatives will arrange for or
conduct investigations of any Environmental Condition other
than (i) as required by applicable Environmental Law (ii) in
the exercise of good faith business judgment (exercised
without regard to the availability of indemnification
hereunder), or (iii) in connection with a third party claim
with respect to which the Seller has failed to perform its
obligations under this Section 7.15. Any breach of this
covenant shall be taken into account in any proceeding
under Article IX involving any costs or expenses relating to
any Environmental Condition knowledge of which arises out
of such discovery.
(j) Emergency Actions. Notwithstanding
the foregoing, the Company may take immediate action on
the Owned Real Property to the extent necessary to protect
the health and safety, to avoid the payment of significant
fines or penalties or to avoid a significant increase in
remediation costs.
(k) No Reduction or Deductible. No
claim by any party for indemnification or contribution for
any matter concerning any Environmental Condition under
this Section 7.15 shall be subject to any deductible,
threshold or reduction, including the provisions of Section
8.6 (a) or (b), except for (A) the overall limit of
indemnification provided in Section 8.6 (c) and (B) the
co-pay provisions provided in Section 7.15(d)(iii).
(l) Time Limit. Seller's responsibilities
under this Section 7.15 shall cease ten (10) years after the
Closing Date, provided, however, that, except as otherwise
provided in Section 7.15(g), Seller shall be responsible until
final completion for any investigation, remediation or
monitoring of any Environmental Condition which is (i)
begun or (ii) the subject of any action by any third party,
including any Governmental Agency or (iii) the subject of
a notice under Section 7.15(b)(ii) prior to the tenth
anniversary of the Closing Date.
(m) Notice. Notwithstanding the
requirements of Article XI hereof, all notices under this
Section 7.15 shall be made in writing solely to the attention
of the General Counsel of the Buyer or Pentair in the
manner and at the address(es) set forth pursuant to Article
XI.
7.16 Payment of Uncollectible Accounts
Receivable. The Company shall seek to collect all accounts
receivable reflected on the Final Closing Date Net Equity
Statement in the Ordinary Course of Business. Payments
received by the Company from customers will be applied
first against such customer's oldest outstanding account
receivable, unless the credit of the payment is otherwise
directed to a specific invoice by the customer. The
Company shall deliver to Pentair a monthly itemized report
of the collection status of all outstanding accounts receivable
and invoices reflected on the Closing Date Net Equity
Statement. Upon the Company's business determination,
made in good faith, that the balance of any account
receivable so reflected is not collectible, the Company shall
notify FCH, who shall promptly pay to the Company the
amount of such account receivable. Payment may not be
demanded hereunder with respect to any unpaid invoice until
the later of (i) 120 days following the due date of the unpaid
invoice, or (ii) 60 days following the Closing Date. Upon
receipt of payment therefor, the Company shall assign the
account receivable to FCH, free and clear of any claims or
liens, (other than and subject to any and all defenses,
counterclaims or rights of set-off that may be asserted by the
customer that do not arise from the actions, other than
unsuccessful collection actions, of the Company after the
Closing Date), and FCH shall have the right thereafter to
collect the account receivable for its own account. The
Company shall not take any action outside of the Ordinary
Course of Business with respect to any such account
receivable.
7.17 Title Review.
The Buyer has reviewed and approved, except for
the objections thereto described in the paragraph below, the
preliminary title commitments and the surveys described and
defined in the Separation Agreement with respect to the
condition of title to the Owned Real Property. Seller shall
cure and/or indemnify to the reasonable satisfaction of
Buyer such objections and, subject to such cure and/or
indemnification, closing of the Transactions shall be deemed
Buyer's acceptance of the conditions of title to the Owned
Real Property.
Seller hereby acknowledges and agrees that the
Buyer has objected to any restriction or Damages that may
exist or hereafter arise from (i) the Company's right to
maintain the existing buildings and improvements identified
as Building Nos. 40 and 92 on Schedule 5.2 of the
Separation Agreement because of the encroachment thereof
onto an adjoining right-of-way ostensibly owned by the
Burlington Northern Railroad described on the survey dated
9/26/97 by ▇▇▇▇▇▇ ▇▇▇▇ as "Building Encroachment
Approx. 12' x 180'," or (ii) the Company's right to
maintain the process sewer pipeline that crosses under the
right-of-way ostensibly owned by Burlington Northern
Railroad. Buyer and Company shall be entitled to
indemnification for any claims arising from the foregoing or
any restriction of rights or Damages incurred by the
Company or Buyer on account of such encroachments in
accordance with Article VIII of this Agreement.
7.18 SEC Financial Statements. Pentair
acknowledges that Buyer is required to cause to be prepared
audited financial statements of the Federal Division
containing an unqualified report of the independent certified
public accountants reviewing such statements as of
December 31st of the applicable fiscal year(s) (the "Audited
Financial Statements"), and interim unaudited financial
statements (comparative, if required) for the Federal
Division as of and for the interim period (which interim
period end shall be a date within 135 days of the date of
filing of such statement with the Securities and Exchange
Commission) (the "Interim Unaudited Financial
Statements") sufficient to meet the requirements of Rule 3-05
of Regulation S-X of the Securities and Exchange
Commission. Pentair agrees that it shall (i) cooperate to the
extent reasonably necessary in such preparation or review,
and (ii) pay one-half of the fees and expenses of the
independent certified public accountants in preparing such
financial statement(s), up to a maximum of $45,000.
