SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 2, 1998
Commission file number 1-14182
.............
TB Wood's Corporation
................................................................................
(Exact name of registrant as specified in its charter)
Delaware 25-1771145
.................................. ....................
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
440 North Fifth Avenue, Chambersburg, PA 17201
........................................................ ..........
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (717) 264-7161
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
.................................. ....................................
Common Stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant based on the closing price on March 16, 1998, was $65,530,916. On
March 16, 1998, there were 5,859,286 shares of the registrant's common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 1997 Annual Meeting of Shareholders are
incorporated by reference into Part III hereof. Only those specific portions so
incorporated are to be deemed filed as part of this Form 10-K.
TB WOOD'S CORPORATION
1997 FORM 10-K ANNUAL REPORT
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TABLE OF CONTENTS
PART I ........................................................................3
Item 1. Business ............................................................3
Item 2. Properties ..........................................................8
Item 3. Legal Proceedings ...................................................8
Item 4. Submission of Matters to a Vote of Security Holders .................8
PART II .......................................................................9
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters .................................................9
Item 6. Selected Financial Data ............................................10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation .................................10
Item 8. Financial Statements and Supplementary Data ........................14
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure ................................34
PART III .....................................................................34
Item 10. Directors and Executive Officers of the Registrant ................34
Item 11. Executive Compensation ............................................34
Item 12. Security Ownership of Certain Beneficial Owners
and Management ....................................................34
Item 13. Certain Relationships and Related Transactions ....................34
PART IV ......................................................................34
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K ...............................................34
SIGNATURES ...................................................................37
2
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PART I
Item 1. Business
General
TB Wood's Corporation (the "Company" or "TB Wood's") is an established
designer, manufacturer and marketer of electronic and mechanical industrial
power transmission products. The Company was incorporated in 1995. In January
1996, a subsidiary of the Company merged with TB Wood's Incorporated ("TBW"), a
Pennsylvania Corporation that was formed in 1857, with TBW as the surviving
corporation in the merger. The Company's products are sold to North American and
international manufacturers and users of industrial equipment. Headquartered in
Chambersburg, Pennsylvania, the Company operates eleven production facilities
with over 1,100 employees in the United States, Canada, Mexico, Germany, and
Italy.
Industry Overview
The power transmission industry provides electronic and mechanical products
and systems used in automated manufacturing and material processing activities
that transfer power from a motor or engine to a machine. The power transmission
industry consists of three product categories: mechanical power transmission
components, gear boxes and electronic drives. The Company competes in the
electronic drives and mechanical power transmission components product
categories.
Products
The Company designs, manufactures and markets electronic and mechanical
power transmission products and systems. During 1997, 1996 and 1995, net sales
for these product offerings were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
Net Sales % Net Sales % Net Sales %
--------- - --------- - --------- -
Electronic power transmission
<S> <C> <C> <C> <C> <C> <C>
products and systems $44.0 35.5% $32.9 32.1% $34.2 33.4%
Mechanical power transmission
products and systems 80.0 64.5% 69.6 67.9% 68.1 66.6%
------------ ---------- ------------ ---------- ------------ ----------
$124.0 100.0% $102.5 100.0% $102.3 100.0%
------------ ---------- ------------ ---------- ------------ ----------
</TABLE>
Electronic Product Offering
The Company designs and manufactures Alternating Current ("AC") and Direct
Current ("DC") electronic drives, AC motor soft starters and brakes, and
integrated electronic drive systems which are marketed throughout North America
and internationally. These products are used to start, stop, and control the
speed of electric motors. The Company's standard AC electronic drive products,
which represent most of its electronic drive product offering net sales, are
programmable to meet the needs of general requirements with particular strengths
in food processing, materials handling, packaging and general machinery
applications. The Company's electronic products are designed to meet both North
American and European standards. The Company's integrated electronic drive
systems consist of uniquely configured AC and/or DC electronic drives,
programmable logic controllers and in-house designed custom software. These
systems are packaged in custom enclosures to meet the requirements of specific
applications.
