-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AzuCsObbgC3BWqyXUVFaQvvPtrOOhiz3nq+svu4asrpQImNECVOosain3c536WhS b9l0YGf9o8/93qfhd/Ys/w== 0000950129-98-001845.txt : 19980504 0000950129-98-001845.hdr.sgml : 19980504 ACCESSION NUMBER: 0000950129-98-001845 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19980416 ITEM INFORMATION: ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980501 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: KRUG INTERNATIONAL CORP CENTRAL INDEX KEY: 0000096793 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH [8731] IRS NUMBER: 310621189 STATE OF INCORPORATION: OH FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-12607 FILM NUMBER: 98608599 BUSINESS ADDRESS: STREET 1: 1290 HERCULES DR STREET 2: STE 120 CITY: HOUSTON STATE: TX ZIP: 77058 BUSINESS PHONE: 5132249066 MAIL ADDRESS: STREET 1: 1290 HERCULES DR STREET 2: STE 120 CITY: HOUSTON STATE: TX ZIP: 77058 FORMER COMPANY: FORMER CONFORMED NAME: TECHNOLOGY INC DATE OF NAME CHANGE: 19860803 FORMER COMPANY: FORMER CONFORMED NAME: COMANCO INDUSTRIES INC DATE OF NAME CHANGE: 19710719 8-K 1 KRUG INTERNATIONAL CORP. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON D. C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): APRIL 16, 1998 KRUG INTERNATIONAL CORP. ------------------------------------------------------ (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) OHIO 0-2901 31-0621189 - ---------------------------- ----------- ------------------ (STATE OR OTHER JURISDICTION (COMMISSION (I.R.S. EMPLOYER OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.) 1290 HERCULES DRIVE, SUITE 120, HOUSTON, TEXAS 77058 - ---------------------------------------------- ------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (281) 212-1233 ----------------------------------------------------------------- 1 2 ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS On April 16, 1998, KRUG International (UK) Limited ("KRUG UK") , a wholly-owned subsidiary of KRUG International Corp. ("KRUG"), sold all of the shares of capital stock of its United Kingdom leisure marine subsidiary, Sowester Limited ("Sowester"), to Blakedew Ninety Four Limited, a corporation formed by Sowester's management. The purchase price was approximately $15.0 million, comprised of approximately $8.1 million in cash, deferred payments of $0.8 million due within one year and the assumption of approximately $6.1 million of Sowester debt. The consideration received by KRUG UK (which is subject to adjustment based in the audit of Sowester's financial statements for the year ended March 31, 1998) was based on extensive arms length negotiations and KRUG and KRUG UK believes the consideration to be fair and adequate. ITEM 5. OTHER EVENTS On April 16, 1998, the Board of Directors of the Corporation authorized the Corporation to repurchase for cash in the open market up to 200,00 Common Shares of KRUG, approximately 4% of its outstanding shares. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (b) Pro forma financial information - KRUG International Corp. Pro Forma Statement of Earnings for the year ended March 31, 1997 and the nine months ended December 31, 1997, attached hereto as Exhibit 99.1. KRUG International Corp. Pro Forma Balance Sheet as of December 31, 1997, attached hereto as Exhibit 99.2. (c) Exhibits - 10.1 Share Sale and Purchase Agreement between KRUG International (UK) Limited and Blakedew Ninety Four Limited , dated April 16, 1998. 10.2 Deed of Tax Covenant between KRUG International (UK) Limited and Blakedew Ninety Four Limited, dated April 16,1998. 10.3 KRUG International Corp. news release dated April 16, 1998 - "KRUG International Announces Sale of Leisure Marine Subsidiary and Stock Repurchase Program". SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. KRUG International Corp. Date: May 1, 1998 By: /s/ Mark J. Stockslager ------------------------------- Mark J. Stockslager Principal Accounting Officer 2 3 EXHIBIT INDEX
Exhibit Description - ------- ----------- 10.1 Share Sale and Purchase Agreement between KRUG International (UK) Limited and Blakedew Ninety Four Limited, dated April 16, 1998. 10.2 Deed of Tax Covenant between KRUG International (UK) Limited and Blakedew Ninety Four Limited, dated April 16, 1998. 10.3 KRUG International Corp. news release dated April 16, 1998 - "KRUG International Announces Sale of Leisure Marine Subsidiary and Stock Repurchase Program". 99.1 KRUG International Corp. Pro Forma Statement of Earnings for the year ended March 31, 1997 and the nine months ended December 31, 1997. 99.2 KRUG International Corp. Pro Forma Balance Sheet as of December 31, 1997.
EX-10.1 2 SHARE SALE AND PURCHASE AGREEMENT - 4/16/98 1 EXHIBIT 10.1 DATED 16th April 1998 ---------------------------- KRUG INTERNATIONAL (UK) LIMITED - AND - BLAKEDEW NINETY FOUR LIMITED SHARE SALE AND PURCHASE AGREEMENT 2 INDEX TO CLAUSES 1 Interpretation 2 Agreement for Sale of the Sale Shares 3 Purchase Consideration 4 Completion Accounts 5 Adjustments to Purchase Consideration 6 Completion 7 Warranties and Undertakings by the Vendor 8 Retention and Joint Account 9 Pensions 10 Restrictive Covenants 11. Announcements 12. Assignment 13. Costs 14 Time 15. Entire Agreement 16. Continuing Effects of Agreement 17. Variations 18. Releases, Waivers etc by Purchaser 19. Further Assurance, Information 20. Law and Jurisdiction 21. Interest 22. Invalidity 23. Counterparts 24. Notices SCHEDULES 1 The Company 3 2. Warranties 3. Trade Names (Clause 10.2.3) 4. Short Particulars of the Property 5. Pension Arrangements [Not Used] 6. Vendor's Protection Provisions AGREED FORM DOCUMENTS 1. Agreed Form Net Asset Statement 2 Undertaking of KRUG International Corp. (cl.6.2.4) 3 Powers of Attorney (cl. 6.2.9) 4. Loan Notes 5. Escrow Instructions (cl.8.1) 6. Tax Deed 4 THIS AGREEMENT is made on 16th, April 1998 BETWEEN (1) THE "VENDOR" KRUG INTERNATIONAL (UK) LIMITED (registered number: 00516171) whose registered office is at Columbia Centre Market Street, Bracknell, Berkshire RG12 1PA; (2) THE "PURCHASER" BLAKEDEW NINETY FOUR LIMITED (registered number: 3516383) whose registered office is at 6 Stinsford Road, Nuffield Estate, Poole, Dorset BH17 0SW. IT IS AGREED as follows: 1. INTERPRETATION In this Agreement, including its Schedules, unless the context otherwise requires, the following words and expressions have the following meanings: 1.1 Definitions "AGREED FORM" in relation to any document such document in the form agreed between the parties and initialled for the purpose of identification by the parties; "BANKERS" means National Westminster Bank PLC and any other bank or financial institution providing banking facilities to the Company; "BUSINESS DAY" a day, other than a Saturday on which banks are open for the transaction of business in England; "CA" Companies Act 1985 ; "CAA" Capital Allowances Act 1990; "COMPANIES ACTS" CA and the former Companies Acts (within the meaning of CA s 735(1)); THE "COMPANY" Sowester Limited (Registered Number: 00463358) -1- 5 whose registered office is at 6 Stinsford Road, Nuffield Estate, Poole, Dorset BH17 0SW; "COMPANY'S AUDITORS" Deloitte & Touche Stonecutter Court, 1 Stonecutter Street, London EC4A 4TR; "COMPLETION" completion of the sale and purchase of the Sale Shares in accordance with clause 6; "COMPLETION ACCOUNTS" the financial statements of the Company for the period from the Last Accounts Date to 31 March 1998 (each such financial statement comprising a balance sheet and a profit and loss account (in the form specified in Clause 4.3); "COMPLETION DATE" the date of this Agreement; "CONSIDERATION" the total consideration payable by the Purchaser to the Vendor for the Sale Shares being the sum specified in clause 3 (subject to adjustment in accordance with the provisions of Clause 5); "DISCLOSURE LETTER" the disclosure letter of the same date as this Agreement from the Vendor to the Purchaser; "ENVIRONMENT" means the Environment as defined in Section 1(2) of the Environmental Protection Act 1990; "ENVIRONMENTAL LAWS" includes any law or statute of any relevant jurisdiction relating to Environmental Matters and any , rule, regulation, treaty, directive, direction, by-law, code of practice, circular, guidance note, order, notice, demand, injunction or judgment issued, promulgated or approved thereunder or in connection therewith applicable to the Company and/or the business carried on by the Company; "ENVIRONMENTAL means any permit, licence, authorisation, consent LICENCE" -2- 6 or other approval required at the date hereof by the Company or in relation to the business carried on by the Company pursuant to any Environmental Law; "ENVIRONMENTAL includes any of the following: (1) any generation, MATTERS" deposit, disposal, keeping, treatment, transportation, transmission, handling or manufacture of any Hazardous Substances; (2) nuisance, noise, defective premises, health and safety at work or elsewhere; and (3) the pollution, conservation or protection of the Environment whether relating to man or any living organisms supported by the Environment or to natural resources or any other matter whatsoever affecting the Environment or any part of it; "ESCROW ACCOUNT" the interest bearing account to be opened pursuant to clause 8.1; "FA" Finance Act "HAZARDOUS SUBSTANCES" wastes, pollutants, contaminants or other substances (including without limitation liquids, solids, gases, ions, living organisms and noise) that may be harmful to human health or other life or the environment or a nuisance to any person or that may make the use or ownership of any affected land or property more costly; "ICTA" Income and Corporation Taxes Act 1988; "INDEPENDENT CHARTERED ACCOUNTANT" the person appointed pursuant to Clause 4.9; "INTELLECTUAL PROPERTY RIGHTS" includes any patent, patent application, know-how, -3- 7 trade mark, trade mark application, trade name, registered design, copyright, trade secret and other confidential information, design rights, topography rights, service mark, service mark application, business name, moral rights, registrations of and applications to register any of the aforesaid items, rights in the nature of any of the aforesaid items in any country, rights in the nature of unfair competition rights and rights to sue for passing off rights to access databases or other similar intellectual or commercial right; "LAST ACCOUNTS" the audited financial statements of the Company for the accounting reference period which ended on the Last Accounts Date (each such financial statement comprising a balance sheet, profit and loss account, cash flow statement, notes and directors' and auditors' report); "LAST ACCOUNTS DATE" 31st March 1997; "LOAN NOTES" the unsecured interest free loan notes in the Agreed Form to be issued by the Purchaser to the Vendor in accordance with clause 3.1.1; "MANAGEMENT ACCOUNTS" the unaudited management accounts of the Company as at 31st March 1998 in the Agreed Form; "NET ASSETS" the issued share capital of the Company plus or minus the amount standing to the credit of or debited to reserves (including profit and loss account), as determined from the Completion Accounts and shown in the Certificate of the -4- 8 Purchaser's Auditors delivered pursuant to Clause 4 in the Agreed Form; "PENSION SCHEME(S)" the Sowester Limited Pension and Life Assurance Scheme (and the plural means the Pension Scheme and any other pension scheme or schemes of the Company in force at the Completion Date); "PROPERTY" the property of the Company shortly described in Schedule 4; "PURCHASER'S AUDITORS" Deloitte & Touche of Mountbatten House, 1 Grosvenor Square, Southampton, Hampshire SO15 2BZ; "PURCHASER'S GROUP means the Purchaser, any holding company of the Purchaser, any subsidiary of the Purchaser and any subsidiary of any such holding company; "PURCHASER'S SOLICITORS" Blake Lapthorn of New Court, 1 Barnes Wallis Road, Segensworth, Hampshire PO15 5UA; "RETENTION" the sum referred to in clause 3.1.1; "SALE SHARES" the 50,000 ordinary shares of L.1 each in the capital of the Company comprising the whole of its issued share capital; "TAX" OR "TAXATION" includes all forms of taxes, charges, imposts, duties, levies, liabilities or sums of whatsoever kind payable in respect of income, profits, distributions, gains and receipts of all kinds or otherwise at the instance of the Inland Revenue, Customs and Excise, Department of Health and Social Security, fiscal, Governmental or local Authorities or any other competent taxing authority of the United Kingdom or elsewhere and all penalties, charges -5- 9 and interest relating to any Tax assessment, including (without limitation) income tax, surtax, corporation tax, advance corporation tax, capital gains tax, development gains tax, development land tax, value added tax, withholding tax, special charge, petroleum revenue tax, customs and other import duties, stamp duty, stamp duty reserve tax, estate duty, capital transfer tax, inheritance tax, capital duty, payments to be made by the Company under the Pay As You Earn system and national insurance contributions regardless of whether such tax is directly or primarily chargeable against or attributable to the Company or any other person firm or company and references to:- (a) income or profits or gains earned, accrued, or received on or before a particular date or in respect of a particular period shall include income or profits or gains which have been deemed to have been earned, accrued or received at or before that date or in respect of that period; (b) any payment or distribution made on or before a particular date shall include:- (i) any payment or distribution which on or before that date has fallen due to be made; and (ii) any act or transaction which has occurred on or before that date and is -6- 10 or has been deemed to be a payment or distribution for the purposes of any Tax assessment; and (c) any dividend shall include anything which has been deemed to be a dividend or distribution to shareholders or others for the purposes of any Tax assessment; "TAX DEED" the deed of indemnity against Taxation in the Agreed Form; "TAXATION STATUTE" any statute, enactment, law, regulation or arrangement wheresoever enacted or issued, coming into force or entered into providing for or imposing any Taxation; "TAX WARRANTIES" the Warranties relating to Taxation set out at Warranty 5 of Schedule 2; "TCGA" Taxation of Chargeable Gains Act 1992; "TMA" Taxes Management Act 1970; "VATA" Value Added Tax Act 1994; "VENDOR'S GROUP" means the Vendor, any holding company of the Vendor, any subsidiary of the Vendor and any subsidiary of any such holding company (but excluding the Company); "VENDOR'S SOLICITORS" Linklaters & Paines, 1 Silk Street, London EC2Y 8HQ; "WARRANTIES" the warranties and representations of the Vendor set out in clause 7 and Schedule 2; "WARRANTY CLAIM" any claim made by the Purchaser for breach of any of the Warranties. 1.2 All references to a statutory provision shall be construed as including references to: -7- 11 1.2.1 any statutory modification, consolidation or re-enactment (whether before or after the date of this Agreement) for the time being in force; 1.2.2 all statutory instruments or orders made pursuant to a statutory provision; 1.2.3 any statutory provisions of which a statutory provision is a consolidation, re-enactment or modification. save to the extent that any such statutory modification, consolidation or re-enactment, instruments orders and statutory provisions are made or effected after the date of this Agreement and would create or increase the liability of the Vendor or the Purchaser under this Agreement. 1.3 A reference to an SSAP is a reference to a Statement of Standard Accounting Practice and a reference to an FRS is a reference to a Financial Reporting Standard both established by the Accounting Standards Board in England and Wales. 1.4 Words denoting the singular include the plural and vice versa; words denoting any one gender include all genders; words denoting persons include firms and corporations and vice versa. 1.5 Unless otherwise stated, a reference to a clause or sub-clause or a Schedule is a reference to a clause or a sub-clause of or a Schedule to this Agreement and a reference to a paragraph is a reference to a paragraph of a Schedule. 1.6 The words "subsidiary" and "holding company" shall have the same meanings in this Agreement as their respective definitions in CA. 1.7 A person shall be deemed to be connected with another if that person is connected with another within the meaning of s 839 ICTA. 1.8 Headings in this Agreement and in the Schedules are inserted for ease of reference only and do not affect the construction of this Agreement. 2. AGREEMENT FOR SALE OF THE SALE SHARES 2.1 Subject to the terms and conditions of this Agreement, the Vendor shall sell or -8- 12 procure to be sold and the Purchaser in reliance upon the representations, Warranties and undertakings set out in this Agreement and the Tax Deed shall purchase the Sale Shares. 