EXHIBIT 2.1 STOCK PURCHASE AGREEMENT

 

EXECUTION COPY

 

 

 

 

 

 

STOCK PURCHASE AGREEMENT

by and among

ALCOA SECURITIES CORPORATION

and

ALCOA INC.

and

PLY GEM INDUSTRIES, INC.

September 22, 2006

 

 

TABLE OF CONTENTS

 

 

Exhibits

Disclosure Letter

 

Article 1 - DEFINITIONS

 

 

Article 2 - PURCHASE AND SALE

 

 

Article 3 - ADJUSTMENTS TO PURCHASE PRICE

 

 

Article 4 - REPRESENTATIONS AND WARRANTIES

 

Article 5 - REPRESENTATIONS AND WARRANTIES OF PURCHASER

 

 

Article 6 - COVENANTS PENDING CLOSING

 

 

Article 7 - CONDITIONS PRECEDENT TO THE CLOSING

 

Article 8 - ADDITIONAL COVENANTS OF PURCHASER AND SELLER

 

 

Article 9 - TERMINATION

 

Article 10 - THE CLOSING

 

Article 11 - REAL PROPERTY AND ENVIRONMENTAL MATTERS

 

 

Article 12 - SURVIVAL OF REPRESENTATIONS AND WARRANTIES

 

 

Article 13 - INDEMNIFICATION

 

Article 14 - MISCELLANEOUS PROVISIONS

 

 

 

 

 

EXHIBITS

 

 

 

 

 

DISCLOSURE LETTER

 

 

 

 

STOCK PURCHASE AGREEMENT

THIS STOCK PURCHASE AGREEMENT (this “Agreement”) is made as of the 22nd day of September, 2006, among Alcoa Securities Corporation, a corporation organized under the laws of Delaware, U.S.A. (hereinafter “Seller”), Alcoa Inc., a corporation organized under the laws of Pennsylvania, U.S.A. (hereinafter “Alcoa”), and Ply Gem Industries, Inc., a corporation organized under the laws of Delaware, U.S.A. (hereinafter “Purchaser”).

 

WHEREAS, Seller owns 100% of the outstanding shares of common stock of Alcoa Home Exteriors, Inc., an Ohio corporation (the “Company”); and

 

WHEREAS, Seller desires to sell all of the capital stock of the Company to Purchaser, and Purchaser desires to purchase the capital stock of the Company from Seller, upon the terms and conditions set forth below.

 

NOW, THEREFORE , in consideration of the premises and the covenants and agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

 

ARTICLE 1

DEFINITIONS

 

Section 1.01   Certain Definitions. As used in this Agreement, the following terms have the following meanings unless the context otherwise requires:

 

(a)   “Affiliate” means, with respect to any Person, any other Person that, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. The term “control” means the possession, directly or indirectly, 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.

 

(b)   “Applicable Tax Rate” means the Federal income tax rate generally applicable to corporations plus 3 percent.

 

(c)   “ Best Efforts ” means commercially reasonable efforts that a prudent person desiring to achieve a result would use in similar circumstances to cause the result to be achieved in a timely manner; provided , however , that an obligation to use Best Efforts under this Agreement does not require the person subject to that obligation to take actions that would result in a materially adverse change in the benefits to that person of this Agreement and the transactions contemplated by this Agreement.

 

(d)   “Books and Records” means all books and records and operating data in the possession of Seller or any of its Affiliates (including the Company) and relating principally to the Company or the Business, including all lists of customers, lists of suppliers, all sales and credit information, advertising and purchasing materials and correspondence, quotation records, resume files, payroll master files and all collection and credit records of the Business.

 

(e)   “Business” means the manufacture, marketing, distribution and sale of aluminum, steel, vinyl and composite siding, rain removal systems, aluminum trim and injection-molded siding, shutters, composite and PVC vinyl decking and railing, and accessory products for resale by third party distributors to the residential remodeling, new construction and light commercial markets, as conducted by the Company.

 

(f)   “Business Day” shall mean any day other than a Saturday, Sunday, or a day on which the banks in New York, New York are authorized or obligated by Law to close.

 

(g)   “Claim” means any claim, lawsuit, demand, audit, inquiry, investigation, suit, hearing, notice of a violation, litigation, action, proceeding, or arbitration, whether civil, criminal, administrative or otherwise, whether at law or in equity.

 

(h)   “Closing Date Balance Sheet” means the unaudited balance sheet of the Company as of the close of business on the Closing Date (or, if the Closing Date does not occur on the Targeted Closing Date, the Targeted Closing Date) prepared according to Section 3.01 .

 

(i)   “Code” means the Internal Revenue Code of 1986, as amended. All citations to the Code or to the regulations promulgated thereunder shall include any amendments or any substitute or successor provisions thereto.

 

(j)   “Company Assets” means any and all assets owned, licensed or leased by the Company in the Business, including all Intellectual Property, Personal Property, Computer Software and Contracts (including rights arising under the Support Services Agreement and Trademark License Agreement), and the Books and Records, but excluding the Excluded Assets.

 

(k)   “Company Products” means products manufactured, designed, serviced, distributed, leased or sold on behalf of the Business into the Market Segment as of, or any time prior to, the Closing Date, including vinyl, metal, composite and polypropylene siding, cladding, soffit, fascia, trim, decking and railing, rain removal systems, and exterior designer accents.

 

(l)   “Computer Software” means any and all computer programs, including operating system and applications software, databases, implementations of algorithms, and program interfaces, whether in source code or object code and all documentation and specification including user manuals relating to the foregoing.

 

(m)   “Contracts” means all contracts, leases, deeds, mortgages, licenses, instruments, notes, commitments, undertakings, indentures, joint ventures and all other agreements, commitments and legally binding arrangements, whether oral or written.

 

(n)   “EBITDA” means earnings before interest, taxes, depreciation and amortization as reported by the Company in its regularly prepared financial statements.

 

(o)   “ Employee ” means an individual who is or was employed by the Company, whether salaried or hourly.

 

(p)   “Encumbrance” means any mortgage, covenant, condition, Claim, easement, encroachment, right of way, restriction, option, lien (statutory or other), pledge, charge, license, security interest or encumbrance of any nature whatsoever.

 

(q)   “Excluded Assets” means the following assets, properties and rights owned or used by or for the benefit of the Company on or prior to the Closing Date, which shall be excluded from and shall not constitute any part of the Business as of and following the Closing Date (subject to Seller’s licensing Company the right to use certain Seller Intellectual Property solely in conjunction with the operation of the Business, pursuant to the Trademark License Agreement, and Purchaser’s rights under the Support Services Agreement), the right, title and interest to which shall, as necessary and at the sole expense of Seller, be transferred to Seller or any of its Affiliates (other than the Company):

 

(i)   all cash and cash equivalents that would appear on a balance sheet prepared in accordance with GAAP as of 11:59 p.m. on the Closing Date or, if the Closing Date does not occur on the Targeted Closing Date, the Targeted Closing Date (it being acknowledged and agreed that any cash or cash equivalents of the Company at any time thereafter shall not be deemed to constitute Excluded Assets);

(ii)   all rights and Claims relating to any of the Excluded Liabilities or the Excluded Assets, including rights and Claims under insurance policies relating thereto;

(iii)   all rights of the Company, Seller or any of their respective Affiliates under or with respect to any Intercompany Accounts;

(iv)   any asset of any Employee Benefit Plan, which is sponsored by a parent of the Company or Seller, except to the extent otherwise provided in Section 8.05 ;

(v)   all Seller Intellectual Property, all Seller Computer Hardware, all Seller Owned Software, all Licensed Software of Seller and its Affiliates (other than the Company) and all Seller Data;

(vi)   all policies of insurance of the Company, Seller or any of their respective Affiliates and all of the rights of the Company, Seller or any of their respective Affiliates thereunder, except with respect to rights to insurance coverage under all insurance policies which are in effect prior to the Closing to the extent they relate to the Business or the Continuing Employees;

(vii)   all assets, properties and rights of the Company, Seller or any of their respective Affiliates identified in Section 1.01(q)(vii) of the Disclosure Letter;

(viii)   all names, trade names and trademarks containing the names “Aluminum Company of America”, “Alcoa” or “Alumax” or any names, trade names and trade marks confusingly similar thereto;

(ix)   all rights to all refunds or credits of Taxes levied or imposed upon, or in connection with the Business, pursuant to Section 8.06 ; and

(x)   all legal, accounting and tax records of Seller.

