UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|
|
|
|
|
þ
|
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended 31 March 2009
OR
|
|
|
|
|
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from
to
Commission file number 1-4534
AIR PRODUCTS AND CHEMICALS, INC.
(Exact Name of Registrant as Specified in Its Charter)
|
|
|
|
Delaware
(State or Other Jurisdiction of Incorporation or Organization)
|
|
23-1274455
(I.R.S. Employer Identification No.)
|
|
|
|
|
7201 Hamilton Boulevard, Allentown, Pennsylvania
(Address of Principal Executive Offices)
|
|
18195-1501
(Zip Code)
|
610-481-4911
(Registrant’s Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes
þ
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
|
Large accelerated filer
þ
|
Accelerated filer
o
|
Non-accelerated filer
o
(Do not check if a smaller reporting company)
|
Smaller reporting company
o
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes
o
No
þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as
of the latest practicable date.
|
|
|
|
|
Class
|
|
Outstanding at 24 April 2009
|
|
|
|
|
|
Common Stock, $1 par value
|
|
209,828,783
|
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
INDEX
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
31 March
|
|
30 September
|
|
(Millions of dollars, except for share data)
|
|
2009
|
|
2008
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
|
Cash and cash items
|
|
$
|
79.7
|
|
|
$
|
103.5
|
|
|
Trade receivables, less allowances for doubtful accounts
|
|
|
1,272.2
|
|
|
|
1,575.2
|
|
|
Inventories
|
|
|
506.6
|
|
|
|
503.7
|
|
|
Contracts in progress, less progress billings
|
|
|
123.7
|
|
|
|
152.0
|
|
|
Prepaid expenses
|
|
|
172.2
|
|
|
|
107.7
|
|
|
Other receivables and current assets
|
|
|
396.6
|
|
|
|
349.4
|
|
|
Current assets of discontinued operations
|
|
|
45.4
|
|
|
|
56.6
|
|
|
|
|
TOTAL CURRENT ASSETS
|
|
|
2,596.4
|
|
|
|
2,848.1
|
|
|
|
|
INVESTMENT IN NET ASSETS OF AND ADVANCES TO
EQUITY AFFILIATES
|
|
|
756.5
|
|
|
|
822.6
|
|
|
PLANT AND EQUIPMENT, at cost
|
|
|
14,645.4
|
|
|
|
14,988.6
|
|
|
Less accumulated depreciation
|
|
|
8,235.3
|
|
|
|
8,373.8
|
|
|
|
|
PLANT AND EQUIPMENT, net
|
|
|
6,410.1
|
|
|
|
6,614.8
|
|
|
|
|
GOODWILL
|
|
|
811.2
|
|
|
|
928.1
|
|
|
INTANGIBLE ASSETS, net
|
|
|
215.0
|
|
|
|
289.6
|
|
|
NONCURRENT CAPITAL LEASE RECEIVABLES
|
|
|
527.1
|
|
|
|
505.3
|
|
|
OTHER NONCURRENT ASSETS
|
|
|
550.3
|
|
|
|
504.1
|
|
|
NONCURRENT ASSETS OF DISCONTINUED OPERATIONS
|
|
|
12.3
|
|
|
|
58.7
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
11,878.9
|
|
|
$
|
12,571.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
Payables and accrued liabilities
|
|
$
|
1,307.1
|
|
|
$
|
1,665.6
|
|
|
Accrued income taxes
|
|
|
34.2
|
|
|
|
87.0
|
|
|
Short-term borrowings
|
|
|
592.0
|
|
|
|
419.3
|
|
|
Current portion of long-term debt
|
|
|
53.8
|
|
|
|
32.1
|
|
|
Current liabilities of discontinued operations
|
|
|
9.2
|
|
|
|
8.0
|
|
|
|
|
TOTAL CURRENT LIABILITIES
|
|
|
1,996.3
|
|
|
|
2,212.0
|
|
|
|
|
LONG-TERM DEBT
|
|
|
3,456.6
|
|
|
|
3,515.4
|
|
|
DEFERRED INCOME & OTHER NONCURRENT LIABILITIES
|
|
|
952.8
|
|
|
|
1,049.2
|
|
|
DEFERRED INCOME TAXES
|
|
|
707.6
|
|
|
|
626.6
|
|
|
NONCURRENT LIABILITIES OF DISCONTINUED OPERATIONS
|
|
|
.8
|
|
|
|
1.2
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
7,114.1
|
|
|
|
7,404.4
|
|
|
|
|
MINORITY INTEREST IN SUBSIDIARY COMPANIES
|
|
|
126.7
|
|
|
|
136.2
|
|
|
COMMITMENTS AND CONTINGENCIES — See Note 12
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Common stock (par value $1 per share; 2009 and 2008 —
249,455,584 shares)
|
|
|
249.4
|
|
|
|
249.4
|
|
|
Capital in excess of par value
|
|
|
812.2
|
|
|
|
811.7
|
|
|
Retained earnings
|
|
|
7,068.7
|
|
|
|
6,990.2
|
|
|
Accumulated other comprehensive income (loss)
|
|
|
(1,051.0
|
)
|
|
|
(549.3
|
)
|
|
Treasury stock, at cost (2009 — 39,626,801 shares;
2008 — 40,120,957 shares)
|
|
|
(2,441.2
|
)
|
|
|
(2,471.3
|
)
|
|
|
|
TOTAL SHAREHOLDERS’ EQUITY
|
|
|
4,638.1
|
|
|
|
5,030.7
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
$
|
11,878.9
|
|
|
$
|
12,571.3
|
|
|
|
The accompanying notes are an integral part of these statements.
3
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
31 March
|
|
31 March
|
|
(Millions of dollars, except for share data)
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
SALES
|
|
$
|
1,955.4
|
|
|
$
|
2,542.7
|
|
|
$
|
4,150.7
|
|
|
$
|
4,950.1
|
|
|
Cost of sales
|
|
|
1,439.9
|
|
|
|
1,871.6
|
|
|
|
3,069.6
|
|
|
|
3,625.2
|
|
|
Selling and administrative
|
|
|
230.6
|
|
|
|
272.1
|
|
|
|
477.6
|
|
|
|
530.6
|
|
|
Research and development
|
|
|
29.6
|
|
|
|
34.3
|
|
|
|
62.8
|
|
|
|
64.6
|
|
|
Global cost reduction plan
|
|
|
—
|
|
|
|
—
|
|
|
|
174.2
|
|
|
|
—
|
|
|
Pension settlement
|
|
|
—
|
|
|
|
26.3
|
|
|
|
—
|
|
|
|
27.7
|
|
|
Other income, net
|
|
|
5.1
|
|
|
|
10.2
|
|
|
|
8.0
|
|
|
|
27.0
|
|
|
|
|
OPERATING INCOME
|
|
|
260.4
|
|
|
|
348.6
|
|
|
|
374.5
|
|
|
|
729.0
|
|
|
Equity affiliates’ income
|
|
|
27.0
|
|
|
|
42.4
|
|
|
|
51.5
|
|
|
|
67.7
|
|
|
Interest expense
|
|
|
30.0
|
|
|
|
38.9
|
|
|
|
66.5
|
|
|
|
79.7
|
|
|
|
|
INCOME FROM CONTINUING OPERATIONS
BEFORE TAXES AND MINORITY INTEREST
|
|
|
257.4
|
|
|
|
352.1
|
|
|
|
359.5
|
|
|
|
717.0
|
|
|
Income tax provision
|
|
|
66.5
|
|
|
|
87.8
|
|
|
|
73.6
|
|
|
|
184.3
|
|
|
Minority interest in earnings of subsidiary companies
|
|
|
1.6
|
|
|
|
4.5
|
|
|
|
6.6
|
|
|
|
10.6
|
|
|
|
|
INCOME FROM CONTINUING OPERATIONS
|
|
|
189.3
|
|
|
|
259.8
|
|
|
|
279.3
|
|
|
|
522.1
|
|
|
INCOME (LOSS) FROM DISCONTINUED
OPERATIONS, net of tax
|
|
|
16.3
|
|
|
|
54.5
|
|
|
|
(5.1
|
)
|
|
|
55.9
|
|
|
|
|
NET INCOME
|
|
$
|
205.6
|
|
|
$
|
314.3
|
|
|
$
|
274.2
|
|
|
$
|
578.0
|
|
|
|
|
BASIC EARNINGS PER COMMON SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
.90
|
|
|
$
|
1.22
|
|
|
$
|
1.33
|
|
|
$
|
2.45
|
|
|
Income (loss) from discontinued operations
|
|
|
.08
|
|
|
|
.26
|
|
|
|
(.02
|
)
|
|
|
.26
|
|
|
|
|
Net Income
|
|
$
|
.98
|
|
|
$
|
1.48
|
|
|
$
|
1.31
|
|
|
$
|
2.71
|
|
|
|
|
DILUTED EARNINGS PER COMMON SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
.89
|
|
|
$
|
1.18
|
|
|
$
|
1.32
|
|
|
$
|
2.37
|
|
|
Income (loss) from discontinued operations
|
|
|
.08
|
|
|
|
.25
|
|
|
|
(.03
|
)
|
|
|
.25
|
|
|
|
|
Net Income
|
|
$
|
.97
|
|
|
$
|
1.43
|
|
|
$
|
1.29
|
|
|
$
|
2.62
|
|
|
|
|
WEIGHTED AVERAGE OF COMMON SHARES
OUTSTANDING (in millions)
|
|
|
209.6
|
|
|
|
212.3
|
|
|
|
209.5
|
|
|
|
213.6
|
|
|
|
|
WEIGHTED AVERAGE OF COMMON SHARES
OUTSTANDING ASSUMING DILUTION (in millions)
|
|
|
212.3
|
|
|
|
219.2
|
|
|
|
212.2
|
|
|
|
220.8
|
|
|
|
|
DIVIDENDS DECLARED PER COMMON SHARE — Cash
|
|
$
|
.45
|
|
|
$
|
.44
|
|
|
$
|
.89
|
|
|
$
|
.82
|
|
|
|
The accompanying notes are an integral part of these statements.
4
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
31 March
|
|
(Millions of dollars)
|
|
2009
|
|
2008
|
|
|
|
NET INCOME
|
|
$
|
205.6
|
|
|
$
|
314.3
|
|
|
|
|
OTHER COMPREHENSIVE INCOME (LOSS), net of tax:
|
|
|
|
|
|
|
|
|
|
Net unrealized holding gain (loss) on investments, net of income
tax (benefit) of $.1 and $(1.4)
|
|
|
.3
|
|
|
|
(2.5
|
)
|
|
Net unrecognized (loss) on derivatives qualifying as hedges,
net of income tax (benefit) of $(2.2) and $(4.5)
|
|
|
(3.2
|
)
|
|
|
(6.4
|
)
|
|
Foreign currency translation adjustments, net of income tax (benefit) of $20.7
and $(65.1)
|
|
|
(217.1
|
)
|
|
|
91.8
|
|
|
Reclassification adjustment for foreign currency translation adjustment realized
in net income (a)
|
|
|
—
|
|
|
|
(53.7
|
)
|
|
Change in pension funded status, net of income tax of $1.4 and $4.9
|
|
|
4.3
|
|
|
|
6.6
|
|
|
|
|
TOTAL OTHER COMPREHENSIVE INCOME (LOSS)
|
|
|
(215.7
|
)
|
|
|
35.8
|
|
|
|
|
COMPREHENSIVE INCOME (LOSS)
|
|
$
|
(10.1
|
)
|
|
$
|
350.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
31 March
|
|
(Millions of dollars)
|
|
2009
|
|
2008
|
|
|
|
NET INCOME
|
|
$
|
274.2
|
|
|
$
|
578.0
|
|
|
|
|
OTHER COMPREHENSIVE INCOME (LOSS), net of tax:
|
|
|
|
|
|
|
|
|
|
Net unrealized holding (loss) on investments, net of income tax (benefit) of $(.5) and
$(2.2)
|
|
|
(.8
|
)
|
|
|
(4.2
|
)
|
|
Net unrecognized (loss) on derivatives qualifying as hedges,
net of income tax (benefit) of $(2.8) and $(6.4)
|
|
|
(5.7
|
)
|
|
|
(11.2
|
)
|
|
Foreign currency translation adjustments, net of income tax (benefit) of $4.7 and $(70.6)
|
|
|
(538.1
|
)
|
|
|
147.4
|
|
|
Reclassification adjustment for foreign currency translation adjustment realized
in net income (a)
|
|
|
—
|
|
|
|
(53.7
|
)
|
|
Change in pension funded status, net of income tax of $2.7 and $8.4
|
|
|
7.1
|
|
|
|
17.5
|
|
|
|
|
TOTAL OTHER COMPREHENSIVE INCOME (LOSS)
|
|
|
(537.5
|
)
|
|
|
95.8
|
|
|
|
|
COMPREHENSIVE INCOME (LOSS)
|
|
$
|
(263.3
|
)
|
|
$
|
673.8
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
In the second quarter of 2008, the Company completed the sale of its Polymer Emulsions
business as discussed in Note 4. Accordingly, the related foreign currency translation
results of this business were reclassified from other comprehensive income into earnings.
|
Other amounts reclassified from other comprehensive income into earnings in 2009 and 2008 were not
material.
The accompanying notes are an integral part of these statements.
5
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
31 March
|
|
(Millions of dollars)
|
|
2009
|
|
2008
|
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
274.2
|
|
|
$
|
578.0
|
|
|
Adjustments to reconcile income to cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
397.7
|
|
|
|
428.1
|
|
|
Impairment of assets of continuing operations
|
|
|
32.1
|
|
|
|
—
|
|
|
Impairment of assets of discontinued operations
|
|
|
48.7
|
|
|
|
—
|
|
|
Gain on sale of discontinued operations
|
|
|
—
|
|
|
|
(88.9
|
)
|
|
Deferred income taxes
|
|
|
41.8
|
|
|
|
34.6
|
|
|
Undistributed earnings of unconsolidated affiliates
|
|
|
(35.0
|
)
|
|
|
(42.6
|
)
|
|
Loss on sale of assets and investments
|
|
|
6.6
|
|
|
|
.9
|
|
|
Share-based compensation
|
|
|
30.1
|
|
|
|
33.0
|
|
|
Noncurrent capital lease receivables
|
|
|
(52.9
|
)
|
|
|
(118.5
|
)
|
|
Pension and other postretirement costs
|
|
|
52.2
|
|
|
|
82.8
|
|
|
Other adjustments
|
|
|
(85.3
|
)
|
|
|
(89.1
|
)
|
|
Working capital changes that provided (used) cash, excluding effects of
acquisitions and divestitures:
|
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
|
166.3
|
|
|
|
(153.3
|
)
|
|
Inventories
|
|
|
(41.7
|
)
|
|
|
(36.6
|
)
|
|
Contracts in progress
|
|
|
11.0
|
|
|
|
75.9
|
|
|
Other receivables
|
|
|
(17.7
|
)
|
|
|
10.2
|
|
|
Payables and accrued liabilities
|
|
|
(257.6
|
)
|
|
|
(100.2
|
)
|
|
Other working capital
|
|
|
(116.8
|
)
|
|
|
16.8
|
|
|
|
|
CASH PROVIDED BY OPERATING ACTIVITIES (a)
|
|
|
453.7
|
|
|
|
631.1
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Additions to plant and equipment
|
|
|
(615.8
|
)
|
|
|
(522.2
|
)
|
|
Acquisitions, less cash acquired
|
|
|
(1.6
|
)
|
|
|
(.6
|
)
|
|
Investment in and advances to unconsolidated affiliates
|
|
|
(.1
|
)
|
|
|
—
|
|
|
Proceeds from sale of assets and investments
|
|
|
25.0
|
|
|
|
14.2
|
|
|
Proceeds from sale of discontinued operations
|
|
|
.9
|
|
|
|
327.5
|
|
|
Change in restricted cash
|
|
|
40.7
|
|
|
|
(132.3
|
)
|
|
Other investing activities
|
|
|
—
|
|
|
|
(18.6
|
)
|
|
|
|
CASH USED FOR INVESTING ACTIVITIES
|
|
|
(550.9
|
)
|
|
|
(332.0
|
)
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Long-term debt proceeds
|
|
|
114.3
|
|
|
|
461.1
|
|
|
Payments on long-term debt
|
|
|
(44.2
|
)
|
|
|
(93.9
|
)
|
|
Net increase in commercial paper and short-term borrowings
|
|
|
183.2
|
|
|
|
84.9
|
|
|
Dividends paid to shareholders
|
|
|
(184.3
|
)
|
|
|
(163.4
|
)
|
|
Purchase of treasury stock
|
|
|
—
|
|
|
|
(560.2
|
)
|
|
Proceeds from stock option exercises
|
|
|
6.8
|
|
|
|
41.8
|
|
|
Excess tax benefit from share-based compensation/other
|
|
|
2.2
|
|
|
|
25.5
|
|
|
|
|
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES
|
|
|
78.0
|
|
|
|
(204.2
|
)
|
|
|
|
Effect of Exchange Rate Changes on Cash
|
|
|
(4.6
|
)
|
|
|
3.4
|
|
|
|
|
Increase (Decrease) in Cash and Cash Items
|
|
|
(23.8
|
)
|
|
|
98.3
|
|
|
Cash and Cash Items — Beginning of Year
|
|
|
103.5
|
|
|
|
40.5
|
|
|
|
|
Cash and Cash Items — End of Period
|
|
$
|
79.7
|
|
|
$
|
138.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Pension plan contributions
|
|
$
|
153.5
|
|
|
$
|
118.3
|
|
The accompanying notes are an integral part of these statements.
6
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Millions of dollars, except for share data)
1. MAJOR ACCOUNTING POLICIES
Refer to the Company’s 2008 annual report on Form 10-K for a description of major accounting
policies. There have been no material changes to these accounting policies during the first six
months of 2009 other than those detailed in Note 2.
Basis of Presentation
The consolidated financial statements of Air Products and Chemicals, Inc. and its subsidiaries (the
“Company” or “registrant”) included herein have been prepared by the Company, without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements prepared in
accordance with U.S. generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. In the opinion of the Company, the accompanying statements
reflect adjustments necessary to present fairly the financial position, results of operations, and
cash flows for those periods indicated, and contain adequate disclosure to make the information
presented not misleading. Adjustments included herein are of a normal, recurring nature unless
otherwise disclosed in the Notes. However, the interim results for the periods indicated herein do
not reflect certain adjustments, such as the valuation of inventories on the LIFO cost basis, which
can only be finally determined on an annual basis. The consolidated financial statements and
related Notes included herein should be read in conjunction with the financial statements and Notes
thereto included in the Company’s latest annual report on Form 10-K in order to fully understand
the basis of presentation. Results of operations for interim periods are not necessarily
indicative of the results of operations for a full year.
2. NEW ACCOUNTING STANDARDS
Disclosures about Derivatives and Hedging
Effective 1 January 2009, the Company adopted Statement of Financial Accounting Standard (SFAS) No.
161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB
Statement No. 133.” SFAS No. 161 requires enhanced disclosures about how and why an entity uses
derivative instruments; how derivative instruments and related hedged items are accounted for; and
how they affect an entity’s financial position, financial performance, and cash flows. This
Statement only requires additional disclosure and did not have an impact on the Company’s
consolidated financial statements upon adoption.
Refer to Note 5 for the disclosures required under SFAS No. 161.
Fair Value Option
In February 2007, the Financial Accounting Standard Board (FASB) issued SFAS No. 159, “The Fair
Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB
Statement No. 115.” This Statement permits companies to elect to measure certain financial
instruments at fair value on an instrument-by-instrument basis, with changes in fair value
recognized in earnings each reporting period. In addition, SFAS No. 159 establishes financial
statement presentation and disclosure requirements for assets and liabilities reported at fair
value under the election. The Company adopted SFAS No. 159 as of 1 October 2008 and elected not to
fair value any items under this Statement.
Postretirement Benefits
The Company adopted the measurement date change of SFAS No. 158, “Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans,” for its U.K. and Belgium pension plans as of 1
October 2008. SFAS No. 158 required the Company to change the measurement date for these plans
from 30 June to 30 September (end of fiscal year). As a result of this change, pension expense and
actuarial gains/losses for the three-month period ended 30 September 2008 were recognized as
adjustments to the beginning balances of retained earnings and Accumulated Other
Comprehensive Income (AOCI), respectively. The after-tax charge to retained earnings was $8.1.
AOCI was credited $35.8 for net actuarial gains on an after-tax basis. These adjustments only
affected the balance sheet.
7
Fair Value Measurements
Effective 1 October 2008, the Company adopted SFAS No. 157, “Fair Value Measurements,” for
financial assets and liabilities and any other assets and liabilities that are recognized and
disclosed at fair value on a recurring basis. This Statement defines fair value, establishes a
method for measuring fair value, and requires additional disclosures about fair value measurements.
FASB Staff Position No. 157-2 delayed the adoption of SFAS No. 157 for other nonfinancial assets
and liabilities until 1 October 2009 for the Company. The adoption of SFAS No. 157 did not impact
the Company’s financial statements for assets and liabilities measured at fair value on a recurring
basis.
Refer to Note 6 for the new disclosures required under SFAS No. 157.
3. GLOBAL COST REDUCTION PLAN
During the first quarter ended 31 December 2008, the Company announced a global cost reduction plan
designed to lower its cost structure and better align its businesses to reflect rapidly declining
economic conditions around the world. The results from continuing operations included a charge of
$174.2 ($116.1 after-tax, or $.55 per share) for this plan. This charge included $120.0 for
severance and pension-related costs. The Company will eliminate approximately 1,400 positions, or
about seven percent of its global workforce. The reductions are targeted at reducing overhead and
infrastructure costs, reducing and refocusing elements of the Company’s technology and business
development spending, and lowering its plant operating costs. The remainder of the charge, $54.2,
is for business exits and asset management actions. Assets held for sale were written down to net
realizable value and an environmental liability of $16.0 was recognized. This environmental
liability results from a decision to sell a production facility. The planned actions are expected
to be substantially completed by the end of the first quarter of fiscal year 2010.
The charge for the global cost reduction plan was excluded from segment operating profit. The
table below displays how this charge related to the businesses at the segment level:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
|
|
|
|
|
|
Severance and
|
|
Impairment/
|
|
|
|
|
|
Other Benefits
|
|
Other Costs
|
|
Total
|
|
|
|
Merchant Gases
|
|
$
|
84.5
|
|
|
$
|
6.7
|
|
|
$
|
91.2
|
|
|
Tonnage Gases
|
|
|
11.1
|
|
|
|
—
|
|
|
|
11.1
|
|
|
Electronics and Performance Materials
|
|
|
21.7
|
|
|
|
47.2
|
|
|
|
68.9
|
|
|
Equipment and Energy
|
|
|
2.7
|
|
|
|
.3
|
|
|
|
3.0
|
|
|
|
|
Total 2009 Charge
|
|
$
|
120.0
|
|
|
$
|
54.2
|
|
|
$
|
174.2
|
|
|
|
|
|
|
The following table summarizes changes to the carrying amount of the accrual for the global cost
reduction plan for the six months ended 31 March 2009:
|
|
|
|
|
|
|
|
|
|
Asset
|
|
|
|
|
|
Severance and
|
|
Impairments/
|
|
|
|
|
|
Other Benefits
|
|
Other Costs
|
|
Total
|
|
|
|
2009 Charge
|
|
$
|
120.0
|
|
|
$
|
54.2
|
|
|
$
|
174.2
|
|
|
Environmental charge (see Note 12)
|
|
|
—
|
|
|
|
(16.0
|
)
|
|
|
(16.0
|
)
|
|
Noncash expenses
|
|
|
(14.6
|
)
|
|
|
(32.1
|
)
|
|
|
(46.7
|
)
|
|
Cash expenditures
|
|
|
(22.1
|
)
|
|
|
(.4
|
)
|
|
|
(22.5
|
)
|
|
Currency translation adjustment
|
|
|
(1.9
|
)
|
|
|
—
|
|
|
|
(1.9
|
)
|
|
|
|
Accrual Balance at 31 March 2009
|
|
$
|
81.4
|
|
|
$
|
5.7
|
|
|
$
|
87.1
|
|
|
|
4. DISCONTINUED OPERATIONS
The U.S. Healthcare business, Polymer Emulsions business, and the High Purity Process Chemicals
(HPPC) business have been accounted for as discontinued operations. The results of operations of
these businesses have been removed from the results of continuing operations for all periods
presented.
For additional historical information on these discontinued operations, refer to the Company’s 2008
annual report on Form 10-K.
8
U.S. Healthcare
In July 2008, the Board of Directors authorized management to pursue the sale of the U.S.
Healthcare business. In 2008, the Company recorded a total charge of $329.2 ($246.2 after-tax, or
$1.12 per share) related to the impairment/write-down of the net carrying value of the U.S.
Healthcare business. In April 2009, the Company signed a contract to divest approximately half of
its remaining U.S. Healthcare business and expects to conclude the sale of the remaining portions
of this business in 2009.
In the first quarter of 2009, based on additional facts, the Company recorded an impairment charge
of $48.7
($30.9 after-tax, or $.15 per share) reflecting a revision in the estimated net realizable value of
the U.S. Healthcare business. Also, a tax benefit of $8.8, or $.04 per share, was recorded to
revise the estimated tax benefit related to previously recognized impairment charges.
As a result of events occurring during the second quarter of 2009, which increased the Company’s
ability to realize tax benefits associated with the impairment charges recorded in 2008, the
Company recognized a one-time tax benefit of $16.7, or $.08 per share.
Additional charges may be recorded in future periods dependent upon the timing and method of
ultimate disposition.
The operating results of the U.S. Healthcare business have been classified as discontinued
operations and are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
31 March
|
|
31 March
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
Sales
|
|
$
|
43.9
|
|
|
$
|
62.6
|
|
|
$
|
92.1
|
|
|
$
|
128.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes
|
|
$
|
(1.0
|
)
|
|
$
|
(10.6
|
)
|
|
$
|
.1
|
|
|
$
|
(19.1
|
)
|
|
Income tax provision (benefit)
|
|
|
(.4
|
)
|
|
|
(4.0
|
)
|
|
|
—
|
|
|
|
(7.2
|
)
|
|
|
|
Income (loss) from operations of discontinued operations
|
|
$
|
(.6
|
)
|
|
$
|
(6.6
|
)
|
|
$
|
.1
|
|
|
$
|
(11.9
|
)
|
|
Impairment/write-down to estimated net realizable value,
net of tax
|
|
|
16.9
|
|
|
|
—
|
|
|
|
(5.2
|
)
|
|
|
—
|
|
|
|
|
Income (loss) from discontinued operations, net of tax
|
|
$
|
16.3
|
|
|
$
|
(6.6
|
)
|
|
$
|
(5.1
|
)
|
|
$
|
(11.9
|
)
|
|
|
Details of balance sheet items for the U.S. Healthcare business are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
31 March 2009
|
|
30 September 2008
|
|
|
|
Trade receivables, less allowances
|
|
$
|
38.3
|
|
|
$
|
47.7
|
|
|
Inventories
|
|
|
5.7
|
|
|
|
7.2
|
|
|
Prepaid expenses
|
|
|
1.4
|
|
|
|
1.4
|
|
|
Other receivables
|
|
|
—
|
|
|
|
.2
|
|
|
|
|
Total Current Assets
|
|
$
|
45.4
|
|
|
$
|
56.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plant and equipment, net
|
|
$
|
12.1
|
|
|
$
|
58.7
|
|
|
Other noncurrent assets
|
|
|
.2
|
|
|
|
—
|
|
|
|
|
Total Noncurrent Assets
|
|
$
|
12.3
|
|
|
$
|
58.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payables and accrued liabilities
|
|
$
|
8.4
|
|
|
$
|
6.8
|
|
|
Current portion long-term debt
|
|
|
.8
|
|
|
|
1.0
|
|
|
|
|
Total Current Liabilities
|
|
$
|
9.2
|
|
|
$
|
7.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
.8
|
|
|
$
|
1.2
|
|
|
|
|
Total Noncurrent Liabilities
|
|
$
|
.8
|
|
|
$
|
1.2
|
|
|
|
9
Polymer Emulsions Business
On 31 January 2008, the Company sold its Polymers Emulsions business to Wacker Chemie AG, its
long-time joint venture partner. As part of the agreement, the Company received Wacker Chemie AG’s
interest in the Elkton, Md. and Piedmont, S.C. production facilities and their related businesses
plus cash proceeds of $258.2. The Company recognized a gain on the sale of $89.5 ($57.7
after-tax).
In the second quarter of 2008, the Polymer Emulsions business generated sales of $78.8 and income
from operations, net of tax, of $3.3. For the six months ended 31 March 2008, sales were $230.0
and income from operations, net of tax, was $10.1.
HPPC Business
In the first quarter of 2008, the HPPC business generated sales of $22.9 and income from
operations, net of tax, of $.2. The Company closed on the sale of its HPPC business on 31 December
2007.
5. FINANCIAL INSTRUMENTS
Currency Price Risk Management
The Company’s earnings, cash flows, and financial position are exposed to foreign currency risk
from foreign currency denominated transactions and net investments in foreign operations. It is
the policy of the Company to minimize its cash flow exposure to adverse changes in currency and
exchange rates. This is accomplished by identifying and evaluating the risk that the Company’s
cash flows will decline in value due to changes in exchange rates, and by determining the
appropriate strategies necessary to manage such exposures. The Company’s objective is to maintain
economically balanced currency risk management strategies that provide adequate downside
protection.
Forward Exchange Contracts
The Company enters into forward exchange contracts to reduce the cash flow exposure to foreign
currency fluctuations associated with highly anticipated cash flows and certain firm commitments
such as the purchase of plant and equipment. Forward exchange contracts are also used to hedge the
value of investments in certain foreign subsidiaries and affiliates by creating a liability in a
currency in which the Company has a net equity position.
The Company recognizes these derivatives on the balance sheet at fair value. On the date the
derivative instrument is entered into, the Company generally designates the derivative as either
(1) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid
related to a recognized asset or liability (cash flow hedge), (2) a hedge of a net investment in a
foreign operation (net investment hedge), or (3) a hedge of the fair value of a recognized asset or
liability or of an unrecognized firm commitment (fair value hedge).
In addition to the foreign exchange contracts that are designated as hedges under SFAS No. 133,
“Accounting for Derivative Instruments and Hedging Activities” (SFAS No. 133), the Company also
utilizes forward exchange contracts that are not designated as hedges. These contracts are used to
hedge foreign currency-denominated monetary assets and liabilities, primarily intercompany loans
and working capital. The primary objective of these forward contracts is to protect the value of
foreign currency-denominated monetary assets and liabilities from the effects of volatility in
foreign exchange rates that might occur prior to their receipt or settlement.
Option Contracts
The Company enters into option contracts to reduce the cash flow exposure to foreign currency
fluctuations associated with highly anticipated export sales transactions. The Company recognizes
these derivatives on the balance sheet at fair value. On the date the derivative instrument is
entered into, the Company designates these derivatives as cash flow hedges.
10
The table below summarizes the Company’s outstanding currency price risk management instruments as
of 31 March 2009 and 30 September 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31 March 2009
|
|
30 September 2008
|
|
|
|
US$
|
|
Years Average
|
|
US$
|
|
Years Average
|
|
|
|
Notional
|
|
Maturity
|
|
Notional
|
|
Maturity
|
|
|
|
Forward exchange contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges
|
|
$
|
654.4
|
|
|
|
.5
|
|
|
$
|
824.5
|
|
|
|
.6
|
|
|
Net investment hedges
|
|
|
745.8
|
|
|
|
3.5
|
|
|
|
749.5
|
|
|
|
4.0
|
|
|
Fair value hedges
|
|
|
5.0
|
|
|
|
.1
|
|
|
|
10.3
|
|
|
|
.3
|
|
|
Hedges not designated under SFAS No. 133
|
|
|
1,369.4
|
|
|
|
.4
|
|
|
|
1,282.8
|
|
|
|
.3
|
|
|
|
|
Total forward exchange contracts
|
|
$
|
2,774.6
|
|
|
|
1.3
|
|
|
$
|
2,867.1
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges
|
|
$
|
16.8
|
|
|
|
.4
|
|
|
$
|
26.0
|
|
|
|
.3
|
|
|
|
|
Total options
|
|
$
|
16.8
|
|
|
|
.4
|
|
|
$
|
26.0
|
|
|
|
.3
|
|
|
|
In addition to the above, the Company uses foreign currency denominated debt and net liability
positions primarily in European U.S. dollar functional entities to hedge the foreign currency
exposures of the Company’s net investment in certain foreign affiliates. The foreign currency
denominated debt includes the
€
1,450.0 Eurobonds due in 2010 through 2017, and the net liability
positions include
€
250.6 and £152.9 at 31 March 2009 and
€
218.4 and £110.8 at 30 September 2008.
These non-U.S. dollar borrowings and net liability positions are designated as hedges of net
investments.
Debt Portfolio Management
It is the policy of the Company to identify on a continuing basis the need for debt capital and
evaluate the financial risks inherent in funding the Company with debt capital. Reflecting the
result of this ongoing review, the debt portfolio and hedging program of the Company are managed
with the objectives and intent to (1) reduce funding risk with respect to borrowings made by the
Company to preserve the Company’s access to debt capital and provide debt capital as required for
funding and liquidity purposes, and (2) manage the aggregate interest rate risk and the debt
portfolio in accordance with certain debt management parameters.
Interest Rate Swap Contracts
The Company enters into interest rate swap contracts to change the fixed/variable interest rate
mix of its debt portfolio in order to maintain the percentage of fixed-and variable-rate debt
within the parameters set by management. In accordance with these parameters, the agreements are
used to optimize interest rate risks and costs inherent in the Company’s debt portfolio. In
addition, the Company may use interest rate swap agreements to hedge the interest rate on
anticipated fixed-rate debt issuance. The notional amount of the interest rate swap agreements is
equal to or less than the designated debt instrument being hedged. When variable-rate debt is
hedged, the variable-rate indices of the swap instruments and the debt to which they are designated
are the same. It is the Company’s policy not to enter into any interest rate swap contracts which
lever a move in interest rates on a greater than one-to-one basis.
Cross Currency Interest Rate Swap Contracts
The Company also enters into cross currency interest rate swap contracts. These contracts may
entail both the exchange of fixed- and floating-rate interest payments periodically over the life
of the agreement and the exchange of one currency for another currency at inception and at a
specified future date. These contracts effectively convert the currency denomination of a debt
instrument into another currency in which the Company has a net equity position while changing the
interest rate characteristics of the instrument. The contracts are used to hedge intercompany and
third-party borrowing transactions and certain net investments in foreign operations.
11
The following table summarizes the interest rate swaps and cross currency interest rate swaps
outstanding as of
31 March 2009 and 30 September 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31 March 2009
|
|
30 September 2008
|
|
|
|
US$
|
|
|
|
|
|
Average
|
|
US$
|
|
|
|
|
|
Average
|
|
|
|
Notional
|
|
Pay %
|
|
Receive %
|
|
Notional
|
|
Pay %
|
|
Receive %
|
|
|
|
Interest rate swaps
(fair value hedges)
|
|
$
|
313.7
|
|
|
6 month LIBOR
|
|
|
4.49
|
%
|
|
$
|
321.9
|
|
|
6 month LIBOR
|
|
|
4.49
|
%
|
|
Cross currency
interest rate swaps
(net investment
hedge)
|
|
$
|
32.2
|
|
|
|
5.54
|
%
|
|
|
5.48
|
%
|
|
$
|
40.3
|
|
|
|
5.55
|
%
|
|
|
3.89
|
%
|
|
|
Commodity Price Risk Management
The Company has entered into a limited number of commodity swap contracts in order to reduce the
cash flow exposure to changes in the price of natural gas relative to certain oil-based feedstocks.
The Company has also entered into contracts hedging the cash flow exposure of changes in the
market price of certain metals which are raw materials used in the fabrication of certain
industrial gas equipment with the overall intent of locking in, or minimizing its exposure to these
base metals. As of 31 March 2009, there are no outstanding contracts hedging the changes in the
market price of metals.