2.2 The Vendor shall sell the Sale Shares free from all liens, claims, charges, equities and encumbrances and with full title guarantee and so that the provisions of ss 6(1) and 6(2) of the Law of Property (Miscellaneous Provisions) Act 1994 shall not apply to the Purchaser. 2.3 Title to and beneficial ownership of the Sale Shares shall pass to the Purchaser on Completion and the Sale Shares shall be sold and purchased together with all rights and benefits attaching to them at the Completion Date (including the right to receive all dividends, distributions or any return of capital declared made or paid by the Company on or after the Completion Date). 2.4 The Purchaser shall not be obliged to complete the purchase of any of the Sale Shares unless the purchase of all the Sale Shares is completed simultaneously. 3. PURCHASE CONSIDERATION 3.1 The Consideration shall (subject to adjustment pursuant to the provisions of clause 5) be the sum of L.5,295,000 (five million two hundred and ninety five thousand pounds) which the Purchaser shall pay or satisfy by: 3.1.1 the sum of L.250,000 being paid and applied in the manner provided in clause 8.1 (such sum being the Retention); 3.1.2 the issue to the Vendor at Completion of the Loan Notes credited as fully paid having an aggregate par value of L.250,000; 3.1.3 the sum of L.4,795,000 (four million seven hundred and ninety-five thousand pounds) being paid to the Vendor in cash at Completion CHAPS payment to it at its Account with the National Westminster Bank Plc, Guildford Branch address: PO Box 299, 151 High Street, Guildford, Surrey GU1 3ZU Sort Code: 60-09-21 Account No. 59954841 or by such other means of payment in immediately available funds as the Vendor may request. -9- 13 4. COMPLETION ACCOUNTS 4.1 The Purchaser shall procure as soon as practicable and in any event within 60 days after Completion, the preparation of the Completion Accounts in accordance with the requirements of this Clause 4 by the Purchaser's Auditors, who shall also be instructed to certify the amounts of the Net Assets in the Agreed Form. 4.2 In respect of the preparation of the Completion Accounts and the determination of the Net Assets the Parties shall respectively: (a) give or procure that the Purchaser's Auditors and any Independent Chartered Accountant upon reasonable notice are given prompt access at all reasonable times to and to take copies of all books and records relating to the Company which are in the possession or under the control of the Vendor or the Purchaser or the Company as the case may be; and (b) generally provide the Purchaser's Auditors and any Independent Chartered Accountant promptly with such other information and assistance as they may reasonably require including access to and assistance at reasonable times from personnel employed by the Vendor or the Purchaser or the Company as the case may be. 4.3 The Completion Accounts shall be prepared in accordance with all applicable law FRS's and SSAP's and generally accepted United Kingdom accounting principles and (so far as not inconsistent therewith) on the same principles methods and bases as adopted in drawing up the Last Accounts consistently applied. 4.4 The Purchaser's Auditors shall be instructed to state in writing to the Vendor and the Purchaser whether in their opinion the Completion Accounts give a true and fair view of the state of affairs of the Company as at such date and to report directly to the Purchaser and the Vendor if and to the extent that there have been any changes in accounting principles used in the Completion Accounts (whether as a result of changes in the law or UK accounting principles or otherwise). -10- 14 4.5 The Purchaser's Auditors shall (as soon as practicable, and in any event within 60 days after Completion) deliver contemporaneously to the Vendor and the Purchaser copies of the Completion Accounts and the certificate of the Purchaser's Auditors as to the amount of the Net Assets in the Agreed Form. 4.6 Either Party shall be entitled to object to the Completion Accounts by written notice to the other within 28 days of receipt of the Completion Accounts pursuant to Clause 4.5 and if no such objection is made the Parties shall be deemed to accept the Completion Accounts at the end of such 28 day period. 4.7 The Purchaser shall procure that the Vendor and the Company's Auditors shall be given such information and assistance as they may reasonably require including access to the Purchaser's Auditors and to the books, records, papers and other documents relating to the Company, and to take copies of all such books, records, papers and other documents which are in the possession of the Company or the Purchaser's Auditors, for the purpose of verifying the Completion Accounts and the certificate of the Purchaser's Auditors as to the amount of Net Assets provided that any information obtained by the Vendor or the Company's Auditors pursuant to this Clause 4.7 shall be kept strictly confidential by the Vendor or the Company's Auditors. 4.8 In the event that notice of objection is given pursuant to clause 4.6 the Vendor and the Purchaser shall use their reasonable endeavours to agree any amendments to the Completion Accounts within 14 days after the giving of such notice of objection. 4.9 In the event that agreement cannot be reached within the said period of 14 days the matter in dispute shall be referred to an independent chartered accountant (being the "Independent Chartered Accountant") to be agreed between the parties or, in the absence of agreement as to the identity of the Independent Chartered Accountant within 7 days after the expiry of such 14 day period, to be nominated by the President for the time being of the Institute of Chartered Accountants in England and Wales on application of either party. Such Independent Chartered -11- 15 Accountant shall act as an expert and not as an arbitrator and his decision shall (in the absence of manifest error) be final and binding on the parties. The cost of his appointment shall be borne equally by the parties. 5. ADJUSTMENT TO PURCHASE CONSIDERATION 5.1 The Consideration shall be reduced by the aggregate of: 5.1.1 the amount of any indebtedness (exceeding in aggregate L.7,500) (other than any indebtedness owed to National Westminster Bank Plc by way of overdraft or pursuant to the Medium Term Loan relating to the Property) incurred by the Company otherwise than in the ordinary course of business prior to the Completion Date; 5.1.2 the amount by which any indebtedness owed by the Company to the any member of Vendor's Group exceeds 10,000 in aggregate (excluding management fees not exceeding 13,000 in any month and the proportion of interest costs relating to the Group Facilities listed in the Disclosure Letter which is attributable to the Company, calculated on the same bases as were applied in the Last Accounts as at the Completion Date); and 5.1.3 the net amount of any dividend paid by the Company since 23rd February 1998 and prior to the Completion Date but excluding the dividend of L.1,500,000 paid on 30 March 1998. 5.2 5.2.1 The "Net Assets Threshold" shall be L.4,200,000 (four million two hundred thousand pounds) minus the amounts specified in Clause 5.1.1, 5.1.2, and 5.1.3 to the extent that each of such amounts exceed -12- 16 the amount or value of any asset attributable respectively thereto and included in the Net Assets). 5.2.2 If the Net Assets are less than the Net Assets Threshold, the Consideration shall be reduced by the amount of the shortfall (which, together with the amounts specified in Clause 5.1.1, 5.1.2 and 5.1.3 is hereinafter referred to as the "Adjustment"). 5.2.3 In any event, the Consideration shall not be reduced by any payment, provision or reserve relating to the claim by Helen Caple against the Company in respect of injuries sustained whilst travelling on a jet propelled boat owned by the Company. 5.3 The amount of the Adjustment shall in aggregate be limited to the amount or value of the Consideration paid or payable pursuant to Clause 3.1. 5.4 Any Adjustment shall be paid first out of the Retention in accordance with this Clause 5; 5.5 If the Adjustment is less than the amount of the Retention, the Purchaser shall pay (subject to and in accordance with Clause 8.3) to the Vendor the difference between the amount of the Adjustment and the amount of the Retention; 5.6 if the Adjustment exceeds the amount of the Retention, the amount by which the Adjustment exceeds the Retention shall be paid (subject to and in accordance with Clause 8.3) by the Vendor to the Purchaser and the Purchaser shall be entitled to retain the Retention; 5.7 payments required under this Clause 5 shall be made on the seventh Business Day after the later of: 5.7.1 the end of the 28 day period referred to in clause 4.6 or; 5.7.2 agreement pursuant to clause 4.8 or; 5.7.3 determination by an Independent Chartered Accountant pursuant to clause 4.9; 6. COMPLETION 6.1 Completion shall take place at the offices of the Purchasers' Solicitors on the -13- 17 Completion Date when, subject to clause 6.5, all the transactions mentioned in the following provisions of this clause 6 shall take place. 6.2 The Vendor shall deliver to the Purchaser: 6.2.1 duly completed and signed transfers in favour of the Purchaser (or such person or persons as the Purchaser may direct) in respect of the Sale Shares together with all share certificates relating to the Sale Shares in the name of the Vendor or any nominee of the Vendor; 6.2.2 Certified copies of Minutes of Meetings of the Board of Directors of the Vendor at which the entry into and execution of this Agreement, the Tax Deed, the Power of Attorney referred to in Clause 6.2.9 and any other documents required to be executed in relation to this Agreement and the performance by the Vendor of the obligations expressed to be binding on it hereunder was authorised and approved. 6.2.3 the Tax Deed duly executed by the Vendor; 6.2.4 an undertaking by KRUG International Corp. (an Ohio Corporation) in the Agreed Form; 6.2.5 the written resignations of each of the directors, other than John Pattinson Buck and Robert Maurice Edmond, from their respective offices in the Company, with a written acknowledgement executed as a deed by each of them in such form as the Purchaser requires that he has no claim against the Company in respect of breach of contract, compensation for loss of office, redundancy or unfair dismissal or on any other grounds whatsoever save only for the amounts in respect of accrued but unpaid remuneration and reimbursable expenses incurred down to the Completion Date specified in such written resignation; 6.2.6 a letter from the Company's Bankers to the Company undertaking to release and discharge all guarantees or security granted by the Company (other than the mortgage relating to the Property) in -14- 18 respect of the liabilities of any member of the Vendor's Group and the Company against receipt of the sum of L.2,940,570.80; 6.2.7 certified copies of any powers of attorney under which any of the documents referred to in this clause 6.2 is executed or evidence satisfactory to the Purchaser of the authority of any person signing pursuant thereto; 6.2.8 irrevocable powers of attorney (in the Agreed Form) executed by the Vendor in favour of the Purchaser, or its nominees, enabling the Purchaser or its nominees, pending registration of the transfers of the Sale Shares to exercise all voting and other rights attaching to the Sale Shares and to appoint proxies for such purpose; 6.2.9 waivers of all options to subscribe for shares in the Company duly executed by the holders of such options; 6.2.10 the statutory books of the Company complete and up to date and its certificate of incorporation (including certificates of incorporation on change of name), cheque books, common seals, minute books and any unused share certificate forms or any of the same which are in the possession of the Vendor; 6.2.11 the title deeds relating to the Property; 6.2.12 the appropriate forms to amend the mandates given by the Company to its bankers; 6.2.13 the written notice relating to the Pension Scheme referred to in Clause 9.2. 6.3 The Vendor shall procure the passing of Resolutions of the Board of Directors of the Company pursuant to which: 6.3.1 such persons as the Purchaser may nominate shall be appointed additional directors; 6.3.2 the transfers referred to in clauses 6.2.1 shall be approved (subject to stamping); -15- 19 6.3.3 the resignations referred to in clause 6.2.5 shall be submitted and accepted; 6.3.4 all authorities to the bankers of the Company shall be revoked and authority given to such persons as the Purchaser may nominate to operate the account; 6.3.5 the execution and delivery of the Tax Deed shall be authorised; The Vendor shall hand to the Purchaser duly certified copies of such Board Resolutions. 6.4 Upon completion of the matters referred to in clauses 6.2 and 6.3 the Purchaser shall: 6.4.1 deliver a banker's draft drawn on a London Clearing Bank payable to the Vendor or provide a CHAPS payment for the sum of L.4,795,000 to the Vendor's account with National Westminster Bank Plc as specified in Clause 3.1.3 and such receipt (as good funds) by the Vendor shall be an absolute discharge therefor to the Purchaser; 6.4.2 provide a CHAPS payment for the Retention to be dealt with as provided in clause 8.1; 6.4.3 deliver to the Vendor's Solicitors certified copies of any powers of attorney under which any of the documents referred to in this clause 6.5 is executed or other evidence satisfactory to the Vendor's Solicitors of the authority of the person signing on its behalf; 6.4.4 issue Loan Notes having an aggregate par value of L.250,000 to the Vendor. 6.5 The Purchaser may in its absolute discretion waive any requirement contained in clauses 6.2 and 6.3. 6.6 Following Completion, the Purchaser shall so far as reasonably practicable co-operate with the Vendor in procuring the release of the Vendor from all liability arising after Completion under any guarantees and collateral security given by the Vendor on behalf of the Company and listed in the Disclosure Letter -16- 20 and pending such release or if such release proves unobtainable except on unreasonable terms the Purchaser shall indemnify the Vendor against all losses, costs, claims, demands, expenses proceedings or payment which may be incurred by the Vendor pursuant to the terms of any or all such guarantees or collateral security. 6.7 The Vendor hereby irrevocably undertakes that, following Completion and pending registration of the transfers referred to in Clause 6.2.1 it will not exercise any of the rights conferred on it by Article 22 of the Company's Articles of Association 6.8 The Purchaser shall ensure that all amounts due or owing by the Company by way of overdraft to National Westminster Bank Plc shall be paid and discharged by the Company on the Completion Date. 6.9 The Purchaser shall procure that all amounts due or owing to National Westminster Bank Plc in respect of the Medium Term Loan relating to the Property shall be paid or discharged by the Company on the Completion Date. 6.10 UNDERTAKING The Vendor undertakes to provide to the Purchaser within 6 months from Completion any information which is not within the possession or control of the Company and which the Company requests to ascertain whether or not it is subject to any liability to Tax or entitled to any relief (as defined in the Tax Deed) or to calculate any liability to Tax or the amount of any relief (as defined in the Tax Deed). 6.11 John Buck and Robert Edmond agree that no Share Appreciation Rights (if any) granted to them under the Sowester Share Appreciation Rights Plan 1997 (the "Plan", and "Share Appreciation Rights" shall have the meaning ascribed to that term in the Plan) are or will be outstanding at Completion. John Buck and Robert Edmond further agree that they hereby waive any rights (if any) to exercise any Share Appreciation Rights they possess or any other rights under the Plan and that any such Share Appreciation Rights or other rights under the Plan -17- 21 will lapse upon Completion. The provisions of this Clause 6.11 shall satisfy the requirements of Clause 6.2.9. 7. WARRANTIES BY THE VENDOR 7.1 The Vendor represents and warrants to and with the Purchaser for itself and as trustee for the Company and its successors in title in the terms set out in Schedule 2 as at Completion . 7.2 The Warranties are given subject to matters fairly and accurately disclosed in the Disclosure Letter and save as expressly qualified under the terms of this Agreement. 