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Mechanical Product Offering
The Company's mechanical product offering includes a full line of stock and
made-to-order products including V-belt drives, synchronous drives, open belted
variable speed drives, a broad line of flexible couplings, as well as
hydrostatic drives, mechanical clutches and brakes. These products are used in a
variety of industrial applications to transmit power from motors and engines to
machines. The primary markets for these products are the construction, oil field
and specialized industrial machinery, food processing, material handling, pumps,
compressors, mining, pulp and paper and agricultural equipment industries.
New Products
Since 1993, the Company has introduced a significant number of new
products. In 1993, the Company introduced the XFC E-trAC (registered trademark)
micro-electronic drive product line to complement the WFC E-trAC (registered
trademark), NEMA 4, AC Electronic drive product line. The Company introduced six
new electronic products during the past five years, including the new WFCHT line
of full-featured electronic drives that improve motor performance at low speeds,
thereby expanding the applications for these products. The Company also extended
its very successful line of XFC micro-inverters to 20 horsepower and the WFC
inverters to 75 horsepower. The Company introduced a line of electronic drives
for specific Original Equipment Manufacturer (OEM) applications that are more
cost-effective than using a general purpose electronic drive, a series of 575
volt electronic drives for the Canadian market, a new DVC line of
high-performance electronic drives for motor sizes up to 700 horsepower, and a
new step-precision winding technology for electronic drive systems used in the
synthethic fibers industry.
During the last five years, several new mechanical products (two
synchronous drives, one hydrostatic drive, and four couplings) have been
introduced. The new mechanical products include the Dura-Flex (registerd
trademark) coupling that expands the flexible coupling product line into higher
performance applications. During 1997, the Company expanded its coupling product
line by introducing axially-split and composite couplings.
Marketing and Distribution
The Company markets its products in North America and internationally. In
North America, the Company sells to selected, authorized, industrial
distributors which resell the Company's products to industrial consumers and
Original Equipment Manufacturers ("OEMs"). The Company also sells directly to
OEMs. The Company's products are sold principally throughout North America and,
to a lesser extent, internationally. The Company's marketing alliances include
licensing agreements and distribution agreements with distributors and
manufacturers which, in some cases, market the Company's products under private
label agreements. The Company has a technical sales force of approximately 40
people and several specialized manufacturers' representatives.
The Company operates central distribution centers in Chambersburg,
Pennsylvania; Stratford, Ontario and Mexico City, Mexico and regional
distribution centers in Atlanta, Georgia; Elk Grove, Illinois; Dallas, Texas;
Los Angeles, California; Portland, Oregon; Montreal, Quebec, Edmonton, Alberta
and Marienheide, Germany.
Most of the Company's products are manufactured to maintain stock
inventories, and on-time delivery is important, therefore order backlogs are
generally less than one month's shipments.
Acquisitions
TB Wood's seeks acquisitions that enhance product offerings, leverage fixed
costs, and extend global reach. In April 1993, the Company acquired several
lines of business including a flexible coupling and mechanical variable speed
drive product line as well as two manufacturing facilities. In January 1994, the
Company acquired Plant Engineering Consultants, Inc. ("PEC"), an integrated
electronic drive systems manufacturer and marketer.
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In early 1996, the Company acquired Grupo Blaju S.A. de C.V., providing a
leading market share position in belted drive components in Mexico and a strong
and cost-effective Mexican manufacturing operation. In October 1996, the Company
acquired the assets of Ambi-Tech Industries, Inc., a leading manufacturer of
electronic brakes. Ambi-Tech provides an important electronic product extension,
as well as new technical capability to support the Company's aggressive growth
plans in the electronics business. In November 1996, the Company acquired
certain assets of Deck Manufacturing, a producer of gear couplings. Deck
provides a valuable addition to the Company's line of couplings, the fastest
growing area of the Company's mechanical business. In May 1997 the Company
acquired Graseby Controls Inc. located in Greensboro, North Carolina. Graseby
Controls has a leading position in the machine tool spindle drive market with
its well-established Volkmann (TM) brand of high frequency, AC drives. In
December, 1997 the Company acquired Berges electronics GmbH headquartered in
Marienheide, Germany with operations in Germany and Italy. Berges designs,
manufactures and markets AC drives for the European markets.
