SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) December 12, 2002 9;
LSB INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware
1-7677
73-1015226
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification No.)
incorporation)
16 South Pennsylvania Avenue, Oklahoma City, Oklahoma
73107
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(405) 235-4546
Not applicable
(Former name or former address, if changed since last report)
Item 2. Acquisition or Disposition of Assets.
On December 12, 2002, Slurry Explosive Corporation ("SEC") and Universal Tech Corporation ("UTeC"), each an Oklahoma corporation and an indirect, wholly owned subsidiary of LSB Industries, Inc. (the "Company") (SEC and UTeC, collectively, are the "Sellers") consummated the sale (the "Sale") by Sellers of substantially all of their assets to four wholly owned subsidiaries of Energetic Systems Inc., LLC (ESI"), a Nevada limited liability company (collectively, the "Buyers"), pursuant to the terms of an Asset Purchase Agreement, dated December 6, 2002 (the "Purchase Agreement").
The assets sold by the Sellers comprised of substantially all of the explosives distribution business within the Company's chemical business. SEC and one of the four Buyers jointly own Slurry Explosive Manufacturing Corporation. During 2001 and the first nine months of 2002, the Sellers' revenues were approximately $22 million and $7.4 million, respectively.
The purchase price ("Purchase Price") paid by the Buyers to the Sellers under the Purchase Agreement at the closing of the Sale was approximately $10.2 million, determined by a base price of $7 million, plus approximately $2.7 for inventory and accounts receivable and $425,000 of assumed liabilities under an equipment lease. Of the proceeds from the Sale, (a) approximately $250,000 was placed in escrow, (b) approximately $3.5 million was paid to a term lender, and (c) the balance of the proceeds were applied against the Company's revolving line of credit. On or about March 4, 2003, the portion of the escrow funds equal to the amount of the accounts receivable purchased by the Buyers that are not collected will be paid to the Buyers, and the balance of the escrow funds will be released to the Sellers. In connection with the disbursement of the escrow funds, the Buyers will assign such uncollected accounts receivable to the Sellers.
The Company may, from time to time, borrow funds under its revolving line of credit based on the amount of eligible collateral. Immediately after the pay down under the Company's revolving line of credit, the
unused borrowing availability under the credit facility was approximately $8.2 million based on eligible collateral as of that date.
Item 7. Financial Statements and Exhibits.
Page No.
(a)
Pro Forma Financial Information. 9;
Pro Forma Condensed Consolidated Balance Sheet
(Unaudited) as of September 30, 2002 P-
2
Pro Forma Consolidated Statement of
Operations (Unaudited) for the Nine
Months Ended September 30, 2002 P-3
-2-
Pro Forma Consolidated Statement of
Operations (Unaudited) for the Year
Ended December 31, 2001 P-4
Notes to Pro Forma Consolidated Financial
Statements (Unaudited) P-5
(c) Exhibits.
2.1 Asset Purchase Agreement, dated as of December 6, 2002, by and among Energetic Systems Inc. LLC, UTeC Corporation, LLC, SEC Investment Corp. LLC, DetaCorp Inc. LLC, Energetic Properties, LLC, Slurry Explosive Corporation, Universal Tech Corporation, El Dorado Chemical Company, LSB Chemical Corp., LSB Industries, Inc. and Slurry Explosive Manufacturing Corporation, LLC. The Asset Purchase Agreement contains a brief list identifying all schedules and exhibits to the Asset Purchase Agreement. Such schedules and exhibits are not filed herewith, and the Registrant agrees to furnish supplementally a copy of the omitted schedules and exhibits to the Commission upon request.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: December 27, 2002.
LSB INDUSTRIES, INC.
By: /s/
Tony M. Shelby
Tony M. Shelby,
Senior Vice President and
(Chief Financial Officer)
-3-
LSB Industries, Inc.
Unaudited Pro Forma Financial Information
December 12, 2002
On December 12, 2002 LSB Industries, Inc., (the "Company") and its subsidiaries, Slurry Explosive Corporation ('SEC") and Universal Technology Corporation ("UTeC") completed an agreement to sell substantially all the assets of SEC and UTeC (collectively, "SEC/UTeC"). Under the agreement, SEC/UTeC retains all of their liabilities, except liabilities for the financing of certain property and equipment, and will liquidate such liabilities retained from the proceeds of the sale (the "Transaction").
The accompanying unaudited pro forma consolidated balance sheet as of September 30, 2002 gives effect to the Transaction involving the Company's wholly owned subsidiaries SEC/UTeC, as if it had occurred on September 30, 2002. The accompanying unaudited consolidated statements of operations for the year ended December 31, 2001 and the nine months ended September 30, 2002 give effect to the sale and realization of the assets of SEC/UTeC as if the Transaction had occurred as of January 1, 2001. Such unaudited pro forma consolidated financial information has been prepared based on estimates and assumptions deemed by the Company to be appropriate and does not purport to be indicative of the financial position or results of operations which may actually be obtained in the future. Future results may vary significantly from the results reflected in the unaudited pro forma consolidated statements of operations of the Company and its other retained subsidiaries due to general economic conditions
and other factors.
The pro forma consolidated financial information should be read in conjunction with the Company's historical financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's Annual Report on Form 10-K for the year ended December 31, 2001 and Quarterly report on Form 10-Q for the nine months ended September 30, 2002.
P-1
LSB Industries, Inc.
Unaudited Pro Forma Consolidated Balance Sheet
September 30, 2002
(In thousands)
|
|
|
Pro Forma |
|
Assets
|
Current assets: |
|||||||||||||
|
Cash and cash equivalents |
$ |
687 |
$ |
687 |
|||||||||
|
Trade accounts and notes receivable, net |
39,994 |
$ |
(1,023 |
) |
38,971 |
||||||||
|
Inventories |
24,647 |
(1,306 |
) |
23,341 |
|||||||||
|
Supplies and prepaid items |
7,582 |
(65 |
) |
7,517 |
|||||||||
|
Total current assets |
72,910 |
(2,394 |
) |
(1 |
) |
(4 |
) |
70,516 |
|||||
|
Property, plant and equipment, at cost |
159,179 |
(7,495 |
) |
151,684 |
|||||||||
|
Less accumulated depreciation and |
|
|
|
|
|||||||||
|
79,954 |
(4,323 |
) |
(1 |
) |
75,631 |
||||||||
|
Other assets, net |
16,149 |
(66 |
) |
(1 |
) |
(4 |
) |
16,083 |
|||||
|
$ |
169,013 |
$ |
(6,783 |
) |
$ |
162,230 |
Liabilities and Stockholders' Equity (Deficit)
|
Current liabilities: |
||||||||||||||
|
Accounts and drafts payable |
$ |
25,984 |
$ |
(818 |
) |
(4 |
) |
$ |
25,166 |
|||||
|
Accrued liabilities |
15,318 |
(296 |
) |
(1 |
) |
(4 |
) |
15,022 |
||||||
|
Current portion of long-term debt |
43,116 |
(4,451 |
) |
(1 |
) |
(3 |
) |
38,665 |
||||||
|
Total current liabilities |
84,418 |
(5,565 |
) |
78,853 |
||||||||||
|
Long-term debt |
80,714 |
(4,676 |
) |
(1 |
) |
(3 |
) |
76,038 |
||||||
|
Other non-current liabilities |
7,094 |
7,094 |
||||||||||||
|
Redeemable, noncumulative, convertible preferred
stock, $100 |
|
|
||||||||||||
|
Stockholders' Equity (Deficit): |
||||||||||||||
|
Series B 12% cumulative, convertible preferred
stock, $100 par |
|
|
||||||||||||
|
Series 2 $3.25 convertible, exchangeable Class
C preferred |
|
|
||||||||||||
|
Series D 6% cumulative, convertible Class C
preferred stock, |
|
|
||||||||||||
|
Common stock, $.10 par value; 75,000,000 shares
authorized, |
|
|
||||||||||||
|
Capital in excess of par value |
54,455 |
54,455 |
||||||||||||
|
Accumulated other comprehensive loss |
(1,932 |
) |
(1,932 |
) |
||||||||||
|
Accumulated deficit |
(75,530 |
) |
3,458 |
(2 |
) |
(3 |
) |
(72,072 |
) |
|||||
|
12,944 |
3,458 |
16,402 |
||||||||||||
|
Less treasury stock, at cost: |
||||||||||||||
|
Series 2 preferred, 5,000 shares |
200 |
200 |
||||||||||||
|
Common stock, 3,272,426 shares |
16,068 |
16,068 |
||||||||||||
|
Total stockholders' equity (deficit) |
(3,324 |
) |
3,458 |
134 |
||||||||||
|
$ |
169,013 |
|
$ |
(6,783 |
) |
$ |
162,230 |
|
See accompanying notes.
P-2
LSB Industries, Inc.
Unaudited Pro Forma Consolidated Statement of Operations
Nine Months Ended September 30, 2002
(In thousands, except per share amounts)
|
|
|
Pro Forma |
|
|
Revenues: |
||||||||||||||
|
Net sales |
$ |
225,574 |
$ |
(7,338 |
) |
$ |
218,236 |
|||||||
|
Gains on sales of property and equipment |
37 |
- |
37 |
|||||||||||
|
Other |
1,593 |
(8 |
) |
1,585 |
||||||||||
|
227,204 |
(7,346 |
) |
(5 |
) |
219,858 |
|||||||||
|
Costs and expenses: |
||||||||||||||
|
Cost of sales |
188,511 |
(6,416 |
) |
(5 |
) |
182,095 |
||||||||
|
Selling general and administrative |
35,878 |
(4,786 |
) |
(5 |
) |
31,092 |
||||||||
|
Interest |
6,793 |
(889 |
) |
(5 |
) |
(6 |
) |
5,904 |
||||||
|
Other |
757 |
(139 |
) |
(5 |
) |
618 |
||||||||
|
Benefit from termination of firm purchase commitments |
(290 |
) |
- |
(290 |
) |
|||||||||
|
231,649 |
(12,230 |
) |
219,419 |
|||||||||||
|
Income (loss) before provision for income taxes and |
|
|
|
|
|
|||||||||
|
Provision for income taxes |
22 |
- |
22 |
|||||||||||
|
Income (loss) before cumulative effect of accounting change |
$ |
(4,467 |
) |
$ |
4,884 |
|
$ |
417 |
|
|||||
|
Loss before cumulative effect of accounting
change |
|
|
|
|
|
|
||||||||
|
Weighted average common shares: |
||||||||||||||
|
Basic and Diluted |
|
11,943,856 |
|
|
11,943,856 |
|
||||||||
|
Loss per common share: |
||||||||||||||
|
Basic and Diluted: |
||||||||||||||
|
Loss before cumulative effect of accounting change |
$ |
(0.51 |
) |
$ |
(0.11 |
) |
||||||||
See accompanying notes.
P-3
LSB Industries, Inc.
Unaudited Pro Forma Consolidated Statement of Operations
Year Ended December 31, 2001
(In thousands, except per share amounts)
|
|
|
Pro Forma |
|
|
Revenues: |
||||||||||||||
|
Net sales |
$ |
336,630 |
$ |
(21,688 |
) |
$ |
314,942 |
|||||||
|
Gains on sales of property and equipment |
6,615 |
- |
6,615 |
|||||||||||
|
Other |
3,386 |
(82 |
) |
3,304 |
||||||||||
|
346,631 |
(21,770 |
) |
(5 |
) |
324,861 |
|||||||||
|
Costs and expenses: |
||||||||||||||
|
Cost of sales |
279,299 |
(15,131 |
) |
(5 |
) |
264,168 |
||||||||
|
Selling general and administrative |
48,424 |
(4,386 |
) |
(5 |
) |
44,038 |
||||||||
|
Interest |
14,114 |
(1,436 |
) |
(5 |
) |
(6 |
) |
12,678 |
||||||
|
Other |
1,446 |
(250 |
) |
(5 |
) |
1,196 |
||||||||
|
Benefit from termination of firm purchase commitments |
(2,688 |
) |
- |
(2,688 |
) |
|||||||||
|
340,595 |
(21,203 |
) |
319,392 |
|||||||||||
|
Income before provision for income taxes
and extraordinary |
|
|
|
|
||||||||||
|
Provision for income taxes |
55 |
- |
55 |
|||||||||||
|
Income before extraordinary gain |
$ |
5,981 |
|
$ |
(567 |
) |
$ |
5,414 |
|
|||||
|
Income before extraordinary gain applicable to common stock |
$ |
3,714 |
|
$ |
3,147 |
|
||||||||
|
Weighted average commons shares: |
||||||||||||||
|
Basic |
|
11,913,031 |
|
|
11,913,031 |
|
||||||||
|
Diluted |
|
13,081,790 |
|
|
13,081,790 |
|
||||||||
|
Income per common share: |
||||||||||||||
|
Basic: |
||||||||||||||
|
Income before extraordinary gain |
$ |
0.31 |
|
$ |
0.26 |
|||||||||
|
Diluted: |
||||||||||||||
|
Income before extraordinary gain |
$ |
0.30 |
|
$ |
0.26 |
|
||||||||
See accompanying notes.
Notes to Unaudited Pro Forma Consolidated Financial Statements
Unaudited Pro Forma Consolidated Balance Sheet
|
(1 |
) |
To eliminate accounts receivable, inventory and net property, plant and equipment ("PP&E") sold; the related PP&E debt financing assumed by the purchaser; and, to apply cash proceeds to reduce the indebtedness of SEC/UTeC and the Company. |
|
|
(2 |
) |
To recognize the gain on sale of the assets of SEC/UTeC. |
|
|
(3 |
) |
To recognize the gain on extinguishment of debt relating to the required prepayment portion of the Company's debt under the Financing Agreement entered into on May 24, 2002. |
|
|
(4 |
) |
To reflect the realization of assets and liquidation of liabilities retained. |
Unaudited Pro Forma Consolidated Statement of Operations
|
(5 |
) |
To eliminate the results of operations of SEC/UTeC included in the Company's consolidated financial statements. |
|
|
(6 |
) |
To recognize the interest reduction on debt retired with the net cash proceeds received by the Company |
ASSET PURCHASE AGREEMENT
by and among
Energetic Systems Inc., LLC,
UTeC Corporation, LLC
SEC Investment Corp. LLC
DetaCorp Inc., LLC
Energetic Properties, LLC
Slurry Explosive Corporation
Universal Tech Corporation
El Dorado Chemical Company
LSB Chemical Corp.
LSB Industries, Inc.
and
Slurry Explosive Manufacturing Corporation, LLC
December 6
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("Agreement")
is dated December 6, 2002 by and among (a) Energetic Systems Inc., LLC, a Nevada
limited liability company ("ESI"), UTeC Corporation, LLC, a Nevada
limited liability company ("UTEC"), SEC Investment Corp. LLC, a Nevada
limited liability company ("SIC"), DetaCorp Inc., LLC, a Nevada limited
liability company ("DetaCorp"), Energetic Properties, LLC, a Nevada
limited liability company ("EP," and collectively with DetaCorp, UTEC and
SIC, "Buyers"), (b) Slurry Explosive Corporation, an Oklahoma corporation
("SEC"), Universal Tech Corporation, an Oklahoma corporation ("Universal,"
and collectively with SEC, "Sellers" and each individually, "Seller"), El
Dorado Chemical Company, an Oklahoma corporation ("EDC"), LSB Chemical
Corp., an Oklahoma corporation ("LSBCC," and together with EDC, the "Shareholders"),
and LSB Industries, Inc., a Delaware corporation ("LSB"), and (c) Slurry
Explosive Manufacturing Corporation, LLC, a Nevada limited liability company ("SEMC").
RECITALS
SEC is a wholly-owned subsidiary of EDC,
Universal is a wholly-owned subsidiary of LSBCC, and EDC and LSBCC are
wholly-owned subsidiaries of LSB.
UTeC, SIC, DetaCorp and EP are wholly-owned subsidiaries of ESI.
SEC and DetaCorp are the joint owners of SEMC.
Sellers desires to sell, and Buyers desires to purchase, the Assets of Sellers
for the consideration and on the terms set forth in this Agreement and SEC and
DetaCorp desire to jointly own SEMC.
AGREEMENT
For good and valuable consideration the
receipt and sufficiency of which is hereby acknowledged, the parties, intending
to be legally bound, agree as follows:
1. DEFINITIONS AND USAGE
1.1 DEFINITIONS
For purposes of this Agreement, the following terms and variations thereof have
the meanings specified or referred to in this Section 1.1:
"Accounts Receivable" - (a)
all trade accounts receivable and other rights to payment from customers of
Sellers and the full benefit of all security for such accounts or rights to
payment, including all trade accounts receivable representing amounts receivable
in respect of goods shipped
1
or products sold or services rendered to
customers of Sellers, and (b) any claim, remedy or other right related to any of
the foregoing.
"Accounts Receivable Adjustment
Amount" - as defined in Section 2.9.
"Active Employee" - as defined
in Section 10.1(a).
"AN Supply Agreement" - as
defined in Section 7.7.
"Appurtenances" - all
privileges, rights, easements, hereditaments, and appurtenances belonging to or
for the benefit of the Land and Improvements, including water and wastewater
rights, development rights, mineral rights and royalty interests, and all
easements, streets, alleys, passages and other rights-of-way included thereon or
adjacent thereto (before or after vacation thereof) and vaults beneath any such
streets.
"Assets" - as defined in
Section 2.1.
"Assignment and Assumption
Agreement" - as defined in Section 2.7(a)(ii).
"Assignment and Assumption of
Lease Agreement" - as defined in Section 7.7(b).
"Assumed Liabilities" - as
defined in Section 2.4(a).
"ATF" - the U.S. Bureau of
Alcohol, Tobacco and Firearms.
"Balance Sheet" - as defined
in Section 3.3.
"Best Efforts" - the efforts
that a prudent Person desirous of achieving a result would use in similar
circumstances to achieve that result as expeditiously as reasonably possible,
provided, however, that a Person required to use Best Efforts under
this Agreement will not be thereby required to take actions that would result in
a material adverse change in the benefits to such Person of this Agreement and
the Contemplated Transactions, or to dispose of or make any change to its
business, expend any material funds or incur any other material burden.
"Bill of Sale" - as defined in
Section 2.7(a)(i).
"Breach" - any breach of, or
any inaccuracy in, any representation or warranty or any material breach of, or
material failure to perform or comply with, any covenant or obligation, in or of
this Agreement or any other Contract, or any event which with the passing of
time or the giving of notice, or both, would constitute such a breach,
inaccuracy or failure.
"Bulk Sales Laws" - as defined
in Section 5.10.
"Business Day" - any day other
than (i) Saturday or Sunday or (ii) any other day on which banks in Oklahoma
City, Oklahoma are permitted or required to be closed.
2
"Buyers" - as defined in the first paragraph of this Agreement.
"Buyer Indemnified Persons" -
as defined in Section 11.2.
"Closing" - as defined in
Section 2.6.
"Closing Date" - the date on
which the Closing actually takes place.
"Closing Financial Statements"
- - as defined in Section 3.3.
"COBRA" - as defined in
Section 3.15(d).
"Code" - the Internal Revenue
Code of 1986.
"Consent" - any approval,
consent, ratification, waiver, or other authorization.
"Contemplated Transactions" -
all of the transactions contemplated by this Agreement.
"Contract" - any agreement,
contract, Lease, consensual obligation, promise, or undertaking (whether written
or oral and whether express or implied), whether or not legally binding.
"Copyrights" - as defined in
Section 3.24(a)(iii).
"Damages" - as defined in
Section 11.2.
"DetaCorp" - as defined in the
first paragraph of this Agreement.
"Disclosure Letter" - the
disclosure letter delivered by Sellers to Buyers concurrently with the execution
and delivery of this Agreement, as the same may be amended pursuant to Section
5.5 hereof.
"EDC" - as defined in the
first paragraph of this Agreement.
"Effective Time" - 12:01 a.m.
on December 1, 2002.
"Employee Plans" - as defined
in Section 3.15(a).
"Encumbrance" - any lien,
option, pledge, security interest, mortgage, right of way, easement,
encroachment, right of first option, right of first refusal or other similar
restriction.
"Environment" - soil, land
surface or subsurface strata, surface waters (including navigable waters and
ocean waters), groundwaters, drinking water supply, stream sediments, ambient
air (including indoor air), plant and animal life, and any other environmental
medium or natural resource.