 

(r)   “Excluded Liabilities” or “Excluded Liability” means the liabilities set forth in Section 1.01(r) of the Disclosure Letter, which are excluded from the transaction contemplated by this Agreement, and shall, as necessary and at the sole expense of Seller, be transferred to and assumed by Seller or any of its Affiliates (other than the Company) on or prior to the Closing Date pursuant to Section 2.04 .

 

(s)   “Governmental Entity” means any federal, state, local or foreign government or political subdivision thereof, or any agency or instrumentality of such government or political subdivision, or any self-regulated organization or other non-governmental regulating authority (to the extent that the rules, regulations or orders of such authority have the force of Law), or to any arbitrator, tribunal or court of competent jurisdiction.

 

(t)   “HSR Act” means the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended, and the rules and regulations promulgated thereunder.

 

(u)   “Indebtedness” means the aggregate amount of the principal of, premium, if any, accrued and unpaid interest on and prepayment penalties, make wholes, brokerage and other costs and expenses payable to the lenders, trustees or noteholders, if any, with respect to all (i) indebtedness and obligations of the Company for borrowed money; (ii) indebtedness and obligations of the Company evidenced by bonds, debentures, notes or similar instruments, or representing the deferred and unpaid balance of the purchase price of any property or assets, including all seller notes and “earn-out” payments in connection with mergers and acquisitions transactions (excluding accounts payable and other current operating liabilities incurred in the ordinary course of the Business); (iii) indebtedness and obligations of the Company for capitalized lease obligations with respect to conditional sale or title retention agreements; (iv) reimbursement obligations of the Company for the reimbursement of any obligor on any letter of credit, performance bond, banker’s acceptance or similar credit transaction; (v) obligations of any Person secured by an Encumbrance to which the property or assets owned or held by the Company are subject, whether or not the obligation or obligations secured thereby shall have been assumed; (vi) guarantees of or other assurances of payment by the Company with respect to any obligations described in subparts (i) through (v) immediately above of another Person; and (vii) obligations of the Company under any interest rate cap, swap, collar or similar agreement applicable to any of the foregoing. For the avoidance of doubt, Indebtedness shall include the banking facility established between Orbian Corp., Citibank, N.A. and Alcoa Inc. and its Affiliates (including the Company) pursuant to which Citibank pays the invoices of suppliers and vendors of the Company typically within two days of approval of invoice, applying an agreed upon discount to the invoices, and the Company pays Citibank the invoice amount within ninety days of invoice.

 

(x)   “Intercompany Accounts” means the accounts listed in Section 1.01(x) of the Disclosure Letter, which relate to various non-trade items including certain intercompany payables, receivables, accounts, indebtedness and other liabilities arising prior to the Closing between the Company, on the one hand, and Seller or any of its Affiliates (other than the Company), on the other.

(z)   “Law” means every applicable order, writ, judgment, injunction, decree, regulation, rule, ordinance, common law, law, statute, code, constitution or treaty promulgated, issued, passed, adopted or otherwise made effective by any Governmental Entity.

 

(aa)   “Licensed Software” means the Computer Software licensed by Seller or any of its Affiliates (including the Company) from a third party.

 

(bb)   “Losses” (or “Loss” in the singular) means all damages, losses, amounts paid in settlement, Claims, liabilities, judgments, costs and expenses, interest, penalties and charges, including reasonable attorneys’ fees and expenses but not including (i)  punitive damages, except in the case of fraud or to the extent actually awarded to a Governmental Entity or other third party, or (ii) any internal fees and expenses of the Indemnitor (including without limitation in-house counsel fees and expenses).

 

(cc)   “Market Segment” means the manufacture of products substantially similar to the Company Products for the residential remodeling, new residential construction and light commercial construction markets.

 

(dd)   “Marks” means proprietary indicia, trademarks, service marks, trade names, trade dress, symbols, logos and/or brand names protected under Law that are owned by the Company or used in the operation of Business.

 

(ee)   “Material Adverse Effect”  means one or more facts, events or sets of circumstances that have had or would reasonably be expected to have, individually or in the aggregate, a material and adverse effect on the business, assets, properties, condition (financial or otherwise) or results of operation of the Company taken as a whole; provided , however , that the following shall not be taken into account in determining whether there has been or would reasonably be expected to be a “Material Adverse Effect”: (i) any adverse changes or developments in the United States economy generally; (ii) any adverse changes or developments affecting the Market Segment generally; (iii) any adverse changes or developments in any Law that are not specifically directed at the Company or its assets, properties and rights; (iv) any adverse changes or developments that are attributable to seasonal fluctuations in the Business; and (v) except for purposes of Section 4.04 , any adverse changes or developments arising primarily out of, or resulting primarily from, actions taken by any party in connection with (but not in breach of) this Agreement and the transactions contemplated hereunder, or which are primarily attributable to the announcement of this Agreement and the transactions contemplated hereby or the identity of Purchaser (including any litigation, employee attrition, any loss or postponement of business resulting from the termination or modification of any vendor, customer or other business relationships, any delay of customer orders or otherwise).

(ff)   “Patents” means all Letters Patent and all filed or pending applications for Letters Patent, including any reissue, reexamination, division, continuation or continuation-in-part applications throughout the world that are owned by the Company or used in the operation of the Business.

 

(gg)   “Permitted Exceptions” means (i) those exceptions to title to the Company Assets listed in Section 4.06 of the Disclosure Letter; (ii) statutory liens securing all or a portion of the purchase price of an asset of the Business which arose in connection with the purchase of an asset of the Business after the date of the June 30, 2006 Balance Sheet in the ordinary course of the Business consistent with past practice; (iii) carriers’, warehousemens’, mechanics’ and materialsmens’ and other similar liens arising in the ordinary course of the Business consistent with past practice for sums not yet due and payable or the validity of which is being contested in good faith by appropriate proceedings and for which adequate reserves have been established in accordance with GAAP; (iv) Encumbrances for Taxes, assessments and other governmental charges that are not yet due and payable or that may thereafter be paid without penalty or that are being contested in good faith by appropriate proceedings and for which adequate reserves have been established in accordance with GAAP; (v) Encumbrances disclosed in the Financial Statements; and (vi) other Encumbrances that are not material in amount or do not materially detract from the value of or materially impair the continued use of the property affected by such Encumbrance for the Business; provided , that none of the foregoing types of Encumbrances in clauses (i) - (iv) above secure any obligations in respect of any Indebtedness of the Company.

 

(hh)   “Permitted Real Property Encumbrances” means (i) easements, covenants, rights-of-way and other encumbrances or restrictions of record in existence on the date hereof, (ii) zoning, building and other similar restrictions, (iii) unrecorded easements, covenants, rights-of-way or other restrictions, (iv) all exceptions, restrictions, easements, rights of way and encumbrances identified in the Commitments, and (v) non-monetary Encumbrances that have been placed by any developer, landlord or other Person (other than Seller or the Company) on real property over which the Company has easement rights; provided , that in the case of clause (iii), none of the foregoing, individually or in the aggregate, materially adversely affect the value of or continued use of the property to which they relate in the conduct of the business currently conducted thereon.

 

(ii)   “Person” means any individual, corporation, partnership, limited liability company, joint venture, trust, business association or other entity, including any Governmental Entity.

 

(jj)   “Personal Property” means all furniture, fixtures, machinery, equipment, vehicles (including cars, tractors, trailers, vans and all other transportation rolling stock) and other items of tangible personal property located on the premises of the Real Property or otherwise used principally for the benefit of the Company or the Business.

 

(kk)   “ Post-Closing Tax Periods ” means taxable periods beginning after the Closing Date and the portion beginning immediately after the Closing Date of any taxable period that includes but does not end on the Closing Date.

 

(ll)   “ Pre-Closing Tax Periods ” means taxable periods ending on or before the Closing Date and the portion ending on (and including) the Closing Date of any taxable period that includes but does not end on the Closing Date.

 

(mm)   [Intentionally omitted.]

 

(nn)   “Representatives” means, with respect to any Person, any and all directors, officers, employees, consultants, financial advisors, counsel, accountants and other agents of such Person.

 

(oo)   “Return” or “Returns” means all returns, declarations, reports, claims for refund, elections, disclosures, estimates, information reports or returns, statements, and other documents required to be filed with a Taxing Authority in respect of Taxes including any schedule or attachments thereto or amendments thereof.