The table below summarizes the Company’s outstanding commodity contracts as of 31 March 2009 and 30
September 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31 March 2009
|
|
30 September 2008
|
|
|
|
|
|
|
|
Years Average
|
|
|
|
|
|
Years Average
|
|
|
|
US$ Notional
|
|
Maturity
|
|
US$ Notional
|
|
Maturity
|
|
|
|
Energy
|
|
$
|
49.1
|
|
|
|
.8
|
|
|
$
|
72.6
|
|
|
|
.8
|
|
|
Metals
|
|
|
—
|
|
|
|
—
|
|
|
|
4.2
|
|
|
|
.2
|
|
|
|
|
Total commodity contracts
|
|
$
|
49.1
|
|
|
|
.8
|
|
|
$
|
76.8
|
|
|
|
.8
|
|
|
|
12
The table below summarizes the fair value and balance sheet location of the Company’s outstanding
derivatives at 31 March 2009 and 30 September 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31 March
|
|
30 September
|
|
|
|
|
|
31 March
|
|
30 September
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
Balance Sheet
|
|
|
|
|
|
|
|
|
|
Balance Sheet
|
|
|
|
|
|
|
|
Location
|
|
Fair Value
|
|
Fair Value
|
|
Location
|
|
Fair Value
|
|
Fair Value
|
|
|
|
Derivatives
designated as
hedging instruments
under SFAS No. 133:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange
contracts
|
|
Other Receivables
|
|
$
|
34.5
|
|
|
$
|
23.4
|
|
|
Accrued Liabilities
|
|
$
|
37.7
|
|
|
$
|
24.4
|
|
|
Interest rate swap
contracts
|
|
Other Receivables
|
|
|
6.5
|
|
|
|
—
|
|
|
Accrued Liabilities
|
|
|
—
|
|
|
|
—
|
|
|
Commodity swap
contracts
|
|
Other Receivables
|
|
|
15.4
|
|
|
|
5.9
|
|
|
Accrued Liabilities
|
|
|
12.6
|
|
|
|
2.5
|
|
|
Currency option
contracts
|
|
Other Receivables
|
|
|
2.1
|
|
|
|
1.7
|
|
|
Accrued Liabilities
|
|
|
—
|
|
|
|
—
|
|
|
Cross currency
interest rate swap
contracts
|
|
Other Receivables
|
|
|
—
|
|
|
|
1.2
|
|
|
Accrued Liabilities
|
|
|
—
|
|
|
|
—
|
|
|
Foreign exchange contracts
|
|
Other Noncurrent Assets
|
|
|
54.0
|
|
|
|
19.6
|
|
|
Other Noncurrent Liabilities
|
|
|
30.6
|
|
|
|
29.8
|
|
|
Interest rate swap contracts
|
|
Other Noncurrent Assets
|
|
|
8.4
|
|
|
|
4.4
|
|
|
Other Noncurrent Liabilities
|
|
|
—
|
|
|
|
3.5
|
|
|
Commodity swap contracts
|
|
Other Noncurrent Assets
|
|
|
—
|
|
|
|
1.8
|
|
|
Other Noncurrent Liabilities
|
|
|
—
|
|
|
|
.4
|
|
|
Cross currency interest rate swap contracts
|
|
Other Noncurrent Assets
|
|
|
.7
|
|
|
|
—
|
|
|
Other Noncurrent Liabilities
|
|
|
—
|
|
|
|
—
|
|
|
|
|
Total derivatives
designated as
hedging instruments
under SFAS No. 133
|
|
|
|
|
|
$
|
121.6
|
|
|
$
|
58.0
|
|
|
|
|
|
|
$
|
80.9
|
|
|
$
|
60.6
|
|
|
|
|
Derivatives not
designated as
hedging instruments
under SFAS No.
133:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange
contracts
|
|
Other Receivables
|
|
$
|
19.6
|
|
|
$
|
10.2
|
|
|
Accrued Liabilities
|
|
$
|
46.6
|
|
|
$
|
55.0
|
|
|
|
|
Total derivatives
not designated as
hedging instruments
under SFAS No. 133
|
|
|
|
|
|
$
|
19.6
|
|
|
$
|
10.2
|
|
|
|
|
|
|
$
|
46.6
|
|
|
$
|
55.0
|
|
|
|
|
Total Derivatives
|
|
|
|
|
|
$
|
141.2
|
|
|
$
|
68.2
|
|
|
|
|
|
|
$
|
127.5
|
|
|
$
|
115.6
|
|
|
|
Refer to Note 6 for SFAS No. 157, “Fair Value Measurements,” which defines fair value, establishes
a method for measuring fair value, provides additional disclosures regarding fair value
measurements, and discusses the Company’s counterparty risk.
13
The following details summarize the accounting treatment of the Company’s cash flow, fair value,
net investment, and non-designated hedges:
|
|
•
|
|
Changes in the fair value of a derivative that is designated as and meets all the
required criteria for a cash flow hedge are recorded in accumulated OCI and then recognized
in earnings when the hedged items affect earnings.
|
|
|
|
|
•
|
|
Changes in the fair value of a derivative that is designated as and meets all the
required criteria for a fair value hedge, along with the gain or loss on the hedged asset
or liability that is attributable to the hedged risk, are recorded in current period
earnings.
|
|
|
|
|
•
|
|
Changes in the fair value of a derivative, foreign currency debt, or other foreign
currency liabilities that are designated as and meet all the required criteria for a hedge
of a net investment are recorded as translation adjustments in accumulated OCI.
|
|
|
|
|
•
|
|
Changes in the fair value of a derivative that is not designated as a hedge are recorded
immediately in earnings.
|
The tables below summarize the information related to our cash flow, net investment, and
non-designated hedges during the three and six month periods ended 31 March 2009 and 31 March 2008.
The outstanding fair value hedges for these time periods are not material.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended 31 March 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross
|
|
|
|
|
|
|
|
|
|
Forward
|
|
Commodity
|
|
Currency
|
|
Currency
|
|
Foreign
|
|
|
|
|
|
|
|
Exchange
|
|
Swap
|
|
Option
|
|
Interest Rate
|
|
Currency
|
|
Net Liability
|
|
|
|
|
|
Contracts
|
|
Contracts
|
|
Contracts
|
|
Swaps
|
|
Debt
|
|
Positions
|
|
Total
|
|
|
|
Cash Flow Hedges
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (gain) loss
recognized in OCI
(effective portion)
|
|
$
|
4.4
|
|
|
$
|
(2.6
|
)
|
|
$
|
(.6
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.2
|
|
|
Net gain (loss)
reclassified from OCI
to sales (effective
portion)
|
|
|
—
|
|
|
|
1.2
|
|
|
|
.8
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2.0
|
|
|
Net gain (loss)
reclassified from OCI
to cost of sales
(effective portion)
|
|
|
.2
|
|
|
|
(.1
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
.1
|
|
|
Net gain (loss) from
OCI to other (income)
expense (ineffective
portion)
|
|
|
(.1
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(.1
|
)
|
|
|
|
Net Investment Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (gain) loss
recognized in OCI
|
|
$
|
(7.6
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(.2
|
)
|
|
$
|
(57.8
|
)
|
|
$
|
(28.0
|
)
|
|
$
|
(93.6
|
)
|
|
Net gain (loss)
reclassified from OCI
to other (income)
expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
Non-designated Hedges
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (gain) loss
recognized in other
(income) expense (a)
|
|
$
|
32.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
32.1
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended 31 March 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross
|
|
|
|
|
|
|
|
|
|
Forward
|
|
Commodity
|
|
Currency
|
|
Currency
|
|
Foreign
|
|
Net
|
|
|
|
|
|
Exchange
|
|
Swap
|
|
Option
|
|
Interest Rate
|
|
Currency
|
|
Liability
|
|
|
|
|
|
Contracts
|
|
Contracts
|
|
Contracts
|
|
Swaps
|
|
Debt
|
|
Positions
|
|
Total
|
|
|
|
Cash Flow Hedges
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (gain) loss
recognized in OCI
(effective portion)
|
|
$
|
1.9
|
|
|
$
|
1.9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3.8
|
|
|
Net gain (loss)
reclassified from OCI
to sales (effective
portion)
|
|
|
(.7
|
)
|
|
|
(.2
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(.9
|
)
|
|
Net gain (loss)
reclassified from OCI
to cost of sales
(effective portion)
|
|
|
3.9
|
|
|
|
(.4
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3.5
|
|
|
Net gain (loss) from
OCI to other (income)
expense (ineffective
portion)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
Net Investment Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (gain) loss
recognized in OCI
|
|
$
|
24.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(.6
|
)
|
|
$
|
58.5
|
|
|
$
|
108.4
|
|
|
$
|
190.6
|
|
|
Net gain (loss)
reclassified from OCI
to other (income)
expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
Non-designated Hedges
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (gain) loss
recognized in other
(income) expense (a)
|
|
$
|
(15.5
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(15.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended 31 March 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross
|
|
|
|
|
|
|
|
|
|
Forward
|
|
Commodity
|
|
Currency
|
|
Currency
|
|
Foreign
|
|
Net
|
|
|
|
|
|
Exchange
|
|
Swap
|
|
Option
|
|
Interest Rate
|
|
Currency
|
|
Liability
|
|
|
|
|
|
Contracts
|
|
Contracts
|
|
Contracts
|
|
Swaps
|
|
Debt
|
|
Positions
|
|
Total
|
|
|
|
Cash Flow Hedges
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (gain) loss
recognized in OCI
(effective portion)
|
|
$
|
7.1
|
|
|
$
|
1.1
|
|
|
$
|
(1.3
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6.9
|
|
|
Net gain (loss)
reclassified from OCI
to sales (effective
portion)
|
|
|
(3.6
|
)
|
|
|
1.5
|
|
|
|
1.0
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1.1
|
)
|
|
Net gain (loss)
reclassified from OCI
to cost of sales
(effective portion)
|
|
|
.1
|
|
|
|
(.1
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Net gain (loss) from
OCI to other (income)
expense (ineffective
portion)
|
|
|
(.1
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(.1
|
)
|
|
|
|
Net Investment Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (gain) loss
recognized in OCI
|
|
$
|
(21.1
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(4.8
|
)
|
|
$
|
(72.7
|
)
|
|
$
|
(70.7
|
)
|
|
$
|
(169.3
|
)
|
|
Net gain (loss)
reclassified from OCI
to other (income)
expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
Non-designated Hedges
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (gain) loss
recognized in other
(income) expense (a)
|
|
$
|
9.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9.4
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended 31 March 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross
|
|
|
|
|
|
|
|
|
|
Forward
|
|
Commodity
|
|
Currency
|
|
Currency
|
|
Foreign
|
|
Net
|
|
|
|
|
|
Exchange
|
|
Swap
|
|
Option
|
|
Interest Rate
|
|
Currency
|
|
Liability
|
|
|
|
|
|
Contracts
|
|
Contracts
|
|
Contracts
|
|
Swaps
|
|
Debt
|
|
Positions
|
|
Total
|
|
|
|
Cash Flow Hedges
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (gain) loss
recognized in OCI
(effective portion)
|
|
$
|
6.8
|
|
|
$
|
2.8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9.6
|
|
|
Net gain (loss)
reclassified from OCI
to sales (effective
portion)
|
|
|
(1.8
|
)
|
|
|
(0.1
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1.9
|
)
|
|
Net gain (loss)
reclassified from OCI
to cost of sales
(effective portion)
|
|
|
4.5
|
|
|
|
(1.0
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3.5
|
|
|
Net gain (loss) from
OCI to other (income)
expense (ineffective
portion)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
Net Investment Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (gain) loss
recognized in OCI
|
|
$
|
23.9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(1.3
|
)
|
|
$
|
146.5
|
|
|
$
|
66.6
|
|
|
$
|
235.7
|
|
|
Net gain (loss)
reclassified from OCI
to other (income)
expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
Non-designated Hedges
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (gain) loss
recognized in other
(income) expense (a)
|
|
$
|
(8.2
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(8.2
|
)
|
|
|
|
(a)
|
|
The impact of the non-designated hedges noted above was largely offset by gains and losses,
respectively, resulting from the impact of changes in exchange rates on recognized assets and
liabilities denominated in non-functional currencies.
|
Credit Risk-Related Contingent Features
Certain derivative instruments are executed under agreements that require the Company to maintain a
credit rating of at least A- from Standard & Poor’s and A3 from Moody’s. If the Company’s credit
rating falls below these levels, the counterparty to the derivative instruments has the right to
request full collateralization on the derivatives’ net liability position. The net liability
position of derivatives with credit risk-related contingent features is $2.6 and $21.5 as of 31
March 2009 and 30 September 2008, respectively. Because of the Company’s current credit rating of
A from Standard & Poor’s and A2 from Moody’s, no collateral has been posted on these liability
positions.
Counterparty Credit Risk Management
The Company executes all derivative transactions with counterparties that are highly rated
financial institutions, and all of which are investment grade at this time. Some of the Company’s
underlying derivative agreements give the Company the right to require the institution to post
collateral if its credit rating falls below A- from Standard & Poor’s or A3 from Moody’s. These
are the same agreements referenced in Credit Risk-Related Contingent Features above. The collateral
that the counterparties would be required to post is $66.1 as of 31 March 2009 and $14.1 as of
30 September 2008. No financial institution is required to post collateral at this time, as all
have credit ratings at or above the threshold.
16
6. FAIR VALUE MEASUREMENTS
As discussed in Note 2 on New Accounting Standards, the Company adopted SFAS No. 157 as of 1
October 2008, with the exception of the application of the Statement to nonrecurring nonfinancial
assets and nonfinancial liabilities, for which adoption has been delayed until 1 October 2009.
SFAS No. 157 defines fair value as an exit price (i.e., the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date). SFAS No. 157 establishes a three-level fair value hierarchy that prioritizes
the inputs to valuation techniques used to measure fair value.
|
|
•
|
|
Level 1 — Quoted prices (unadjusted) in active markets for identical assets or
liabilities.
|
|
|
|
|
•
|
|
Level 2 — Inputs that are observable for the asset or liability, either directly or
indirectly through market corroboration, for substantially the full term of the asset or
liability.
|
|
|
|
|
•
|
|
Level 3 — Inputs that are unobservable for the asset or liability based on the Company’s
own assumptions (about the assumptions market participants would use in pricing the asset
or liability).
|
The following table summarizes assets and liabilities measured at fair value on a recurring basis
in the consolidated balance sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31 March 2009
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
Assets at Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
$
|
14.9
|
|
|
$
|
—
|
|
|
$
|
14.9
|
|
|
$
|
—
|
|
|
Cross currency interest rate
swap contracts
|
|
|
.7
|
|
|
|
—
|
|
|
|
.7
|
|
|
|
—
|
|
|
Currency option contracts
|
|
|
2.1
|
|
|
|
—
|
|
|
|
2.1
|
|
|
|
—
|
|
|
Forward exchange contracts
|
|
|
108.1
|
|
|
|
—
|
|
|
|
108.1
|
|
|
|
—
|
|
|
Commodity swap contracts
|
|
|
15.4
|
|
|
|
—
|
|
|
|
15.4
|
|
|
|
—
|
|
|
Other investments (b)
|
|
|
14.3
|
|
|
|
14.3
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
Total Assets at Fair Value
|
|
$
|
155.5
|
|
|
$
|
14.3
|
|
|
$
|
141.2
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities at Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward exchange contracts
|
|
$
|
114.9
|
|
|
$
|
—
|
|
|
$
|
114.9
|
|
|
$
|
—
|
|
|
Commodity swap contracts
|
|
|
12.6
|
|
|
|
—
|
|
|
|
12.6
|
|
|
|
—
|
|
|
|
|
Total Liabilities at Fair Value
|
|
$
|
127.5
|
|
|
$
|
—
|
|
|
$
|
127.5
|
|
|
$
|
—
|
|
|
|
|
(a)
|
|
The fair value of the Company’s interest rate swap agreements and foreign exchange contracts
are based on estimates using standard pricing models that take into account the present value
of future cash flows as of the balance sheet date. The computation of the fair values of
these instruments is generally performed by the Company. These standard pricing models
utilize inputs which are derived from or corroborated by observable market data such as
interest rate yield curves and currency spot and forward rates. In addition, on an ongoing
basis, the Company randomly tests a subset of its valuations against valuations received from
the counterparty to the transaction to validate the accuracy of its standard pricing models.
The fair value of commodity swaps is based on current market price as provided by the
financial institutions with which the commodity swaps have been executed. Counterparties to
these derivative contracts are highly rated financial institutions none of which experienced
significant downgrades since 30 September 2008 that could reduce the receivable amount
collectible.
|
|
(b)
|
|
The fair value of other investments in publicly traded companies is based on quoted market
prices from the New York and Tokyo stock exchanges.
|
Refer to Note 1 in the Company’s 2008 annual report on Form 10-K and Note 5 in this quarterly
filing for additional information on the Company’s accounting and reporting of the fair value of
financial instruments.
17
7. INVENTORIES
The components of inventories are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
31 March
|
|
30 September
|
|
|
|
2009
|
|
2008
|
|
|
|
Inventories at FIFO Cost
|
|
|
|
|
|
|
|
|
|
Finished goods
|
|
$
|
389.1
|
|
|
$
|
365.1
|
|
|
Work in process
|
|
|
22.7
|
|
|
|
22.4
|
|
|
Raw materials and supplies
|
|
|
173.5
|
|
|
|
183.5
|
|
|
|
|
|
|
|
585.3
|
|
|
|
571.0
|
|
|
Less: excess of FIFO cost over LIFO cost
|
|
|
(78.7
|
)
|
|
|
(67.3
|
)
|
|
|
|
|
|
$
|
506.6
|
|
|
$
|
503.7
|
|
|
|
FIFO cost approximates replacement cost. The Company’s inventories have a high turnover, and as a
result, there is little difference between the original cost of an item and its current replacement
cost.
8. GOODWILL
Changes to the carrying amount of consolidated goodwill by segment for the six months ended 31
March 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
|
|
Currency
|
|
|
|
|
|
30 September
|
|
and
|
|
Translation
|
|
31 March
|
|
|
|
2008
|
|
Adjustments
|
|
and Other
|
|
2009
|
|
|
|
Merchant Gases
|
|
$
|
626.5
|
|
|
$
|
1.4
|
|
|
$
|
(96.7
|
)
|
|
$
|
531.2
|
|
|
Tonnage Gases
|
|
|
18.0
|
|
|
|
—
|
|
|
|
(4.5
|
)
|
|
|
13.5
|
|
|
Electronics and Performance Materials
|
|
|
283.6
|
|
|
|
(.9
|
)
|
|
|
(16.2
|
)
|
|
|
266.5
|
|
|
|
|
|
|
$
|
928.1
|
|
|
$
|
.5
|
|
|
$
|
(117.4
|
)
|
|
$
|
811.2
|
|
|
|
Goodwill is subject to impairment testing at least annually. In addition, goodwill is tested more
frequently if a change in circumstances or the occurrence of events indicates that potential
impairment exists.
9. SHARE-BASED COMPENSATION
The Company has various share-based compensation programs, which include stock options, deferred
stock units, and restricted shares. During the six months ended 31 March 2009, the Company granted
2.0 million stock options at a weighted-average exercise price of $66.90 and an estimated fair
value of $20.86 per option. The fair value of these options was estimated using a lattice-based
option valuation model that used the following assumptions: expected volatility of 31.2%; expected
dividend yield of 2.1%; expected life in years of 6.7-8.0; and a risk-free interest rate of
3.5%-3.9%. In addition, the Company granted 379,961 deferred stock units at a weighted-average
grant-date fair value of $52.12 and 40,092 restricted shares at a weighted-average grant-date fair
value of $64.01. Refer to Note 15 in the Company’s 2008 annual report on Form 10-K for information
on the valuation and accounting for these programs.
Share-based compensation cost charged against income in the three and six months ended 31 March
2009 was $12.7 ($7.8 after-tax) and $30.1 ($18.5 after-tax), respectively. Of the share-based
compensation cost recognized, 77% was a component of selling and administrative expense, 14% a
component of cost of sales, and 9% a component of research and development. Share-based
compensation cost charged against income in the three and six months ended 31 March 2008 was $16.0
($9.9 after-tax) and $33.0 ($20.3 after-tax), respectively. The amount of share-based compensation
cost capitalized in 2009 and 2008 was not material.
18
10. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share (EPS):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
31 March
|
|
31 March
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
NUMERATOR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Used in basic and diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
189.3
|
|
|
$
|
259.8
|
|
|
$
|
279.3
|
|
|
$
|
522.1
|
|
|
Income (loss) from discontinued operations
|
|
|
16.3
|
|
|
|
54.5
|
|
|
|
(5.1
|
)
|
|
|
55.9
|
|
|
|
|
Net Income
|
|
$
|
205.6
|
|
|
$
|
314.3
|
|
|
$
|
274.2
|
|
|
$
|
578.0
|
|
|
|
|
DENOMINATOR
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares used in
basic EPS
|
|
|
209.6
|
|
|
|
212.3
|
|
|
|
209.5
|
|
|
|
213.6
|
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options
|
|
|
1.7
|
|
|
|
5.8
|
|
|
|
1.7
|
|
|
|
6.1
|
|
|
Other award plans
|
|
|
1.0
|
|
|
|
1.1
|
|
|
|
1.0
|
|
|
|
1.1
|
|
|
|
|
|
|
|
2.7
|
|
|
|
6.9
|
|
|
|
2.7
|
|
|
|
7.2
|
|
|
|
|
Weighted average number of common shares and dilutive
potential common shares used in diluted EPS
|
|
|
212.3
|
|
|
|
219.2
|
|
|
|
212.2
|
|
|
|
220.8
|
|
|
|
|
BASIC EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
.90
|
|
|
$
|
1.22
|
|
|
$
|
1.33
|
|
|
$
|
2.45
|
|
|
Income (loss) from discontinued operations
|
|
|
.08
|
|
|
|
.26
|
|
|
|
(.02
|
)
|
|
|
.26
|
|
|
|
|
Net Income
|
|
$
|
.98
|
|
|
$
|
1.48
|
|
|
$
|
1.31
|
|
|
$
|
2.71
|
|
|
|
|
DILUTED EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
.89
|
|
|
$
|
1.18
|
|
|
$
|
1.32
|
|
|
$
|
2.37
|
|
|
Income (loss) from discontinued operations
|
|
|
.08
|
|
|
|
.25
|
|
|
|
(.03
|
)
|
|
|
.25
|
|
|
|
|
Net Income
|
|
$
|
.97
|
|
|
$
|
1.43
|
|
|
$
|
1.29
|
|
|
$
|
2.62
|
|
|
|
Options on 8.6 and 8.7 million shares were antidilutive and therefore excluded from the computation
of diluted earnings per share for the three and six months ended 31 March 2009, respectively.
Options on 1.2 million shares were antidilutive and therefore excluded from the computation for the
three and six months ended 31 March 2008.
19
11. RETIREMENT BENEFITS
The components of net pension cost for the defined benefit pension plans and other postretirement
benefit cost were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended 31 March
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
|
|
Service cost
|
|
$
|
14.7
|
|
|
$
|
19.6
|
|
|
$
|
.8
|
|
|
$
|
1.5
|
|
|
Interest cost
|
|
|
45.2
|
|
|
|
45.5
|
|
|
|
1.7
|
|
|
|
1.4
|
|
|
Expected return on plan assets
|
|
|
(49.6
|
)
|
|
|
(52.0
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Prior service cost (credit) amortization
|
|
|
1.0
|
|
|
|
.8
|
|
|
|
(.3
|
)
|
|
|
(.3
|
)
|
|
Actuarial loss amortization
|
|
|
3.6
|
|
|
|
9.8
|
|
|
|
(.1
|
)
|
|
|
.4
|
|
|
Settlement and curtailment charges
|
|
|
—
|
|
|
|
26.3
|
|
|
|
—
|
|
|
|
—
|
|
|
Special termination benefits
|
|
|
.2
|
|
|
|
.5
|
|
|
|
—
|
|
|
|
—
|
|
|
Other
|
|
|
.7
|
|
|
|
.1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
15.8
|
|
|
$
|
50.6
|
|
|
$
|
2.1
|
|
|
$
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended 31 March
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
|
|
Service cost
|
|
$
|
29.8
|
|
|
$
|
39.2
|
|
|
$
|
2.3
|
|
|
$
|
3.0
|
|
|
Interest cost
|
|
|
91.0
|
|
|
|
91.2
|
|
|
|
3.1
|
|
|
|
2.9
|
|
|
Expected return on plan assets
|
|
|
(98.6
|
)
|
|
|
(104.1
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Prior service cost (credit) amortization
|
|
|
2.0
|
|
|
|
1.6
|
|
|
|
(.7
|
)
|
|
|
(.7
|
)
|
|
Actuarial loss amortization
|
|
|
7.4
|
|
|
|
19.7
|
|
|
|
.3
|
|
|
|
.8
|
|
|
Settlement and curtailment charges
|
|
|
—
|
|
|
|
27.7
|
|
|
|
—
|
|
|
|
—
|
|
|
Special termination benefits
|
|
|
14.8
|
|
|
|
.5
|
|
|
|
—
|
|
|
|
—
|
|
|
Other
|
|
|
.8
|
|
|
|
1.0
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
47.2
|
|
|
$
|
76.8
|
|
|
$
|
5.0
|
|
|
$
|
6.0
|
|
|
|
Special termination benefits for the six months ended 31 March 2009 included $14.4 for the global
cost reduction plan.
For the six months ended 31 March 2009, pension contributions of $153.5 were made. Total
contributions for 2009 are expected to be approximately $175. For the six months ended 31 March
2008, pension contributions of $118.3 were made. During 2008, total
contributions were $234.0.
A number of corporate officers and others who were eligible for supplemental pension plan benefits
retired in fiscal years 2007 and 2008. The Company’s supplemental pension plan provides for a lump
sum benefit payment option at the time of retirement, or for corporate officers six months after
the participant’s retirement date. The Company recognizes pension settlements when payments exceed
the sum of service and interest cost components of net periodic pension cost of the plan for the
fiscal year. A settlement loss is recognized when the pension obligation is settled. Based on the
timing of when cash payments were made, the Company recognized $26.3 and $27.7 in the three and six
months ended 31 March 2008, respectively. The Company expects to recognize settlement charges in
the second half of 2009.
20
12. COMMITMENTS AND CONTINGENCIES
Litigation
The Company is involved in various legal proceedings, including competition, environmental, health,
safety, product liability, and insurance matters. In the third quarter of 2008, a unit of the
Brazilian Ministry of Justice issued a report (previously issued in January 2007, and then
withdrawn) on its investigation of the Company’s Brazilian subsidiary, Air Products Brazil Ltda.,
and several other Brazilian industrial gas companies. The report recommended that the Brazilian
Administrative Council for Economic Defense impose sanctions on Air Products Brazil Ltda. and the
other industrial gas companies for alleged anticompetitive activities. The Company intends to
defend this action and cannot, at this time, reasonably predict the ultimate outcome of the
proceedings or sanctions, if any, that will be imposed. While the Company does not expect that any
sums it may have to pay in connection with this or any other legal proceeding would have a
materially adverse effect on its consolidated financial position or net cash flows, a future charge
for regulatory fines or damage awards could have a significant impact on the Company’s net income
in the period in which it is recorded.
Customer Bankruptcy
On 6 January 2009, a customer of the Company began operating under Chapter 11 bankruptcy
protection. This company receives product principally from the Tonnage Gases segment. At 31 March
2009, the Company had outstanding net receivables with the customer of $37.3. Sales and operating
income associated with this customer are not material to the Tonnage Gases segment’s results. At
the present time, the Company does not expect any material charges related to long-term assets
associated with this customer bankruptcy.
Environmental
Accruals for environmental loss contingencies are recorded when it is probable that a liability has
been incurred and the amount of loss can be reasonably estimated. The consolidated balance sheet
at 31 March 2009 and 30 September 2008 included an accrual of $96.1 and $82.9, respectively,
primarily as part of other noncurrent liabilities. The environmental liabilities will be paid over
a period of up to 30 years. The Company estimates the exposure for environmental loss contingencies
to range from $96 to a reasonably possible upper exposure of $110 as of 31 March 2009.
During the first quarter of 2009, the Company recognized a $16.0 environmental liability associated
with a production facility. The Company is required by state law to investigate and remediate a
site upon its sale. In the first quarter of 2009, management committed to a plan to sell this
facility. The Company estimates that it will take at least several years to
complete the remediation efforts at this site.
Refer to Note 19 to the Consolidated Financial Statements in the Company’s 2008 annual report on
Form 10-K for information on the Company’s environmental accruals related to the Pace, Florida and
Piedmont, S.C. facilities. At 31 March 2009, the accrual balances associated with the Pace,
Florida and Piedmont, S.C. facilities totaled $38.7 and $22.7, respectively.
21
13. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
The Company’s segments are organized based on differences in product and/or type of customer. The
Company has four business segments consisting of Merchant Gases, Tonnage Gases, Electronics and
Performance Materials, and Equipment and Energy.
Business Segment Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
31 March
|
|
31 March
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
Revenues from External Customers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchant Gases
|
|
$
|
870.4
|
|
|
$
|
1,008.7
|
|
|
$
|
1,795.6
|
|
|
$
|
2,010.4
|
|
|
Tonnage Gases
|
|
|
624.6
|
|
|
|
867.2
|
|
|
|
1,368.6
|
|
|
|
1,658.3
|
|
|
Electronics and Performance Materials
|
|
|
332.2
|
|
|
|
562.1
|
|
|
|
738.8
|
|
|
|
1,076.4
|
|
|
Equipment and Energy
|
|
|
128.2
|
|
|
|
104.7
|
|
|
|
247.7
|
|
|
|
205.0
|
|
|
|
|
Segment and Consolidated Totals
|
|
$
|
1,955.4
|
|
|
$
|
2,542.7
|
|
|
$
|
4,150.7
|
|
|
$
|
4,950.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchant Gases
|
|
$
|
156.2
|
|
|
$
|
189.2
|
|
|
$
|
326.7
|
|
|
$
|
389.0
|
|
|
Tonnage Gases
|
|
|
98.0
|
|
|
|
111.1
|
|
|
|
206.8
|
|
|
|
222.2
|
|
|
Electronics and Performance Materials
|
|
|
(11.1
|
)
|
|
|
67.6
|
|
|
|
13.5
|
|
|
|
133.6
|
|
|
Equipment and Energy
|
|
|
16.3
|
|
|
|
10.0
|
|
|
|
23.3
|
|
|
|
19.3
|
|
|
|
|
Segment Totals
|
|
|
259.4
|
|
|
|
377.9
|
|
|
|
570.3
|
|
|
|
764.1
|
|
|
Global cost reduction plan (a)
|
|
|
—
|
|
|
|
—
|
|
|
|
(174.2
|
)
|
|
|
—
|
|
|
Pension settlement
|
|
|
—
|
|
|
|
(26.3
|
)
|
|
|
—
|
|
|
|
(27.7
|
)
|
|
Other
|
|
|
1.0
|
|
|
|
(3.0
|
)
|
|
|
(21.6
|
)
|
|
|
(7.4
|
)
|
|
|
|
Consolidated Totals
|
|
$
|
260.4
|
|
|
$
|
348.6
|
|
|
$
|
374.5
|
|
|
$
|
729.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31 March
|
|
30 September
|
|
|
|
2009
|
|
2008
|
|
|
|
Identifiable Assets
(b)
|
|
|
|
|
|
|
|
|
|
Merchant Gases
|
|
$
|
4,518.4
|
|
|
$
|
4,881.6
|
|
|
Tonnage Gases
|
|
|
3,266.0
|
|
|
|
3,335.4
|
|
|
Electronics and Performance Materials
|
|
|
2,109.8
|
|
|
|
2,341.0
|
|
|
Equipment and Energy
|
|
|
301.7
|
|
|
|
300.2
|
|
|
|
|
Segment Totals
|
|
|
10,195.9
|
|
|
|
10,858.2
|
|
|
Other
|
|
|
868.8
|
|
|
|
775.2
|
|
|
Discontinued operations
|
|
|
57.7
|
|
|
|
115.3
|
|
|
|
|
Consolidated Totals
|
|
$
|
11,122.4
|
|
|
$
|
11,748.7
|
|
|
|
|
|
|
|
|
(a)
|
|
Information about this charge at the segment level is discussed in Note 3.
|
|
|
|
(b)
|
|
Identifiable assets are equal to total assets less investments in and advances to equity
affiliates.
|
22
Geographic Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
31 March
|
|
31 March
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
Revenues from External Customers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
978.8
|
|
|
$
|
1,231.6
|
|
|
$
|
2,089.3
|
|
|
$
|
2,378.2
|
|
|
Europe
|
|
|
662.2
|
|
|
|
856.6
|
|
|
|
1,379.6
|
|
|
|
1,664.1
|
|
|
Asia
|
|
|
270.1
|
|
|
|
403.5
|
|
|
|
595.7
|
|
|
|
807.4
|
|
|
Latin America
|
|
|
44.3
|
|
|
|
51.0
|
|
|
|
86.1
|
|
|
|
100.4
|
|
|
|
|
Total
|
|
$
|
1,955.4
|
|
|
$
|
2,542.7
|
|
|
$
|
4,150.7
|
|
|
$
|
4,950.1
|
|
|
|
Geographic information is based on country of origin. The Europe segment operates principally in
Belgium, France, Germany, the Netherlands, Poland, the U.K. and Spain. The Asia segment operates
principally in China, Japan, Korea, and Taiwan.
14. SUPPLEMENTAL INFORMATION
Share Repurchase Program
On 20 September 2007, the Board of Directors authorized the repurchase of up to $1,000 of the
Company’s outstanding common stock. During the six months ended 31 March 2009, the Company did not
purchase any shares under this authorization. At 31 March 2009, $649.2 in share repurchase
authorization remains.
Industrial Revenue Bonds
During the
first quarter of 2009, the Company issued two Industrial Revenue Bonds totaling $80.0, the
proceeds of which must be held in escrow until related project spending occurs. As of 31 March
2009 and 30 September 2008, $139.1 and $181.2 were held in escrow from Industrial Revenue Bond
issuances and classified as other noncurrent assets, respectively.
23
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(
Millions of dollars, except for share data)
The disclosures in this quarterly report are complementary to those made in the Company’s 2008
annual report on Form 10-K. An analysis of results for the second quarter and first six months of
2009, including an update to the Company’s 2009 Outlook, is provided in the Management’s Discussion
and Analysis to follow.
All comparisons in the discussion are to the corresponding prior year unless otherwise stated. All
amounts presented are in accordance with U.S. generally accepted accounting principles, except as
noted. All amounts are presented in millions of dollars, except for share data, unless otherwise
indicated.
SECOND QUARTER 2009 VS. SECOND QUARTER 2008
SECOND QUARTER 2009 IN SUMMARY
|
|
•
|
|
Declining business conditions around the world have created a challenging business
environment across the Company’s end markets. As a result, volumes declined significantly
this quarter as many customers ran at reduced operating rates.
|
|
|
|
|
•
|
|
Sales of $1,955.4 declined 23% from weaker volumes, unfavorable currency impacts, and
lower natural gas and raw material contractual cost pass-through. Underlying business
declined due to lower volumes primarily in the Electronics and Performance Materials
segment and also in the Tonnage Gases segment. Volumes were lower in the Merchant Gases
segment, but this decline was mostly offset by higher pricing.
|
|
|
|
|
•
|
|
Operating income of $260.4 decreased $88.2. Operating income declined principally from
lower volumes and unfavorable currency impacts. Prior year results included a pension
settlement charge of $26.3 for the retirement of certain corporate officers and others who
were eligible for supplemental pension plan benefits.
|
|
|
|
|
•
|
|
Income from continuing operations of $189.3 declined $70.5 and diluted earnings per
share from continuing operations of $.89 declined $.29. A summary table of changes in
diluted earnings per share is presented below.
|
|
|
|
|
•
|
|
Income from discontinued operations was $16.3 or $.08 per share. The Company recognized
a one-time tax benefit of $16.7 ($.08 per share) to increase the tax benefit related to
previously recognized impairment charges associated with the U.S. Healthcare business.
|
|
|
|
|
•
|
|
The Company increased the quarterly dividend from $.44 to $.45 per share. This
represents the 27
th
consecutive year that the Company has increased its dividend
payment.
|
|
|
|
|
•
|
|
For a discussion of the challenges, risks, and opportunities on which management is
focused, refer to the update to the Company’s 2009 Outlook provided on page 36.
|
24
Changes in Diluted Earnings per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
31 March
|
|
Increase
|
|
|
|
2009
|
|
2008
|
|
(Decrease)
|
|
|
|
Diluted Earnings per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
.97
|
|
|
$
|
1.43
|
|
|
$
|
(.46
|
)
|
|
Discontinued Operations
|
|
|
.08
|
|
|
|
.25
|
|
|
|
(.17
|
)
|
|
|
|
Continuing Operations
|
|
$
|
.89
|
|
|
$
|
1.18
|
|
|
$
|
(.29
|
)
|
|
|
|
Operating Income (after-tax)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
|
|
|
|
|
|
|
|
(.52
|
)
|
|
Price/raw materials
|
|
|
|
|
|
|
|
|
|
|
.13
|
|
|
Costs
|
|
|
|
|
|
|
|
|
|
|
.12
|
|
|
Currency
|
|
|
|
|
|
|
|
|
|
|
(.11
|
)
|
|
2008 Pension settlement
|
|
|
|
|
|
|
|
|
|
|
.08
|
|
|
|
|
Operating Income
|
|
|
|
|
|
|
|
|
|
|
(.30
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (after-tax)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity affiliates’ income
|
|
|
|
|
|
|
|
|
|
|
(.05
|
)
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
.03
|
|
|
Average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
.03
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
.01
|
|
|
|
|
Total Change in Diluted Earnings per Share
from Continuing Operations
|
|
|
|
|
|
|
|
|
|
$
|
(.29
|
)
|
|
|
RESULTS OF OPERATIONS
Discussion of Consolidated Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
Ended 31 March
|
|
|
|
|
|
2009
|
|
2008
|
|
% Change
|
|
|
|
Sales
|
|
$
|
1,955.4
|
|
|
$
|
2,542.7
|
|
|
|
(23
|
)%
|
|
Operating income
|
|
|
260.4
|
|
|
|
348.6
|
|
|
|
(25
|
)%
|
|
Equity affiliates’ income
|
|
|
27.0
|
|
|
|
42.4
|
|
|
|
(36
|
)%
|
|
|
Sales
|
|
|
|
|
|
|
|
|
% Change from
|
|
|
|
Prior Year
|
|
|
|
Underlying business
|
|
|
|
|
|
Volume
|
|
|
(13
|
)%
|
|
Price
|
|
|
2
|
%
|
|
Currency
|
|
|
(7
|
)%
|
|
Natural gas/raw material cost pass-through
|
|
|
(5
|
)%
|
|
|
|
Total Consolidated Change
|
|
|
(23
|
)%
|
|
|
Sales of $1,955.4 decreased 23%, or $587.3. Underlying business declined 11% from lower volumes
due to weak demand across most end markets, primarily in the Electronics and Performance Materials
segment and also in the Tonnage Gases segment. Volumes were lower in Merchant Gases but this
decline was mostly offset by higher pricing. Currency unfavorably impacted sales by 7%, due
primarily to the strengthening of the U.S. dollar against key European and Asian currencies.