The Company uses strategic alliances to gain access to technology and
products that can not be as easily or effectively obtained through internal
development or acquisition and to expand international market penetration. Since
1993 the Company has entered into six strategic alliances, the most recent being
TB Wood's Enertec Ltd. an electronic joint venture in India.
Customers
The Company's products are consumed principally by industrial users. The
Company's OEM customers include a number of Fortune 500 companies. The Company's
distributor customers include, among others, Motion Industries and Kaman
Industrial Technologies which are among the largest distributors in the
industry. In addition, the Company's distributors also sell to OEMs. Management
believes that the Company is one of the leading suppliers of power transmission
products, based on sales volume, to its distributors. The Company's five largest
customers accounted for approximately 30% of the Company's net sales in 1997.
Motion Industries accounted for approximately 20% of the Company's total net
sales in 1997 and has been a significant customer of the Company for more than
15 years.
Competition
The power transmission industry is highly competitive. Competitive factors
in the AC and DC electronic drive product categories include product
performance, physical size of the product, tolerance for hostile environments,
application support, availability and price. The Company's competitors in these
product categories include large multi-national companies in North America,
Europe and Asia, as well as many small, domestic niche manufacturers. The
integrated electronic drive system market is driven by increased demand for
greater speed and process control from end users. This market includes
maintenance and replacement of existing systems, upgrades to existing systems
and new capacity expansion. Competitive factors include process knowledge and
engineering, software design, product durability and price. Major competitors in
electronic products and systems include Control Techniques Drives, Inc./Emerson
Electric Co. Inc., Asea Brown Boveri, Allen Bradley and Siemens Corp. The
Company competes with several divisions of large industrial companies as well as
many small to mid-sized independent companies in the mechanical product
category. Competitive factors include availability, quality, price, size
capability, engineering and customer support. The Company's most significant
competitors in the mechanical product category include Dodge, Emerson Electric
Co. Inc., Martin Sprocket and Gear, Rexnord Corp. and Lovejoy Industries Inc.
Management believes there are no significant foreign competitors in the North
American mechanical product category market because of a fragmented customer
base, prohibitive freight costs as compared to selling price and difficult
access to existing distribution channels.
5
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Research and Development
The Company's research and development efforts include the development of
new products, the testing of products and the enhancement of manufacturing
techniques and processes. The Company's annual expenditures for research and
development (including royalties and payments to third parties) during the last
three fiscal years have averaged 3.0% of net sales, with a higher percentage
being spent on electronic products.
Raw Materials
The Company uses purchased standard components in all of its electronics
products. The Company also purchases components designed by its engineers. These
purchased components include transformers, aluminum heat sinks, plastic
enclosures and sheet metal stampings. These electronic parts and components are
purchased from a number of suppliers and management has taken steps to qualify
multiple sources for key items. The principal raw materials used in the
Company's mechanical manufacturing operations are various types of steel,
including pig iron, metal stampings, castings, forgings and powdered metal
components. The Company also designs, tools and outsources special components
made of aluminum, powdered metal and polymers. The Company purchases the
materials used in its mechanical manufacturing operations from a number of
suppliers and management believes that the availability of its materials is
adequate.