 

(pp)   “Seller Computer Hardware” means any computer hardware, equipment and peripherals of any kind and of any platform, including desktop and laptop personal computers, handheld computerized devices, mid-range and mainframe computers, process control and distributed control systems, and network telecommunications equipment related to or used in connection with the businesses of Seller or any of its Affiliates, and which is not solely or principally related to or used in connection with the Business.

 

(qq)   “Seller Data” means all electronically stored information and data, whether contained in a database or otherwise, which (i) is related to the businesses of Seller or any of its Affiliates other than the Business or (ii) is related to the Business but is not physically or logically separate from information and data related to Seller’s businesses or its Affiliates other than the Business. Notwithstanding the foregoing, with respect to clause (ii), all such data which relates to the Business shall be deemed to be a Company Asset and not an Excluded Asset; provided , that Seller shall be under no obligation to purge such data from its records or systems and Seller shall be permitted access to such data for reasonable use, such as the preparation of tax filings.

 

(rr)   “Seller Owned Software” means Computer Software created by or on behalf of Seller or any of its Affiliates and owned by Seller or any of its Affiliates other than the Company.

 

(ss)   “Target Working Capital” means approximately $60,950,000. Section 1.01(xx) of the Disclosure Letter sets forth a sample calculation of the Target Working Capital and the parties agree that the Closing Working Capital will be calculated in a manner consistent with such schedule.

 

(tt)   “Tax” or “Taxes” means all Federal, state, local, foreign or other governmental taxes, assessments, duties, fees, levies or similar charges of any kind, including all income, receipts, ad valorem, transfer, license, lease, service, service use, severance, stamp, occupation, premium, property, windfall profits, customs, duties, profit, franchise, excise, property, use, intangibles, sales, payroll, employment, withholding, environmental and other taxes, fees, like assessments or charges of any kind whatsoever and including all interest, penalties, additions to tax or additional amounts imposed with respect to such amounts by a Taxing Authority, whether disputed or not and including any obligations to indemnify or otherwise assume or succeed to the tax liability of any other person.

 

(uu)   “Taxing Authority” means the IRS and any other domestic or foreign Governmental Entity responsible for the administration and/or collection of any Tax.

 

(vv)   “Transaction Documents” means the Support Services Agreement, the Warranty Claims Indemnity Agreement and the Trademark License Agreement.

 

 

 

 

 

ARTICLE 2

PURCHASE AND SALE

 

Section 2.01 Purchase and Sale of the Shares. Subject to the terms and conditions set forth in this Agreement, on the Closing Date, Seller hereby agrees to transfer, sell and convey the Shares to Purchaser, and Purchaser hereby agrees to purchase the Shares from Seller for the consideration specified in this Agreement. Notwithstanding anything to the contrary contained herein, neither Purchaser nor any of its Affiliates (including the Company after the Closing) will purchase, assume or be bound by, or be obligated or responsible for, any Excluded Asset or Excluded Liability.

 

Section 2.02 Purchase Price. As consideration for the sale of the Shares to Purchaser, Purchaser shall pay to Seller US$305,000,000 plus or minus any amount owed to Seller or required to be refunded to Purchaser pursuant to Section 3.02(c) . This sum is the “Purchase Price”.

 

Section 2.03 Payment of the Purchase Price. Purchaser shall pay US$305,000,000 to Seller in cash on the Closing Date. Purchaser shall transfer to a bank specified by Seller by wire transfer of immediately available funds no later than 1:00 (one o’clock) in the afternoon (New York City Time) the amount of US$305,000,000. Any adjustment to the Purchase Price will be paid in accordance with Section 3.02(c) .

 

Section 2.04 Conveyance of Excluded Assets and Excluded Liabilities. Immediately prior to the Closing, Seller shall cause at Seller’s expense the Company to sell, assign, transfer and convey to Seller or one or more of its Affiliates (other than the Company), and Seller and such Affiliates shall accept the sale, assignment, transfer and conveyance of, for no consideration, the Excluded Assets and to deliver to Seller or such Affiliates appropriately executed instruments of sale, assignments, transfers, tax declarations, and other instruments of conveyance that are necessary or desirable to effect transfer to Seller or such Affiliates of good and marketable title to the Excluded Assets, including a bill of sale in form and substance reasonably satisfactory to Seller. Immediately prior to the Closing, Seller shall cause the Company to assign to Seller or one or more of its Affiliates, and Seller and such Affiliates shall assume or otherwise agree to perform and discharge when due, for no consideration, all of the Excluded Liabilities and to deliver to the Company appropriately executed instruments of assignment, in form and substance reasonably satisfactory to Purchaser, together with such other assignment, transfer, tax declarations and other instruments of conveyance that are necessary or desirable to effect transfer of the Excluded Liabilities to Seller or it Affiliates.

 

 

ARTICLE 3

ADJUSTMENTS TO PURCHASE PRICE

 

Section 3.01 Preparation of Closing Date Balance Sheet, Closing Working Capital Statement and Section 481 Inventory Adjustment. Within sixty (60) days following the Closing Date, Purchaser shall prepare, or cause to be prepared, and deliver to Seller (a) the Closing Date Balance Sheet, (b) based on the Closing Date Balance Sheet, a statement (the “Closing Working Capital Statement”) which shall set forth an itemized calculation of the Working Capital of the Company as of the close of business on the Closing Date (or, if the Closing Date does not occur on the Targeted Closing Date, the Targeted Closing Date) (the “Closing Working Capital”) and (c) the amount of the Section 481 Inventory Adjustment (as defined in Section 8.06(k) ). Closing Working Capital shall be calculated in the same manner as the parties calculated the Target Working Capital in accordance with Section 1.01(xx) of the Disclosure Letter, except that Closing Working Capital shall be calculated as of the close of business on the Closing Date (or, if the Closing Date does not occur on the Targeted Closing Date, the Targeted Closing Date). The Closing Date Balance Sheet and Closing Working Capital Statement shall be prepared in accordance with the Basis of Financial Statement Presentation set forth in Section 3.01 of the Disclosure Letter. Notwithstanding the foregoing, Excluded Assets and Excluded Liabilities will not be taken into account for purposes of preparing the Closing Balance Sheet and Closing Working Capital Statement.

 

Section 3.02 Adjustments to Closing Date Balance Sheet.

 

(a)   Seller and its accountants shall have thirty (30) days after the delivery of the Closing Working Capital Statement and Section 481 Inventory Adjustment to review the Closing Working Capital and Section 481 Inventory Adjustment. In reviewing the Closing Working Capital Statement and Section 481 Inventory Adjustment (and response to the Objection by Purchaser, if applicable), Seller and its accountants shall have reasonable access to the work papers of Purchaser and its accountants (subject to the reviewing parties executing any necessary waivers or indemnifications required by Purchaser’s accountants) as well as the accountants, finance personnel and other books and records of Purchaser relevant to the review of the Closing Working Capital Statement and Section 481 Inventory Adjustment. If Seller reasonably determines that the Closing Working Capital Statement and/or the Section 481 Inventory Adjustment have not been prepared in the manner set forth in Section 3.01 of the Disclosure Letter for the Closing Working Capital Statement or Section 8.06(k) for the Section 481 Inventory Adjustment, Seller shall inform Purchaser in writing (an “Objection”), setting forth a specific description of the basis of the Objection and the adjustments to the amount of the Closing Working Capital or change in the Section 481 Inventory Adjustment that Seller believes should be made, which Objection must be delivered to Purchaser on or before the last day of such 30-day period. Purchaser shall then have thirty (30) days to review and respond to the Objection. The parties shall attempt in good faith to reach an agreement with respect to any matters in dispute. If the parties are unable to resolve all of their disagreements with respect to the determination of the foregoing items within thirty (30) days following the delivery of Purchaser’s response to the Objection, they shall refer their remaining differences to a nationally recognized independent public accounting firm as mutually agreed to by the parties (the “CPA Firm”), which shall, acting as experts and not as arbitrators, determine in accordance with this Agreement, and only with respect to the remaining differences so submitted, whether and to what extent, if any, the Closing Working Capital or change in the Section 481 Inventory Adjustment requires adjustment. Each party shall submit to the CPA Firm its position with respect to the adjustments to the amount of the Closing Working Capital and/or the change in the Section 481 Inventory Adjustment, as applicable. The parties shall direct the CPA Firm to use its best efforts to render its determination within thirty (30) days after such submission. The CPA Firm’s determination shall be conclusive and binding upon Purchaser and Seller. Seller shall pay a portion of the fees and disbursements of the CPA Firm equal to 100% multiplied by a fraction the numerator of which is the dollar amount of the Objections submitted to the CPA Firm that are resolved in favor of Purchaser (that being the difference between the CPA Firm’s determination and Seller’s determination) and the denominator of which is the total amount of Objections submitted to the CPA Firm (that being the sum total by which Purchaser’s determination and Seller’s determination differ from the determination of the CPA Firm). Purchaser shall pay that portion of the fees and disbursements of the CPA Firm that Seller is not required to pay hereunder. Purchaser and Seller shall make readily available to the CPA Firm all relevant books and records and any work papers (including those of the parties’ respective accountants (subject to the CPA Firm executing any such waivers or indemnifications required by the parties’ accountants)) relating to the Closing Working Capital Statement and all other items reasonably requested by the CPA Firm. The “Final Working Capital Statement” shall be deemed to be (i) the Closing Working Capital Statement if no Objection is delivered by Seller with respect thereto during the thirty-day period specified above, or (ii) if an Objection is delivered by Seller with respect thereto within the 30-day period following delivery of the Closing Balance Sheet by Purchaser to Seller, the Closing Working Capital Statement, as adjusted by either (A) the agreement of the parties or (B) the CPA Firm; and the “Final Section 481 Inventory Adjustment” shall be deemed to be (i) the Section 481 Inventory Adjustment as determined by Purchaser if no Objection is delivered by Seller with respect thereto during the thirty-day period specified above, or (ii) if an Objection is delivered by Seller with respect thereto within the 30-day period following delivery of the Closing Balance Sheet by Purchaser to Seller, the Section 481 Inventory Adjustment, as adjusted by either (A) the agreement of the parties or (B) the CPA Firm.