Natural gas and raw material contractual cost pass-through to customers reduced sales by 5%.
25
Operating Income
Operating income of $260.4 decreased 25%, or $88.2.
|
|
•
|
|
Underlying business declined $81, primarily from lower volumes in the Electronics and
Performance Materials, Tonnage Gases, and Merchant Gases segments. Weakening consumer
confidence, as a result of the deterioration in the global economy, significantly impacted
customers’ operating rates across many of the Company’s end markets. The volume declines
were partially offset by higher prices in Merchant Gases and favorable cost performance.
|
|
|
|
|
•
|
|
Unfavorable currency impacts reduced operating income by $33, reflecting the
strengthening of the U.S. dollar against key European and Asian currencies.
|
|
|
|
|
•
|
|
Prior year results included a pension settlement charge of $26.3 for the retirements of
certain corporate officers and others who were eligible for supplemental pension plan
benefits.
|
Equity Affiliates’ Income
Income from equity affiliates of $27.0 decreased 36%, or $15.4, primarily due to unfavorable
currency impacts and a prior year fine reversal. Results in 2008 included a gain of $6.5 related to
the reimbursement of an antitrust fine levied against an Italian affiliate in 2006. A higher court
overruled the Italian antitrust authority who levied the fine.
Selling and Administrative Expense (S&A)
S&A expense of $230.6 decreased 15%, or $41.5. S&A, as a percent of sales, increased to 11.8% from
10.7%. Favorable currency impacts, primarily the strengthening of the U.S. dollar against the Euro
and Pound Sterling, decreased S&A by 9%. S&A further declined 6% from lower underlying costs,
partially offset by inflation.
Research and Development (R&D)
R&D expense of $29.6 decreased 14%, or $4.7. R&D increased as a percent of sales to 1.5% from
1.3%.
Pension Settlement
A number of corporate officers and others who were eligible for supplemental pension plan benefits
retired in fiscal years 2007 and 2008. The Company’s supplemental pension plan provides for a lump sum benefit
payment option at the time of retirement, or for corporate officers six months after the
participant’s retirement date. The Company recognizes pension settlements when payments exceed the
sum of service and interest cost components of net periodic pension cost of the plan for the fiscal
year. A settlement loss is recognized when the pension obligation is settled. Based on the timing
of when cash payments were made, the Company recognized $26.3 for settlement losses in the three
months ended 31 March 2008. The Company expects to recognize settlement charges in the second half
of 2009.
Other Income, Net
Items recorded to other income arise from transactions and events not directly related to the
principal income earning activities of the Company.
Other income of $5.1 decreased $5.1. No individual items were significant in comparison to the
prior year.
Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
Ended 31 March
|
|
|
|
2009
|
|
2008
|
|
|
|
Interest incurred
|
|
$
|
34.9
|
|
|
$
|
45.5
|
|
|
Less: interest capitalized
|
|
|
4.9
|
|
|
|
6.6
|
|
|
|
|
Interest expense
|
|
$
|
30.0
|
|
|
$
|
38.9
|
|
|
|
Interest incurred decreased $10.6, primarily due to lower average interest rates on variable-rate
debt. The change in capitalized interest is driven by a decrease in project spending which
qualified for capitalization.
26
Effective Tax Rate
The effective tax rate equals the income tax provision divided by income from continuing operations
before taxes less minority interest. The effective tax rate was 26.0% and 25.3% in the second
quarter of 2009 and 2008, respectively.
Discontinued Operations
The U.S. Healthcare business, Polymer Emulsions business, and the High Purity Process Chemicals
(HPPC) business have been accounted for as discontinued operations. The results of operations of
these businesses have been removed from the results of continuing operations for all periods
presented. Refer to Note 4 to the Consolidated Financial Statements for additional information.
U.S. Healthcare
The U.S. Healthcare business generated sales of $43.9 and loss from operations, net of tax, of $.6
in the second quarter of 2009. As a result of events occurring during the quarter, which increased
the Company’s ability to realize tax benefits associated with the impairment charges recorded in
2008, the Company recognized a one-time tax benefit of $16.7, or $.08 per share. Sales in the
second quarter of 2008 were $62.6 and loss from operations, net of tax, was $6.6.
Polymer Emulsions
On 31 January 2008, the Company sold its Polymers Emulsions business to Wacker Chemie AG, its
long-time joint venture partner. As part of the agreement, the Company received Wacker Chemie AG’s
interest in the Elkton, Md. and Piedmont, S.C. production facilities and their related businesses
plus cash proceeds of $258.2. The Company recognized a gain on the sale of $89.5 ($57.7
after-tax). In the second quarter of 2008, the Polymer Emulsions business generated sales of $78.8
and income from operations, net of tax, of $3.3.
Net Income
Net income was $205.6 compared to $314.3. Diluted earnings per share was $.97 compared to $1.43.
A summary table of changes in earnings per share is presented on page 25.
Segment Analysis
Merchant Gases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
Ended 31 March
|
|
|
|
|
|
2009
|
|
2008
|
|
% Change
|
|
|
|
Sales
|
|
$
|
870.4
|
|
|
$
|
1,008.7
|
|
|
|
(14
|
)%
|
|
Operating income
|
|
|
156.2
|
|
|
|
189.2
|
|
|
|
(17
|
)%
|
|
Equity affiliates’ income
|
|
|
25.1
|
|
|
|
36.7
|
|
|
|
(32
|
)%
|
|
|
Merchant Gases Sales
|
|
|
|
|
|
|
|
|
% Change from
|
|
|
|
Prior Year
|
|
|
|
Underlying business
|
|
|
|
|
|
Volume
|
|
|
(8
|
)%
|
|
Price
|
|
|
6
|
%
|
|
Currency
|
|
|
(12
|
)%
|
|
|
|
Total Merchant Gases Change
|
|
|
(14
|
)%
|
|
|
Sales of $870.4 decreased 14%, or $138.3. Sales decreased 12% from unfavorable currency impacts,
driven primarily by the strengthening of the U.S. dollar against key European and Asian currencies.
Underlying business declined by 2%, with volumes down 8% and pricing up 6%. Volumes declined as a
result of the downturn in global manufacturing. Price increases have been effective in all
regions, partially offsetting the weakness in volume.
27
In North America, sales decreased 10% driven by a slow manufacturing climate. Volumes declined 15%
and were especially impacted by lower argon and liquid hydrogen. Higher prices of 5% partially
offset the decline in volumes. In Europe, sales decreased 18%, mainly due to unfavorable currency
impacts of 17%. Volumes were lower by 7%, due to weak manufacturing demand across most end markets
and regions. Improved pricing added 6%. In Asia, sales declined by 17%. Volumes declined 12% as a
result of significantly lower demand from Electronics customers and from the overall manufacturing
slowdown in Asia. Unfavorable currency reduced sales by 10%, while improved pricing added 5%.
Merchant Gases Operating Income
Operating income of $156.2 decreased 17%, or $33.0. Volume declines of $58 and unfavorable
currency impacts of $24 reduced operating income. These declines were partially offset by higher
pricing net of variable costs of $27 and improved fixed cost performance of $22.
Merchant Gases Equity Affiliates’ Income
Merchant Gases equity affiliates’ income of $25.1 decreased 32%, or $11.6, driven by unfavorable
currency impacts and a prior year fine reversal. Overall volumes were flat as higher volumes in
Mexico offset lower volumes in other countries.
Tonnage Gases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
Ended 31 March
|
|
|
|
|
|
2009
|
|
2008
|
|
% Change
|
|
|
|
Sales
|
|
$
|
624.6
|
|
|
$
|
867.2
|
|
|
|
(28
|
)%
|
|
Operating income
|
|
|
98.0
|
|
|
|
111.1
|
|
|
|
(12
|
)%
|
|
|
Tonnage Gases Sales
|
|
|
|
|
|
|
|
|
% Change from
|
|
|
|
Prior Year
|
|
|
|
Underlying business
|
|
|
|
|
|
Volume
|
|
|
(7
|
)%
|
|
Currency
|
|
|
(6
|
)%
|
|
Natural gas/raw material cost pass-through
|
|
|
(15
|
)%
|
|
|
|
Total Tonnage Gases Change
|
|
|
(28
|
)%
|
|
|
Sales of $624.6 decreased 28%, or $242.6. Natural gas and raw material contractual cost
pass-through to customers reduced sales by 15%. Underlying business declined by 7%. Volume
declines were due to reduced demand from steel and chemical customers. Unfavorable currency
effects reduced sales by 6%.
Tonnage Gases Operating Income
Operating income of $98.0 decreased 12%, or $13.1. Unfavorable currency reduced operating income
by $9. Underlying business declined by $4, primarily from reduced operating rates from steel and
chemical customers.
28
Electronics and Performance Materials
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
Ended 31 March
|
|
|
|
|
|
2009
|
|
2008
|
|
% Change
|
|
|
|
Sales
|
|
$
|
332.2
|
|
|
$
|
562.1
|
|
|
|
(41
|
)%
|
|
Operating income (loss)
|
|
|
(11.1
|
)
|
|
|
67.6
|
|
|
|
(116
|
)%
|
|
|
Electronics and Performance Materials Sales
|
|
|
|
|
|
|
|
|
% Change from
|
|
|
|
Prior Year
|
|
|
|
Underlying business
|
|
|
|
|
|
Volume
|
|
|
(38
|
)%
|
|
Price
|
|
|
—
|
|
|
Currency
|
|
|
(3
|
)%
|
|
|
|
Total Electronics and Performance
Materials Change
|
|
|
(41
|
)%
|
|
|
Sales of $332.2 decreased 41%, or $229.9. Volumes reduced sales by 38% and unfavorable currency
reduced sales by 3%. Electronics volumes decreased 41%, reflecting the dramatic global downturn in
semiconductor and flat panel capacity utilization that continued to worsen this quarter.
Performance Materials volumes declined by 31% reflecting weakened demand across end markets. Asia
continued to be the weakest region, followed by Europe and North America.
Electronics and Performance Materials Operating Loss
Operating loss was $11.1, primarily due to lower volumes. While costs in this business were
significantly reduced, the rapid contraction in Electronics specialty materials demand was
responsible for the overall segment losses in the quarter.
Equipment and Energy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
Ended 31 March
|
|
|
|
|
|
2009
|
|
2008
|
|
% Change
|
|
|
|
Sales
|
|
$
|
128.2
|
|
|
$
|
104.7
|
|
|
|
22
|
%
|
|
Operating income
|
|
|
16.3
|
|
|
|
10.0
|
|
|
|
63
|
%
|
|
|
Equipment and Energy Sales and Operating Income
Sales of $128.2 increased 22%, or $23.5, due to increased large air separation unit (ASU) activity.
Operating income of $16.3 increased $6.3, primarily due to favorable cost performance.
The sales backlog for the Equipment business at 31 March 2009 was $281, compared to $399 at 30
September 2008.
Other
Other operating income (loss) includes expense and income that cannot be directly associated with
the business segments, including foreign exchange gains and losses and interest income. Also
included are LIFO inventory adjustments, as the business segments use FIFO and the LIFO pool is
kept at corporate.
Other operating income was $1.0 compared to a loss of $3.0. No individual items were significant
in comparison to the prior year.
29
FIRST SIX MONTHS 2009 VS. FIRST SIX MONTHS 2008
FIRST SIX MONTHS 2009 IN SUMMARY
|
|
•
|
|
Declining business conditions around the world have unfavorably impacted the Company’s
businesses. In response to these market conditions, the Company implemented a global cost
reduction plan to lower its cost structure and better align its businesses. The results
from continuing operations included a charge of $174.2 ($116.1 after-tax, or $.55 per
share) for this plan.
|
|
|
|
|
•
|
|
Sales of $4,150.7 declined 16% from lower volumes, unfavorable currency impacts, and
lower natural gas and raw material contractual cost pass-through. Volumes declined
primarily in the Electronics and Performance Materials segment and also in the Tonnage
Gases segment, reflecting the weak market conditions. Volumes were also lower in Merchant
Gases; however, the decrease was offset by higher pricing.
|
|
|
|
|
•
|
|
Operating income of $374.5 declined $354.5 principally from lower volumes, unfavorable
currency impacts, and the global cost reduction charge. Improved pricing in the Merchant
Gases segment partially offset this decline. Prior year results included a pension
settlement charge of $27.7 for the retirement of certain corporate officers and others who
were eligible for supplemental pension plan benefits.
|
|
|
|
|
•
|
|
Income from continuing operations was $279.3 as compared to $522.1. Diluted earnings
per share from continuing operations of $1.32 declined $1.05. A summary table of changes
in diluted earnings per share is presented below.
|
|
|
|
|
•
|
|
Loss from discontinued operations was $5.1. The Company recorded an impairment charge
of $48.7 ($30.9 after-tax, or $.15 per share), reflecting a revision in the estimated net
realizable value of the U.S. Healthcare business. The Company recognized tax benefits of
$25.5 ($.12 per share) related to previously recognized impairment charges associated with
the U.S. Healthcare business.
|
|
|
|
|
•
|
|
The Company increased the quarterly dividend from $.44 to $.45 per share. This
represents the 27
th
consecutive year that the Company has increased its dividend
payment.
|
|
|
|
|
•
|
|
For a discussion of the challenges, risks, and opportunities on which management is
focused, refer to the update to the Company’s 2009 Outlook provided on page 36.
|
30
Changes in Diluted Earnings per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
31 March
|
|
Increase
|
|
|
|
2009
|
|
2008
|
|
(Decrease)
|
|
|
|
Diluted Earnings per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
1.29
|
|
|
$
|
2.62
|
|
|
$
|
(1.33
|
)
|
|
Discontinued Operations
|
|
|
(.03
|
)
|
|
|
.25
|
|
|
|
(.28
|
)
|
|
|
|
Continuing Operations
|
|
$
|
1.32
|
|
|
$
|
2.37
|
|
|
$
|
(1.05
|
)
|
|
|
|
Operating Income (after-tax)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
|
|
|
|
|
|
|
|
(.77
|
)
|
|
Price/raw materials
|
|
|
|
|
|
|
|
|
|
|
.18
|
|
|
Costs
|
|
|
|
|
|
|
|
|
|
|
.15
|
|
|
Currency
|
|
|
|
|
|
|
|
|
|
|
(.24
|
)
|
|
Global cost reduction plan
|
|
|
|
|
|
|
|
|
|
|
(.55
|
)
|
|
2008 Pension settlement
|
|
|
|
|
|
|
|
|
|
|
.08
|
|
|
|
|
Operating Income
|
|
|
|
|
|
|
|
|
|
|
(1.15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (after-tax)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity affiliates’ income
|
|
|
|
|
|
|
|
|
|
|
(.05
|
)
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
.04
|
|
|
Income tax rate
|
|
|
|
|
|
|
|
|
|
|
.03
|
|
|
Minority interest
|
|
|
|
|
|
|
|
|
|
|
.01
|
|
|
Average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
.07
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Change in Diluted Earnings per Share
from Continuing Operations
|
|
|
|
|
|
|
|
|
|
$
|
(1.05
|
)
|
|
|
RESULTS OF OPERATIONS
Discussion of Consolidated Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
Ended 31 March
|
|
|
|
|
|
2009
|
|
2008
|
|
% Change
|
|
|
|
Sales
|
|
$
|
4,150.7
|
|
|
$
|
4,950.1
|
|
|
|
(16
|
)%
|
|
Operating income
|
|
|
374.5
|
|
|
|
729.0
|
|
|
|
(49
|
)%
|
|
Equity affiliates’ income
|
|
|
51.5
|
|
|
|
67.7
|
|
|
|
(24
|
)%
|
|
|
Sales
|
|
|
|
|
|
|
|
|
% Change from
|
|
|
|
Prior Year
|
|
|
|
Underlying business
|
|
|
|
|
|
Volume
|
|
|
(10
|
)%
|
|
Price
|
|
|
3
|
%
|
|
Currency
|
|
|
(6
|
)%
|
|
Natural gas/raw material cost pass-through
|
|
|
(3
|
)%
|
|
|
|
Total Consolidated Change
|
|
|
(16
|
)%
|
|
|
31
Sales of $4,150.7 decreased 16%, or $799.4. Underlying business declined 7%, due to lower volumes
primarily in the Electronics and Performance Materials segment and also in the Tonnage Gases
segment. Volumes were lower in the Merchant Gases segment, but this decline was mostly offset by
improved pricing. Currency unfavorably impacted sales by 6%, due primarily to the strengthening of
the U.S. dollar against key European and Asian currencies. Natural gas and raw material
contractual cost pass-through to customers reduced sales by 3%.
Operating Income
Operating income of $374.5 decreased 49%, or $354.5.
|
|
•
|
|
Underlying business declined $134, primarily from lower volumes in the Electronics and
Performance Materials, Tonnage Gases, and Merchant Gases segments. Weakening consumer
confidence, as a result of the deterioration in the global economy, significantly impacted
customers’ operating rates across many of the Company’s end markets. The volume declines
were partially offset by higher prices in the Merchant Gases segment and favorable cost
performance.
|
|
|
|
|
•
|
|
Unfavorable currency impacts lowered operating income by $72, reflecting the
strengthening of the U.S. dollar against key European and Asian currencies.
|
|
|
|
|
•
|
|
The global cost reduction plan charge in the first quarter of 2009 reduced operating
income by $174.2.
|
|
|
|
|
•
|
|
Prior year results included a pension settlement charge of $27.7 for the retirements of
certain corporate officers and others who were eligible for supplemental pension plan
benefits.
|
Equity Affiliates’ Income
Income from equity affiliates of $51.5 decreased $16.2, or 24%, primarily due to unfavorable
currency impacts and a prior year fine reversal.
Selling and Administrative Expense (S&A)
S&A expense of $477.6 decreased 10%, or $53.0. S&A as a percent of sales, increased to 11.5% from
10.7%. Favorable currency effects, primarily the strengthening of the U.S. dollar against the Euro
and Pound Sterling, decreased S&A by 7%. S&A further declined 3% primarily from lower underlying
costs, partially offset by inflation.
Research and Development (R&D)
R&D expense of $62.8 decreased 3%, or $1.8. R&D increased as a percent of sales to 1.5% from 1.3%.
Global Cost Reduction Plan
During the first quarter ended 31 December 2008, the Company announced a global cost reduction plan
designed to lower its cost structure and better align its businesses to reflect rapidly declining
economic conditions around the world. The results from continuing operations included a charge of
$174.2 ($116.1 after-tax, or $.55 per share) for this plan. This charge included $120.0 for
severance and pension-related costs. The Company will eliminate approximately 1,400 positions, or
about seven percent of its global workforce. The reductions are targeted at reducing overhead and
infrastructure costs, reducing and refocusing elements of the Company’s technology and business
development spending, and lowering its plant operating costs. The remainder of the charge, $54.2,
is for business exits and asset management actions. Assets held for sale were written down to net
realizable value and an environmental liability of $16.0 was recognized. This environmental
liability results from a decision to sell a production facility. The planned actions are expected
to be substantially completed by the end of the first quarter of
fiscal year 2010. Refer to Note 3 to the Consolidated Financial
Statements for additional information.
The charge for the global cost reduction plan has been excluded from segment operating profit. The
charge was related to the businesses at the segment level as follows: $91.2 in Merchant Gases,
$11.1 in Tonnage Gases, $68.9 in Electronics and Performance Materials, and $3.0 in Equipment and
Energy.
Cost savings of $50 are expected in 2009 and $125 in 2010. Beyond 2010, the Company expects the
restructuring plan to provide annualized savings of approximately $130, of which the majority is
related to personnel costs. The Company does not expect a material change to these original
estimated cost savings.
32
Pension Settlement
The Company recorded settlement losses of $27.7 related to the cash settlement of pension plan
liabilities in the first six months of 2008. See Note 11 to the Consolidated Financial Statements
for additional information.
Other Income, Net
Items recorded to other income arise from transactions and events not directly related to the
principal income earning activities of the Company.
Other income of $8.0 decreased $19.0. The decrease is primarily due to unfavorable foreign
exchange. No other individual items were significant in comparison to the prior year.
Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
Ended 31 March
|
|
|
|
2009
|
|
2008
|
|
|
|
Interest incurred
|
|
$
|
76.6
|
|
|
$
|
92.5
|
|
|
Less: interest capitalized
|
|
|
10.1
|
|
|
|
12.8
|
|
|
|
|
Interest expense
|
|
$
|
66.5
|
|
|
$
|
79.7
|
|
|
|
Interest incurred decreased $15.9, primarily due to lower average interest rates on variable-rate
debt. The change in capitalized interest is driven by a decrease in project spending which
qualified for capitalization.
Effective Tax Rate
The effective tax rate equals the income tax provision divided by income from continuing operations
before taxes less minority interest.
The effective tax rate was 20.9% and 26.1% in 2009 and 2008, respectively. The global cost
reduction plan charge recorded in the first quarter reduced the effective tax rate by 4.1%. Also,
the effective tax rate is lower in 2009 from higher relative tax credits based on lower income
before taxes.
Discontinued Operations
The U.S. Healthcare business, Polymer Emulsions business, and the High Purity Process Chemicals
(HPPC) business have been accounted for as discontinued operations. The results of operations of
these businesses have been removed from the results of continuing operations for all periods
presented. Refer to Note 4 to the Consolidated Financial Statements for additional information.
U.S. Healthcare
The U.S. Healthcare business generated sales of $92.1 and income from operations, net of tax, of
$.1 in 2009. In 2008, sales were $128.8 and loss from operations, net of tax, was $11.9.
In the first quarter of 2009, based on additional facts, the Company recorded an impairment charge
of $48.7 ($30.9 after-tax, or $.15 per share) reflecting a revision in the estimated net realizable
value of the U.S. Healthcare business. Also, a tax benefit of $8.8, or $.04 per share, was
recorded to revise the estimated tax benefit related to previously recognized impairment charges.
As a result of events occurring during the second quarter of 2009, which increased the Company’s
ability to realize tax benefits associated with the impairment charges recorded in 2008, the
Company recognized a one-time tax benefit of $16.7, or $.08 per share.
Polymer Emulsions
On 31 January 2008, the Company completed the sale of its interest in its vinyl acetate ethylene
polymers joint ventures to Wacker Chemie AG (Wacker), its long-time joint venture partner. As part
of the agreement, the Company received Wacker’s interest in the Elkton, Md. and Piedmont, S.C.
production facilities and their related businesses plus cash proceeds of $258.2. The Company
recognized a gain on the sale of the Polymer Emulsions business of $89.5 ($57.7 after-tax). The
Polymer Emulsions business generated sales of $230.0 and income from operations, net of tax, of
$10.1 in 2008.
33
Net Income
Net income was $274.2 compared to $578.0. Diluted earnings per share was $1.29 compared to $2.62.
A summary table of changes in earnings per share is presented on page 31.
Segment Analysis
Merchant Gases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
Ended 31 March
|
|
|
|
|
|
2009
|
|
2008
|
|
% Change
|
|
|
|
Sales
|
|
$
|
1,795.6
|
|
|
$
|
2,010.4
|
|
|
|
(11
|
)%
|
|
Operating income
|
|
|
326.7
|
|
|
|
389.0
|
|
|
|
(16
|
)%
|
|
Equity affiliates’ income
|
|
|
47.1
|
|
|
|
61.9
|
|
|
|
(24
|
)%
|
|
|
Merchant Gases Sales
|
|
|
|
|
|
|
|
|
% Change from
|
|
|
|
Prior Year
|
|
|
|
Underlying business
|
|
|
|
|
|
Volume
|
|
|
(7
|
)%
|
|
Price
|
|
|
6
|
%
|
|
Currency
|
|
|
(10
|
)%
|
|
|
|
Total Merchant Gases Change
|
|
|
(11
|
)%
|
|
|
Sales of $1,795.6 decreased 11%, or $214.8. Sales decreased 10% from unfavorable currency effects,
driven primarily by the strengthening of the U.S. dollar against key European and Asian currencies.
Volumes were lower across most product lines and regions, consistent with weak manufacturing
worldwide. Price increases have been effective in all regions, substantially offsetting the
decline in volume.
In North America, sales decreased 4% due to lower volumes of 10% as a result of the global
manufacturing downturn. Pricing gains of 6% partially offset the decline. In Europe, sales
decreased 16%. Currency unfavorably impacted sales by 15% and volumes were lower by 7% due to weak
demand across most end markets and regions in Europe. Improved pricing of 6% partially offset the
decline. In Asia, sales decreased 12%. Volumes declined by 9% from the overall manufacturing
slowdown in Asia, particularly from sales to electronics and steel customers. Improved pricing of
5% partially offset the decline in volume. Currency unfavorably impacted sales by 8%.
Merchant Gases Operating Income
Operating income of $326.7 decreased 16%, or $62.3. The decline is due to reduced volumes of $84
and unfavorable currency impacts of $42. These declines were partially offset by improved pricing,
net of variable costs, of $52 and reduced fixed costs due to productivity improvements of $12.
Merchant Gases Equity Affiliates’ Income
Merchant Gases equity affiliates’ income of $47.1 decreased $14.8, driven by lower volumes,
unfavorable currency impacts, and a prior year fine reversal.
34
Tonnage Gases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
Ended 31 March
|
|
|
|
|
|
2009
|
|
2008
|
|
% Change
|
|
|
|
Sales
|
|
$
|
1,368.6
|
|
|
$
|
1,658.3
|
|
|
|
(17
|
)%
|
|
Operating income
|
|
|
206.8
|
|
|
|
222.2
|
|
|
|
(7
|
)%
|
|
|
Tonnage Gases Sales
|
|
|
|
|
|
|
|
|
% Change from
|
|
|
|
Prior Year
|
|
|
|
Underlying business
|
|
|
|
|
|
Volume
|
|
|
(5
|
)%
|
|
Currency
|
|
|
(5
|
)%
|
|
Natural gas/raw material cost pass-through
|
|
|
(7
|
)%
|
|
|
|
Total Tonnage Gases Change
|
|
|
(17
|
)%
|
|
|
Sales of $1,368.6 decreased 17%, or $289.7. Natural gas and raw material contractual cost
pass-through to customers reduced sales by 7%. Unfavorable currency reduced sales by 5%, and
volumes were down 5%. Volume declines were due to reduced demand from steel and chemical
customers.
Tonnage Gases Operating Income
Operating income of $206.8 decreased 7%, or $15.4, primarily from the unfavorable impact of
currency of $15.
Electronics and Performance Materials
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
Ended 31 March
|
|
|
|
|
|
2009
|
|
2008
|
|
% Change
|
|
|
|
Sales
|
|
$
|
738.8
|
|
|
$
|
1,076.4
|
|
|
|
(31
|
)%
|
|
Operating income
|
|
|
13.5
|
|
|
|
133.6
|
|
|
|
(90
|
)%
|
|
|
Electronics and Performance Materials Sales
|
|
|
|
|
|
|
|
|
% Change from
|
|
|
|
|
Prior Year
|
|
|
|
|
Underlying business
|
|
|
|
|
|
Volume
|
|
|
(29
|
)%
|
|
Price
|
|
|
—
|
|
|
Currency
|
|
|
(2
|
)%
|
|
|
|
Total Electronics and Performance Materials Change
|
|
|
(31
|
)%
|
|
|
Sales of $738.8 decreased 31%, or $337.6, primarily from lower volumes. In Electronics, underlying
sales were down 35%, reflecting a significant global downturn in semiconductor and flat panel
capacity utilization, and lower specialty materials pricing. In Performance Materials, underlying
sales were down 19% due to weaker demand across all end markets, particularly in Asia, partially
offset by improved pricing. Volumes were impacted by weakness in coatings, autos, and housing end
markets. Unfavorable currency added to the decline.
Electronics and Performance Materials Operating Income
Operating income of $13.5 decreased 90%, or $120.1, as result of lower volumes across the segment
of $122 and lower pricing of $19, partially offset by reduced costs of $23.
35
Equipment and Energy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
Ended 31 March
|
|
|
|
|
|
2009
|
|
2008
|
|
% Change
|
|
|
|
Sales
|
|
$
|
247.7
|
|
|
$
|
205.0
|
|
|
|
21
|
%
|
|
Operating income
|
|
|
23.3
|
|
|
|
19.3
|
|
|
|
21
|
%
|
|
|
Equipment and Energy Sales and Operating Income
Sales of $247.7 increased 21%, or $42.7 due to higher large ASU activity. Operating income of
$23.3 increased $4.0, due primarily to favorable cost performance, partially offset by lower liquefied
natural gas (LNG) heat exchanger activity.
The sales backlog for the Equipment business at 31 March 2009 was $281, compared to $399 at 30
September 2008.
Other
Other operating income (loss) includes expense and income that cannot be directly associated with
the business segments, including foreign exchange gains and losses and interest income. Also
included are LIFO inventory adjustments, as the business segments use FIFO and the LIFO pool is
kept at corporate.
The operating loss of $21.6 increased $14.2, primarily due to unfavorable foreign exchange. No
other individual items were significant in comparison to the prior year.
2009 OUTLOOK
The global economy deteriorated significantly during the first half of 2009. The outlook for the
second half of the year is for a slower recovery than previously anticipated. The Company remains
committed to improving margin and returns. Given the challenging outlook and the expectation of a
slower recovery, the Company is considering additional cost reductions. The discussion below
outlines the areas of challenge, risk, and opportunity on which management is focused.
Global manufacturing contraction is expected to persist through to the end of the fiscal year.
Overall, manufacturing is expected to decline globally by 9% to 10%, greater than the 4% to 5%
levels previously anticipated. Regionally, the U.S. is expected to decline 10%, Europe 11%, and
Asia, excluding Japan, 3%.
Specifically by business, the Company expects slightly higher sequential volumes in the Electronics
and Performance Materials and Merchant Gases segments. The steel and chemicals portions of the
Tonnage Gases segment are expected to remain weak. The Company expects additional benefits from
its cost reduction actions in the second half of the year.
Specifically by market, the Company expects refinery hydrogen demand to remain stable. In
Electronics, we expect the market recovery will be slower than previously anticipated. Chemical
markets will continue to decline in 2009 until key end markets such as autos, housing, and consumer
goods start to improve. Also, improvement is not expected in global steel operating rates until late in
calendar year 2009.
With the cost reduction actions the Company is taking, some seasonal improvement in demand, and new
project start-ups, earnings in the second half of the year should improve.
Capital Expenditures
Capital expenditures for new plant and equipment are expected to be approximately equal to fiscal
year 2008 spending.
SHARE-BASED COMPENSATION
Refer to Note 9 to the Consolidated Financial Statements for information on the Company’s
share-based compensation programs. For additional information on the valuation and accounting for
the various programs, refer to Note 15 to the Consolidated Financial Statements in the Company’s
2008 annual report on Form 10-K.
36
PENSION BENEFITS
Refer to Note 11 to the Consolidated Financial Statements for details on pension cost and cash
contributions. For additional information on the Company’s pension benefits and associated
accounting policies, refer to the Pension Benefits section of Management’s Discussion and Analysis
and Note 18 to the Consolidated Financial Statements in the Company’s 2008 annual report on Form
10-K.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow
The narrative below refers to the Consolidated Statements of Cash Flows included on page 6.
Operating Activities
For the first six months, net cash provided by operating activities decreased $177.4, or 28%. This
decrease was due to lower earnings of $303.8 and an increase in the use of cash for working capital
of $69.3. Adjustments to income, primarily non-cash asset impairment charges in 2009 for the
global cost reduction plan and the discontinued U.S. Healthcare business, and gains on the sale of
discontinued operations in 2008, increased cash from operating activities by $195.7.
The net increase in cash used for working capital (negative cash flow variance) of $69.3 primarily
included:
|
|
•
|
|
A $319.6 positive cash flow variance due to lower trade receivables as a result of
reduced sales.
|
|
|
|
|
•
|
|
A $157.4 negative cash flow variance due to a higher use of cash for payables and
accrued liabilities. The negative variance was due principally to higher pension
contributions and a decrease in accounts payables, customer advances, and other operating
liabilities as a result of lower operating activity. The negative variances were partially
offset by an increase in accrued liabilities resulting from the global cost reduction plan.
|
|
|
|
|
•
|
|
A $166.6 negative cash flow variance from other working capital accounts due principally
to a reduction in accrued income taxes and a reduction in noncurrent liabilities in 2009.
|
|
|
|
|
•
|
|
A $64.9 negative cash flow variance from contracts in progress as spending continued to
decline from lower equipment activity, however, the decline has slowed resulting in a
year-on-year negative variance.
|
Investing Activities
Cash used for investing activities increased $218.9, due principally to lower proceeds from the
sale of discontinued businesses and increased spending on plant and equipment, partially offset by
changes to restricted cash. The proceeds from the issuance of certain Industrial Revenue Bonds
must be held in escrow until related project spending occurs and are classified as noncurrent
assets in the balance sheet. During the first six months of 2009, the Company issued $80.0 of
Industrial Revenue Bonds versus $145.0 in the prior year. The combined impact of lower bond
proceeds and higher project spending resulted in a net increase to cash of $173.0 compared to the
prior year. The prior year included proceeds from the sale of the HPPC and Polymer Emulsions
businesses for $327.5.
37
Capital expenditures are detailed in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
31 March
|
|
|
|
2009
|
|
2008
|
|
|
|
Additions to plant and equipment
|
|
$
|
615.8
|
|
|
$
|
522.2
|
|
|
Acquisitions, less cash acquired
|
|
|
1.6
|
|
|
|
.6
|
|
|
Investment in and advances to unconsolidated affiliates
|
|
|
.1
|
|
|
|
—
|
|
|
|
|
Total Capital Expenditures on a GAAP basis
|
|
$
|
617.5
|
|
|
$
|
522.8
|
|
|
Capital lease expenditures under EITF No. 01-08 (a)
|
|
|
68.2
|
|
|
|
116.5
|
|
|
|
|
Capital Expenditures on a Non-GAAP basis
|
|
$
|
685.7
|
|
|
$
|
639.3
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
The Company utilizes a non-GAAP measure in the computation of capital expenditures and
includes spending associated with facilities accounted for as capital leases. Certain
facilities that are built to service a specific customer are accounted for as capital leases
in accordance with EITF No. 01-08, “Determining Whether an Arrangement Contains a Lease,” and
such spending is reflected as a use of cash within cash provided by operating activities. The
presentation of this non-GAAP measure is intended to enhance the usefulness of information by
providing a measure which the Company’s management uses internally to evaluate and manage the
Company’s capital expenditures.
|
Financing Activities
Cash provided by financing activities increased $282.2. During the first six months of 2009, the
Company did not purchase any of its outstanding shares, as compared to the prior year which
included share repurchases of $560.2. This was partially offset primarily by lower net debt
proceeds (short and long-term debt issuance net of repayments) of $198.8 and lower proceeds from
stock option exercises of $35.0. Long-term debt proceeds of $114.3 in fiscal 2009 included $80.0
from Industrial Revenue Bonds issued in the first quarter.