Patents and Trademarks
The Company owns patents relating to its coupling, composite, synchronous
drive, open belted variable speed drive, electronic drive and clutch/brake
product lines. The Company also owns several patents relating to the design of
its products. From time to time, the Company grants to others licenses under
certain of its patents and obtains licenses under the patents of others. In
addition, the Company owns, or has the right to use, registered United States
trademarks for the following principal products: Sure-Flex(R), Formflex(R),
Ultra-V(R), Roto-Cone(R), Var-A-Cone(TM), True Tube(TM), E-trAC(R), Ultracon(R)
and Fiberlink(TM).
Employees
As of January 2, 1998, the Company employed approximately 1,144 people.
Approximately 30 of the Company's hourly employees located at its Stratford,
Ontario facility are represented by the United Steelworkers of Canada pursuant
to a collective bargaining agreement dated January 20, 1995 that expired on
January 19, 1998. A new agreement is in effect as of January 20, 1998 and
expires on January 19, 2001. Approximately 100 of the Company's employees
located at its Mexico City, Mexico facility are represented by the National
Metal Workers' Union of Mexico pursuant to a collective bargaining agreement
that expired on January 31, 1998. A new agreement is in effect as of January 31,
1998 and expires on January 31, 1999.
Environmental Matters
As with most industrial companies, the Company's operations and properties
are required to comply with and are subject to liability under federal, state,
local and foreign laws, regulations and ordinances relating to the use, storage,
handling, generation, treatment, emission, release, discharge and disposal of
certain materials, substances and wastes. The nature of the Company's operations
exposes it to the risk of claims with respect to environmental matters and there
can be no assurance that material costs will not be incurred in connection with
such liabilities or claims.
Both the Mt. Pleasant, Michigan (the "Mt. Pleasant Facility") and the
Chambersburg, Pennsylvania (the "Chambersburg Facility") facilities had been
listed on the Comprehensive Environmental Response, Compensation, and Liability
Information System ("CERCLIS") (a list of sites maintained by the United States
Environmental Protection Agency ("USEPA") for which a determination was to be
made concerning whether
6
<PAGE>
investigation or remediation under CERCLA would be required). Both have been
designated by USEPA as requiring no further action under CERCLA; therefore, the
Company does not believe that material expenditures for these sites will be
incurred under the CERCLA program. However, this does not assure that such
expenditures would not be required under other federal and/or state programs.
The Mt. Pleasant Facility is currently listed on Michigan's inactive
hazardous waste site list pursuant to the Michigan version of CERCLA (formerly
known as "Act 307", amended and recodified on June 5, 1995 as Part 201 of the
Natural Resources and Environmental Protection Act ("Part 201")). The Mt.
Pleasant Facility was first placed on the Michigan hazardous waste site list in
1991, when the Facility was owned by Dana Corporation. When the Company acquired
the Mt. Pleasant Facility from Dana Corporation, the Asset Purchase Agreement
dated March 31, 1993 (the "Asset Purchase Agreement") included an environmental
indemnity provision. Pursuant to this provision, Dana Corporation agreed to
indemnify the Company with respect to any environmental liabilities to the
extent they arose out of environmental conditions first occurring on or before
the closing date, including the presence or release of any hazardous substances
at, in, or under the Mt. Pleasant Facility and with respect to the
identification of the Mt. Pleasant Facility on the Michigan list of inactive
hazardous waste sites. Dana Corporation has submitted a Remediation Plan to the
Michigan Department of Environmental Quality ("MDEQ") with respect to the
continued monitoring of the groundwater. The Company has not been notified by
the Michigan Department of Natural Resources or any other governmental agency or
person that it has any responsibility for investigating or remediating such
environmental conditions. Although the Company has no reason to believe Dana
Corporation cannot fulfill its remediation and indemnification obligations under
the Asset Purchase Agreement, if Dana Corporation is unable to fulfill such
commitments, then the Company may incur additional costs.
The Company believes that its facilities are in substantial compliance with
current regulatory standards applicable to air emissions, under the Clean Air
Act Amendments of 1990 ("CAAA"). At this time, the Company cannot estimate when
other new air standards will be imposed or what technologies or changes in
processes the Company may have to install or undertake to achieve compliance
with any applicable new requirements at its facilities. The Company has no
reason to believe that such expenditures are likely to be material.
