Document Vjj4R7oK9avjpvjzMwN0r60Zw

a* HEADS OF AGREEMENT BETWEEN TURNER l NEKALL LIMITED AND MAR5MQNT CORPORATION Hay 10, 1977 Th following summarizes th principal terms and conditions of th proposed acquisition by Turner i Newell Limited, a U.K. company,through a wholly owned U.S. subsidiary (TIN), of an 80 percent Interest * In certain spaclffed assets of Maremont Corporation, a Delaware corpora* tlon (n/, uses (n M's friction material, brake and Leland and Heavy Duty operations. It Is the understanding of the parties that the trans action Is subject to the approval of the Boards of Directors of both parties anc to the execution of definitive agreements between the parties containing appropriate terms, conditions, representations, warranties and covenants as summarized In this memorandum. * 1. Organization of New Corporation. The parties will cause to be organized a new Oelaware corporation (N) to acquire the assets and assume the liabilities specified In the acquisition agreement. 80 .. percent of the Issued and outstanding capital stock of H Is to be held Initially by TIN and 20 percent by M. Cost of organization of N will be borne by N. 2. Capitalization of N. Subsequent to the Initial contrl- C butlon-of capital by M and TIN, the parties will use their.best efforts ' to raise additional funds needed to operate the business of N for the first five years through debt financing rather than equity financing. M will not be required to contribute additional equity cr debt subsequent '"iwjiuju MAR 001287 to completion of the Initf*T capitalization arrangements. In the event that additional equity capital Is Issued which reduces H's Interest In N to less then IS percent, and M does not wish to purchase additional equity In M, H may thereafter require TIN to purchase Its stock In N at net book value per share In accordance with the terms of paragraph 8. herein. 3. Closing Date. The closing will take place In Chicago, Illinois on June 30, 1977, or at such other date and place as may be mutually agreed to by the psrMes. 4. Purchase Price. The purchase price will be an amount equal to the net book value on the closing date of the assets to be acquired less the liabilities assumed and less calculated In accordance with the principles set forth In the agreement, as summarized herein. H *111 pay on the closing date 20 percent of the purchase price to H In the form of 20 percent of the shares of capital stock of N. TW will cause 11 to pay 80 percent of the purchase price In cash as follows: t |^^Q^on the closing date.Q^Jpon December 31, 1977 and the balance within seven days of completion of the audits'referred to In paragraph 15 hereof or ninety days from the closing date, whichever Is earlier. In the event the audits a not completed within ninety days, .the balance payable by N will be based on the estimated net book value set forth In the agreement, and provision will be made for subsequent adjustment of the purchase price based on the results of the audits. 5. Assets. Except as otherwise specified, N will acquire all assets of H associated with M's friction material, brake and Island and 2 2. MAR 001288 Heavy Outy operations, Including but m,\ limited to Inventory, accounts receivable, fixed assets', cash, prepaid expenses (including prepaid insurance, prepaid rent and vandor prepayments), which assets will be identified In the agreement. H will not acquire assets which under the terms of on-going arrangements have been transferred to other divisions of M (e.g., brake shoes In custody of M's Uorldparts Division), assets used by M Jointly in the operations being sold and operations being retained, accounts receivable from Sears, and the credit balance In M's operating bank account. 6. Liabilities. (a) N will assume specified liabilities of M existing at the closing date associated with M's friction material, brake, Island and Heavy Outy operations, Including (1) accounts payable, (11) accrued expenses consisting of payroll withholdings, accrued pay roll, accrued taxes, accrued vacation pay at the Paulding facility and accrued management and sales bonuses, (ill) accrued expenses with customers consisting of credits for certain nondefective merchandise returns, warranty claims and cash discounts, (iv) all liabilities used In the determination of the purchase price, (v> all liabilities under leases, contracts and other'agreements of M to be assigned to X, (vl) all liabilities for N's pro rata share of .real estate and personal property taxes due after the closing data, and (vli) all liabilities and obligations under outstanding purchase orders and commitments. X will assume no liabilities other than those specified in the agreement. 3. MAR 001289 (b) H will retain llablllt 'or all liabilities other than those *frspecifically assumed by N. 7. Book Value. Book velue of the assets being acquired and the liabilities being assumed will be determined on the basis of gener ally accepted accounting principles consistently applied by M as modi fied by the provisions of the agreement with respect to Inventory, pre paid expenses, accrued employee benefits, customer credits and net fixed assets. 8. Rights of Shareholders. A separate sha-sholdsrs egroament will be.executed between the parties relating to the following'matters, amcr.g others. H will be entitled to one representative on the Board of Ofrectors of N, so long as It retains a IS percent equity interest tn N. M can require TIN to purchase Its stock of N at current book value per share (1) if the book value per share of N falls below 75 percent of the book value per share on the closing date or (11} upon the completion of the five year period following the closing date or at any time thereafter. TJX can require M to sell to T&.N Its stock of X during the five year t period foil owing the closing date at current book value per share or book value' oer share at the closing date, whichever Is higher. In each of the foregoing cases, the rights of purchase and sale referred to. above may only be exercised upon thirty days written notice to be given during the calendar month of March In any year, and current book value per ihare shall be determined on the basis of the audited financial statements as of December 31 of the preceding year. M will have the right to Inspect books, properties, etc., of fl at any time upon reason able notice to N so long as M retains a IS percent Interest In N. a. yneqwjyy mmtmm MAR 001290 oo s ) 