(b)   In reviewing any Objection, Purchaser and its accountants shall have access to the work papers of Seller and its accountants (subject to the reviewing party executing any necessary waivers or indemnifications required by Seller’s accountants).

(c)   If the Closing Working Capital as reflected on the Final Working Capital Statement is less than the Target Working Capital, then the Purchase Price will be decreased by the shortfall in the Closing Working Capital on a dollar-for-dollar basis and, within ten (10) Business Days following the date on which the Closing Working Capital Statement is deemed to be the Final Working Capital Statement, Seller shall make payment in immediately available funds to Purchaser equal to such shortfall. If the Closing Working Capital as reflected on the Final Working Capital Statement is more than the Target Working Capital, then the Purchase Price will be increased by such excess of the Closing Working Capital on a dollar-for-dollar basis and, within ten (10) Business Days following the date on which the Closing Working Capital Statement is deemed to be the Final Working Capital Statement, Purchaser shall make payment in immediately available funds to Seller equal to such excess.

(d)   The parties agree that any obligations that will be paid by Seller or its Affiliates (other than the Company), including any obligations specifically retained by Seller or its Affiliates (other than the Company) under the terms of this Agreement, shall be excluded from the Closing Date Balance Sheet, the Closing Working Capital Statement and the Final Working Capital Statement, and shall therefore be excluded from the determination of Closing Working Capital.

 

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF SELLER

 

Seller hereby makes the following representations and warranties to Purchaser:

 

Section 4.01 Seller’s Authority; Consents and Approval . Seller is a corporation duly organized, validly existing and in good standing under the Laws of the State of Delaware and has full corporate power and authority to carry on its business as currently conducted and to own the Shares. Seller and Alcoa have full corporate power and authority to enter into this Agreement and the Transaction Documents and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance of this Agreement and each of the Transaction Documents to which Seller and Alcoa is or will be a party and the consummation of the transactions contemplated hereby and thereby have been duly and validly authorized by Seller and Alcoa and no other corporate proceedings on the part of Seller or Alcoa is necessary to authorize this Agreement or the Transaction Documents or to consummate the transactions contemplated hereby and thereby. This Agreement has been, and the Transaction Documents will be at the Closing, duly and validly executed and delivered by Seller and Alcoa and constitutes, or will constitute at the Closing, legal, valid, binding and enforceable agreements of Seller and Alcoa, enforceable against each in accordance with their terms, except as limited (a) by applicable bankruptcy, insolvency, reorganization, moratorium or other similar Law affecting creditors’ rights generally, and (b) by general principles of equity (regardless of whether enforcement is sought in equity or at law). Subject to Section 4.04(b) and except as otherwise set forth in Section 4.01 of the Disclosure Letter, no further action, approvals or consents are necessary from any third persons, Governmental Entities or otherwise, to make this Agreement and such Transaction Documents valid and binding upon and enforceable in accordance with their respective terms, or to enable Seller and Alcoa to perform this Agreement and such Transaction Documents and the transactions contemplated thereby.

 

Section 4.02 Organization and Good Standing of the Company. The Company is a corporation duly organized, validly existing and in good standing under the Laws of the State of Ohio and has full corporate power and authority to carry on its business as currently conducted and to own or lease and to operate the properties and assets that it now owns or leases. The Company is duly qualified and in good standing as a foreign corporation in each jurisdiction where the current nature of its business or the ownership or leasing of its properties and assets requires such qualification, except where failure to so qualify or be in good standing would not have a Material Adverse Effect. The certificate of incorporation and by-laws of the Company (as amended) have heretofore been made available to Purchaser and are in full force and effect and the Company is not in violation of any provision thereof. The minute books of the Company have heretofore been made available to Purchaser and accurately reflect in all material respects all transactions and discussions referred to in such minutes and consents in lieu of meetings. The stock books of the Company have been made available Purchaser and are true and complete.

 

Section 4.03 Capitalization; Title to Shares.

 

(a)   Capital Shares . The capital stock of the Company consists solely of 500 shares of common stock, par value of $100 per share, of which 275 shares are issued and outstanding, and 250 shares of preferred stock, par value of $100 per share, of which 0 shares are issued and outstanding (collectively, the “Shares”). All of the issued and outstanding Shares are duly authorized, validly issued and outstanding, fully paid and non-assessable. The Shares have been issued, and will be transferred to Purchaser, in compliance with any preemptive rights or rights of first refusal of any Person and all applicable Laws. There are no outstanding subscriptions, options, warrants, calls, preemptive rights or rights of any kind to purchase or otherwise acquire, and no securities convertible into or exchangeable for, capital stock or other securities of the Company and there is no commitment or agreement to grant any such right of security. There are no bonds, debentures, notes or other indebtedness of the Company having the right to vote or convertible into, or exchangeable for, securities having the right to vote on any matters on which shareholders of the Company are required to vote.

(b)   Title to Shares . Seller is the owner, beneficially and of record, of all of the Shares. All of the Shares are free and clear of all Encumbrances. Upon delivery to Purchaser of the stock certificates representing the Shares and payment for the Shares at the Closing as provided in this Agreement, Seller will convey to Purchaser good and valid title to the Shares, free and clear of any Encumbrance, other than those created by Purchaser.

(c)   No Subsidiaries or Investments . The Company does not own, directly or indirectly, any capital stock of or other equity or voting interests in any corporation, limited liability company, partnership, joint venture, association or other entity.

 

Section 4.04 Consents and Approvals; No Violation. Neither the execution, delivery or performance by Seller, Alcoa or the Company of this Agreement or the Transaction Documents nor the consummation by Seller, Alcoa or the Company of the transactions contemplated hereby or thereby will:

 

(a)   conflict with or result in any breach of any provision of the articles or certificates of incorporation or by-laws or comparable charter or organizational documents of Seller, Alcoa or the Company;

(b)   require any consent, approval, authorization or permit of, or filing with or notification to, any Governmental Entity, except (A) in connection with the applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), (B) in connection with any state or local tax which is attribut-able to the beneficial ownership of the Company’s real property (collectively, the “Gains Taxes”) set forth in Section 4.04(b)(B) of the Disclosure Letter, (C) such filings and consents as may be required under any Applicable Environmental Law pertaining to any notification, disclosure or required approval triggered by the transactions contemplated by this Agreement set forth in Section 4.04(b)(C) of the Disclosure Letter, and (D) such filings, consents, approvals, orders, registrations and declarations as may be required under the merger notification or foreign investment Laws of any foreign country in which Seller or the Company conducts any business or owns any assets set forth in Section 4.04(b)(D) of the Disclosure Letter;

(c)   except as set forth in Section 4.04(c) of the Disclosure Letter, result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of consent, termination, amendment, modification, cancellation or acceleration or Encumbrance or loss of a material benefit) under any of the terms, conditions or provisions of any Material Contract to which Alcoa is a party or any Material Contract, except in any such case where requisite waivers or consents have been obtained; or

(d)   assuming the consents, approvals, authorizations or permits and filings or notifications referred to in this Section 4.04 are duly and timely obtained or made, violate in any material respect any Law applicable to Seller or the Company, to any of their respective properties or assets (including the Shares).