Similarly, based upon the Company's experience to date, the Company
believes that the future cost of currently anticipated compliance with existing
environmental laws relating to waste water, hazardous waste and employee and
community right-to-know should not have a material adverse effect on the
Company's financial condition.
7
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<TABLE>
<CAPTION>
Item 2. Properties
The Company owns and operates the following facilities:
Location Operations Sq. Feet
-------- ---------- --------
<S> <C> <C>
Chambersburg, Pennsylvania Foundry production of iron, and manufacturing and engineering 440,000
of mechanical products. Central distribution, administrative
offices and corporate headquarters.
Scotland, Pennsylvania Manufacturing and engineering of electronic products. 40,400
Trenton, Tennessee Manufacturing of mechanical products. 60,000
Stratford, Ontario Manufacturing of mechanical products. Central distribution 46,000
and administrative offices for Canada.
San Marcos, Texas Manufacturing and engineering of mechanical products. *31,000
Mt. Pleasant, Michigan Manufacturing of mechanical products. 30,000
Chattanooga, Tennessee Manufacturing, engineering and sales of integrated electronic 56,000
drive systems. Headquarters of PEC.
Greensboro, North Carolina Manufacturing and engineering of electronic products and 20,000
administrative offices for TB Wood's North Carolina.
Elk Grove, Illinois Distribution center. 21,700
</TABLE>
*Includes certain leased space
In addition, the Company leases manufacturing facilities in: Marienheide,
Germany; Naturns, Italy; Mexico City, Mexico; distribution facilities in:
Dallas, Texas; Montreal, Quebec; Edmonton, Alberta; and fee warehouses in Los
Angeles, California; Portland, Oregon; and Atlanta, Georgia.
Item 3. Legal Proceedings
The Company is a party to various lawsuits arising in the ordinary course
of business. The Company does not believe that the outcome of any of these
lawsuits will have a material adverse effect on the consolidated financial
position of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
None.
8
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PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
The Company consummated the Initial Public Offering of its common stock on
February 8, 1996 and its Common Stock is listed on the New York Stock Exchange.
The high and low prices for the Common Stock, and dividends paid on Common
Stock, during the period from February 8, 1996 though January 2, 1998 were as
follows:
Sales Price Dividends
----------- ---------
Fiscal Year 1997 High Low Paid in Cash
---------------- ---- --- ------------
1st quarter $14.13 $10.75 $.08
2nd quarter 16.50 12.75 .08
3rd quarter 19.50 14.00 .08
4th quarter 22.25 18.06 .08
Fiscal Year 1996
----------------
1st quarter $12.125 $10.875 $.00
2nd quarter 11.750 8.875 .08
3rd quarter 9.875 8.250 .08
4th quarter 11.750 7.625 .08
On March 16, 1998, there were 161 registered shareholders of the Company's
Common Stock, and the high and low sales prices for the Common Stock were $22.00
and $22.00, respectively. During fiscal year 1997, the Company paid total
dividends of $.32 and declared total dividends of $.24 on the shares of its
Common Stock. The declaration of any dividend, including the amount thereof,
will be at the discretion of the Board of Directors of the Company, and will
depend on the Company's then current financial condition, results of operations
and capital requirements, and such other factors as the Board of Directors deems
relevant.
Item 6. Selected Financial Data
The following tables set forth selected historical financial and operating
data for the Company for each of the five years through fiscal year 1997 and
have been derived from the Company's financial statements which have been
audited by the Company's independent public accountants. The information set
forth below should be read in conjunction with the Company's Consolidated
Financial Statements and notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operation".