7.19 Third Party Consents. The Parties shall
cooperate in good faith and make reasonable efforts to assist
the other(s) to obtain all consents and authorizations
necessary or desirable in connection with the Transactions
that were not obtained prior to the Closing, including
consents and authorizations arising from, in connection with
or incident to all Contracts, Mortgages, Permits, Leases,
Employee Benefits, or Regulations to which the Federal
Division or the ▇▇▇▇▇▇▇ Division is a party or is bound,
under those which, if not so obtained, would have subjected
the non-complying party to any material Liability, caused
interruption of operations of the Business, or the business of
the ▇▇▇▇▇▇▇ Division or otherwise materially and adversely
affect the Federal Division or the ▇▇▇▇▇▇▇ Division.
7.20 Further Cooperation and Assurances. The
Parties agree to cooperate with each other, and to execute
and deliver or to cause to be executed and delivered, all
further documents and instruments and to take all further
action as shall be reasonably necessary or appropriate to
confirm or carry out the provisions and intents of this
Agreement and the Transaction Documents.
ARTICLE VIII
SURVIVAL OF CERTAIN PROVISIONS;
INDEMNIFICATIONS
8.1 Survival of Representations, Warranties,
Indemnities and Other Agreements. All statements
contained in any Schedule or Exhibit hereto or to any
Transaction Document shall be deemed to be representations
and warranties of such Party. The representations,
warranties and agreements of the parties hereto shall survive
the Closing Date as follows:
(a) except as provided in Section 8.1(c)
below, the representations and warranties of the Buyer shall
survive the Closing Date for the periods set forth on
Exhibit J. The covenants and obligations of the Buyer,
including those, if any, contained in the Separation
Agreement, shall survive the Closing Date and shall
terminate when the applicable statute of limitations expire
(and an additional period of six (6) months thereafter) with
respect to the covenants and obligations in question (giving
effect to any extensions and waivers thereof);
(b) except as provided in Section 8.1(c)
below, the representations and warranties of Pentair and
FCH shall survive the Closing Date for the periods set forth
on Exhibit J. The covenants and obligations of Pentair and
FCH, including those contained in the Separation
Agreement and Article VI hereof, shall survive the Closing
Date and shall terminate when the applicable statute of
limitations expire (and an additional period of six (6) months
thereafter) with respect to the covenants and obligations in
question (giving effect to any extensions or waivers thereof);
(c) the definitions, covenants and
obligations of the parties set forth in the entirety of Articles
I, II, VII, VIII, IX and XII shall survive the Closing Date
indefinitely; and
(d) the representations and warranties of
the Company shall expire on the Closing Date. The
covenants and obligations of the Company, including those
contained in the Separation Agreement, shall survive the
Closing Date and shall terminate when the applicable statute
of limitations expire (and an additional period of six (6)
months thereafter) with respect to the covenants and
obligations in question expire (giving effect to any
extensions or waivers thereof). Except for the provisions of
this Agreement which give rise to actions or claims under
the Separation Agreement, Pentair and FCH shall have no
right to contribution from the Company after the Closing
Date arising from, in connection with or incident to the
Claims of Buyer arising hereunder against Pentair or FCH.
(e) except as otherwise provided in
Section 8.1(c) above, the indemnification obligations of the
parties hereto shall survive for the same period of time as
the underlying warranty, representation, covenant or
obligation. An indemnified party shall have the right to
make a Claim hereunder at any time within the relevant
survival period of the applicable indemnification obligation,
and any such Claim made within such period shall survive
until its final resolution.
8.2 Agreement to Indemnify.
(a) By Pentair and FCH. Pentair and
FCH, jointly and severally, shall indemnify, save and hold
harmless the Buyer and its Affiliates and Representatives,
including the Company, from and against any and all costs,
losses, Taxes, Liabilities, obligations, damages, lawsuits,
deficiencies, claims, demands, and expenses (whether or not
arising out of third party claims), including without
limitation interest, penalties, costs of mitigation, expenses
and out-of-pocket costs of employee travel and lodging,
losses in connection with any Environmental Law
(including, without limitation, costs for any clean-up,
remedial, corrective or response action, costs of compliance
activities, fines and penalties), and other direct losses
resulting from any shut down or curtailment of operations,
reasonable attorneys' fees and all reasonable amounts paid
in investigation, defense or settlement of any of the
foregoing (herein, "Damages"), directly incurred in
connection with, arising out of or resulting from:
(i) any breach or inaccuracy of any
representation or warranty made by Pentair or any
Affiliate (excluding the Company) in this Agreement
or any other Transaction Document;
(ii) any breach of any covenant or
obligation of Pentair or any Affiliate (excluding the
Company) contained in this Agreement or any other
Transaction Document;
(iii) any failure of the Seller to pay any
Liabilities of the Company other than Federal
Liabilities;
(iv) Taxes for which Seller is responsible
pursuant to the provisions of Section 7.7 hereof; and
(v) any Employee Benefits, except those
specifically excluded in this Agreement or any
Transaction Document, with respect to any: event,
action or failure to act occurring prior to the Closing
Date; and
(vi) except as otherwise set forth in
Section 7.18 of this Agreement or in the Separation
Agreement, any out-of-pocket expenses of sale
incurred or paid by the Company in connection with
this Agreement or the Transactions.