7.3 To the extent that any particular item of Disclosure contained in the Disclosure Letter is not fair and accurate no disclosure shall be deemed to have been made in respect of each particular Warranty to which that item of disclosure relates. 7.4 Where any Warranty is expressed to be given "so far as the Vendor is aware", such term shall mean only that actual awareness of relevant facts, matters or circumstances covered by the relevant Warranty as is held by any of Charles Linn Haslam, Robert Mitchell Thornton Jnr and William Edwards Greenhalgh, being directors of the Vendor at the date hereof, and for the avoidance of doubt, none of such persons shall be required to undertake, or shall be deemed to have undertaken, any enquiries in relation to the subject matter of such Warranty. 7.5 Each of the Warranties is without prejudice to any other Warranty . 7.6 The rights and remedies of the Purchaser in respect of any breach of the Warranties shall not be affected by Completion, or by the Purchaser failing to exercise or delaying the exercise of any right or remedy or by any other event or matter whatsoever save to the extent expressly provided in this Agreement and, except by the Purchaser giving to the Vendor a specific and duly authorised written waiver or release, and no single or partial exercise of any right or remedy shall preclude any further or other exercise. 7.7 None of the information supplied by the Company and/or any of its directors or employees or its professional advisers prior to the date of this Agreement to any -18- 22 of the Vendor or its agents, representatives or advisers in connection with the Warranties and the Tax Deed and the contents of the Disclosure Letter, or otherwise in relation to the business or affairs of the Company, shall be deemed a representation, warranty or guarantee of its accuracy by the Company and or any of its directors or employees to the Vendor, and the Vendor waives any claims against the Company and or any of its directors or employees which it might otherwise have in respect of it except to the extent that the same arises as the result of the fraud wilful default or fraudulent misrepresentation of any such person. 7.8 Notwithstanding the provisions of this Clause 7, the Vendor shall not be liable in respect of any breach of the Warranties if and to the extent that the losses occasioned thereby have been recovered under the Tax Deed. 7.9 No information relating to the Company of which the Purchaser has knowledge whether actual or constructive shall prejudice any claim made by the Purchaser under the Warranties or operate to reduce any amount recoverable save to the extent that at or prior to the Completion the Purchaser or its Directors has actual knowledge that any fact or matter within its actual knowledge constitutes or will constitute upon Completion a breach of any Warranties and, save as provided in this Clause 7.10, liability in respect of the Warranties shall not be confined to matters discovered after Completion. 7.10 The parties agree that any Warranty Claim shall be limited in accordance with the provisions of this Clause 7 and Schedule 6 save in respect of any Warranty Claim arising as a consequence of the fraud, wilful concealment or wilful default of the Vendor, its officers or employees. 7.11 This Agreement and the Tax Deed contains the whole agreement between the parties relating to the subject matter of this Agreement at the date hereof to the exclusion of any terms implied by law which may be excluded by contract. The Purchaser acknowledges that it has not been induced to enter into this Agreement by, and so far as is permitted by law and except in the case of fraud, wilful -19- 23 default or fraudulent misrepresentation, waives any remedy in respect of, any Warranties, representations and undertakings not incorporated into this Agreement. 7.12 So far as is permitted by law and except in the case of fraud, the parties agree and acknowledge that the only right and remedy which shall be available to the Purchaser in connection with or arising out of or related to any of the statements contained in the Warranties shall be damages in contract for breach of this Agreement and not rescission of this Agreement, nor damages in tort or under statute (whether under the Misrepresentation Act 1967 or otherwise), nor any other remedy (except, where relevant, under the Tax Deed). 8. RETENTION AND JOINT ACCOUNT 8.1 The Retention shall on Completion be paid by the Purchaser into the Escrow Account, which shall be opened in the name of the Purchaser's Solicitors as escrow agent pursuant to instructions to the Purchaser's Solicitors to act as such to be issued jointly by the Vendor and the Purchaser at Completion in the Agreed Form. The Retention, together with interest earned thereon shall be dealt with in accordance with the following sub-clauses. 8.2 If there is no reduction in the Consideration pursuant to Clause 5, the Purchaser's Solicitors shall pay the Retention to the Vendor on the date specified for payment in Clause 5.7. 8.3 If there is a reduction in the Consideration pursuant to Clause 5, the Purchaser's Solicitors shall pay on the date specified for such payment in Clause 5.7:- 8.3.1 to the Purchaser the Retention or, if less, the Adjustment; and 8.3.2 to the Vendor the balance (if any) of the Retention after deduction of the amounts referred to in Clause 8.3.1. 8.4 The interest accrued on the Retention shall belong to the Vendor and the Purchaser in proportion to the respective amounts of the Retention released to each of them in accordance with Clauses 8.2 and 8.3 and shall be paid (subject to deduction of any Taxation as may be required by law) to each of them together -20- 24 with the relative portions of the Retention. 8.5 Any bank charges in respect of the Retention shall be paid by the Vendor or the Purchaser as the case may be in proportion to the respective amounts of the Retention received by the Vendor or the Purchaser in accordance with Clauses 8.2 or 8.3 and such bank charges shall be paid by the Vendor or the Purchaser as the case may be at the same time as the Vendor or the Purchaser receive amounts of the Retention in accordance with Clauses 8.2 or 8.3. 8.6 The Vendor and the Purchaser shall as and when necessary give written instructions signed by or on behalf of each of them to the Purchaser's Solicitors in order to procure compliance with this clause 8. Save as provided in Clause 8.7 the Purchaser's Solicitors shall not be required to take any action with respect to the Escrow Account except on the joint written instructions of the Vendor and the Purchaser. 8.7 Any payment to be made out of the Escrow Account to the Vendor or the Purchaser pursuant to Clause 8.2 or 8.3 shall be made to the Vendor or the Purchaser (as the case may be) in accordance with such written instructions as may be given by the Vendor or the Purchaser (as the case may be). 9. PENSIONS 9.1 The Vendor accepts that on or as soon as practicable after Completion the Company shall execute a deed under Rule 21.1 of the Rules governing the Pension Scheme removing as Trustees of the Pension Scheme those persons who are not directors or employees of the Company. 9.2 At Completion the Vendor shall give a written notice to the Trustees of the Pension Scheme under Rule 24.2 of the said Rules that the Vendor is ceasing to participate in the Pension Scheme with effect from the Completion Date, such notice to be in the Agreed Form. 10. RESTRICTIVE COVENANTS 10.1 The Vendor undertakes with the Purchaser (for itself and as trustee for the Company) that, except with the consent in writing of the Purchaser it will not -21- 25 and will procure that no member of the Vendor's Group will, for a period of twelve months from the Completion Date; 10.1.1 either on its own account or for or on behalf of or through or in conjunction, association or by arrangement with any person whether for its own benefit or that of others, directly or indirectly, carry on or be engaged, concerned or interested in or in the carrying on of any business which competes with the business of the distribution and supply of marine equipment, engines, steering control systems, personal watercraft and related products both within the United Kingdom and the Republic of Ireland as carried on by the Company at the date of this Agreement ("Restricted Business") but this sub clause will not prevent the Vendor or any member of the Vendor's Group from holding for investment up to 3% of the issued share capital of a company the shares of which are listed on any recognised stock exchange; 10.1.2 either on its own account or for or on behalf of or through or in conjunction, association or by arrangement with any person whether for his own benefit or that of others, directly or indirectly in relation to the Restricted Business solicit, canvass or approach any person, who, at any time during the 12 months prior to the Completion Date: (a) was provided with goods or services by the Company from time to time; or (b) had negotiations with the Company from time to time relating to the provision of such goods or services; for the purpose of offering to that person goods or services similar to those with which he was so provided or otherwise to entice away the custom or business of that person from the Company; 10.1.3 either on its own account or for or on behalf of or through or in conjunction, association or by arrangement with any person, whether -22- 26 for his own benefit or that of others, directly or indirectly supply to any person specified in clause 10.1.2 goods or services similar to those with which such person was so provided at any time during the 12 months prior to the Completion Date or enter into any transaction with such person in relation to such goods or services; 10.1.4 either on its own account or for or on behalf of or through or in conjunction, association or by arrangement with any person, whether for his own benefit or that of others, directly or indirectly, solicit or entice away or endeavour to entice away from the Company any director holding executive office, manager, or employee earning in excess of L.20,000 per annum who worked for the Company at any time during the 12 months prior to the Completion Date (whether or not such persons would commit any breach of contract by reason of his leaving service); 10.2 The Vendor undertakes with the Purchaser (for itself and as trustee for the Company) that, except with the prior consent in writing of the Purchaser: 10.2.1 it will not and will procure that no member of the Vendor's Group will use to the detriment of the Company or of any customer of the Company or disclose divulge or communicate directly or indirectly to any person any secret or confidential knowledge or secret or confidential information relating to the business, transactions, products or affairs of the Company or of any customer of the Company (including but not limited to operations, processes, plans, inventions, product information, know-how, design rights, trade secrets, software, market opportunities, customers and business affairs) or supply or disclose to any person the names or addresses of any customers of the Company or details of any contracts or negotiations to which the Company is a party or of any tenders offers or proposals submitted or to be submitted by the Company in -23- 27 connection with its business; 10.2.2 notwithstanding the provisions of Clause 10.2.1, the Vendor may disclose information which would otherwise be confidential if and to the extent: (i) required by law; (ii) necessary in the reasonable opinion of the Vendor's legal advisers to comply with the requirements of any regulatory authority or any stock exchange, whether in the United Kingdom or elsewhere; (iii) reasonably required to be disclosed to the legal advisers, auditors, insurers and bankers of the Vendor provided that such disclosure is made on a strictly confidential basis; (iv) the information has come into the public domain through no fault of the Vendor; or (v) the Purchaser has given prior written approval to the disclosure such approval not to be unreasonably withheld or delayed. 10.2.3 it will not, and will procure that no member of the Vendor's Group shall, at any time hereafter in relation to any trade, business, firm, company or organisation use a name (whether registered or not) or any trade mark or design the same as or confusingly similar to the Sowester name or any name or trade mark of the Company listed in Schedule 3. 10.3 Each of the covenants contained in clauses 10.1 and 10.2 shall be deemed to be separate covenants and independent of each other. 10.4 While the parties hereto consider that the covenants contained in clauses 10.1 and 10.3 are reasonable in order to protect the interests of the Purchaser, it is agreed by and between the parties that if any such restrictions shall be adjudged by a Court of competent jurisdiction to be void or unenforceable but would be valid -24- 28 and enforceable if deleted in part or reduced in application, such restrictions shall apply with such deletion or modification as may be necessary to make it valid and enforceable. 11. ANNOUNCEMENTS 11.1 If either of the Parties shall make any announcement of any kind in respect of the subject matter of the Agreement, that Party shall procure that a copy of the announcement is provided to the other as soon as reasonably practicable after the making of such announcement. 12. ASSIGNMENT 12.1 This Agreement shall be binding on and shall enure for the benefit of the successors in title of each party. 12.2 Save as provided in clause 12.3, neither of the parties hereto shall be entitled to assign the benefit of any rights under this Agreement or the Tax Deed. 12.3 The benefit of this Agreement and the Tax Deed shall be assignable by the Purchaser by way of security to any bank or other institutional lender or investor which has lent money to or subscribed for shares in the Purchaser for the purpose of the acquisition of the Sale Shares, and in the event of any such assignment, all references in this Agreement and the Tax Deed to the Purchaser shall be deemed to include such assignee. 13. COSTS 13.1 All expenses incurred by or on behalf of the parties, including all fees of agents, representatives, solicitors, accountants and actuaries employed by either of them in connection with the negotiation, preparation or execution or this Agreement shall be borne solely by the party who incurred the liability and the Company shall not have any liability in respect of them. 14. TIME 14.2 Time shall be of the essence of this Agreement, both as regards the dates and periods specifically mentioned and as to any dates and periods which may by agreement in writing between or on behalf of the Vendor and the Purchaser be -25- 29 substituted for them. 15. ENTIRE AGREEMENT This Agreement (together with the Tax Deed) constitutes the whole agreement between the parties hereto and supersedes any previous agreements or arrangements between them relating to the subject matter contained herein. 16. CONTINUING EFFECT OF AGREEMENT 16.1 No provisions of this Agreement or of any agreement or arrangement of which it forms part, by virtue of which the agreement constituted by all of the foregoing is subject to registration (if such be the case) under the Restrictive Trade Practices Act 1976 shall take effect until the day after particulars of such agreement have been furnished to the Director General of Fair Trading pursuant to the terms of that Act. 16.2 Subject to Clause 16.1 all of the provisions of this Agreement, except in so far as they set out obligations which have been fully performed at Completion, shall remain in full force and effect notwithstanding Completion or any other event or matter whatsoever, and shall not be deemed to be waived or released except by a specific and duly authorised written waiver or release by the Purchaser. 17. VARIATIONS 17.1 No variation of this Agreement shall be effective unless made in writing and executed by or on behalf of each of the parties hereto. 18. RELEASES, WAIVERS ETC BY THE PURCHASER 18.1 The Purchaser may release or compromise any liability of the Vendor hereunder or under the Tax Deed in whole or in part or grant to the Vendor time or other indulgence in its absolute discretion without in any way affecting or prejudicing its rights against the Vendor under the same or a like liability whether joint and several or otherwise. 19. FURTHER ASSURANCE, INFORMATION 19.1 At any time after the date hereof the Vendor shall at the request and cost of the Purchaser execute such documents and do such acts and things as the Purchaser -26- 30 may reasonably require for the purpose of vesting the Sale Shares in the Purchaser or its nominee and giving to the Purchaser the full benefit of all the provisions of this Agreement or any agreement referred to herein or executed in connection herewith. 