Effective fiscal year 1995, The Company changed its year end to the Friday
closest to the last day of December. Fiscal year-ends are as follows:
1997 January 2, 1998
1996 January 3, 1997
1995 December 29, 1995
9
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<TABLE>
<CAPTION>
Selected Financial Data
(in thousands, except per share data) Fiscal Year
- ------------------------------------- -----------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Revenue and Income:
<S> <C> <C> <C> <C> <C>
Net sales $124,027 $102,505 $102,307 $95,315 $72,375
Gross profit 45,012 37,747 36,111 32,886 24,922
Operating income 16,951 12,573 12,593 9,795 6,329
Net income, before one-time charges* 8,689 6,294 4,599 3,077 1,779
-------- -------- -------- ------- -------
Cash Flow:
Cash provided by operations $16,829 $9,090 $9,214 $5,379 $5,647
Capital expenditures 5,824 3,762 4,531 2,722 2,202
-------- -------- -------- ------- -------
Assets and Liabilities:
Working capital** $27,682 $26,962 $26,160 $24,931 $19,815
Total assets 89,617 73,395 66,631 61,075 57,237
Total debt 26,539 22,227 41,463 42,661 42,900
Shareholders' equity (deficit) 23,606 16,875 (7,488) (12,866) (16,537)
-------- -------- -------- ------- -------
Diluted Per Share Data:
Net income, before one-time charges* $1.47 $1.12 $1.21 $.82 $.50
Cash dividends declared .24 .32 - - -
Cash dividends paid .32 .24 - - -
Book value 3.99 3.01 (1.97) (3.43) (4.64)
-------- -------- -------- ------- -------
Weighted average shares outstanding 5,921 5,600 3,810 3,750 3,563
</TABLE>
* Before $1,654 of one-time charges in 1996 related to the write-off of a
noncompete agreement and the early retirement of debt related to the Initial
Public Offering, $839 of one-time income in 1994 related to the sale of a
product line, and $9,477 of net one-time charges in 1993 related to
extraordinary income from the early repayment of debt and the cumulative effect
of changes in the accounting for postretirement benefits.
** Working capital is defined as the sum of accounts receivable, inventory, and
other current assets, less accounts payable and accrued expenses.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation
Year Ended January 2, 1998, Compared to Year Ended January 3, 1997
Net sales for fiscal 1997 increased to $124.0 million from $102.5 million
in 1996, an increase of $21.5 million or 21.0%. The improvement was broad-based
with sales from existing businesses increasing $15.8 million or 15.4% and sales
from businesses acquired in late 1996 and 1997 contributing an additional $5.7
million.
Gross profit increased to $45.0 million from $37.7 million in 1996, an
increase of $7.3 million or 19.2%. Gross profit as a percent of net sales
decreased to 36.3% from 36.8%, due primarily to shifts in product mix and higher
costs of sales resulting from the integration of the recently acquired coupling
business.
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Selling, general, and administrative ("SG&A") expense for fiscal 1997
increased to $28.1 million from $25.2 million in 1996, an increase of $2.9
million or 11.5%. SG&A expense as a percent of net sales decreased to 22.6% from
24.6%, primarily as a result of the significantly higher sales volume and
implementation of cost reduction initiatives.
Other expense for fiscal 1997 decreased to $2.5 million from $2.6 million
in 1996, a decrease of $0.1 million or 4.2%. Interest expense, a component of
total other expense, decreased to $1.7 million in 1997 from $2.0 million in
1996. This decrease was due primarily to lower borrowings in the first part of
1997. The effective tax rate for 1997 was 40.0%. Details of the provision for
income taxes are discussed in Note 5 to the financial statements. In 1996, an
extraordinary item of $1.3 million, net of tax, was related to early repayment
of debt with the proceeds from the Initial Public Offering ("IPO").
Net income for fiscal 1997 increased to $8.7 million from $6.3 million in
1996, before one-time charges, an increase of $2.4 million, or 38.1%.