The matters arising under Sections 8.2(a)(ii), (iii),
(iv), (v) and (vi) shall be deemed "Special Claims"
for purposes of this Article VIII (see Section 8.6).
(b) By Buyer and the Company. The
Buyer and the Company, jointly and severally, shall
indemnify, save and hold harmless the Seller and its
Affiliates from and against any and all Damages directly
incurred in connection with, arising out of or resulting
from:
(i) any breach or inaccuracy of any
representation or warranty made by Buyer in this
Agreement or any other Transaction Documents;
(ii) any breach of any covenant or
obligation of Buyer contained in this Agreement or
any other Transaction Document; and
(iii) any failure of the Company to pay any
Federal Liabilities.
The matters arising under Sections 8.2(b)(ii) and (iii)
shall be deemed "Special Claims" for purposes of
this Article VIII (see Section 8.6).
(c) Damages. The term "Damages" as
used in this Section 8.2 is not limited to matters asserted by
third parties against any indemnified party, but includes
Damages included or sustained by any indemnified party in
the absence of third party claims. Payment by any
indemnified party of amounts for which such indemnified
party is indemnified hereunder shall not be a condition
precedent to the right to make a Claim hereunder. No party
shall have any obligation to indemnify any other party for
any consequential damages (including lost profits), except
insofar as consequential damages constitute a part of the
damages suffered by any third party for which Claim
indemnification is sought, or for Damages that are (a)
caused by the actions of the other or the other's directors,
officers, employees or Representatives, (b) to the extent
actually recovered by the indemnitee from any third party
(including any insurer), or (c) offset by tax savings realized
on account of such Damages by the indemnitee or any of its
Affiliates. Except as specifically provided in this
Agreement, any indemnifying party's obligation to
indemnify any indemnified party shall not limit any other
rights, including without limitation rights of contribution,
which either party may have under statute or common law.
(d) Cooperation. Each indemnified party
shall cooperate in good faith and in all reasonable respects
with each indemnifying party and its Representatives
(including without limitation its attorneys) in the
investigation, trial and defense of any Action (and any
appeal arising therefrom); provided, however, that such
indemnified party may, at its own cost, participate in
negotiations, arbitrations and the investigation, trial and
defense of such Action (and any appeal arising therefrom).
The Parties shall cooperate with each other in any
notifications to insurers, and in the provision of information
and documentation.
8.3 Defense of Claims. If any claim for
Damages (a "Claim") is to be made by a party entitled to
indemnification hereunder against the indemnifying party,
the party claiming such indemnification shall, subject to
Section 8.1, give written notice (a "Claim Notice") to the
indemnifying party as soon as practicable after the party
entitled to indemnification becomes aware of any fact,
condition or event which may give rise to Damages for
which indemnification may be sought under this Section 8.3.
If any Action is filed against any party entitled to the benefit
of indemnity hereunder, written notice hereof shall be given
to the indemnifying party as promptly as practicable (and in
any event within fifteen (15) calendar days after service of
the citation or summons). The failure of any indemnified
party to give timely notice hereunder shall not affect the
rights to indemnification hereunder, except to the extent that
the indemnifying party demonstrates actual damage caused
by such failure. Except as otherwise provided in the
following paragraph of this Section 8.3, after such notice,
if the indemnifying party shall acknowledge in writing to the
indemnified party that the indemnifying party shall be
obligated under the terms of its indemnity hereunder in
connection with such Action, then the indemnifying party
shall be entitled, if it so elects at its own cost, risk and
expense (a) to take control of the defense and
indemnification of such Action, (b) to employ and engage
attorneys of its own choice to handle and defend the same
unless the named parties to such Action (including any
impleaded parties) include both the indemnifying party and
the indemnified party and in the good faith determination of
counsel to the indemnified party, notice of which shall be
promptly delivered to the indemnifying party, there is an
actual or potential conflict of interest between the
indemnified party and the indemnifying party, in which
event the indemnified party shall be entitled, at the
indemnifying party's reasonable costs, risk and expense to
separate counsel of its own choosing, and (c) to compromise
or settle such Action, which compromise or settlement shall
be made only with the written consent of the indemnified
party, such consent not to be unreasonably withheld,
delayed or conditioned. If the indemnifying party fails to
assume the defense of such Action within fifteen (15)
calendar days after receipt of the Claim Notice, the
indemnified party against which such Action has been
asserted will (upon delivering notice to such effect to the
indemnifying party) have the right to undertake, at the
indemnifying party's cost and expense, the defense,
compromise or settlement of such Action on behalf of and
for the account and risk of the indemnifying party;
provided, however, that such Action shall not be
compromised or settled without the written consent of the
indemnifying party, which consent shall not be unreasonably
withheld, delayed or conditioned. The indemnifying party
shall be liable for any settlement of any Action effected
pursuant to and in accordance with this Section 8.3 and for
any final judgment (subject to any right of appeal), and the
indemnifying party agrees to indemnify and hold harmless
an indemnified party from and against any Damages by
reason of such settlement or judgment.