19.2 Each of the parties agrees and undertakes to the other that it will upon reasonable request by the other provide it with such information and assistance, including reasonable access to premises and personnel and a right to examine and copy such accounts, documents and records as may be required by the other for the purposes of complying with any law or the requirements of any regulatory authority or Stock Exchange provided that no obligation to provide information or assistance shall arise if and to the extent that the party requested to provide such information or assistance considers that to provide such information or to give such assistance would be damaging to its commercial interests. Any and all information obtained by either party pursuant to this Clause 19.2 shall be and remain at all times strictly confidential provided that such information may be used by the party obtaining the same for the disclosed purpose for which it was requested but not otherwise. 20. LAW AND JURISDICTION 20.1 This Agreement shall be governed by and construed in accordance with English law and the parties shall submit to the exclusive jurisdiction of the English Courts. 21. INTEREST 21.1 If the Vendor or the Purchaser defaults in the payment when due of any sum payable under this Agreement (whether determined by agreement or pursuant to an order of a court or otherwise) the liability of the Vendor or the Purchaser (as the case may be) shall be increased to include interest on such sum from the date when such payment is due until the date of actual payment (as well after as before judgment) at a rate per annum of 3 per cent above the base rate from time to time of (Bank of Scotland). Such interest shall accrue from day to day. -27- 31 22. INVALIDITY 22.1 Each provision of this Agreement is severable and distinct from the others. The parties intend that every such provision shall be and remain valid and enforceable to the fullest extent permitted by law. If any such provision is or at any time becomes to any extent invalid, illegal or unenforceable under any enactment or rule of law, it shall to that extent be deemed not to form part of this Agreement but (except to that extent in the case of that provision) it and all other provisions of this Agreement shall continue in full force and effect and their validity, legality and enforceability shall not be thereby affected or impaired, provided that the operation of this clause would not negate the commercial intent and purpose of the parties under this Agreement. 22.2 If any provision of this Agreement is illegal or unenforceable as a result of any time period being stated to endure for a period in excess of that permitted by relevant law or a regulatory authority, that provision shall take effect with a time period that is acceptable to the relevant regulatory authorities subject to it not negating the commercial intent of the parties under this Agreement. 23. COUNTERPARTS 23.1 This Agreement may be entered into in any number of counterparts and by the parties to it on separate counterparts, each of which when so executed and delivered shall be an original, but all the counterparts shall together constitute one and the same instrument. 24. NOTICES 24.1 All notices, claims, demands or proceedings served by the parties with respect to this Agreement or the Tax Deed shall be in writing and shall be sufficiently served if delivered by hand or facsimile transmission or sent by pre-paid first class recorded delivery post to the address of the addressee as set out in this Clause 24, or to such other address (being in Great Britain) as the addressee may from time to time have notified in writing to the other party for the purpose of this clause and shall be deemed to have been received: -28- 32 24.1.1 if sent by first class post 2 business days after posting exclusive of the day of posting; 24.1.2 if delivered by hand on the day of delivery; 24.1.3 if sent by facsimile transmission at the time of transmission. 24.2 Communications addressed to the Vendor shall be sent to it at: address: c/o Deloitte & Touche, Columbia Centre, Market Street, Bracknell, Berkshire RG12 1PA fax: 01344 303429 and marked for the attention of the Company Secretary. Communications addressed to the Purchaser shall be sent to it at: address: 6, Stinsford Road, Nuffield Estate, Poole, Dorset BH17 0SW fax: 01202 669 245 and marked for the attention of R Edmond. Notices addressed to the Vendor and given under Clause 6 of the Tax Deed shall additionally be sent by facsimile to the following persons: SunLink Services Inc fax: USA 770-933-7010 and marked for the attention of Robert M Thornton Jnr; and to: Bradley International Ltd fax: UK (01902) 354 266 and marked for the attention of Michael Dell. 24.3 In proving service: 24.3.1 by delivery by hand it shall be necessary only to produce a receipt for the communication signed by or on behalf of the addressee; 24.3.2 by post it shall be necessary only to prove that the communication was contained in an envelope which was duly addressed and posted in accordance with this clause; 24.3.3 by facsimile transmission it shall be necessary only to produce a transmission report showing full and correct transmission. -29- 33 AS WITNESS the hands of the parties -30- 34 SCHEDULE 1 THE COMPANY Company Name: Sowester Limited Company Number: 00463358 Date of Incorporation: 10 January 1949 Share Capital: authorised L.50,000 issued L.50,000 Registered Office: 6 Stinsford Road Nuffield Estate Poole, Dorset BH17 0SW Directors: John Pattinson Buck Robert Maurice Edmond William Edwards Greenhalgh Charles Linn Haslam Robert Mitchell Thornton Jnr Secretary: Robert Maurice Edmond Shareholders and Number of Shares: KRUG International (UK) Limited : 49,999 Mark Stockslager : 1 Latest Accounts on file at Companies House: 31 March 1997 -31- 35 SCHEDULE 2 WARRANTIES 1. INFORMATION GENERAL INFORMATION 1.1 The information in Schedule 1 relating to the Company is true, complete and accurate in all respects. 1.2 The Company has no, and has not previously had, any subsidiary or subsidiary undertaking other than Sea Sales Limited and South Western Marine Factors Limited. 1.3 The Sale Shares constitute the whole of the issued and allotted share capital of the Company. 1.4 There is no option, right to acquire, pledge, lien or other encumbrance on, over or affecting the Sale Shares or any of them and there is no agreement or arrangement to give or create any such encumbrance and no claim has been or will be made by any person to be entitled to any of the foregoing. 2. POWER TO CONTRACT POWER OF THE VENDOR 2.1 The Vendor has and will have full power and authority to enter into and perform this Agreement and the Tax Deed which constitutes or when executed will constitute its legal, valid and binding obligations enforceable in accordance with their respective terms. 2.2 The Vendor will be entitled to transfer the full legal and beneficial ownership of the Sale Shares to the Purchaser on the terms of this Agreement without the consent of any third party. 2.3 The execution and delivery of, and the performance of the obligations of the Vendor, under this Agreement and the Tax Deed have been duly authorised by all necessary corporate action on the part of the Vendor whether under its Articles of Association or otherwise. -32- 36 2.4 The execution and delivery of, and the performance by the Vendor of its obligations under, and compliance with the provisions of, this Agreement and the Tax Deed by the Vendor will not: (a) result in a violation of any provision of the Memorandum or Articles of Association of the Vendor; or (b) result in a breach of, or constitute a default under, any instrument to which the Vendor is a party or by which the Vendor is bound; or (c) result in a violation of any law or regulation in the United Kingdom having the force of law or of any order, judgment or decree of any court or governmental agency or agreement to which the Vendor is a party or by which the Vendor is bound. 2.5 No consent, authorisation, licence or approval of the Vendor's shareholders or of any governmental, administrative, judicial or regulatory body, authority or organisation is required to authorise the execution, delivery, validity, enforceability or admissibility in evidence of this Agreement or the Tax Deed or the performance by the Vendor of its obligations under this Agreement or the Tax Deed. 2.6 KRUG International Corp. has and will have full power and authority to give the undertaking referred to at Clause 6.2.4 which constitutes or when executed will constitute its legal valid and binding obligations enforceable in accordance with their respective terms. 3. ACCOUNTS THE LAST ACCOUNTS 3.1 So far as the Vendor is aware (but so that (notwithstanding Clause 7.4), for the purposes of this Warranty 3.1 the Vendor shall be deemed to have actual knowledge of all facts or matters contained or referred to in any communication relating to the Last Accounts addressed or copied to the Vendor in writing) the Last Accounts were prepared in accordance with the historical cost convention; and the bases and policies of accounting adopted for the -33- 37 purpose of preparing the Last Accounts are materially the same as those adopted in preparing the audited accounts of the Company in respect of the three last preceding accounting periods. 3.2 So far as the Vendor is aware (but so that, (notwithstanding Clause 7.4) for the purposes of this Warranty 3.2 the Vendor shall be deemed to have actual knowledge of all facts or matters contained or referred to in any communication relating to the Last Accounts addressed or copied to the Vendor in writing) the Last Accounts: 3.2.1 give a true and fair view of the assets and liabilities of the Company at the Last Accounts Date and its profits for the financial period ended on that date; 3.2.2 comply with the requirements of the Companies Act and other relevant statutes; 3.2.3 are not affected by any extraordinary item; 3.2.4 make fair and reasonable provision or reserve for all liabilities and capital commitments of the Company in the Last Accounts; 3.3 So far as the Vendor is aware the accounting reference date of the Company is and has at all times during the last 5 years been 31 March. 4. CORPORATE MATTERS OPTIONS 4.1 The Vendor has not entered into any agreements or arrangements which provide for the present or future issue, allotment or transfer of or grant to any person the right (whether conditional or otherwise) to call for the issue, allotment or transfer of any share or loan capital of the Company (including any option or right of pre-emption or conversion). NEW ISSUES OF CAPITAL 4.2 The Vendor is not party to any agreement or arrangement pursuant to which any share or loan capital has been issued or allotted, or agreed to be issued or allotted, by the Company since the Last Accounts Date. -34- 38 COMMISSIONS 4.3 The Vendor is not entitled to receive from the Company any finder's fee, brokerage or other commission in connection with the sale and purchase of the Sale Shares under this Agreement. COMPANY RECORDS 4.4 No notice or allegation that any of the Statutory Books of the Company or the Memorandum and Articles of Association is incorrect or should be rectified has been received by the Vendor. 4.5 No resolution of any kind of the Vendor as the sole beneficial shareholder of the Company has been passed which has not been duly notified to the Company and the Vendor has not exercised any right conferred on it by virtue of Article 22 of the Company's Articles of Association. 4.6 So far as the Vendor is aware all charges in favour of the Company have been registered in accordance with the provisions of CA. INVESTIGATIONS 4.7 So far as the Vendor is aware (but so that, (notwithstanding Clause 7.4) for the purposes of this Warranty 4.7, the Vendor shall be deemed to have actual knowledge of all facts or matters which are known or which ought reasonably to have been known by Charles Linn Haslam, Robert Mitchell Thornton Jnr, or William Edwards Greenhalgh in their capacity as non-executive directors of the Company) there are not pending, or in existence, any investigations or enquiries by, or on behalf of, any governmental or other body in respect of the affairs of the Company and so far as the Vendor is aware (but so that, (notwithstanding Clause 7.4) for the purposes of this Warranty 4.7, the Vendor shall be deemed to have actual knowledge of all facts or matters which are known or which ought reasonably to have been known by Charles Linn Haslam, Robert Mitchell Thornton Jnr, or William Edwards Greenhalgh in their capacity as non-executive directors of the Company) there are no circumstances which are likely to give rise to such investigation or enquiry. -35- 39 SUBSIDIARIES, ASSOCIATIONS AND BRANCHES 4.8 So far as the Vendor is aware the Company is not the holder or beneficial owner of and has not agreed to acquire any share or loan capital of any company (whether incorporated in the United Kingdom or elsewhere). 5. TAX MATTERS 5.1 RETURNS INFORMATION PAYMENT COMPLIANCE AND CLEARANCES No Event has been effected or occurred in the six years ending with Completion by the Company in respect of which any consent or clearance from the Inland Revenue or other Taxation authority was required sought or could have been obtained (i) without such consent or clearance having been validly obtained before the Event was effected or occurred and (ii) otherwise than in accordance with the terms of and so as to satisfy any conditions attached to such consent or clearance (iii) otherwise than at a time when and in the circumstances in which such consent or clearance was valid and effective; and (iv) in which the particulars furnished fully and accurately disclosed all facts and circumstances material to the decision of such Taxation authority provided that this paragraph 5.1 shall not apply to Value Added Tax, PAYE or National Insurance Contributions. 5.2 SHARE CAPITAL, DISTRIBUTIONS AND SIMILAR PAYMENTS 5.2.1 The Company has not since incorporation repaid or agreed to repay or redeemed or agreed to redeem or purchase or agreed to purchase any of its share capital or capitalised, or agreed to capitalise in the form of debentures or redeemable shares, any profits or reserves of any class or description or passed any resolution so to do. 5.2.2 The Company has not issued any stock dividends nor does the Company own any such share capital. 5.3 LOSSES, CARRY FORWARD OF LOSSES, SURPLUS ACT The Company has no trading or capital losses whether carried forward, deemed or actual or otherwise neither has it any surplus advance corporation tax. -36- 40 5.4 GROUP RELIEF CONSORTIUM RELIEF AND ACT SURRENDER The Disclosure Letter contains particulars of all arrangements and agreements relating to group relief (as defined by S402 ICTA 1988) to which the Company is or has been a party for the last 3 years ending on the Completion Date and 5.4.1 all claims by the Company for group relief were when made and are now valid and have been or will be allowed by way of relief from corporation tax; 5.4.2 the Company has not made nor is liable to make any payment under any arrangement or agreement save in consideration for the surrender of group relief allowable to the Company by way of relief from corporation tax; and 5.4.3 the Company has received all payments due to it under any arrangement or agreement for any surrender of group relief made by it and the payments are not liable to be refunded in whole or in part 5.5 SURRENDER OF ADVANCE CORPORATION TAX The Disclosure Letter contains full particulars of all arrangements and agreements to which the Company is or has been a party relating to the surrender of advance corporation tax made or received by the Company under s 240 ICTA 1988 and:- 5.5.1 the Company has not paid nor is liable to pay for the benefit of any advance corporation tax which is or may become incapable of set-off against the Company's liability to corporation tax; and 5.5.2 the Company has received all payments due to it under any arrangements or agreement for any surrender of advance corporation tax made by it and the payments are not liable to be refunded in whole or in part. 5.6 SECONDARY LIABILITY No transaction or event has occurred in consequence of which the Company is or may be held liable for any Taxation under s 190 TCGA, s 767A ICTA, s -37- 41 247(7) ICTA, s 179(11) TCGA, s 137(4) TCGA, s 191 TCGA, s 96(8) FA 1990, s 43 VATA. 5.7 VALUE ADDED TAX ("VAT") The Company has not at any time been or been treated as being a member of a group registration made pursuant to Section 43 of VATA nor are there any circumstances whereby it could be deemed to be a member of such a group for any of the purposes of VAT. 5.8 RESIDENCE The Company is incorporated in the UK and is and has always been resident in the UK for the purposes of Taxation and is and has not and has never been deemed to be resident elsewhere in the world. 