Total debt at 31 March 2009 and 30 September 2008, expressed as a percentage of the sum of total
debt, shareholders’ equity, and minority interest, was 46.3% and 43.4%, respectively. Total debt
increased from $3,966.8 at 30 September 2008 to $4,102.4 at 31 March 2009.
The Company’s total multicurrency revolving facility, maturing in May 2011, amounted to $1,450.0 at
31 March 2009. No borrowings were outstanding under these commitments. Additional commitments
totaling $353.0 are maintained by the Company’s foreign subsidiaries, of which $284.1 was utilized
at 31 March 2009.
The estimated fair value of the Company’s long-term debt, including current portion, as of 31 March
2009 was $3,687.5 compared to a book value of $3,510.4.
On 20 September 2007, the Board of Directors authorized the repurchase of up to $1,000 of the
Company’s outstanding common stock. During the six months ended 31 March 2009, the Company did not
purchase any shares under this authorization. At 31 March 2009, $649.2 in share repurchase
authorization remains.
CONTRACTUAL OBLIGATIONS
The Company is obligated to make future payments under various contracts such as debt agreements,
lease agreements, unconditional purchase obligations, and other long-term obligations.
There have been no material changes to contractual obligations as reflected in the Management’s
Discussion and Analysis in the Company’s 2008 annual report on Form 10-K.
38
COMMITMENTS AND CONTINGENCIES
Refer to Note 19 to the Consolidated Financial Statements in the Company’s 2008 annual report on
Form 10-K and Note 12 in this quarterly filing.
OFF-BALANCE SHEET ARRANGEMENTS
There have been no material changes to off-balance sheet arrangements as reflected in the
Management’s Discussion and Analysis in the Company’s 2008 annual report on Form 10-K. The
Company’s off-balance sheet arrangements are not reasonably likely to have a material impact on
financial condition, changes in financial condition, results of operations, or liquidity.
RELATED PARTY TRANSACTIONS
The Company’s principal related parties are equity affiliates operating primarily in the industrial
gas business. The Company did not engage in any material transactions involving related parties
that included terms or other aspects that differ from those which would be negotiated at arm’s
length with clearly independent parties.
MARKET RISKS AND SENSITIVITY ANALYSIS
Information on the Company’s utilization of financial instruments and an analysis of the
sensitivity of these instruments to selected changes in market rates and prices is included in the
Company’s 2008 annual report on Form 10-K.
There were no material changes to market risk sensitivities for interest rate risk on fixed debt,
foreign currency exchange rate risk, or commodity price risk since 30 September 2008.
The net financial instrument position increased from a liability of $3,629 at 30 September 2008 to
a liability of $3,675 at 31 March 2009.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management’s Discussion and Analysis of the Company’s financial condition and results of operations
is based on the consolidated financial statements and accompanying notes that have been prepared in
accordance with U.S. generally accepted accounting principles. The preparation of these financial
statements requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The significant accounting policies of the Company are described in Note 1 to the Consolidated
Financial Statements and the critical accounting policies and estimates are described in the
Management’s Discussion and Analysis included in the 2008 annual report on Form 10-K. Information
concerning the Company’s implementation and impact of new accounting standards issued by the
Financial Accounting Standards Board (FASB) is included in Note 2 to the Consolidated Financial
Statements. There have been no changes in accounting policy in the current period that had a
material impact on the Company’s financial condition, change in financial condition, liquidity or
results of operations.
NEW ACCOUNTING STANDARDS
See Note 2 to the Consolidated Financial Statements for information concerning the Company’s
implementation and impact of new accounting standards.
FORWARD-LOOKING STATEMENTS
This document contains “forward-looking statements” within the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on
management’s reasonable
39
expectations and assumptions as of the date of this document regarding
important risk factors. Actual performance
and financial results may differ materially from projections and estimates expressed in the
forward-looking statements because of many factors not anticipated by management, including,
without limitation, continuing deterioration in economic and business conditions; weakening demand
for the Company’s products; future financial and operating performance of major customers and
industries served by the Company; inability to collect receivables from or recovery of payments
made by customers in bankruptcy proceedings; unanticipated contract terminations or customer
cancellations or postponement of projects and sales; asset impairments due to economic conditions
or specific product or customer events; costs associated with future restructuring actions which
are not currently planned or anticipated; the impact of competitive products and pricing;
interruption in ordinary sources of supply of raw materials; the ability to recover unanticipated
increased energy and raw material costs from customers; costs and outcomes of litigation or
regulatory activities; consequences of acts of war or terrorism impacting the United States’ and
other markets; the effects of a pandemic or epidemic or a natural disaster; charges related to
current portfolio management and cost reduction actions; the success of implementing cost reduction
programs and achieving anticipated acquisition synergies; the timing, impact, and other
uncertainties of future acquisitions or divestitures; the ability to attract, hire, and retain
qualified personnel in all regions of the world where the Company operates; significant
fluctuations in interest rates and foreign currencies from that currently anticipated; the
continued availability of capital funding sources in all of the Company’s foreign operations; the
impact of new or changed environmental, healthcare, tax or other legislation and regulations in
jurisdictions in which the Company and its affiliates operate; the impact of new or changed
financial accounting standards; the timing and rate at which tax credits can be utilized; and other
risk factors described in Part II below and in the Company’s Form 10-K for its year ended 30
September 2008. The Company disclaims any obligation or undertaking to disseminate any updates or
revisions to any forward-looking statements contained in this document to reflect any change in the
Company’s assumptions, beliefs or expectations or any change in events, conditions, or
circumstances upon which any such forward-looking statements are based.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Refer to the Market Risks and Sensitivity Analysis on page 39 of Item 2 in Management’s Discussion
and Analysis of Financial Condition and Results of Operations.
Item 4. Controls and Procedures
We maintain a comprehensive set of disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act) designed to ensure that information required to be
disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported
accurately and within the time periods specified in the SEC’s rules and forms. As of 31 March 2009
(the Evaluation Date), an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures was carried out under the supervision and with the participation
of our management, including our Chief Executive Officer and Chief Financial Officer. Based upon
that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the
Evaluation Date, the design and operation of these disclosure controls and procedures were
effective to provide reasonable assurance of the achievement of the objectives described above.
During the quarter that ended on the Evaluation Date, there was no change in internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has
materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
40
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
|
|
a.
|
|
The Annual Meeting of Shareholders of the Registrant was held on 22 January
2009.
|
|
|
|
|
b.
|
|
The following directors were elected at the meeting: Mario L. Baeza, Edward E.
Hagenlocker, John E. McGlade and Charles H. Noski. Directors whose term of office
continued after the meeting include: William L. Davis III, W. Douglas Ford, Evert
Henkes, Margaret G. McGlynn, Michael J. Donahue, Ursula O. Fairbairn and Lawrence S.
Smith.
|
|
|
|
|
c.
|
|
The following matters were voted on at the Annual Meeting:
|
|
|
|
|
|
|
|
|
|
NUMBER OF VOTES CAST
|
|
NAME OF DIRECTOR
|
|
FOR
|
|
AGAINST OR WITHHELD
|
|
Mario L. Baeza
|
|
177,689,074
|
|
3,519,568
|
|
Edward E. Hagenlocker
|
|
176,702,725
|
|
4,505,917
|
|
John E. McGlade
|
|
177,006,232
|
|
4,202,410
|
|
Charles H. Noski
|
|
177,688,483
|
|
3,520,159
|
|
|
2.
|
|
Ratification of the appointment of KPMG LLP of Philadelphia,
Pennsylvania, as independent auditor for the registrant for the fiscal year ending
30 September 2009
|
|
|
|
|
|
|
|
NUMBER OF VOTES CAST
|
|
|
|
AGAINST
|
|
|
|
|
|
OR
|
|
|
|
FOR
|
|
WITHHELD
|
|
ABSTENTIONS
|
|
178,722,643
|
|
2,158,823
|
|
327,176
|
Item 6. Exhibits.
Exhibits required by Item 601 of Regulation S-K
|
10.1
|
|
Share Purchase Agreement by and among Air Products and Chemicals, Inc., Tomah Holdings, Inc.,
and the Stockholders of Tomah Holdings, Inc., dated 21 March 2006.
1
/
|
|
|
|
10.2
|
|
Supplementary Pension Plan of Air Products and Chemicals, Inc. as Amended and Restated
Effective January 1, 2008.
|
|
|
|
10.3
|
|
Amendment No. 1 to the Supplementary Pension Plan of Air Products and Chemicals, Inc., as
Amended and Restated Effective January 1, 2008.
|
|
|
|
10.4
|
|
Amendment No. 2 to the Supplementary Pension Plan of Air Products and Chemicals, Inc., as
Amended and Restated Effective January 1, 2008.
|
|
|
|
10.5
|
|
Amendment No. 3 to the Supplementary Pension Plan of Air Products and Chemicals, Inc., as
Amended and Restated Effective January 1, 2008.
|
|
|
|
10.6
|
|
Amendment No. 1 to the Air Products and Chemicals, Inc. Retirement Savings Plan, as Amended
and Restated Effective 1 October 2006.
|
|
|
|
10.7
|
|
Annual Incentive Plan as Amended and Restated Effective 1 October 2008.
|
41
|
12.
|
|
Computation of Ratios of Earnings to Fixed Charges.
|
|
|
|
31.1.
|
|
Certification by the Principal Executive Officer pursuant to Rule 13a-14(a) or Rule
15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
31.2.
|
|
Certification by the Principal Financial Officer pursuant to Rule 13a-14(a) or Rule
15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
32.
|
|
Certification by the Principal Executive Officer and Principal Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
1
/
|
|
Exhibit 10.1 was previously filed as Exhibit 10.2 to the Company’s Form 10-Q
Report for the quarter ended 31 March 2006 with certain information redacted. At the time of the
original filing, a request for confidential treatment of the redacted information was filed with
the Securities and Exchange Commission. The Company has withdrawn its request for confidential
treatment and is refiling the exhibit without redaction.
|
42
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 thereunto duly authorized.
|
|
|
|
|
|
|
|
Air Products and Chemicals, Inc.
|
|
|
|
(Registrant)
|
|
|
Date: 24 April 2009
|
By:
|
/s/ Paul E. Huck
|
|
|
|
|
Paul E. Huck
|
|
|
|
|
Senior Vice President and
Chief Financial Officer
|
|
43
EXHIBIT INDEX
|
10.1
|
|
Share Purchase Agreement by and among Air Products and Chemicals, Inc., Tomah Holdings, Inc.,
and the Stockholders of Tomah Holdings, Inc., dated 21 March 2006.
1
/
|
|
|
|
10.2
|
|
Supplementary Pension Plan of Air Products and Chemicals, Inc. as Amended and Restated
Effective January 1, 2008.
|
|
|
|
10.3
|
|
Amendment No. 1 to the Supplementary Pension Plan of Air Products and Chemicals, Inc., as
Amended and Restated Effective January 1, 2008.
|
|
|
|
10.4
|
|
Amendment No. 2 to the Supplementary Pension Plan of Air Products and Chemicals, Inc., as
Amended and Restated Effective January 1, 2008.
|
|
|
|
10.5
|
|
Amendment No. 3 to the Supplementary Pension Plan of Air Products and Chemicals, Inc., as
Amended and Restated Effective January 1, 2008.
|
|
|
|
10.6
|
|
Amendment No. 1 to the Air Products and Chemicals, Inc. Retirement Savings Plan, as Amended
and Restated Effective 1 October 2006.
|
|
|
|
10.7
|
|
Annual Incentive Plan as Amended and Restated Effective 1 October 2008.
|
|
|
|
12.
|
|
Computation of Ratios of Earnings to Fixed Charges.
|
|
|
|
31.1.
|
|
Certification by the Principal Executive Officer pursuant to Rule 13a-14(a) or Rule
15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
31.2.
|
|
Certification by the Principal Financial Officer pursuant to Rule 13a-14(a) or Rule
15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
32.
|
|
Certification by the Principal Executive Officer and Principal Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
1
/
|
|
Exhibit 10.1 was previously filed as Exhibit 10.2 to the Company’s Form 10-Q
Report for the quarter ended 31 March 2006 with certain information redacted. At the time of the
original filing, a request for confidential treatment of the redacted information was filed with
the Securities and Exchange Commission. The Company has withdrawn its request for confidential
treatment and is refiling the exhibit without redaction.
|
44
Exhibit 10.1
STOCK PURCHASE AGREEMENT
BY AND AMONG
AIR PRODUCTS AND CHEMICALS, INC.
(a Delaware corporation),
TOMAH HOLDINGS, INC.
(a Delaware corporation),
AND
THE STOCKHOLDERS OF TOMAH HOLDINGS, INC.
Dated March 20, 2006
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT is made as of 20 March, 2006, by and among Air Products and
Chemicals, Inc., a Delaware corporation (“Buyer”), Tomah Holdings, Inc., a Delaware corporation
(“Company”), and the common stockholders and option holders of the Company set forth on the
signature page of this Agreement (individually, a “Stockholder” and collectively, the
“Stockholders”). Certain other terms are used herein as defined below in
Section 1
or elsewhere in
this Agreement.
Background
As of the Closing, the Stockholders shall own all of the outstanding equity securities of the
Company, which owns all of the outstanding equity securities of each other Company Group Member.
This Agreement sets forth the terms and conditions under which Buyer will purchase from the
Stockholders all of the equity securities of the Company outstanding as of the Closing Date.
Witnesseth
NOW, THEREFORE, the Parties, intending to be legally bound hereby, for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and in consideration
of the mutual covenants contained herein, hereby agree as follows:
1.
Definitions
.
For convenience, certain terms used in more than one part of this Agreement are listed in
alphabetical order and defined below (such terms as well as any other terms defined elsewhere in
this Agreement shall be equally applicable to both the singular and plural forms of the terms
defined).
“Accounts Receivable” means, as of any date, any trade accounts receivable and trade notes
receivable of the Business of the Company Group Members, as indicated by the context in which used.
“Action” is defined in
Section 10.6
.
“Adjustment Amount” is defined in
Section 2.4
.
“Affiliates” means, with respect to a particular Person, (i) if an individual, each other
member of such individual’s Family, any Person that is directly or indirectly controlled by any one
or more members of such individual’s Family, any Person in which members of such individual’s
Family hold (individually or in the aggregate) a Material Interest, and any Person with respect to
which one or more members of such individual’s Family serves as a director, officer, partner,
executor or trustee (or in a similar capacity); or (ii) if other than an individual, Persons or
entities controlling, controlled by or under common control with that Person.. For purposes of this
definition, (a) “control” (including “controlling,” “controlled by,” and “under common control
with”) means the
2
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; (b) the “Family” of an individual includes (i) the individual, (ii) the
individual’s spouse, (iii) any other natural person who is related to the individual or the
individual’s spouse within the second degree and (iv) any other natural person who resides with
such individual; and (c) “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.
“Agreement” means this Agreement and the Exhibits and Disclosure Schedules hereto.
“Applicable Representations” is defined in
Section 10.4(i)
.
“Assets” means all of the assets, properties, goodwill and rights of every kind and
description, real, personal, tangible and intangible, wherever situated and whether or not
reflected in the most recent Financial Statements, which are owned or possessed by any Company
Group Member.
“Balance Sheet” is defined in
Section 4.5
.
“Balance Sheet Date” is defined in
Section 4.5
.
“Benefit Plan” means any “employee benefit plan” as defined in
Section 3(3)
of ERISA, and any
other pension, profit sharing, bonus, deferred compensation, incentive compensation, stock option,
welfare benefit, severance, vacation, holiday, sick day, salary continuation, death benefit,
medical, dental or other employee fringe benefit, compensation or benefit plan, program agreement
or arrangement or payroll practice provided, contributed to or entered for the benefit of
employees.
“Bonus Plan Payments” is defined in
Section 2.3(a)
.
“Building Purchase Agreement” means the agreement between King Holdings, LLC and Company or
one of the Existing Subsidiaries pursuant to which Company or one of the Existing Subsidiaries will
purchase the land and building located at 337 Vincent Street in the City of Milton, State of
Wisconsin, to be executed in connection with the Closing, substantially in the form attached hereto
as
Exhibit A
.
“Business” means the entire business, operations and facilities of the Company Group Members,
and all related support services conducted by the Company Group Members.
3
“Business Day” means any day, other than a Saturday or Sunday or a day on which the banking
institutions of the State of New York are authorized or obligated by law or executive order to
close.
“Buyer” is defined above in the preamble.
“Buyer’s Accountants” is defined in
Section 2.5(a)
.
“Cash Purchase Price” is defined in
Section 2.3(a)
.
“Charter Documents” means an entity’s certificate or articles of incorporation, certificate
defining the rights and preferences of securities, articles of organization, by-laws, general or
limited partnership agreement, certificate of limited partnership, operating agreement, joint
venture agreement or similar document governing the entity.
“Claim” is defined in
Section 10.3
.
“Claim Notice” is defined in
Section 10.4(a)
.
“Claim Response” is defined in
Section 10.4(a)
.
“Closing” is defined in
Section 3.1
.
“Closing Certificates” means the certificates to be delivered by the Seller Parties at the
Closing under
Section 3.2
.
“Closing Date” is defined in
Section 3.1
.
“Closing Date Balance Sheet” is defined in
Section 2.5(a)
.
“Closing Date Net Working Capital” is defined in
Section 2.5(a)
.
“Closing Payment” is defined in
Section 2.
3(b)(i)
.
“Closing Shares” is defined in
Section 4.4(c)
.
“Code” means the Internal Revenue Code of 1986, as amended.
“Company Group Member” means the Company and each of the Existing Subsidiaries.
“Company Software” is defined in
Section 4.
18(g)(ii)
.
“Component” means any software, Software Product, Company Software, Licensed Software,
Hardware, Database or Embedded Control.
“Company Benefit Plans” is defined in
Section 4.20(a)
.
4
“Company Employee Bonus Plans” means the Company’s Business Incentive Program (BIP), Marketing
Incentive Plan (MIP) and Senior Management Incentive Plan (SMIP).
“Confidential Information” means any confidential technical or business information of any
Company Group Member relating to the Business, including Trade Secrets, personnel information,
know-how and other technical information, advertising and marketing plans or systems, distribution
and sales methods or systems, sales and profit figures, customer and client lists, customer, client
and supplier information and any relationships with dealers, distributors, wholesalers, customers,
clients, suppliers and any other Persons who have, or have had, business dealings with the
Business.
“Consulting Agreements” means those agreements between Buyer and each of Stephen B. King, Sr.
and Tobin Ryan, to be executed in connection with the Closing, substantially in the form attached
hereto as
Exhibits B-1
and
B-2
, pursuant to which such persons will provide consulting services to
Buyer.
“Contract” means any written or oral contract, agreement, lease, instrument, or other document
or commitment, arrangement, undertaking, practice or authorization that is binding on any Person or
its property under any applicable Law.
“Copyrights” means all copyrights in both published and unpublished works and registrations or
applications for registration of copyrights in any jurisdiction, and any renewals or extensions
thereof.
“Court Order” means any judgment, decree, injunction, order or ruling of any federal, state,
local or foreign court, regulatory body or other Governmental Entity that is binding on any Person
or its property under applicable Law.
“Customary Qualifications,” when used with respect to the enforceability of a Contract
(including, where appropriate, a Transaction Document), means that the enforceability of the
Contact in question is limited by (i) bankruptcy, insolvency, moratorium or other similar laws
affecting the enforcement of creditors’ rights generally or (ii) the application of general
equitable principles (regardless of whether such enforce ability is considered in a proceeding in
equity or at law).
“Damages” is defined in
Section 10.1
.
“Database” means all data and other information recorded, stored, transmitted and retrieved in
electronic form by a System, whether located on any System or archived in storage media of a type
employed or used in conjunction with any System.
“Deductible Amount” is defined in
Section 10.4(f)
.
“Default” means (a) a breach, default or violation, (b) the occurrence of an event that with
or without the passage of time or the giving of notice, or both, would constitute a breach, default
or violation or cause an Encumbrance to arise, or (c) with respect to any Contract, the occurrence
of an event that with or without the passage of time or the giving
5
of notice, or both, would give rise to a right of termination, renegotiation or acceleration
or a right to receive damages or a payment of penalties.
“Derivative” means the Interest Rate Swap between Tomah Products, Inc. and Tomah Reserve, Inc
and M&I Marshall and Ilsley Bank dated March 8, 2004, with the original principal of $8,750,000,
bank reference 87T.
“Disclosure Schedule” means any of the Schedules hereto containing information relating to the
Company Group Members pursuant to
Section 4
and other sections and provisions hereof that have been
provided to Buyer on the date hereof.
“Dispute Notice” is defined in
Section 2.5(b)
.
“Dispute Resolution Procedure” is defined in
Section 2.5(b)
.
“Embedded Control” means any microprocessor, microcontroller, smart instrumentation or other
sensor, driver, monitor, robotic or other device containing a semiconductor, memory circuit, BIOS,
PROM or other microchip.
“Employees” is defined in
Section 4.19
.
“Effective Time” means 11:59 p.m. local time on the Closing Date.
“Encumbrances” means any lien, mortgage, security interest, pledge, restriction on
transferability, option, right of first refusal, encroachment, easement, defect of title or other
claim, charge or encumbrance of any nature whatsoever on any property or property interest,
including any restriction on the use, voting, transfer, receipt of income or exercise of any
attributes of ownership.
““Environment” shall mean 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 Law” means any Law that requires or relates to (a) advising appropriate
authorities, employees or the public of intended or actual Releases of pollutants or hazardous
substances or 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 legally permitted levels the Release of pollutants
or hazardous substances or materials into the Environment; (c) reducing the quantities, preventing
the Release or minimizing the hazardous characteristics of wastes that are generated; (d)
protecting resources, species or ecological amenities; (e) transportation of Hazardous Substances;
(f) cleaning up pollutants that have been Released, preventing the threat of Release or paying the
costs of such clean up or prevention; or (g) 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
6
done to public assets, in each case for injuries or damages arising out of a Release of or
exposure to a Hazardous Substance or pollutant.
“Environmental Liabilities” means any cost, damages, expense, liability, obligation or other
responsibility arising from or under any Environmental Law, including those consisting of or
relating to (a) any environmental matter or condition (including on-site or off-site
contamination); (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; (c) financial responsibility under any Environmental Law for
cleanup costs or corrective action, including any cleanup, removal, containment or other
remediation or response actions (“Cleanup”) required by any Environmental Law (whether or not such
Cleanup has been required or requested by any Governmental Entity or any other Person) and for any
natural resource damages; or (d) any other compliance, corrective or remedial measure required
under any Environmental Law. As used herein, 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, as amended (“CERCLA”).
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
“ERISA Affiliate” means any person or entity that is a member of a controlled group,
affiliated service group or is under common control with any Company Group Member within the
meaning of Code
Sections 414(b)
,
(c)
,
(m)
or
(o)
.
“Escrow Agent” means JP Morgan Chase Bank.
“Escrow Agreement” means the Escrow Agreement among Buyer, the Stockholders’ Representative
and the Escrow Agent in the form attached hereto as
Exhibit C
.
“Escrow Funds” is defined in
Section 2.
4(b)(ii)
.
“Estimated Closing Date Balance Sheet” is defined in
Section 2.4
.
“Estimated Net Working Capital” is defined in
Section 2.4
.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Executive Loan” means that certain loan by the Company to Stephen B. King, Sr., represented
by a certain Promissory Note dated July 1, 2005, in the original principal amount of $1,800,000.
“Exempt Employees” means those Employees employed in positions classified as “exempt” under
the Fair Labor Standards Act of 1938, as amended.
7
“Existing Subsidiaries” means Tomah Products, Inc. (a Wisconsin corporation), Tomah Reserve,
Inc. (a Delaware corporation), and Tomah Products Properties LLC (a Wisconsin limited liability
company).
“Facility” means (a) any building, structure, installation, equipment, pipe or pipeline
(including any pipe into a sewer or publicly owned treatment works), well, pit, pond, lagoon,
impoundment, ditch, landfill, storage, container, motor vehicle, rolling stock, or aircraft, or (b)
any site or area where a hazardous substance has been deposited, stored, disposed of, or place, or
otherwise come to be located; but does not include any consumer product in consumer use or any
vessel.
“Financial Statements” is defined in
Section 4.5
.
“GAAP” means U.S. generally accepted accounting principles.
“Good Standing” means good standing under the laws of the applicable jurisdiction, except that
with respect to the State of Wisconsin which does not recognize the concept of good standing, good
standing means that the entity in question is in active status under the laws of the State of
Wisconsin.
“Governmental Entity” means any federal, state, local, foreign or other governmental or
quasi-governmental agency, authority, court, arbitrator or body or any other type of regulatory
body.
“Governmental Permits” means all governmental permits, licenses, registrations, certificates
of occupancy, approvals and other authorizations of any Governmental Entity.
“Hardware” means any mainframe, midrange computer, personal computer, notebook or laptop
computer, server, switch, printer, modem, driver, peripheral or any component of any of the
foregoing.
“Hazardous Activity” means the distribution, generation, handling, importing, management,
manufacturing, processing, production, refinement, Release, storage, transfer, transportation,
treatment or use (including any withdrawal or other use of groundwater) of Hazardous Substances in,
on, under, about or from any of the Real Property or any part thereof into the Environment
“Hazardous Substances” means any substance, material or waste which is currently regulated or
currently proposed to be regulated by any Governmental Entity, including any material, substance or
waste which is defined as a “hazardous waste,” “hazardous material,” “hazardous substance,”
“extremely hazardous waste,” “restricted hazardous waste,” “contaminant,” “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.
“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
8
“Imposition” means, individually or collectively, any institutional control, restriction or
use limitation placed on real estate.
“Indemnification Cap” is defined in
Section 10.4(e)
.
“Indemnification Share” means, with respect to each Stockholder, the percentage set forth
opposite such Stockholder’s name on
Exhibit D
.
“Indemnified Buyer Party” is defined in
Section 10.1
.
“Indemnified Liabilities” means all Liabilities of the Company or any Company Group Member or
any of their respective Affiliates to the extent relating to or arising out of or in connection
with events, circumstances or conditions existing or arising prior to the Closing, other than those
Liabilities: (i) to the extent adequately reflected and reserved against in the Closing Date
Balance Sheet, (ii) specifically listed on
Schedule 4.12
, (iii) that relate to Taxes, which are
dealt with exclusively in
Sections 4.13, 7.5
and
10.1.2
or (iv) that are Environmental Liabilities
or relate to or arise with respect to violation or noncompliance with an Environmental Law.
“Indemnified Party” is defined in
Section 10.4(a)
.
“Indemnified Seller Party” is defined in
Section 10.2
.
“Indemnitor” is defined in
Section 10.4(a)
.
“Intellectual Property” means any Copyrights, Patents, Trademarks, technology rights and
licenses, Trade Secrets, inventions, discoveries, know-how, formulae, specifications and ideas,
rights in research and development, and commercially practiced processes and inventions, whether
patentable or not in any jurisdiction, and any other intellectual property used by any Company
Group Member in the Business.
“Inventory” means all inventories of the Company Group Members, including raw materials,
supplies, packaging supplies, work in process and finished goods.
“Law” means any statute, law, ordinance, regulation, order or rule of any Governmental Entity,
including those covering environmental, energy, safety, health, transportation, bribery, record
keeping, zoning, antidiscrimination, antitrust, wage and hour, and price and wage control matters.
“Legal Proceeding” means any lawsuit, action, suit, arbitration, administrative or other
proceeding, criminal prosecution or other investigation or inquiry of any Governmental Entity.
“Licensed Software” is defined in
Section 4.
18(g)(i)
.
“Liability” means any direct or indirect liability, indebtedness, obligation, expense, claim,
loss, damage, deficiency, guaranty or endorsement of or by any Person,
9
absolute or contingent, known or unknown, accrued or unaccrued, due or to become due,
liquidated or unliquidated.
“LIBOR” means the interest rate offered by major banks in the interbank market in London,
England for 1 (one) month, published by the British Bankers’ Association at 11:00 a.m. (London
time) 2 (two) Business Days prior to the interest payment date.
“Liquidated Claim Notice” is defined in
Section 10.4(a)
.
“Management Bonuses” means the cash bonuses payable the Company to the TMT and David J.
Wersland in an aggregate amount not to exceed $514,000 in consideration of his past efforts on
behalf of the Company. For avoidance of doubt, the Wersland Bonus is not included in Management
Bonuses.
“Material Adverse Effect” means any event, change or effect that is or may reasonably be
expected to be materially adverse to the Business or the Company Group Members taken as a whole, or
the operations, assets, personnel, condition (financial or otherwise), or results of operations of
the Company Group Members, taken as a whole.
“Minor Contract” means any Contract that is terminable by a Company Group Member on not more
than 30 days’ notice without any Liability and any Contract under which the obligation of the
Company Group Members (fulfilled and to be fulfilled) involves an amount of less than $25,000.
“Net Working Capital” means the aggregate value of the Company Group Members’ trade
receivables and Inventory, net of allowances and reserves, less trade payables, all as determined
in accordance with GAAP and in a manner consistent with the Company’s June 30, 2005 balance sheet.
“Net Working Capital Valuation” is defined in
Section 2.6(a)
.
“No Further Action Determination” means written concurrence of a Governmental Entity with
jurisdiction over an Environmental Liability that no further action is necessary to address the
Environmental Liability. A No Further Action Determination may be conditioned on Impositions.
“Non-Competition Agreements” means the Non-Competition Agreements executed by each of Stephen
B. King, Sr., Tobin M. Ryan, James A. Krogh, Gregory A. Linder, Robert E. Logan and David J.
Wersland, respectively, in favor of Buyer and the Company Group Members, in substantially the form
attached hereto as
Exhibit E
.
“Non-Exempt Employees” means those Employees employed in positions classified as “non-exempt”
under the Fair Labor Standards Act of 1938, as amended.
“Non-Real Estate Leases” is defined in
Section 4.9
.
“Off-the-Shelf Software” is defined in
Section 4.
18(a)(i)
.
10
“Option Obligations” means all obligations of the Company with respect to Outstanding Options.
“Option Payment” means the amount necessary to discharge and terminate all Option Obligations
pursuant to the terms of the Outstanding Options.
“Option” is defined in
Section 2.2
.
“Option Waiver” is defined in
Section 2.2
.
“Order” means any order, writ, judgment, injunction, decree, ruling, assessment, stipulation,
determination or award entered by or with any court, arbitrator or other Governmental Entity.
“Ordinary course” or “ordinary course of business” means, with respect to any Person, an
action taken by such Person if such action is consistent in nature, scope and magnitude with the
past practices of such Person and is taken in the ordinary course of the normal day-to-day
operations of such Person.
“Outstanding Options” is defined in
Section 4.4(b)
.
“Parties” means Buyer and the Seller Parties.
“Patents” means all patents, any extensions, reexaminations and reissues of such patents,
patents of addition, patent applications, divisions, continuations, continuations-in-part, and any
subsequent filings in any country or jurisdiction claiming priority therefrom.
“Performance Bonus” means the cash bonus in the amount of $ 8,236,000 payable to Stephen B.
King, Sr. in consideration of his past efforts to build and develop the Company.
“Permitted Encumbrances” shall mean (a) Encumbrances set forth on
Schedule 4.6
; (b) such
Encumbrances as do not materially detract from the value or materially impair the use of the
property subject thereto; (c) liens for Taxes not yet due or penalties for nonpayment or which are
being actively contested in good faith by appropriate proceedings and which have been sufficiently
accrued or reserved against in the Balance Sheet; or (d) industrial use restrictions that are a
matter of public record or that are imposed by Law which do not interfere in any material respect
with the use, occupancy or operation of the property of the Business as it is currently used,
occupied or operated by the appropriate Company Group Member.
“Person” means any natural person, business trust, corporation, partnership, limited liability
company, joint stock company, proprietorship, association, trust, joint venture, unincorporated
association or any other legal entity of whatever nature.
“Phantom Stock Payment” means the amount necessary to discharge and terminate all obligations
pursuant to the Phantom Stock Plan.
11
“Phantom Stock Plan” means the Tomah Holdings, Inc. 1999 Phantom Stock Plan, effective August
2, 1999, as amended as of December 8, 2003.
“Possible Breach” is defined in
Section 10.4(f)
.
“Preferred Redemption Payment” is defined in
Section 2.2
.
“Preferred Stock” is defined in
Section 4.4(a)
.
“Pro Rata Share” means the percentage specified with respect to a particular Stockholder on
Schedule 2.3
.
“Prime Rate” means the prime lending rate as announced from time to time by the Chase
Manhattan Bank, New York Branch, as its prime rate.
“Purchase Price” is defined in
Section 2.3(a)
.
“Real Property” is defined in
Section 4.7
.
“Release” means any release, spill, emission, leaking, pumping, pouring, dumping, emptying,
injection, deposit, disposal, discharge, dispersal, leaching or migration on or into the
Environment.
“Remedial Action” means all actions, including any capital expenditures, required or
voluntarily undertaken (a) to clean up, remove, treat or in any other way address any Hazardous
Substances or other substance; (b) to prevent the Release or threat of Release or to minimize the
further Release of any Hazardous Substances 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 Real Property
and the operations conducted thereon into compliance with Environmental Laws and environmental
Governmental Permits
“Required Consents” is defined in
Section 4.3
.
“Resolution Period” is defined in
Section 10.4(c)
.
“Response Period” is defined in
Section 10.4(a)
.
“Ryan Options” means the Company’s outstanding options in favor of Tobin M. Ryan pursuant to
that certain Stock Option Agreement, dated as of October 24, 2002, as amended as of December 8,
2003.
“SEC” means the U.S. Securities and Exchange Commission.
“Second Working Capital Valuation” is defined in
Section 2.5(b)
.
“Securities Act” means the Securities Act of 1933, as amended.
12
“Seller Parties” means the Stockholders and the Company.
“Software Products” means any computer software products, other than Off-the-Shelf-Software,
and all computer operating, security or programming software, that is owned by or licensed to any
Company Group Member or used, in whole or in part, directly or indirectly, or has been developed or
designed for or is in the process of being developed or designed for use, in whole or in part,
directly or indirectly, in the conduct of the Business of any nature whatsoever, including all
systems software, all applications software, whether for general business usage (e.g., accounting,
finance, word processing, graphics, spreadsheet analysis, etc.) or specific, unique-to-the-Business
usage (e.g., telephone call processing, etc.), and any and all documentation and object and source
codes related thereto.
“Specifically Applicable Representations” is defined in
Section 10.4(f)
.
“Stockholders” is defined above in the preamble.
“Stockholders Accountants” is defined in
Section 2.5(b)
.
“Stockholders’ Representative” is defined in
Section 10.8(a)
.
“Subsidiary” means any and all corporations, partnerships, associations, trusts, joint
ventures, limited liability companies and other entities with respect to which any Person, directly
or indirectly, (i) owns a majority of the outstanding capital stock or (ii) owns securities or
other interests having the power to elect a majority of the board of directors or similar body
governing the affairs of such entity.
“System” means any combination of two or more Components.
“Target Net Working Capital” is defined in
Section 2.4
.
“Taxes” means any federal, state, local, or foreign income, gross receipts, license, payroll,
employment, excise, severance, stamp, occupation, premium, windfall profits, environmental
(including taxes under Code § 59A), customs duties, capital stock, franchise, profits, withholding,
social security (or similar), unemployment, disability, real property, personal property,
in-lieu-of payments, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or
addition thereto, whether disputed or not.
“Tax Return” means any return, declaration, report, claim for refund, or information return,
or statement relating to Taxes, including any schedule or attachment thereto, and including any
amendment thereof.
“Termination Date” is defined in
Section 3.1
.
“the Company’s knowledge” or “knowledge of the Company” means the actual knowledge, after due
inquiry of any fact or matter, or representation or warranty contained in this Agreement, of a
group consisting of any director or officer of any
13
Company Group Member, including Eric R. Kutsenda, Stephen B. King, Sr., Tobin M. Ryan, James
A. Krogh, Gregory A. Linder, Robert E. Logan and David J. Wersland (the “Knowledge Group”). “Due
inquiry” by a director shall be such inquiry that a director would make in the performance of his
duties as a director, provided that the foregoing shall not serve to diminish the due inquiry
obligation of any director who is also an officer of any Company Group Member.
“Third Accounting Firm” is defined in
Section 2.6(b)
.
“TMT” means Tobin M. Ryan, James A. Krogh, Gregory A. Linder and Robert E. Logan.
“Total Debt Amount” means, without duplication, (a) all obligations for money borrowed; (b)
all obligations evidenced by notes, debentures, bonds or other similar instruments for the payment
of which the Company is responsible or liable; (c) all obligations issued or assumed for deferred
purchase price payments associated with acquisitions, divestments or material transactions; (d) all
obligations under leases required to be capitalized in accordance with GAAP, as consistently
applied, except for leases incurred in the ordinary course of business; (e) all obligations for the
reimbursement on any letter of credit, banker’s acceptance, guarantees or similar credit
transaction, in each case, that has been claimed against; but excluding in all cases in clauses (a)
through (e) accounts payable and incurred in the ordinary course of business. As of December 31,
2005, the Total Debt Amount was $48,971,869.