A Party to an Action who might otherwise be entitled
to indemnification of Claims but for the threshold set forth
in Sections 8.6(a) and (b) shall give written notice to the
other Party of such inchoate Claims. The other Party shall
have the right to observe the handling of such inchoate
Claims. The Party named in the Action shall have the right
in good faith and at its own cost, risk and expense subject to
subsequent rights of indemnification under this Article VIII
to:
(a) undertake and control the investigation and
defense of such Action;
(b) employ and engage attorneys and other
professionals and agents of its own choice to
investigate and control and defend the same;
and
(c) compromise or settle such Action, without
the necessity of obtaining consent from the
other Party.
If such Party becomes entitled to indemnification under
Article VIII thereafter as a result of reaching such threshold,
the Indemnifying Party shall not have the right to contest
any matters pertaining to such Actions taken in good faith.
8.4 Representatives. No individual
Representative of any Party, or their respective Affiliates,
shall be personally liable for any Damages under the
provisions contained in Article VIII. Nothing herein shall
relieve any Party of any Liability to make any payment
expressly required to be made by such Party pursuant to this
Agreement.
8.5 Claim Method. To the extent any Claim is
made hereunder by any indemnified party, such Claim shall
include a written explanation of the nature of and reason for
the Claim, a good faith estimate of the dollar amount thereof
and such other supporting detail as can be reasonably
provided by the indemnified party.
8.6 Limitations on Indemnification.
(a) No Party shall be liable to any
indemnitee for Damages resulting from a breach of a
representation or warranty under this Agreement to the
extent the Damages associated with such a breach does not
exceed $25,000 (the "Deductible"), and then only to the
extent of the excess over $25,000, until the aggregate of all
claims for Damages (including the Deductible, but excluding
Special Claims) exceed $1 million, in which event the
indemnifying party shall be liable to and shall pay to the
indemnitee $1 million, less the sum of the Deductible
amounts aggregated for the purpose of calculating the $1
million threshold. For the purposes hereof, an individual
breach shall include the aggregate of all damage claims that
arise out of or are caused by a single set of facts or
circumstances or a group of related facts or circumstances.
(b) Once the threshold of $1 million is
reached pursuant to Section 8.6(a) above, the indemnifying
party shall be liable to pay all claims for Damages exceeding
$20,000 in their entirety; any claims resulting from a breach
of a representation and warranty for Damages that are
$20,000 or less shall not be subject to indemnification
hereunder.
(c) The total aggregate liability of Pentair
and FCH to Buyer or the Company for Damages that are
indemnifiable and must be paid pursuant to this Article VIII,
and the total aggregate liability of Buyer and the Company
to Pentair or FCH for Damages that are indemnifiable and
must be paid pursuant to this Article VIII, excluding
indemnification under Sections 8.2(a)(iii) and 8.2(b)(iii)
(which shall not be so limited as to the amount of liability),
shall not exceed the Purchase Price.
ARTICLE IX
DISPUTE RESOLUTION
9.1 Dispute Resolution. In the event a dispute
arises under this Agreement, except with respect to
Sections 2.6 or 7.13, such dispute shall be resolved in the
manner set forth in Section 9.2 below.
9.2 Mediation and Arbitration.
(a) Mediation. If a dispute arises under
this Agreement, including any question regarding the
existence, validity, interpretation or termination hereof,
which is not described as an exception in Section 9.1, any
Party may invoke the dispute resolution procedure set forth
in this Section 9.2 by giving written notice to the other
Party designating a Person with appropriate authority to be
its Representative in negotiations relating to the dispute.
Upon receipt of such notice, the other Party shall, within
five (5) business days, designate a Person with similar
authority to be its Representative. Such Representatives
shall, following whatever investigation each deems
appropriate, enter into discussions concerning the dispute.
If the dispute is not resolved as a result of such discussion,
an attempt will be made to resolve the matter by a formal
non-binding mediation with an independent neutral mediator
agreed to by the Parties. If the Parties cannot agree on the
mediator within a period of thirty (30) days, then the CPR
Institute for Dispute Resolution, Inc., New York, New York
shall be asked to select a mediator and the Parties agree to
be bound by this choice and to enter into a mediation
procedure with that mediator. Upon commencement of the
mediation process, the Parties shall promptly communicate
with respect to a procedure and schedule for the conduct of
the proceeding and for the exchange of documents and other
information related to the dispute. The mediation process
will be deemed ended when either Party or the mediator, in
good faith, asserts in writing that an impasse has been
reached.
(b) Arbitration. Any dispute between the
Parties arising under this Agreement which is not resolved
in accordance with the provisions of Section 9.2(a) above
within ninety (90) days after appointment of the mediator,
shall be conclusively determined by final and binding
arbitration to be held in Atlanta Georgia under the auspices
of the then applicable Commercial Arbitration Rules of the
American Arbitration Association as herein modified or
supplemented or otherwise agreed to in writing by the
Parties thereto; the Parties may modify such rules of such
association at any time. The final arbitral award of the
arbitrator(s) shall be exclusive, final and binding upon the
Parties, and judgment upon the award may be entered in any
court of competent jurisdiction. The arbitrator(s) shall not
act as an amiable compositor. The arbitrator(s) shall be
selected in accordance with the rules. The number of
arbitrators when the amount is $500,000 or less shall be one
(1), and the number of arbitrators when the amount is more
than $500,000 shall be three (3). The arbitrator(s) so
designated shall not be an employee, consultant, officer,
director or shareholder of any Party hereto or any Affiliate
of any Party to this Agreement.