"Environmental, Health and Safety
Liabilities" - any cost, damages, expense, liability,
3
obligation, or other responsibility arising
from or under any Environmental Law or Occupational Safety and Health Law,
including those consisting of or relating to:
(a) any environmental, health, or
safety matter or condition (including on-site or off-site contamination,
occupational safety and health, and regulation of any chemical substance or
product);
(b) any fine, penalty, judgment,
award, settlement, legal or administrative proceeding, damages, loss, claim,
demand or response, remedial, or inspection cost or expense arising under any
Environmental Law or Occupational Safety and Health Law;
(c) financial responsibility under
any Environmental Law or Occupational Safety and Health Law for cleanup costs or
corrective action, including any cleanup, removal, containment, or other
remediation or response actions ("Cleanup") required by any Environmental Law or
Occupational Safety and Health Law (whether or not such Cleanup has been
required or requested by any Governmental Body or any other Person) and for any
natural resource damages; or
(d) any other compliance, corrective,
or remedial measure required under any Environmental Law or Occupational Safety
and Health Law.
The terms "removal," "remedial," and
"response action" include the types of activities covered by the United States
Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA).
"Environmental Law" - any
Legal Requirement that requires or relates to:
(a) advising appropriate authorities,
employees, or the public of intended or actual Releases of pollutants or
Hazardous Materials, violations of discharge limits, or other prohibitions and
the commencement of activities, such as resource extraction or construction,
that could have significant impact on the Environment;
(b) preventing or reducing to
acceptable levels the Release of pollutants or Hazardous Materials into the
Environment;
(c) reducing the quantities,
preventing the Release, or minimizing the hazardous characteristics of wastes
that are generated;
(d) assuring that products are
designed, formulated, packaged, and used so that they do not present
unreasonable risks to human health or the Environment when used or disposed of;
(e) protecting resources, species, or
ecological amenities;
(f) the monitoring of emissions of
Hazardous Materials into the environment;
4
(g) reducing to acceptable levels the risks inherent in the transportation of
Hazardous Materials, pollutants, oil, or other potentially harmful substances;
(h) characterizing and cleaning up
pollutants that have been Released, preventing the Threat of Release, or paying
the costs of such clean up or prevention; or
(i) making responsible parties pay
private parties, or groups of them, for damages done to their health or the
Environment, or permitting self-appointed representatives of the public interest
to recover for injuries done to public assets.
"EP" - as defined in the first
paragraph of this Agreement.
"ERISA" - the Employee
Retirement Income Security Act of 1974.
"Escrow Agreement" - as
defined in Section 2.7(a)(vii).
"ESI" - as defined in the
first paragraph of this Agreement.
"Escrow Funds" - as defined in
Section 2.3.
"Exchange Act" - the
Securities Exchange Act of 1934.
"Excluded Assets" - as defined
in Section 2.2.
"Facilities" - any real
property, leasehold or other interest in real property currently owned or
operated by either of the Sellers, including the Tangible Personal Property
being used or operated by either of the Sellers at the respective locations of
the Real Property specified in Section 3.6. Notwithstanding the foregoing, for
purposes of the definitions of "Hazardous Activity" and "Remedial Action" and
Sections 3.21 and 11.3, "Facilities" means any real property, leasehold or other
interest in real property currently or formerly owned or operated by either of
the Sellers, including the Tangible Personal Property being used or operated by
either of the Sellers at the respective locations of the Real Property specified
in Section 3.6.
"GAAP" - generally accepted
accounting principles for financial reporting in the United States, applied on a
basis consistent with the basis on which the Balance Sheet and the other
financial statements referred to in Section 3.3 were prepared.
"Governing Documents" - with
respect to any particular entity, (a) if a corporation, the articles or
certificate of incorporation and the bylaws; (b) if a general partnership, the
partnership agreement and any statement of partnership; (c) if a limited
partnership, the limited partnership agreement and the certificate of limited
partnership; (d) if a limited liability company, the articles of organization
and operating agreement; (e) if another type of Person, any other charter or
similar document adopted or filed in connection with the creation, formation or
organization of the Person; and (f) any amendment or supplement to any of the
foregoing.
"Governmental Authorization" -
any Consent, license, registration or permit issued,
5
granted, given, or otherwise made available by
or under the authority of any Governmental Body or pursuant to any Legal
Requirement.
"Governmental Body" - any:
(a) nation, state, county, city,
town, borough, village, district, or other jurisdiction;
(b) federal, state, local, municipal,
foreign, or other government;
(c) governmental or quasi-governmental authority of any
nature (including any agency, branch, department, board, commission, court,
tribunal or other entity exercising governmental or quasi-governmental powers);
(d) multi-national organization or
body;
(e) body exercising, or entitled or
purporting to exercise, any administrative, executive, judicial, legislative,
police, regulatory, or taxing authority or power; or
(f) official of any of the foregoing.
"Ground Lease Property" - any
land, improvements and appurtenances subject to a Real Property Lease in favor
of either of the Sellers.
"Hazardous Activity" - the
distribution, generation, handling, importing, management, manufacturing,
processing, production, refinement, Release, storage, transfer, transportation,
treatment, or use of Hazardous Material in, on, under, about, or from any of the
Facilities or any part thereof into the Environment and any other act, business,
operation, or thing that increases the danger, or risk of danger, or poses an
unreasonable risk of harm to persons or property on or off the Facilities.
"Hazardous Material" - any
substance, material or waste which is regulated by any Governmental Body,
including any material, substance or waste for which the U.S. Environmental
Protection Agency has published proposed rules as of the Effective Date
establishing reference doses or drinking water standards or which is defined as
a "hazardous waste," "hazardous material," "hazardous substance," "extremely
hazardous waste," "restricted hazardous waste," "contaminant," "pollutant,"
"toxic waste" or "toxic substance" under any provision of Environmental Law, and
including petroleum, petroleum products, asbestos, presumed asbestos-containing
material or asbestos-containing material, urea formaldehyde and polychlorinated
biphenyls.
"Hired Active Employees" - as
defined in Section 10.1(b).
"Improvements" - all
buildings, structures, fixtures and improvements located on the Land or included
in the Assets, including those under construction.
"Indemnified Person" - as
defined in Section 11.6.
6
"Indemnifying Person" - as defined in Section 11.6.
"Intellectual Property Assets"
- - as defined in Section 3.24(a).
"Interim Balance Sheet" - as
defined in Section 3.3.
"Inventories" - all
inventories of each Seller, wherever located, including all finished goods, work
in process, raw materials, spare parts and all other materials and supplies to
be used or consumed by each Seller in the production of finished goods.
"Inventory Adjustment Amount"
- - as defined in Section 2.8.
"IRS" - the United States
Internal Revenue Service and, to the extent relevant, the United States
Department of the Treasury.
"Knowledge" - an individual
will be deemed to have "Knowledge" of a particular fact or other matter if that
individual is actually aware of that fact or matter. A Person (other than an
individual) will be deemed to have "Knowledge" of a particular fact or other
matter if any individual who is serving as a director or officer of that Person
(or in any similar capacity) has, or at any time had, Knowledge of that fact or
other matter.
"Land" - all parcels and
tracts of land in which each Seller has an ownership or leasehold interest, as
more particularly described on Part 3.6.
"Lease" - any Real Property
Lease or any lease or rental agreement, license, right to use or installment and
conditional sale agreement to which either Seller is a party and any other
Seller Contract pertaining to the leasing or use of any Tangible Personal
Property.
"Lease Adjustment Amount" - as
defined in Section 2.3.
"Legal Requirement" - any
federal, state, local, municipal, foreign, international, multinational, or
other constitution, law, ordinance, principle of common law, code, regulation,
statute, or treaty.
"Liability" - with respect to
any Person, any liability or obligation of such Person of any kind, character or
description, whether known or unknown, absolute or contingent, accrued or
unaccrued, disputed or undisputed, liquidated or unliquidated, secured or
unsecured, joint or several, due or to become due, vested or unvested, executory,
determined, determinable or otherwise and whether or not the same is required to
be accrued on the financial statements of such Person.
"LSB" - as defined in the
first paragraph of this Agreement.
"LSBCC" - as defined in the
first paragraph of this Agreement.
"Marks" - as defined in
Section 3.24(a)(i).
"Material Consents" - as
defined in Section 7.3.
7
"Nitric Acid Supply Agreement" - as defined in Section 7.7.
"Noncompetition Agreement" -
as defined in Section 2.7(a)(vi).
"Occupational Safety and Health
Law" - any Legal Requirement designed to provide safe and healthful working
conditions and to reduce occupational safety and health hazards, including the
Occupational Safety and Health Act, and any program, whether governmental or
private (such as those promulgated or sponsored by industry associations and
insurance companies), designed to provide safe and healthful working conditions.
"Order" - any order,
injunction, judgment, decree, ruling, assessment or arbitration award of any
Governmental Body or arbitrator.
"Ordinary Course of Business"
- - an action taken by a Person will be deemed to have been taken in the Ordinary
Course of Business only if that action:
(a) is consistent in nature, scope
and magnitude with the past practices of such Person and is taken in the
ordinary course of the normal operations of such Person; and
(b) is similar in nature, scope and
magnitude to actions customarily taken in the ordinary course of the normal
operations of other Persons that are in the same line of business as such
Person.
"Orica Noncompetition Letter
Agreement" - as defined in Section 7.8.
"Part" - a part or section of
the Disclosure Letter.
"Patents" - as defined in
Section 3.24(a)(ii).
"Permitted Encumbrances" - as
defined in Section 3.8.
"Person" - an individual,
partnership, corporation, business trust, limited liability company, limited
liability partnership, joint stock company, trust, unincorporated association,
joint venture or other entity, or a Governmental Body.
"Proceeding" - any action,
arbitration, audit, hearing, investigation, litigation, or suit (whether civil,
criminal, administrative, judicial or investigative, whether formal or informal,
whether public or private) commenced, brought, conducted, or heard by or before,
or otherwise involving, any Governmental Body or arbitrator.
"Purchase Price" - as defined
in Section 2.3.
"Real Property" - the Land and
Improvements and all Appurtenances thereto and any Ground Lease Property.
8
"Real Property Lease" - any lease of land in which most of the rights and
benefits comprising ownership of the land and the improvements thereon or to be
constructed thereon, if any, are transferred to the tenant for the term thereof.
"Record" - information that is
inscribed on a tangible medium or that is stored in an electronic or other
medium and is retrievable in perceivable form.
"Related Person" - with
respect to a specified Person other than an individual:
(a) any
Person that directly or indirectly controls, is directly or indirectly
controlled by, or is directly or indirectly under common control with, such
specified Person;
(b) any
Person that holds a Material Interest in such specified Person;
(c) each
Person that serves as a director, officer, partner, executor, or trustee of such
specified Person (or in a similar capacity);
(d) any
Person in which such specified Person holds a Material Interest; and
(e) any
Person with respect to which such specified Person serves as a general partner
or a trustee (or in a similar capacity).
For purposes of this definition, (a) "control" (including "controlling,"
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise, and shall be construed as such term is used in the rules
promulgated under the Securities Act of 1933; and (b) "Material Interest" means
direct or indirect beneficial ownership (as defined in Rule 13d-3 under the
Exchange Act) of voting securities or other voting interests representing at
least ten percent (10%) of the outstanding voting power of a Person or equity
securities or other equity interests representing at least ten percent (10%) of
the outstanding equity securities or equity interests in a Person.
"Release" - any release,
spill, emission, leaking, pumping, pouring, dumping, emptying, injection,
deposit, disposal, discharge, dispersal, leaching, or migration on or into the
Environment or into or out of any property.
"Remedial Action" - all
actions, including any capital expenditures, required or voluntarily undertaken
(a) to clean up, remove, treat, or in any other way address any Hazardous
Material or other substance; (b) to prevent the Release or Threat of Release, or
to minimize the further Release of any Hazardous Material or other substance so
it does not migrate or endanger or threaten to endanger public health or welfare
or the Environment; (c) to perform pre-remedial studies and investigations or
post-remedial monitoring and care; or (d) to bring all Facilities and the
operations conducted thereon into compliance with Environmental Laws and
environmental Governmental Authorizations applicable to Sellers.
"Representative" - with
respect to a particular Person, any director, officer, manager,
9
employee, agent, consultant, advisor,
accountant, financial advisor, legal counsel or other representative of that
Person.
"Retained Liabilities" - as
defined in Section 2.4(b).
"SEC" - as defined in the
first paragraph of this Agreement.
"Seller Contract" - any
Contract (a) under which either Seller has or may acquire any rights or
benefits, (b) under which either Seller has or may become subject to any
obligation or liability, or (c) by which either Seller or any of the assets
owned or used by either such Seller is or may become bound.
"Seller Indemnified Parties" -
as defined in Section 11.4.
"Sellers" - as defined in the
first paragraph of this Agreement.
"Sellers' Knowledge" - the
Knowledge of David Shear, Tony Shelby, Bill Manion, Jack Golsen, Clive
Whiteside, Oldrich Machacek, John Carver, Paul Keeling, Bob LeBlanc and Jim
Wewers.
"SEMC" - as defined in the
first paragraph of this Agreement.
"Senior Lenders" - as defined
in Section 2.3.
"Shareholders" - as defined in
the first paragraph of this Agreement.
"SIC" - as defined in the
first paragraph of this Agreement.
"Software" - all computer
software and subsequent versions thereof, including source code, object,
executable or binary code, objects, comments, screens, user interfaces, report
formats, templates, menus, buttons and icons, and all files, data, materials,
manuals, design notes and other items and documentation related thereto or
associated therewith.
"Subsidiary" - with respect to
any Person (the "Owner"), any corporation or other Person of which
securities or other interests having the power to elect a majority of that
corporation's or other Person's board of directors or similar governing body, or
otherwise having the power to direct the business and policies of that
corporation or other Person (other than securities or other interests having
such power only upon the happening of a contingency that has not occurred) are
held by the Owner or one or more of its Subsidiaries.
"Tangible Personal Property" -
all machinery, equipment, tools, furniture, office equipment, computer hardware,
supplies, materials, vehicles and other items of tangible personal property
(other than Inventories) of every kind owned or leased by either of the Sellers
(wherever located and whether or not carried on either Sellers' books), together
with any express or implied warranty by the manufacturers or sellers or lessors
of any item or component part thereof (to the extent transferable to Buyers),
and all maintenance records and other documents relating thereto.
10
"Tax" - any income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, property, environmental, vehicle,
franchise, employees' income withholding, foreign or domestic withholding,
social security, unemployment, disability, real property, personal property,
sales, use, transfer, value added, alternative, add-on minimum, and other tax,
fee, assessment, levy, tariff, charge or duty of any kind whatsoever, and any
interest, penalty, addition or additional amount thereon, imposed, assessed or
collected by or under the authority of any Governmental Body or payable under
any tax-sharing agreement or any other Contract.
"Tax Return" - any return
(including any information return), report, statement, schedule, notice, form,
declaration, claim for refund or other document or information filed with or
submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection, or payment of
any Tax or in connection with the administration, implementation, or enforcement
of or compliance with any Legal Requirement relating to any Tax.
"Third Party" - a Person that
is not a party to this Agreement.
"Third-Party Claim" - any
claim against any Indemnified Person by a Third Party, whether or not involving
a Proceeding.
"Threat of Release" - a
reasonable likelihood of a Release that may require action in order to prevent
or mitigate damage to the Environment that may result from such Release.
"Transitional Services Agreement"
- - as defined in Section 2.7(a)(xi).
"Universal" - as defined in
the first paragraph of this Agreement.
"Unusable Inventory" - as
defined in Section 2.8.
"Update" - as defined in
Section 5.5.
"US Bancorp Lease" - that
certain master lease agreement entered into by and between SEC and U.S. Bancorp
Leasing and Financial as of April 11, 2001.
"Use and License Agreement" -
as defined in Section 2.7(a)(xii).
"UTEC" - as defined in the
first paragraph of this Agreement.
"WARN Act" - as defined in
subsection 3.22(d).
1.2 USAGE
(a)
Interpretation. In this Agreement, unless a clear contrary intention
appears:
(i) the singular number includes the plural number and vice versa;
11
(ii) reference to any gender includes each other gender;
(iii) reference to any agreement, document or instrument means such agreement,
document or instrument as amended or modified and in effect from time to time in
accordance with the terms thereof;
(iv) reference to any Legal Requirement means such Legal Requirement as amended,
modified, codified, replaced or reenacted, in whole or in part, and in effect
from time to time, including rules and regulations promulgated thereunder, and
reference to any section or other provision of any Legal Requirement means that
provision of such Legal Requirement from time to time in effect and constituting
the substantive amendment, modification, codification, replacement or
reenactment of such section or other provision;
(v) "hereunder," "hereof," "hereto" and words of similar import shall be
deemed references to this Agreement as a whole and not to any particular
Article, Section or other provision thereof;
(vi) "including" (and with correlative meaning "include") means
including without limiting the generality of any description preceding such
term;
(vii) "or" is used in the inclusive sense of "and/or";
(viii) with respect to the determination of any period of time, "from"
means "from and including" and "to" means "to but excluding"; and
(ix) references to documents, instruments or agreements shall be deemed to refer
as well to all addenda, exhibits, schedules or amendments thereto.
(b) Accounting Terms and
Determinations. Unless otherwise specified herein, all accounting terms used
therein shall be interpreted and all accounting determinations thereunder shall
be made in accordance with GAAP in effect as of the applicable date.
(c) Legal Representation of the
Parties. This Agreement was negotiated by the parties with the benefit of legal
representation and any rule of construction or interpretation otherwise
requiring this Agreement to be construed or interpreted against any party shall
not apply to any construction or interpretation hereof.
2. SALE AND
TRANSFER OF ASSETS; CLOSING
2.1 ASSETS
TO BE SOLD
Upon the
terms and subject to the conditions set forth in this Agreement, at the Closing,
but effective as of the Effective Time, Sellers shall sell, convey, assign,
transfer and deliver to Buyers, and Buyers shall purchase and acquire from
Sellers, free and clear of any Encumbrances other than
12
Permitted Encumbrances, all of Sellers'
right, title and interest in and to all of Sellers' property and assets, real,
personal or mixed, tangible and intangible, of every kind and description,
wherever located, including the following (but excluding the Excluded Assets):
(a) all Real
Property, including the Real Property described in Parts 3.6 and 3.7;
(b) all
Tangible Personal Property, including those items described in Part 2.1(b)
(provided, that the parties acknowledge that the Part 2.1(b) may not be entirely
accurate or complete);
(c) all
Inventories;
(d) all
Accounts Receivable;
(e) all
Seller Contracts listed in Part 3.19(a), and all outstanding offers or
solicitations made by or to Seller to enter into any Contract;
(f) all
Governmental Authorizations and all pending applications therefor or renewals
thereof, in each case to the extent transferable to Buyers, including those
listed in Part 3.16(b);
(g) all data
and Records related to the operations of Sellers, other than data and records
relating to Excluded Assets, including client and customer lists and Records,
referral sources, research and development reports and Records, production
reports and Records, service and warranty Records, equipment logs, operating
guides and manuals, financial and accounting Records, creative materials,
advertising materials, promotional materials, studies, reports, correspondence
and other similar documents and Records and, subject to Legal Requirements,
copies of all personnel Records for Hired Active Employees and other Records
described in Section 2.2(d);
(h) all of
the intangible rights and property of Sellers, including Intellectual Property
Assets, going concern value, goodwill, telephone, telecopy and e-mail addresses
and listings and those items listed in Parts 3.24(d), (e) and (h);
(i) all insurance benefits, including
rights and proceeds, arising from or relating to claims arising from events
occurring after the Effective Time relating to the Assets or the Assumed
Liabilities;
(j) all
claims of Sellers against third parties relating to the Assets other than those
claims constituting Excluded Assets, whether choate or inchoate, known or
unknown, contingent or non-contingent;
(k) all
indemnification rights and benefits relating to claims arising from events
occurring or actions taken (or not taken) by any Person prior to the Effective
Time that are made after the Effective Time relating to the Assets or the
Assumed Liabilities, including all such rights and benefits with respect to
environmental indemnifications from third parties
13
(including those listed on Part 2.1(k));
provided, that any such assignment does not limit the rights and benefits of
Sellers for indemnification from any such third parties after the Effective Time
for claims that otherwise could be made by Sellers for indemnification against
such third parties; and
(l) all
rights of Sellers relating to deposits and prepaid expenses, claims for refunds
and rights to offset in respect thereof that do not relate to the Excluded
Assets.
All of the property and assets to be transferred to Buyers hereunder are herein
referred to collectively as the "Assets".
Exhibit 2.1 describes which Assets are being purchased by UTEC, SIC, DetaCorp
and ESI, respectively.