9. Account! Receivable. A--iunts receivable other than from mployees will be purchased by M it fiea value it the dosing data. Unlass otherwise Identified, futura payments ricaivad from customers will be ippliad first to the balances outstanding on the'dosing data. Ouring the period 91 days to nine months following the dosing data, M and N will Jointly attempt to resolve disputes and other uncollected balances. At the end of nine months, H will buy back uncollected balances at face value. N will purchase employee accounts receivable at the dos ing at faca va'ue, not to exceed 10. Inventory. A physical inventory will be taken as of the dosing .data. Inventory will be counted and valued at M's 1977 standard cost. The techniques described in M's Oivlsion Accounting Policy, a eopy of which has been provided to UN, will be used to bring inventory values to PIF0 cost and to determine the reserve for excess end obso lescence^ H will guarantee to.recover from Sears within one year the full cost of any excess Inventory unique to Sears existing at the dosing date. 11. Covenants of M. (a) M *111 use Its best efforts for three years to preserve the existing relationship with Sears as described In material fur nished to TAN in Exhibit III-3. (b) H will use its best efforts for three years to preserve for N the benefits of the favorable rates arising from the use of the existing transportation network, as described in materiel furnished to TAN in Exhibit S S. m MAR 001291 3O (O M will supply N with e--jjnt1ng and EDP services at th charges *t forth In Exhibit III-O furnished.by M to TLS. (d) H will use Its best efforts to Include N in H's group Insurance coverege for three years end to obtain trensfers to N of Individual policies presently applicable to the operations being acquired by N. (e) M undertakes to fulfill the obligations with respect to pension plans sat forth In Exhibit IY-8 furnished by M to TJN. (f) K will use Its best efforts to secure assignments of the Teases relating to real property, trucks, trailers, and equipment, union contracts and vendor contracts, referred to In Exhibit IY-0, relating to the operations being acquired. In the absence of as* slgnments of leases of real property, M covenants to sublease the premises to N. (g) Add additional customary covenants. 12. Covenants cf T&N. (a) Ourlng the three years, following the closing date, TIN will provide specified technical services to N at actual out-ofpccket cost and will charge no royalties to N. Subsequent to the three year period, TIN will charge N 3 percent of sales of products produced using TIN'S processes. (b) TIN undertakes to cause H to take prompt measures sub sequent to the dosing date to discontinue the current waste dis posal system at the Paulding plant. Including measures to clear or clean the site of the current waste disposal ponds, fill In the 6. MAR 001292 1 ponds and cover with frtsh soil - -t.-ovt the existing weste dis posal mounds. Ti'i undertakes to cause fi to complete these measures no later than Cecemter 31, 1978. (c) Add customary additional covenants. 13. Certain Indemnification Arrangements. M will agree to indrr.nli'y N for any losses suffered from (1) product liability claims not % covered by Insurance arising from products manufactured prior to the closing date, (11) liabilities for claims from employees not covered by applicable workmen's compensation laws for Injury or disease arising from, condition prevailIng .prior to the dosing date and (111)'claims by E?A, CSHA, or similar state or federal agencies or by other persons arising out of failure by M to have complied prior to the closing date with applicable environmental or saftty regulations relating to the use of t^e waste disposal ponds and waste mounds. In the current waste dis posal system at the Paulding plant, provided that such Indemnification shall not extend to losses suffered by N from claims arising out of the manner In which the corrective measures referred to In paragraph 12(b) are carried out. 14. Continuing Business Relationships Between M and M. (a) .It Is contemplated that M will sell certain products to N from time to time Including shock absorbers and pins and rollers. The terms of such sales will be governed for the three year period following the dosing by the principles set'forth In Exhibit III-A furnished to T&N by M, subject to modification or termination on six months prior written notice by H to .1. 7. MAR 001293 . (b) It Is expected that N 11 sell certain products to M frcn time to time, Including products for export through Its Inter national Olvlslon and products sold through Its Worldparts Olvlslon. The terms of such sales will be governed for the three year period following the closing date by the principles set forth In Exhibit 111-A furnished to M by T&N, subject to modification or termination on six months prior written notice by 11 to M. 15. Audit at June 30, 1977. Haskins & Sells will undertake a full audit of the balance sheet of the operations being acquired as of June 20, 1977. Arthur Andersen S Co. will review the determination of the purchase pries on behalf of M. The final purchase price will be determined on the basis of the audit and review and the principles set forth herein and In the agreement. In the event that Haskins l Sells and Arthur Andersen art unable to agree., a third Independent accounting firm mutually acceptable to the parties will be engaged to resolve any differences. IS. Representations and Warranties. Customary representations and warranties by Seller and Buyer will be Included In the acquisition agreement, .Including those relating to Incorporation and good standing; no violation of agreements or Instruments as a result of sale or purchase; title to assets being sold free and clear of liens; no litigation, pending claims, etc. relating to assets being sold; seller to continue to operate business In normal course; leases, contracts, etc.; all due corporate authorization of the transaction, etc. 8. MAR 001294 A 17. Conditions of Closing. (a) Approval by 8oardi of Director* of M and Turner and Newall Limited. (b) Receipt of any necessary approvals, Including formal approval by Bank of England of TIM'S purchase. (c) Receipt of legal opinions covering customary matters to be specified In acquisition agreement. The 'oregolng Is executed by the undersigned on the ICth day of May, 1977. MAREMOHT CORPORATION s By *-/ T-. / tr TURNER NiQ'NEWALL LIMITED C MAR 001295