 

Section 4.05   Intellectual Property.

 

(a)   (i)   Section 4.05(a)(i) of the Disclosure Letter sets forth a true and complete list of all Marks owned by the Company, indicating the owner of such Marks, and all applications, registrations and grants with respect thereto (collectively, the “Company Marks”).

(ii)   Section 4.05(a)(ii) of the Disclosure Letter sets forth a true and complete list of all Patents and copyright registrations or applications owned by the Company, indicating the owner of such Patents and copyrights, and all applications, registrations and grants with respect thereto (collectively, the “Company Patents and Copyrights”).

(iii)   Section 4.05(a)(iii) of the Disclosure Letter sets forth a true and complete list of all domain names owned by and registered to the Company.

(iv)   Section 4.05(a)(iv) of the Disclosure Letter sets forth a true and complete list of all Marks owned by any third party(ies) that are licensed to the Company and material to the Business, indicating the licensor of such Marks (the “Third Party Marks”).

(v)   Section 4.05(a)(v) of the Disclosure Letter sets forth a true and complete list of all Patents owned by any third party(ies) that are licensed to the Company and material to the Business, indicating the licensor of such Patents (the “Third Party Patents”).

(vi)   Section 4.05(a)(vi) of the Disclosure Letter sets forth a true and complete list of all Marks and Patents owned by Seller or an Affiliate of Seller (other than the Company) which are used by the Company in the Business, indicating the owner of such Marks and Patents (collectively, the “Seller Intellectual Property”).

(b)   Section 4.05(b) of the Disclosure Letter sets forth a true and complete list of the Seller Owned Software and Licensed Software necessary and material to the operation of the Business other than subscription based services utilizing Computer Software (e.g., anti-virus, anti-spam, filtering, Internet Services) that are commercially available under non-discriminatory pricing terms and acquired on a retail basis and used solely on the desktop personal computers of the Company. Subject to the terms of the applicable Intellectual Property Contract for such software, the Company has the valid right to use the Seller Owned Software and Licensed Software; provided , however , that subject to Section 8.02 and the Support Services Agreement, Seller does not make any representation or warranty that the Seller Owned Software and Licensed Software (other than Licensed Software of the Company) identified in Section 4.05(b) of the Disclosure Letter, or any reasonable substitute thereof will be delivered with the Company or to Purchaser on or after the Closing Date. The Seller Owned Software and, to the best of Seller’s knowledge the Licensed Software, perform substantially in conformance with its documentation and is free from any bugs, viruses, malicious code or other defect which would materially affect the Business; provided , however , that Seller shall not be in breach of the foregoing with respect to defects and bugs corrected by updates and fixes supplied by the licensor of Licensed Software from time to time. The Company is in compliance with each material Intellectual Property Contract to which it is a party, and subject to this Section 4.05(b) and Section 8.02 , each such Intellectual Property Contract shall remain in full force and effect following the consummation of the transactions contemplated herein.

(c)   Other than as set forth in Section 4.05(c) of the Disclosure Letter, the Company owns or has the right to use all material Intellectual Property used in connection with the Business (the “Company Intellectual Property”), none of the Intellectual Property owned by the Company is subject to an Encumbrance other than non-exclusive licenses, and no Encumbrance materially interferes with the Company’s use of any Intellectual Property owned by any third party.

(d)   To the best knowledge of Seller, the Company Marks, the Company Patents and Copyrights, the Seller Intellectual Property and the material trade secrets of the Company are valid and enforceable and has not been cancelled, forfeited, expired or abandoned except as provided in Section 4.05(d) of the Disclosure Letter.

(e)   Except as set forth in Section 4.09 of the Disclosure Letter, there are no Claims which relate to the conduct of the Business pending, instituted, threatened or asserted in writing against Seller or Company alleging any violation or infringement by Seller or any of its Affiliates (including the Company) of any intellectual property rights of any third party, and, to the best knowledge of Seller, the conduct of the Business has not in the past three (3) years and does not infringe or otherwise violate the Intellectual Property rights of any third party.

(f)   Except as set forth in Section 4.05(f) of the Disclosure Letter, there are no Claims which relate to the conduct of the Business pending, and none have been served, instituted or asserted by Seller or Company or any of their Affiliates, in which Seller, Company or any of their Affiliates allege that any third party is infringing upon, or otherwise violating, any Company Intellectual Property or Seller Intellectual Property, and to the best of Seller’s knowledge, no person is infringing upon or otherwise violating any rights of the Company with regard to Company Intellectual Property.

(g)   The Company has put forth reasonable commercial efforts to maintain and protect each item of Company Intellectual Property owned or purported to be owned by the Company, including taking reasonable or necessary actions and precautions to protect the value of such Company Intellectual Property.

(h)   Except as set forth in Section 4.09 of the Disclosure Letter and as set forth in Section 4.05(b) , after the consummation of the transactions contemplated by this Agreement and the Transaction Documents, the Company will own or have the right to use the Company Intellectual Property on identical terms and conditions as the Company enjoyed immediately prior to such transactions or otherwise subject to the Trademark License Agreement or the Support Services Agreement.

(i)   The Company has not collected, received or used any information, including non-public financial information, from customers and other parties (“Customer Information”) in an unlawful manner or in violation of any applicable privacy policies. The Company has reasonable and appropriate security measures and safeguards in place to protect the Customer Information it receives from illegal or unauthorized access or use by its personnel or third parties or access or use by its personnel or third parties in a manner violative of any Laws, its privacy policies or the privacy rights of third parties. To the best knowledge of Seller, no Person has gained unauthorized access to or made any unauthorized use of any Customer Information. Subject to Section 4.05(i) of the Disclosure Letter, the consummation of the transactions contemplated herein will not violate the privacy policy of the Company as it currently exists or as it existed at any time during which any of the Customer Information was collected or obtained.

 

Section 4.06 Title to Company Personal Property. Subject to the Permitted Exceptions and except as set forth in Section 4.06 of the Disclosure Letter, the Company owns outright and has good, valid and marketable title to, or, in the case of leased assets, has a valid leasehold interest in, all Personal Property owned or used by the Company, including the assets reflected in the June 30, 2006 Balance Sheet (but excluding Personal Property disposed of in the ordinary course of business since June 30, 2006). Subject to ordinary wear and tear and the continuing performance of ordinary maintenance (including such maintenance as is recommended by the manufacturer of Personal Property), the Personal Property currently being used in the Business is free from material defects and is in satisfactory operating condition and repair. Subject to the terms and conditions of the Transaction Documents, and the exceptions and conditions set forth in Sections 4.05(b) , 8.02 and 8.03 , the Company Assets constitute all of the assets and properties owned, leased, used or licensed by the Company and are sufficient for the continued conduct and operation of the Business after the Closing in the same manner as conducted and operated prior to the Closing Date.

 

Section 4.07 Real Property.

 

(a)   Section 4.07(a) of the Disclosure Letter sets forth a true and complete list of all real property that is owned by the Company (individually, an “Owned Property”). All improvements on the Owned Property have been maintained in accordance with the Company’s usual business practices, and to the best of Seller’s knowledge there exist no patent defects with respect to said improvements. To the best of Seller’s knowledge, none of the Owned Property or any current use thereof violates any applicable building, zoning or other land-use Laws. Seller has, at its sole cost and expense, caused Stewart Title Insurance Company (the “Title Company”) to issue its commitments for an owner’s fee policy of title insurance on the Owned Property and has furnished a copy to Purchaser (the “Commitments”). As of the Closing Date, the Owned Property will be owned by the Company free and clear of all Encumbrances, excepting only the Permitted Real Property Encumbrances.