Within fifteen (15) days after the designation
of the arbitrator(s), the arbitrator(s) and the Parties shall
meet, at which time the Parties shall be required to set forth
in writing all disputed issues and a proposed ruling on each
such issue. The arbitrator(s) shall set a date for a hearing,
which shall be no later than thirty (30) days after the
submission of the written proposals, to discuss each of the
issues identified by the Buyer and the Seller. Each such
Party shall have the right to be represented by counsel. The
arbitration shall be governed by the Commercial Arbitration
Rules of the American Arbitration Association; provided,
however, that the arbitrator(s) shall have sole discretion
with regard to the rules pertaining to admissibility of
evidence and their application to any oral or documentary
evidence. The arbitrator(s) shall use best efforts to rule on
each disputed issue within thirty (30) days after completion
of the hearing(s) described above. The determination of the
arbitrator(s) as to the resolution of any dispute shall be
binding and conclusive upon all Parties hereto. All rulings
of the arbitrator(s) shall be in writing and shall be delivered
to the Parties hereto. Pentair and Buyer shall equally share
in the cost and expenses of the arbitrator(s).
(c) The parties agree that the arbitrator(s)
may call and question any witness, including any expert
witness, and may require a party to produce any relevant
documents or evidence prior to or at any hearing. The
Parties and the arbitrator(s) shall proceed expeditiously so
that the arbitral award is issued as soon as practicable. The
final arbitral award may, in the discretion of the
arbitrator(s), include interest from the date of the breach or
other violation of the Agreement until the award is fully
paid. Any additional costs, fees, or expenses incurred in
enforcing the arbitral award will be charged against the
Party that resists enforcement.
(d) Equitable Remedies. Notwithstanding
any other provision of this Agreement, the Parties agree
that, upon the application of a Party hereto, the arbitrator(s)
shall have the power and authority to grant such Party
equitable remedies and relief as the arbitrator(s) shall deem
necessary and appropriate in the circumstances. In the event
that the seeking Party is granted equitable relief by order of
the arbitrator(s), such Party may file such order with any
court of competent jurisdiction seeking enforcement thereof
by such court. In furtherance of the foregoing the Parties
agree that:
(i) the arbitrator(s) shall have the
authority to allocate the Parties' costs and expenses
arising from the arbitration (excluding the expense of
the arbitrator(s)) among the Parties thereto in any
manner deemed equitable by the arbitrator(s);
(ii) the required performance of the
respective covenants and agreements of the Parties
set forth in this Agreement must be faithfully
performed by the Party charged with such
performance;
(iii) the Party not charged with such
performance may be irreparably injured by such
breach of performance and money damages alone
would not be an appropriate remedy for the harm to
such Party from the continuing breach of the
applicable covenant or agreements; and
(iv) based on the foregoing, equitable
relief, including specific performance or injunction
by restraining order, may be an appropriate remedy
for the breach of such covenants and agreements and
the non-breaching Party shall be entitled to seek
equitable relief without the necessity of posting bond
to ensure and enforce the full and faithful
performance of the material covenants and
agreements herein.
ARTICLE X
BROKERS
10.1 For Pentair. Pentair represents and warrants
that no Person has acted in the capacity of broker or finder
on behalf of Pentair, FCH or the Company in connection
with the sale of the Shares or to bring about the negotiation
of this Agreement. Pentair agrees to defend, indemnify and
to hold harmless the Company and the Buyer against any
claims or liabilities asserted against either of them by any
Person acting or claiming to act as a broker or finder on
behalf of Pentair, FCH or the Company.
10.2 For the Buyer. The Buyer represents and
warrants that no Person has acted in the capacity of broker
or finder on its behalf in connection with the purchase of the
Shares or to bring about the negotiation of this Agreement.
The Buyer agrees to defend, indemnify and hold harmless
Pentair and FCH against any claims or liabilities asserted
against either of them by any Person acting or claiming to
act as a broker or finder on behalf of the Buyer.
ARTICLE XI
NOTICES
Any notice, request, demand, consent and other
communication required or permitted hereunder shall be in
writing signed by a duly authorized Representative of the
Party giving notice and given to the other Party by delivery
in person; by recognized national overnight courier service;
or by facsimile transmission at the following addresses (or
to such other Person or at such other address as either Party
may subsequently furnish the other by notice in accordance
with this section):
If to Buyer:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Executive Vice President
▇▇▇▇▇▇, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
and by facsimile to: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, III
Senior Vice President and General
Counsel
▇▇▇▇▇▇, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
and by facsimile to:
▇▇▇-▇▇▇-▇▇▇▇
If to the Seller:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Executive Vice President
Pentair, Inc.