5.9 LEAVING THE GROUP The exclusion or completion of this Agreement will not result in any profit or gain being deemed to accrue to the Company for Taxation purposes pursuant to s 179 TGCA. 6. FINANCING BANK AND OTHER BORROWINGS 6.1 So far as the Vendor is aware accurate details of all limits on the Company's bank overdraft facilities are set out in the Disclosure Letter. LIABILITIES 6.2 So far as the Vendor is aware there are no liabilities (including contingent liabilities) which are outstanding on the part of the Company other than those liabilities disclosed in the Last Accounts or incurred in the ordinary and proper course of trading since the Last Accounts Date. BANK ACCOUNTS 6.3 The Vendor has not opened any Bank accounts in the name of or for the benefit of the Company. CONTINUATION OF FACILITIES 6.4 So far as the Vendor is aware there are no debentures, acceptance credits, -38- 42 overdrafts, loans or other financial facilities (other than the Bank overdraft referred to at Warranty 6.1 above and any leases in the ordinary course of business) outstanding to the Company which will not be repaid or discontinued at Completion. 6.5 No member of the Vendor's Group is the beneficiary of any guarantee, cross-guarantee, netting arrangement, indemnity or suretyship given by the Company in respect of the liabilities of any member of the Vendor's Group and in respect of any such guarantee, cross guarantee, netting arrangement indemnity or suretyship existing prior to the date hereof there are no circumstances in existence in respect of any member of the Vendor's Group which could result in any such claim or liability being made or arising. 7. TRADING 7.1 Since 1 April 1996 neither the Vendor nor Charles Linn Haslam, William Edwards Greenhalgh or Robert Mitchell Thornton Jnr have at any time entered into any arrangement or commitment which binds or purports to bind the Company to any transaction, arrangement, omission or commitment whatsoever which has not been expressly approved by the Board of Directors of the Company at a meeting of the Board of Directors at which John Pattinson Buck and Robert Maurice Edmond were present. VENDOR'S OTHER INTERESTS AND LIABILITIES TO THE COMPANY 7.2 There is no outstanding indebtedness of the Vendor or any member of the Vendor's Group to the Company. SHARES 7.3 So far as the Vendor is aware compliance with the terms of this Agreement does not and will not: 7.3.1 result in the creation imposition crystallisation or enforcement of any encumbrance whatsoever on any of the assets of the Company; 7.3.2 result in any indebtedness of the Company becoming due and payable or capable of being declared due and payable prior to its stated maturity. -39- 43 LITIGATION, DISPUTES AND WINDING UP 7.4 So far as the Vendor is aware there are no proceedings pending or threatened either by or against the Company and so far as the Vendor is aware there are no circumstances which are likely to give rise to any litigation or arbitration. 7.5 The Vendor is not engaged in any dispute with any revenue or other official department in the United Kingdom or elsewhere, in relation to the affairs of the Company and so far as the Vendor is aware there are no facts which may give rise to any dispute with regard to the Company. 7.6 So far as the Vendor is aware, no order has been made or petition presented or resolution passed for the winding up of the Company; nor has any distress, execution or other process been levied in respect of the Company which remains undischarged; nor is there any unfulfilled or unsatisfied judgment or court order outstanding against the Company. COMPLIANCE WITH STATUTES 7.7 Neither the Vendor nor any of Charles Linn Haslam, Robert Mitchell Thornton Jnr and William Edwards Greenhalgh (during the course of their duties in relation to the Company) has committed or omitted to do any act or thing the commission or omission of which to their respective knowledge is or could be in contravention of any act, order, regulation or the like (whether of the United Kingdom or elsewhere) giving rise to any fine, penalty, default proceedings or other liability on the part of the Company. BUSINESS NAMES 7.8 No member of the Vendor's Group has at any time carried on business in the name of the Company or any name incorporating or similar to the Company name. INSIDER CONTRACTS 7.9 There is not now outstanding and there has not at any time during the three years prior to the date of this Agreement been outstanding any contract or -40- 44 arrangement with the Company in which the Vendor or any of Charles Linn Haslam, Robert Mitchell Thornton Jnr and William Edwards Greenhalgh is or has been interested whether directly or indirectly (save by virtue of being a shareholder in the Company) which was not duly disclosed at the relevant Board Meeting at which the matter in question was approved. For the purposes of this Warranty 7.9, the expression "interested" shall: (i) as regards the Vendor mean that the Vendor or any member of the Vendor's Group is the legal or beneficial owner of shares of a company or firm which is a party to any contract or arrangement with the Company (a "counterparty") or that the Vendor or any member of the Vendor's Group has entered into an agreement or arrangement with a counterparty such that the Vendor or a member of the Vendor's Group might be expected to benefit or suffer loss as a consequence of the contract or arrangement between the Company and the counterparty; (ii) as regards Charles Linn Haslam, Robert Mitchell Thornton Jnr and William Edwards Greenhalgh have the meaning given to that expression for the purposes of Section 317 CA. MANAGEMENT REPORTS 7.10 All written reports, concerning the Company by external financial or management consultants commissioned by or addressed to the Vendor within the period from 1st April 1996 to the date of this Agreement are listed in the Disclosure Letter. 8. EMPLOYMENT EMPLOYEES AND TERMS OF EMPLOYMENT 8.1 Neither the Vendor nor any member of the Vendor's Group has at any time entered into any agreement or arrangement (whether or not legally binding) or made any offer or payment to any officer or employee of the Company of any emolument, incentive bonus or other material benefit whatsoever. DISPUTES AND NEGOTIATIONS -41- 45 8.2 So far as the Vendor is aware, there are no facts which might suggest that there may be any industrial dispute involving the Company. PENSIONS 8.3 No undertaking or assurance has been given to employees of the Company by the Vendor or any of Charles Linn Haslam, William Edwards Greenhalgh or Robert Mitchell Thornton Jnr as to the continuance or introduction or increase or improvement of any pension rights or entitlements. 8.4 Since the date of the last actuarial valuation of the Scheme no power or discretion has been exercised by any Trustee of the Scheme who is an officer of the Vendor to augment or improve any benefit under the Scheme nor has any promise or announcement been made to do so. 8.5 No employee or director of any member of the Vendor's Group has any entitlement to benefits under the Pension Scheme. 8.6 Since 1 April 1996 none of the Company's employees receive benefits under or have an entitlement to receive benefits under any pension scheme of any member of the Vendor's Group. 9. ASSETS 9.1 The Vendor has not since 1 April 1996 disposed or otherwise dealt with or purported to dispose or otherwise deal with any asset (including Intellectual Property) owned by the Company or used by it in its business. INSURANCE 9.2 So far as the Vendor is aware, insofar as any of the insurances maintained by or on behalf of the Company are group insurance policies maintained for the benefit of the Company and/or other members of the Vendor's Group no member of the Vendor's Group has done or permitted to be done or omitted to be done anything which would result in such policies of insurance, insofar as they are for the benefit of the Company, be void or voidable (other than as a result of the Vendor entering into this Agreement). 9.3 All group insurance policies under which the Company is an insured are -42- 46 attached to the Disclosure Letter. INTELLECTUAL PROPERTY RIGHTS AND TRADE SECRETS 9.4 Neither the Vendor nor any member of the Vendor's Group owns or otherwise uses any Intellectual Property Right used or required by the Company in connection with its business. 9.5 Neither the Vendor nor any member of the Vendor's Group has at any time done or omitted to do anything which would in any way prejudice the Intellectual Property Rights or any application therefor or the Company's interest in them. 9.6 Neither the Vendor nor any member of the Vendor's Group has since 1st April 1996 disclosed or permitted to be disclosed or undertaken or arranged to disclose and is not obliged to disclose to any person other than the Purchaser any of the Company's know-how, trade secrets, confidential information, price lists or lists of customers or suppliers save to the extent that the same are already in the public domain. 9.8 So far as the Vendor is aware there exists no actual or threatened infringement (including misuse of confidential information) or breach by any third party of any of the Intellectual Property Rights owned by, licensed to or used by the Company. 10. PROPERTY TITLE 10.1 So far as the Vendor is aware the Property comprises all the property owned occupied or otherwise used by the Company. CONDITION OF THE PROPERTY 10.2 Neither the Vendor nor any member of the Vendor's Group have since 1 April 1996 commissioned or received any valuations, surveys or other investigations in relation to the Property. 11. ENVIRONMENTAL 11.1 Neither the Vendor nor any member of the Vendor's Group has in its -43- 47 possession any environmental reports, surveys and audits (if any), correspondence or data specifically relating to the application of Environmental Laws to the Property which have not been delivered to the Company. 11.2 The Vendor has received no written notice of any civil, criminal or administrative claim, accusation, allegation, notice of violation, remediation notice, demand, cause of action, abatement or other order or notice (conditional or otherwise) in the relevant jurisdiction in which the Property is situated or the Company's business is conducted and no such notice has been made or brought against or served on the Vendor in relation to any Environmental Matters relating to the Company . -44- 48 SCHEDULE 3 TRADE NAMES (CLAUSE 10.2.3) SOWESTER WESTCO SOUTH WESTERN MARINE FACTORS LIMITED SWMF THE NAME TO GO TO SEA WITH -45- 49 SCHEDULE 4 SHORT PARTICULARS OF THE PROPERTY PART 1: FREEHOLD PROPERTY
DESCRIPTION LEGAL OWNER ROOT OF TITLE/TITLE NUMBER 6, Stinsford Road The Company DT 184942 Nuffield Estate, Poole, Dorset BH17 0SW
-46- 50 SCHEDULE 5 PENSION ARRANGEMENTS [Not Used] -47- 51 SCHEDULE 6 VENDOR'S PROTECTION PROVISIONS 1. LIMITATION OF LIABILITY Notwithstanding the provisions of Clauses 7.1 to 7.7, the Vendor shall not be liable under [the Warranties or, where expressly stated, under the Tax Deed]: 1.1 TIME LIMITS In respect of any claim unless notice of such claim is given in writing by the Purchaser to the Vendor setting out such reasonable details as are then available of the matter in respect of which the claim is made including an estimate if practicable of the amount of such claim within 18 months following Completion or in respect of any claim under the Tax Deed or Tax Warranties on or before the sixth anniversary of Completion and any such claim shall (if it has not been previously satisfied, settled or withdrawn) be deemed to be withdrawn six months after the relevant time limit set out above unless legal proceedings in respect of it have been commenced by being both issued and served. 1.2 MINIMUM CLAIMS In respect of any Warranty Claim arising from any single circumstance if the amount of the claim does not exceed L.10,000 (save that claims relating to a series of connected matters shall be aggregated for this purpose) but the Vendor shall not be liable for a claim exceeding the limit specified in this paragraph 1.2 unless the liability determined by a competent court or agreed between the parties in respect of any such claim (excluding interest but including costs and expenses) also exceeds that amount. 1.3 AGGREGATE MINIMUM CLAIMS In respect of any Warranty Claim unless the aggregate amount of all claims for which the Vendor would otherwise be liable under the Warranties and the Tax Deed exceeds L.60,000, whereupon, subject to -48- 52 Clause 1.2, the Vendor shall be liable for the whole of such amount and not merely the excess. 1.4 MAXIMUM CLAIMS In respect of any claim under the Warranties or the Tax Deed to the extent that the aggregate amount of the liability of the Vendor for all claims made under the Warranties and the Tax Deed would exceed L.6,500,000. 1.5 CONTINGENT LIABILITIES In respect of any Warranty Claim relating to a liability which is contingent unless and until such contingent liability becomes an actual liability provided that the time limit specified in paragraph 1.1 above shall not apply in respect of a Warranty Claim made in relation to such a liability if notification in accordance with paragraph 1.1 was made to the Vendor in relation to the matters giving rise to the contingent liability within the time period specified therein and provided further that the six month period for the commencement of proceedings shall commence on the date on which it comes to the knowledge of the Purchaser that the contingent liability in question has ceased to be contingent and PROVIDED FURTHER THAT if the contingent liability has not become an actual liability within 12 years of notification of such contingent liability then the Vendor shall not be liable in respect of such contingent liability. 1.6 PROVISIONS IN THE ACCOUNTS In respect of any Warranty Claim if and to the extent that any specific provision or reserve is made for the matter giving rise to the claim in the Last Accounts as updated by any reserves in the Management Accounts relating to the Company as at 31 March 1998. 1.7 In respect of any Warranty Claim arising from any matter, act, omission or circumstance (or any combination thereof) (including the aggravation -49- 53 of a matter or circumstance) to the extent that the same would not have occurred but for: (i) Voluntary acts of the Purchaser any voluntary act, omission or transaction of the Purchaser or any member of the Purchaser's Group or their respective directors (in their capacity as such) or their successors in title after Completion done or omitted to be done by such person in the actual knowledge that such act omission or transaction will result in or exacerbate a breach of any Warranty; (ii) Changes in Legislation the passing of, or any change in, (made after the date of this Agreement), any law, rule, regulation, interpretation of the law by any court or tribunal, any published administrative practice of any government, governmental department, agency or regulatory body including (without prejudice to the generality of the foregoing) any increase in the rates of Taxation or any imposition of Taxation or any withdrawal of relief from Taxation not actually in effect at the Completion Date; (iii) Accounting and Taxation Changes any change in accounting or Taxation policy, bases or practice of the Purchaser introduced or having effect after Completion. 1.8 INSURANCE In respect of any Warranty Claim to the extent that (i) the losses arising from such claim are covered by a policy of insurance and recovery is made thereunder; or (ii) the Purchaser would have been entitled to recover the losses arising from such claim under any policy of insurance in effect in the name of the Company as at the Completion Date and as such has been terminated or otherwise allowed to lapse by the Company. -50- 54 1.9 PURCHASER'S KNOWLEDGE In respect of any Warranty Claim to the extent that the relevant facts, matters or circumstances giving rise to the claim were within the actual knowledge of the Purchaser or its directors and were actually known by the Purchaser or its directors to constitute a breach of the Warranties prior to the Completion Date. 1.10 NET BENEFIT In respect of any claim for any losses suffered by the Purchaser as a consequence of any breach of the Warranties to the extent of any corresponding savings by or net benefit to the Purchaser or any subsidiary or holding company of the Purchaser arising from the facts or matters giving rise to such breach. 2. MITIGATION OF LOSS The Purchaser shall procure that all reasonable steps are taken and all reasonable assistance is given to avoid or mitigate any losses which in the absence of mitigation might give rise to a liability in respect of any claim under this Agreement. 