2.2
EXCLUDED ASSETS
Notwithstanding anything to the contrary contained in Section 2.1 or elsewhere
in this Agreement, the following assets of Sellers (collectively, the
"Excluded Assets") are not part of the sale and purchase contemplated
hereunder, are excluded from the Assets, and shall remain the property of
Sellers after the Closing:
(a) all cash,
cash equivalents and short term investments;
(b) all
minute books, stock Records and corporate seals;
(c) the
shares of capital stock of Sellers held in treasury;
(d) all
personnel Records and other Records that Sellers are required by law to retain
in its possession;
(e) all
rights of Sellers under this Agreement, the Bill of Sale, the Assignment and
Assumption Agreement, the Assignment and Assumption of Lease Agreement, the
Escrow Agreement, the Orica Noncompetition Agreement, the Noncompetition
Agreement, the Transitional Services Agreement and the Use and License
Agreement;
(f) all
insurance policies and rights and claims thereunder not otherwise being
transferred pursuant to Section 2.1(i)
(g) all
rights and claims against third parties relating to the Assets for damages or
losses incurred or arising on or prior to the Effective Time;
(h) data and
records which constitute or contain information that is legally privileged or
relate to any legal action, pending, threatened or ongoing; provided, that,
Buyers shall be provided access to such data and records for all reasonable
business purposes;
14
(i) all claims, rights and interests in any refunds or credits for taxes or fees
for periods on or prior to the Effective Time or that relate to the Liabilities
of Sellers, amounts recoverable under lawsuits and rights and actions existing
or relating to periods on or before the Effective Time;
(j) employee
benefit plans of any nature and their assets;
(k) bonds,
letters of credit, surety instruments and similar items;
(l) all
deposits and other security provided by Sellers to any supplier or utility or
other prepaid expense;
(m) any net
operating losses arising prior to the Effective Time;
(n) the
Seller Contracts listed in Exhibit 2.2(n); and
(o) the
property and assets expressly designated in Exhibit 2.2(o).
2.3
CONSIDERATION
The consideration for the Assets (the "Purchase Price") will be: (a)
$10,625,000.00 minus (i) the Accounts Receivable Adjustment Amount of $221,113
and (ii) the Inventory Adjustment Amount of $290,481, plus (b) $51,988.28 in
respect of lease payments for post-Closing obligations that have been prepaid by
Sellers on behalf of Buyers as reflected on Exhibit 2.3 (the "Lease
Adjustment Amount"), and (c) the assumption of the Assumed Liabilities. In
accordance with Section 2.7(b), at the Closing the Purchase Price shall be
delivered by Buyers to Sellers as follows: (a) the assumption by SEMC of the
actual amount of the unpaid balance of obligations under the US Bancorp Lease as
of the Closing Date of $425,000, by the execution and delivery of the Assignment
and Assumption of Lease Agreement; (b) a payment by wire transfer to the escrow
agent pursuant to the Escrow Agreement equal to $250,722 (the "Escrow Funds");
(c) a payment by wire transfer to Foothill Capital Corporation and Guggenheim
Investment Management LLC (collectively, the "Senior Lenders") with
respect to the release of certain Encumbrances on the Assets of $2,798,194 and
$3,459,804, respectively, (d) a payment by wire transfer of the amounts due to
the Sellers in the amount of (x) $10,625,000.00 minus the Inventory Adjustment
Amount and the Accounts Receivable Adjustment Amount and less the amounts paid
pursuant to clauses (a), (b) and (c) of this sentence, plus (y) the Lease
Adjustment Amount, for a total payment of $3,231,674; and (e) the balance of the
Purchase Price by the execution and delivery of the Assignment and Assumption
Agreement. The Purchase Price shall be further adjusted post-Closing in
accordance with Section 2.9. Exhibit 2.1 describes the allocation of
responsibility for payment of the Purchase Price as among the Buyers; provided,
that if any of the Buyers fail for any reason to pay to the appropriate Seller
their allocated portion of the Purchase Price, then ESI shall cause that amount
to be paid to the appropriate Seller.
15
2.4 LIABILITIES
(a)
Assumed Liabilities. On the Closing Date, but effective as of the
Effective Time, Buyers and SEMC shall assume and agree to discharge only the
following Liabilities of Sellers (the "Assumed Liabilities"):
(i) any Liability with respect to the US Bancorp Lease; and
(ii) any Liability with respect to the leases listed on Part 3.7 and the Seller
Contracts listed on Part 3.19(a).
Exhibit 2.4(a) describes the
allocation of responsibility of the Assumed Liabilities as among the Buyers and
SEMC; provided, that ESI guaranties the Liability with respect to the US Bancorp
Lease as well as all other Assumed Liabilities. In the event SEC and LSB are not
released by U.S. Bancorp Leasing and Financial in connection with the assumption
of the US Bancorp Lease by Buyers, then LSB will retain subrogation rights to
the equipment that is the subject of the US Bancorp Lease, and Buyers and SEMC
hereby assign to LSB such subrogation rights to be executable only in the event
that LSB, SEC or any affiliate thereof is required to make any payments under
the US Bancorp Lease after Closing for obligations that arise under the US
Bancorp Lease after Closing.
(b) Retained
Liabilities. The Retained Liabilities shall remain the sole responsibility of
and shall be retained, paid, performed and discharged solely by Sellers.
"Retained Liabilities" shall mean every Liability of Sellers other than the
Assumed Liabilities.
2.5
ALLOCATION
The Purchase Price shall be allocated in accordance with Exhibit 2.1. After the
Closing, the parties shall make consistent use of the allocation, fair market
value and useful lives specified in Exhibit 2.1 for all Tax purposes and in all
filings, declarations and reports with the IRS in respect thereof, including the
reports required to be filed under Section 1060 of the Code. Buyers shall
prepare and deliver IRS Form 8594 to Sellers within forty-five (45) days after
the Closing Date to be filed with the IRS. In any Proceeding related to the
determination of any Tax, neither Buyers nor Sellers, nor Shareholders nor LSB
shall contend or represent that such allocation is not a correct allocation.
2.6 CLOSING
The purchase and sale provided for in this Agreement (the "Closing") will take
place at the offices of Jackson Walker L.L.P., 2435 N. Central Expressway, Suite
600, Richardson, Texas, commencing at 10:00 a.m. (local time) on December 6,
2002, unless Buyers and Sellers otherwise agree. Subject to the provisions of
Article 9, failure to consummate the purchase and sale provided for in this
Agreement on the date and time and at the place determined pursuant to this
Section 2.6 will not result in the termination of this Agreement and will not
relieve any party of any obligation under this Agreement. In such a situation,
the Closing will occur as soon as practicable, subject to Article 9.
Notwithstanding anything contained herein to the contrary, this Agreement shall
not
16
become binding until all of the terms and conditions of this Agreement have
been satisfied or waived, including receipt by Sellers of the consideration set
forth in Section 2.3.
2.7 CLOSING OBLIGATIONS
In addition to any other documents to be delivered under other provisions of
this Agreement, at the Closing:
(a) Sellers shall deliver to Buyers:
(i) one or more bills of sale for all of the Assets that are Tangible Personal
Property in the form of Exhibit 2.7(a)(i) (the "Bill of Sale") executed by the
applicable Seller;
(ii) one or more assignments of all of the Assets that are intangible personal
property in the form of Exhibit 2.7(a)(ii)(B), which assignment shall also
contain the applicable Buyer's undertaking and assumption of the Assumed
Liabilities (the "Assignment and Assumption Agreement") executed by the
applicable Seller;
(iii) (A) a separate Lease Agreement, Memorandum of Lease and Lessor Estoppel
and Agreement with respect to the real property leases for (1) the Production
Facility located at Hallowell, Kansas, (2) the Underwater Lab and PRUF plant
located at Hallowell, Kansas, (3) the R&D lab located at Jayhawk, Kansas, and
(4) the Pryor, Oklahoma facility; (B) a separate Assignment and Assumption of
Lease for the Farmer's Co-Op lease, the Industrial Track lease, the Oklahoma
City office lease and the Dallas office lease; (C) a Lease Termination Agreement
with respect to the Pryor, Oklahoma facility; and (D) such other appropriate
document or instrument of transfer, as the case may require, each in form and
substance satisfactory to Buyers and executed by the applicable Seller;
(iv) one or more assignments of all Intellectual Property Assets and separate
assignments of all registered Patents and Marks, in the form of Exhibit 2.7(a)(iv)(A)
and (B) executed by the applicable Seller;
(v) such other deeds, bills of sale, assignments, certificates of title,
documents and other instruments of transfer and conveyance as may reasonably be
requested by Buyers, each in form and substance satisfactory to Buyers and
executed by the applicable Seller;
(vi) noncompetition agreements in the form of Exhibit 2.7(a)(vi), executed by
each Seller, each Shareholder and LSB (the "Noncompetition Agreements");
(vii) an escrow agreement in the form of Exhibit 2.7(a)(vii), executed by
Sellers and the escrow agent (the "Escrow Agreement");
17
(viii) a certificate executed (x) by each Seller and EDC as to the accuracy of
their respective representations and warranties as of the date of this Agreement
and as of the Closing in accordance with Section 7.1, and (y) by each Seller,
each Shareholder and LSB as to their compliance with and performance of their
covenants and obligations to be performed or complied with at or before the
Closing in accordance with Section 7.2;
(ix) a certificate of the Secretary of each Seller certifying and attaching all
requisite resolutions or actions of each Seller's board of directors and
shareholders approving the execution and delivery of this Agreement and the
consummation of the Contemplated Transactions and the change of name
contemplated by Section 5.9 and certifying to the incumbency and signatures of
the officers of each Seller executing this Agreement and any other document
relating to the Contemplated Transactions and accompanied by the requisite
documents for amending the relevant Governing Documents of each Seller required
to effect such change of name in form sufficient for filing with the appropriate
Governmental Body;
(x) a jointly-executed instruction as to how the cash payments of the Purchase
Price are to be divided between the Sellers, delivered at least three Business
Days prior to the Closing Date;
(xi) a transitional services agreement in the form attached as Exhibit
2.7(a)(xi), executed by Sellers (the "Transitional Services Agreement"); and
(xii) the Use and License Agreement in the form attached as Exhibit 2.7(a)(xii),
executed by Sellers (the "Use and License Agreement").
(b) Buyers shall deliver to Sellers:
(i) (x) $10,625,000.00 plus or minus the Inventory Adjustment Amount and the
Accounts Receivable Adjustment Amount less the amounts paid pursuant to clause
(a), (b) and (c) of the second sentence of Section 2.3, plus (y) the Lease
Adjustment Amount, for a total payment of $3,231,674 by wire transfer to an
account specified by Sellers in a writing delivered to Buyers prior to the
Closing;
(ii) the Escrow Agreement, executed by Buyers and the escrow agent, together
with the delivery of the Escrow Funds, to the escrow agent thereunder, by wire
transfer to an account specified by the escrow agent prior to the Closing;
(iii) the Assignment and Assumption Agreement executed by the applicable Buyer;
(iv) the Noncompetition Agreement executed by Buyers;
(v) a certificate executed by each Buyer as to the accuracy of its
representations and warranties as of the date of this Agreement and as of the
Closing in accordance
18
with Section 8.1 and as to its compliance with and
performance of its covenants and obligations to be performed or complied with at
or before the Closing in accordance with Section 8.2;
(vi) a certificate of the Secretary of each Buyer certifying and attaching all
requisite resolutions or actions of each Buyer's board of directors approving
the execution and delivery of this Agreement and the consummation of the
Contemplated Transactions and certifying to the incumbency and signatures of the
officers of each Buyer executing this Agreement and any other document relating
to the Contemplated Transactions; and
(vii) the Transitional Services Agreement executed by Buyers.
2.8 INVENTORY ADJUSTMENT AMOUNT AND PROCEDURE
Sellers and Buyers have, on or before the Closing Date, examined all of the
Inventories of Sellers and have agreed, as of the Effective Time, that the
physical inventory count is $1,409,519 after eliminating any and all Inventory
which is obsolete, beyond its recommended "shelf" life, or could not reasonably
be used by Buyers in the manufacture of explosive products or sold by Buyers
within a reasonable period of time following Closing (the "Unusable Inventory").
The Purchase Price shall be reduced to reflect the difference between
$1,700,000.00 and $1,409,519, or $290,481 (the "Inventory Adjustment Amount").
Buyers will cooperate with Sellers to arrange for the storage and disposal of
any Unusable Inventory as provided in Section 10.5. Exhibit 2.8 contains the
actual calculation of the Inventory Adjustment Amount and any agreements related
to the Inventory.
2.9 ACCOUNTS RECEIVABLE ADJUSTMENT AMOUNT, PROCEDURE AND PAYMENT
The Purchase Price shall be reduced to reflect the difference between
$1,500,000.00 and the recorded cost of all Accounts Receivable acquired by
Buyers at the Closing of $1,278,887, or $221,113 (the "Account Receivable
Adjustment Amount"). After Closing, Buyers shall use Best Efforts and prudent
business practices to collect all of the Accounts Receivable; provided, however,
Buyers shall not be required to retain an attorney or collection agency, or to
commence legal proceedings, as part of such efforts. In the event that any of
the Accounts Receivable are not collected within ninety days from the Closing
Date, then Buyers shall assign and transfer such Accounts Receivable to Sellers
and the Purchase Price shall be reduced, dollar-for-dollar, by the amount of the
Accounts Receivable so assigned and transferred by Buyers to Sellers (the
"Post-Closing Accounts Receivable Adjustment Amount"). Any Post-Closing Accounts
Receivable Adjustment Amount shall be paid first from the Escrow Funds and any
remaining balance shall be paid by wire transfer by Sellers to an account
specified by Buyers within three Business Days of such assignment and transfer.
Exhibit 2.9 contains the actual calculation of the Accounts Receivable
Adjustment Amount and any agreements related to the Accounts Receivable.
2.10 CONSENTS
(a) If there are any Material Consents which have not yet been obtained (or
otherwise are not in full force and effect) as of the Closing, in the case of
each Seller Contract as to
19
which such Material Consents were not obtained (or
otherwise are not in full force and effect) (the "Restricted Material Contracts"), Buyers may waive the closing conditions as to any such Material
Consent, and either:
(i) elect to have Seller continue its efforts to obtain the Material Consents;
or
(ii) elect to have Seller retain that Restricted Material Contract and all
Liabilities arising therefrom or relating thereto.
If Buyers elect to have Sellers continue their efforts to obtain any Material
Consents and the Closing occurs, notwithstanding Sections 2.1 and 2.4, neither
this Agreement nor the Assignment and Assumption Agreement nor any other
document related to the consummation of the Contemplated Transactions shall
constitute a sale, assignment, assumption, transfer, conveyance or delivery or
an attempted sale, assignment, assumption, transfer, conveyance or delivery, of
the Restricted Material Contracts, and following the Closing, the parties shall
use Best Efforts, and cooperate with each other, to obtain the Material Consent
relating to each Restricted Material Contract as quickly as practicable. Pending
the obtaining of such Material Consents relating to any Restricted Material
Contract, the parties shall cooperate with each other in any reasonable and
lawful arrangements designed to provide to Buyers the benefits of use of the
Restricted Material Contract for its term (or any right or benefit arising
thereunder, including the enforcement for the benefit of Buyers of any and all
rights of Seller against a third party thereunder). Once a Material Consent for
the sale, assignment, assumption, transfer, conveyance and delivery of a
Restricted Material Contract is obtained, Seller shall promptly assign,
transfer, convey and deliver such Restricted Material Contract to Buyers, and
Buyers shall assume the obligations under such Restricted Material Contract
assigned to Buyers from and after the date of assignment to Buyer pursuant to a
special-purpose assignment and assumption agreement substantially similar in
terms to those of the Assignment and Assumption Agreement (which special-purpose
agreement the parties shall prepare, execute and deliver in good faith at the
time of such transfer, all at no additional cost to Buyers).
(b) If there are any Consents not listed on Exhibit 7.3 necessary for the
assignment and transfer of any Seller Contracts to Buyers (the "Non Material
Consents") which have not yet been obtained (or otherwise are not in full force
and effect) as of the Closing, Buyer shall elect at the Closing, in the case of
each of the Seller Contracts as to which such Non-Material Consents were not
obtained (or otherwise are not in full force and effect) (the "Restricted Non
Material Contracts"), whether to:
(i) accept the assignment of such Restricted Non Material Contract, in which
case, as between Buyers and Sellers, such Restricted Non Material Contract
shall, to the maximum extent practicable and notwithstanding the failure to
obtain the applicable Non Material Consent, be transferred at the Closing
pursuant to the Assignment and Assumption Agreement as elsewhere provided under
this Agreement; or
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(ii) reject the assignment of such Restricted Non Material Contract, in which
case, notwithstanding Sections 2.1 and 2.4, (A) neither this Agreement nor the
Assignment and Assumption Agreement nor any other document related to the
consummation of the Contemplated Transactions shall constitute a sale,
assignment, assumption, conveyance or delivery, or an attempted sale,
assignment, assumption, transfer, conveyance or delivery, of such Restricted Non
Material Contract, and (B) Sellers shall retain such Restricted Non Material
Contract and all Liabilities arising therefrom or relating thereto.
3. REPRESENTATIONS AND WARRANTIES OF SELLERS AND EDC
Sellers, jointly and severally, represent and warrant to Buyers as follows:
3.1 ORGANIZATION AND GOOD STANDING
Part 3.1 contains a complete and accurate list of each Seller's jurisdiction of
incorporation and any other jurisdictions in which they are qualified to do
business as a foreign corporation. Sellers are each a corporation duly
organized, validly existing, and in good standing under the laws of its
jurisdiction of incorporation, with full corporate power and authority to
conduct its business as it is now being conducted, to own or use the properties
and assets that it purports to own or use, and to perform all its obligations
under the Seller Contracts. Sellers are duly qualified to do business as a
foreign corporation and are in good standing under the laws of each state or
other jurisdiction in which either the ownership or use of the properties owned
or used by them, or the nature of the activities conducted by them, requires
such qualification except those states where the failure to so qualify would not
have a material adverse effect.
3.2 ENFORCEABILITY; AUTHORITY; NO CONFLICT
(a) (i) This Agreement constitutes the legal, valid, and binding obligation of
each Seller, enforceable against each of them in accordance with its terms. Upon
the execution and delivery by Sellers of the Escrow Agreement, the Transitional
Services Agreement and each other agreement to be executed or delivered by any
or all of Sellers at the Closing (collectively, the "Sellers' Closing
Documents"), each of Sellers' Closing Documents will constitute the legal,
valid, and binding obligation of each of Sellers, enforceable against each of
them in accordance with its terms. Sellers have the requisite corporate right,
power and authority to execute and deliver this Agreement and the Sellers'
Closing Documents to which it is a party and to perform its obligations under
this Agreement and the Sellers' Closing Documents, and such action has been duly
authorized by all necessary corporate action by Sellers' shareholders and boards
of directors.
(ii) Upon execution and delivery of the AN Supply Agreement, the Nitric Acid
Supply Agreement by EDC at the Closing (collectively, the "EDC Closing
Documents"), each of the EDC Closing Documents will constitute the legal, valid,
and binding obligation of EDC, enforceable against it in accordance with its
terms. EDC has the requisite corporate right, power and authority to execute and
deliver this Agreement and the EDC Closing Documents and to perform its
obligations under this Agreement and the EDC Closing Documents, and
21
such action
has been duly authorized by all necessary corporate action by EDC's shareholders
and board of directors.
(b) Except as set forth in Part 3.2(b), neither the execution and delivery of
this Agreement nor the consummation or performance of any of the Contemplated
Transactions will, directly or indirectly (with or without notice or lapse of
time):
(i) Breach (A) any provision of any of the Governing Documents of Sellers, or
(B) any resolution adopted by the board of directors or the shareholders of
Sellers;
(ii) Breach or give any Governmental Body or other Person reasonable grounds to
challenge any of the Contemplated Transactions or to exercise any remedy or
obtain any relief under any Legal Requirement or any Order to which, to Sellers'
Knowledge, Sellers, or any of the Assets, may be subject;
(iii) except permits and licenses that can not be assigned by Sellers,
contravene, conflict with, or result in a violation or breach of any of the
terms or requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate, or modify, any Governmental Authorization
that is held by Sellers or that otherwise relates to the Assets or to the
business of Sellers;
(iv) cause Buyers to become subject to, or to become liable for the payment of,
any Tax owed by Sellers and accruing or arising prior to the Closing Date;
(v) Breach any provision of, or give any Person the right to declare a default
or exercise any remedy under, or to accelerate the maturity or performance of,
or payment under, or to cancel, terminate, or modify, any material Seller
Contract;
(vi) result in the imposition or creation of any Encumbrance upon or with
respect to any of the Assets; or
(vii) result in any shareholder of the Sellers having reasonable grounds to
exercise dissenters' appraisal rights.
(c) Except as set forth in Part 3.2(c), neither Seller is required to give any
notice to or obtain any Consent from any Person in connection with the execution
and delivery of this Agreement or the consummation or performance of any of the
Contemplated Transactions.