Waters Edge Plaza
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇ ▇▇▇▇
▇▇. ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
and by facsimile to: ▇▇▇-▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Senior Vice President and General
Counsel
Pentair, Inc.
Waters Edge Plaza
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇ ▇▇▇▇
▇▇. ▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
and by facsimile to: ▇▇▇-▇▇▇-▇▇▇▇
Any such notice and other communication addressed
as provided herein will be deemed duly and validly given
upon delivery if in person; upon delivery by a recognized
national overnight courier service; and upon receipt of a
confirmation slip evidencing satisfactory transmission if by
facsimile transmission.
ARTICLE XII
MISCELLANEOUS
12.1 Successors and Assigns. This Agreement
shall be binding upon and inure to the benefit of the Parties
hereto and their respective successors and assigns. No
assignment shall release any Party from any obligation or
liability under this Agreement.
12.2 Entire Agreement; Amendments;
Attachments
(a) This Agreement, all Disclosure
Schedules and Exhibits hereto, and all Transaction
Documents represent the entire understanding and
agreement between the Parties hereto with respect to the
subject matter hereof and supersede all prior oral and
written and all contemporaneous oral negotiations,
commitments and understandings between such Parties. The
Parties may amend or modify this Agreement, in such
manner as may be agreed upon, by a written instrument
executed by the Buyer and by Pentair, FCH and the
Company.
(b) The Exhibits and Disclosure Schedules
attached hereto or to be attached hereafter are hereby
incorporated as integral parts of this Agreement.
12.3 Severability. In the event that any one or
more of the provisions contained in this Agreement or in
any other instrument referred to herein, shall, for any
reason, be held to be invalid, illegal or unenforceable in any
respect, or shall be incapable of performance in any material
respect, for any reason other than breach by a party of its
obligations hereunder, then to the maximum extent
permitted by law, the validity or enforceability of the
remaining provisions of this Agreement or any other
instrument referred to herein shall not be affected thereby.
In such event, the parties hereby undertake to substitute for
any such invalid provision or for any provision incapable of
performance, a provision which corresponds to the spirit
and purpose of such invalid or unperformable provision as
permitted under applicable Regulation, so as to provide to
the parties to the fullest extent possible the economic
purpose and effect of this Agreement.
12.4 Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of
the State of Minnesota.
12.5 Section Headings. The section headings are
for the convenience of the Parties and in no way alter,
modify, amend, limit, or restrict the contractual obligations
of the Parties.
12.6 Counterparts. This Agreement may be
executed in one or more counterparts, each of which shall
be deemed to be an original, but all of which shall be one
and the same document.
12.7 Confidentiality Agreement. The
Confidentiality Agreement terminates effective upon the
consummation of the Transactions on the Closing Date.
12.8 Third Party Beneficiaries. This Agreement
shall not confer any rights or remedies upon any Person
other than the Parties and their respective successors and
permitted assigns; provided, however, that the provisions of
Section 8.2 above concerning insurance and indemnification
are intended for the benefit of the Person specified therein.
12.9 Cumulative Remedies. All rights and
remedies of any Party hereto are cumulative of each other
and of every other right or remedy such Party may
otherwise have at law or in equity, and the exercise of one
or more rights or remedies shall not prejudice or impair the
concurrent or subsequent exercise of other rights or
remedies.
12.10 Construction. The Parties have participated
jointly in the negotiation and drafting of this Agreement. In
the event an ambiguity or question of intent or interpretation
arises, this Agreement shall be construed as if drafted jointly
by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the
authorship of any of the provisions of this Agreement. Any
reference to any federal, state, local, or foreign statute or
law shall be deemed to also refer to all rules and regulations
promulgated thereunder, unless the context otherwise
requires. The word "including" shall mean including
without limitation.
IN WITNESS WHEREOF, this Agreement has
been duly executed by the Parties as of and on the date first
above written.
THE BUYER:
▇▇▇▇▇▇, INC.
By: /s/▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, III
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, III
Title: Senior Vice President
THE SELLER:
▇▇▇▇▇▇▇ ENCLOSURES INC.
(Successor by merger to FC Holdings, Inc.)
By: /s/▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Chairman of the Board
PENTAIR, INC.
By: /s/▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Executive Vice President
COMPANY:
FEDERAL-▇▇▇▇▇▇▇, INC.
By: /s/▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: President
EXHIBIT A
TO
STOCK PURCHASE AGREEMENT
CONFIDENTIALITY AGREEMENT
EXHIBIT B
TO
STOCK PURCHASE AGREEMENT
OFFICERS, DIRECTORS AND OTHER
PERSONNEL
(KNOWLEDGE DEFINITION)
PENTAIR, FCH AND COMPANY:
Pentair
Federal Division
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇
BUYER:
▇▇▇▇ ▇. Panettiere
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, III
L. ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇
EXHIBIT C
TO
STOCK PURCHASE AGREEMENT
OPINION OF COUNSEL TO PENTAIR AND FCH
EXHIBIT D
TO
STOCK PURCHASE AGREEMENT
OPINION OF COUNSEL TO BUYER
EXHIBIT E
TO
STOCK PURCHASE AGREEMENT
GAAP STANDARD FOR THE CLOSING DATE
NET EQUITY STATEMENT
Exclusions and Accounting Adjustments and Modifications
The following lists accounts, reserves and accruals
which will be excluded from the Closing Date Net Equity
Statement ("CDNES").