3. CONDUCT OF CLAIMS 3.1 If the Purchaser becomes aware that any matter may give rise to a claim against the Vendor under the Warranties notice of that fact shall be given as soon as reasonably practicable to the Vendor and in any event within ten working days of becoming so aware; 3.2 Without prejudice to the validity of the claim or alleged claim in question, the Purchaser shall, and shall procure that the Company shall, for the purpose of investigating the matter or circumstances alleged to give rise to such claim, and whether and to what extent any amount is payable in respect of such claim give the Vendor and its accountants and professional advisers all such information and assistance as the Vendor or -51- 55 its accountants or professional advisers may reasonably request, including (upon reasonable notice and at reasonable times) access to premises and personnel and the right to examine and copy or photograph any assets, accounts, documents and records in relation to the matter or circumstance alleged to give rise to such claim or in relation to the issue of whether and to what extent any amount is payable in respect of such claim provided that nothing in this paragraph 3 shall require disclosure to the Vendor of or the giving of access to any information protected by legal privilege or which is advice relating to the validity of a claim by the Purchaser under this Agreement or the Tax Deed. 3.3 If the claim in question is a result of or in connection with a claim by or liability to a third party then: (i) subject as provided in paragraph (ii) below no admission of liability shall be made by or on behalf of the Purchaser or the Company and the claim shall not be compromised, disposed of or settled without the consent of the Vendor (such consent not to be unreasonably withheld or delayed); (ii) the Vendor shall be entitled at its own expense in its absolute discretion to take such action as it shall deem necessary to avoid, dispute, deny, defend, resist, appeal, compromise or contest such claim or liability (including, without limitation, making counterclaims or other claims against third parties) in the name of and on behalf of the Purchaser or the Company and to have the conduct of any related proceedings, negotiations or appeals; PROVIDED ALWAYS THAT if the Purchaser is able to produce reasonable evidence that commencement of proceedings would materially prejudice the goodwill of the Company, the Vendor shall not be entitled to proceed unless the Vendor is able to produce evidence in the form of an opinion of a leading counsel -52- 56 who is reasonably acceptable to the Purchaser that, on the evidence then available to him, the claim in question has a prima facie chance of success and provided further that in the event that the case is decided against the Vendor (or the person on whose behalf it has pursued such claim), the Vendor shall be liable for the full amount of any award or judgment made; and (iii) the Purchaser will give, subject to an undertaking by the Vendor to pay all reasonable costs and expenses thereof, all such information and assistance, including access to premises and personnel, and the right to examine and copy or photograph any assets, accounts, documents and records, for the purpose of avoiding, disputing, denying, defending, resisting, appealing, compromising or contesting any such claim or liability as the Vendor or its professional advisers reasonably request. The Vendor agrees to keep all such information confidential and only to use it for such purpose; (iv) in connection with any proceedings conducted by the Vendor pursuant to sub-paragraph (ii) above, the Vendor shall (a) give to the Purchaser all such information and assistance as the Purchaser may reasonably request, for the purpose of monitoring the progress of such action provided that nothing in this paragraph 3 shall require disclosure to the Purchaser of any information protected by legal privilege or which is advice relating to the validity of a claim by the Vendor under this Agreement or the Tax Deed and provided further that any information disclosed to the Purchaser pursuant to this paragraph (iv)(a) shall be and shall be kept by the Purchaser, strictly confidential; and (b) consult with the Purchaser on a regular basis and as -53- 57 and when the Purchaser may reasonably request on the progress of the proceedings in question and any steps to be taken in connection therewith. 4. PRIOR RECEIPT If the Vendor pays an amount in discharge of any Warranty Claim and the Purchaser subsequently recovers (whether by payment, discount, credit, relief or otherwise) from a third party a sum which is referable to the subject matter of the claim and which would not otherwise have been received by the Purchaser, the Purchaser shall notify the Vendor of that fact as soon as reasonably practicable giving reasonable details of the amounts recovered, shall give to the Vendor such further information as the Vendor may reasonably request in relation to such recovery and shall pay to the Vendor an amount equal to (i) the sum recovered from the third party less any costs and expenses incurred in obtaining such recovery and any Taxation thereon or (ii) if less, the amount previously paid by the Vendor to the Purchaser. 5. DOUBLE CLAIMS The Purchaser shall not be entitled to recover from the Vendor under this Agreement or the Tax Deed to the extent that recovery has already been made in respect of the same damage suffered, and accordingly the Vendor shall not be liable in respect of any breach of the Agreement if and to the extent that the losses are or have been included in a claim under the Tax Deed which has been satisfied, nor shall the Vendor be liable in respect of a claim under the Tax Deed if and to the extent that the losses are or have been included in a claim for breach of the Agreement which has been satisfied. 6. TAX In calculating the liability of the Vendor for any breach of the Warranties there shall be taken into account the amount (if any) by which any Taxation for which the Purchaser would otherwise have been accountable or liable to be assessed in respect of the matter giving rise to the breach in question had no such breach -54- 58 occurred is actually reduced or extinguished as a direct result of the matter giving rise to such breach. 7. TAX DEED In respect of any claim under the Tax Deed not being a claim in respect of Taxation which is not the primary liability of the Company if the amount of the claim does not exceed L.5,000 (save that claims relating to a series of connected matters shall be aggregated for this purpose) and the Vendor shall not be liable for a claim exceeding the limit specified in this paragraph 7 unless the liability determined by the Relevant Tax Authority or a competent court or agreed between the Parties in respect of such claim (excluding interest but including costs, expenses, fines and penalties) also exceeds that amount. -55- 59 SIGNED BY ) for and on behalf of ) /s/ C.L. HASLAM KRUG INTERNATIONAL (UK) LIMITED ) in the presence of /s/ J.M. CLAMP SOLICITOR SIGNED BY J.P. BUCK ) for and on behalf of ) /s/ JOHN P. BUCK BLAKEDEW NINETY FOUR LIMITED ) /s/ H.P. BARRETT-HAUGE SOLICITOR -56- EX-10.2 3 DEED OF TAX COVENANT - 4/16/98 1 EXHIBIT 10.2 DATED 16th April 1998 KRUG INTERNATIONAL (UK) LIMITED - AND - BLAKEDEW NINETY FOUR LIMITED --------------------------------------- DEED OF TAX COVENANT --------------------------------------- NEW COURT, 1 BARNES WALLIS ROAD SEGENSWORTH, HAMPSHIRE PO15 5UA REF: ELY.79 2 TABLE OF CONTENTS
CLAUSE HEADING PAGE NUMBER - ------ ------- ----------- 1. Definitions and interpretation 2. Covenant 3. Exclusions 4. Overprovisions and savings 5. Recovery from other persons 6. Disputes and conduct of claims 7. Tax returns 8. Due date of payment and interest 9. Deductions and Withholdings 10. Enforceability 11. Release 12. Assignability 13. General 14. Notices 15. Governing Law and Jurisdiction The First Schedule
3 THIS DEED made the 16th day of April 1998 BETWEEN : (1) THE PERSON whose name and address is set out in the First Schedule hereto (the "Covenantor"); and (2) BLAKEDEW NINETY FOUR LIMITED a company registered under number 3516383 and whose registered office is at New Court, 1 Barnes Wallis Road, Segensworth, Fareham, Hampshire PO15 5UA (the "Purchaser" which expression shall, unless the context does not so permit, include its successors in title). WITNESSES as follows 1. DEFINITIONS AND INTERPRETATION In this Deed 1.1 except where otherwise provided or unless there is something in the subject matter or context inconsistent therewith, words and expressions defined in the Agreement have the same meaning:- 1.2 the following words and expressions have the meanings set under them:- "AGREEMENT" 1.2.1 the agreement of even date herewith between the Covenantor and the Purchaser for the sale and purchase of the Sale Shares; "BUSINESS DAY" 1.2.2 a day (other than a Saturday) when banks are open for transaction of normal banking business in London; "CLAIM" 1.2.3 any assessment, notice, demand, letter or other document issued or action taken on behalf of any Tax Authority from which it appears that the Company is or -1- 4 may be placed under a Liability for Taxation (as hereinafter defined); "COMPANY" 1.2.4 Sowester Limited a company registered under number 463358 whose registered office is at Stinsford Road, Nuffield Industrial Estate, Poole BH17 0SW; "COMPLETION" 1.2.5 completion of the sale and purchase of the Sale Shares under the Agreement; "COMPLETION ACCOUNTS DATE" 1.2.6 means 31 March 1998; "DISTRIBUTION" 1.2.7 includes anything which is or is deemed to be a dividend or distribution for the purposes of any Taxation and shall also include any other Event which gives rise to an obligation to account for advance corporation tax or amounts corresponding to or similar to advance corporation tax; "EVENT" 1.2.8 includes (without limitation) any payment, transaction act omission any change in the residence of any person for the purpose of any tax, the death of any person and a failure to take any action which would avoid an apportionment or deemed distribution of income whether or not the Company or the Purchaser is a party thereto and including Completion and references to an Event occurring on or before any date or time shall include an Event deemed pursuant to any Taxation Statute, to occur or be treated or regarded as occurring on or before that date or time; "LIABILITY FOR TAXATION" 1.2.9 any liability of the Company to make a payment of or in respect of Taxation and also:- -2- 5 1.2.9.1 the loss, counteraction, nullification, disallowance or clawback for whatever reason of any relief, to the extent that such relief is treated as an asset in preparing the Completion Accounts or is taken into account in computing (and so reducing or eliminating) any provision which appears, or which but for the presumed availability of the relief in question would have appeared, in the Completion Accounts (an "Accounts Relief"); 1.2.9.2 the nullification, cancellation or set-off of a right to repayment of Taxation to the extent that such repayment is treated as an asset in preparing the Completion Accounts or is taken into account in computing (and so reducing or eliminating) any provision which appears, or which but for the presumed availability of the relief in question would have appeared in the Completion Accounts (an "Accounts Relief"); and 1.2.9.3 the set-off against, income profit or gains earned accrued or received on or before the date hereof of any relief to the extent that such was treated as an asset in the Completion Accounts or any relief, allowance or credit which is not available before the date hereof but arises after the date hereof in circumstances where, but for such set-off the Company would have had an actual Taxation liability in respect of which the Purchaser would have been able to make a claim against the Covenantor under this Deed; and:- in a case within paragraph 1.2.9.1 and 1.2.9.3 above the amount of the relief, allowance or credit or if such relief allowance or credit is a deduction from or set-off against gross income profits or against the amount of Taxation which would on the basis of tax rates current at the date of such loss counteraction nullification disallowance or clawback have been saved thereby but for such loss, counteraction nullification disallowance or clawbacks; or:- in a case within paragraph 1.2.9.2 above the amount of the repayment which would otherwise have been obtained shall be treated as an amount of Taxation for which a liability on the Company has arisen and fallen due; and in this Deed references to "relief" means any -3- 6 loss, allowance, exemption, set-off, deduction, credit or other relief from or relating to Taxation or to the computation of income, profits, or gains for the purposes of any Taxation and or right to repayment of Tax. "TAX AUTHORITY" 1.2.10 any taxing or other authority (whether within or outside the United Kingdom) competent to impose any Liability for Taxation. "TAXATION STATUTE" 1.2.11 any statute, enactment, law, regulation or arrangement wheresoever enacted or issued coming into force or entered into providing for or imposing any Taxation; 1.3 headings are for convenience only and shall not affect the interpretation hereof; 1.4 references to any statutory provisions shall include any statute or statutory provision which amends extends consolidates or replaces the same or which has been amended extended consolidated or replaced by the same and shall include orders regulations instruments bye-laws and other subordinate legislation made under the relevant statute or statutory provision; 1.5 references to any income profits or gains earned accrued or received on or before a particular date or time or in respect of a particular period shall include any income profits or gains deemed pursuant to any relevant Taxation Statute to have been or treated or regarded as earned, accrued or received on or before that date or time or in respect of that period of the purpose of any Taxation; 1.6 unless the context otherwise requires the singular shall include the plural and vice versa, the masculine shall include the feminine and references to persons shall include bodies corporate, unincorporated and associations and partnerships. -4- 7 2. COVENANT Subject as hereinafter provided the Covenantor hereby covenants with the Purchaser to pay to the Purchaser (so far as possible by way of repayment of the consideration payable under the Agreement) an amount equal to any of the following:- 2.1 any Liability for Taxation of the Company arising:- 2.1.1 as a consequence of or by reference to any Event which occurred on or before Completion or was deemed to occur on or before Completion for the purposes of any Taxation; or 2.1.2 in respect of or by reference to any income, profits or gains which were earned, accrued or received on or before Completion or in respect of a period ending on or before Completion; 2.2 any liability for Taxation of the Company arising as a consequence of or by reference to either of the following occurring or being deemed to occur at any time after Completion:- (i) the disposal by any Relevant Company of any asset or of any interest in or right over any asset which could arise under s.189 and s.191 TCGA 1992; or (ii) any Relevant Company ceasing to be resident in the United Kingdom for the purposes of any tax which could arise under s.132 FA 1988; or (iii) the making by any Relevant Company of any such payment or deemed payment as constitutes a chargeable payment for the purposes of section 214 ICTA; or (iv) the failure by any Relevant Company to pay such Taxation if the Company is liable therefor by reason of the operation of Sections 767A or 767B or Section 767AA of the ICTA. and for the purposes of this sub-clause, the term "Relevant Company" shall mean the Covenantor and any company other than the Company or the -5- 8 Purchaser or any company which the Company or the Purchaser comes to control at any time after Completion; 2.3 any liability of the Company to repay or the loss of the right to receive in whole or in part any payment for the surrender of group relief or of the benefit of any surplus advance corporation tax received or receivable by the Company pursuant to any agreement or claim made on or before the date hereof; 2.4 any Liability for Taxation for which the Company is liable as a result of being treated as a member of the same group with any body corporate for the purposes of Section 43 of the Value Added Tax Act 1994 during any prescribed accounting period (as defined in Section 25(1) of the Value Added Tax Act 1994) which ended on or prior to or was current on the date hereof and (so far as any such other bodies corporate are concerned with which it was on the date hereof or has previously been in such a group) the next following prescribed accounting period; and 