(b)   Section 4.07(b) of the Disclosure Letter sets forth a true and complete list of all leases of real property that will be leased to the Company or leased by the Company to any third party (the “Leased Property”). Where the Company is a lessee of Leased Property, it is or on the Closing Date will be in possession of the Leased Property purported to be leased thereunder (with the exception of any lease set forth in Section 4.07(b) of the Disclosure Letter which by its own terms provides that the lease term will expire before the Closing Date, or which has a term that runs month-to-month). Where the Company is a lessor of Leased Property, it is or on the Closing Date will be the lessor of the Leased Property specified therein. Each Leased Property is leased pursuant to a lease (a “Lease”) that is in full force and effect and is enforceable against the Company and, to the best of Seller’s knowledge, the other party or parties thereto, except as limited (a) by applicable bankruptcy, insolvency, reorganization, moratorium or other similar Law affecting creditors’ rights generally, and (b) by general principles of equity (regardless of whether enforcement is sought in equity or at law). Except as set forth in Section 4.07(b) of the Disclosure Letter, true and complete copies of each Lease (including each amendment, supplement or other modification thereto) have been made available to Purchaser. The Company is not (with or without the lapse of time or the giving of notice, or both) in breach or default in any material respect under any Lease. To the best of Seller’s knowledge, none of the other parties to any Lease is (with or without the lapse of time or the giving of notice, or both) in breach or default in any material respect thereunder. The Company has not received any written notice of the intention of any party to terminate prematurely any Lease, whether as a termination for convenience or for default of the Company thereunder.

(c)   Except as disclosed as Section 4.07(c) of the Disclosure Letter, the Owned Property and Leased Property consists of all real property owned or leased by the Company (the Owned Property and Leased Property will be referred to collectively herein as the “Real Property”).

(d)   None of the Owned Property is subject to a pending condemnation, expropriation, eminent domain or similar proceeding and, to the best of Seller’s knowledge, no such proceeding is pending against the Leased Property.

 

Section 4.08 Labor Matters. Except as set forth in Section 4.08 of the Disclosure Letter, the Company is not subject to any (i) collective bargaining or other labor agreement relating to the Business to which Seller or the Company is a party, or by which either is bound; or (ii) employment, retainer, or consulting agreement that gives rise to any payment obligation in excess of $50,000 thereunder to any of the employees of the Business to which the Company is a party, or by which it is bound. Since the date that is three (3) years prior to the Closing Date, the Company has not committed any material unfair labor practice with respect to the Business.

 

 

Section 4.10 Legal Compliance . Except as set forth in Section 4.10 of the Disclosure Letter and as otherwise set forth in this Section 4.10 , as it pertains to the Business, the Company and the Company Assets, (a) Seller and each of its Affiliates (including the Company) are and during the past three years have been in compliance in all material respects with all Laws, and (b) the Company possesses all requisite governmental franchises, licenses, permits, authorizations, registrations, permanent certificates of occupancy, certificates, approvals and consents (“Permits”) to carry on the Business as it is now being conducted and Company is not and has not been in the past three years in violation of or in default under any such Permit. Notwithstanding the foregoing, this Section 4.10 does not apply to Labor Matters (for which Section 4.08 is applicable), Tax Matters (for which Section 4.11 is applicable), Employee Benefits Matters (for which Section 4.14 applicable) or Environmental Matters (for which Section 4.15 is applicable.)

 

Section 4.11 Tax Matters .

 

(a)   Filing of Returns . Seller and the Company have each properly completed and filed on a timely basis all Returns required to be filed on or prior to the date hereof with respect to the Company, and all such Returns (including information provided therewith or with respect to thereto) are true, complete and correct in all material respects.

(b)   Payment of Taxes . The Company has fully and timely paid all Taxes due as of the Closing Date.

(c)   Audit History . Except to the extent shown on the Section 4.11 of the Disclosure Letter, no audit or other proceeding by any Taxing Authority is pending or threatened with respect to any Taxes due from or with respect to the Company, no Taxing Authority has given notice asserting any deficiency or claim for additional Taxes against the Company, no claim has been made by any Taxing Authority in a jurisdiction where the Company does not file Returns that it is or may be subject to taxation by that jurisdiction, and all deficiencies asserted or assessments made as a result of any examinations have been fully and timely paid, or are fully reflected as a liability in the Financial Statements of the Company, or are being contested in good faith.

(d)   Encumbrances . There are no Encumbrances for Taxes (other than for current Taxes not yet due and payable) on the assets of the Company.

(e)   Parachute Payment . Neither the execution and delivery of this Agreement, shareholder approval of this Agreement or the consummation of the transactions contemplated by this Agreement could result, separately or in the aggregate, in the payment of any amount that could, individually or in combination with any other such payment, constitute an “excess parachute payments” within the meaning of Section 280G of the Code.

(f)   Foreign Person . Neither Seller nor the Company is a person other than a United States person within the meaning of the Code.

(g)   Consolidated Group . The Company has not been a member of any affiliated or consolidated group within the meaning of Section 1504(a) of the Code (other than a group the common parent of which is Alcoa Inc.).

(h)   Extensions or Waivers. Except as set forth in Section  4.11(h) of the Disclosure Letter, there are no outstanding agreements extending or waiving the statutory period of limitations applicable to any claim for, or the period for the collection or assessment or reassessment of, Taxes due from the Company for any taxable period and no request for any such waiver or extension is currently pending.

(i)   Adjustments. There are no adjustments of Taxes of the Company made by the IRS which are required to be reported to any state, local, or foreign Taxing Authorities.

 

Section 4.12 Financial Statements; Undisclosed Liabilities; Indebtedness .

 

(a)   Section 4.12 of the Disclosure Letter sets forth the following financial statements of the Company:

 

(i) the unaudited balance sheet of the Company as of June 30, 2006 (the “June 30, 2006 Balance Sheet”) and the related unaudited statement of income for the six-month period ended June 30, 2006 (collectively, the “Unaudited Financial Statements”). The Unaudited Financial Statements present fairly, in all material respects, the financial position and results of operations of the Company as of the date and for the period set forth therein, as prepared in accordance with the Basis of Financial Statement Presentation consistently applied, which conforms with United States generally accepted accounting principles (“GAAP”) except as set forth in Section 4.12(a) of the Disclosure Letter; and

 

(ii) the audited balance sheets as of December 31, 2005 and 2004, and the related audited statements of income, comprehensive income and enterprise capital and cash flows for each of the three years in the period ended December 31, 2005, which financial statements have been reported on by, and are accompanied by the report of, PricewaterhouseCoopers LLP (collectively, the “Audited Financial Statements”). The Audited Financial Statements have been prepared in accordance with GAAP, consistently applied, and present fairly, in all material respects, except for the qualification relating to the change in accounting principle from last-in, first-out inventory to first-in, first-out inventory, the financial position of the Company as of December 31, 2005 and 2004, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2005.

 

Collectively, the Unaudited Financial Statements and Audited Financial Statements shall be referred to herein as the “Financial Statements.”

 

(b)   The Company has no obligations or liabilities of any kind (whether accrued, absolute, contingent, unliquidated or inchoate or otherwise, or whether due or to become due) (collectively, “Liabilities”) other than those (i) to the extent reflected or disclosed in Audited Financial Statements, (ii) incurred since December 31, 2005 in the ordinary course of the Business consistent with past practice, (iii) that are immaterial to the Company or (iv) that are set forth in Section 4.12(b) of the Disclosure Letter.

(c)   The Company has no outstanding Indebtedness other than (i) Indebtedness incurred under the banking facility set forth in Section 4.12(c) of the Disclosure Letter and (y) Indebtedness to Seller or any of its Affiliates (other than the Company) pursuant to Intercompany Accounts that, in each case, will be cancelled or otherwise settled in full on or prior to the Targeted Closing Date, pursuant to Section 6.09 .

 

Section 4.13 Contracts .

 

(a)   Except for any Contracts excluded as Excluded Assets, the Support Services Agreement, the Trademark License Agreement, and those Contracts identified in Section 4.13 of the Disclosure Letter or Section 4.14(a) of the Disclosure Letter (it being understood that Seller shall be permitted to provide Purchaser with a supplement to Section 4.13 of the Disclosure Letter to reflect entering into, or amendment, supplement or other modification of, any such agreements after the date hereof and prior to the Closing Date in compliance with Section 6.01 ), the Company is not and will not on the Closing Date be a party to nor it nor any of its properties or assets bound by any Contract that is:

(i)   a Contract relating to the employment of any Person or consulting or similar advisory or service arrangements with any Person involving payments to be made or benefits to be provided by the Company with a value in excess of $200,000 in any twelve-month period;

(ii)   a collective bargaining agreement or any other Contract with any labor union or other employee representative of a group of employees relating to wages, hours and other conditions of employment;

(iii)   a Contract with Seller or any of its Affiliates (other than the Company), or any current or former director, officer, or employee of any of the foregoing, or any Affiliate or immediate family member of any such director, officer or employee, that will not be terminated without liability to the Company at or prior to the Closing;

(iv)   other than any of the following involving amounts of less than $25,000, in the aggregate, an indenture, note, loan or credit agreement or other Contract relating to the Indebtedness of the Company or relating to the direct or indirect guarantee or assumption by the Company (contingent or otherwise) of any payment or performance obligations of any other Person;