“Trade Secrets” means all know-how, trade secrets, customer lists, software, technical
information, data, process technology, plans, drawings (including engineering and auto-cad
drawings), innovations, designs, ideas, proprietary information and blue prints, owned, used or
licensed either directly or indirectly (as licensor or licensee) by any Company Group Member,
except for any such item that is generally available to the public.
“Trademarks” means registered trademarks, registered service marks, trademark and service mark
applications and unregistered trademarks and service marks, brand names, certification marks, trade
dress, goodwill associated with the foregoing and registrations in any jurisdictions, and
applications in any jurisdiction to register, the foregoing, including any extension, modification
or renewal of any such registration or application used by any Company Group Member in the
operation of the Business.
“Transaction Documents” means this Agreement, the Non-Competition Agreements, the Consulting
Agreements, the Building Purchase Agreement and the Escrow Agreement and all other documents
executed in connection herewith.
“Transaction Expenses” means any and all expenses paid or payable by any Stockholder or any
Company Group Member, or for which any Company Group Member is or may become liable, with respect
to the Transactions, including all accounting expenses, legal or Tax expenses, finders’ fees,
facilitation fees, fees for advisory or other
14
services of any nature or Taxes incurred directly as a result of the completion of the
Transactions.
“Transactions” means the purchase and sale of the Closing Shares at the Closing and the other
transactions contemplated by the Transaction Documents.
“Unliquidated Claim” is defined in
Section 10.4(a)
.
“Unreasonable Action” shall mean any action by Buyer (including a communication with a
Governmental Entity) unless such action is (a) required by Law; (b) reasonably necessary in order
to avoid a Legal Proceeding by a Governmental Entity under any Law; (c) reasonably necessary in
order to prevent or mitigate a threat to human health or the environment; (d) consistent in nature,
scope and magnitude with Buyer’s past practices and is taken in the ordinary course of Buyer’s
normal operations (including the performance of capital improvements, operations and maintenance,
and reasonable construction and renovation activities); or (e) undertaken in connection with
environmental investigation and other due diligence activity (including any Phase I or Phase II
Environmental Assessment) by a bona fide prospective purchaser, assignee or sublessee of any Real
Property who is not affiliated with Buyer, and which activity is taken in connection with the
prospective sale or other transfer of interest in such Real Property by Buyer.
“U.S.” means the United States of America.
“Welfare Plan” is defined in
Section 4.20(g)
.
“Wersland Bonus” means the cash bonus in the amount of $400,000 payable by the Company to
David J. Wersland in consideration of his past efforts on behalf of the Company.
“Working Capital Notice” is defined in
Section 2.6(a)
.
2.
Purchase and Sale of Closing Shares and Other Payments
.
2.1
Purchase and Sale
. Subject to the terms and conditions of this Agreement, Buyer
shall buy from each Stockholder, and each Stockholder shall sell to Buyer, free and clear of all
Encumbrances, the Closing Shares owned by such Stockholder as of the Closing Date.
2.2
Redemption of Preferred Stock; Cancellation of Options
. .
(a) Concurrently with the Closing, the Company shall redeem all outstanding shares of its
Preferred Stock for a redemption price per share equal to (i) the Series B Preferred Stock Per
Share Stated Value (as defined in that certain Amended and Restated Stockholders’ Agreement, dated
as of December 8, 2003, as amended) plus (ii) all accrued but unpaid dividends to the date of
redemption (the “Preferred Redemption Payment”), such that the capitalization of the Company as of
the Closing Date shall be as set forth in
Section 4.4(b)
hereof.
15
(b) Concurrently with the Closing, the Company shall obtain from those Persons having any
option, call, warrant, commitment or other right of any character (including conversion or
preemptive rights) (each an “Option”) relating to the acquisition of any issued or unissued capital
stock or other securities of any Company Group Member a waiver of such Option or a binding and
unconditional statement of non-exercise of such Option (the “Option Waivers”), in writing and
irrevocable.
2.3
Purchase Price
.
(a) The total purchase price for the Closing Shares payable to the Stockholders (the “Purchase
Price”) shall be paid to or for the benefit of the Stockholders as the Stockholders shall direct in
writing. To the extent that the Stockholders direct that certain amounts shall be paid on behalf
of the Company, such amounts shall be treated as capital contributions by the Stockholders to the
Company and then a payment by the Company. The Purchase Price shall consist of (i) $116,617,000
(the “Cash Purchase Price”), less (1) such amount as is required to redeem the Preferred Stock and
repay the Total Debt Amount, including any interest, any prepayment penalty or premium and any
other obligation owing under the terms of any indebtedness for money borrowed by the Company and
not repaid at or prior to the Closing), (2) the amount necessary to discharge and terminate all
Option Obligations pursuant to the terms of the Outstanding Options (the “
Option
Payment
”), (3) the amount necessary to discharge and terminate all obligations pursuant to the
Phantom Stock Plan (the “
Phantom Stock Payment
”), (4) the amount necessary to discharge and
terminate all obligations pursuant to the terms of the Company Employee Bonus Plans (the “Bonus
Plan Payments”), (5) the Management Bonuses, (6) the Wersland Bonus, (7) the Performance Bonus and
(8) the Transaction Expenses (the difference being referred to herein as the “Closing Date Shares
Purchase Price”), plus or minus, as the case may be, any Adjustment Amount determined in accordance
with
Section 2.4
hereof.
(b) Buyer shall pay the Cash Purchase Price at the Closing as follows:
(i) an amount equal to the Closing Date Shares Purchase Price, less $7,500,000 (the “Closing
Payment”) to the Stockholders in the respective amounts set forth on
Schedule 2.3
;
(ii) delivery of $7,500,000 in cash to the Escrow Agent in accordance with the Escrow
Agreement (such cash, together with any investment proceeds thereon, is referred to herein as the
“Escrow Funds”); and
(iii) the remainder of the Cash Purchase Price to allow the Seller Parties to redeem the
Preferred Stock and to discharge the Total Debt Amount, the Option Payment, the Phantom Payment,
the Bonus Plan Payments, the Management Bonuses, the Wersland Bonus, the Performance Bonus and the
Transaction Expenses.
(c) The payment of the cash obligations in
Section 2.3(b)(i)
and
2.3(b)(ii)
shall be made by
wire transfer of immediately available funds.
16
2.4
Closing Date Purchase Price Adjustment
.
(a) On or prior to the Closing Date, the Company shall deliver to Buyer an estimated Closing
Date Balance Sheet (the “Estimated Closing Date Balance Sheet”). If the Net Working Capital as
reflected on the Estimated Closing Date Balance Sheet (the “Estimated Net Working Capital”) is (i)
less than $8,864,474 (the “Target Net Working Capital”), then the Purchase Price shall be reduced
by the amount of such difference or (ii) more than the Target Net Working Capital, then the
Purchase Price shall be increased by the amount of such difference (in either case, such difference
is referred to herein as the “Adjustment Amount”.) No adjustment to the Purchase Price under this
Section 2.4(a)
shall be made at Closing in the event the Estimated Net Working Capital equals the
Target Net Working Capital.
(b) On or prior to the Closing Date, the Company shall deliver to the Buyer an estimate of the
aggregate amount of the Income Tax liabilities of the Company Group Members for all Tax periods
beginning on July 1, 2005, and ending on or before the Closing Date, in all cases assuming that
there is no deduction for the amount of the Option Payment, Phantom Stock Payment, Bonus Plan
Payments, Management Bonuses, Wersland Bonus, and Performance Bonus (together, the “Compensation
Payments”) and, further, that any increase in Income Taxes as a result thereof shall reduce such
Income Tax liabilities as appropriate (such assumptions, the “Hypothetical Income Tax Assumptions”)
(such estimate, the “Estimated Aggregate Income Tax Liability”). The Purchase Price shall be
increased or decreased on a dollar-for-dollar basis as follows:
(i) The Purchase Price shall be increased to the extent $1,306,674 (that is, the aggregate
amount of estimated tax payments, credits, and deposits of the Company Group Members for Income
Taxes for all Tax periods beginning on July 1, 2005, and ending on or before the Closing Date, all
as set forth on
Schedule 2.4
) (the “Aggregate Income Tax Paid”) exceeds the Estimated Aggregate
Income Tax Liability.
(ii) The Purchase Price shall be decreased to the extent the Estimated Aggregate Income Tax
Liability exceeds the Aggregate Income Tax Paid.
(c) On or prior to the Closing Date, the Company shall deliver to the Buyer an estimate of the
aggregate amount of the Tax liabilities other than Income Tax liabilities of the Company Group
Members for all Tax periods beginning on or after July 1, 2005, and ending on or before the Closing
Date and an estimate of the aggregate amount of Pre-Closing Tax liabilities other than Income Tax
liabilities of the Company Group Members for that portion of all Straddle Periods (as defined in
Section 7.5(a)(iii)
) through and including the Closing Date as determined under
Section 7.5(a)(iii)
(the “Estimated Pre-Closing Non-Income Tax Liabilities”). The Purchase Price shall be decreased on
a dollar-for-dollar basis by the amount of the Estimated Pre-Closing Non-Income Tax Liabilities.
2.5
Post-Closing Purchase Price Adjustment
.
(a) The Purchase Price shall be decreased on a dollar-for-dollar basis to the extent that the
Net Working Capital (the “Closing Date Net Working Capital”) as set forth on a balance sheet (the
“Closing Date Balance Sheet”) prepared as of the
17
Closing Date (the “Net Working Capital Valuation”), as determined by Buyer’s independent
accountants (“Buyer’s Accountants”), shall be less than the lesser of (A) the Target Net Working
Capital and (B) the Estimated Net Working Capital; or the Purchase Price shall be increased on a
dollar-for-dollar basis to the extent that the Closing Date Net Working Capital, as determined by
Buyer’s Accountants, shall be more than the greater of (A) the Target Net Working Capital and
(B) the Estimated Net Working Capital. Buyer shall cause Buyer’s Accountants to perform the Net
Working Capital Valuation within 30 days after the Closing Date. Within 10 days after the
completion of the Net Working Capital Valuation, Buyer shall give the Stockholders’ Representatives
notice (the “Working Capital Notice”) of the results of the Net Working Capital Valuation and
whether such results provide for any increase or decrease in the Purchase Price. In the event that
the Working Capital Notice reflects an increase or decrease in the Purchase Price, then, within 20
days of receipt of the Working Capital Notice, or, in the alternative, within 20 days of the final
resolution of any dispute of the Net Working Capital Valuation, the Stockholders shall pay to Buyer
an amount equal to the amount by which the Closing Date Net Working Capital is less than the lesser
of (A) the Target Net Working Capital and (B) the Estimated Net Working Capital or Buyer shall pay
to the Stockholders an amount equal to the amount by which the Closing Date Net Working Capital is
more than the greater of (A) the Target Net Working Capital and (B) the Estimated Net Working
Capital.
(b) Subject to this
Section 2.5(b)
, the Net Working Capital Valuation performed by Buyer’s
Accountants shall be final, binding and conclusive on the parties hereto. The Stockholders’
Representatives may dispute the Net Working Capital Valuation in the following manner. Within 10
days after the Stockholders’ Representatives receives the Working Capital Notice from Buyer, the
Stockholders’ Representatives shall give Buyer notice of any disagreement with the Net Working
Capital Valuation (the “Dispute Notice”), and such notice shall specify in detail the nature of the
disagreement. During the 20 days after the day on which any Dispute Notice is given, the
Stockholders’ Representatives and Buyer shall attempt to resolve such dispute in good faith. If
they fail to reach a written agreement regarding the dispute, the Stockholders’ Representatives
shall refer the matter to a firm of certified independent accountants (the “Stockholders’
Accountants”) that is different from the firm that initially prepared the Net Working Capital
Valuation, and request the Stockholders’ Accountants to also determine the Closing Date Net Working
Capital (the “Second Working Capital Valuation”). Buyer shall be entitled to have its independent
accountants or other representatives observe the Second Working Capital Valuation. The
Stockholders’ Representatives shall give Buyer prompt notice of the results of the Second Working
Capital Valuation. If Buyer and the Stockholders’ Representatives are unable to agree upon the
Closing Date Net Working Capital, the amounts remaining in dispute shall be submitted to a third
independent accounting firm of national reputation mutually agreeable to Buyer and Stockholders’
Representatives for resolution (the “Third Accounting Firm”), which firm shall, within 30 days
after such submission, determine and report to Buyer and Stockholders’ Representatives upon such
remaining disputed amounts, and such report shall be final, binding and conclusive on the Parties
hereto. The fees and disbursements of the Third Accounting Firm shall be allocated among Buyer and
the Stockholders so that Stockholders’ share of such fees and disbursements shall be in
18
the same proportion that the aggregate amount of such remaining disputed amounts so submitted
to the Third Accounting Firm that is unsuccessfully disputed by Stockholders’ Representatives (as
finally determined by the Third Accounting Firm) bears to the total amount of such remaining
disputed amounts so submitted to the Third Accounting Firm. Stockholders shall pay the fees
portion of the fees and expenses of the Third Accounting Firm for which they are responsible, as
well as the fees and expenses of Stockholders’ Accountants, in connection with this
Section 2.5(b)
.
The resolution procedure set forth in this
Section 2.5(b)
, including the standard for paying
costs, is referred to as the “Dispute Resolution Procedure.”
(c) Any rights accruing to any Party under this
Section 2.5
shall be in addition to and
independent of the rights to indemnification under
Section 10
and any payments made to any Party
under this
Section 2.5
shall not be subject to the requirements of
Section 10
.
2.6
Additional Post-Closing Purchase Price Adjustments.
(a) On or prior to 90 calendar days after the delivery of the Tax schedules, documents, and
information to Stockholders as set forth in
Section 7.5(c)
, the Stockholders shall deliver to Buyer
the aggregate amount of Income Tax liabilities of the Company Group Members for all Tax periods
beginning on July 1, 2005, and ending on or before the Closing Date, in all cases calculated using
the Hypothetical Income Tax Assumptions (the “Final Aggregate Income Tax Liability”) and the amount
of the “Income Tax Benefits” (as defined in
Section 2.6(b)
below). The Purchase Price shall be
increased or decreased on a dollar-for-dollar basis as follows;
(i) The Purchase Price shall be increased to the extent the Estimated Aggregate Income Tax
Liability exceeds the Final Aggregate Income Tax Liability; or
(ii) The Purchase Price shall be decreased to the extent the Final Aggregate Income Tax
Liability exceeds the Estimated Aggregate Income Tax Liability.
Stockholders’ calculation of the Final Aggregate Income Tax Liability shall be final, binding, and
conclusive on the Parties hereto unless the Buyer disputes such calculation in accordance with
Section 2.6(d)
.
(b) The Purchase Price shall also be decreased on a dollar-for-dollar basis to the extent that
Income Tax benefits (“Income Tax Benefits”) do not equal or exceed $3,617,000 as a result of the
deduction for the amount of the Compensation Payments. Income Tax Benefits for this purpose shall
be equal to (i) the amount of Current Income Tax Benefits plus (ii) the amount of Future Income Tax
Benefits. Current Income Tax Benefits shall be equal to the difference between (x) the aggregate
amount of Income Tax liabilities of the Company Group Members for all Tax periods ending on or
before the Closing Date as set forth on
Schedule 2.6(b)
, in all cases calculated using the
Hypothetical Income Tax Assumptions AND (y) the aggregate amount of actual Income
19
Tax liabilities of the Company Group Members for all Tax periods ending on or before the
Closing Date as set forth on
Schedule 2.6(b)
(that is, the amount of the Compensation Payments are
deductible as contemplated herein and any net operating or other loss is carried back to the full
extent as permitted by Tax Law). Future Income Tax Benefits shall be equal to the net operating or
other loss or other Income Tax attribute (if any) after carry back as described above as a result
of deducting such Compensation Payments multiplied by the sum of (x) the highest marginal federal
(i.e., 35%) plus (y) the highest marginal applicable state and local Income Tax rate in effect in
each Company Group Member’s fiscal Tax year beginning July 1, 2005 (for state or local Income Tax
purposes, any net operating or other loss carry forward shall be computed using the apportionment
factors for each applicable Company Group Member’s fiscal Tax year the Compensation Payments were
deducted and the Income Tax rates shall be reduced by multiplying such applicable state and local
Income Tax rates by 65%). Stockholders’ calculation of the Income Tax Benefits shall be final,
binding, and conclusive on the Parties hereto unless the Buyer disputes such calculation in
accordance with
Section 2.6(d)
.
(c) On or prior to 90 calendar days after the delivery of the Tax schedules, documents, and
information to Stockholders as set forth in
Section 7.5(c)
, the Stockholders shall deliver to Buyer
the aggregate amount of Tax liabilities other than Income Tax liabilities of the Company Group
Members for all Tax periods beginning on July 1, 2005, and ending on or before the Closing Date and
the aggregate amount of Pre-Closing Tax liabilities other than Income Tax liabilities of the
Company Group Members for that portion of all Straddle Periods through and including the Closing
Date as determined under
Section 7.5(a)(iii)
(the “Final Pre-Closing Non-Income Tax Liabilities”).
The Purchase Price shall be increased or decreased on a dollar-for-dollar basis as follows:
(i) The Purchase Price shall be increased to the extent the Estimated Pre-Closing Non-Income
Tax Liabilities exceeds the Final Pre-Closing Non-Income Tax Liabilities; or
(ii) The Purchase Price shall be decreased to the extent the Final Pre-Closing Non-Income Tax
Liabilities exceeds the Estimated Pre-Closing Non-Income Tax Liabilities.
Stockholders’ calculation of the Final Pre-Closing Non-Income Tax Liabilities shall be final,
binding, and conclusive on the Parties hereto unless the Buyer disputes such calculation in
accordance with
Section 2.6(d)
.
(d) Within 15 days after Buyer receives the calculation of Final Aggregate Income Tax
Liability, the Income Tax Benefits, the Final Pre-Closing Non-Income Tax Liabilities, Recomputed
Aggregate Income Tax Liability, and/or Recomputed Income Tax Benefits, Buyer shall give
Stockholders notice of any disagreement with the Final Aggregate Income Tax Liability, the Income
Tax Benefits, Final Pre-Closing Non-Income Tax Liabilities, Recomputed Aggregate Income Tax
Liability, and/or Recomputed Income Tax Benefits, and such notice shall specify in detail
20
the nature of the disagreement. Any such dispute shall then be resolved in a manner using
procedures similar to those set forth in
Section 2.5(b)
.
(e) Any increase or decrease in Purchase Price pursuant to this
Section 2.6
shall be paid by
or refunded to the Stockholders within 20 days of the later of the delivery of such calculation to
Buyer or final resolution of any dispute over such calculation.
2.7
Additional Post-Closing Purchase Price Adjustments for Income Tax Audits.
If the
Internal Revenue Service or other state or local Income Tax authority audits any Income Tax Return
of any Company Group Member for any Income Tax period ending on or before the Closing Date, then
within 20 days after receipt of the adjustments as finally determined or agreed to (i.e., after
such audit and any subsequent Tax Proceedings (as defined in
Section 7.
5(b)
are completed and
final), the Stockholders shall recompute the Final Aggregate Income Tax Liability (“Recomputed
Aggregate Income Tax Liability”) and the Income Tax Benefits (“Recomputed Income Tax Benefits”)
taking into account any adjustments as finally determined or agreed to provided that Buyer
materially complies with its obligations set forth in
Section 7.5
. If the Recomputed Aggregate
Income Tax Liability is different from the Final Aggregate Income Tax Liability, then:
(i) The Buyer shall pay the Stockholders the difference between the Final Aggregate Income Tax
Liability less the Recomputed Income Tax Liability; or
(ii) The Stockholders shall pay the Buyer the difference between the Recomputed Aggregate
Income Tax Liability less the Final Aggregate Income Tax Liability, provided that Buyer materially
complies with its obligations set forth in
Section 7.5
.
Stockholders shall pay Buyer to the extent Recomputed Income Tax Benefits do not equal or exceed
the difference between (x) $3,617,000 less (y) any purchase price adjustment pursuant to
Section
2.6(b)
plus any prior amounts paid pursuant to this paragraph, provided that Buyer materially
complies with its obligations set forth in
Section 7.5
. This
Section 2.7
continues to apply until
all of the applicable statute of limitations for assessing Income Taxes against any Company Group
Member for all Income Tax periods ending on or before the Closing Date have expired. If after one
payment is made under this
Section 2.7
, there are one or more subsequent Income Tax audits,
payments due hereunder shall be adjusted by all prior payments made under this
Section 2.7
.
Stockholders’ calculation(s) of the Recomputed Aggregate Income Tax Liability and the Recomputed
Income Tax Benefits shall be final, binding, and conclusive on the Parties hereto unless the Buyer
disputes such calculation in accordance with
Section 2.6(d)
. Any payment due hereunder shall be
paid within 20 days after final determination.
21
3.
Closing
.
3.1
Location, Date
. The closing for the Transactions (the “Closing”) shall be held at
the offices of Foley & Lardner LLP in Milwaukee, Wisconsin at 10:00 a.m. (local time) as promptly
as practicable (and in any event within three Business Days) after the date on which there has been
a satisfaction or waiver of the conditions to the consummation of the Transactions set forth in
Sections 8
and
9
, but in any event not later than May 1, 2006, (the “Termination Date”), or at such
other time, place or date as the Parties may agree. The date on which the Closing occurs is
referred to herein as the “Closing Date.” All of the actions to be taken and documents to be
executed and delivered at the Closing (under this Agreement and including the Transaction
Agreements) shall be deemed to be taken, executed and delivered simultaneously, and no such action,
execution or delivery shall be effective until all are complete, except as specifically provided
herein. The Closing shall be deemed to be effective as of the Effective Time.
3.2
Deliveries
. At the Closing, subject to the terms and conditions contained herein,
the Parties shall take the respective actions specified below:
(a) Buyer shall pay the Closing Payment to the Stockholders and the Escrow Funds to the Escrow
Agent in accordance with
Section 2.3
;
(b) the Stockholders shall deliver to Buyer the original stock certificates representing the
Closing Shares, duly endorsed for transfer to Buyer or with separate stock transfer powers attached
thereto and signed in blank;
(c) the Parties shall deliver, or cause to be delivered, to each other executed counterparts
of the Non-Competition Agreements, the Consulting Agreements, the Building Purchase Agreement, the
Escrow Agreement and each of the other Transaction Documents;
(d) the Company shall deliver to Buyer a payoff letter or payoff letters, in form and
substance reasonably satisfactory to Buyer, executed by each financial institution to which any
Company Group Member is obligated with respect to any portion of the Total Debt Amount, together
with original UCC termination statements and other lien releases terminating all Encumbrances
securing such amounts, and on behalf of the Company Group Members, Buyer shall pay all such amounts
on the Closing Date;
(e) the Company shall deliver to Buyer an Option Waiver, duly executed and delivered by each
holder of any Outstanding Options who received the required payment therefor on or prior to the
Closing Date, the Company shall deliver to Buyer an officer’s certificate certifying that the
Option Payment has been made to such holders, and such certificate shall be deemed a representation
of the Seller Parties for the purposes of
Section 10,
and on behalf of the Stockholders the Buyer
shall pay an amount equal to the Option Payment to the Company;
(f) the Bonus Plan Payments shall have been paid by the Company, the Executive Loan shall have
been repaid to the Company and all employment agreements for any employee of any Company Group
Member shall have been
22
terminated and the Company shall deliver to Buyer an officer’s certificate to such effect, and
such certificate shall be deemed a representation of the Seller Parties for the purposes of
Section
10,
and on behalf of the Stockholders the Buyer shall pay an amount equal to the Bonus Plan
Payments to the Company
;
(g) the Seller Parties shall deliver to Buyer an officer’s certificate certifying that (i) the
Phantom Stock Payment and the Performance Bonus have been paid in full, (ii) the Management Bonuses
and Wersland Bonuses have been paid in full, (iii) the Derivative has been unwound and (iv) the
Preferred Stock has been fully redeemed and the capitalization of the Company is as set forth on
Schedule 4.4(b)
, and such certificate shall be deemed a representation of the Seller Parties for
the purposes of
Section 10
, and on behalf of the Stockholders the Buyer shall pay an amount equal
to the Phantom Stock Payment, the Performance Bonus, the Management Bonuses, the Wersland Bonus and
the Preferred Redemption Payment to the Company;
(h) the Seller Parties shall deliver to Buyer an officer’s certificate representing the total
amount of all Transaction Expenses, and the Persons to whom such amounts are owed, and on behalf of
the Seller Parties or any Company Group Member, as the case may be, Buyer shall pay such amounts to
such Persons, and such certificate shall be deemed a representation of the Seller Parties for the
purposes of
Section 10;
(i) each Stockholder and the Company shall deliver to Buyer a certificate to the effect set
forth in
Sections 9.1
and
9.2
, and such certificate shall be deemed a representation of the Seller
Parties for the purposes of
Section 10
;
(j) Buyer shall deliver to the Stockholders a certificate of an executive officer of Buyer to
the effect set forth in
Sections 8.1
and
8.2
, and such certificate shall be deemed a representation
of Buyer for the purposes of
Section 10
;
(k) the Seller Parties shall deliver to Buyer an opinion of Foley & Lardner LLP, counsel to
the Seller Parties, in substantially the form of
Exhibit F
;
(l) the Seller Parties shall deliver to Buyer the Required Consents (or, in lieu thereof,
waivers) and all approvals and actions of, filings with and notices to any Governmental Entity as
necessary to permit the Seller Parties to perform their obligations under this Agreement, to enable
Buyer to operate the Business as it was operated on the date hereof and to consummate the
Transactions, and each such Required Consent, approval, filing or notice (A) shall be in form and
substance reasonably satisfactory to Buyer, (B) shall not be subject to the satisfaction of any
condition that has not been satisfied or waived, and (C) shall be in full force and effect;
(m) the Seller Parties shall deliver resignations from each of the members of the Board of
Directors (and each committee thereof) and the officers (in their capacity as officers) of each
Company Group Member;
(n) the Seller Parties shall deliver the original minute books, stock books, stock ledgers and
the corporate seal of each Company Group Member; and
23
(o) the Parties shall deliver to each other the respective agreements and other documents and
instruments, as well as good standing certificates, certified resolutions, cross receipts and such
other items as may be reasonably requested.
3.3
Default at Closing
. Notwithstanding anything herein to the contrary, if any
Stockholder shall fail or refuse to deliver any of the Closing Shares in breach of its obligations
hereunder, Buyer may refuse to complete the transactions contemplated hereby and thereby terminate
all of its obligations hereunder. Each Stockholder acknowledges that the Closing Shares are unique
and otherwise not available and agrees that in addition to any other remedies, Buyer may invoke any
remedies available under applicable Law to enforce delivery of such shares hereunder.
4.
Representations and Warranties of Seller Parties
.
As a material inducement to Buyer to enter into this Agreement and to consummate the
transactions contemplated herein, the Seller Parties hereby represent and warrant to Buyer, as of
the date hereof and also at and as of the Closing Date as though then made (except to the extent
such representations and warranties speak as of a particular date, in which case such
representations and warranties shall be made only as of such particular date) as follows:
4.1
Corporate Status
. Each Company Group Member (except for Tomah Products Properties
LLC) is a corporation duly organized, validly existing and in Good Standing under the Laws of the
jurisdiction in which it was incorporated and is qualified to do business as a foreign corporation
in each jurisdiction where it is required to be qualified except where the failure of any Company
to be so qualified would not be material to such Company Group Member. Tomah Products Properties
LLC is a limited liability company duly organized, validly existing and in Good Standing under the
Laws of the State of Wisconsin and is not qualified to do business in any jurisdiction other than
the State of Wisconsin. The Charter Documents of each Company Group Member have been delivered to
Buyer, and such Charter Documents are effective as of the date hereof under applicable Laws and are
current, correct and complete.
4.2
Authorization
. Each Company Group Member has the requisite power and authority to
own such Company Group Member’s Assets and to carry on such Company Group Member’s portion of the
Business. Each Seller Party has the requisite power and authority to execute and deliver the
Transaction Documents to which it is or will be a party, and perform the Transactions performed or
to be performed by such Seller Party. Such execution, delivery and performance by each Seller
Party has been duly authorized by all necessary corporate or other action, including, where
necessary, approval by the stockholders or members of each such Seller Party. Each Transaction
Document executed and delivered by any Seller Party has been duly executed and delivered by such
Seller Party and constitutes a valid and binding obligation of such Seller Party, enforceable
against such Seller Party in accordance with its terms.
4.3
Consent and Approvals
. Except as specified in
Schedule 4.3
(collectively the
“Required Consents”) and with respect to the HSR Act, neither the execution and
24
delivery by any Seller Party of the Transaction Documents to which it is a party, nor the
performance of the Transactions performed or to be performed by any Seller Party, require any
filing, consent, notice, registration, renegotiation or approval, constitute a Default or cause any
payment obligation to arise under (a) any Law or Court Order to which any Stockholder or any
Company Group Member is subject, (b) the Charter Documents of any Stockholder or any Company Group
Member or (c) any Contract or Governmental Permit to which any Stockholder or any Company Group
Member is a party or by which the material properties or other material Assets of any Stockholder
or Company Group Member may be bound.
4.4
Capitalization and Stock Ownership
.
(a) As of the date of this Agreement, the total authorized capital stock of the Company
consists of: (i) 1,854,000 shares of common stock, consisting of (A) 618,000 shares of Series A
Common Stock, $.001 par value per share, of which 492,358 shares are issued and outstanding on the
date hereof, and (B) 1,236,000 share of Series B Common Stock, $.001 par value per share, of which
984,716 shares are issued and outstanding on the date hereof, and (ii) 1000 shares of Series B
Preferred Stock, $.001 par value per share, of which 1000 shares are issued and outstanding on the
date hereof (all such outstanding shares of Preferred Stock are referred to herein as the
“Preferred Stock”). Except as set forth on
Schedule 4.4
hereto, there are no existing options,
warrants, calls, commitments or other rights of any character (including conversion or preemptive
rights) relating to the acquisition of any issued or unissued capital stock or other securities of
the Company.
(b)
Schedule 4.4
sets forth the name of each holder of any option, warrant or other right to
purchase any capital stock or other securities of the Company (the “
Outstanding Options
”),
including the
Ryan Options
, as well as the number of shares subject to purchase pursuant to
any Outstanding Options, the date of grant and the exercise price therefor. Upon payment of the
amounts set forth on the Closing Statement with respect to Outstanding Options, all Outstanding
Options will have been terminated in accordance with the terms of the governing Contract, and the
Company shall have no further obligation of any nature in connection therewith.
Schedule 4.4
sets
forth all awards or grants made under the Phantom Stock Plan. Upon payment of the amounts set
forth on the Closing Statement with respect to the Phantom Stock Plan, all obligations under the
Phantom Stock Plan will have been terminated in accordance with the terms of the Phantom Stock Plan
and any other governing document, and the Company shall have no further obligation of any nature in
connection therewith.
(c) As of the Closing, the total authorized capital stock of the Company will consist of: (i)
1,854,000 shares of common stock, consisting of (A) 618,000 shares of Series A Common Stock, $.001
par value per share, of which 492,358 shares will be issued and outstanding, and (B) 1,236,000
share of Series B Common Stock, $.001 par value per share, of which 984,716 shares will be issued
and outstanding (all such outstanding shares of Common Stock are referred to herein as the “Closing
Shares”), and (ii) 1000 shares of Series B Preferred Stock, none of which will be issued and
outstanding on the Closing Date. Except as set forth on
Schedule 4.4
hereto, as of
25
the Closing Date, there will be no existing options, warrants, calls, commitments or other
rights of any character (including conversion or preemptive rights) relating to the acquisition of
any issued or unissued capital stock or other securities of the Company.
(d) All of the Closing Shares are duly and validly authorized and issued and are fully paid
and non-assessable. The Stockholders are the record and beneficial owners of all of the Closing
Shares in the respective amounts specified on
Schedule 4.4
. The Company has complied with all
applicable Laws in connection with the issuance of the Closing Shares, and none of the Closing
Shares was issued in violation of any Contract binding upon the Company. There is no Contract
among or between the Company and the Stockholders, or any of them, relating to the Closing Shares,
including any restriction affecting transfer or voting rights or any other incidents of record or
beneficial ownership. Upon completion of the Transactions at the Closing, Buyer will receive valid
title to all of the Closing Shares, free and clear of all Encumbrances. At the time of such
receipt, all of the Closing Shares shall be freely transferrable except as limited by any
applicable securities Law.
4.5
Financial Statements
. Attached as
Schedule 4.5
are correct and complete copies of
audited consolidated financial statements for the Business at June 30, 2003, 2004, and 2005 and the
related statements of income and cash flows for the years then ended. The Company has also
delivered to Buyer an unaudited consolidated balance sheet as of February 28, 2006, and the related
statements of income and cash flows for the eight months then ended. All such financial statements
are referred to herein collectively as the “Financial Statements.” The Financial Statements have
been prepared in accordance with GAAP (except that the unaudited financial statements do not have
the necessary footnotes and adjustments typically made at fiscal year-end and which are consistent
with past practice have not been made) and are consistent in all material respects with the books
and records of the Company Group Members. The balance sheets included in the Financial Statements
present accurately the financial position of the Company Group Members as of the dates thereof.
The profit and loss statements included in the Financial Statements present accurately the results
of the operations of the Business for the periods indicated thereon, and reflect all costs that
historically have been incurred by the Business. The balance sheet of the Company Group Members
as of February 28, 2006 that is included in the Financial Statements is referred to herein as the
“Balance Sheet,” and the date thereof is referred to as the “Balance Sheet Date.”
4.6
Title to Assets and Related Matters
. Each Company Group Member has good title to,
valid leasehold interests in or valid licenses to use, all of its Assets, free from any
Encumbrances except those specified in
Schedule 4.6
and Permitted Encumbrances. The use of such
Assets is not subject to any Encumbrances (other than those specified in the preceding sentence).
All tangible personal property (other than Inventory) owned by any Company Group Member is suitable
for the purposes for which such Assets are used, is structurally sound and in good working
condition, reasonable wear and tear and defects which, individually or in the aggregate, do not
interfere with the use thereof excepted, and is free from any latent or patent defects. The Assets
constitute all of the Assets required for, or material to, the continued operation of the Business
by Buyer as operated by the Company Group Members during the past 12
26
months. The Assets, taken as a whole, constitute all the assets relating to or used or held
for use in connection with the Business during the past 12 months (except for such Assets that have
been acquired, sold or disposed of in the ordinary course of the Company’s business consistent with
past practice. There are no Assets used in the operation of the Business that are owned by any
Person other than a Company Group Member that are not licensed or leased to a Company Group
Member under valid, current license arrangements or leases.
4.7
Real Property
.
Schedule 4.7
lists all real estate used in the operation of the
Business as well as any other real estate owned or leased by any Company Group Member, and the
improvements (including buildings and other structures) located on such real estate (collectively,
the “Real Property”), and lists any leases under which any such Real Property is possessed (the
“Real Estate Leases”). Each Company Group Member has good and marketable title, subject to
Permitted Encumbrances, to all of its Real Property. All Real Property owned by any Company Group
Member is suitable for the purpose for which it is used, is structurally sound and in good working
condition, reasonable wear and tear and defects which, individually or in the aggregate, do not
interfere with the use thereof excepted, and such use does not encroach on the property or rights
of anyone else. Except as set forth on
Schedule 4.7
, no Company Group Member or any Affiliate
thereof has any ownership interest in any real property used in the Business.
Schedule 4.7
also
accurately describes any other real estate previously owned, leased or otherwise operated by any
Company Group Member or any predecessor thereof and the time periods of any such ownership, lease
or operation. All of the Real Property (a) is usable in the ordinary course of business and is in
good operating condition and repair, reasonable wear and tear and defects which, individually or in
the aggregate, do not interfere with the use thereof excepted and (b) conforms, in all material
respects, with any applicable Laws relating to its construction, use and operation. The Real
Property complies with applicable zoning Laws. Each Company Group Member, or, to the Company’s
knowledge, the landlord of any Real Property leased by any Company Group Member, has obtained all
licenses and rights-of-way from Governmental Entities or private parties that are necessary to
ensure vehicular and pedestrian ingress and egress to and from the Real Property. Each Real Estate
Lease is in full force and effect and, except as set forth on
Schedule 4.7
, has not been assigned,
modified, supplemented or amended and, to the Company’ knowledge, neither landlord nor tenant under
any such lease is in Default under any such lease, and no circumstance or set of facts exist which,
with the giving of notice or passage of time, or both, would permit landlord or tenant to terminate
any such lease.
4.8
Certain Personal Property
.