2.5 all reasonable costs and expenses properly incurred by the Company or the Purchaser in connection with any Liability for Taxation, Claim or any liability or loss under this clause or successfully taking or defending any action under this Deed. 3. Exclusions 3.1 The Covenantor shall not be liable under clause 2 above in respect of any Liability for Taxation payable or which may become payable as is mentioned in clause 2 above to the extent that:- 3.1.1 such Liability for Taxation was discharged (whether by payment or by the utilisation of any relief allowance or credit in respect of Taxation) prior to 31 March 1998; or 3.1.2 recovery has been made in respect of the matter giving rise to such Liability for Taxation by the Purchaser under the Warranties; or 3.1.3 such Liability for Taxation would not have arisen but for or is increased by any voluntary act, omission, transaction or -6- 9 arrangement of the Company or any company controlled by the Purchaser or a person or persons controlling the Purchaser (construing "controlled" and "controlling" in accordance with section 416 of the ICTA) after Completion but only where the Company or the Purchaser knew or ought to have known that such act omission, transaction or arrangement would give rise to such Liability for Taxation or the extent of such Liability for Taxation and provided that this exclusion shall apply only to the amount of the increase and not to the Taxation which would otherwise have arisen and shall not apply to anything done or omitted to be done with the written request of the Covenantor or its professional representatives; or 3.1.4 such Liability for Taxation would not have arisen but for or has been increased by: (i) a disclaimer, claim or election made or notice or consent given after Completion by the Purchaser or the Company otherwise than at the request of the Covenantor under the provisions of this Deed; or (ii) a failure or omission by the Company to make any claim, election, surrender or disclaimer or give any notice or consent or do any other thing after Completion the making giving or doing of which was taken into account in computing any provision for Taxation in the Completion Accounts and the making giving or doing of which the Covenantor disclosed to the Purchaser in the Disclosure Letter or in writing a reasonable time before the claim etc is required to be made or done; or 3.1.5 such Liability for Taxation would not have arisen but for some Event occurring prior to Completion with the written approval of the Purchaser or its representative; or 3.1.6 such Liability for Taxation arises from any change in accounting or Taxation policy or practice of or affecting the Company, including the method of submission of Taxation returns, introduced or having -7- 10 effect on or after Completion except where such change in accounting policy is to bring the policy into line with generally accepted accounting principles; or 3.1.7 such Liability for Taxation consists of any amount payable to the Commissioners of Customs & Excise other than an amount payable under clause 2.5 of this Deed; or 3.1.8 such Liability for Taxation is on or in respect of any prepayments received by the Company in the ordinary course of business; being payments which are not taken into account in computing profits in the Completion Accounts; or 3.1.9 specific provision or reserve in respect of such Liability for Taxation was made in the Completion Accounts; or 3.1.10 such Liability for Taxation arises from an Event (including the disposal of a capital asset) in the ordinary course of business of the Company since the Completion Accounts Date provided that the following shall not be treated for these purposes as Taxation arising from an Event in the ordinary course of business:- (a) any Distribution; (b) the disposal or acquisition of any asset (including trading stock) or the supply of any services or business facility of any kind (including a loan of money or the letting, hiring or licensing of any tangible or intangible property) in circumstances where the consideration actually received (if any) for such disposal or acquisition or supply is less than or greater than the consideration deemed to have been received or paid for the purposes of any Tax where such disposal, acquisition or supply was:- (i) made at the request of the Vendor or a member of the Vendor's Group; or (ii) made to or by the Vendor or a member of the Vendor's Group; -8- 11 (c) the Company ceasing or being deemed to cease to be a member of any group of companies or associated with any other company for the purposes of any Tax; or (d) any Event or the earning of any income profits or gains which results in the Company becoming liable to pay or bear a tax liability chargeable directly or primarily against or attributable directly or primarily to another person (not being the Company); or (e) any other Event which gives rise to a tax liability on deemed (as opposed to actual) income, profits or gains being an Event; (i) which occurred at the request of the Vendor or a member of the Vendor's Group; or (ii) which involved a transaction or arrangement to which the Vendor or a member of the Vendor's Group was a party. 3.1.11 save where such Liability for Taxation in question falls within clause 2.2 of this Deed by virtue of the operation of clause 10.4 of this Deed; such Taxation arises or is increased as a result of any increase in rates of Taxation or the imposition of new Taxation legislation or any change in applicable law regulation or regulatory requirements or published practice of a Tax Authority made after Completion whether with or without retrospective effect. 3.2 The provisions of paragraphs 1.1, 1.4, and 7 of Schedule 6 and clause 24 in the Share Purchase Agreement shall have effect as if expressly incorporated into this Deed but the provisions of such Schedule shall not apply to any claim under this Deed which arises in consequence of the fraud wilful concealment or wilful default of the Covenantor its officers or employees. -9- 12 3.3 It is hereby agreed that the Purchaser shall not have any claim hereunder if any unutilised relief (not being an Accounts Relief as defined in clause 1.2.9.1) of the Company as at or arising before Completion shall prove to be unavailable or otherwise incapable of being utilised in reducing the profits of the Company earned, accrued or received on or after Completion or the Taxation liabilities of the Company in respect of any period after Completion. 4. OVERPROVISIONS AND SAVINGS 4.1 If:- 4.1.1 any provision for Tax (including deferred Tax) contained in the Completion Accounts shall at the date of any payment by the Covenantor pursuant to clause 2 be or have been (at the Covenantor's request and expense) certified by the Company's auditors for the time being to be an over-provision (hereinafter referred to as an "Over-provision"); or 4.1.2 the Liability for Taxation which has resulted in such payment by the Covenantor shall give rise to a corresponding saving for the Company (hereinafter referred to as a "Saving"); the value (as certified by the Company's auditors for the time being) of such Over-provision or Saving shall be set-off first against the payment then due from the Covenantor under this Deed and secondly (to the extent there is any excess) against any further such payment(s) in chronological order until exhausted PROVIDED THAT if it shall subsequently be found that an Over-provision or Saving so certified by the relevant Company's auditors was not in fact an Over-provision or Saving or the certified amount or value thereof was excessive, any amount which has been set-off under this clause in respect of such purported Over-provision or Saving shall on demand forthwith be paid by the Covenantor to the Purchaser . 4.2 If the Company or the Purchaser shall discover that there has been an Over-provision or Saving the Purchaser shall or shall procure that the Company concerned shall forthwith give such details as are then available thereof to the Covenantor and the Purchaser shall or shall procure that the Company concerned shall supply to the Covenantor such information as it may reasonably require to verify the amount of the Over-provision or Saving. -10- 13 4.3 For the purposes of clause 4.1 the Company obtains a Saving if as a result of the Taxation which results in a claim by the Purchaser hereunder the Company is relieved in whole or in part of a liability to make some other payment of Taxation which it would otherwise have been liable to make or obtains a right to repayment of Taxation which would not otherwise have been available. 5. RECOVERY FROM OTHER PERSONS 5.1 If, in the event of any payment becoming due from the Covenantor pursuant to clause 2, the Company either is immediately entitled at the due date for the making of that payment to recover from some other person (not being the Company but excluding any Tax Authority) any sum in respect of the Liability for Taxation that has resulted in that payment becoming due from the Covenantor, or at some subsequent date becomes entitled to make such recovery then the Purchaser shall or shall procure that the Company shall (in either of those cases) promptly notify the Covenantor of its entitlement and shall, if so required by the Covenantor and at the Covenantor's sole expense, procure that the Company take all appropriate steps to enforce that recovery (keeping the Covenantor fully informed of the progress of any action taken) and shall account within 14 Business Days to the Covenantor for whichever is the lesser of:- 5.1.1 any sum so recovered (including any interest or repayment supplement paid by the Tax Authority or other person on or in respect thereof less all costs of recovery to the extent not previously paid by the Covenantor and after deducting any Taxation chargeable on the Company in respect of the recovery in question); and 5.1.2 the amount paid by the Covenantor or pursuant to clause 2 in respect of the Liability for Taxation and not previously repaid to the Covenantor. 6. DISPUTES AND CONDUCT OF CLAIMS 6.1 If the Purchaser or (after Completion) the Company shall become aware of a Claim which could give rise to a liability on the Covenantor to make a payment under clause 2 of this Deed the Purchaser shall or shall procure that the -11- 14 Company shall as soon as reasonably practicable and in any event within 15 days of becoming aware of that Claim give written notice thereof to the Covenantor. 6.2 If the Covenantor shall (a) indemnify the Company and the Purchaser to the reasonable satisfaction of the Purchaser against all liabilities, costs, damages or expenses which may be incurred thereby including any additional Liability for Taxation; and (b) secure the Company and the Purchaser to the reasonable satisfaction of the Purchaser against all liabilities, costs, damages or expenses which may be incurred thereby including any additional Liability for Taxation which consists of interest on any unpaid Taxation; then the Purchaser shall procure that the Company shall take such action to avoid, dispute, defend, resist appeal or compromise the Claim as the Covenantor may by written notice reasonably request. 6.3 Subject as mentioned in clause 6.2 and subject to clauses 6.5 and 6.8 below and to the Covenantor complying with clause 6.4 below, the Covenantor may elect to have any action referred to in clause 6.2 conducted by professional advisers acting in the name of the Company but reporting to the Covenantor. 6.4 The Covenantor hereby undertakes to the Purchaser to: (a) keep the Purchaser informed of all matters relating to the action and deliver to the Purchaser copies of all material correspondence relating to the action; (b) obtain the prior written approval of the Purchaser (not to be unreasonably withheld or delayed) to the content and sending of written communications relating to the action to a Tax Authority; and (c) obtain the prior written approval of the Purchaser (not to be unreasonably withheld or delayed) to: -12- 15 (i) the settlement or compromise of the Claim which is the subject of the action; and (ii) the agreement of any matter in the conduct of the action which is likely to increase the amount of the Claim. 6.5 The Purchaser shall not be obliged to procure that the Company take any action under this clause (and the Covenantor shall not be entitled to take any action in the name of the Company) which (a) involves contesting any matter beyond the first appellate body (excluding the Tax Authority which has or shall have made the Claim in question and the general and special commissioners) unless the Covenantor furnishes the Purchaser with the written opinion of Counsel who has been practising in Taxation matters for at least five years to the effect that an appeal in respect of the matter in question has a reasonable prospect of being won; or (b) is likely to increase the liability of the Company to any Taxation without the prior written approval of the Purchaser and in a case falling within 6.5(b) above, the Purchaser shall not unreasonably withhold or delay its approval. 6.6 If there is a dispute between the Covenantor and the Purchaser as to whether any action requested by the Covenantor under clause 6.2 is reasonable or whether the withholding or delay of any approval required pursuant to clause 6.4(b) or 6.4(c) or clause 6.5(b) is reasonable and the dispute is not resolved between the Covenantor and the Purchaser, such dispute shall be referred for determination to an independent member of the Chartered Institute of Taxation or to an independent accountant specialising in Tax matters in either case of at least 10 years' experience, appointed by agreement between the Covenantor and the Purchaser or (if they do not agree) upon the application made by either party to the President for the time being of the Chartered Institute of Taxation who shall also be authorised to determine how the costs of obtaining his opinion should be allocated between the parties hereto. -13- 16 6.7 If any time the Covenantor has not exercised its right referred to in clause 6.3 in respect of any Claim but requests that the Purchaser take, or procure that the Company take, any action referred to in clause 6.2, the provisions of clause 6.4 shall apply as if references to "the Covenantor" are references to "the Purchaser" and reference to "the Purchaser" are references to "the Covenantor". 6.8 If the Covenantor does not request the Purchaser or the Company to take any action under clause 6.2 or 6.3 in respect of any Claim within 35 days of notice in writing from the Purchaser requesting it to indicate what action is required to be taken in respect of the relevant Claim or if Covenantor shall fail to indemnify or secure the Purchaser and the Company to their reasonable satisfaction in accordance with clause 6.2 within fifteen days of written notice having been given to the Covenantor requesting it to give such indemnity or security, the Purchaser or Company shall (without prejudice to its rights under this Deed) be free to pay or settle the Claim on such terms as the Purchaser or the Company may in its absolute discretion consider fit. 6.9 Neither the Purchaser nor the Company shall be subject to any claim by or liability to the Covenantor for non compliance with any of the foregoing provisions of this Clause 6 if the Purchaser or the Company has bona fide acted in accordance with the instructions of the Covenantor. 7. TAX RETURNS 7.1 The Covenantor or its duly authorised agents shall prepare the tax returns of the Company for all accounting periods ended on or prior to the Completion Accounts Date, to the extent that the same shall not have been prepared before Completion. 7.2 The Purchaser shall procure that the Company shall cause the returns mentioned in sub-clause 7.1 of this clause to be authorised, signed and submitted without delay to the appropriate authority without amendment or with such amendments as the Covenantor shall agree, and shall give the Covenantor or its agents all such assistance as may be required to agree those returns with the appropriate authorities; PROVIDED THAT the Company shall not be obliged to take and the Purchaser shall not be obliged to procure that the Company takes any such action as is mentioned in this sub-clause in relation to any tax return which is in the opinion of the Purchaser or directors of the Company is not full, true and accurate in all material respects. -14- 17 7.3 Nothing done by the Purchaser or the Company pursuant to this clause shall in any respect restrict or reduce any rights the Purchaser may have to make a claim against the Covenantor under this Deed in respect of any such tax liability as is mentioned in clause 2. 