Year Ended January 3, 1997, Compared to Year Ended December 29, 1995
Net sales for fiscal 1996 increased to $102.5 million from $102.3 million
in 1995, an increase of $0.2 million or 0.2%. The Company's overall 1996 sales,
excluding sales from the three businesses acquired during the year, declined by
approximately $2.3 million compared to 1995. This decline resulted primarily
from reduced sales of electronic drive products to distributors who delayed
purchases in anticipation of the Company's introduction of a higher performance
series of electronic drives during the second half of 1996.
Gross profit increased to $37.7 million from $36.1 million in 1995, an
increase of $1.6 million or 4.5%. Gross profit as a percent of net sales
increased to 36.8% from 35.3%, due primarily to productivity improvements and
cost reductions resulting from the Company's capital expenditure and Total
Quality Management programs.
SG&A expense for fiscal 1996 increased to $25.2 million from $23.5 million
in 1995, an increase of $1.7 million or 7.0%. SG&A expense as a percent of net
sales increased to 24.6% from 23.0%. The increase in SG&A expense resulted
primarily from increases in research and development and marketing expenses
related to new product introductions in the Company's electronics business, as
well as additional SG&A expenses from acquired operations.
Other expense for fiscal 1996 decreased to $2.6 million from $4.9 million
in 1995, a decrease of $2.4 million or 47.7%. This decrease was due primarily to
lower interest costs as a result of debt repayment from the proceeds of the IPO,
prepayment of a subordinated note at a discount, and reduced interest rates on
the Company's revolving line of credit. Other expense included a $0.6 million
write-off of a noncompete agreement. The effective tax rate for 1996 was 40.5%.
Details of the provision for income taxes are discussed in Note 5 to the
financial statements. An extraordinary item of $1.3 million, net of tax, was
related to early repayment of debt with the proceeds from the IPO.
Net income for fiscal 1996 was $4.6 million, unchanged from 1995. In 1996
net income before one-time charges, net of tax, increased by $1.7 million or
36.9% over 1995.
Liquidity and Capital Resources
The Company's principal sources of funds are cash flow from operations and
borrowings under the Company's revolving credit agreement. Cash provided from
operations in 1997 was $16.8 million, an increase of $7.7 million over $9.1
million in 1996.
11
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Net cash used for investing activities during fiscal years 1997, 1996, and
1995 was $16.4 million, $9.2 million, and $6.4 million, respectively. The
Company's investing activities were primarily acquisitions and capital
expenditures. In 1997, the Company acquired the assets of Graseby Controls, Inc.
and Berges electronic GmbH for a total of $9.9 million, net of acquired cash. In
1996, the Company acquired the assets of Deck Manufacturing Corp. and Ambi-Tech,
Inc., and purchased the stock of Grupo Blaju S.A. de C.V. for a total of $3.7
million in cash and notes. Also in 1996, the Company purchased 21% of TB Wood's
Canada Ltd. for $1.6 million to make the Company's Canadian operations a wholly
owned subsidiary.
Capital expenditures for fiscal years 1997, 1996, and 1995 were $5.8
million, $3.8 million, and $4.5 million, respectively. During the last three
fiscal years, the Company has made significant capital investments in computer
controlled surface mounts, production lines for populating semi-conductors onto
circuit boards, computer numerically controlled ("CNC") machine tools, test and
production equipment at the Company's foundry in Chambersburg, and equipment to
improve and modernize plants acquired through recent purchases of businesses. In
1997, the Company purchased a $2.1 million facility for it's electronics systems
business in Chattanooga, Tennessee. These capital expenditures reduce costs,
improve product quality, and provide additional capacity for meeting the
Company's growth objectives.