3.3 FINANCIAL STATEMENTS
Sellers have delivered to Buyers: (a) an unaudited balance sheet of each Seller
as at December 31, 2001 (including the notes thereto, the "Balance Sheet"), and
the related unaudited statements of income, changes in shareholders' equity and
cash flows for the fiscal year then ended, including in each case the notes
thereto, (b) unaudited balance sheets of each Seller as at December 31 in each
of the fiscal years 1999 through 2000, and the related unaudited statements of
income and
22
changes in shareholders' equity for each of the fiscal years then
ended, including in each case the notes thereto, (c) an unaudited balance sheet
of each Seller as at September 30, 2002 (the "Interim Balance Sheet") and the
related unaudited statements of income and changes in shareholders' equity for
the 9 months then ended, including in each case the notes thereto certified by
Seller's chief financial officer, and (d) unaudited financial statements
("Closing Financial Statements") of Seller as of the Effective Time and for the
period from the date of Interim Balance Sheet through the Effective Time on the
same basis and applying the same accounting principles, policies and practices
that were used in preparing the Interim Balance Sheet. Such financial statements
fairly present (and the financial statements delivered pursuant to Section 5.8
will fairly present) the financial condition and the results of operations,
changes in shareholders' equity, and cash flows of each Seller as at the
respective dates of and for the periods referred to in such financial
statements, all in accordance with GAAP. The financial statements referred to in
this Section 3.3 and delivered pursuant to Section 5.8 reflect and will reflect
the consistent application of such accounting principles throughout the periods
involved, except as disclosed in the notes to such financial statements. The
financial statements have been and will be prepared from and are in accordance
with the accounting Records of each Seller.
3.4 BOOKS AND RECORDS
The books of account and other financial Records of Sellers, all of which have
been made available to Buyers, are complete and correct in all material respects
and represent actual, bona fide transactions.
3.5 SUFFICIENCY OF ASSETS
The Assets (a) constitute all of the assets, tangible and intangible, of any
nature whatsoever, necessary to operate Sellers' business in the manner
presently operated by each Seller and (b) include all of the operating assets of
Sellers.
3.6 DESCRIPTION OF OWNED REAL PROPERTY
To Sellers' Knowledge, Part 3.6 contains a correct legal description and street
address of the Land and designates as to each parcel each Seller's has an
ownership interest therein.
3.7 DESCRIPTION OF LEASED REAL PROPERTY
To Sellers' Knowledge, Part 3.7 contains a correct legal description and/or
street address of all Land in which each Seller has a leasehold interest and an
accurate description (by location, name of lessor, date of Lease, and term
expiry date) of all Real Property Leases.
3.8 TITLE TO ASSETS; ENCUMBRANCES
(a) Sellers owns good, marketable and indefeasible title or, in the case of
leased Assets, valid leasehold interests, to their respective estates in the
Real Property, free and clear of any Encumbrances, other than those described in
Part 3.8(a) ("Real Estate Encumbrances"). True and complete copies of all deeds,
existing title insurance policies and surveys of or
23
pertaining to the Real
Property have been delivered to Buyers. Sellers warrant to Buyers that, at the
time of Closing, the Real Property shall be free and clear of all Real Estate
Encumbrances other than those identified on Part 3.8(a) which are hereby deemed
acceptable to Buyers ("Permitted Real Estate Encumbrances").
(b) Sellers own good and transferable title to, or in the case of assets that
are leased, valid leasehold interests in, all of the other Assets free and clear
of any Encumbrances other than those described in Part 3.8(b) ("Non-Real Estate
Encumbrances"). Sellers warrant to Buyers that at the time of Closing, all other
Assets shall be free and clear of all Non-Real Estate Encumbrances other than
those identified on Part 3.8(b) which are hereby deemed acceptable to Buyers
("Permitted Non-Real Estate Encumbrances" and, together with the Permitted Real
Estate Encumbrances, "Permitted Encumbrances").
3.9 CONDITION OF FACILITIES
(a) Use of the Real Property for the various purposes for which it is presently
being used is permitted under all applicable Legal Requirements. To Sellers'
Knowledge, all Improvements are in operable condition, ordinary wear and tear
excepted. Except as described in Part 3.8(a) and 3.9(a), to Sellers' Knowledge,
no part of any Improvement encroaches on any real property not included in the
Real Property and there are no buildings, structures, fixtures or other
Improvements primarily situated on adjoining property which encroach on any part
of the Land. To Sellers' Knowledge, there is no existing or proposed eminent
domain proceeding that would result in the taking of all or any part of any
Facility or that would prevent or hinder the continued use of any Facility as
heretofore used in the conduct of the business of Sellers. To Sellers'
Knowledge, the Facilities each have full access to and from a dedicated public
roadway.
(b) Each material item of Tangible Personal Property is in operating condition,
ordinary wear and tear excepted. No material item of Tangible Personal Property
is, to Sellers' Knowledge, in need of repair or replacement other than as part
of routine maintenance in the Ordinary Course of Business. Except as disclosed
in Part 3.9(b), all Tangible Personal Property used in Sellers' business are in
the possession of Sellers. Except as provided herein, Sellers make no
representations or warranties as to the Tangible Personal Property, and subject
to any express representation or warranty made by any third-party that is being
transferred in connection with the transactions contemplated by this Agreement,
all of the Tangible Personal Property is being conveyed on an "as is - where is"
basis.
3.10 ACCOUNTS RECEIVABLE
All Accounts Receivable that are reflected on the accounting Records of Sellers
as of the Closing Date represent or will represent valid obligations arising
from sales actually made or services actually performed by Sellers in the
Ordinary Course of Business. Except to the extent paid prior to the Closing
Date, such Accounts Receivable are or will be as of the Closing Date current and
collectible net of the respective reserves shown on the Closing Financial
Statement (which reserves are, to Sellers' Knowledge, adequate and calculated
consistent with past practice). There is no contest, claim, defense or right of
setoff, other than returns in the Ordinary Course of Business
24
of Sellers, under
any Contract with any account debtor of an Account Receivable relating to the
amount or validity of such Account Receivable. Part 3.10 contains a complete and
accurate list of all Accounts Receivable as of the date of the Interim Balance
Sheet, which list sets forth the aging of each such Account Receivable.
3.11 INVENTORIES
All items included in the Inventories (excluding the Unusable Inventory) consist
of a quality usable and, with respect to finished goods, saleable, in the
Ordinary Course of Business of Sellers. Sellers are not in possession of any
inventory not owned by Sellers, including goods already sold.
3.12 NO UNDISCLOSED LIABILITIES
To Sellers' Knowledge, Sellers have no Liability except for Liabilities
reflected or reserved against in the Balance Sheet or the Interim Balance Sheet
and current liabilities incurred in the Ordinary Course of Business of Sellers
since the date of the Interim Balance Sheet.
3.13 TAXES
(a) Tax Returns Filed and Taxes Paid. Sellers have filed or caused to be filed
on a timely basis all Tax Returns and all reports with respect to Taxes that are
or were required to be filed pursuant to applicable Legal Requirements. All Tax
Returns and reports filed by Sellers are true, correct and complete in all
material respects. Sellers have paid, or made provision for the payment of, all
Taxes that have become due for all periods covered by the Tax Returns or
otherwise, or pursuant to any assessment received by Sellers. Sellers currently
are not the beneficiary of any extension of time within which to file any Tax
Return. No claim has been made by any Governmental Body since January 1, 2001,
in a jurisdiction where Sellers do not file Tax Returns that it is subject to
taxation by that jurisdiction. There are no Encumbrances on any of the Assets
that arose in connection with any failure (or alleged failure) to pay any Tax,
and to Sellers, Knowledge there is no reasonable basis for assertion of any
claims attributable to Taxes which, if adversely determined, would result in any
such Encumbrance.
(b) Specific Potential Tax Liabilities and Tax Situations.
(i) Withholding. All taxes that either Seller is or was required by Legal
Requirements to withhold, deduct or collect have been duly withheld, deducted
and collected and, to the extent required, have been paid to the proper
Governmental Body or other Person.
(ii) Tax Sharing or Similar Agreements. There is no tax sharing agreement, tax
allocation agreement, tax indemnity obligation or similar written or unwritten
agreement, arrangement, understanding or practice with respect to Taxes
(including any advance pricing agreement, closing agreement or other arrangement
relating to Taxes) that will require any payment by either Seller that, if not
paid by either Seller, would subject Buyers to any liability therefor or that
would effect the Assets.
25
(iii) Consolidated Group. Sellers (A) are members of an affiliated group within
the meaning of Code Section 1504(a) (or any similar group defined under a
similar provision of state, local or foreign law), but (B) neither Seller has
any liability for Taxes of any person under Treas. Reg. 1.1502-6 (or any
similar provision of state, local or foreign law), as a transferee or successor
by contract or otherwise.
3.14 NO MATERIAL ADVERSE CHANGE
Since September 3, 2002, there has not been any material adverse change in the
business, operations assets or financial condition of either Seller, and, to
Sellers' Knowledge, no event has occurred or circumstance exists that is likely
to result in such a material adverse change.
3.15 EMPLOYEE BENEFITS
(a) Set forth in Part 3.15(a) is a list, complete and correct in all material
respects, of all of Seller's "employee benefit plans" as defined by Section 3(3)
of ERISA, and all specified fringe benefit plans as defined in Section 6039D of
the Code (collectively, "Employee Plans"). Neither Seller nor any corporations
or trades or businesses controlled by controlling or under common control with
either Seller (within the meaning of Section 414 of the Code or Section
4001(a)(14) or 4001(b) of ERISA) ("ERISA Affiliates") sponsors or contributes to
any plan subject to Title IV of ERISA. Also, set forth on Part 3.15(a) is a
complete and correct list of all current ERISA Affiliates.
(b) Each Seller has made available to Buyers for review true, accurate and
complete copies of (i) the documents comprising each Employee Plan; (ii) all
trust agreements, insurance contracts or any other funding instruments related
to the Employee Plans; (iii) all rulings, determination letters, or advisory
opinions from the IRS or the U.S. Department of Labor that pertain to each
Employee Plan and any open requests therefor; and (iv) all collective bargaining
agreements pursuant to which contributions to any Employee Plans have been made
or obligations incurred (including both pension and welfare benefits) by either
Seller, and all collective bargaining agreements pursuant to which contributions
are being made or obligations are owed by such entities.
(c) Full payment has been made of all amounts that are required under the terms
of each Employee Plan to be paid as contributions with respect to all periods
prior to and including the last day of the most recent fiscal year of such
Employee Plan ended on or before the date of this Agreement and all periods
thereafter prior to the Closing Date.
(d) Each Seller has at all times complied, and currently complies, in all
material respects with the applicable continuation requirements for its welfare
benefit plans, including (1) Section 4980B of the Code and Sections 601 through
608, inclusive, of ERISA, which provisions are hereinafter referred to
collectively as "COBRA" and (2) any applicable state statutes mandating health
insurance continuation coverage for employees.
26
(e) Each Employee Plan that is intended to be qualified under Section 401(a) of
the Code is so identified in Part 3.15(a) and has received a favorable
determination letter from the IRS, and, to Sellers' Knowledge, there are no
circumstances that will or could result in revocation of any such favorable
determination letter.
(f) There is no material pending or threatened Proceeding relating to any
Employee Plan, nor, to Sellers' Knowledge, is there any basis or facts or
circumstances that with the passage of time could become a basis for any such
Proceeding. To Sellers' Knowledge, neither Seller nor any fiduciary of an
Employee Plan has engaged in a transaction with respect to any Employee Plan
that, assuming the taxable period of such transaction expired as of the date
hereof, could subject Sellers or Buyers to a Tax or penalty imposed by either
Section 4975 of the Code or Section 502(l) of ERISA or a violation of Section
406 of ERISA. The Contemplated Transactions will not result in the potential
assessment of a Tax or penalty under Section 4975 of the Code or Section 502(l)
of ERISA nor result in a violation of Section 406 of ERISA.
(g) Each Seller has maintained workers' compensation coverage as required by
applicable state law through purchase of insurance and not by self-insurance or
otherwise.
(h) Except as required by Legal Requirements, the consummation of the
Contemplated Transactions will not accelerate the time of vesting or the time of
payment, or increase the amount, of compensation due to any director, employee,
officer, former employee or former officer of either Seller. There are no
contracts or arrangements providing for payments that could subject any person
to liability for tax under Section 4999 of the Code.
(i) Except for the continuation coverage requirements of COBRA, neither Seller
has any obligations or potential liability for benefits to employees, former
employees or their respective dependents following termination of employment or
retirement under any of the Employee Plans that are employee welfare benefit
plans as defined in Section 3(2) of ERISA.
(j) To Sellers' Knowledge, none of the Contemplated Transactions will result in
an amendment, modification or termination of any of the Employee Plans. No
written or oral representations have been made to any employee or former
employee of either Seller promising or guaranteeing any employer payment or
funding for the continuation of medical, dental, life or disability coverage for
any period of time beyond the end of the current plan year (except to the extent
of coverage required under COBRA). No written or oral representations have been
made to any employee or former employee of either Seller concerning the employee
benefits of Buyers.
3.16 COMPLIANCE WITH LEGAL
REQUIREMENTS; GOVERNMENTAL
AUTHORIZATIONS
(a) Except as set forth in Part 3.16(a), 3.17(a) or 3.17(b), to Sellers'
Knowledge:
(i) each Seller is, and at all times since January 1, 2001, has been, in
material
27
compliance with each Legal Requirement that is or was applicable to it
or to the conduct or operation of its business or the ownership or use of any of
its assets;
(ii) no event has occurred or circumstance exists that (with or without notice
or lapse of time) (A) is likely to constitute or result in a violation by either
Seller of, or a failure on the part of either Seller to materially comply with,
any Legal Requirement, or (B) is likely to give rise to any obligation on the
part of either Seller to undertake, or to bear all or any portion of the cost
of, any remedial action of any nature; and
(iii) neither Seller has received, at any time since January 1, 2001, any notice
or other communication (whether oral or written) from any Governmental Body or
any other Person regarding (A) any actual or alleged violation of, or failure to
comply with, any Legal Requirement or (B) any actual, alleged or potential
obligation on the part of either Seller to undertake, or to bear all or any
portion of the cost of any remedial action of any nature.
(b) Part 3.16(b) contains a complete and accurate list of each Governmental
Authorization that is held by either Seller or that otherwise relates to either
Seller's business or the Assets. To Sellers' Knowledge, each Governmental
Authorization listed or required to be listed in Part 3.16(b) is valid and in
full force and effect. Except as set forth in Part 3.16(a), 3.16(b), 3.17(a) or
3.17(b), to Sellers' Knowledge:
(i) Each Seller is, and at all times since January 1, 2001, has been, in
material compliance with all of the terms and requirements of each Governmental
Authorization identified or required to be identified in Part 3.16(b);
(ii) no event has occurred or circumstance exists that is likely to (with or
without notice or lapse of time) (A) constitute or result directly or indirectly
in a material violation of or a material failure to comply with any term or
requirement of any Governmental Authorization listed or required to be listed in
Part 3.16(b), or (B) result directly or indirectly in the revocation,
withdrawal, suspension, cancellation, or termination of, or any material
modification to, any Governmental Authorization listed or required to be listed
in Part 3.16(b);
(iii) Neither Seller has received, at any time since January 1, 2001, any notice
or other communication (whether oral or written) from any Governmental Body or
any other Person regarding (A) any actual or alleged violation of or failure to
comply with any term or requirement of any Governmental Authorization, or (B)
any actual or proposed revocation, withdrawal, suspension, cancellation,
termination of, or material modification to any Governmental Authorization; and
(iv) all applications required to have been filed for the renewal of the
Governmental Authorizations listed in Part 3.16(b) have been duly filed on a
timely basis with the appropriate Governmental Bodies, and all other filings
material to the operations of the Assets required to have been made with respect
to such
28
Governmental Authorizations have been duly made on a timely basis with
the appropriate Governmental Bodies.
To Sellers' Knowledge, the Governmental Authorizations listed in Part 3.16(b)
collectively constitute all of the Governmental Authorizations necessary to
permit each Seller to lawfully conduct and operate its business in the manner in
which it currently conducts and operates such business and to permit each Seller
to own and use its assets in the manner in which it currently owns and uses such
assets.
3.17 LEGAL PROCEEDINGS; ORDERS
(a) To Sellers' Knowledge, except as set forth in Part 3.17(a), there is no
pending or threatened Proceeding:
(i) by or against either Seller or that otherwise relates to or may affect the
Assets or the Assumed Liabilities; or
(ii) that challenges, or that may have the effect of preventing, delaying,
making illegal or otherwise interfering with, any of the Contemplated
Transactions.
To Sellers' Knowledge, no event has occurred or circumstance exists that is
reasonably likely to give rise to or serve as a basis for the commencement of
any such Proceeding. Each Seller has delivered to Buyer a summary of each
Proceeding listed in Part 3.17(a).
(b) Except as set forth in Part 3.17(b), to Sellers' Knowledge:
(i) there is no Order to which either Seller, its business or any of the Assets
is subject; and
(ii) no officer, director, agent or employee of either Seller is subject to any
Order that prohibits such officer, director, agent or employee from engaging in
or continuing any conduct, activity, or practice relating to the business of
either Seller.
(c) To Sellers' Knowledge:
(i) each Seller is, and at all times since January 1, 2001, has been, in
material compliance with all of the terms and requirements of each Order to
which it or any of the Assets is or has been subject;
(ii) no event has occurred or circumstance exists that is reasonably likely to
constitute or result in (with or without notice or lapse of time) a violation of
or failure to comply with any term or requirement of any Order to which either
Seller or any of the Assets is subject; and
(iii) neither Seller has received, at any time since January 1, 2001, any notice
or other communication (whether oral or written) from any Governmental Body or
any
29
other Person regarding any actual, alleged or possible violation of, or
failure to comply with, any term or requirement of any Order to which either
Seller or any of the Assets is or has been subject.
3.18 ABSENCE OF CERTAIN CHANGES AND EVENTS
Since the date of the Interim Balance Sheet, each Seller has conducted its
business only in the Ordinary Course of Business and there has not been any:
(a) payment (except in the Ordinary Course of Business) or increase by either
Seller of any bonuses, salaries, or other compensation to any shareholder,
director, officer or employee or entry into any employment, severance or similar
Contract with any director, officer or employee;
(b) adoption of, amendment to, or increase in the payments to or benefits under,
any Employee Plan;
(c) material damage to or destruction or loss of any Asset, whether or not
covered by insurance;
(d) entry into, termination of or receipt of notice of termination of (i) any
material license, distributorship, dealer, sales representative, joint venture,
credit or similar Contract to which either Seller is a party, or (ii) any
Contract or transaction, other than in the ordinary course of business,
involving a total remaining commitment by either Seller of at least $25,000;
(e) sale (other than sales of Inventories in the Ordinary Course of Business),
lease or other disposition of any material Asset or property of either Seller
(including the Intellectual Property Assets) or the creation of any Encumbrance
on any Asset other than a Permitted Encumbrance;
(f) to Sellers' Knowledge, cancellation or waiver of any claims or rights with a
value to either Seller in excess of $25,000;
(g) to Sellers' Knowledge, indication by any material customer or supplier of an
intention to discontinue or change the terms of its relationship with either
Seller;
(h) material change in the accounting methods used by either Seller; or
(i) Contract by either Seller to do any of the foregoing, except in connection
with the Contemplated Transactions.
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3.19 CONTRACTS; NO DEFAULTS
(a) Part 3.7 and 3.19(a) contains a materially accurate and complete list, and
each Seller has delivered to Buyers copies (excluding any Seller Contract that
is an Excluded Asset), of:
(i) each Seller Contract that involves performance of services or delivery of
goods or materials by either Seller of an amount or value in excess of $50,000;
(ii) each Seller Contract that involves performance of services or delivery of
goods or materials to either Seller of an amount or value in excess of $50,000;
(iii) each Seller Contract that was not entered into in the Ordinary Course of
Business and that involves expenditures or receipts by either Seller in excess
of $5,000;
(iv) each Seller Contract affecting the ownership of, leasing of, title to, use
of or any leasehold or other interest in any real or personal property (except
personal property leases and installment and conditional sales agreements having
a value per item or aggregate payments of less than $5,000 and with a term of
less than one year);
(v) each Seller Contract with any labor union or other employee representative
of a group of employees relating to wages, hours, and other conditions of
employment;
(vi) each Seller Contract (however named) involving a sharing of profits,
losses, costs or liabilities by either Seller with any other Person;
(vii) each Seller Contract containing covenants that in any way purport to
restrict either Seller's business activity or limit the freedom of either Seller
to engage in any line of business or to compete with any Person;
(viii) each Seller Contract providing for payments to or by any Person based on
sales, purchases, or profits, other than direct payments for goods;
(ix) each power of attorney of either Seller that is currently effective and
outstanding;
(x) each Seller Contract entered into other than in the Ordinary Course of
Business that contains or provides for an express undertaking by either Seller
to be responsible for consequential damages;
(xi) each Seller Contract for capital expenditures in excess of $10,000;
(xii) each Seller Contract not denominated in U.S. dollars;
31
(xiii) each written warranty, guaranty, and or other similar undertaking with
respect to contractual performance extended by either Seller other than in the
Ordinary Course of Business;
(xiv) each Seller Contract with an employee; and
(xv) each amendment, supplement, and modification (whether oral or written) in
respect of any of the foregoing.