8. DUE DATE OF PAYMENT AND INTEREST 8.1 Where the Covenantor is liable to the Purchaser pursuant to the covenant contained in clause 2 above the following provisions shall apply in determining when a payment in respect of such liability shall be made. 8.1.1 In a case which involves and to the extent that it involves an actual payment of or in respect of Taxation by the Company the date that is three Business Days prior to the date on which the Taxation in question would have had to have been paid in order to prevent a liability to interest or a fine charge or penalty from arising in respect of the Liability to Taxation in question or as the case may be three Business Days prior to the date on which the Taxation in question must be paid in order to entitle the Company or the Purchaser to make an appeal against an assessment to the Taxation in question. 8.1.2 In a case falling within any of sub-paragraphs 1.2.9.1 to 1.2.9.3 or clause 2.3 the date falling fourteen days after the date when the Covenantor has been notified by the Company or the Purchaser that the auditors for the time being of the Company have certified, at the request of the Purchaser or the Company that the Covenantor has a liability for a determinable amount under clause 2. 8.1.3 In a case not falling within clauses 8.1.1 or 8.1.2 fourteen days after notice from the Purchaser of the liability to make the payment in question. 8.2 Any sums not paid by the Covenantor on the date specified in this Deed ("the Due Date") shall bear interest (which shall accrue day to day from the Due Date until the payment is actually made at the rate of 3% per annum over the -15- 18 base rate from time to time of The Governor and Company of the Bank of Scotland. 9. DEDUCTIONS AND WITHHOLDINGS 9.1 All sums payable by the Covenantor to the Purchaser under this Deed shall be paid free and clear of all counterclaims deductions or withholdings whatsoever save only as may be required by law. 9.2 If any deductions or withholdings are required by law to be made from any of the sums payable as mentioned in sub-clause 9.1 of this clause, the Covenantor shall be obliged to pay to the relevant person such sum as will, after the deduction or withholding has been made leave that person with the same amount as it would have been entitled to receive in the absence of any such requirement to make a deduction or withholding. 9.3 If any sum payable by the Covenantor to the Purchaser under this Deed (other than interest under clause 8.2) shall be subject to a tax liability in the hands of the Purchaser the Covenantor shall be under the same obligation to make an increased payment in relation to the tax liability as if the liability were a deduction or withholding required by law. 10. PURCHASER'S COVENANTS 10.1 The Purchaser hereby covenants with the Covenantor to pay to the Covenantor, by way of adjustment to the consideration for the Sale Shares an amount equivalent to:- 10.1.1 any Taxation for which the Covenantor, or any other person connected with the Covenantor falling within section 767A(2) or section 767AA(4) of the Taxes Act, becomes liable by virtue of the operation of sections 767AA, 767A and 767B of the Taxes Act in circumstances where the tax-payer company (as referred to in section 767(1)) or the transferred company (as referred to in section 767AA(1)) is the Company; and 10.1.2 any Taxation for which the Covenantor or any person connected with the Covenantor becomes liable under Section 179(11)or Section 190(1)TCGA as a result of the failure by the Company to discharge such Taxation. -16- 19 10.2 The covenant contained in clause 10.1 shall: 10.2.1 extend to any reasonable costs properly incurred by the Covenantor or such other person in connection with such Taxation or a claim under clause 10.1; 10.2.2 not apply to Taxation to the extent that the Purchaser is entitled to claim payment in respect of it under clause 2; and 10.2.3 not apply to Taxation which has been recovered under section 767(B)(2) of the Taxes Act or any other relevant statutory provision (and the Covenantor shall procure that no such recovery is sought to the extent that payment is made hereunder). 10.3 Clauses 6 and 8 (conduct of disputes and due date for payment) shall apply to the covenant contained in clause 10.1 as they apply to the covenants contained in clause 2, replacing references to the Covenantor by the Purchaser (and vice versa) and making any other necessary modifications. 10.4 For the purposes of this clause 10 and clause 2.2, it is assumed that section 767AA of the Taxes Act and the consequential amendments to be made on its enactment, are enacted in the form proposed in the Inland Revenue Press Release 16/98, dated 17 February 1998. If those provisions are amended before enactment, it is the intention of the parties that clause 10 and clause 2.2 shall still apply in relation to the enacted legislation in the same manner as it would apply in relation to the draft legislation in Press Release 16/98, mutatis mutandis. 11. ENFORCEABILITY For the avoidance of doubt the indemnity herein contained shall be enforceable before as well as after any payment covered by such indemnity has been made and in the event that any indemnity herein contained shall be found void but would be valid if the application thereof to a particular Claim, Event or form of Taxation were limited or deleted such indemnity shall apply with such modification as may be necessary to make it valid and effective. -17- 20 12. GENERAL 12.1 This Deed shall be binding upon and enure for the benefit of the successors in title of each of the parties hereto. 12.2 No variation hereof shall be effective unless in writing and executed as a Deed by the parties hereto. 12.3 This Deed may be executed in any number of counterparts all of which taken together shall constitute one and the same agreement and any of the parties hereto may execute this Deed by executing such a counterpart. 12.4 The rights and remedies of the Purchaser and the Company and/or the Covenantor under this Deed at law or in equity shall not be diminished or extinguished or deemed to be waived by the granting of any indulgence, forbearance or extension of time by any of them or by the failure of or delay by any of them in asserting any such rights or remedies. 12.5 The provisions of clause 12 (Assignment) 18 (Releases, Waivers etc by Purchaser), clause 20 (Law and Jurisdiction) and clause 24 (Notices) of the Agreement shall apply as if set out in full in this Deed. IN WITNESS whereof the parties hereto have executed this document as a Deed the day and year first above written. -18- 21 SCHEDULE 1 THE COVENANTOR
Name Address - ---- ------- Krug International Columbia Centre (UK) Limited Market Street Bracknell Berkshire RG12 1PA
-19- 22 EXECUTED AS A DEED (AND DELIVERED ) [/s/ C.L. HASLAM when dated) ) ------------------------------- KRUG INTERNATIONAL (UK) LIMITED ) DIRECTOR ) ) [/s/ ROBERT M. THORNTON, JR. ------------------------------- DIRECTOR EXECUTED AS A DEED (AND DELIVERED ) [/s/ JOHN P. BUCK when dated) ) ------------------------------- BLAKEDEW NINETY FOUR LIMITED ) DIRECTOR on behalf of ) ) [/s/ ROBERT M. EDMOND in the presence of:- ) ------------------------------- SECRETARY ------------------------------- ------------------------------- -20- EX-10.3 4 KRUG INTERNATIONAL CORP. NEWS RELEASE - 4/16/98 1 EXHIBIT 10.3 [KRUG INTERNATIONAL LETTERHEAD] FOR IMMEDIATE RELEASE NEWS RELEASE CONTACT: C. L. HASLAM, CHAIRMAN & CEO (202) 537-5900 ROBERT M. THORNTON, JR., PRESIDENT (770) 933-7000 KRUG INTERNATIONAL ANNOUNCES SALE OF LEISURE MARINE SUBSIDIARY AND STOCK REPURCHASE PROGRAM Houston, Texas (Apr 16, 1998) -- KRUG International Corp. (AMEX:KRG) today announced that it sold its U.K. leisure marine subsidiary, Sowester Limited, to Sowester's management for approximately $15,000,000, comprised of approximately $8,100,000 in cash, deferred payments of approximately $800,000 due within one year and the assumption of approximately $6,100,000 of Sowester debt. KRUG expects to realize no material gain or loss from the transaction, which is subject to adjustment based on the audit of Sowester's financial statements for the year ended March 31, 1998. KRUG also announced that its Board of Directors has authorized the Corporation to repurchase for cash in the open market up to 200,000 shares of the Corporation's common stock, approximately 4% of its outstanding shares. C.L. Haslam, Chairman and CEO of the Corporation commented, "Sowester, which contributed approximately 25% of our 1997 annual revenues, is a very specialized business requiring substantial industry expertise and management effort. The sale of Sowester allows us to redeploy capital and continue our efforts to redefine KRUG's focus. We believe the sale, together with our share buyback program and continuing search for suitable acquisitions, is a significant step toward our objective of increasing shareholder value." This press release contains forward-looking information. The forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be significantly impacted by certain risks and uncertainties described herein and in KRUG's Annual Report on Form 10-K filed with the Securities and Exchange commission for the year ended March 31, 1997. -30- EX-99.1 5 PRO FORMA STATEMENT OF EARNINGS 1 EXHIBIT 99.1 KRUG INTERNATIONAL CORP. PRO FORMA STATEMENT OF EARNINGS (in thousands, except per share amounts) (unaudited) The following pro forma statements of earnings reflect the sale of the Corporation's U.K. subsidiary Sowester Limited and the merger of the Corporation's U.S. subsidiaries KRUG Life Sciences Inc. and Technology Scientific Services, Inc. with Wyle Laboratories, Inc. as if such sale and merger had occurred on April 1, 1996. Pro forma adjustments exclude nonrecurring credits and charges and related tax effects. Specifically, the pre-tax gain on the merger transaction with Wyle Laboratories, Inc. of approximately $3.0 million, merger cost of approximately $0.03 million and any gain on sale of Sowester (which the Corporation believes will be immaterial) have been excluded. These statements should be read in conjunction with the attached pro forma balance sheet and notes thereto, and the financial statements and notes thereto contained in the Corporation's Annual Report on Form 10-K for the year ended March 31, 1997 and Report on Form 10-Q for the quarterly period ended December 31, 1997, which are incorporated by reference herein.
YEAR ENDED MARCH 31, 1997 ------------------------- SUBSIDIARIES MERGED ADJUST- AS WITH WYLE SOWESTER MENTS AS REPORTED LABORATORIES LIMITED (1) ADJUSTED ----------------------------------------------------------------------------- Revenues $ 111,739 $ (49,933) $ (28,658) $ 33,148 Cost of goods sold 96,930 (45,290) (22,257) 29,383 Selling and administrative 9,448 (1,126) (3,676) 4,646 Restructuring charge 530 530 Interest 995 (387) (59) 549 Other income - net 75 75 Equity in Earnings of Wyle Laboratories, Inc. 877 877 ---------------------------------------------------------------------------- Earnings (loss) from Continuing Operations before Income Taxes 3,911 (3,130) (2,666) 877 (1,008) Income Taxes 1,359 (1,064) (820) (525) ---------------------------------------------------------------------------- Earnings (loss) from Continuing Operations $ 2,552 $ (2,066) $ (1,846) $ 877 $ (483) ============================================================================ Net Earnings (loss) per Share from Continuing Operations - Basic $ 0.50 $ (0.09) ============== ============= Net Earnings (loss) per Share from Continuing Operations - Diluted $ 0.49 $ (0.09) ============== ============= Share used in computing Net Earnings (loss) per Share from Continuing Operations - Basic 5,134 5,134 ============== ============= Share used in computing Net Earnings (loss) per Share from Continuing Operations - Diluted 5,192 5,192 ============== =============
(1) Adjustments reflect pro-forma earnings, after taxes, on equity investment in Wyle Laboratories, Inc. for the twelve months ended December 31, 1996. 2 KRUG INTERNATIONAL CORP. PRO FORMA STATEMENT OF EARNINGS (in thousands, except per share amounts) (unaudited)
NINE MONTHS ENDED DECEMBER 31, 1997 ----------------------------------- SUBSIDIARIES MERGED ADJUST- AS WITH WYLE SOWESTER MENTS AS REPORTED LABORATORIES LIMITED (1) ADJUSTED ----------------------------------------------------------------------------- Revenues $ 93,303 $ (35,987) $ (23,732) $ 33,584 Cost of goods sold 81,240 (32,902) (18,087) 30,251 Selling and administrative 9,009 (733) (3,284) 4,992 Restructuring charge 547 547 Interest 886 (255) (46) 585 Other income - net 855 (1) 854 Equity Earnings of Wyle Laboratories, Inc. 1,253 1,253 ---------------------------------------------------------------------------- Earnings (loss) from Continuing Operations before Income Taxes 2,476 (2,098) (2,315) 1,253 (684) Income Taxes 1,016 (714) (741) (439) ----------------------------------------------------------------------------- Earnings (loss) from Continuing Operations $ 1,460 $ (1,384) $ (1,574) $ 1,253 $ (245) ============================================================================= Net Earnings (loss) per Share from Continuing Operations - Basic $ 0.28 $ (0.05) ============== ============== Net Earnings (loss) per Share from Continuing Operations - Diluted $ 0.28 $ (0.05) ============== ============== Share used in computing Net Earnings (loss) per Share from Continuing Operations - Basic 5,160 5,160 ============== ============== Share used in computing Net Earnings (loss) per Share from Continuing Operations - Diluted 5,195 5,195 ============== ==============
(1) Adjustments reflect pro-forma earnings, after taxes, on equity investment in Wyle Laboratories, Inc. for the nine months ended December 31, 1997. EX-99.2 6 PRO FORMA BALANCE SHEET AS OF 12/31/97 1 EXHIBIT 99.2 KRUG INTERNATIONAL CORP. PRO FORMA BALANCE SHEET (in thousands, except per share amounts) (unaudited) The following pro forma unaudited balance sheet reflects the sale of the Corporation's U.K. subsidiary Sowester Limited and the merger of the Corporation's U.S. subsidiaries KRUG Life Sciences Inc. and Technology Scientific Services, Inc. subsidiaries with Wyle Laboratories, Inc. as if such sale and the merger had occurred on December 31, 1997. This statement should be read in conjunction with the attached pro forma statements of earnings and notes thereto, and the financial statements and notes thereto contained in the Corporation's Annual Report on Form 10-K for the year ended March 31, 1997 and Report on Form 10-Q for the quarterly period ended December 31, 1997, which are incorporated by reference herein.
AS OF DECEMBER 31, 1997 --------------------------------------------- SUBSIDIARIES MERGED ADJUST- ADJUST- AS INTO WYLE SOWESTER MENTS MENTS REPORTED LABORATORIES LIMITED (1) (2) AS ADJUSTED ------------------------------------------------------------------------------------- CURRENT ASSETS: CASH $ 2,101 $ (22) $ (1,596) $ 3,052 $ 11,273 $ 14,808 RECEIVABLES 22,860 (11,069) (3,199) 825 9,417 INVENTORIES 13,347 (110) (8,226) 5,011 PREPAID EXPENSES 1,401 (349) (132) 920 ------------------------------------------------------------------------------------ TOTAL CURRENT ASSETS 39,709 (11,550) (13,154) 3,052 12,098 30,156 PROPERTY, PLANT AND EQUIPMENT, NET 11,059 (238) (5,500) 5,321 OTHER LONG TERM ASSETS 6,151 298 11,065 (930) (12,044) 4,540 ------------------------------------------------------------------------------------ TOTAL ASSETS $ 56,919 $ (11,490) $ (7,589) $ 2,122 $ 54 $ 40,016 ==================================================================================== CURRENT LIABILITIES: ACCOUNTS PAYABLE $ 12,614 $ (2,759) $ (2,714) 7,141 OTHER CURRENT LIABILITIES 9,791 (2,674) (2,413) $ 130 $ 54 4,888 ------------------------------------------------------------------------------------ TOTAL CURRENT LIABILITIES 22,405 (5,433) (5,127) 130 54 12,029 LONG-TERM DEBT 14,882 (6,057) (2,461) -- 6,364 SHAREHOLDERS' EQUITY: COMMON SHARES 2,593 2,593 ADDITIONAL PAID-IN CAPITAL 4,523 34 4,557 RETAINED EARNINGS 11,426 1,958 13,384 FOREIGN CURRENCY - TRANSLATION ADJUSTMENT 1,090 1,090 ------------------------------------------------------------------------------------ TOTAL SHAREHOLDERS' EQUITY 19,632 -- -- 1,992 -- 21,624 ------------------------------------------------------------------------------------ TOTAL LIABILITIES AND EQUITY $ 56,919 $ (11,490) $ (7,589) $ 2,122 $ 54 $ 40,017 ====================================================================================
(1) Adjustments reflect cash received from Wyle Laboratories, Inc. pursuant to the merger and the gain recognized, net of applicable taxes and merger costs accrued by KRUG. (2) Adjustments reflect cash received from sale of Sowester, taxes payable on the sale and deferred sales proceeds. Approximately $6.1 million cash from the Sowester sale is held as collateral under the Corporation's U.K. credit facility. -----END PRIVACY-ENHANCED MESSAGE-----