(v)   a power of attorney (other than powers of attorney given in the ordinary course of the Business consistent with past practice);

(vi)   a Contract which limits the right of the Company to engage in or compete with any Person in any business or in any geographic area or to sell any products or services;

(vii)   a lease or similar agreement under which (A) the Company is lessee of, or holds or uses, any machinery, equipment, vehicle or other Personal Property owned or leased by any third Person for an annual rent in excess of $150,000 or (B) the Company is lessor of, or makes available for use by any third Person, any Personal Property owned (including ownership for Tax purposes) by the Company having a fair market value in excess of $250,000;

(viii)   a mortgage, pledge, security agreement, deed of trust or other document granting an Encumbrance (other than any Permitted Exceptions) upon any Company Assets (including Encumbrances upon properties acquired under conditional sales, capital lease or other title retention or security devices);

(ix)   a joint venture agreement, partnership agreement, or limited liability company agreement or other Contract (however named) involving a sharing of profits or losses with any other Person;

(x)   a Contract that relates to the acquisition or sale by the Company of any operating business or the capital stock or other ownership interest of any other Person and under which the Company has any continuing liability or obligation;

(xi)   a Contract that has an obligation to make advances or loans of money to any other Person;

(xii)   a Contract that restricts the transfer of capital stock of the Company, obligating the Company to issue or repurchase shares of its capital stock, or relating to the voting of stock or the election of directors of the Company;

(xiii)   a Contract for the sale of goods or services by the Company and under which the Company has received or could reasonably be expected to receive payments of more than $100,000 during the 12-month period following the date of this Agreement, other than Contracts entered into by the Company with distributors and agents for the sale of the Company’s goods and services, and sales orders entered into in the ordinary course of the Business consistent with past practices;

(xiv)   a Contract for a capital expenditure by Company of more than $250,000, or which provide for the purchase of goods or services by the Company from any one Person under which the Company has made or would reasonably be expected to make payments of more than $500,000 during the 12-month period following the date of this Agreement, other than purchase orders entered into in the ordinary course of the Business;

(xv)   a Contract involving or would reasonably be expected to involve payments of at least $1,000,000 during the 12-month period following the date of this Agreement and not otherwise disclosed pursuant to this Section 4.13 that contains (A) a “most favored nations” provision binding the Company to provide a third party pricing terms at least as favorable as those received by other similarly situated third parties who have contracted with the Company, (B) exclusive marketing or distribution rights granted by the Company, (C) an agreement to purchase a minimum quantity of goods or services from a third party, or (D) an agreement to provide or purchase goods or services exclusively to or from a third party;

(xvi)   a Contract entered into in connection with any settlement of any legal proceeding (including any actions, suits, arbitrations, proceedings, investigations or claims) involving unfulfilled or pending payments by the Company in excess of $25,000; and

(xvii)   a material Intellectual Property Contract.

 

Each Contract required to be set forth in Section 4.13 of the Disclosure Letter or Section 4.14(a) of the Disclosure Letter is referred to herein as a “Material Contract.”

(b)   True and complete copies of each Material Contract (including each amendment, supplement or other modification thereto) have been made available to Purchaser. Each Material Contract is in full force and effect and is enforceable against the Company and, to the best knowledge of Seller, the other party or parties thereto, except as limited (a) by applicable bankruptcy, insolvency, reorganization, moratorium or other similar Law affecting creditors’ rights generally, and (b) by general principles of equity (regardless of whether enforcement is sought in equity or at law). The Company is not (with or without the lapse of time or the giving of notice, or both) in breach or default in any material respect under any Material Contract. To the best of Seller’s knowledge, none of the other parties to any such Contract is (with or without the lapse of time or the giving of notice, or both) in breach or default in any material respect thereunder. The Company has not received any written notice of the intention of any party to terminate any Material Contract, whether as a termination for convenience or for default of the Company thereunder.

 

Section 4.14 Employee Benefits .

 

(a)   Section 4.14(a) of the Disclosure Letter lists each pension, profit-sharing, savings, retirement, employment, consulting, severance pay, termination, executive compensation, incentive compensation, deferred compensation, bonus, stock purchase, stock option, phantom stock or other equity-based compensation, change-in-control, retention, salary continuation, vacation, sick leave, disability, death benefit, group insurance, hospitalization, medical, dental, life (including all individual life insurance policies as to which the Company or any of its subsidiaries is the owner, the beneficiary or both), Code Section 125 “cafeteria” or “flexible” benefit, employee loan, educational assistance or fringe benefit plan, program, policy, practice, agreement or arrangement, whether written or oral, formal or informal, including, without limitation, (i) each Employee Welfare Benefit Plan (as defined in section 3(1) of ERISA) or Employee Pension Benefit Plan (as defined in section 3(2) of ERISA) , but not including any multiemployer plan within the meaning of Section 3(37) or Section 4001(a)(3) of ERISA (a “Multiemployer Plan”), and (ii) other employee benefit plan, program, policy, practice, agreement or arrangement, whether or not subject to ERISA (and any funding mechanism therefor now in effect or required in the future as a result of the transactions contemplated by this Agreement or otherwise) that the Company maintains or sponsors or to which it contributes or in which its Employees participate or have any present or future right to benefits (individually, each an “Employee Benefit Plan” and collectively “Employee Benefit Plans”).

 

(i)   Each Employee Benefit Plan (and each related trust, insurance contract, or fund) has been administered in accordance with its terms and complies in form and in operation in all material respects with the applicable requirements of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), the Code and all other Laws.

 

(b)   With respect to each Employee Benefit Plan:

 

(c)   The Company has no obligation to contribute to any Multiemployer Plan or any liability (including withdrawal liability) under any Multiemployer Plan or under any Employee Pension Benefit Plan that is not listed in Section 4.14(a) of the Disclosure Letter.

(d)   With respect to each Employee Benefit Plan, the Company has provided to Purchaser a true, correct and complete copy (or, to the extent no such copy exists, an accurate description) thereof and, to the extent applicable: (i) the most recent documents constituting the Employee Benefit Plan and all amendments thereto; (ii) any related trust agreement or other funding instrument; (iii) the most recent IRS determination or opinion letter, if applicable; (iv) the most recent summary plan description and summary of material modifications; and (v) for the three most recent years (A) Forms 5500 and attached schedules, (B) audited financial statements, and (C) actuarial valuation reports.

(e)   Except as disclosed in Section 4.14(e) of the Disclosure Letter, neither the execution and delivery of this Agreement, shareholder approval of this Agreement or the consummation of the transactions contemplated by this Agreement could (either alone or in combination with another event) result in (i) severance pay or any increase in severance pay upon any termination of employment after the date of this Agreement, (ii) any payment, compensation or benefit becoming due, or increase in the amount of any payment, compensation or benefit due, to any Employee; (iii) the acceleration of the time of payment or vesting or result in any funding (through a grantor trust or otherwise) of compensation or benefits; (iv) any material obligation pursuant to any of the Employee Benefit Plans; or (v) any limitation or restriction on the right of the Company to merge, amend or terminate any of the Employee Benefit Plans.

(f)   None of Seller, the Company nor any of its subsidiaries has any plan, contract or commitment, whether legally binding or not, or has announced (orally or in writing) an intention, to create any additional employee benefit or compensation plans, policies or arrangements applicable to Employees or, except as may be required by applicable law, to modify, suspend or terminate any Employee Benefit Plan.

(g)   None of the Company or any of its subsidiaries has incurred any liability or obligation under the Worker Adjustment and Retraining Notification Act and the regulations promulgated thereunder (the “WARN Act”), or any similar state or local law that remains unsatisfied.

(h)   Except as set forth in Section 4.14(h) of the Disclosure Letter, no Employee Benefit Plan provides, and neither the Company nor any of its subsidiaries has incurred any current or projected liability in respect of, post-employment health, medical, life insurance or death benefits for any current or former employees of the Company or any of its subsidiaries, except as may be required under COBRA, and at the expense of the employee or former employee.

 

Section 4.15 Environmental

 

(a)   Except as set forth in Section 4.15 of the Disclosure Letter, the Company is in compliance in all material respects with all Applicable Environmental Laws and possesses and is in compliance in all material respects with all of the terms and conditions of all permits required pursuant to Applicable Environmental Laws in connection with the conduct of the Business and the ownership and operation of the Real Property (“Environmental Permits”), and each such Environmental Permit is in full force and effect. Except as set forth in Section 4.15 of the Disclosure Letter, there are no Claims pending or, to the best of Seller’s knowledge, threatened against the Company or the Business under any Environmental Permit or Applicable Environmental Law.