(b) To Sellers' Knowledge:
(i) each Contract identified or required to be identified in Part 3.7 and
3.19(a) and which is to be assigned to or assumed by Buyers under this Agreement
is in full force and effect and is valid and enforceable in accordance with its
terms; and
(ii) except as set forth on Part 3.2(c), each Contract identified or required to
be identified in Part 3.7 and 3.19(a) and which is being assigned to or assumed
by Buyers is assignable by Sellers to either Buyers without the consent of any
other Person.
(c) To Sellers' Knowledge, except as set forth in Part 3.19(c):
(i) Each Seller is, and at all times since January 1, 2001, has been, in
material compliance with all applicable terms and requirements of each Seller
Contract which is being assumed by Buyers;
(ii) each other Person that has or had any obligation or liability under any
Seller Contract which is being assigned to Buyers is, and at all times since
January 1, 2001, has been, in material compliance with all applicable terms and
requirements of such Contract;
(iii) no event has occurred or circumstance exists that (with or without notice
or lapse of time) is likely to contravene, conflict with, or result in a Breach
of, or give either Seller or any other Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of, or
payment under, or to cancel, terminate, or modify, any Seller Contract that is
being assigned to or assumed by Buyers;
(iv) no event has occurred or circumstance exists under or by virtue of any
Contract that (with or without notice or lapse of time) would cause the creation
of any Encumbrance, other than Permitted Encumbrances, affecting any of the
Assets; and
(v) Neither Seller has given to or received from any other Person, at any time
since January 1, 2001, any notice or other communication (whether oral or
written) regarding any actual or alleged material violation or Breach of, or
default under, any
32
Contract which is being assigned to or assumed by Buyers.
(d) To Sellers' Knowledge, there are no renegotiations of, attempts to
renegotiate, or outstanding rights to renegotiate any material amounts paid or
payable to either Seller under current or completed Contracts with any Person
having the contractual or statutory right to demand or require such
renegotiation and no such Person has made written demand for such renegotiation.
3.20 INSURANCE
(a) Each Seller has delivered to Buyers accurate and complete copies of all
policies of insurance (and correspondence relating to coverage thereunder) to
which each Seller is a party or under which either Seller is or has been covered
at any time since January 1, 2001, a list of which is included in Part 3.20(a).
(b) Part 3.20(b) describes any self-insurance arrangement by or affecting either
Seller, including any reserves established thereunder.
(c) All policies of insurance for the year 2002 to which each Seller is a party
or that provide coverage to Seller:
(i) are valid, outstanding, and enforceable;
(ii) are issued by an insurer that is financially sound and reputable;
(iii) taken together, provide, in the reasonable opinion of each Seller,
adequate insurance coverage for the Assets and the operations of each Seller for
all risks normally insured against by a Person carrying on the same business or
businesses as each Seller in the same location; and
(iv) to Sellers' Knowledge are sufficient for compliance with all Legal
Requirements and Seller Contracts; and
(d) for any pending insurance claims, neither Seller has received (A) any
refusal of coverage or any notice that a defense will be afforded with
reservation of rights, or (B) any notice of cancellation or any other indication
that any policy of insurance is no longer in full force or effect or that the
issuer of any policy of insurance is not willing or able to perform its
obligations thereunder;
(e) each Seller has paid all premiums due, and has otherwise performed all of
its material obligations, under each policy of insurance to which it is a party
or that provides coverage to each Seller; and
(f) to Seller's Knowledge, each Seller has given notice to the insurer of all
claims that may be insured thereby.
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3.21 ENVIRONMENTAL MATTERS
Except as disclosed in Part 3.17(a), 3.17(b) or 3.21, to Sellers' Knowledge:
(a) Each Seller is, and at all times has been, in material compliance with, and
has not been and is not in violation of or liable under, any Environmental Law.
Neither Seller has any reasonable basis to expect, nor has any of them or any
other Person for whose conduct they are or may be held to be responsible
received, any actual or threatened order, notice, or other communication from
(i) any Governmental Body or private citizen or (ii) the current or prior owner
or operator of any Facilities, of any actual or potential violation or failure
to comply with any Environmental Law, or of any actual or threatened obligation
to undertake or bear the cost of any Environmental, Health and Safety
Liabilities with respect to any Facility or other property or asset (whether
real, personal, or mixed) in which either Seller has or had an interest, or with
respect to any property or Facility at or to which Hazardous Materials were
generated, manufactured, refined, transferred, imported, used, transported or
processed by either Seller or any other Person for whose conduct they are or
could reasonably be held responsible, or from which Hazardous Materials have
been transported, treated, stored, handled, transferred, disposed, recycled or
received.
(b) There are no pending or, threatened claims, Encumbrances, or other
restrictions of any nature, resulting from any Environmental, Health and Safety
Liabilities or arising under or pursuant to any Environmental Law with respect
to or affecting any Facility or any other property or asset (whether real,
personal, or mixed) in which either Seller has or had an interest.
(c) there is no basis to expect, nor has any of them, or any other Person for
whose conduct they are or may be held responsible, received, any citation,
directive, inquiry, notice, Order, summons, warning or other communication that
relates to Hazardous Activity, Hazardous Materials, or any alleged, actual, or
potential violation or failure to comply with any Environmental Law, or of any
alleged, actual, or potential obligation to undertake or bear the cost of any
Environmental, Health and Safety Liabilities with respect to any Facility or
property or asset (whether real, personal, or mixed) in which either Seller has
or had an interest, or with respect to any property or facility to which
Hazardous Materials generated, manufactured, refined, transferred, imported,
used, or processed by either Seller or any other Person for whose conduct it is
or could reasonably be held responsible, have been transported, treated, stored,
handled, transferred, disposed, recycled or received.
(d) Neither Seller, nor any other Person for whose conduct they are or may be
held responsible has any Environmental, Health and Safety Liabilities with
respect to any Facility.
(e) There are no Hazardous Materials present on or in the Environment at any
Facility, including any Hazardous Materials contained in barrels, above or
underground storage tanks, landfills, land deposits, dumps, equipment (whether
movable or fixed) or other containers, either temporary or permanent, and
deposited or located in land, water, sumps, or any other part of the Facility,
or incorporated into any structure therein or thereon except in compliance with
all applicable Environmental Laws. Neither Seller nor any Person for whose
conduct
34
they are or may be held responsible, or any other Person, has permitted
or conducted, or is aware of, any Hazardous Activity conducted with respect to
any Facility except in compliance with all applicable Environmental Laws.
(f) There has been no Release or, Threat of Release, of any Hazardous Materials
at or from any Facility or at any other location where any Hazardous Materials
were generated, manufactured, refined, transferred, produced, imported, used,
transported or processed from or by any Facility.
(g) Part 3.21(g) contains a complete and accurate list of material all reports,
studies, analyses, tests or monitoring data possessed or initiated by each
Seller or their affiliates pertaining to Hazardous Materials or Hazardous
Activities in, on, or under the Facilities, or concerning compliance by either
Seller with Environmental Laws. Each Seller has delivered to Buyers true and
complete copies and results of all such reports, studies, analyses, tests or
monitoring data.
3.22 EMPLOYEES
(a) Part 3.22(a) contains a materially complete and accurate list of the
following information for each employee of each Seller, including each employee
on leave of absence or layoff status: employer; name; job title; date of hiring
or engagement date of commencement of employment or engagement; current
compensation paid or payable and any change in compensation since January 1,
2001; sick and vacation leave that is accrued but unused; and service credited
for purposes of vesting and eligibility to participate under any Employee Plan,
or any other employee or director benefit plan.
(b) No retired employee or director of either Seller, nor any of their
respective dependents, currently receive benefits or are scheduled to receive
benefits in the future.
(c) Neither Seller has violated the Worker Adjustment and Retraining
Notification Act (the "WARN Act") or any similar state or local Legal
Requirement.
(d) To Sellers' Knowledge, no officer, director, agent or employee of each
Seller is bound by any Contract that purports to limit the ability of such
officer, director, agent or employee (i) to engage in or continue or perform any
conduct, activity, duties or practice relating to the business of either Seller
or (ii) to assign to either Seller or to any other Person any rights to any
invention, improvement, or discovery.
3.23 LABOR DISPUTES; COMPLIANCE
(a) Except as set forth in Part 3.23(b), to Sellers' Knowledge, each Seller has,
since January 1, 2001, complied in all material respects with all Legal
Requirements relating to employment practices, terms and conditions of
employment, equal employment opportunity, nondiscrimination, immigration, wages,
hours, benefits, collective bargaining and other similar requirements, the
payment of social security and similar Taxes, and occupational safety and
health. Neither Seller is liable for the payment of any Taxes, fines, penalties,
or
35
other material amounts, however designated, for failure to comply with any of
the foregoing Legal Requirements.
(b) Except as disclosed in Part 3.23(b), (i) neither Seller has been, and is not
now, a party to any collective bargaining agreement or other labor contract
since January 1, 2001; (ii) there has not been, there is not presently pending
or existing, and to Sellers' Knowledge there is not threatened, any strike,
slowdown, picketing, work stoppage or employee grievance process involving
either Seller; (iii) to each Seller's Knowledge no event has occurred or
circumstance exists that could reasonably provide the basis for any work
stoppage or other labor dispute; (iv) there is not pending or, to each Seller's
Knowledge, threatened against or affecting either Seller any Proceeding relating
to the alleged violation of any Legal Requirement pertaining to labor relations
or employment matters, including any charge or complaint filed with the National
Labor Relations Board or any comparable Governmental Body, and there is no
organizational activity or other labor dispute against or affecting either
Seller or the Facilities; (v) no application or petition for an election of or
for certification of a collective bargaining agent is pending; (vi) no grievance
or arbitration Proceeding exists that might have a material adverse effect upon
either Seller or the conduct of its business; (vii) there is no lockout of any
employees by either Seller, and no such action is contemplated by either Seller;
and (viii) to Sellers' Knowledge there is no charge of discrimination currently
pending or threatened against either Seller with the Equal Employment
Opportunity Commission or similar Governmental Body.
3.24 INTELLECTUAL PROPERTY ASSETS
(a) The term "Intellectual Property Assets" means all intellectual property
owned or licensed (as licensor or licensee) by each Seller in which each Seller
has a proprietary interest, including:
(i) Each Seller's name, all assumed fictional business names, trade names,
registered and unregistered trademarks, service marks, and applications
(collectively, "Marks");
(ii) all patents, patent applications and inventions and discoveries that may be
patentable (collectively, "Patents");
(iii) all registered and unregistered copyrights in both published works and
unpublished works (collectively, "Copyrights");
(iv) all know-how, trade secrets, confidential or proprietary information,
customer lists, Software, technical information, data, process technology,
plans, drawings and blue prints (collectively, "Trade Secrets"); and
(v) all rights in internet websites and internet domain names presently used by
each Seller (collectively "Net Names").
(b) Part 3.24(d), 3.24(e) and 3.24(h) contain a complete and accurate list in
all material
36
respects of all Seller Contracts relating to the Intellectual
Property Assets, except for any license implied by the sale of a product and
perpetual, paid-up licenses for commonly available Software programs with a
value of less than $2,500 under which either Seller is the licensee. There are
no outstanding and, to each Seller's Knowledge, no threatened material disputes
or disagreements with respect to any such Contract.
(c) (i) The Intellectual Property Assets are all those necessary for the
operation of each Seller's business as it is currently conducted. Each Seller is
the owner or licensee of all right, title and interest in and to each of its
respective Intellectual Property Assets, free and clear of all Encumbrances
except for Permitted Encumbrances, and has the right to use without payment to a
Third Party all of the Intellectual Property Assets.
(ii) The former and current employees of each Seller listed on Part 3.24(d) and
3.24(h) have executed written Contracts with each Seller that assign to each
Seller all rights to any inventions, improvements, discoveries, or information
relating to the business of such Seller.
(d) (i) Part 3.24(d) contains a complete and accurate list in all material
respects of all Patents.
(ii) Except as set forth in Part 3.24(d), to Sellers' Knowledge, all of the
issued Patents are valid and enforceable, and are not subject to any maintenance
fees or taxes falling due within ninety (90) days after the Closing Date.
(iii) Except as set forth in Part 3.24(d), no Patent has been or is now involved
in any interference, reissue, reexamination, or opposition Proceeding. To each
Seller's Knowledge, there is no interfering patent or patent application of any
Third Party.
(iv) Except as set forth in Part 3.24(d), to Sellers' Knowledge, (A) no Patent
is infringed or has been challenged or threatened in any way and (B) none of the
products manufactured or sold, nor any process or know-how used, by either
Seller infringes or is alleged to infringe any patent or other proprietary right
of any other Person.
(e) (i) Part 3.24(e) contains a complete and accurate list in all material
respects of all Marks.
(ii) Except as set forth in Part 3.24(e), all Marks that have been registered
with the United States Patent and Trademark Office, are valid and enforceable
and are not subject to any maintenance fees or taxes falling due within ninety
(90) days after the Closing Date.
(iii) Except as set forth in Part 3.24(e), to Sellers' Knowledge, no Mark has
been and is now involved in any opposition, invalidation or cancellation
Proceeding and no such action is threatened with respect to any of the Marks.
37
(iv) Except as set forth in Part 3.24(e), to Sellers' Knowledge, there is no
interfering trademark or trademark application of any other Person.
(v) Except as set forth in Part 3.24(e), to Sellers' Knowledge, no Mark is
infringed or has been challenged or threatened in any way. To Sellers'
Knowledge, none of the Marks used by either Seller infringes or is alleged to
infringe any trade name, trademark or service mark of any other Person.
(f) Sellers have no registered Copyrights.
(g) (i) With respect to each Trade Secret, to Sellers' Knowledge, each Seller
has taken all reasonable precautions to protect the secrecy, confidentiality and
value of all Trade Secrets.
(ii) To Sellers' Knowledge, the Trade Secrets have not been used, divulged or
appropriated either for the benefit of any Person (other than Sellers) or to the
detriment of either Seller. To Sellers' Knowledge, no Trade Secret is subject to
any adverse claim or has been challenged or threatened in any way or infringes
any intellectual property right of any other Person.
(h) (i) Part 3.24(h) contains a complete and accurate list in all material
respects of all Net Names.
(ii) Except as set forth in Part 3.24(h), all Net Names of each Seller have been
registered in the name of such Seller.
(iii) Except as set forth in Part 3.24(h), to Sellers' Knowledge, no Net Name of
either Seller has been or is now involved in any dispute, opposition,
invalidation or cancellation Proceeding and no such action is threatened with
respect to any Net Name.
(iv) Except as set forth in Part 3.24(h), to Sellers' Knowledge, no Net Name is
infringed or has been challenged, interfered with or threatened in any way nor
does, to Sellers' Knoweldge, any Net Name infringe another's rights in a mark.
3.25 RELATIONSHIPS WITH RELATED PERSONS
Part 3.25 contains a complete and accurate list of all material transactions
between either Seller and any Related Person. Except as disclosed in Part 3.25,
all such transactions are at substantially prevailing market prices and on
substantially prevailing market terms.
3.26 BROKERS OR FINDERS
Neither Seller nor any of its Representatives have incurred any obligation or
liability, contingent or otherwise, for brokerage or finders' fees or agents'
commissions or other similar payments in connection with the sale of either
Seller's business or the Assets or the Contemplated
38
Transactions.
3.27 SOLVENCY
(a) Neither Seller is now insolvent, and will not be rendered insolvent by any
of the Contemplated Transactions. As used in this Section, "insolvent" means
that the sum of the debts and other probable Liabilities of each Seller exceeds
the present fair saleable value of each Seller's assets.
(b) Immediately after giving effect to the consummation of the Contemplated
Transactions, (i) each Seller will be able to pay its Liabilities as they become
due in the usual course of its business, (ii) neither Seller will have
unreasonably small capital with which to conduct its present or proposed
business, and (iii) each Seller will have assets (calculated at fair market
value) that exceed its Liabilities. The cash available to each Seller, after
taking into account all other anticipated uses of the cash, will be sufficient
to pay all such debts and judgments promptly in accordance with their terms.
3.28 DISCLOSURE
No representation or warranty or other statement made by either Seller in this
Agreement, the Disclosure Letter, any Update, the certificates delivered
pursuant to Section 2.7(a) or otherwise in connection with the Contemplated
Transactions contains any untrue statement of a material fact or omits to state
a material fact necessary to make any of them, in light of the circumstances in
which it was made, not misleading.
4. REPRESENTATIONS AND WARRANTIES OF BUYERS
Buyers, jointly and severally, represent and warrant to Sellers as follows:
4.1 ORGANIZATION AND GOOD STANDING
Each Buyer is a limited liability company duly organized, validly existing, and
in good standing under the laws of the State of Nevada, with full corporate
power and authority to conduct its business as it is now being conducted.
4.2 AUTHORITY; NO-CONFLICT
(a) This Agreement constitutes the legal, valid, and binding obligation of
Buyers, enforceable against each Buyer in accordance with its terms. Upon the
execution and delivery by each Buyer, as applicable, of the Assignment and
Assumption Agreement, the Assignment and Assumption of Lease Agreement, the
Escrow Agreement, the AN Supply Agreement, the Nitric Acid Supply Agreement, the
Technical Services Agreement, the Transitional Services Agreement, the Use and
License Agreement and each other agreement to be executed or delivered by Buyers
at Closing (collectively, the "Buyers' Closing Documents"), each of the Buyers'
Closing Documents will constitute the legal, valid and binding obligation of
each Buyer, enforceable against each Buyer in accordance with its
39
respective
terms. Each Buyer has the requisite corporate power and authority to execute and
deliver this Agreement and the Buyers' Closing Documents and to perform its
obligations under this Agreement and the Buyers' Closing Documents, and such
action has been duly authorized by all necessary corporate action.
(b) Neither the execution and delivery of this Agreement by Buyers nor the
consummation or performance of any of the Contemplated Transactions by Buyers
will give any Person the right to prevent, delay or otherwise interfere with any
of the Contemplated Transactions pursuant to:
(i) any provision of Buyers' Governing Documents;
(ii) any resolution adopted by the managers or the members of any Buyer;
(iii) any Legal Requirement or Order to which, to the Knowledge of Buyers,
Buyers may be subject; or
(iv) any Contract to which Buyers are a party or by which Buyers may be bound.
Buyers are not and will not be required to obtain any Consent from any Person in
connection with the execution and delivery of this Agreement or the consummation
or performance of any of the Contemplated Transactions.
4.3 CERTAIN PROCEEDINGS
There is no pending Proceeding that has been commenced against Buyer and that
challenges, or may have the effect of preventing, delaying, making illegal or
otherwise interfering with, any of the Contemplated Transactions. To the
Knowledge of Buyers, no such Proceeding has been threatened.
4.4 BROKERS OR FINDERS
Neither Buyers nor any of their Representatives have incurred any obligation or
liability, contingent or otherwise, for brokerage or finders' fees or agents'
commissions or other similar payment in connection with the Contemplated
Transactions.
5. COVENANTS OF SELLERS PRIOR TO CLOSING
5.1 ACCESS AND INVESTIGATION
Subject to the Confidentiality Agreement dated May 15, 2002, and the Letter of
Intent dated September 3, 2002, relating to the Contemplated Transactions,
between the date of this Agreement and the Closing Date, and upon reasonable
advance notice received from Buyers, Sellers shall (and Shareholders shall cause
Sellers to) (a) afford Buyers, David Taylor, Gerald Diamond, David Chaffe and
Buyers legal counsel, tax, financial and environmental advisors, and prospective
lenders (collectively, "Buyer Group") reasonable access, during regular business
hours, to (i) the following
40
employees of Sellers: Bill Manion, Paul Keeling,
Oldrich Machaek, Clive Whiteside and Bob LeBlanc, and (ii) each Seller's
properties (including subsurface testing upon the written consent of Sellers),
Contracts, Governmental Authorizations, books and Records and other documents
and data relating to the Facilities, such rights of access to be exercised in a
manner that does not unreasonably interfere with the operations of Sellers; (b)
furnish Buyer Group with copies of all such Contracts, Governmental
Authorizations, books and Records and other existing documents and data as
Buyers may reasonably request with respect to the Assets or business of Sellers;
(c) furnish Buyer Group with such additional financial, operating and other
relevant data and information as Buyers may reasonably request regarding the
Sellers; and (d) otherwise cooperate and assist, to the extent reasonably
requested by Buyers, with Buyers investigation of the properties, assets and
financial condition related to Seller. In addition, Buyers shall have the right
to have the Real Property and Tangible Personal Property inspected by Buyer
Group, at Buyers' sole cost and expense, for purposes of determining the
physical condition and legal characteristics of the Real Property and Tangible
Personal Property. In the event subsurface or other testing is recommended by
any of Buyer Group, Buyers shall be permitted to have the same performed upon
the written consent of Sellers', at Buyers' expense, such consent not to be
unreasonably withheld.