Account Number Description
104 First Mpls. - Accounts
payable*
170 Allowance for bad
debts
170 Allowance for bad
debts (Champion)
173 Allowance for finance
charges
1002 LIFO reserve
1003 LIFO contra reserve
1353 Common stock - gun
club
1700 Due to/from Pentair
3059 Accounts payable -
negative cash
3110 Accrued ESOP
3309 Long-term disability
3323 Product liability
3324 Environmental liability
3340 Accrued workers'
comp.
3500 Federal income taxes
payable
3551 Deferred income taxes -
LT
3552 Prepaid (income) taxes
__________________
* In addition, Pentair will retain the Funding Account
- Zero Balance (account number 1-801-2107-0395).
There is no general ledger account number for this
account.
The following list accounting adjustments and
modifications that will impact the balances shown on the
CDNES:
Inventory - See Schedule "Inventory" for inventory
physical counting and costing procedures.
Ultra-Match - This "Special Inventory" per Section
2.8 includes the following four specific finished goods
items:
Dept.
Item
Description
▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇
▇▇▇
▇▇ ▇▇▇▇ ▇▇▇▇▇ Ultra-Match
$472.16
30
900
22 Gold Medal Match
$447.23
30
1000B
22 Gold Medal Ultra-Match
$464.52
30
900B
22 Gold Medal Match
$439.33
The Special Inventory amounts (including raw
material and work-in-process inventory, if any, which can
only be used for the above four items) will be excluded from
inventory and the related reserve (excess and obsolete and
lower of cost or market) calculations. For Section 2.8, the
above items will be priced at the above standard cost and
any raw material or work-in-process items will be priced at
standard cost.
Property. Exclude the net book value of the Gun
Club and Game Farm from the property accounts. The
detail as of August 1997 is as follows: (Note, this needs to
be updated to reflect the net book value at closing.)
Cost
Depreciation
Net Value
Gun Club (Department 6040)
Land Improvement
$ 3,505
$ 2,115
$ 1,390
Building
52,669
14,302
38,367
Equipment
124,857
36,318
88,539
Furniture & Fixtures
2,937
2,937
0
Cars & Trucks
2,500
2,500
0
Total
$186,468
$58,172
$128,296
A book value of $23,000 will be attributed to the
Gun Club and Game Farm land.
Retiree Medical. The combined current accrual (a/c
3350) and long-term accrual (a/c 3580) will be limited to the
liability for participants actively employed at the Closing
Date. The calculation will be done using Seller's January 1,
1997 assumptions except the discount rates will be
determined based on cash flow projections for the applicable
active participants and Bloomberg rate (AA utilities) as of
the Closing Date. These assumptions are summarized on
Exhibit I.
Employee Benefits and Other Obligations. All
reserves or accruals relating to employee benefit and other
obligations specifically retained by Pentair in the Agreement
or Schedules thereto will be adjusted on the CDNES to
reflect these liabilities retained by Pentair.
Excess and Obsolete Reserve. The finished goods
excess and obsolete ("E&O") reserve will include the cost
of all inventory (excluding Special Inventory and new
products) in excess of one year's projected usage. New
products are those introduced within one year but for this
purpose will exclude items, if any, where the only change
was to the name, item number of packaging.
Sales Tax Refund. This has been recorded on the
cash basis. Accordingly, no accrual will be made for claims
to be made/received in the future.
Schedule - Inventory
Physical Existence. A physical count of inventory
was made September 27, 1997 and September 28, 1997.
Shrink Reserve. This was zero at September 27,
1997 since a full physical count was taken. In accordance
with past monthly accrual practice at $50,000 shrink reserve
will be established by October 31, 1997.
Cost. The intent of the procedures below is to
determine the actual cost of the inventory in a way that is
efficient and consistent with prior practices. The procedures
recognize that (a) to totally re-do standards to equal actual
costs would be very difficult at this time and (b)
amortization of volume related cost variances must consider
the seasonality of production levels. The following
describes current procedures which will accomplish the
above objectives.
Standard Cost. The physical inventory will be
extended at the standard costs effective January 1, 1997.
Variances. Purchase price (accounts 710, 720 and
730) and raw material usage and direct labor (accounts 715,
725 and 735) variances will reflect the normal monthly
deferral and subsequent amortization at the percentage of
cost of sales to WIP and Finished Goods inventory. This
FIFO (first-in; first-out) method does not appear to be
distorted by seasonal trends, is consistent with year-end and
provides a reasonable estimate of actual FIFO costs;
however, to the extent it does not, an adjustment will be
made such that the amount will be substantially the same as
actual FIFO costs.
Overhead Capitalized. Overhead will not be
capitalized on a rolling FIFO basis. The under/over
absorbed overhead (versus the January 1, 1997 standards)
for the 12-month period preceding the Closing Date will be
converted to a percentage (under/over absorbed divided by overhead
component of production) which will be used to adjust the
overhead component of inventory at standard. The
calculation will consider annual plant shut-down costs. This
method of overhead capitalization adjusts inventory so that
the result approximates FIFO cost; however, to the extent it
does not, an adjustment will be made such that the amount
will be substantially the same as actual FIFO costs. The
September 27, 1997 over applied balance is approximately
11% representing the variance for October 1996 through
September 1997. (Note, this will be updated at Closing.)