(b)   Except as set forth in Section 4.15 of the Disclosure Letter, (i) there have not been any releases of Hazardous Substances on or at the Owned Property or, to the best of Seller’s knowledge, on or at the Leased Property or any other property, that have resulted in, or would otherwise be reasonably likely to form the basis of, a Claim against the Company or the Owned Property, or has required, or would otherwise be likely to require, remediation by the Company pursuant to Applicable Environmental Law, and (ii) no property now or previously owned, operated or leased by the Company is listed on the National Priorities List or, to the best of Seller’s knowledge, on CERCLIS (each promulgated pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended) or any analogous state list.

(c)   Except as set forth in Section 4.15 of the Disclosure Letter, no Encumbrances have arisen under or pursuant to any Applicable Environmental Law on the Owned Property, or to the best of Seller’s knowledge, on the Leased Property.

 

Section 4.16 No Brokers. Except for Lehman Brothers (whose fees will be paid by Seller), no broker, finder or investment banker acting on behalf of the Company or Seller is entitled to any fee, commission or other payment in connection with this Agreement or the transactions contemplated hereby.

 

Section 4.17   Products Liability.

 

(a)   Except as set forth in Section 4.17(a) of the Disclosure Letter, there are not presently pending, or, to the best of Seller’s knowledge, threatened, and since January 1, 2002, there were at no time, any Claims, based on any legal or equitable theory of recovery whatsoever, relating to any alleged defect in design, manufacture, materials or workmanship, including any failure to warn or alleged breach of express or implied warranty, representation or condition involving liability equal to or greater than $100,000 individually relating to any Company Products. For the sake of clarity, the value of any Claim that has been resolved as of the Closing Date, whether by settlement, the final determination of a Governmental Entity or otherwise, shall be the amount actually paid by the Company to dispose of such Claim, and shall not be the amount demanded or claimed to be owed by the Person bringing such Claim.

(b)   Since January 1, 2002, there have not been any product recalls or post-sale warnings by Seller or any of its Affiliates (including the Company) relating to any Company Products.

(c)   There are no statements, citations or decisions by any Governmental Entity to the effect that any Company Product is defective or unsafe or fails to meet any standards promulgated by such Governmental Entity. Except as set forth in Section 4.17(c) of the Disclosure Letter, to the best of Seller’s knowledge, since January 1, 2002, there have been no written internal communications, evaluations or expert analysis received, written or commissioned by Seller or any of its Affiliates or any Representative thereof that identifies any material defect or malfunction in the design, manufacture or operation of any Company Product.

 

Section 4.18   Product Warranties. Company Products sold by Company since January 1, 2002, have been sold subject to written warranties set forth in Section 4.18 of the Disclosure Letter. Except for warranty claims with respect to Company Products made in the ordinary course of the Business and as otherwise set forth in Section 4.18 of the Disclosure Letter, there are no warranty claims with respect to Company Products pending or, to the best of Seller’s knowledge, threatened, and since January 1, 2002, there were at no time product warranty claims pending or, to the best of Seller’s knowledge, threatened, relating to any Company Product. The amount of accrued warranty reflected on the June 30, 2006 Balance Sheet is stated thereon in accordance with GAAP, consistently applied, subject to normal year end adjustments, none of which are expected to be material, and the absence of disclosure normally made in footnotes.

 

Section 4.19   Absence of Certain Changes. Since December 31, 2005, except to the extent contemplated by or in connection with this Agreement, (a) there has not been (i) any Material Adverse Effect or event or occurrence that individually or together with other events or occurrences would reasonably be expected to have a Material Adverse Effect or (ii) any material damage, destruction or loss (whether or not covered by insurance) with respect to any material Company Assets and (b) neither Seller nor any of its Affiliates (including the Company) has taken any action that would, after the date hereof, be prohibited, or omitted to take any action that would, after the date hereof, be required, as the case may be, by Section 6.01 .

 

Section 4.20   Material Suppliers and Customers. Since December 31, 2005, except as set forth in Section 4.20 of the Disclosure Letter, no customer accounting for more than ten percent (10%) of sales, and no supplier accounting for more than ten percent (10%) of purchases, in the fiscal year ended December 31, 2005, has delivered to the Company any written notice which cancelled, materially and adversely modified or otherwise terminated its relationship with the Company nor has any such customer or supplier indicated its intention to do any of the foregoing to the Company.

 

Section 4.21   Related Party Transactions. Except as set forth in Section 4.21 of the Disclosure Letter or pursuant to a Material Contract or the Transaction Documents, neither Seller nor any or its Affiliates (other than the Company) or any employee, officer or director of the Company or any of the foregoing, nor any Affiliate or immediate family member of any such employee, officer or director (each a “Related Party”) (a) owes any amount to the Company, nor does the Company owe any amount to, or has the Company committed to make any loan or extend or guarantee credit to or for the benefit of any Related Party (other than any participant loans under any Employee Benefit Plan and any payments to, and reimbursement of fees and expenses of, employees, directors and officers of the Company in the ordinary course of the Business consistent with past practice), or (b) owns any property or right, tangible or intangible, that is used by the Company or the Business and that has a fair market value in excess of $10,000 or (c) has made any Claim against the Company, other than claims for accrued compensation and for benefits arising in the ordinary course of employment or under any Employee Benefit Plan.

 

Section 4.22   Insurance.   Section 4.22 of the Disclosure Letter contains a true and complete list of all current policies or binders of fire, liability, product liability, umbrella liability, real and personal property, workers’ compensation, vehicular, directors and officer’s liability, fiduciary liability and other casualty and property insurance maintained by Seller or its Affiliates (including the Company) for the benefit of the Business, the Company, or any director or other fiduciary of the Company. Such policies and binders set forth in Section 4.22 of the Disclosure Letter: (a) are valid and binding in accordance with their terms; (b) all premiums that are due and payable with respect thereto for periods ending on or prior to the Closing Date have been or will be prior to the Closing Date fully paid; (c)  have not been subject to any lapse in coverage; and have coverage limits that have not been exhausted or significantly diminished. Seller and its applicable Affiliates (including the Company) have properly and timely notified the providers of such policies and binders set forth in Section 4.22 of the Disclosure Letter of any Claims set forth or required to be set forth in Section 4.09 of the Disclosure Letter. Except as set forth in Section 4.22 of the Disclosure Letter, there are no pending Claims involving, in the aggregate, more than $100,000 in claims or damages related to the Business under any such policies or binders set forth in Section 4.22 of the Disclosure Letter as to which coverage has been questioned, denied or disputed or in respect of which there has been a reservation of rights. None of Seller or any of its Affiliates (including the Company) is in default under, or has otherwise failed to comply with, in any material respect, any provision contained in any such policy or binder set forth in Section 4.22 of the Disclosure Letter.

 

Section 4.23   Accounts Receivable. The accounts receivable reflected on the June 30, 2006 Balance Sheet and accounts receivable arising after the date thereof (a) have arisen from bona fide transactions entered into by the Company involving the sale of inventory or the rendering of a service in the ordinary course of the Business consistent with past practice and (b) subject only to a reserve for bad debts shown on the June 30, 2006 Balance Sheet or, with respect to accounts receivable arising subsequent to June 30, 2006, on the accounting records of the Company, have been computed in a manner consistent with past practice and reasonably estimated to reflect the probable results of collection. The accounts receivable reflected on the June 30, 2006 Balance Sheet are stated thereon in accordance with GAAP, consistently applied, subject to normal year end adjustments and the absence of disclosures normally made in footnotes. There is no material contest, claim or right of set-off, other than returns in the ordinary course of the Business consistent with past practice, under any Contract with any obligor of any accounts receivable relating to the amount or validity of such accounts receivable. No payor of any accounts receivable reflected on the June 30, 2006 Balance Sheet or arising subsequent to the date thereof is a Related Party.

 

Section 4.24   Inventories. The inventories reflected on the June 30, 2006 Balance Sheet are stated thereon in accordance with GAAP, consistently applied, subject to normal year end adjustments and the absence of disclosures normally made in footnotes. All of the inventories of the Company (a) are the property of the Company, free and clear of all Encumbrances other than Permitted Exceptions, and are not held by the Company on consignment from others, and (b) consist of a quality and quantity usable and salable in the ordinary course of the Business consistent with pa