5.2 OPERATION OF THE BUSINESS OF SELLERS
Between the date of this Agreement and the Closing, each Seller shall (and
Shareholders shall cause Sellers to):
(a) conduct its business only in the Ordinary Course of Business;
(b) except as otherwise directed by Buyers in writing, and without making any
commitment on Buyers' behalf, use its Best Efforts to preserve intact its
current business organization, keep available the services of its officers,
employees and agents and maintain its relations and good will with suppliers,
customers, landlords, creditors, employees, agents and others having business
relationships with it;
(c) confer with Buyers prior to implementing operational decisions of a material
nature that are not in the Ordinary Course of Business;
(d) otherwise report periodically to Buyers concerning the status of its
business, operations and finances if so requested by Buyers;
(e) notify Buyers of any material changes in management personnel;
(f) maintain the Assets in a state of repair and condition as exists at the date
of this Agreement (normal wear and tear excepted) and is consistent with the
requirements and normal conduct of such Seller's business;
(g) use Best Efforts to keep in full force and effect, without amendment, all
material rights relating to such Seller's business;
(h) use Best Efforts to comply in all material respects with all Legal
Requirements and
41
contractual obligations applicable to the operations of such
Seller's business;
(i) continue in full force and effect the insurance coverage under the policies
set forth in Part 3.20(a) and 3.20(b) or substantially equivalent policies
through Closing;
(j) except as required to comply with ERISA or to maintain qualification under
Section 401(a) of the Code, not amend, modify or terminate any Employee Plan
without advising Buyers;
(k) use Best Efforts to cooperate with Buyers and assist Buyers in identifying
the Governmental Authorizations required by Buyers to operate the business from
and after the Closing Date and either conditionally transferring existing
Governmental Authorizations of Seller to Buyers, where permissible, or obtaining
new Governmental Authorizations for Buyers;
(l) use Best Efforts to consummate the Contemplated Transactions; and
(m) maintain all books and Records of such Seller relating to such Seller's
business in the Ordinary Course of Business.
5.3 NEGATIVE COVENANT
Except as otherwise expressly permitted herein, between the date of this
Agreement and the Closing Date, neither Seller shall (and Shareholders shall not
permit either Seller to), without the prior written Consent of Buyers, (a) take
any affirmative action, to cause the changes or events listed in Section 3.14
would be likely to occur; (b) make any modification to any material Contract or
Governmental Authorization except in the Ordinary Course of Business; (c) allow
the levels of raw materials, supplies or other materials included in the
Inventories to vary materially from the levels customarily maintained; or (d)
enter into any compromise or settlement of any litigation, proceeding or
governmental investigation relating to the Assets or the Assumed Liabilities
except in the Ordinary Course of Business.
5.4 REQUIRED APPROVALS
As promptly as practicable after the date of this Agreement, each Seller shall
use Best Efforts to make all filings required by Legal Requirements to be made
by it in order to consummate the Contemplated Transactions. Each Seller shall
also reasonably cooperate with Buyers and their Representatives with respect to
all filings that Buyers elects to make (including with respect to any licenses
that Buyers deem necessary or desirable to operate the business after Closing),
or pursuant to Legal Requirements, shall be required to make in connection with
the Contemplated Transactions. Each Seller and each Buyer shall also cooperate
with the other in obtaining all Material Consents.
5.5 NOTIFICATION; UPDATES
Between the date of this Agreement and the Closing Date, the Sellers will have
the right and obligation to promptly notify Buyers in writing (each such
notification, an "Update") if the Sellers
42
becomes aware of any fact or condition
that constitutes a Breach of any of Sellers' representations and warranties as
of the date of this Agreement, or if the Sellers' Representative becomes aware
of the occurrence after the date of this Agreement of any fact or condition that
would (except as expressly contemplated by this Agreement) constitute a Breach
of any such representation or warranty had such representation or warranty been
made as of the time of occurrence or discovery of such fact or condition or if
the Disclosure Letter otherwise needs to be updated. Should any such fact or
condition require an Update, then Sellers shall be permitted to provide an
Update as the Sellers deems necessary; provided, however, Sellers shall not be
entitled to provide an Update for any fact or condition in existence prior to
the date hereof that either Seller intentionally failed to include on the
Disclosure Schedule as of the date hereof; and provided, further, Buyers shall
have the termination rights provided in Section 9.1(k) unless the Breach is
cured or remedied prior to Closing or Buyers accept the representation or
warranty as modified. Notwithstanding anything to the contrary contained herein,
each Update shall be deemed to be an exception to Sellers' representations and
warranties, and an amendment to the Disclosure Letter, for all purposes of this
Agreement. Such delivery shall not affect any rights of Buyers under Section 9.2
and Article 11 unless the Breach is cured or remedied prior to Closing or Buyers
accept in writing the representation or warranty as modified. During the same
period, Sellers and Shareholders also shall promptly notify Buyers of the
occurrence of any Breach of any covenant of either Seller in this Article 5 or
of the occurrence of any event that will likely make the satisfaction of the
conditions in Article 7 impossible or unlikely.
5.6 NO NEGOTIATION
Until such time as this Agreement shall be terminated pursuant to Section 9.1,
neither Seller, neither Shareholder nor LSB shall negotiate with any Person
(other than Buyers) relating to any business combination transaction involving
either Seller, including the sale of either Seller's stock, or the sale of
either Seller's business or any of the Assets (other than in the Ordinary Course
of Business).
5.7 BEST EFFORTS
Sellers, Shareholders and LSB shall use their respective Best Efforts to cause
the conditions in Article 7 and Section 8.3 to be satisfied.
5.8 INTERIM FINANCIAL STATEMENTS
Until the Closing Date, Sellers shall deliver to Buyers within fifteen days
after the end of each month a copy of the monthly financial statements for such
month prepared in a manner and containing information consistent with Seller's
current practices and certified by each Seller's chief financial officer as to
compliance with Section 3.3.
5.9 CHANGE OF NAME
On or before the Closing Date, each Seller shall (a) amend its Governing
Documents and take all other actions necessary to change its name to one
sufficiently dissimilar to such Seller's present name, in Buyers' judgment, to
avoid confusion and (b) take all reasonable actions requested
43
by Buyers to
enable Buyers or their affiliates to change their names to the Sellers' present
names.
5.10 PAYMENT OF LIABILITIES
Each Seller shall pay or otherwise satisfy in the Ordinary Course of Business
all of its Liabilities and obligations. Buyers and Sellers hereby waive
compliance with the bulk-transfer provisions of the Uniform Commercial Code (or
any similar law) ("Bulk Sales Laws") in connection with the Contemplated
Transactions.
6. COVENANTS OF BUYERS PRIOR TO CLOSING
6.1 REQUIRED APPROVALS
As promptly as practicable after the date of this Agreement, Buyers shall make,
or cause to be made, all filings required by Legal Requirements to be made by it
to consummate the Contemplated Transactions. Buyers also shall cooperate, and
cause any Related Person to cooperate, with Sellers, Shareholders and LSB (a)
with respect to all filings Sellers, Shareholders and LSB shall be required by
Legal Requirements to make and (b) in obtaining all Consents identified in Part
3.2(c); provided, however, that Buyers shall not be required to dispose of or
make any change to its business, expend any material funds or incur any other
burden in order to comply with this Section 6.1. Buyers shall also take all
reasonable actions to obtain any licenses that Buyers deem necessary or
desirable to operate the business after Closing; provided, further, that Buyers
shall coordinate with Sellers and obtain Sellers' prior consent with respect to
all communications with the ATF in respect of obtaining any such licenses from
the ATF.
6.2 BEST EFFORTS
Buyers shall use their Best Efforts to cause the conditions in Section 7.3 and
Article 8 to be satisfied.
6.3 ENVIRONMENTAL DUE DILIGENCE
As promptly as practicable after the date of this Agreement and to the extent
not previously proposed by Buyers and approved by Sellers, Buyers shall propose
such environmental studies and investigations as Buyers deem necessary of the
Facilities and the Real Property at Buyers' expense. Buyers shall obtain prior
written approval from Sellers as to the scope and timing of any such additional
environmental studies and investigations prior to beginning such studies and
investigations. Buyers will use their Best Efforts to complete all environmental
studies and investigations prior to the Closing.
7. CONDITIONS PRECEDENT TO BUYERS' OBLIGATION TO CLOSE
Buyers' obligation to purchase the Assets and to take the other actions required
to be taken by Buyers at the Closing is subject to the satisfaction, at or prior
to the Closing, of each of the following conditions (any of which may be waived
by Buyers, in whole or in part):
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7.1 ACCURACY OF REPRESENTATIONS
All of Sellers' and EDC's representations and warranties in this Agreement
(considered collectively), and each of these representations and warranties
(considered individually), shall have been accurate in all respects as of the
date of this Agreement, and shall be accurate in all respects as of the time of
the Closing as if then made, after giving effect to all Updates that were
delivered by Sellers to Buyers prior to the Closing Date in accordance with
Section 5.5.
7.2 SELLERS' PERFORMANCE
All of the covenants and obligations that Sellers, Shareholders and LSB are
required to perform or to comply with pursuant to this Agreement at or prior to
the Closing (considered collectively), and each of these covenants and
obligations (considered individually), shall have been duly performed and
complied with in all material respects.
7.3 CONSENTS
Each of the Consents identified in Exhibit 7.3 (the "Material Consents") shall
have been obtained and shall be in full force and effect.
7.4 ADDITIONAL DOCUMENTS
Sellers, Shareholders and LSB shall have caused the documents and instruments
required by Section 2.7(a) and the following documents to be delivered (or
tendered subject only to Closing) to Buyers:
(a) an opinion of David Shear, Esq., general counsel of Sellers, Shareholders
and LSB, dated the Closing Date, in the form of Exhibit 7.4(a);
(b) If requested by Buyers, any Consents or other instruments that may be
required to permit Buyers' qualification in each jurisdiction in which either
Seller is licensed or qualified to do business as a foreign corporation under
the name "Slurry Explosive Corporation" or "Universal Tech Corporation" or any
derivative thereof;
(c) payoff letters from both of the Lenders setting forth the amounts to be paid
to the Lenders in accordance with Section 2.3;
(d) Releases of all Encumbrances on the Assets, other than Permitted
Encumbrances, including releases of each mortgage of record and reconveyances of
each deed of trust with respect to each parcel of real property included in the
Assets;
(e) Certificates dated as of a date not earlier than the 15 days prior to the
Closing as to the good standing of each Seller and payment of all applicable
state franchise and property Taxes by each Seller, executed by the appropriate
officials of the State of Oklahoma and each jurisdiction in which each Seller is
licensed or qualified to do business as a foreign corporation as specified in
Part 3.1 ; and
45
(f) Such other documents as Buyers may reasonably request for the purpose of:
(i) evidencing the accuracy of any of each Seller's representations and
warranties,
(ii) evidencing the performance by each Seller, each Shareholder and LSB of, or
the compliance by each Seller, each Shareholder and LSB with, any covenant or
obligation required to be performed or complied with by each Seller, each
Shareholder and LSB, as the case may be,
(iii) evidencing the satisfaction of any condition referred to in this Article
7, or
(iv) otherwise effecting the intent of this Agreement and consummating the
Contemplated Transactions.
7.5 NO PROCEEDINGS
There shall not have been commenced or threatened against Buyers, or against any
Related Person of Buyers, any Proceeding (a) involving any challenge to, or
seeking Damages or other relief in connection with, any of the Contemplated
Transactions or (b) that may have the effect of preventing, delaying, making
illegal, imposing limitations or conditions on or otherwise interfering with any
of the Contemplated Transactions.
7.6 NO-CONFLICT
Neither the consummation nor the performance of any of the Contemplated
Transactions will, directly or indirectly (with or without notice or lapse of
time), contravene, or conflict with or result in a violation of or cause Buyers
or any Related Person of Buyers to suffer any adverse consequence under (a) any
applicable Legal Requirement or Order or (b) any Legal Requirement or Order that
has been published, introduced or otherwise proposed by or before any
Governmental Body, excluding Bulk Sales Laws.
7.7 EDC AGREEMENTS; SEMC AGREEMENTS
(a) El Dorado Chemical Company ("EDC") shall have entered into the following
agreements with Buyers in form and substance satisfactory to Buyers:
(i) a supply agreement with respect to Low Density Ammoniun Nitrate ("LDAN"),
and Ammonium Nitrate Solution ("ANS") manufactured by EDC (the "AN Supply
Agreement"), which will provide that, among other things, during the initial
term of that certain pre-existing supply agreement between EDC and Orica USA
Inc. ("Orica") dated November 1, 2001, EDC shall agree to supply Buyers'
requirements of LDAN and ANS at prices equal to the amounts paid by EDC to Orica
for LDAN and ANS available for resale by EDC to SEC, provided that Buyers shall
take LDAN and ANS in substantially equal monthly quantities and on a basis
46
pari
passu with EDC's deliveries of LDAN, HDAN and ANS to Orica; and
(ii) a supply agreement with respect to nitric acid (the
"Nitric Acid Supply
Agreement"), which will provide that, among other things, EDC shall supply
Buyers' requirements F.O.B. EDC's El Dorado, Arkansas plant at EDC's cost plus
$10.00 per ton.
(b) SEMC shall have entered into the Assignment and Assumption of Lease
Agreement in the form attached as Exhibit 7.7(b).
7.8 ORICA NONCOMPETITION LETTER AGREEMENT
Buyers shall executed and delivered the Orica Noncompetition Letter Agreement in
the form attached as Exhibit 7.8.
7.9 GOVERNMENTAL AUTHORIZATIONS
Buyers shall have received such Governmental Authorizations as are necessary or
desirable to allow Buyers to operate the Assets from and after the Closing.
7.10 ENVIRONMENTAL REPORT
Buyers shall have received an environmental site assessment report with respect
to the Facilities, which report shall be acceptable in form and substance to
Buyers in their sole discretion.
7.11 EMPLOYEES
(a) Those key employees of Sellers identified on Exhibit 7.11, or substitutes therefor who shall be acceptable to Buyers, in their sole discretion, shall have
accepted employment with Buyers with such employment to commence on and as of
the Closing Date.
(b) Substantially all other employees of Sellers shall be available for hiring
by Buyers, in their sole discretion, on and as of the Closing Date.
7.12 FINANCING
Buyers shall have obtained, on terms and conditions satisfactory to them, all of
the financing they need in order to consummate the Contemplated Transactions and
to fund the working capital requirements of the Buyers after the Closing.
7.13 DUE DILIGENCE; ENVIRONMENTAL QUESTIONNAIRE
Buyers shall be satisfied, in their sole discretion, with the results of their
due diligence investigation, including the environmental investigation
contemplated by Section 6.3. Sellers shall have delivered an Environmental Site
Assessment Questionnaire in the form attached as Exhibit 7.13.
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7.14 NO MATERIAL ADVERSE EFFECT
There shall have been no material adverse change from September 3, 2002, up to
and including the Closing Date in the Assets, Assumed Liabilities, or the
operations or financial condition of either Seller.
8. CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE
Sellers' obligation to sell the Assets and to take the other actions required to
be taken by Sellers at the Closing is subject to the satisfaction, at or prior
to the Closing, of each of the following conditions (any of which may be waived
by Sellers, in whole or in part):
8.1 ACCURACY OF REPRESENTATIONS
All of Buyers' representations and warranties in this Agreement (considered
collectively), and each of these representations and warranties (considered
individually), shall have been accurate in all material respects as of the date
of this Agreement and shall be accurate in all material respects as of the time
of the Closing as if then made.
8.2 BUYERS' PERFORMANCE
All of the covenants and obligations that Buyers are required to perform or to
comply with pursuant to this Agreement at or prior to the Closing (considered
collectively), and each of these covenants and obligations (considered
individually), shall have been performed and complied with in all material
respects.
8.3 CONSENTS
Each of the Consents identified in Exhibit 8.3 shall have been obtained and
shall be in full force and effect.
8.4 ADDITIONAL DOCUMENTS
Buyers shall have caused the documents and instruments required by Section
2.7(b) and the following documents to be delivered (or tendered subject only to
Closing) to Sellers:
(a) an opinion of Jackson Walker L.L.P., dated the Closing Date, in the form of
Exhibit 8.4;
(b) AN Supply Agreement, the Nitric Acid Supply Agreement and the Orica
Noncompetition Agreement;
(c) Certificates dated as of a date not earlier than 15 days prior to the
Closing as to the good standing of Buyers executed by the appropriate officials
of the State of Nevada; and
48
(d) such other documents as Sellers may reasonably request for the purpose of:
(i) evidencing the accuracy of any representation or warranty of Buyers,
(ii) evidencing the performance by Buyers of, or the compliance by Buyers with,
any covenant or obligation required to be performed or complied with by Buyers,
(iii) evidencing the satisfaction of any condition referred to in this Article
8, or
(iv) otherwise effecting the intent of this Agreement and consummating the
Contemplated Transactions.
8.5 NO INJUNCTION
There shall not be in effect any Legal Requirement or any injunction or other
Order that (a) prohibits, or would cause material adverse consequences to
Sellers in the event of, the consummation of the Contemplated Transactions and
(b) has been proposed, adopted or issued, or has otherwise become effective by
or before any Governmental Body.
8.6 NO PROCEEDINGS
There shall not have been commenced or threatened against Sellers, or against
any Related Person of Sellers, any Proceeding (a) involving any challenge to, or
seeking Damages or other relief in connection with, any of the Contemplated
Transactions or (b) that may have the effect of preventing, delaying, making
illegal, imposing limitations or conditions on or otherwise interfering with any
of the Contemplated Transactions.
8.7 LENDER APPROVAL
Sellers, Shareholders and LSB shall have obtained, if necessary, approval from
their existing lenders, including the Senior Lenders, of the Contemplated
Transactions.
9. TERMINATION
9.1 TERMINATION EVENTS
By notice given prior to or at the Closing, subject to Section 9.2, this
Agreement may be terminated as follows:
(a) by Buyers if a Breach of any provision of this Agreement has been committed
by either Seller, either Shareholder or LSB and such Breach has not been (i)
cured within 5 Business Days of such Breach, or (ii) waived by Buyers;
(b) by either Seller if a Breach of any provision of this Agreement has been
committed by any Buyer and such Breach has not been (i) cured within 5 Business
Days of such Breach, or (ii) waived by Sellers;
49
(c) by Buyers if any condition in Article 7 has not been satisfied as of the
date specified for Closing in the first sentence of Section 2.6 or if
satisfaction of such a condition by such date is or becomes impossible (other
than through the failure of Buyers to comply with its obligations under this
Agreement), and Buyers have not waived such condition on or before such date;
(d) by either Seller if any condition in Article 8 has not been satisfied as of
the date specified for Closing in the first sentence of Section 2.6 or if
satisfaction of such a condition by such date is or becomes impossible (other
than through the failure of Sellers, Shareholders or LSB to comply with their
obligations under this Agreement), and Sellers have not waived such condition on
or before such date;
(e) by mutual consent of Buyers and Sellers, Shareholders and LSB;
(f) by Buyers if the Closing has not occurred on or before December 15, 2002, or
such later date as the parties may agree upon, unless the Buyers are in Breach
of this Agreement;
(g) by either Seller if the Closing has not occurred on or before December 15,
2002, or such later date as the parties may agree upon, unless the Sellers,
Shareholders or LSB are in Breach of this Agreement;
(h) by Buyers if the amount of Unusable Inventory, is unreasonably high in
Buyers' opinion;
(i) by either Seller if the amount of Unusable Inventory is unreasonably high in
either Sellers' opinion;
(j) by Buyers if Sellers do not approve any environmental studies or
investigations proposed by Buyers pursuant to Section 6.3; or
(k) by Buyers, if within five (5) Business Days of receipt of any Update, Buyers
notify Sellers of their decision to terminate this Agreement as a result of the
information contained in the Update.