LIFO. The LIFO value of inventory does not need
to be re-calculated. The two general ledger account
balances which net to zero will be excluded from the general
ledger.
Futures. Account 1219, Futures Deposits, will
include deferred gains on futures contracts to be amortized
as a reduction of the cost of the components of brass (copper
and zinc) to be purchased through December 1997.
Tooling/Supplies. This inventory will be priced at
actual cost consistent with the practice used since March
1996. A reserve for excess will be provided for all items in
excess of their historical usage over the three-year period
immediately preceding Closing.
Lower of Cost or Market. This reserve is the
difference between standard cost and average actual selling
price calculated on an item-by-item basis.
EXHIBIT F
TO
STOCK PURCHASE AGREEMENT
NET EQUITY REPORT OF PENTAIR'S
ACCOUNTANTS
To the Board of Directors of Pentair, Inc.
We have audited the accompanying Statement of Net Book
Value of the Federal Division of Federal-▇▇▇▇▇▇▇, Inc. (the
"Company") as of October 31, 1997. This Statement of Net
Book Value is the responsibility of the Company's
management. Our responsibility is to express an opinion on
the Statement of Net Book Value based on our audit.
We conducted our audit in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance whether the Statement of Net Book Value is free
of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and
disclosures in the Statement of Net Book Value. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statement presentation of the
Statement of Net Book Value. We believe that our audit
provides a reasonable basis for our opinion.
The accompanying statement was prepared to present the
Net Book Value of the Company pursuant to Section
__________ of the Agreement for Sale and Purchase of
Stock of ___________________ between Pentair, Inc. and
______________________________ dated
___________________ (the "Purchase Agreement"), and is
not intended to be a complete presentation of the Company's
assets and liabilities.
In our opinion, the accompanying Statement of Net Book
Value presents fairly, in all material respects, the Net Book
Value of ____________________________________ as of
October 31, 1997 pursuant to _______________________
of the Purchase Agreement, in accordance with the basis of
accounting described in Note 1 to the Statement of Net Book
Value.
This report is intended solely for the information and use of
the Boards of Directors and management of Pentair, Inc.
and __________________________________ and should
not be used for any other purpose.
_________________________________
Deloitte & Touche
EXHIBIT G
TO
STOCK PURCHASE AGREEMENT
SEPARATION AGREEMENT
EXHIBIT H
TO
STOCK PURCHASE AGREEMENT
RETENTION BONUS LETTER
EXHIBIT I
TO
STOCK PURCHASE AGREEMENT
CERTAIN ACTUARIAL ASSUMPTIONS
EXHIBIT J
TO
STOCK PURCHASE AGREEMENT
SURVIVAL PERIODS OF REPRESENTATIONS
AND WARRANTIES
No Survival: The following representations and warranties
shall not survive the Closing Date:
4.9(b) TCAAP
4.18 Owned Real Property
(as to matters of title
only)
4.22 Environmental
Matters
4.25 Notes and Accounts
Receivable
5.5 Financing
18 Months: The following representations and warranties
shall survive the Closing Date and terminate
18 months after the Closing Date:
4.2 Capitalization
4.6 Financial Statements
4.8 Undisclosed Liabilities
4.12 Labor Agreements and
Actions
4.13 Absence of Certain
Changes
4.15 Owned and Leased
Personal Property
4.17 Leased Real Property
4.20 Insurance
4.21 Certain Relationships
4.24 No Other Agreements
to Sell Assets of the Company
4.26 Inventories
4.28 Customers
4.29 Suppliers
4.31 Banking Facilities
4.33 Compensation of and
Contracts with Employees
5.6 Litigation
36 Months: The following representations and warranties
shall survive the Closing Date and terminate
36 months after the Closing Date:
3.5 Books and Records
4.1 Organization,
Qualification and
Corporate Power
4.4 Subsidiaries
4.7 Permits, Consents and
Approvals
4.9(a) Litigation
4.14 Books and Records
4.16 Intellectual Property
4.19 Material Contracts
4.23 Compliance with Law
4.27 Certain Payments
4.30 Warranty and Product
Liability
4.34 Product Recalls
4.35 Information Provided
4.36 Sufficiency of Assets
5.1 Organization and
Authority
Statute of Limitations:
The following representations and warranties
shall survive the Closing Date and terminate
when the applicable statute of limitations
expire (and an additional period of six (6)
months thereafter, giving effect to any
extensions and waivers thereof):
3.2 Authorizations
3.3 Noncontravention
3.4 338(h)(10) Filing
Eligibility
4.3 Authorization of the
Company
4.5 Noncontravention
4.10 Taxes
4.11 Employee Benefit and
Employment Matters
4.18 Owned Real Property
(excluding matters of title)
4.32 Powers of Attorney
and Suretyships
5.2 Authorization
5.3 Noncontravention
5.4 Investment Purpose
Indefinite: The following representations and warranties
shall survive the Closing Date and shall not
terminate:
3.1 Title to Shares