Schedule 4.8
is a list of all fixed Assets of each
Company Group Member having a carrying value of at least $10,000. Except as specified in
Schedule
4.8
, since the Balance Sheet Date, no Company Group Member has acquired any items of tangible
personal property that have a carrying value in excess of $10,000. All of such personal property
included in
Schedule 4.8
is, and any such personal property acquired after the date hereof in
accordance with
Section 6.1
will be, usable in the ordinary course of business, and conforms and
will conform with any applicable Laws relating to its construction, use and operation. Except for
those items subject to the Non-Real Estate Leases, no Person other than the Company Group
27
Members owns any vehicles, equipment or other tangible assets located on the Real Property
that have been used in the Business or that are necessary for the operation of the Business.
4.9
Non-Real Estate Leases
.
Schedule 4.9
lists all assets and property used in the
Business (other than Real Property and Intellectual Property) that are possessed by the Company
Group Members under an existing lease, including all trucks, automobiles, forklifts, machinery,
equipment, furniture and computers, except for any lease under which the aggregate annual payments
are less than $15,000 (each, an “Immaterial Lease”).
Schedule 4.9
also lists the leases under
which such assets and property listed in
Schedule 4.9
are possessed. All of such leases (excluding
Immaterial Leases) are referred to herein as the “Non-Real Estate Leases.”
4.10
Accounts Receivable
. The Accounts Receivable (net of any reserve shown on the
Balance Sheet) of the Company Group Members are bona fide Accounts Receivable created in the
ordinary course of business. To the Company’s knowledge, all of the Accounts Receivable are
collectible within 90 days from the respective dates of sale. Except as set forth on
Schedule
4.10
, there are no setoffs, counterclaims or disputes asserted or conditions precedent to payment
therefor with respect to any such Accounts Receivable, and no setoff, counterclaim, dispute,
discount or allowance from any such Accounts Receivable has been made or agreed to. The Company
Group Members know of no facts or circumstances (other than general economic conditions) that are
likely to result in any material increase in the uncollectability of such Accounts Receivable.
4.11
Inventory
. Except as described in
Schedule 4.11
, all Inventory (net of any
reserve shown on the Balance Sheet) consists of a quality and quantity usable and salable in the
ordinary course of business, except for obsolete items and items of below-standard quality, all of
which have been written off or written down to net realizable value in the Balance Sheet. Such
Inventory is recorded in the Financial Statements in accordance with GAAP at the lower of average
cost or market value.
Schedule 4.11
also specifies that portion of the Inventory that consists of
reworked items. The quantities of each class of Inventory (whether raw materials, work-in-process,
or finished goods) are not excessive, but are reasonable in the present circumstances and
consistent with historical amounts of the Company Group Members.
4.12
Liabilities
. The Company Group Members have no Liabilities, other than (a)
Liabilities specified in
Schedule 4.12
, (b) Liabilities adequately reflected and reserved against
in the Balance Sheet (except as heretofore paid or discharged), (c) current Liabilities incurred in
the ordinary course since the Balance Sheet Date, or (d) executory Liabilities under any Contracts
that are specifically disclosed in
Schedule 4.16
(or not required to be disclosed because of the
term or amount involved) that were not required under GAAP to have been specifically disclosed or
reserved for on the Balance Sheet.
4.13
Taxes
. Except as set forth in
Schedule 4.13:
(i) each of the Company Group
Members has filed all Tax Returns that it was required to file. All such Tax Returns were correct
and complete in all material respects. All Taxes due and owing by
28
any of the Company Group Members (as shown on any Tax Return) have been paid. None of the
Company Group Members currently is the beneficiary of any extension of time within which to file
any Tax Return. With regards to tax periods beginning on or after July 1, 2000 but before the date
hereof, no claim has been made by a Governmental Entity in a jurisdiction where any of the Company
Group Members does not file Tax Returns that it is or may be subject to taxation by that
jurisdiction.; (ii) each Company Group Member has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee, independent contractor,
creditor, stockholder, or other third party. There is no dispute or claim concerning any Tax
Liability of any of the Company Group Members either (A) claimed or raised by any Governmental
Entity in writing or (B) to the knowledge of the Company based upon personal contact with any agent
of such Governmental Entity.
Schedule 4.13
lists all Tax Returns filed with respect to any of the
Company Group Members for taxable periods ended on or after June 30, 2000, indicates those Tax
Returns that have been audited, and indicates those Tax Returns that currently are the subject of
audit. The Seller Parties have delivered to Buyer correct and complete copies of all Tax Returns,
examination reports, and statements of deficiencies assessed against or agreed to by any of the
Company Group Members since June 30, 2000; (iv) except as shown on
Schedule 4.13
, none of the
Company Group Members has waived any statute of limitations in respect of Taxes or agreed to any
extension of time with respect to a Tax assessment or deficiency. None of the Company Group
Members has been a United States real property holding corporation within the meaning of Code
§897(c)(2) during the applicable period specified in Code §897(c)(1)(A)(ii). None of the Company
Group Members has taken any position on its federal income Tax Returns nor has any Company Group
Member conducted its Tax affairs in a manner that could give rise to an accuracy-related penalty
on underpayments within the meaning of Code §6662. None of the Company Group Members has had a
reportable transaction understatement that could give rise to an accuracy-related penalty on
underpayments within the meaning of Code §6662A. None of the Company Group Members is a party with
any other Company Group Member to any Income Tax allocation or sharing agreement. None of the
Company Group Members (A) has been a member of an affiliated group (as defined by Code §1504(a))
filing a consolidated federal income Tax Return (other than a group the common parent of which was
the Company) or (B) has any Liability for the Taxes of any Person (other than any of the Company
Group Members) under Reg. §1.1502-6 (or any similar provision of state, local, or foreign law), as
a transferee or successor, by contract, or otherwise; (vi) the reserve for Tax Liability (rather
than any reserve for deferred Taxes established to reflect timing differences between book and Tax
income) set forth on the face of the June 30, 2005 balance sheet (rather than in any notes thereto)
was fairly stated in accordance with GAAP and the unpaid Taxes of the Company Group Members do not
exceed that reserve as adjusted for the passage of time through the date hereof in accordance with
the past custom and practice of the Company Group Members in filing their Tax Returns; (vii) none
of the Company Group Members will be required to include any item of income in, or exclude any item
of deduction from, taxable income for any taxable period (or portion thereof) ending after the
Closing Date as a result of any: (A) change in method of accounting for a taxable period ending on
or prior to the Closing Date under Code §481(c) (or any corresponding or similar provision of
state, local or foreign income Tax
29
law); (B) “closing agreement” as described in Code §7121 (or any corresponding or similar
provision of state, local or foreign income Tax law) executed on or prior to the Closing Date; (C)
installment sale or open transaction disposition made on or prior to the Closing Date; or (D) a
material prepaid amount received on or prior to the Closing Date.
4.14
Subsidiaries
. Except for the Existing Subsidiaries, no Company Group Member
owns, directly or indirectly, any interest or investment (whether equity or debt) in any
corporation, partnership, limited liability company, trust, joint venture or other legal entity.
There are no existing options, warrants, calls, commitments or other rights of any character
(including conversion or preemptive rights) relating to the acquisition of any issued or unissued
capital stock or other securities of any Existing Subsidiary, nor does any Company Group Member
have any Contract to acquire any equity securities or other securities of or interest in any Person
or any direct or indirect equity or ownership interest in any other business except as set forth on
Schedule 4.14
. Except as set forth on
Schedule 4.14,
all of the outstanding capital stock of each
Existing Subsidiary has been duly and validly authorized and issued and is fully paid and
non-assessable. The Company is the record owner of all of the outstanding capital stock of each
Existing Subsidiary in the respective amounts specified on
Schedule 4.14
. Each such Existing
Subsidiary has complied with all applicable Laws in connection with the issuance of shares of its
capital stock, and no such shares were issued in violation of any Contract binding upon any Company
Group Member. Except as set forth on
Schedule 4.14
, the outstanding capital stock of each Existing
Subsidiary is owned by the Company free and clear of all Encumbrances. There is no Contract
relating to the capital stock of any Existing Subsidiary, including any restriction affecting
transfer or voting rights or other incidents of record or beneficial ownership pertaining to any of
such capital stock.
4.15
Legal Proceedings and Compliance with Law
.
(a) Except as set forth in
Schedule 4.15(a)
, (i) there is no Legal Proceeding that is pending
or, to the Company’s knowledge, threatened against any Company Group Member; (ii) there has been no
Default under any Laws, including Environmental Laws, applicable to the Business and no Company
Group Member has received any notice from any Governmental Entity regarding any alleged Defaults
applicable to any Company Group Member under any Laws; and (iii) there has been no Default with
respect to any Court Order applicable to any Company Group Member.
(b) Except as set forth on
Schedule 4.15(b)
:
(i) Each Company Group Member is, and at all times has been, in full compliance with, and has
not been and is not in violation of or liable under, any Environmental Law; and no Stockholders or
Company Group Member has any 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 Entity or private citizen acting in the public
interest, or (ii) the current or prior owner or operator of any Real Property or Assets, of any
actual or potential violation of or failure to comply with any Environmental Law, or of any actual
or threatened obligation to undertake or bear the cost of any Environmental
30
Liabilities with respect to any of the Real Property or any other properties or Assets in
which any Company Group Member has had an interest, or with respect to any property or Real
Property at or to which Hazardous Substances were generated, manufactured, refined, transferred,
imported, used or processed by any Company Group Member or any other Person for whose conduct they
are or may be held responsible, or from which Hazardous Substances have been transported, treated,
stored, handled, transferred, disposed, recycled, or received; and
(ii) The Company has delivered or made available to Buyer complete copies of all final written
reports, studies or assessments in the possession or control of the Company Group Members, any
Affiliate or any agents thereof that relate to any environmental condition on the Real Property.
Schedule 4.
15(b)
identifies any other final reports, studies or assessments that relate to any
environmental condition on the Real Property of which any Seller Party has knowledge.
4.16
Contracts
.
(a)
Schedule 4.16
lists all Contracts of the following types to which any Company Group Member
is a party or by which it is bound, except for Minor Contracts:
(i) Contracts with any present or former stockholder, director, officer, employee, partner or
consultant of such Company Group Member or any Affiliate thereof;
(ii) Contracts for the future purchase of, or payment for, supplies or products, or for the
lease of any real or personal property from or the performance of services by a third party, in
excess of $50,000 in any individual case, or any Contracts for the sale of products that involve an
amount in excess of $50,000 with respect to any one supplier or other party;
(iii) Contracts to sell or supply products or to perform services that involve an amount in
excess of $50,000 in any individual case;
(iv) Contracts to lease to or to operate for any other party any real or personal property
that involve an amount in excess of $50,000 in any individual case;
(v) Any license, franchise, distributorship, sales agency or other arrangements, including
those that relate in whole or in part to any technical information, software technical assistance
or other know-how used in the past 24 months;
(vi) Any notes, debentures, bonds, conditional sale agreements, equipment trust agreements,
letter of credit agreements, reimbursement agreements, loan agreements or other Contracts for the
borrowing or lending of money (including loans to or from officers, directors, partners,
stockholders or Affiliates of the Company Group Members or any members of their immediate
families), agreements or arrangements for a
31
line of credit or for a guarantee of, or other undertaking in connection with, the
indebtedness of any other Person;
(vii) Contracts for any capital expenditure or leasehold improvements with a Contract value in
excess of $50,000;
(viii) Any Contracts under which any Encumbrances other than Permitted Encumbrances exist; and
(ix) Any Contract (other than Minor Contracts and those described in any of (i) through (viii)
above) not made in the ordinary course of business.
(b) Each Company Group Member has delivered to Buyer complete and correct copies of all
written Contracts, together with all amendments thereto, and accurate descriptions of all material
terms of all oral Contracts, set forth or required to be set forth on
Schedule 4.16
.
(c) The Contracts listed in
Schedule 4.16
and the Minor Contracts excluded from
Schedule 4.16
based on the term or amount thereof are referred to herein as the “Company Group Member Contracts.”
No Company Group Member is in Default under any Company Group Member Contract (including any Real
Estate Leases and Non-Real Estate Leases), which Default or Defaults could result in a Liability on
the part of such Company Group Member in excess of $10,000 in any individual case or $25,000 in the
aggregate. No Company Group Member has received any communication from, and has not given any
communication to, any other party indicating that such Company Group Member or such other party, as
the case may be, is in Default under any Company Group Member Contract. To the Company’s
knowledge, (i) none of the other parties to any Company Group Member Contract is in material
Default thereunder, and (ii) each Company Group Member Contract is enforceable against any other
parties thereto in accordance with terms thereof.
4.17
Insurance
.
Schedule 4.17
lists all policies or binders of insurance held by or
on behalf of each Company Group Member, specifying with respect to each policy the insurer, the
amount of the coverage, the type of insurance, the risks insured, the expiration date, the policy
number and any pending claims thereunder. There is no material Default with respect to any such
policy or binder, nor has there been any failure to give any notice or present any claim under any
such policy or binder in a timely fashion or in the manner or detail required by the policy or
binder. There is no notice of non-renewal or cancellation with respect to, or disallowance of any
claim under, any such policy or binder that has been received by Company Group Member.
Schedule
4.17
includes information with respect to the insurance coverage that each Company Group Member has
had in place throughout the past ten years.
4.18
Intellectual Property
,
(a)
Contracts
.
32
(i)
Schedule 4.
18(a)
-1
contains a complete and accurate list and summary description,
including any royalties paid or received by each Company Group Member, of all Contracts relating to
the Intellectual Property to which any Company Group Member is a party or by which any Company
Group Member is bound, except for any license implied by the sale of a product and perpetual,
paid-up royalty free and transferable license rights for “off-the-shelf” third party application
software that any Company Group Member licenses for use in the Business, in any individual case,
under a license with a maximum payment obligation on the part of Company Group Member of less than
$10,000 (“Off-the-Shelf Software”). There are no outstanding and no threatened disputes or
disagreements with respect to any such Contract. Except specifically set forth on
Schedule
4.
18(a)
-2
, no current or former employee of any Company Group Member and no other Person owns or
has any proprietary, financial or other interest, direct or indirect, in whole or in part, and
including any right to royalties or other compensation, in any of the Intellectual Property, or in
any application therefor.
(ii) All employees and consultants of each Company Group Member who are involved in the design
or development of the Intellectual Property have executed a non-disclosure and assignment of
inventions agreement (a “Confidentiality Agreement”).
(iii) Except as specified on
Schedule 4.
18(a)
-2
, none of the employees or consultants of any
Company Group Member is subject to any contractual or legal restrictions that might interfere with
the use of his or her best efforts to promote the interests of the Business. To the Company’s
knowledge, no employee of any Company Group Member has entered into any Contract that restricts or
limits in any way the scope or type of work in which the employee may be engaged or requires the
employee to transfer, assign, or disclose information concerning his or her work to anyone other
than the Company Group Members.
(iv) To the Company’s knowledge, no employee or consultant of any Company Group Member (a) has
used any other Persons’ Trade Secrets or other information that is confidential in the course of
his or her work or, (b) is, or is currently expected to be, in material Default under any term of
any employment contract, agreement or arrangement relating to the Intellectual Property, or any
Confidentiality Agreement or any other Contract or any restrictive covenant relating to the
Intellectual Property, or the development or exploitation thereof.
(b)
Know-How Necessary for the Business
.
(i) Except as described on
Schedule 4.
18(b)
,
the Company Group Members are the owner or have a
right to use each item of the Intellectual Property.
(ii) Except as set forth in
Schedule 4.18(b)
, all current or former employees of the Company
Group Members who are or were involved in the design or development of the Intellectual Property
have executed written Contracts with the Company Group Members that assign to the Company Group
Members all rights to
33
any inventions, improvements, discoveries, or information made during or derived from their
relationship to the Company Group Members.
(c)
Patents
.
(i)
Schedule 4.
18(c)
contains a complete and accurate list and summary description of all
Patents in which the Company Group Members have an ownership interest. The Company Group Members
own all right, title and interest in and to each of the Patents except for those Patents identified
as being co-owned, and as to those co-owned Patents the rights and obligations of the co-owners
with respect to such Patents are set forth in
Schedule 4.18(c)
. To the Company’s knowledge, there
are no recorded or unrecorded Encumbrances with respect to any Patent.
(ii) All of the issued Patents are currently in compliance with formal legal requirements
(including payment of filing, examination, and maintenance fees and proofs of working or use), and
are not subject to any maintenance fees or taxes or actions falling due within 90 days after the
Closing Date which have not already been paid or responded to by Company Group Members.
(iii) No Patent has been or is now involved in any interference, reissue, reexamination, or
opposition proceeding. To the Company’s knowledge, there is no potentially interfering patent or
patent application of any third party and no third party is infringing any Patent.
(iv) No challenge to any Patent is pending and, to the Company’s knowledge, no such challenge
has been threatened. To the Company’s knowledge, none of the products manufactured and sold, nor
any process or know-how used by any Company Group Member, infringes or is alleged to infringe any
patent or other proprietary right of any other Person.
(v) To the knowledge of the Company, no third party is infringing or is alleged to be
infringing any of the Patents.
(vi) The Company Group Members have used reasonable best efforts to assure that all products
made, used or sold under the Patents have been marked with the proper patent notice.
(d)
Trademarks
.
(i)
Schedule 4.
18(d)
contains a complete and accurate list and summary description of all
Trademarks in which any Company Group Member has an ownership interest. The Company Group Members
are the owners of all right, title and interest in and to each of the Trademarks. To the Company’s
knowledge, neither such Trademark, nor the ownership thereof, is subject to any claim of any third
party.
(ii) All Trademarks that have been registered with the USPTO and any foreign Trademark Office
are currently in compliance with all formal legal requirements (including the timely
post-registration applications), and are not subject to
34
any maintenance fees or taxes or actions falling due within 90 days after the Closing Date
which have not already been paid or responded to by Company Group Member.
(iii) No Trademark has been or is now involved in any opposition, invalidation or cancellation
and, to the knowledge of the Company, no such action has been threatened with respect to any of the
Trademarks. To the Company’s knowledge, there is no potentially interfering or infringing trademark
or trademark application of any third party.
(iv) No challenge to any Trademark is pending or, the the Company’s knowledge, threatened in
any way.. To the knowledge of the Company, none of the Trademarks used by any Company Group Member
infringes, or is alleged to infringe, any trade name, trademark, or service mark of any third
party.
(v) To the knowledge of the Company, no third party is infringing or misusing or is alleged to
be infringing or misusing any of the Trademarks.
(vi) The Company Group Members have used reasonable best efforts to assure that all products
and materials containing a registered or unregistered Trademark bear the proper notice where and as
permitted or required by law.
(e)
Copyrights
.
(i)
Schedule 4.
18(e)
contains a complete and accurate list and summary description of all
registered Copyrights in which any Company Group Member has an ownership interest. The Company
Group Members are the owner of all right, title and interest in and to each of the registered
Copyrights, free and clear of any Encumbrances.
(ii) All of the Copyrights that have been registered and are currently in compliance with
formal legal requirements, to the Company’s knowledge, are valid and enforceable, and are not
subject to any maintenance fees or taxes or actions falling due within 90 days after the date of
Closing.
(iii) To the Company’s knowledge, no Copyright is infringed or has been challenged or
threatened in any way. To the Company’s knowledge, none of the subject matter of any of the
Copyrights infringes or is alleged to infringe any copyright or any third party or is a derivative
work based on the work of at third party.
(iv) The Company has made reasonable efforts to mark all works encompassed by the registered
Copyrights with the proper copyright notice.
(f)
Trade Secrets
.
(i) With respect to each Trade Secret, the documentation relating to such Trade Secret is
current, accurate, and sufficient in detail and content to identify and explain it and to allow its
full and proper use without reliance on the knowledge or memory of any individual.
35
(ii) Each Company Group Member has taken all reasonable precautions to protect the secrecy,
confidentiality and value of its Trade Secrets.
(iii) Each Company Group Member owns and has the right to use its Trade Secrets. To the
Company’s knowledge, the Trade Secrets are not part of the public knowledge or literature and have
not been used, divulged, or appropriated either for the benefit of any Person (other than Company
Group Member) or to the detriment of the Business. To the Company’s knowledge, no Trade Secret is
subject to any adverse claim or has been challenged or threatened in any way.
(g)
Software
.
(i)
Schedule 4.
18(g)(i)
contains a complete and accurate list of all material Software
Products and Databases (except Off-the-Shelf Software) that are used by any Company Group Member
for which such Company Group Member is the licensee or lessee or the right to use which any Company
Group Member has otherwise obtained (“Licensed Software”).
Schedule 4.
18(g)(i)
also sets forth a
list of all license fees, rents, royalties or other charges that any Company Group Member is
required or obligated to pay with respect to Licensed Software. Prior to the date of this
Agreement, the Seller Parties have delivered to Buyer true and complete copies of all Contracts
under which the Company Group Members have the right to use any such Licensed Software. The
Company Group Members are in compliance with all provisions of any Contract pursuant to which any
Company Group Member has the right to use the Licensed Software.
(ii)
Schedule 4.
18(g)(ii)
contains a list or description of all Software Products and
Databases developed or owned by any Company Group Member and which are used in the Business. Such
software and Licensed Software (collectively, the “Company Software”), constitutes all material
Software Products developed or owned by any Company Group Member and which are used in the
Business. The consummation of the Transactions contemplated by this Agreement will not cause a
material Default under any Contract relating to the Company Software or impair in a material way
the ability of any Company Group Member or the Buyer to use the Company Software in the same manner
as such Company Software is currently used or intended to be used by any Company Group Member. To
the knowledge of the Company, no Company Group Member is infringing, misappropriating or diluting
any intellectual property rights of any other Person with respect to the Company Software, and, to
the knowledge of the Company, no other Person is infringing or misappropriating any Intellectual
Property rights of any Company Group Member with respect to the Company Software.
4.19
Employee Relations
.
Schedule 4.19
sets forth a true and complete list of the
names, job title, base salaries and date of employment of all employees of each Company Group
Member involved in the operation of the Business (the “Employees”). Except as set forth on
Schedule 4.19
, each Company Group Member: (i) is in compliance in all material respects with all
applicable Laws respecting employment, employment practices, terms and conditions of employment and
wages and hours, in each case, with respect to Employees, including the Worker Adjustment and
Retraining Notification Act
36
of 1988, as amended; (ii) has withheld and reported all amounts required by Law or by
agreement to be withheld and reported with respect to wages, salaries and other payments to
Employees; (iii) is not liable for any material arrears of wages or any material Taxes or any
material penalty for failure to comply with any of the foregoing; and (iv) is not liable for any
material payment to any trust or other fund governed by or maintained by or on behalf of any
Governmental Entity, with respect to unemployment compensation benefits, social security or other
benefits or obligations for Employees. There are no material pending or, to the knowledge of the
Company, threatened or reasonably anticipated claims or actions against any Company Group Member
under any worker’s compensation policy or long-term disability policy. Except as set forth in
Schedule 4.19
, there are no actions, suits, claims, labor disputes or grievances pending, or, to
the knowledge of the Company, threatened or reasonably anticipated relating to any labor, safety or
discrimination matters involving any Employee, including charges of unfair labor practices or
discrimination complaints. No Company Group Member has engaged in any unfair labor practices
within the meaning of the National Labor Relations Act. Except as set forth in
Schedule 4.19
, no
Company Group Member is presently, nor has it been in the past ten (10) years, a party to, or bound
by, any collective bargaining agreement or union contract with respect to any Employees and no
collective bargaining agreement is being negotiated by any Company Group Member. No consent of any
union (or similar group or organization) is required in connection with the consummation of the
transactions contemplated hereby. There are no pending, or, to the knowledge of the Company,
threatened (a) union representation petitions respecting the Employees, (b) efforts being made to
organize any of the Employees, or (c) strikes, slow downs, work stoppages, or lockouts or threats
affecting the Employees.
4.20
ERISA
.
(a)
Schedule 4.20
contains a complete list of all Benefit Plans that are sponsored or
maintained by any Company Group Member or ERISA Affiliate or under which any Company Group Member
is obligated (each, a “Company Benefit Plan”). The Company Group Members have delivered to Buyer
(i) accurate and complete copies of all Company Benefit Plan documents and all other material
documents relating thereto, including (if applicable) all summary plan descriptions, summaries of
material modification, trust agreements, summary annual reports and insurance policies or
contracts, (ii) accurate and complete detailed summaries of all unwritten Company Benefit Plans and
any funding arrangements therefor, (iii) accurate and complete copies of the most recent financial
statements and actuarial reports with respect to all Company Benefit Plans for which financial
statements or actuarial reports are required or have been prepared, and (iv) accurate and complete
copies of all annual reports for all Company Benefit Plans (for which annual reports are required)
prepared within the last three years and all other filings required by ERISA or the Code. Each
Company Benefit Plan providing benefits that are funded through a policy of insurance is indicated
by the word “insured” placed by the listing of the Benefit Plan in
Schedule 4.20
.
(b) All Company Benefit Plans conform (and at all times have conformed), and are being
administered and operated (and have at all time been administered and operated) in compliance with,
the requirements of ERISA, the Code and
37
all other applicable Laws, including without limitation the Americans with Disabilities Act of
1990, the Family Medical Leave Act of 1993 and the Health Insurance Portability and Accountability
Act of 1996. All material returns, reports and disclosure statements required to be made under
ERISA and the Code with respect to all Company Benefit Plans have been timely filed or delivered.
There have not been any “prohibited transactions,” as such term is defined in
Section 4975
of the
Code or
Section 406
of ERISA involving any of the Company Benefit Plans and any Company Group
Member officer, director or employee, or to the knowledge of the Company, involving any other
party, that could subject any Company Group Member to any material penalty or tax imposed under the
Code or ERISA.
(c) Except as is set forth in
Schedule 4.20
, any Company Benefit Plan that is intended to be
qualified under Section 401(a) of the Code and exempt from tax under Section 501(a) of the Code has
been determined by the Internal Revenue Service to be so qualified (or is a prototype plan subject
to an opinion letter that may be relied on) or an application for such determination is pending.
Any such determination that has been obtained remains in effect and has not been revoked, and with
respect to any application that is pending, the Company Group Members have no reason to suspect
that such application for determination will be denied. Nothing has occurred since the date of any
such determination that is reasonably likely to affect adversely such qualification or exemption,
or result in the imposition of excise taxes or income taxes on unrelated business income under the
Code or ERISA with respect to any such Company Benefit Plan.
(d) No Company Group Member now sponsors or has ever sponsored any defined benefit plan
subject to Title IV of ERISA or has ever contributed to any multiemployer plan (as defined in
Section 3(37) of ERISA), nor does any Company Group Member have a current or contingent obligation
to contribute to any multiemployer plan (as defined in Section 3(37) of ERISA). No Company Group
Member has any liability with respect to any employee benefit plan (as defined in Section 3(3) of
ERISA) other than in accordance with the terms of the Company Benefit Plans.
(e) There are no pending or, to the knowledge of the Company, any threatened claims by or on
behalf of any Company Benefit Plans, or by or on behalf of any individual participants or
beneficiaries of any such Benefit Plans, alleging any breach of fiduciary duty on the part of any
Company Group Member or any of its officers, directors or employees under ERISA or any other
applicable Law, relating to the Company Benefit Plans, nor is there, to the knowledge of the
Company, any basis for such claim. The Company Benefit Plans are not the subject of any pending
(or to the knowledge of the Company, any threatened) investigation or audit by the Internal Revenue
Service or the Department of Labor.
(f) Each Company Group Member and ERISA Affiliate has timely made all required contributions
under the Company Benefit Plans.
(g) With respect to any Company Benefit Plan that is an employee welfare benefit plan (within
the meaning of Section 3(1) of ERISA) (a “Welfare Plan”)
38
and except as specified in
Schedule 4.20
, (i) each Welfare Plan for which contributions are
claimed by any Company Group Member as deductions under any provision of the Code complies with all
applicable requirements pertaining to such deduction, (ii) with respect to any welfare benefit fund
(within the meaning of Section 419 of the Code) related to a Welfare Plan, there is no disqualified
benefit (within the meaning of Section 4976(b) of the Code) that would result in the imposition of
a tax under Section 4976(a) of the Code, (iii) any Benefit Plan that is a group health plan (within
the meaning of Section 4980B(g)(2) of the Code) complies, and in each and every case has complied,
with all of the applicable requirements of Section 4980B of the Code, ERISA, Title XXII of the
Public Health Service Act and the Social Security Act, and (iv) all Welfare Plans may be amended or
terminated by the Buyer at any time on or after the Closing Date. Except as specified in
Schedule
4.20
, no Company Benefit Plan provides any health, life or other welfare coverage to employees of
Company Group Member beyond termination of their employment with any Company Group Member by reason
of retirement or otherwise, other than coverage as may be required under Section 4980B of the Code
or Part 6 of ERISA, or under the continuation of coverage or conversion provisions of the Laws of
any state or locality.
(h) Except as otherwise set forth on
Schedule 4.20
, neither the execution and delivery of this
Agreement nor the consummation of the Transactions will (i) result in any payment to be made by an
Affiliate of any Company Group Member (including severance, unemployment compensation, golden
parachute (as defined in Code Section 280G or otherwise)) becoming due to any employee or former
employee, officer or director, or (ii) increase or vest any benefits payable under any Benefit
Plan.
(i) Except as otherwise set forth on
Schedule 4.20
, any amount that could be received (whether
in cash or property or the vesting of property) as a result of any of the Transactions by any
employee, officer or director of Company Group Member who is a “disqualified individual” (as such
term is defined in proposed Treasury Regulation Section 1.280G-1) under any employment, severance
or termination agreement, other compensation arrangement or Benefit Plan currently in effect would
not be characterized as an “excess parachute payment” (as such term is defined in Section 280(b)(1)
of the Code).
4.21
Corporate Records
. The books of account, minute books, stock record books and
other records of each Company Group Member, all of which have been made available to Buyer, contain
complete, correct and current copies of its Charter Documents and of all minutes of formal
meetings, resolutions and other proceedings of its stockholders, Board of Directors and committees
of such Board of Directors, and have been maintained in the ordinary course of business, and in
accordance with sound business practices, and no formal meeting of any such stockholders, Board of
Directors, or committee has been held for which minutes have not been prepared and are not
contained in such minute books. At the Closing, all of those original books and records will be in
the possession of the Company Group Members.
4.22
Absence of Certain Changes
. Except as set forth on
Schedule 4.22
or as
contemplated by this Agreement, the Business has been conducted in the ordinary course
39
since January 1, 2005, and there has not been with respect to any Company Group Member any of
the items specified below since January 1, 2005:
(a) any change that has had or is reasonably likely to have a Material Adverse Effect;
(b) any distribution or payment declared or made in respect of its capital stock by way of
dividends, purchase or redemption of shares or otherwise;
(c) any increase in the compensation payable or to become payable to any director, officer,
employee or agent, except for increases for non-officer employees made in the ordinary course of
business, nor any other change in any employment or consulting arrangement;
(d) any sale, assignment or transfer of Assets, or any additions to or transactions involving
any Assets, other than those made in the ordinary course of business;
(e) other than in the ordinary course of business, any waiver or release of any claim or right
or cancellation of any debt held;
(f) any damage, destruction or loss, whether or not covered by insurance, (A) materially and
adversely affecting the Assets or the operations, assets, properties or prospects of the Business
or (B) of any item or items carried on its books of account individually or in the aggregate at
more than $100,000, or any repeated, recurring or prolonged shortage, cessation or interruption of
supplies or utility or other services required to conduct the Business;
(g) receipt of notice or actual or threatened labor trouble, strike or other occurrence, event
or condition of any similar character which has had or could reasonably be expected to adversely
affect the Assets, the Business or the transactions contemplated by this Agreement or any other
Transaction Document;
(h) capital expenditures or capital additions in excess of an aggregate of $500,000, or the
lease of capital equipment or property under which the annual lease charges exceed $500,000 in the
aggregate;
(i) any payments to any Affiliate of a Company Group Member, other than wages and
reimbursements in accordance with past practices and except as specified in
Schedule 4.22
.
4.23
Previous Sales; Warranties
. No Company Group Member has breached any express or
implied warranties in connection with the sale or distribution of goods or the performance of
services, except for breaches that, individually and in the aggregate, are not material and are
consistent with past practice of the Business.
4.24
Customers and Suppliers
. Each Company Group Member has used reasonable business
efforts to maintain, and currently maintains, adequate working
40
relationships with each of the customers and suppliers of the Business.
Schedule 4.24
specifies for each of the two fiscal years ending June 30, 2004 and 2005, and for the 6-month
period ending December 31, 2006, the names of the respective customers that were, in the aggregate,
the 20 largest customers in terms of dollar value of products or services, or both, sold by the
Business. Except as specified on
Schedule 4.24
, none of such customers has given any Company Group
Member written (or, to the knowledge of the Company, oral) notice terminating, canceling or
threatening to terminate or cancel any Contract or relationship with such Company Group Member.
Schedule 4.24
also specifies for each year of the three years ending December 31, 2003, 2004 and
2005, the names of the respective suppliers that were, in the aggregate, the 20 largest suppliers
in terms of dollar value of products or services, or both, used by each Company Group Member. None
of such suppliers has given any Company Group Member written (or, to the knowledge of the Company,
oral) notice terminating, canceling or threatening to terminate or cancel any Contract or
relationship with such Company Group Member.
4.25
Operation of the Business
. Except as described on
Schedule 4.25
, (a) the
Business has been conducted only through the Company Group Members and not through any other
divisions or any direct or indirect Subsidiary or Affiliate of any Company Group Member, and (b) no
part of such Business has been operated by any Person other than the Company Group Members. To the
knowledge of the Company, no Stockholder who is also an officer of the Company or a member of the
Knowledge Group engages, directly or indirectly, in any business activities that are competitive
with the Business.
4.26
Finder’s Fees
. No Seller Party or Company Group Member is, nor will be,
responsible or subject to a claim for any commission or finder’s or similar fee in connection with
the Transactions.
4.27
Accuracy of Information
. No representation or warranty by any Seller Party in
this Agreement or in the Disclosure Schedule or in any Transaction Document and no information
contained therein or otherwise delivered by or on behalf of any Seller Party to Buyer in connection
with the Transactions, including any Closing Certificate, the Financial Statements, Disclosure
Schedule and Exhibits hereto, (i) contains any untrue statement of a material fact as specifically
stated or (ii) to the Knowledge of the Company, omits to state any material fact necessary in order
to make the statements contained herein or therein not misleading in light of the circumstances
under which such statements were made.
5.
Representations and Warranties of Buyer
. Buyer hereby represents and warrants to the
Seller Parties as of the date hereof and also at and as of the Closing Date as though then made
(except to the extent such representations and warranties speak as of a particular date, in which
case such representations and warranties shall be made only as of such particular date) as follows:
5.1
Organizational Status
. Buyer is a corporation duly organized, validly existing
and in good standing under the Laws of the jurisdiction of its incorporation and is qualified to do
business in any jurisdiction where it is required to be so qualified.
41
5.2
Authorization
. Buyer has the requisite power and authority to execute and deliver
the Transaction Documents to which it is a party and to perform the Transactions performed or to be
performed by it. Such execution, delivery and performance by Buyer has been duly authorized by all
necessary corporate action. Each Transaction Document executed and delivered by Buyer has been
duly executed and delivered by Buyer and constitutes a valid and binding obligation of Buyer,
enforceable against Buyer in accordance with its terms, subject to Customary Qualifications.
5.3
Consents and Approvals
. Except for compliance with the HSR Act, neither the
execution and delivery by Buyer of the Transaction Documents to which it is a party, nor the
performance of the Transactions performed or to be performed by Buyer, require any filing, consent
or approval, constitute a Default or cause any payment obligation to arise under (a) any Law or
Court Order to which Buyer is subject, (b) the Charter Documents or bylaws of Buyer or (c) any
Contract, Governmental Permit or other document to which Buyer is a party or by which the material
properties or other material assets of Buyer may be bound.
5.4
Investment Intent.
The Closing Shares are being acquired by Buyer for investment
only and not with the view to resale or other distribution. Buyer acknowledges that such
securities have not been registered under the Securities Act or any applicable state securities (or
“blue sky”) Laws and, therefore, cannot be resold unless so registered or exempted from such
registration. Buyer has sufficient knowledge and experience in financial and business matters that
it is capable of evaluating the economic risks of investment in the Closing Shares. Buyer is an
“accredited investor” as that term is defined in Rule 501 of Regulation D promulgated by the
SEC.
5.5
No Financing
. Neither the Closing nor Buyer’s obligations hereunder are subject
to any contingency respecting financing and Buyer has readily available funds or availability on
its existing credit facilities to consummate the Transactions and satisfy its obligations
hereunder.
5.6
Finder’s Fees
. No Person retained by Buyer is or will be entitled to any
commission or finder’s or similar fee in connection with the Transactions.