9.2 EFFECT OF TERMINATION
Each party's right of termination under Section 9.1 is in addition to any other
rights it may have under this Agreement or otherwise, and the exercise of such
right of termination will not be an election of remedies. If this Agreement is
terminated pursuant to Section 9.1, all obligations of the parties under this
Agreement will terminate, except that all confidentiality requirements and the
obligations of the parties in this Section 9.2 and Article 12 (except for those
in Section 12.5) will survive; provided, however, that if this Agreement is
terminated because of a Breach of this Agreement by the non-terminating party or
because one or more of the conditions to the terminating party's obligations
under this Agreement is not satisfied as a result of the party's failure to
comply with its obligations under this Agreement, the terminating party's right
to pursue all legal remedies will survive such termination unimpaired.
Additionally, if Buyers elect not to proceed to Closing pursuant to their rights
hereunder, then for a period of two years commencing with the date such decision
is communicated to Sellers in writing, neither Buyer nor any person or entity
affiliated with Buyers will hire, retain, or consult with any person who is an
employee of Sellers as of September 2, 2002.
10. ADDITIONAL COVENANTS
10.1 EMPLOYEES AND EMPLOYEE BENEFITS
(a) Information on Active Employees. For the purpose of this Agreement, the term
"Active Employees" shall mean all employees actively employed immediately before
the Closing Date by each Seller exclusively in each Seller's business as
currently conducted.
(b) Employment of Active Employees by Buyers
(i) Buyers are not obligated to hire any Active Employee but may interview any
or all Active Employees at a reasonable time mutually acceptable to Buyers and
Sellers but not sooner than 10 days prior to the anticipated Closing Date.
Buyers will promptly provide each Seller with a list of Active Employees to whom
Buyers have made an offer of employment that has been accepted to be effective
on the Closing Date (the "Hired Active Employees"). Subject to Legal
Requirements, Buyers will have reasonable access to the Facilities and personnel
Records of each Seller for the purpose of preparing for and conducting
employment interviews with any or all Active Employees and will conduct the
interviews as expeditiously as possible prior to the Closing Date. Effective
immediately before the Closing, each Seller will terminate the employment of all
of its Hired Active Employees.
(ii) Neither Seller, neither Shareholder, nor LSB nor their Related Persons
shall solicit (a) the continued employment of any Active Employee (unless and
until Buyers have informed the applicable Seller in writing that the particular
Active Employee will not receive any employment offer from Buyers) or (b) the
employment of any Hired Active Employee after the Closing for the period ending
on the fifth anniversary of Closing. Buyers shall inform each Seller promptly of
the identities of those Active Employees to whom they will not make employment
offers.
(iii) It is understood and agreed that (A) Buyer's expressed intention to extend
offers of employment as set forth in this section shall not constitute any
commitment, Contract or understanding (expressed or implied) of any obligation
on the part of any Buyer to a post-Closing employment relationship of any fixed
term or duration or upon any terms or conditions other than those that any Buyer
may establish pursuant to individual offers of employment, and (B) employment
offered by Buyers is "at will" and may be terminated by Buyers or by an employee
at any time for any reason
51
(subject to any written commitments to the contrary
made by Buyers or an employee and Legal Requirements). Nothing in this Agreement
shall be deemed to prevent or restrict in any way the right of any Buyer to
terminate, reassign, promote or demote any of the Hired Active Employees after
the Closing or to change adversely or favorably the title, powers, duties,
responsibilities, functions, locations, salaries, other compensation or terms or
conditions of employment of such employees.
(c) Salaries and Benefits.
(i) Each Seller shall be responsible for (A) the payment of all wages and other
remuneration due to Active Employees with respect to their services as employees
of each Seller through the close of business on the Closing Date, including, if
any, pro rata bonus payments and all vacation pay earned prior to the Closing
Date; and (B) the payment of any termination or severance payments and the
provision of health plan continuation coverage in accordance with the
requirements of COBRA and Section 601 through 608 of ERISA.
(ii) Each Seller shall be liable for any claims made or incurred by their
respective Active Employees and their beneficiaries through the Closing Date
under the Employee Plans. For purposes of the immediately preceding sentence, a
charge will be deemed incurred, in the case of hospital, medical or dental
benefits, when the services that are the subject of the charge are performed
and, in the case of other benefits (such as disability or life insurance), when
an event has occurred or when a condition has been diagnosed which entitles the
employee to the benefit.
(iii) With respect to Hired Active Employees, Buyers shall immediately after
Closing enroll such employees in Buyers' standard health and benefit plans
(waiving any waiting periods) and recognize past service with Sellers' for
purposes of determining entitlement to vacation benefits. If, at any time after
the Closing Date, any Buyer terminates the employment of any of the Hired Active
Employees, then such Buyer shall be solely responsible for all severance costs
and expenses arising as a result of such termination, based upon the number of
years of employment of any such individuals with such Buyer, either Seller and
all predecessor corporations of either Seller, to the same extent as Sellers
would have been legally or contractually obligated, or would have provided in a
manner consistent with past practice (to the extent such Buyer is made aware of,
and agrees with, such past practice).
(iv) Hired Active Employees shall cease to be eligible to make pretax
contributions to Seller's health care spending account plan and to Seller's
dependent care assistance plan effective as of the Closing Date. Notwithstanding
the foregoing, each of such plans shall reimburse Hired Active Employees for
claims incurred during the entire calendar year in which the Closing Date occurs
up to the amount of the balance in each individual Hired Active Employee's
respective plan accounts as of the Closing Date. It is the intent of the parties
as reflected in this subsection that Seller's health care spending account plan
and dependent care assistance plan
52
shall be administered in accordance with
Revenue Ruling 2002-32 to the fullest extent legally permissible in order to
avoid a forfeiture of each Hired Active Employee's respective plan accounts as
of the Closing Date; provided that nothing in this subsection is intended to
permit such accounts to be carried over beyond the end of the plan year in which
the Closing Date occurs other than as may be necessary for the administration
and payment of claims incurred as of the last day of such plan year.
(d) General Employee Provisions.
(i) Each Seller and each Buyer shall give any notices required by Legal
Requirements and take whatever other actions with respect to the plans, programs
and policies described in this Section 10.1 as may be necessary to carry out the
arrangements described in this Section 10.1.
(ii) Sellers shall provide Buyers with completed I-9 forms and attachments with
respect to all Hired Active Employees, except for such employees as Sellers
shall certify in writing to Buyers are exempt from such requirement.
(iii) Buyers shall not have any responsibility, liability or obligation, whether
to Active Employees, Hired Active Employees, former employees, their
beneficiaries or to any other Person, with respect to any employee benefit
plans, practices, programs or arrangements (including the establishment,
operation or termination thereof and the notification and provision of COBRA
coverage extension) maintained by Sellers.
10.2 PAYMENT OF ALL TAXES RESULTING FROM SALE OF ASSETS BY SELLER
Sellers shall pay in a timely manner all Taxes resulting from or payable in
connection with the sale of the Assets pursuant to this Agreement, regardless of
the Person on whom such Taxes are imposed by Legal Requirements. Sellers shall
deliver to Buyers, within ninety days of the Closing Date, certificates from the
Oklahoma Tax Commission and the Kansas Department of Revenue as to the payment
or withholding of such Taxes.
10.3 PAYMENT OF OTHER RETAINED LIABILITIES; PERFORMANCE
In addition to payment of Taxes pursuant to Section 10.2, Sellers shall pay, or
make adequate provision for the payment, in full of all of the Retained
Liabilities and other Liabilities of Sellers under this Agreement, including
those listed on Exhibit 10.3. Seller also hereby undertakes to perform all
Seller Contracts that are included in the Excluded Assets.
10.4 RESTRICTIONS ON SELLERS DISSOLUTION
Sellers shall not dissolve until after November 1, 2006.
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10.5 REMOVING EXCLUDED ASSETS
On or before the Closing Date or no later than 30 days thereafter, Sellers shall
remove all Excluded Assets and Unusable Inventory from all Facilities and other
Real Property to be occupied by Buyers. Prior to such time, Buyers shall
cooperate with Sellers to arrange for the storage and disposal of any Unusable
Inventory so as to minimize the cost of such storage and disposal to Sellers.
Such removal shall be done in such manner as to avoid any damage to the
Facilities and other properties to be occupied by Buyers and any disruption of
the business operations to be conducted by Buyers after the Closing. Any damage
to the Assets or to the Facilities resulting from such removal shall be paid by
Sellers at the Closing or, in the event that such damage occurs upon removal
after Closing, promptly after such removal. Should Sellers fail to remove the
Excluded Assets and the Unusable Inventory as required by this Section, Buyers
shall have the right, but not the obligation, (a) to remove the Excluded Assets
and the Unusable Inventory at Sellers' sole cost and expense; (b) to store the
Excluded Assets and the Unusable Inventory and to charge Sellers all storage
costs associated therewith; or (c) to exercise any other right or remedy
conferred by this Agreement or otherwise available at law or in equity. Sellers
shall promptly reimburse Buyers for all out-of-pocket costs and expenses
incurred by Buyers in connection with any Excluded Assets or the Unusable
Inventory not removed by Sellers as required by this Section.
10.6 REPORTS AND RETURNS
Each Seller shall promptly after the Closing prepare and file all reports and
returns required by Legal Requirements relating to the business of each Seller
as conducted using the Assets, to and including the Effective Time.
10.7 ASSISTANCE IN PROCEEDINGS
Each party will cooperate with the other parties and their counsel in the
contest or defense of, and make available its personnel and provide any
testimony and reasonable access (on at least 3 days prior written notice) to its
books and Records in connection with, any Proceeding involving or relating to
(a) any Contemplated Transaction or (b) any action, activity, circumstance,
condition, conduct, event, fact, failure to act, incident, occurrence, plan,
practice, situation, status or transaction on or before the Closing Date
involving either Seller or its business. Buyers shall promptly reimburse Sellers
for all out-of-pocket costs and expenses incurred by Sellers in connection with
such assistance.
10.8 FINANCIAL STATEMENTS
Promptly upon completion and, in any event, no later than the 45th day following
the Closing Date, Sellers shall deliver to Buyers unaudited financial statements
for each Seller for the period following the last reported financial period
covered by the financial statements provided to Buyers pursuant to Section 5.8,
up to and including the Closing Date.
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10.9 CUSTOMER AND OTHER BUSINESS RELATIONSHIPS
After the Closing, each Seller, each Shareholder and LSB will reasonably
cooperate with Buyers in their efforts to continue and maintain for the benefit
of Buyer those business relationships of each Seller existing prior to the
Closing and relating to the business to be operated by Buyer after the Closing,
including relationships with lessors, employees, regulatory authorities,
licensors, customers, suppliers and others. Each Seller will refer to Buyers all
inquiries relating to such business for a period of 2 years following the
Closing Date.
10.10 RETENTION OF AND ACCESS TO RECORDS
After the Closing Date, Buyers shall retain for a period consistent with Buyers'
record-retention policies and practices those Records of Sellers delivered to
Buyers. Buyers also shall provide Sellers and their Representatives reasonable
access thereto, during normal business hours and on at least three days' prior
written notice, to enable them to prepare financial statements or tax returns or
deal with tax audits or other appropriate business or legal matters. After the
Closing Date, each Seller shall provide Buyers and their Representatives
reasonable access to Records that are Excluded Assets, during normal business
hours and on at least three days' prior written notice, for any reasonable
business purpose specified by Buyers in such notice.
10.11 FURTHER ASSURANCES
The parties shall cooperate reasonably with each other and with their respective
Representatives in connection with any steps required to be taken as part of
their respective obligations under this Agreement, and shall (a) furnish upon
request to each other such further information; (b) execute and deliver to each
other such other documents; and (c) to do such other acts and things, all as the
other party may reasonably request for the purpose of carrying out the intent of
this Agreement and the Contemplated Transactions.
11. INDEMNIFICATION; REMEDIES
11.1 SURVIVAL
All representations and warranties in this Agreement, the Disclosure Letter, the
Updates (if any), the certificates delivered pursuant to Section 2.7 and any
other certificate or document delivered pursuant to this Agreement shall survive
the Closing and the consummation of the Contemplated Transactions, subject to
Section 11.5.
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11.2 INDEMNIFICATION AND REIMBURSEMENT BY SELLERS AND SHAREHOLDERS
Each Seller and each Shareholder, jointly and severally, will indemnify and hold
harmless Buyers, and their Representatives, shareholders, subsidiaries and
Related Persons (collectively, the "Buyer Indemnified Persons"), and will
reimburse the Buyer Indemnified Persons for any loss, liability, claim, damage,
expense (including costs of investigation and defense and reasonable attorneys'
fees and expenses) or diminution of value, whether or not involving a
Third-Party Claim (collectively, "Damages"), arising from or in connection with:
(a) any Breach of any representation or warranty made by either Seller or EDC in
(i) this Agreement, (ii) the Disclosure Letter, (iii) the Updates (if any), (iv)
the certificates delivered pursuant to Section 2.7, (v) any transfer instrument
or (vi) any other certificate, document, writing or instrument delivered by
either Seller or EDC pursuant to this Agreement;
(b) any Breach of any covenant or obligation of either Seller in this Agreement
or in any other certificate, document, writing or instrument delivered by either
Seller, either Shareholder or LSB pursuant to this Agreement;
(c) any Liability arising out of the ownership or operation of the Assets prior
to the Effective Time other than the Assumed Liabilities;
(d) any brokerage or finder's fees or commissions or similar payments based upon
any agreement or understanding made, or alleged to have been made, by any Person
with either Seller, either Shareholder or LSB (or any Person acting on their
behalf) in connection with any of the Contemplated Transactions;
(e) any product or component thereof manufactured by or shipped, or any services
provided by, either Seller, in whole or in part, prior to the Closing Date;
(f) any noncompliance with any Bulk Sales Laws or fraudulent transfer law in
respect of the Contemplated Transactions;
(g) any liability under the WARN Act or any similar state or local Legal
Requirement that may result from an "Employment Loss", as defined by 29 U.S.C.
2101(a)(6), caused by any action of Seller prior to the Closing or by any
Buyer's decision not to hire previous employees of either Seller;
(h) any Employee Plan established or maintained by either Seller;
(i) any employment, severance, notice, pay-in-lieu of notice, wrongful dismissal
of breach of any employment contract for any employee of either Seller that is
not a Hired Active Employee; or
(j) any Retained Liabilities.
11.3 INDEMNIFICATION AND REIMBURSEMENT BY SELLERS AND SHAREHOLDERS
56
-
ENVIRONMENTAL MATTERS
In addition to the other indemnification provisions in this Article 11, each
Seller and each Shareholder jointly and severally, will indemnify and hold
harmless Buyers and the other Buyer Indemnified Persons, and will reimburse
Buyers and the other Buyer Indemnified Persons, for any Damages (including costs
of any Remedial Action) arising from or in connection with:
(a) any Environmental, Health and Safety Liabilities arising out of or relating
to: (i) the ownership or operation by any Person at any time on or prior to the
Effective Time of any of the Facilities, Assets or the business of either
Seller, or (ii) any Hazardous Materials or other contaminants that were present
on or transported from the Facilities or Assets at any time on or prior to the
Effective Time; or
(b) any bodily injury (including illness, disability and death, and regardless
of when any such bodily injury occurred was incurred, or manifested itself),
personal injury, property damage (including trespass, nuisance, wrongful
eviction and deprivation of the use of real property) or other damage of or to
any Person or any Assets arising from or allegedly arising from any Hazardous
Activity conducted by any Person with respect to the business of either Seller
or the Assets prior to the Effective Time or from any Hazardous Material that
was (i) present on or before the Effective Time on or at the Facilities (or
present on any other property, if such Hazardous Material emanated or allegedly
emanated or was transported or allegedly transported from any Facility and was
present on any Facility, on or prior to the Effective Time) or (ii) Released or
allegedly Released by any Person on or at any Facilities or Assets at any time
on or prior to the Effective Time.
Sellers will be entitled to control any Remedial Action, any Proceeding relating
to an Environmental Claim, and, except as provided in the following sentence,
any other Proceeding with respect to which indemnity may be sought under this
Section 11.3; provided, however, Sellers will consult with Buyers with respect
to any such matters. The procedure described in Section 11.6 will apply to any
claim solely for monetary damages relating to a matter covered by this Section
11.3.
11.4 INDEMNIFICATION AND REIMBURSEMENT BY BUYERS
Each Buyer and ESI will, jointly and severally, indemnify and hold harmless
Sellers and their Representatives, shareholders, subsidiaries and Related
Persons (collectively, the "Seller Indemnified Persons"), and will reimburse the
Seller Indemnified Persons, for any Damages arising from or in connection with:
(a) any Breach of any representation or warranty made by Buyers in this
Agreement or in any certificate, document, writing or instrument delivered by
Buyers pursuant to this Agreement;
(b) any Breach of any covenant or obligation of Buyers in this Agreement or in
any other certificate, document, writing or instrument delivered by Buyers
pursuant to this Agreement;
(c) any claim by any Person for brokerage or finder's fees or commissions or
similar
57
payments based upon any agreement or understanding alleged to have been
made by such Person with Buyers (or any Person acting on Buyers' behalf) in
connection with any of the Contemplated Transactions;
(d) any obligations of Buyers with respect to bargaining with the collective
bargaining representatives of Active Hired Employees subsequent to the Effective
Time;
(e) any employment, severance, notice, pay-in-lieu of notice, wrongful dismissal
of breach of any employment contract for any employee of either Seller that is a
Hired Active Employee and that is terminated after the Effective Time;
(f) any Assumed Liabilities;
(g) any other liability with respect to Buyers' ownership and operation of the
Assets arising after the Effective Time; or
(h) any Environmental, Health and Safety Liabilities arising out of or relating
to: (i) the ownership or operation by Buyers at any time after the Effective
Time of any of the Facilities, or Assets, or (ii) any Hazardous Materials or
other contaminants that were present on the Facilities or Assets at any time
after the Effective Time; provided, however, Buyers shall have no obligation
under this Section if the matters that are the subject of clauses (i) or (ii) of
this sentence were initially caused by any of the Seller Indemnified Persons, or
were existing on or prior to the Effective Time.
11.5 TIME LIMITATIONS
(a) If the Closing occurs, Sellers will have liability (for indemnification or
otherwise) with respect to any Breach of (i) a covenant or obligation to be
performed or complied with prior to the Closing Date (other than those in
Section 2.4(b), as to which a claim may be made at any time on or before the 5th
anniversary of the Closing Date), or (ii) a representation or warranty, only if
on or before December 31, 2003, Buyers notify either Seller of a claim
specifying the factual basis of the claim in reasonable detail to the extent
then known by Buyers.
(b) If the Closing occurs, Buyers will have liability (for indemnification or
otherwise) with respect to any Breach of (i) a covenant or obligation to be
performed or complied with prior to the Closing Date, or (ii) a representation
or warranty (other than that set forth in Section 4.4, as to which a claim may
be made at any time), only if on or before December 31, 2003, either Seller
notifies Buyers of a claim specifying the factual basis of the claim in
reasonable detail to the extent then known by such Seller.
11.6 THIRD-PARTY CLAIMS
(a) Promptly after receipt by a Person entitled to indemnity under Section 11.2,
11.3 (to the extent provided in the last sentence of Section 11.3) or 11.4 (an
"Indemnified Person") of notice of the assertion of a Third-Party Claim against
it, such Indemnified Person shall
58
give notice to the Person obligated to
indemnify under such Section (an "Indemnifying Person") of the assertion of such
Third-Party Claim, provided that the failure to notify the Indemnifying Person
will not relieve the Indemnifying Person of any liability that it may have to
any Indemnified Person, except to the extent that the Indemnifying Person
demonstrates that the defense of such Third-Party Claim is materially prejudiced
by the Indemnified Person's failure to give such notice.
(b) If an Indemnified Person gives notice to the Indemnifying Person pursuant to
Section 11.6(a) of the assertion of a Third-Party Claim, the Indemnifying Person
shall be entitled to participate in the defense of such Third-Party Claim and,
to the extent that it wishes (unless (i) the Indemnifying Person is also a
Person against whom the Third-Party Claim is made and the Indemnified Person
determines in good faith that joint representation would be inappropriate or
(ii) the Indemnifying Person fails to provide reasonable assurance to the
Indemnified Person of its financial capacity to defend such Third-Party Claim
and provide indemnification with respect to such Third-Party Claim), to assume
the defense of such Third-Party Claim with counsel reasonably satisfactory to
the Indemnified Person. After notice from the Indemnifying Person to the
Indemnified Person of its election to assume the defense of such Third-Party
Claim, the Indemnifying Person shall not, as long as it diligently conducts such
defense, be liable to the Indemnified Person under this Article 11 for any fees
of other counsel or any other expenses with respect to the defense of such
Third-Party Claim, in each case subsequently incurred by the Indemnified Person
in connection with the defense of such Third-Party Claim. If the Indemnifying
Person assumes the defense of a Third-Party Claim, no compromise or settlement
of such Third-Party Claims may be effected by the Indemnifying Person without
the Indemnified Person's Consent (which shall not be unreasonably withheld)
unless (A) there is no finding or admission of any violation of Legal
Requirement or any violation of the rights of any Person; (B) the sole relief
provided is monetary damages that are paid in full by the Indemnifying Person;
and (C) the Indemnified Person shall have no liability with respect to any
compromise or settlement of such Third-Party Claims effected without its
Consent. If notice is given to an Indemnifying Person of the assertion of any
Third-Party Claim and the Indemnifying Person does not, within thirty (30) days
after the Indemnified Person's notice is given, give notice to the Indemnified
Person of its election to assume the defense of such Third-Party Claim, the
Indemnifying Person will be bound by any determination made in such Third-Party
Claim or any compromise or settlement effected by the Indemnified Person.