6.
Covenants of Seller Parties
.
6.1
Conduct of the Business
. Except as may be approved in writing by an authorized
officer of Buyer, including any President or Vice President, or as expressly contemplated by this
Agreement, between the date hereof and the Closing:
(a) the Company shall, and shall cause each other Company Group Member to, operate the
Business only in the ordinary course and, to the extent consistent with such operation, use its
commercially reasonable efforts to (i) preserve the current organization of the Business intact,
(ii) keep available the services of the Employees, (iii) continue normal purchasing, rental,
leasing, financing, marketing, advertising, promotional and maintenance expenditures and (iv)
preserve any significant beneficial
42
business relationships with all Persons having business dealings with any Company Group Member
with respect to the Business;
(b) the Company shall, and shall cause each other Company Group Member to, use its
commercially reasonable efforts consistent with past practice to maintain (i) its Assets in good
operating condition and repair, subject to normal wear and tear and (ii) all insurance covering its
Business and its Employees and Assets in full force and effect until the Closing Date comparable in
amount, scope, and coverage to that in effect on the date of this Agreement;
(c) the Company shall, and shall cause each other Company Group Member to, use its
commercially reasonable efforts consistent with past practice to (i) comply in all material
respects with all applicable Laws, (ii) perform all of its obligations under this Agreement or any
other Transaction Document to which any Company Group Member is or will be a party without Default,
(iii) not Default on any of its other Liabilities, except where payment of any such Liability is
being contested in good faith by appropriate proceedings and where appropriate reserves have been
established therefor, and (iv) maintain all of its books and records in the ordinary course;
(d) the Company shall, and shall cause each other Company Group Member to, use its
commercially reasonable efforts consistent with past practice to comply in all material respects
with all its obligations under any Contract to which it is a party;
(e) the Company shall not, and shall not permit any of the other Company Group Members to,
sell, rent, lease or otherwise dispose of any part of the Business or its Assets with an aggregate
value of greater than $25,000, except for any such sale, rental, lease or other disposition in the
ordinary course;
(f) the Company shall not, and shall not permit any of the other Company Group Members to,
create or suffer to exist any new Encumbrance or defect of title on any of its Assets with a value
in excess of $10,000;
(g) the Company shall not, and shall not permit any other Company Group Member to, issue any
note, bond or other debt security, or create, assume or incur any indebtedness for borrowed money
or capitalized lease obligations except for borrowings under the Company’s existing credit
facilities in the ordinary course of business or as contemplated in order for the Company to comply
with its obligations under
Section 3.2
and, with respect to the Company Employee Bonus Plans,
7.8(b)(ii)
;
(h) the Company shall not, and shall not permit any of the other Company Group Members to,
modify, terminate (before the expiration thereof) or renew any Contract or dispose of any right of
value accruing to it with respect to the Business, except in the ordinary course;
(i) the Company shall not, and shall not permit any of the other Company Group Member to, take
any other action which could reasonably be expected to have a Material Adverse Effect;
43
(j) the Company shall not, and shall not permit any of the other Company Group Members to,
merge with or into or consolidate with any Person other than Buyer;
(k) the Company shall not, and shall not permit any of the other Company Group Members to,
issue and sell, or agree to issue and sell, any of its or their equity securities, or securities
convertible into or exercisable for equity securities except as provided in Section 2.2;
(l) no Stockholder shall sell or offer for sale any shares of the Company’s capital stock that
such Stockholder currently own, or create any Encumbrance thereon;
(m) the Company shall not, and shall not permit any of the other Company Group Members to,
redeem any capital stock or make any distributions or other payments to or transactions with any
stockholders of the Company or any of the other Company Group Members, except as provided in
Sections 2.2 and 2.3
hereof;
(n) the Company shall not, and shall not permit any Company Group Members to: (i) make any
material modification or adjustment to the compensation of any Employee; (ii) grant any severance
or termination pay to any Employee except pursuant to written agreements outstanding, or policies
existing on the date hereof and as previously disclosed in writing or made available to Buyer, or
adopt any new severance plan, or amend or modify or alter in any manner any severance plan,
agreement or arrangement existing on the date hereof; (iii) adopt or amend any Benefit Plan, or
take any action which would result in increased liabilities under any Benefit Plan, or enter into
any employment agreement or collective bargaining agreement (other than offer letters and letter
agreements entered into in the ordinary course of business consistent with past practice with
Employees who are terminable “at will”); (iv) pay any special bonus or special remuneration to any
Employee; or (v) increase the salaries or wage rates or fringe benefits (including rights to
severance or indemnification) of its Employees except, in each case, as may be required by Law; and
(o) the Company shall not, and shall not permit any of the other Company Group Members to,
agree or commit to do any of the foregoing.
6.2
Access to Information
. The Company shall, and shall cause each other Company
Group Member to, give to Buyer and its counsel, accountants and other representatives access during
the Company’s normal business hours upon reasonable prior notice to the premises of its Business
and its personnel, furnish to Buyer and such representatives all such additional documents,
financial and Tax information and information with respect to the Business as Buyer may from time
to time reasonably request and use its commercially reasonable efforts to cause its accountants to
permit Buyer to examine the records and working papers pertaining to their audits and other reviews
of its financial statements with respect to the Business or any of its Assets. The Company further
shall permit Buyer and its representatives to have the opportunity, within ten (10) days after the
date of this Agreement, to conduct such customer due
44
diligence as Buyer shall deem necessary and appropriate, including visits to or other
communications with customers and suppliers of the Business, such visits to be made only upon prior
notice to the Company and only with the participation of Company management. The Company and the
Stockholders acknowledge that no investigation by Buyer or its representatives shall affect or
limit the scope of the Company’s representations and warranties herein or limit the liability of
the Stockholders hereunder for any breach of such representations and warranties.
6.3
No Solicitation
. From and after the date hereof and up to and including the
Termination Date, without the prior written consent of Buyer, no Seller Party shall, and the
Company shall cause each Company Group Member not to, authorize or permit any Company Group Member,
or any representative thereof, to, directly or indirectly, solicit, initiate or encourage
(including by way of furnishing information) or take any other action to facilitate knowingly any
inquiries or the making of any proposal that constitutes or may reasonably be expected to lead to
an Acquisition Proposal from any Person, or engage in any discussion or negotiations relating
thereto or accept any Acquisition Proposal. If any Company Group Member receives any such
inquiries, offers or proposals it shall (a) notify Buyer orally and in writing of any such
inquiries, offers or proposals (including the terms and conditions of any such proposal and the
identity of the Person making it), within 24 hours of the receipt thereof and (b) keep Buyer
informed of the status and details of any such inquiry, offer or proposal. As used herein,
“Acquisition Proposal” means a proposal or offer (other than pursuant to this Agreement) for a
tender or exchange offer, merger, consolidation or other business combination involving any
proposal to acquire in any manner a substantial equity interest in, or all or substantially all of
the assets of, any Company Group Member.
6.4
Related Parties
. Each Stockholder shall use his or its reasonable best efforts to
cause the Company Group Members and any other Affiliate to take any action or refrain from taking
any action, in each case as may be necessary to carry out the Transactions.
6.5
Updates
. Between the date hereof and the Closing Date, the Seller Parties shall
promptly disclose to Buyer in writing (a) any information set forth in the Disclosure Schedules
delivered by Seller Parties that is no longer complete, true or applicable, (b) any event or
development that occurs, or information that becomes known, that, had it existed or been known on
the date hereof, would have been required to be disclosed by Seller Parties under this Agreement,
(c) any information of the nature of that set forth in the Disclosure Schedules delivered by the
Seller Parties that arises after the date hereof and that would have been required to be included
in the Disclosure Schedules delivered by the Seller Parties if such information had been obtained
on the date of delivery thereof, and (d) any information that gives any Seller Party any reason to
believe that any of the conditions set forth in
Section 8
or
9
will not be satisfied prior to the
Termination Date; provided, however, that none of such disclosures shall be deemed to modify, amend
or supplement the representations and warranties of the Seller Parties or the Schedules hereto for
the purposes of this Agreement (including
Section 10
), unless Buyer shall have consented thereto in
writing.
45
7.
Mutual Covenants
.
7.1
Fulfillment of Closing Conditions
. At and prior to the Closing, each Party shall
use commercially reasonable efforts to fulfill, and to cause each other to fulfill the conditions
specified in
Sections 8
and
9
to the extent that the fulfillment of such conditions is within its
or his control. In connection with the foregoing, each Party will (a) refrain from any actions
that would cause any of its representations and warranties to be inaccurate as of the Closing, and
take any reasonable actions within its control that would be necessary to prevent its
representations and warranties from being inaccurate as of the Closing, (b) execute and deliver the
applicable agreements and other documents referred to in
Sections 8
and
9
, (c) comply with all
applicable Laws in connection with its execution, delivery and performance of this Agreement and
the Transactions, (d) use commercially reasonable efforts to obtain in a timely manner all
necessary waivers, consents and approvals required under any Laws, Contracts or otherwise,
including any Required Consents, and (e) use commercially reasonable efforts to take, or cause to
be taken, all other actions and to do, or cause to be done, all other things reasonably necessary,
proper or advisable to consummate and make effective as promptly as practicable the Transactions.
7.2
Consents
. The Seller Parties and Buyer shall each cooperate, and use commercially
reasonable efforts, in as timely a manner as is reasonably practicable, to make all filings and
obtain all licenses, permits, consents, approvals, authorizations, qualifications and orders of
Governmental Entities and other third parties necessary to consummate the Transactions. Each of
the Parties shall furnish to the other Parties such necessary information and reasonable assistance
as such other Parties may reasonably request in connection with the foregoing and shall provide the
other parties with copies of all filings made by such Party with any Governmental Entity or any
other information supplied by such Party to a Governmental Entity in connection with this
Agreement.
7.3
HSR Filing
.
(a) Without limiting the generality of
Section 7.2
, but subject to this
Section 7.3(a)
, to the
extent such filings have not been completed prior to the execution of this Agreement
,
the
Seller Parties and Buyer shall each (i) take promptly all actions necessary to make the filings
required of such Party or any of its Affiliates under the HSR Act, including making the initial
filings within three Business Days after the date hereof, (ii) use commercially reasonable efforts
to comply with any request for additional information or documentary material received by such
Party or any of its Affiliates from the Federal Trade Commission or the Antitrust Division of the
Department of Justice pursuant to the HSR Act and (iii) cooperate with the other Parties in
connection with any filing of the Company under the HSR Act and in connection with resolving any
investigation or other inquiry concerning the Transactions commenced by either the Federal Trade
Commission or the Antitrust Division of the Department of Justice or state attorneys general;
provided, however, Buyer will have no obligation to make any divestiture of tangible or intangible
assets or business operations or agree to any other obligations, commitments or covenants in order
to secure the expiration or termination of
46
the HSR waiting period or otherwise gain the approval of the Federal Trade Commission or the
Department of Justice, as the case may be.
(b) Each Party shall promptly inform the other Parties of any material communication received
by such Party from the Federal Trade Commission, the Antitrust Division of the Department of
Justice or any other Governmental Entity regarding any of the Transactions. Each Party shall advise
the other Parties promptly of any understandings, undertakings or agreements that such Party
proposes to make or enter into with the Federal Trade Commission, the Antitrust Division of the
Department of Justice or any other Governmental Entity in connection with the Transactions.
7.4
Public Announcements
. The Parties shall consult with each other before issuing
any press release or making any public statement with respect to this Agreement and the
Transactions and, except as may be required by applicable Law, none of the Parties nor any other
party shall issue any such press release or make any such public statement without the prior
written consent of the other Parties; provided, however, that the Stockholders’ Representative is
authorized to give such consent on behalf of the Stockholders.
7.5
Tax Matters
.
(a)
Tax Returns
.
(i)
Income Tax Returns for Tax Periods Ending On or Before the Closing Date
. Within
90 calendar days of receiving the Tax schedules, documents, and information as provided in
Section
7.5(c)
, the Stockholders shall prepare or cause to be prepared all Tax Returns, including all
amended Tax Returns and Tax refund claims carrying back any net operating or other loss, with
respect to income and/or state franchise tax based on net income (“Income Tax Returns”) of the
Company Group Members for all periods ending on or prior to the Closing Date which are filed after
the Closing Date in a manner consistent with the Company Group Members’ past practices and
consistent with the Closing Date Net Working Capital as agreed to by the parties or as finally
determined pursuant to
Section 2.5(b)
. The Stockholders shall permit the Company and/or the Buyer
to review and comment on each such Income Tax Return prior to filing, and shall make such revisions
to such Tax Returns as are reasonably requested by the Company and/or the Buyer. Buyer shall cause
each Company Group Member to timely file and pay all Taxes due on such Tax Returns directly to the
applicable taxing authority on or prior to their due date (or extended due date if a valid
extension is timely filed).
(ii)
Non-Income Tax Returns for Tax Periods Ending On or Before the Closing Date
. The
Company and/or the Buyer shall prepare or cause to be prepared all Tax Returns (except for Income
Tax Returns) of the Company Group Members for all periods ending on or prior to the Closing Date
which are filed after the Closing Date in a manner consistent with the Company Group Members’ past
practices and consistent with the Closing Date Net Working Capital as agreed to by the parties or
as finally determined pursuant to
Section 2.5(b)
. The Company and/or the Buyer shall
47
permit the Stockholders to review and comment on each such Tax Return by providing such Tax
Returns to Stockholders within 30 days after filing. Stockholders shall review and comment on such
Tax Returns within 30 days of receipt. Buyer shall file an amended Tax Return making such
revisions to such Tax Returns as are reasonably requested by the Stockholders. Buyer shall cause
each Company Group Member to timely file and pay all Taxes directly to the applicable taxing
authority on or prior to their due date (or extended due date if a valid extension is timely
filed).
(iii)
Tax Returns for Tax Periods Beginning Before and Ending After the Closing Date
.
The Company and/or the Buyer shall prepare or cause to be prepared all Tax Returns of the Company
Group Members for Tax periods that begin before the Closing Date and end after the Closing Date
(“Straddle Period”). The Company and/or the Buyer shall permit the Stockholders to review and
comment on each such Tax Return by providing such Tax Returns to Stockholders within 30 days after
filing. Stockholders shall review and comment on such Tax Returns within 30 days of receipt.
Buyer shall file an amended Tax Return making such revisions to such Tax Returns as are reasonably
requested by the Stockholders. For purposes of this
Section 7.
5(a)(iii)
, in the case of any Taxes
that are imposed on a periodic basis and are payable for a taxable period that includes (but does
not end on) the Closing Date, the portion of such Tax which relates to the portion of such Taxable
period ending on the Closing Date (“Pre-Closing Taxes”) shall (x) in the case of any Taxes other
than Taxes based upon or related to income or receipts, be deemed to be the amount of such Tax for
the entire taxable period multiplied by a fraction the numerator of which is the number of days in
the taxable period ending on the Closing Date and the denominator of which is the number of days in
the entire Taxable period, and (y) in the case of any Tax based upon or related to income or
receipts be deemed equal to the amount which would be payable if the relevant Taxable period ended
on the Closing Date using the “closing of the books” method consistent with the Company Group
Members’ past practices closing the books at the end of a fiscal year and in a manner consistent
with the Closing Date Net Working Capital as agreed to by the parties or as finally determined
pursuant to
Section 2.5(b)
. Any credits relating to a Taxable period that begins before and ends
after the Closing Date shall be taken into account as though the relevant Taxable period ended on
the Closing Date. All determinations necessary to give effect to the foregoing allocations shall
be made in a manner consistent with the Company Group Members’ past practices. Buyer shall cause
each Company Group Member to timely file and pay all Taxes due on such Tax Returns directly to the
applicable taxing authority on or prior to their due date (or extended due date if a valid
extension is timely filed).
(iv)
Elections and Changes
. In preparing the Tax Returns referenced in this
Section
7.5(a)
, none of Buyer or any Buyer Affiliate, Stockholders, or any Company Group Member shall make
or cause to be made any material Tax election or change any material income Tax accounting method
or period without giving prior written notice to and receiving the prior written consent of the
other Parties, which such consent shall not be unreasonably withheld; provided, however, such prior
written consent shall not be required if and to the extent such change or election (A) is required
by Law and no other reasonable method exists to comply with such Law or (B) will not materially
increase the amount of Taxes that would be owing for periods covered by such
48
Tax Return, with such materiality determined prior to such election or change. None of Buyer
or any Buyer Affiliate, Stockholders, or any Company Group Member shall make any election under
Code Section 338 (or any corresponding or equivalent election under state, local, foreign, or other
Tax Laws), engage in any transaction, or otherwise treat the purchase and sale of the Company Stock
as a sale of assets for Income Tax purposes.
(v)
Amended Tax Returns
. Except for such amended Income Tax Returns and Income Tax
refund claims as contemplated to be filed pursuant to
Section 7.
5(a)(i)
, Buyer shall not, and shall
not permit any Company Group Member to, (i) amend any Tax Return, amended Tax Return, or Tax refund
claim filed by or with respect to any Company Group Member for a taxable period which Stockholders
may be liable for the payment of any portion of the Taxes shown as due on such Tax Return pursuant
to
Section 7.5
, without the express written consent of the Stockholders, which such consent shall
not be unreasonably withheld, or (ii) initiate any voluntary audit by a Tax authority for a taxable
period which Stockholders may be liable for the payment of any portion of the Taxes shown as due on
such Tax Return pursuant to
Section 7.5
, without the express written consent of the Stockholders,
which such consent shall not be unreasonably withheld.
(vi)
Consolidated Income Tax Returns
. Buyer shall cause each Company Group Member to
join, and/or become a member or includable corporation of, its affiliated group commencing on the
first day after the Closing Date and shall include each Company Group Member in Buyer’s
consolidated or combined Income Tax Returns for the period which includes such date (thereby
causing each Company Group Member’s fiscal year beginning July 1, 2005 to end on the Closing Date
for Income Tax purposes).
(b)
Audits
. Buyer shall cause the Company Group Members to notify promptly
Stockholders in writing upon receipt by a Company Group Member or any of its Affiliates of notice
of any pending or threatened Tax audits or assessments that may affect the Tax liabilities of
Company and for which Stockholders may be liable under
Section 2.7
or
10.1.2
. Stockholders shall
have the sole right to represent a Company Group Member’s interests in any Tax matter, including
without limitation any audit, appeal, hearing, and/or administrative or other proceeding, all
judicial proceedings, the determination to extent, toll, or waive the statute of limitations, or
the filing of any amended return, that involves a Tax liability or potential Tax liability for
which Stockholders may be liable under
Section 2.7
or
10.1.2
unless such Tax liability or potential
Tax liability is subject to the Deductible Amount and is reasonably expected to be less than the
Deductible Amount (after taking into consideration all other items subject to the Deductible
Amount) (a “Tax Proceeding”), and to employ counsel of their choice at their expense. Buyer shall,
and Buyer shall cause each Company Group Member to, cooperate fully with Stockholders and its
counsel in the defense or compromise of any Tax Matter, including providing Stockholders or
Stockholders’ attorneys, accountants, employees, or agents the necessary power of attorney or other
authorization to represent the Company Group Member. The Buyer, together with counsel and other
professional experts of its choosing and expense may participate in the prosecution or defense of
any such Tax Proceeding. Stockholders, with their counsel and other professional experts of their
choosing and expense, may participate in the prosecution or defense of any Tax
49
Proceeding that is reasonably expected to be less than the Deductible Amount, provided,
however, that Buyer shall be primarily responsible for such proceeding. The settlement or
compromise of any Tax liability for which Stockholders may be liable under
Section 2.7
or
10.1.2
(whether or not subject to the Deductible Amount) shall be subject to approval by all of the
Parties, which such approval shall not be unreasonably withheld.
(c)
Cooperation on Tax Matters
.
(i) Buyer, the Stockholders, and the Company Group Members shall cooperate fully, as and to
the extent reasonably requested by the other Party, in connection with the preparation and/or
filing of Tax Returns pursuant to this
Section 7.5
and any audit, appeal, hearing, litigation, or
other proceeding with respect to Taxes. Buyer shall prepare or cause to be prepared and provide or
cause to be provided to the Stockholders Tax schedules, documents, and information consistent with
each Company Group Members’ past practices as Stockholders shall request for Stockholders’ use in
preparing any Income Tax Return as set forth in
Section 7.
5(a)(i)
. Such Tax schedules, documents,
and information shall be completed and provided to Stockholders after, but within 30 calendar days
after, determination of the Closing Date Net Working Capital. Such cooperation shall also include
the retention and (upon the other Party’s request) the provision of records and information which
are reasonably relevant to any such audit, litigation or other proceeding and making employees,
officers, and advisors available on a mutually convenient and reasonable basis to provide
additional information and explanation of any material provided hereunder. Each of the Company
Group Members and Buyer agree (A) to retain all books and records with respect to Tax matters
pertinent to the Stockholders and ownership of the Company Group Members relating to any taxable
period beginning before the Closing Date until the expiration of the statute of limitations (and,
to the extent notified by Buyer, the Stockholders, or the Company Group Members, any extensions
thereof) of the respective taxable periods, and to abide by all record retention agreements entered
into with any taxing authority, and (B) to give the other parties reasonable written notice prior
to transferring to a third party, destroying or discarding any such books and records and, if
requested, the Buyer and/or each Company Group Member shall allow the Stockholders to copy such
books and records that are to be transferred or take possession of such books and records that
would otherwise be destroyed or discarded.
(ii) Buyer, the Stockholders, and the Company Group Members further agree, upon request, to
use commercially reasonable efforts to obtain any certificate or other document from any person,
Governmental Entity or authority as may be necessary to mitigate, reduce, or eliminate any Tax that
could be imposed (including, without limitation, with respect to the transactions contemplated
hereby).
(d)
Certain Taxes
. All transfer, documentary, stamp, registration and other such
Taxes and fees (including, without limitation, any penalties and interest) incurred in connection
with this Agreement (including, without limitation, any Transfer Tax), shall be paid by the Company
and/or Buyer when due, and the Company and/or Buyer will, at its own expense, file all necessary
Tax Returns and other documentation with respect to all such transfer, documentary, stamp,
registration and other Taxes and
50
fees, and, if required by applicable law, the Stockholders will, and will cause their
respective affiliates, if any, to join in the execution of any such Tax Returns and other
documentation.
(e)
Refunds
. Except for Income Tax Refunds (including any interest thereon) received
by a Company Group Member as a result of the deduction of the amount of the Compensation Payments,
all refunds or credits of Taxes (including any interest thereon) received by or credited to a
Company Group Member attributable to periods ending on or prior to the Closing Date or to that
portion of all Straddle Periods through and including the Closing Date as determined under
Section
7.5(a)(iii)
(collectively, “Stockholders’ Refunds”) shall be for the benefit of Stockholders, and
Buyer shall, and Buyer shall cause each Company Group Member to, use commercially reasonable
efforts to obtain any Stockholders’ Refunds and shall pay over to Stockholders any Stockholders’
Refunds within five business days of receipt thereof within the Tax Department of Buyer. In
addition, if the Pre-Closing Taxes other than Income Taxes with respect to a Straddle Period of a
Company Group Member are less than the payments previously made by or credited to a Company Group
Member with respect to such Straddle Period on or before the Closing Date, then Buyer shall cause
such Company Group Member to pay to Stockholders the excess of such previous payments over such
Pre-Closing Taxes upon such Company Group Member receiving the benefit of such excess payments
either through a refund of such excess payments and/or through a reduction in any Tax payment that
otherwise would be required to be made by such Company Group Member after the Closing Date.
(f)
Tax Information
. Within 90 calendar days of receiving the Tax schedules,
documents, and information as provided in
Section 7.5(c)
, the Stockholders shall prepare or cause
to be prepared a schedule setting forth the following information with respect to each of the
Company Group Members (or, in the case of clause (B) below, with respect to each of the Existing
Subsidiaries) as of the Closing Date (or as of June 30, 2005 for States where the Company Group
Members’ tax year does not end on the Closing Date): (A) the basis of each Company Group Member in
its assets; (B) the basis of the stockholder(s) of each Existing Subsidiary in its stock (or the
amount of any Excess Loss Account as defined in Treasury Regulation §1.1502-19 (or any
corresponding or similar provision of state, local or foreign income Tax Law)); (C) the amount of
any net operating loss, net capital loss, unused investment or other credit, unused foreign tax
credit, or excess charitable contribution allocable to each Company Group Member; and (D) the
amount of any deferred gain or loss allocable to each Company Group Member arising out of any
deferred inter-company transaction (as defined in Treasury Regulation §1.1502-13 (or any
corresponding or similar provision of state, local or foreign income Tax Law)).
7.6
Expenses
. Except as otherwise provided herein, the Parties shall each pay all of
their respective legal, accounting and other expenses incurred by such Party in connection with the
Transactions.
51
7.7
Employees
.
(a) Employees
(i) Buyer may identify up to five Employees (the “Excluded Employees
”
) or positions
that the Company will terminate, at Buyer’s expense, prior to the Closing.
(ii) Effective as of the Closing, Buyer or its Affiliates shall employ (where employment
continues by operation of Law) each Employee other than those Excluded Employees. Each Employee
who continues in employment with the Buyer by operation of Law shall be referred to herein as a
“Transferring Employee.”
(iii) Buyer will undertake not to terminate any Transferring Employees for reasons other than
cause during the first six months after Closing.
(iv) Any Transferring Employee terminated within one year of Closing for reasons other than
cause will be paid by Buyer a severance amount (i) in the case of Non-Exempt Employees, equal to
one week of pay for each year of service with the Company with a minimum of 4 weeks pay and a
maximum of 16 weeks of pay, or (ii) in the case of Exempt Employees, equal to one week of pay for
each year of service with the Company up to a maximum of 26 weeks of pay.
(v) Buyer shall have the right to administer a standard drug test to each Employee. Any such
Employee who fails to take or pass such drug test shall be terminated by the Company prior to the
Closing at the expense of the Stockholders and shall not be employed by Buyer or its Affiliates,
and such Employee shall not be a “Transferring Employee” for all purposes of this Agreement.
(vi) Upon the Closing, each Transferring
Employee, shall receive a base salary or
hourly wage at least equal to his or her base salary or hourly wage in effect immediately prior to
the Closing and shall receive such other benefits and remuneration as generally provided by Buyer
or its Affiliates to their newly hired employees in similar job classifications in the same
geographic area.
(b) Benefits
(i) Service Credit and Group Health Plan Expenses. Buyer will treat all service of the
Transferring Employees earned while employed by the Company prior to the Closing as service with
Buyer for purposes of waiting periods under those Benefit Plans of Buyer made available to the
Transferring Employees
and for any other purpose required by applicable Law. Any group
health plan of Buyer in which a Transferring
Employee or his or her dependents participate
shall not recognize for purposes of calculating any deductible, co-pay or out of pocket maximum
thereunder the covered expenses that such Transferred Employee and such Employee’s dependents
incurred during 2006 in the group health plan of the same type with the Company prior to the
Closing.
(ii) Buyer and its affiliates will not recognize service of the Transferring Employees earned
while employed by Company prior to the Closing Date as service with Buyer and its affiliates in its
retirement or severance plans.
52
(iii) Company shall terminate all of its existing Benefit Plans prior to the Closing,
including the Company Employee Bonus Plans, and shall pay out all amounts due and owing under the
Company Employee Bonus Plans prior to the Closing.
(c) Vacation. Buyer shall credit service of each Transferring Employee earned while employed
by Company prior to the Closing as service with Buyer for purposes of determining each such
Transferring Employee’s vacation entitlement as of January 1, 2006 and thereafter minus any
vacation already taken in calendar year 2006.
(d) No Third Party Beneficiaries. Nothing contained herein, expressed or implied, is intended
to confer upon any Employee any benefits under any Benefit Plans, including severance benefits or
the right to employment or continued employment with Buyer or any Affiliate of Buyer for any period
by reason of this Agreement. In addition, the provisions of this Agreement, including in
particular this
Section 7.8
, are for the sole benefit of the parties and their respective
Affiliates and are not for the benefit of any third parties.
8.
Conditions Precedent to Obligations of Seller Parties
. All obligations of the Seller
Parties to consummate the Transactions are subject to the satisfaction (or waiver by all Seller
Parties) prior thereto of each of the following conditions:
8.1
Representations and Warranties
. The representations and warranties made by the
Buyer in
Section 5
that are not qualified by materiality or a Material Adverse Effect requirement
shall be true and correct in all material respects and the representations and warranties that are
qualified by materiality or a Material Adverse Effect requirement shall be true and correct, in
each case on the date hereof and also at and as of the Closing Date (except to the extent such
representations and warranties speak as of a particular date), with the same force and effect as if
made on and as of the Closing Date.
8.2
Agreements, Conditions and Covenants
. Buyer shall have performed or complied in
all material respects with all agreements, conditions and covenants required by this Agreement to
be performed or complied with by it on or before the Closing Date.
8.3
Legal Matters
. There shall not be (i) any Law or Court Order in effect that has
the effect of making the purchase and sale of the Closing Shares illegal or otherwise prohibiting
the consummation of such purchase and sale or (ii) any action, suit, proceeding or investigation
(A) instituted or threatened to restrain, prohibit or invalidate the purchase and sale of the
Closing Shares by any Governmental Authority of competent jurisdiction, or (B) instituted to
restrain, prohibit or invalidate such purchase and sale by any other third party (which has a
reasonable likelihood of so restraining, prohibiting or invalidating the consummation of such
purchase and sale); excluding, in each case, any such action, suit, proceeding or investigation,
which is in effect or is instituted as a result of a Seller Party’s actions (other than a Court
Order binding on the Parties prohibiting the consummation of such purchase and sale
).
53
8.4
Consents
. Each of the Required Consents shall have been obtained and shall be in
full force and effect.
8.5
Governmental Approvals
. The waiting period applicable to the Transactions under
the HSR Act shall have expired or been terminated.
8.6
Other Documents and Actions
. Buyer shall have delivered each of the other
documents, and taken each of the other actions, required by
Section 3.2
hereof.
9.
Conditions Precedent to Obligations of Buyer
. All obligations of Buyer to consummate
the Transactions are subject to the satisfaction (or waiver by Buyer) prior thereto of each of the
following conditions:
9.1
Representations and Warranties
. The representations and warranties made by the
Seller Parties in
Section 4
that are not qualified by materiality or a Material Adverse Effect
requirement shall be true and correct in all material respects and the representations and
warranties that are qualified by materiality or a Material Adverse Effect requirement shall be true
and correct, in each case on the date hereof and also at and as of the Closing Date (except to the
extent such representations and warranties speak as of a particular date), with the same force and
effect as if made on and as of the Closing Date; provided, however, that for purposes of this
Section 9.1
, all updates to the Disclosure Schedule made after the date of this Agreement shall be
disregarded (except to the extent Buyer shall have consented thereto in writing pursuant to
Section
6.5
).
9.2
Agreements, Conditions and Covenants
. The Seller Parties shall have performed or
complied in all material respects with all agreements, conditions and covenants required by this
Agreement to be performed or complied with or by them on or before the Closing Date.
9.3
Legal Matters
. There shall not be (i) any Law or Court Order in effect that has
the effect of making the purchase and sale of the Closing Shares illegal or otherwise prohibiting
the consummation of such purchase and sale or (ii) any action, suit, proceeding or investigation
(A) instituted or threatened to restrain, prohibit or invalidate the purchase and sale of the
Closing Shares by or with any Governmental Authority of competent jurisdiction, or (B) instituted
to restrain, prohibit or invalidate such purchase and sale by or with any other third party (which
has a reasonable likelihood of so restraining, prohibiting or invalidating the consummation of such
purchase and sale); excluding, in each case, any such action, suit, proceeding or investigation,
which is in effect or is instituted as a result of Buyer’s actions (other than a Court Order
binding on the Parties prohibiting the consummation of such purchase and sale).
9.4
No Claim Regarding Stock Ownership or Sale Proceeds
. No claim shall have been
made or threatened by any Person asserting that such Person (a) is the holder or the beneficial
owner of, or has the right to acquire or obtain beneficial ownership of, any stock or other equity
or ownership interest in, any Company Group Member, or (b) is entitled to all or any portion of the
Purchase Price for the Closing Shares.
54
9.5
Consents
. Each of the Required Consents shall have been obtained and shall be in
full force and effect, and Buyer shall have received copies thereof.
9.6
Release of Liens
. Before or at the Closing, the Seller Parties shall have
furnished to Buyer documentation reasonably satisfactory to Buyer releasing all Encumbrances
affecting the Closing Shares, to the extent applicable.
9.7
No Material Adverse Effect
. From the date hereof until the Closing,
there
shall not have occurred any event or events resulting in a Material Adverse Effect.
9.8.
Governmental Approvals
. The waiting period applicable to the Transactions under
the HSR Act shall have expired or been terminated, and no action by any Governmental Entity of any
jurisdiction having authority over the Transactions challenging or seeking to enjoin the
consummation of the Transactions shall be pending.
9.9.
Other Documents and Actions
. The Seller Parties shall have delivered each of the
other documents, and taken each of the other actions, required by
Section 3.2
hereof.
9.10
FIRPTA Certificate
. The Seller Parties shall deliver to Buyer on the Closing
Date a duly completed and executed certification of non-foreign status pursuant to Section 1.1445-2
of the Treasury Regulations.
10.
Indemnification
.
10.1
By Stockholders
.
10.1.1
General Indemnity
. From and after the Closing Date, the Stockholders, shall
defend, indemnify and hold harmless Buyer, the Company Group Members and their respective
successors and assigns, and each of their respective officers, directors, employees, stockholders,
agents, Affiliates and any Person who controls any of such Persons within the meaning of the
Securities Act or the Exchange Act (each, an “Indemnified Buyer Party”) from and against any
Liabilities, claims, demands, judgments, losses, diminution of value, costs, damages (including
property damage or damages relating to personal injury) or expenses whatsoever (including
reasonable attorneys’, consultants’ and other professional fees), and any direct or indirect,
consequential or special damages, but excluding punitive, exemplary or special damages, except for
punitive, exemplary or special damages payable to a third party, incurred by such Indemnified Buyer
Party in connection therewith (collectively, “Damages”) that such Indemnified Buyer Party may
sustain, suffer or incur and that result from, arise out of or relate to:
(a) any breach of any of the representations, warranties, covenants or agreements of the Seller
Parties contained in this Agreement or in the Closing Certificates, such breach to be determined
without regard to any limitation or qualification as to materiality or similar qualifications or
exceptions, such breach (and calculation of any Damages) to be determined without regard to any
limitation or qualification as to materiality or similar qualifications or exceptions,
55
(b) any Liability or Damages for:
(i) any Environmental Liabilities arising out of or relating to (and any Actions by
third-parties seeking recovery for Environmental Liabilities based upon allegations concerning)
(A)(1) the ownership, operation or condition at any time on or prior to the Closing Date of the
Real Property or any other real properties or Facilities in which any Company Group Member has or
had an ownership or operational interest, or (2) any Hazardous Substances or other contaminants
that were present, on or before the Closing Date, on the Real Property or any other real properties
or Facilities in which any Company Group Member has or had an ownership or operational interest;
(B) any Hazardous Substances or other contaminants, wherever located, that were (or, in the case of
third-party Actions, allegedly were) generated, transported, stored, treated, Released, or
otherwise handled by any Company Group Member or by any other Person for whose conduct they are or
may be held responsible, at any time on or prior to the Closing Date; or (C) any Hazardous
Activities that were conducted by any Company Group Members at any time on or prior to the Closing
Date; or,
(ii) any bodily injury (including illness, disability, and death), 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, including any employee or former employee of any
Company Group Member or any other Person for whose conduct they are or may be held responsible, in
any way arising from (A) any Hazardous Activity conducted (or, in the case of third-party Actions,
allegedly conducted) with respect to the Real Property or the operation of the Company Group
Members prior to the Closing Date, or (B) any Release of or exposure to any Hazardous Substance
that occurred on or before the Closing Date on or at the Real Property (or on any other property,
if such Hazardous Substance emanated from any of the Real Property and was present on any of the
Real Property on or prior to the Closing Date), or (C) Released by any Company Group Member or any
other Person for whose conduct they are or may be held responsible, at any time on or prior to the
Closing Date, and
(c) any Indemnified Liability.
10.1.2
Tax Indemnity
. In addition to the foregoing, except to the extent of any
purchase price adjustment relating to Taxes under Sections 2.4 or 2.6 or 2.7 and except for Income
Taxes relating to the Compensation Payments (which are subject to a separate purchase price
adjustment set forth in
Sections 2.
4(b)
, 2.6
, and
2.7
), Stockholders shall defend, indemnify and
hold harmless Buyer and each Company Group Member from and against any (A) Pre-Closing Taxes of
any Company Group Member that relate to a Straddle Period, (B) Taxes other than Income Taxes
assessed against any Company Group Member with respect to taxable periods ending on or prior to the
Closing Date, and (C) Income Taxes assessed against any Company Group Member with respect to
taxable periods ending on or prior June 30, 2005 (Income Taxes with respect to periods beginning on
July 1, 2005, and ending on or prior to the Closing Date are subject a separate purchase price
adjustment as set forth in
Sections 2.4, 2.6
, and
2.7
above), in each case provided that Buyer
complies with its obligations set forth in Section 7.5; provided, however, that Buyer’s foregoing
obligation to comply with Section 7.5 shall not
56
limit the Stockholders’ indemnity obligations under this Section 10.1.2 except to the extent
that the Stockholders are prejudiced thereby.
10.2
By Buyer
. From and after the Closing Date, Buyer shall defend, indemnify and hold
harmless the Stockholders and their respective successors and assigns, and (if any) their
respective officers, directors, employees, stockholders, agents, Affiliates and any Person who
controls any of such Persons within the meaning of the Securities Act or the Exchange Act (each, an
“Indemnified Seller Party”) from and against any Damages that such Indemnified Seller Party may
sustain, suffer or incur and that result from, arise out of or relate to any breach of any of the
representations, warranties, covenants or agreements of Buyer contained in this Agreement or in a
Closing Certificate.
10.3
Escrow
. Upon notice to the Stockholders specifying in reasonable detail the basis
thereof, Buyer may seek indemnification to which it may be entitled under this Section 10 against
the Escrow Funds by filing a claim with the Escrow Agent pursuant to the terms of the Escrow
Agreement, and complying with the resolution procedure identified in such Escrow Agreement. The
failure to give a notice of a Claim under the Escrow Agreement will not constitute an election of
remedies or limit Buyer in any manner in the enforcement of any other remedies that may be
available to it.
10.4
Procedure for Claims
.
(a) Any Person who desires to seek indemnification under any part of this
Section 10
(each, an
“Indemnified Party”) shall give written notice in reasonable detail (a “Claim Notice”) to each
Party responsible or alleged to be responsible for indemnification hereunder (an “Indemnitor”) and
the Escrow Agent prior to any applicable Expiration Date (as defined in
Section 10.5
). Such notice
shall briefly explain the nature of the claim and the parties known to be involved, and shall
specify the amount thereof. If the matter to which a claim relates shall not have been resolved as
of the date of the Claim Notice, the Indemnified Party shall estimate the amount of the claim in
the Claim Notice, but also specify therein that the claim has not yet been liquidated (an
“Unliquidated Claim”). If an Indemnified Party gives a Claim Notice for an Unliquidated Claim, the
Indemnified Party shall also give a second Claim Notice (the “Liquidated Claim Notice”) within 60
days after the matter giving rise to the claim becomes finally resolved, and the Second Claim
Notice shall specify the amount of the claim. Each Indemnitor to which a Claim Notice is given
shall respond to any Indemnified Party that has given a Claim Notice (a “Claim Response”) within 30
days (the “Response Period”) after the later of (i) the date that the Claim Notice is given or (ii)
if a Claim Notice is first given with respect to an Unliquidated Claim, the date on which the
Liquidated Claim Notice is given. Any Claim Response shall specify whether or not the Indemnitor
giving the Claim Response disputes the claim described in the Claim Notice. If any Indemnitor
fails to give a Claim Response within the Response Period, such Indemnitor shall be deemed not to
dispute the claim described in the related Claim Notice. If any Indemnitor elects not to dispute a
claim described in a Claim Notice, whether by failing to give a timely Claim Response in accordance
with the terms hereof or otherwise, then the
57
amount of such claim shall be conclusively deemed to be an obligation of such Indemnitor.
(b) If any Indemnitor shall be obligated to indemnify an Indemnified Party pursuant to this
Section 10
, such Indemnitor shall pay to such Indemnified Party the amount to which such
Indemnified Party shall be entitled within 15 Business Days after the day on which such Indemnitor
became so obligated to the Indemnified Party. If the Indemnified Party shall be an Indemnified
Buyer Party, it shall first seek payment of the Damages to which it is entitled under this
Section
10
from the Escrow Funds, but only to the extent that the Escrow Funds are not subject to other
claims for indemnification; thereafter, if the amount of the Escrow Funds available for payment of
Damages is less than the amount of Damages to which such Indemnified Buyer Party is entitled, such
Indemnified Buyer Party shall seek indemnification directly from the Stockholders. If any
Indemnitor fails to pay all or part of any indemnification obligation when due, then such
Indemnitor shall also be obligated to pay to the applicable Indemnified Party interest on the
unpaid amount for each day during which the obligation remains unpaid at an annual rate equal to
LIBOR plus 3% (three percent).
(c) If, during the Response Period, an Indemnified Party receives a Claim Response from the
Indemnitor, then for a period of 45 days (the “Resolution Period”) after the Indemnified Party’s
receipt of such Claim Response, the Indemnified Party and the Indemnitor shall endeavor to resolve
any dispute arising therefrom. If such dispute is resolved by the parties during the Resolution
Period, the amount that the parties have specified as the amount to be paid by the Indemnitor, if
any, as settlement for such dispute shall be conclusively deemed to be an obligation of such
Indemnitor. If the parties are unable agree upon a resolution to such dispute prior to the
expiration of the Resolution Period (or any extension thereto to which the Indemnitor and
Indemnified Party agree in writing), the issue shall be resolved in accordance with Section 13.2
hereof.
(d) If the Indemnified Party is an Indemnified Buyer Party and, pursuant to
Section 10.4(b)
,
such Indemnified Buyer Party is obligated to seek any portion of the funds to which such
Indemnified Buyer Party is entitled from the Escrow Funds, then, within two Business Days from the
date on which such Indemnified Buyer Party became entitled to such funds, the Indemnified Party and
the Indemnitor shall provide written instructions to Escrow Agent as to (i) the amount of funds, if
any, to be dispersed from the Escrow Funds, and (ii) instructions as to the manner in which such
funds shall be dispersed to the Indemnified Buyer Party.
(e) No Party will have any liability (for indemnification or otherwise) for any Damages for
punitive, exemplary or special damages of any nature, except to the extent such punitive, exemplary
or special damages are awarded to a third party against an Indemnified Party in circumstances in
which such Indemnified Party is entitled to indemnification hereunder.
(f) Notwithstanding any other provision of this
Section 10
, except as provided below in this
subparagraph (f), the Indemnified Buyer Party, on the one hand,
58
and the Indemnified Seller Parties on the other hand, shall be entitled to indemnification
hereunder by Seller Parties or by Buyer, respectively, only when the aggregate of all Damages to
such Indemnified Buyer Parties exceeds $300,000 (the “Deductible Amount”) and then only to the
extent of such excess amount; provided, however, that the Deductible Amount shall not apply with
respect to (i) a breach of Seller Parties’ representations or warranties under
Sections 4.1, 4.2,
4.4, 4.14
or
4.26
or in the related provisions of the Closing Certificates, a breach of Buyer’s
representations or warranties under
Sections 5.1, 5.2, 5.4, 5.5
or
5.6
, or a breach of any
representations or warranty of a Party to this Agreement made with an intent to mislead or defraud,
(ii) a breach of any covenants hereunder or (iii) a claim for indemnification under
Section
10.1.2(C)
. In addition, the calculation of the Deductible Amount shall include any Damages
incurred by an Indemnified Party for which the Indemnified Party would have been entitled to claim
indemnification under this
Section 10
with respect to a breach of a representation or warranty but
for such Claim being excluded as a result of the qualification of such representation or warranty
by materiality or similar qualifications or exceptions. The maximum amount of Damages for which
the Stockholders or Buyer, respectively, shall be liable under this Agreement shall be limited to
the following (the “Indemnification Cap”):
(w) as to any claim for which a Claim Notice is given on or before the 18-month anniversary
of the Closing Date – Fifteen Million Dollars ($15,000,000);
(x) as to any claim for which a Claim Notice is given with respect to
Section 10.
1(c)
after
the 18-month anniversary, but on or before the third anniversary, of the Closing Date –
Seven Million Dollars ($7,000,000);
(y) as to any claim for which a Claim Notice is given with respect to
Section 10.
1(b)
after
the 18-month anniversary, but on or before the 24-month anniversary, of the Closing Date –
Ten Million Dollars ($10,000,000); and
(z) as to any claim for which a Claim Notice is given with respect to
Section 10.
1(b)
after
the 24-month anniversary, but on or before the fifth anniversary, of the Closing Date –
Five Million Dollars ($5,000,000);
provided, however, the foregoing limitations of the Indemnification Cap shall not apply to (a) any
breach of the Seller Parties’ representations or warranties under
Sections 4.1, 4.2, 4.4, 4.13,
4.14, or 4.26
or in the related provisions of the Closing Certificates, (b) a breach of any
representations or warranty of a Party to this Agreement made with an intent to mislead or defraud,
(c) a breach of any of the parties’ covenants or (d) a claim for indemnification under
Section
10.1.2
; and provided, further, any Damages for which Buyer may claim indemnification under
Section
10.1(b)
shall be prorated between Buyer and the Stockholders as follows:
|
|
|
|
|
|
|
|
|
|
|
Months after Closing Date
|
|
Buyer
|
|
Stockholders
|
|
0-24
|
|
|
0
|
%
|
|
|
100
|
%
|
|
25-60
|
|
|
50
|
%
|
|
|
50
|
%
|
|
After month 60
|
|
|
100
|
%
|
|
|
0
|
%
|
59
(g) Notwithstanding any other provision of this
Section 10
, the Stockholders shall not have an
obligation to indemnify or hold harmless the Indemnified Buyer Parties or any other obligation with
respect to (i) any Environmental Liability (including any Environmental Liability arising out of
the discovery of any environmental matter or condition) that is first discovered as a result of any
Unreasonable Action by or on behalf of Buyer; (ii) that portion of any Damages or Environmental
Liability that arises from any act or omission by Buyer or any other person or entity after the
Closing that exacerbates any Environmental Liability, including any environmental matter or
condition, in existence on or before Closing; and (iii) any Remedial Action except to the extent
such Remedial Action is required under applicable Environmental Law or by the relevant Governmental
Entity.
(h) Notwithstanding any other provision of this
Section 10
, with respect to matters which are
subject to the indemnification provisions of
Section 10.1(b)
,
(i) Buyer shall be entitled to control any Remedial Action (including Cleanup), any
Legal Proceeding relating to an Environmental Claim and, any other Legal Proceeding;
(ii) with respect to the pending request to the Wisconsin Department of Natural
Resources (the “WDNR”) for closure of the environmental condition referenced on
Schedule
4.
15(b)
(the “Referenced Condition”), in the event the WDNR requires additional Remedial
Action of the Referenced Condition as a condition of closure, the costs associated with such
Remedial Actions, including, but not limited to, the costs of monitoring well closures,
shall be borne by the Stockholders without being subject to the Deductible Amount;
(iii) Buyer shall pursue the request for closure of the Referenced Condition with the
WDNR and shall close all associated monitoring wells reasonably promptly upon receipt of
authorization from the WDNR to do so;
(iv) all Remedial Actions shall be performed in a commercially reasonable manner and in
a manner consistent with applicable Environmental Laws. All Remedial Actions shall be
performed in a manner employing the most cost-effective means available that is acceptable
to the relevant Governmental Entity, including the use of Impositions where such does not
unreasonably impair or impede Buyer’s use of the Real Property as a chemical manufacturing
or chemical research and development facility. Remedial Actions shall be deemed to be
complete when (A) Buyer provides written confirmation to the Stockholders’ Representative
that the Remedial Action has been completed, which confirmation shall not be unreasonably
withheld or delayed, or (B) upon issuance of a No Further Action Determination;
60
(v) Buyer shall keep the Stockholders’ Representative apprised of the progress and
performance of all Remedial Actions, including, without limitation, providing the
Stockholders’ Representative with copies of any and all testing results, reports, agency
notices, correspondence to or from any Governmental Entity and other material documents
related to any Environmental Liability or Remedial Actions; and
(vi) The Stockholders may retain, at the Stockholders’ expense, any environmental
consultant(s) as they select, in their sole discretion (“Stockholders’ Consultants”), to
consult with Buyer, Buyer’s consultants and any Governmental Entity with respect to Remedial
Actions. The Stockholder’s Representative and Stockholder’s Consultants, if retained, shall
not assume the control of or responsibility for any Remedial Actions. Notwithstanding the
foregoing, it is expressly agreed that, to the extent reasonably possible under the
circumstances, the Stockholder’s Representative shall have the right (and shall be provided
a reasonable opportunity) to review and comment upon any document(s) to be submitted to a
Governmental Entity which relate in any way to any Remedial Actions To the extent
reasonably possible in the circumstances, Buyer shall give the Stockholder’s Representative
prompt written notice of, and the Stockholders’ Representative and/or the Stockholder’s
Representative’s representative(s) shall have the right to participate in, any phone call or
meeting with any Governmental Entity at which any Remedial Action is to be substantively
discussed or addressed.
(i) Whenever there is an event, condition or a circumstance (a “Possible Breach”) the subject
matter of which is covered by more than one of the representations and warranties contained in
Section 4
or
Section 5
(the “Applicable Representations”) and one or more of such representations
(the “Specifically Applicable Representations”) more specifically relate to the subject matter of
the Possible Breach, then if such Possible Breach would cause a breach of any Specifically
Applicable Representations, the fact that a breach may have occurred with respect to any of the
more general Applicable Representations shall not affect an Indemnified Party’s ability to claim a
breach of the Specifically Applicable Representations.
10.5
Claims Period
. Any claim for indemnification under this
Agreement
shall be made
by giving a Claim Notice under
Section 10.4
on or before the applicable “Expiration Date” specified
below in this
Section 10.5
, or the claim under this
Section 10
shall be invalid. The following
claims shall have the following respective “Expiration Dates”: (a) eighteen (18) months after the
Closing Date -— any claims that are not specified in any of the succeeding clauses; (b) the third
(3
rd
) anniversary of the Closing Date — any claims for indemnification under
Section
10.1(c)
; (c) the fifth (5
th
) anniversary of the Closing Date — any claims for
indemnification under
Section 10.1(b)
, (d) the date on which the applicable statute of limitations
expires plus thirty (30) days — any claim for Damages related to (i) a breach of any covenant or
agreement, (ii) a breach of the Seller Parties’ representations or warranties under
Sections 4.13
or
4.26,
a breach of Buyer’s representations or warranties under
Section 5.6,
or a breach of any
representations or warranties of a Party to this Agreement that were made with an intent to mislead
or defraud, or (iii) any claims for indemnification under
Section 10.1.2
, and
61
(d) in perpetuity — a breach of the Seller Parties’ representations or warranties under
Sections 4.1, 4.2, 4.4
or a breach of Buyer’s representations or warranties under
Sections 5.1 or
5.2
. If more than one of such Expiration Dates applies to a particular claim, the latest of such
Expiration Dates shall be the controlling Expiration Date for such claim. So long as an
Indemnified Party gives a Claim Notice for an Unliquidated Claim on or before the applicable
Expiration Date, such Indemnified Party shall be entitled to pursue its rights to indemnification
regardless of the date on which such Indemnified Party gives the related Liquidated Claim Notice.
10.6
Third Party Claims
. An Indemnified Party that desires to seek indemnification
under any part of this
Section 10
with respect to any actions, suits or other administrative or
judicial proceedings (each, an “Action”) that may be instituted by a third party shall give each
Indemnitor prompt notice of a third party’s institution of such Action. After such notice, any
Indemnitor may, or if so requested by such Indemnified Party, any Indemnitor shall, participate in
such Action or assume the defense thereof, with counsel satisfactory to such Indemnified Party;
provided, however, that such Indemnified Party shall have the right to participate at its own
expense in the defense of such Action; and provided, further, that no Party shall consent to the
entry of any judgment or enter into any settlement, except with the written consent of the
Indemnitor or the Indemnified Party, as applicable (which consent shall not be unreasonably
withheld). Any failure to give prompt notice under this
Section 10.6
shall not bar an Indemnified
Party’s right to claim indemnification under this
Section 10
, except to the extent that an
Indemnitor shall have been harmed by such failure.
10.7
Effect of Investigation or Knowledge
. Any claim by Buyer for indemnification
shall not be adversely affected by any investigation by or opportunity to investigate afforded to
Buyer, nor shall such a claim be adversely affected by Buyer’s knowledge on or before the Closing
Date of any breach of the type specified in the first sentence of
Section 10.1
or of any state of
facts that may give rise to such a breach. The waiver of any condition based on the accuracy of
any representation or warranty, or on the performance of or compliance with any covenant or
obligation, will not adversely affect the right to indemnification, payment of Damages or other
remedy based on such representations, warranties, covenants or obligations.
10.8
General Rules on Payments by Stockholders
Notwithstanding anything contained in this Agreement to the contrary, except as specifically
provided in this
Section 10.8
, the obligation of each Stockholder with respect to the payment of
any amount to any Indemnified Buyer Party for any matter subject to this
Section 10
shall be
several in proportion to such Stockholder’s respective Indemnification Share and not joint.
Stephen B. King, Sr., SBKGP Inc., Stephen B. King Sr. Grantor Retained Annuity Trust and TMT shall
be jointly and severally liable for all Stockholders with respect to (i) any obligation to pay any
amount under
Section 2.5
, (ii) any obligation to pay any amount under
Sections 2.6
and
2.7
and
(iii) all Escrow Funds. Further, (v) Stephen B. King, Sr., SBKGP, Inc. and Stephen B. King Sr.
Grantor Retained Annuity Trust shall be jointly and severally liable for all Stockholders with
respect to all indemnification obligations under
Section 10.1(c)
as to any claim for which
62
a Claim Notice is given on or before the 18-month anniversary of the Closing Date, (w) Stephen B.
King, Sr., SBKGP, Inc. and Stephen B. King Sr. Grantor Retained Annuity Trust, jointly and
severally, shall be solely liable for all Stockholders with respect to all indemnification
obligations under
Section 10.1(c)
as to any claim for which a Claim Notice is given after the
18-month anniversary, but on or before the 24-month anniversary, of the Closing Date, (x) Stephen
B. King, Sr., SBKGP, Inc. and Stephen B. King Sr. Grantor Retained Annuity Trust shall be jointly
and severally liable for each such Stockholder’s Indemnification Share with respect to all
indemnification obligations under this Agreement, (y) Seidler Equity Partners, L.P. and Seidler
North, L.P. shall be jointly and severally liable for each such Stockholder’s Indemnification Share
with respect to all indemnification obligations under this Agreement, and (z) Tower Square Capital
Partners L.P., C. M. Life Insurance Company, Massachusetts Mutual Life Insurance Company, shall be
jointly and severally liable for each such Stockholder’s Indemnification Share and the
Indemnification Share of MassMutual Corporate Investors and MassMutual Participation Investors with
respect to all indemnification obligations under this Agreement. Except as expressly provided in
this
Section 10.8
, nothing herein shall be deemed to restrict any Indemnified Buyer Party from
exercising all rights and remedies against any Stockholder with respect to the payment of any
amounts concurrently or in such order as the Indemnified Buyer Party shall elect, in its sole and
absolute discretion.
10.9
Stockholder’s Representative
.
(a) Stephen B. King, Sr. shall act as the Stockholder’s representative (the “Stockholder’s
Representative”) and as exclusive agent and attorney-in-fact to act on behalf of any Stockholder
with respect to any and all matters, claims, controversies, or disputes arising out of the terms of
this Agreement. The Stockholder’s Representative shall have the power to take any and all actions
which the Stockholder’s Representative believes are necessary or appropriate or in the best
interests of the Stockholders, as fully as if each such Stockholder was acting on its, his or her
own behalf with respect to all matters concerning the Stockholders or any of them following the
Closing Date, including for the purpose of administering the Escrow Agreement, settling on behalf
of the Stockholders any indemnification claims made by any Indemnified Buyer Party under
Section
10
, representing the Stockholders in connection with the determination of the Net Working Capital
Valuation under
Section 2.5
, and taking any other action that is specifically delegated to the
Stockholder’s Representative hereunder. An Indemnified Buyer Party shall give notice under this
Section 10.9
of any claim for indemnification against the Stockholders to the Stockholders and the
Stockholder’s Representative, and only the Stockholder’s Representative shall be empowered,
following such notice, to respond to or take any other action on behalf of the Stockholders with
respect to the claim. The Stockholders shall be bound by any and all actions taken on their behalf
by the Stockholder’s Representative in accordance with this Agreement, and in particular, the
Stockholders shall be bound by the Escrow Agreement being executed by the Stockholder’s
Representative to the same extent as if they were signatories thereto. The Stockholder’s
Representative is expressly authorized to execute, deliver and perform the Escrow Agreement.
63
(b) The authority granted hereunder is deemed to be coupled with an interest. Buyer shall
have the right to rely on any actions taken or omitted to be taken by the Stockholder’s
Representative as being the act or omission of any Stockholder, without the need for any inquiry,
and any such actions or omissions shall be binding upon each Stockholder, and shall not be liable
in any manner whatsoever for any action taken or not taken in reliance upon the actions taken or
not taken or communications or writings given or executed by the Stockholder’s Representative.
Except as specifically contemplated by the Escrow Agreement, Buyer shall be entitled to disregard
any notices or communications given or made by the Stockholders unless given or made through the
Stockholder’s Representative.
(c) In the event of the death of the Stockholder’s Representative or his inability to perform
his functions hereunder, the Stockholders shall choose a successor Stockholder’s Representative by
a plurality vote of such Stockholders based upon Closing Shares held immediately prior to the
Closing Date.
(d) The Stockholder’s Representative shall not be liable to any Stockholder or any other Party
for any action taken or omitted to be taken by him in his capacity as Stockholder’s Representative
except in the case of willful misconduct or gross negligence. The Stockholders shall jointly
indemnify the Stockholder’s Representative and hold him harmless from and against any loss,
liability or expense of any nature incurred by the Stockholder’s Representative arising out of or
in connection with the administration of his duties as Stockholder’s Representative, including
reasonable legal fees and other costs and expenses of defending or preparing to defend against any
claim or liability in the premises, unless such loss, liability or expense shall be caused by such
Stockholder’s Representative’s willful misconduct or gross negligence.
11.
Termination
.
11.1
Grounds for Termination
. The Parties may terminate this Agreement at any time
before the Effective Time as provided below:
(a) by mutual written consent of each of the Seller Parties and Buyer;
(b) by any Party, if the Closing shall not occurred on or before the Termination Date;
provided, however, that the right to terminate this Agreement under this
Section 11.1(b)
shall not
be available to any Party whose failure to fulfill any obligation under this Agreement has been the
cause of, or resulted in, the failure of the Closing to occur on or before the Termination Date;
(c) by any Party, if a court of competent jurisdiction or other Governmental Entity shall have
issued a Court Order (which Court Order the Parties shall use commercially reasonable efforts to
lift) that permanently restrains, enjoins or otherwise prohibits the Transactions, and such Court
Order shall have become final and non-appealable;
64
(d) by Buyer, if any of Seller Parties shall have breached, or failed to comply with, any of
its obligations under this Agreement or any representation or warranty made by Seller Parties shall
have been incorrect when made, and such breach, failure or misrepresentation is not cured within 20
days after notice thereof, and in either case, any such breaches, failures or misrepresentations,
individually or in the aggregate, results or would reasonably be expected to result in a Material
Adverse Effect on the Business;
(e) by Seller Parties, if Buyer shall have breached, or failed to comply with any of its
obligations under this Agreement or any representation or warranty made by it shall have been
incorrect when made, and such breach, failure or misrepresentation is not cured within 20 days
after notice thereof, and in either case, any such breaches, failures or misrepresentations,
individually or in the aggregate, results or would reasonably be expected to affect materially and
adversely the benefits to be received by Buyer hereunder; or
11.2
Effect of Termination
. If this Agreement is terminated pursuant to
Section 11.1
,
the agreements contained in
Section 7.7
shall survive the termination hereof and any Party may
pursue any legal or equitable remedies that may be available if such termination is based on a
breach of another Party.
12.
General Matters
.
12.1
Contents of Agreement
. This Agreement, together with the other Transaction
Documents, sets forth the entire understanding of the Parties with respect to the Transactions and
supersedes all prior agreements or understandings among the parties regarding those matters. There
have been no representations or warranties, written or oral, other than as provided in this
Agreement and/or the other Transaction Documents, and Buyer is relying solely on the
representations and warranties provided in this Agreement and/or the other Transaction Documents.
12.2
Amendment, Parties in Interest, Assignment, Etc
. This Agreement may be amended,
modified or supplemented only by a written instrument duly executed by each of the Parties. If any
provision of this Agreement shall for any reason be held to be invalid, illegal, or unenforceable
in any respect, such invalidity, illegality, or unenforceability shall not affect any other
provision hereof, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the respective heirs, legal representatives,
successors and permitted assigns of the Parties. Nothing in this Agreement shall confer any rights
upon any Person other than the Parties and their respective heirs, legal representatives,
successors and permitted assigns, except as provided in
Section 10
. No Party shall assign this
Agreement or any right, benefit or obligation hereunder. Any term or provision of this Agreement
may be waived at any time by the Party entitled to the benefit thereof by a written instrument duly
executed by such Party.
65
12.3
Further Assurances
. At and after the Closing, the Parties shall execute and
deliver any and all documents and take any and all other actions that may be deemed reasonably
necessary by their respective counsel to complete the Transactions.
12.4
Interpretation
. Unless the context of this Agreement clearly requires otherwise,
(a) references to the plural include the singular, the singular the plural, the part the whole, (b)
references to any gender include all genders, (c) “including” has the inclusive meaning frequently
identified with the phrase “but not limited to,” and (d) references to “hereunder” or “herein”
relate to this Agreement. The section and other headings contained in this Agreement are for
reference purposes only and shall not control or affect the construction of this Agreement or the
interpretation thereof in any respect. Section, subsection, Schedule and Exhibit references are to
this Agreement unless otherwise specified. Each accounting term used herein that is not
specifically defined herein shall have the meaning given to it under GAAP. Any reference to a
Party’s being satisfied with any particular item or to a Party’s determination of a particular item
presumes that such standard will not be achieved unless such Party shall be satisfied or shall have
made such determination in good faith in its sole or complete discretion.
12.5
Counterparts
. This Agreement may be executed in two or more counterparts, each
of which shall be binding as of the date first written above, and all of which shall constitute one
and the same instrument. Each such copy shall be deemed an original, and it shall not be necessary
in making proof of this Agreement to produce or account for more than one such counterpart.
12.6
Disclosure Schedules
. Any items listed or described on the Disclosure Schedules
shall be listed or described under a caption that specifically identifies the Section(s) of this
Agreement to which the item relates (which, in each case, shall constitute the only valid
disclosure with respect to such Section(s)).
13.
Remedies
.
13.1
Exclusive
. Other than with respect to the Non-Competition Agreements, the
Consulting Agreements and the Escrow Agreement, (i) the indemnification rights provided for in this
Agreement are the exclusive and the sole remedy (absent fraud or breach of this Agreement made by
the Party with knowledge, and except for claims asserted under the Securities Law or other
applicable securities Laws) available to a Party in enforcing any rights with respect to the
subject matter of this Agreement, and (ii) an indemnity claim under
Section 10.
1(b)
by Buyer
against Stockholders shall be the sole and exclusive remedy of Buyer to recover from the
Stockholders for any Damages or other claims or Liabilities arising from any Environmental
Liabilities, Remedial Actions, Hazardous Substances, or Hazardous Activities.. Notwithstanding the
foregoing, each Party hereby expressly acknowledges that the other Parties may be irreparably
damaged if this Agreement is not specifically enforced. Upon a breach or threatened breach of the
terms, covenants or conditions of this Agreement by a Party, the non-breaching Parties shall, in
addition to all other remedies, be entitled to seek a temporary or permanent
66
injunction, without showing any actual damage, or a decree for specific performance, in
accordance with the provisions hereof.
13.2
Dispute Resolution
.
(a) The Parties shall attempt in good faith to resolve any dispute, controversy or claim among
them arising out of or relating to this Agreement, including without limitation any dispute over
the breach, termination, interpretation, or validity thereof (the “
Dispute
”). Any party
may request through written notice that the Dispute be referred to senior executives of the parties
who have authority to resolve the Dispute. For purposes hereof, the Stockholder’s Representative
shall be deemed a senior executive for the Seller Parties. The executives shall attempt to resolve
the Dispute by agreement within thirty (30) days of such notice.
(b) If the Parties to the Dispute are unable to resolve the Dispute as provided in
Section
12.1(a)
above, they may try in good faith to resolve the Dispute by mediation and may use any
mediator upon which they mutually agree. If the parties to the Dispute are unable to mutually agree
upon a mediator, the Dispute shall be referred to the Chicago office of JAMS or such other
mediation service as the parties to the Dispute may agree. The cost of the mediator will be split
equally between the parties to the Dispute unless they agree otherwise.
(c) If the Parties have not (i) successfully resolved their Dispute through good faith
discussions; (ii) appointed a mediator; or (iii) where a mediator has been duly appointed, resolved
their dispute through mediation, each within 90 days of the Dispute notice in Section 12.1(a) being
issued, the Dispute shall be resolved by binding arbitration. The Parties shall select a mutually
agreed upon single arbitrator and may utilize any format and set of rules for the binding
arbitration upon which such parties may mutually agree. If the parties to the Dispute are unable
to agree on a format and set of rules for the arbitration within 10 days, the arbitration shall be
conducted in accordance with the Commercial Arbitration Rules of the American Arbitration
Association. Should such parties be unable to agree on a choice of arbitrator within thirty (30)
days from the demand for arbitration, then the arbitrator will be appointed by the Chicago office
of JAMS (provided that any JAMS appointed mediator under paragraph (b) is not selected as an
arbitrator under this paragraph (c)).
(d) The costs of the arbitration shall be borne equally among the Parties. Each party shall
bear its own expenses for attorneys’ fees, expert fees, witness fees, travel costs and other
arbitration-related costs. In no event is the arbitrator authorized or empowered to award punitive
or exemplary damages. In no event is the arbitrator authorized or empowered to award damages in
excess of the limitations set forth in this Agreement.
(e) Judgment upon an award rendered by the arbitrator may be entered in any court with
jurisdiction. The arbitrator may issue interim orders of protection as necessary or appropriate to
maintain the status quo, safeguard property or prevent irreparable injury. Notwithstanding the
foregoing, any Party may seek injunctive relief in
67
a court of competent jurisdiction, which relief shall last until the arbitrator renders its
decision.
14.
Notices
.
All notices that are required or permitted hereunder shall be in writing and shall be
sufficient if personally delivered or sent by registered or certified mail, facsimile message (with
receipt confirmed) or Federal Express or other nationally recognized overnight delivery service.
Any notices shall be deemed given upon the earlier of the date when received at, or the third day
after the date when sent by registered or certified mail or the day after the date when sent by
Federal Express or facsimile to, the address or facsimile number set forth below, unless such
address or facsimile number is changed by notice to the other Parties:
If to Seller Parties:
Tomah Holdings, Inc.
330 Vincent Street
P. O. Box 388
Milton, WI 53563-0388
Attn: Stephen B. King, Sr.
FAX: (608) 868-7098
with a required copy to:
Foley & Lardner LLP
Suite 3700
777 E. Wisconsin Avenue
Milwaukee, WI 53202
Attn: Luke E. Sims
FAX: (414) 297-4900
If to Buyer:
Air Products and Chemicals, Inc.
7102 Hamilton Boulevard
Allentown, PA 18195-1502
Attn: Corporate Secretary
FAX: (610) 481-5765
15.
Governing Law
. This Agreement shall be construed and interpreted in accordance with
the internal laws of the State of New York without regard to its provisions concerning choice of
laws or choice of forum.
16.
Attorney/Client Privilege
. Buyer acknowledges that Foley & Lardner LLP has previously
represented the Company Group Members and certain Stockholders, and is representing the
Stockholders in connection with the Transactions contemplated by this
68
Agreement. The Parties recognize that, after the Closing, the Company and the other Company Group
Members will continue to have all right, title and interest in the work product and related
privileges associated with legal advice provided by Foley & Lardner LLP to the Company and other
Company Group Members. Buyer recognizes, however, that Foley & Lardner LLP is providing legal
advice to the Stockholders with respect to the sale of their Closing Shares, and that such advice
was provided to the Stockholders in their capacity as stockholders. Accordingly, Buyer
acknowledges that the Company shall not, upon Closing, obtain any right, title or interest in the
work product and related privileges associated with any legal advice provided to the Stockholders
in their capacities as stockholders, including, but not limited to, all written, computer-generated
or other materials containing, summarizing or embodying such communications, work product,
attorney/client privilege or otherwise.
69
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto as of the day and
year first written above.
|
|
|
|
|
|
|
|
|
AIR PRODUCTS AND CHEMICALS, INC.
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
Name:
|
|
|
|
|
|
|
|
|
|
|
|
Title:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOMAH HOLDINGS, INC
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
Name:
|
|
|
|
|
|
|
|
|
|
|
|
Title:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen B. King, Sr.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tobin M. Ryan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James A. Krogh
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert E. Logan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gregory A. Linder
|
|
|
|
|
|
|
|
|
|
STEPHEN B. KING SR. GRANTOR RETAINED ANNUITY TRUST
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name: Tobin M. Ryan
|
|
|
|
|
|
Title: Trustee
|
70
|
|
|
|
|
|
|
|
|
|
FIRST CITIZENS STATE BANK cust, f/b/o
ROBERT E. LOGAN ROLLOVER IRA
|
|
|
|
FIRST CITIZENS STATE BANK cust f/b/o
GREGORY A. LINDER ROLLOVER IRA
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert E. Logan, Attorney-in-Fact
|
|
|
|
|
|
Gregory A. Linder, Attorney-in-Fact
|
|
|
|
|
|
|
|
|
|
|
|
SBKGP, INC.
|
|
|
|
SEIDLER EQUITY PARTNERS, L.P.
By: Seidler Equity Managers, LLC, General Partner
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen B. King, Sr., President
|
|
|
|
|
|
Eric Kutsenda, Director
|
|
|
|
|
|
|
|
|
|
|
|
NORTHSTAR MEZZANINE PARTNERS, III L.P.
|
|
|
|
SEIDLER NORTH, L.P.
|
|
By: Northstar Capital, LLC, its general partner
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scott L. Becker, Managing Partner
|
|
|
|
|
|
Robert Seidler, General Partner
|
|
|
|
|
|
|
|
|
|
|
|
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
|
|
|
|
C. M. LIFE INSURANCE COMPANY
|
|
By: David L. Babson & Company, Inc., as
Investment Adviser
|
|
|
|
By: David L. Babson & Company, Inc., as
Investment Sub-Adviser
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name:
|
|
|
|
|
|
|
|
Name:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Title:
|
|
|
|
|
|
|
|
Title:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOWER SQUARE CAPITAL
PARTNERS L.P.
By: David L. Babson & Company, Inc., as
Investment Manager
|
|
|
|
MASSMUTUAL CORPORATE
INVESTORS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name:
|
|
|
|
|
|
|
|
Name:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Title:
|
|
|
|
|
|
|
|
Title:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
This Agreement is executed on behalf of
MassMutual Corporate Investors, organized
under a Declaration of Trust, dated
September 13, 1985, as amended from time
to time. Under the terms of the Trust,
the obligations of such Trust are not
personally binding upon, nor shall resort
be had to the property of, any of the
Trustees, shareholders, officers,
employees or agents of such Trust, but
the Trust property alone shall be bound.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MASSMUTUAL PARTICIPATION
INVESTORS
|
|
|
|
ANTARES CAPITAL CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name:
|
|
|
|
|
|
|
|
Name:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Title:
|
|
|
|
|
|
|
|
Title:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
This Agreement is executed on behalf of
MassMutual Participation Investors,
organized under a Declaration of Trust,
dated April 7, 1988, as amended from time
to time. Under the terms of the Trust,
the obligations of such Trust are not
personally binding upon, no shall resort
be had to the property of, any of the
Trustees, shareholder, officers, employees
or agents of such Trust, but the Trust
property alone shall be bound.
|
|
|
|
|
|
|
|
|
72
Attachments:
|
|
|
|
|
Exhibit A
|
|
(Building Purchase Agreement)
|
|
|
|
|
|
Exhibit B-1
|
|
(Form of King Consulting Agreement)
|
|
|
|
|
|
Exhibit B-2
|
|
(Form of Ryan Consulting Agreement)
|
|
|
|
|
|
Exhibit C
|
|
(Form of Escrow Agreement)
|
|
|
|
|
|
Exhibit D
|
|
(Indemnification Share)
|
|
|
|
|
|
Exhibit E
|
|
(Form of Non-Competition Agreement)
|
|
|
|
|
|
Exhibit F
|
|
(Form of Foley & Lardner LLP Legal Opinion)
|
Disclosure Schedule
73