(c) Notwithstanding the foregoing, if an Indemnified Person determines in good
faith that there is a reasonable probability that a Third-Party Claim may
adversely affect it or its Related Persons other than as a result of monetary
damages for which it would be entitled to indemnification under this Agreement,
the Indemnified Person may, by notice to the Indemnifying Person, assume the
exclusive right to defend, compromise or settle such Third-Party Claim, but the
Indemnifying Person will not be bound by any determination of any Third-Party
Claim so defended for the purposes of this Agreement or any compromise or
settlement effected without its Consent (which may not be unreasonably
withheld).
(d) Notwithstanding the provisions of Section 12.4, each Seller, each
Shareholder and LSB hereby consents to the nonexclusive jurisdiction of any
court in which a Proceeding in
59
respect of a Third-Party Claim is brought against
any Buyer Indemnified Person for purposes of any claim that a Buyer Indemnified
Person may have under this Agreement with respect to such Proceeding or the
matters alleged therein and agree that process may be served on either Seller,
either Shareholder or LSB with respect to such a claim anywhere in the world.
(e) With respect to any Third-Party Claim subject to indemnification under this
Article 11: (i) both the Indemnified Person and the Indemnifying Person, as the
case may be, shall keep the other Person fully informed of the status of such
Third-Party Claim and any related Proceedings at all stages thereof where such
Person is not represented by its own counsel, and (ii) the parties agree (each
at its own expense) to render to each other such assistance as they may
reasonably require of each other and to cooperate in good faith with each other
in order to ensure the proper and adequate defense of any Third-Party Claim.
(f) With respect to any Third-Party Claim subject to indemnification under this
Article 11, the parties agree to cooperate in such a manner as to preserve in
full (to the extent possible) the confidentiality of all Confidential
Information and the attorney-client and work-product privileges. In connection
therewith, each party agrees that: (i) it will use its Best Efforts, in respect
of any Third-Party Claim in which it has assumed or participated in the defense,
to avoid production of Confidential Information (consistent with applicable law
and rules of procedure), and (ii) all communications between any party hereto
and counsel responsible for or participating in the defense of any Third-Party
Claim shall, to the extent possible, be made so as to preserve any applicable
attorney-client or work-product privilege.
11.7 OTHER CLAIMS
A claim for indemnification for any matter not involving a Third-Party Claim may
be asserted by notice to the party from whom indemnification is sought and shall
be paid promptly after such notice, provided that the party seeking such
indemnification is entitled to indemnification under Article 11.
11.8 INDEMNIFICATION IN CASE OF STRICT LIABILITY
THE INDEMNIFICATION PROVISIONS IN THIS ARTICLE 11 SHALL BE ENFORCEABLE
REGARDLESS OF WHETHER THE LIABILITY IS BASED ON PAST, PRESENT OR FUTURE ACTS,
CLAIMS OR LEGAL REQUIREMENTS (INCLUDING ANY PAST, PRESENT OR FUTURE
ENVIRONMENTAL LAW,) AND REGARDLESS OF WHETHER ANY PERSON (INCLUDING THE PERSON
FROM WHOM INDEMNIFICATION IS SOUGHT) ALLEGES OR PROVES THE SOLE OR CONCURRENT
STRICT LIABILITY IMPOSED ON THE PERSON SEEKING INDEMNIFICATION.
12. GENERAL PROVISIONS
12.1 EXPENSES
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Except as otherwise provided in this Agreement, each party to this Agreement
will bear its respective fees and expenses incurred in connection with the
preparation, negotiation, execution and performance of this Agreement and the
Contemplated Transactions, including all fees and expense of its
Representatives. Buyers will pay all amounts payable to any surveyor or the
Title Insurer in respect of the Title Commitments, copies of exceptions and the
Title Policy, including premiums (including premiums for endorsements) and
search fees. Buyers will pay one-half and Sellers will pay one-half of the fees
and expenses of the escrow agent under the Escrow Agreement.
12.2 PUBLIC ANNOUNCEMENTS
Any public announcement, press release or similar publicity with respect to this
Agreement or the Contemplated Transactions will be issued, if at all, at such
time and in such manner as Buyers and Sellers may agree; provided that any
public announcement that is required by law shall be permissible. Prior to
Closing, except with the prior consent of Buyers or as permitted by this
Agreement, neither Seller, neither Shareholder nor LSB nor any of their
Representatives shall disclose to any Person (a) the fact that any Confidential
Information of Sellers has been disclosed to Buyers or their Representatives,
that Buyers or their Representatives have inspected any portion of the
Confiden-tial Information of Sellers, that any Confidential Information of
Buyers has been disclosed to Sellers or their Representatives or that Sellers or
their Representatives have inspected any portion of the Confidential Information
of Buyers or (b) any information about the Contemplated Transactions, including
the status of such discussions or negotiations, the execution of any documents
(including this Agreement) or any of the terms of the Contemplated Transactions
or the related documents (including this Agreement). Sellers and Buyers will
consult with each other concerning the means by which Sellers' employees,
customers, suppliers and others having dealings with Sellers will be informed of
the Contemplated Transactions, and Buyers will have the right to be present for
any such communication.
12.3 NOTICES
All notices, Consents, waivers and other communications required or permitted by
this Agreement shall be in writing and shall be deemed given to a party when (a)
delivered to the appropriate address by hand or by nationally recognized
overnight courier service (costs prepaid); (b) sent by facsimile or e-mail with
confirmation of transmission by the transmitting equipment; or (c) received or
rejected by the addressee, if sent by certified mail, return receipt requested,
in each case to the following addresses, facsimile numbers or e-mail addresses
and marked to the attention of the person (by name or title) designated below
(or to such other address, facsimile number, e-mail address or person as a party
may designate by notice to the other parties):
Sellers, Shareholders and LSB:
LSB Industries, Inc.
Attention: David Shear
Address: 16 S. Pennsylvania, Oklahoma City, Oklahoma 73106
Fax no.: (405) 235-5067
E-mail address: dshear@lsb-okc.com"
Buyers:
Energetic Systems, Inc.
61
Address: 5700 N. Portland, Suite 310, Oklahoma City, Oklahoma 73112
Attention: David Taylor
Fax no.: (405) 947-0768
E-mail address: davidtaylor.wimase@shaw.ca"
with a mandatory copy to:
Jackson Walker L.L.P.
Attention: Lawrence A. Waks
Address: 100 Congress Avenue, Suite 1100, Austin, Texas 78701
Fax no.: (512) 236-2002
E-mail address: lwaks@jw.com"
SEMC:
Slurry Explosive Manufacturing Corporation, LLC
Address: 5700 N. Portland, Suite 310, Oklahoma City, Oklahoma 73112
Attention: David Taylor
Fax no.: (405) 947-0768
E-mail address: davidtaylor.wimase@shaw.ca"
with a mandatory copy to:
LSB Industries, Inc.
Attention: David Shear
Address: 16 S. Pennsylvania, Oklahoma City, Oklahoma 73106
Fax no.: (405) 235-5067
E-mail address: dshear@lsb-okc.com"
12.4 JURISDICTION; SERVICE OF PROCESS
Any Proceeding arising out of or relating to this Agreement or any Contemplated
Transaction may be brought in the courts of the State of Texas, County of
Dallas, or, if it has or can acquire jurisdiction, in the United States District
Court for the Northern District of Texas, and each of the parties irrevocably
submits to the exclusive jurisdiction of each such court in any such Proceeding,
waives any objection it may now or hereafter have to venue or to convenience of
forum, agrees that all claims in respect of the Proceeding shall be heard and
determined only in any such court and agrees not to bring any Proceeding arising
out of or relating to this Agreement or any Contemplated Transaction in any
other court. The parties agree that either or both of them may file a copy of
this paragraph with any court as written evidence of the knowing, voluntary and
bargained agreement between the parties irrevocably to waive any objections to
venue or to convenience of forum. Process in any Proceeding referred to in the
first sentence of this section may be served on any party anywhere in the world.
12.5 ENFORCEMENT OF AGREEMENT
Sellers, Shareholders and LSB acknowledge and agree that Buyers would be
irreparably damaged if any of the provisions of this Agreement are not performed
materially in accordance with the specific terms and that any Breach of this
Agreement by Sellers, Shareholders or LSB could not be adequately compensated in
all cases by monetary damages alone. Accordingly, in addition to any
62
other right
or remedy to which Buyers may be entitled, at law or in equity, it shall be
entitled to enforce any provision of this Agreement by a decree of specific
performance and to temporary, preliminary and permanent injunctive relief to
prevent Breaches or threatened Breaches of any of the provisions of this
Agreement.
12.6 WAIVER; REMEDIES CUMULATIVE
The rights and remedies of the parties to this Agreement are cumulative and not
alternative. Neither any failure nor any delay by any party in exercising any
right, power or privilege under this Agreement or any of the documents referred
to in this Agreement will operate as a waiver of such right, power or privilege,
and no single or partial exercise of any such right, power or privilege will
preclude any other or further exercise of such right, power or privilege or the
exercise of any other right, power or privilege. To the maximum extent permitted
by applicable law, (a) no claim or right arising out of this Agreement or any of
the documents referred to in this Agreement can be discharged by one party, in
whole or in part, by a waiver or renunciation of the claim or right unless in
writing signed by the other party; (b) no waiver that may be given by a party
will be applicable except in the specific instance for which it is given; and
(c) no notice to or demand on one party will be deemed to be a waiver of any
obligation of that party or of the right of the party giving such notice or
demand to take further action without notice or demand as provided in this
Agreement or the documents referred to in this Agreement.
12.7 ENTIRE AGREEMENT AND MODIFICATION
This Agreement supersedes all prior agreements, whether written or oral, between
the parties with respect to its subject matter (including any letter of intent
but excluding the confidentiality agreement between Buyers and Sellers dated May
15, 2002) and constitutes (along with the Disclosure Letter, Exhibits and other
documents delivered pursuant to this Agreement) a complete and exclusive
statement of the terms of the agreement between the parties with respect to its
subject matter. This Agreement may not be amended, supplemented, or otherwise
modified except (i) by a written agreement executed by the party to be charged
with the amendment, and (ii) by an Update in accordance with Section 5.5.
12.8 DISCLOSURE LETTER
The information in the Disclosure Letter any Updates (if any) constitutes (i)
exceptions to particular representations, warranties, covenants and obligations
of Sellers as set forth in this Agreement or (ii) descriptions or lists of
assets and liabilities and other items referred to in this Agreement. If there
is any inconsistency between the statements in this Agreement and those in the
Disclosure Letter or any Updates (other than an exception expressly set forth as
such in the Disclosure Letter or any Update with respect to a specifically
identified representation or warranty), the statements in this Agreement will
control.
12.9 ASSIGNMENTS, SUCCESSORS AND NO THIRD-PARTY RIGHTS
No party may assign any of its rights or delegate any of its obligations under
this Agreement without the prior written consent of the other parties, except
that Buyers may assign any of its rights
63
and delegate any of its obligations
under this Agreement to any Subsidiary of Buyers and may collaterally assign its
rights hereunder to any financial institution providing financing in connection
with the Contemplated Transactions. Subject to the preceding sentence, this
Agreement will apply to, be binding in all respects upon and inure to the
benefit of the successors and permitted assigns of the parties. Nothing
expressed or referred to in this Agreement will be construed to give any Person
other than the parties to this Agreement any legal or equitable right, remedy or
claim under or with respect to this Agreement or any provision of this
Agreement, except such rights as shall inure to a successor or permitted
assignee pursuant to this Section 12.9.
12.10 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable by any court
of competent jurisdiction, the other provisions of this Agreement will remain in
full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
12.11 CONSTRUCTION
The headings of Articles and Sections in this Agreement are provided for
convenience only and will not affect its construction or interpretation. All
references to "Articles," "Sections" and "Parts" refer to the corresponding
Articles, Sections and Parts of this Agreement and the Disclosure Letter.
12.12 TIME OF ESSENCE
With regard to all dates and time periods set forth or referred to in this
Agreement, time is of the essence.
12.13 GOVERNING LAW
This Agreement will be governed by and construed under the laws of the State of
Delaware without regard to conflicts-of-laws principles that would require the
application of any other law.
12.14 EXECUTION OF AGREEMENT
This Agreement may be executed in two or more counterparts, each of which will
be deemed to be an original copy of this Agreement and all of which, when taken
together, will be deemed to constitute one and the same agreement. The exchange
of copies of this Agreement and of signature pages by facsimile transmission
shall constitute effective execution and delivery of this Agreement as to the
parties and may be used in lieu of the original Agreement for all purposes.
Signatures of the parties transmitted by facsimile shall be deemed to be their
original signatures for all purposes.
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12.15 REPRESENTATIVE OF SELLERS, SHAREHOLDERS AND LSB
(a) Each Seller, each Shareholder and LSB hereby constitutes and appoints Tony
M. Shelby as their representative ("Selling Parties Representative") and their
true and lawful attorney in fact, with full power and authority in each of their
names and on behalf of each of them:
(i) to act on behalf of each of them in the absolute discretion of the Selling
Parties Representative, but only with respect to the following provisions of
this Agreement, with the power to: (A) designate the accounts for payment of the
Purchase Price pursuant to Section 2.7(b)(i); (B) act pursuant to Section 2.9
with respect to any Purchase Price Adjustment; (C) act under the Escrow
Agreement; (D) consent to the assignment of rights under this Agreement in
accordance with Section 12.9; (E) give and receive notices pursuant to Section
12.3; (F) terminate this Agreement pursuant to Section 9.1 or waive any
provision of this Agreement pursuant to Article 8, Section 9.1 and Section 12.6;
(G) accept service of process pursuant to Section 12.4; (H) act in connection
with any matter as to which Sellers, Shareholders and LSB jointly and severally,
have obligations, or are Indemnified Persons, under Article 11; and (I) provide
Updates to Buyers in accordance with Section 5.5; and
(ii) in general, to do all things and to perform all acts, including executing
and delivering all agreements, certificates, receipts, instructions and other
instruments contemplated by or deemed advisable to effectuate the provisions of
this Section 12.15.
This appointment and grant of power and authority is coupled with an interest
and is in consideration of the mutual covenants made herein and is irrevocable
and shall not be terminated by any act of either Seller, either Shareholder, LSB
or by operation of law. Each Seller, each Shareholder and LSB hereby consents to
the taking of any and all actions and the making of any decisions required or
permitted to be taken or made by the Selling Parties Representative pursuant to
this Section 12.15. Each Seller, each Shareholder and LSB agree that the Selling
Parties Representative shall have no obligation or liability to any Person for
any action or omission taken or omitted by the Selling Parties Representative in
good faith hereunder, and each Seller, each Shareholder and LSB shall, on a
proportionate basis in accordance with his or her ownership interest in Seller,
indemnify and hold the Selling Parties Representative harmless from and against
any and all loss, damage, expense or liability (including reasonable counsel
fees and expenses) which the Selling Parties Representative may sustain as a
result of any such action or omission by the Selling Parties Representative
hereunder.
(b) Buyers and the escrow agent designated in the Escrow Agreement shall be
entitled to rely upon any document or other paper delivered by the Selling
Parties Representative as (i) genuine and correct and (ii) having been duly
signed or sent by the Selling Parties Representative, and neither Buyer nor such
escrow agent shall be liable to either Seller,
65
either Shareholder or LSB for any
action taken or omitted to be taken by Buyers or such escrow agent in such
reliance.
[Remainder of Pager Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
Buyers:
Sellers:
UTeC Corporation, LLC
Slurry Explosive Corporation
By: /s/ David Taylor
By: /s/ Tony M. Shelby
David Taylor, Manager Tony M. Shelby, Vice President
SEC Investment Corp. LLC
Universal Tech Corporation
By: /s/ David Taylor
By: /s/ Tony M. Shelby
David Taylor, Manager Tony M. Shelby, Vice President
Shareholders:
DetaCorp, Inc. LLC
El Dorado Chemical Company
By: /s/ David Taylor
By: /s/ Tony M. Shelby
David Taylor, Manager Tony M. Shelby, Vice President
Energetic Properties, LLC
LSB Chemical Corp.
By: /s/ David Taylor
By: /s/ Tony M. Shelby
David Taylor, Manager Tony M. Shelby, Vice President
ESI:
LSB:
Energetic Systems, Inc., LLC
LSB Industries, Inc.
By: /s/ David Taylor
By: /s/ Tony M. Shelby
David Taylor, Manager Tony M. Shelby, Vice President
SEMC:
Slurry Explosive Manufacturing
Corporation, LLC
By: /s/ David Taylor
David Taylor, Manager
ACCEPTANCE AND AGREEMENT OF SELLING PARTIES REPRESENTATIVE
The undersigned, being the Selling Parties Representative designated in Section
12.15 of the foregoing Asset Purchase Agreement, agrees to serve as the Selling
Parties Representative and to be bound by the terms of such Asset Purchase
Agreement pertaining thereto.
Dated: December 27, 2002
/s/ Tony M. Shelby
Tony M. Shelby
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EXHIBITS
TO
ASSET PURCHASE AGREEMENT
Exhibit 2.1 Allocation of Assets Among the Buyers
Exhibit 2.2(n) Excluded Seller Contracts
Exhibit 2.2(o) Excluded Property and Assets
Exhibit 2.3 Prepaid Lease Obligations
Exhibit 2.4(a) Allocation of Responsibility for the Assumed Liabilities Among
the Buyers
Exhibit 2.7(a)(i) Bill of Sale
Exhibit 2.7(a)(ii) Assignment and Assumption Agreement
Exhibit 2.7(a)(iv) Assignment of Marks, Patents and Copyrights
Exhibit 2.7(a)(vi) Noncompetition Agreements
Exhibit 2.7(a)(vii) Escrow Agreement
Exhibit 2.7(a)(xi) Transitional Services Agreement
Exhibit 2.7(a)(xii) Use and License Agreement
Exhibit 2.8 Inventory Adjustment Amount Calculation
Exhibit 2.9 Accounts Receivable Adjustment Amount Calculation
Exhibit 7.3 Material Consents
Exhibit 7.4(a) Legal Opinion - Sellers
Exhibit 7.7 Assignment and Assumption of Lease Agreement
Exhibit 7.8 Orica Noncompetition Agreement
Exhibit 7.11 Key Employees
Exhibit 7.13 Environmental Questionnaire
Exhibit 8.3 Consents
Exhibit 8.4 Legal Opinion - Buyers
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DISCLOSURE LETTER
TO
ASSET PURCHASE AGREEMENT
Part 2.1(b) Tangible Personal Property
Part 2.1(k) Indemnification Rights Relating to Assets/Assumed Liabilities
Part 3.1 Sellers' Jurisdiction of Incorporation/Qualification to Do Business
Part 3.2(b) Adverse Effects of Execution of Agreement by Sellers
Part 3.2(c) Required Notices and Consents
Part 3.6 Description of Owned Real Property
Part 3.7 Description of Leased Real Property
Part 3.8(a) Real Estate Encumbrances and Permitted Real Estate Encumbrances
Part 3.8(b) Non-Real Estate Encumbrances and Permitted Non-Real Estate
Encumbrances
Part 3.9(a) Encroachments
Part 3.9(b) Tangible Personal Property Not in Possession of Sellers
Part 3.10 Accounts Receivable as of Interim Balance Sheet Date
Part 3.15(a) Employee Plans
Part 3.16(a) Exceptions to Compliance with Legal Requirements
Part 3.16(b) Governmental Authorizations; Exceptions to Compliance
Part 3.17(a) Legal Proceedings
Part 3.17(b) Orders
Part 3.19(a) Seller Contracts
Part 3.19(c) Exceptions to Compliance with Seller Contracts
Part 3.20(a) Insurance Policies
Part 3.20(b) Self Insurance Arrangements
Part 3.21 Exceptions to Representations on Environmental Matters
Part 3.21 (g) List of Environmental Reports, Studies, Analyses, Tests and
Monitoring Data
Part 3.22(a) Employee Information
Part 3.23(b) Exceptions to Representations Concerning Labor Disputes
Part 3.24(d) Patents; Exceptions to Representations; Assignment of
69