In April 1997, the Company borrowed $2.6 million by issuing Variable Rate
Demand Revenue Bonds, under the authority of The Industrial Revenue Board of the
City of Chattanooga, to finance a new production facility for the electronics
systems business. In 1997, the net proceeds from the new revolving credit
facility were $2.3 million which included borrowings of approximately $5.0 and
$5.7 million to finance the purchase of Graseby Controls, Inc. and Berges
electronic GmbH, respectively. On February 8, 1996, the Company completed an
Initial Public Offering of its Common Stock that raised approximately $22.5
million in aggregate gross proceeds for the Company. The proceeds, net of
issuance costs of $19.8 million, were used to repay debt. The Company paid $1.9
million in dividends during 1997. The Company paid an $.08 per share dividend
following the first, second, and third quarters of 1997, and declared an $.08
dividend on January 8, 1998, paid on January 30, 1998, to shareholders of record
on January 16, 1998.
The Company believes that it will have sufficient cash flow from operations
and available borrowings to meet its future cash needs for interest, operating
expenses, and capital expenditures.
Derivative Financial Instruments
Market risk is the potential change in an instrument's value caused by, for
example, fluctuations in interest and currency exchange rates. The Company's
primary market risk exposures are interest rate risk and the risk of unfavorable
movements in exchange rates between the U.S. dollar and each of the Mexican
peso, Canadian dollar, German mark, and Italian lira. Monitoring and managing
these risks is a continual process carried out by senior management. Market risk
is managed based on an ongoing assessment of trends in interest rates, foreign
exchange rates, and economic developments, giving consideration to possible
effects on both total return and reported earnings. The Company's financial
advisors, both internal and external, provide ongoing advice regarding trends
that affect management's assessment.
The Securities and Exchange Commission has qualified Mexico as a highly
inflationary economy under the provisions of SFAS No. 52. As of January 2, 1998,
the remeasurement of the Mexico operation did not have a material effect on the
Company's statement of operations.
12
<PAGE>
Year 2000
Based on a review of the implications of the Year 2000 on the Company,
although final cost estimates have yet to be determined, management does not
currently believe that the costs related to the Company's compliance with the
Year 2000 issue will have material adverse effect on the Company's financial
position, results of operations or cash flows. However, in the event that the
Company or any of the Company's significant suppliers or customers experience
disruptions due to the Year 2000 issue, the Company's operations could be
adversely affected.
Recent Accounting Pronouncements
In March 1997, the Financial Accounting Standards Board issued SFAS 128,
"Earnings Per Share," ("EPS") which the Company adopted for the year ended
January 2, 1998. Basic net EPS is computed by dividing reported earnings
available to common shareholders by weighted average shares outstanding. No
dilution for any potentially dilutive securities is included in basic EPS.
Diluted EPS is computed by dividing reported earnings available to common
shareholders by weighted average shares and common equivalent shares
outstanding. All prior year EPS amounts have been restated to conform to the
provisions of SFAS 128.
For the year ended January 2, 1998, the Company adopted Statement of
Financial Accounting Standards No. 129 ("SFAS 129") "Disclosure of Information
and Capital Structure". SFAS 129 requires disclosure of the pertinent rights and
privileges of all securities other than ordinary common stock. The Company has
disclosed such information in previous years' annual reports filed in Form 10-K.
In July 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS 130"), "Reporting Comprehensive Income".
The statement addresses the reporting and display of changes in equity that
result from transactions and other economic events, excluding transactions with
owners. Management has not evaluated the impact of this statement on the
financial statements.
During 1998, the Company plans to adopt Statement of Financial Accounting
Standard No. 131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and
Related Information". The statement addresses reporting of segment information.
Management has not evaluated the impact of this statement on the financial
statements.
Safe Harbor Statement
Under the Private Securities Litigation Reform Act of 1995, except for the
historical information contained herein, the matters discussed in this annual
report are forward-looking statements which involve risks and uncertainties,
including but not limited to economic, competitve, governmental and
technological factors affecting the Company's operations, markets, products,
services and prices, and other factors discussed in the Company's filings with
the Securities and Exchange Commission.
13
<PAGE>
Item 8. Financial Statements and Supplementary Data
Page
Report of Independent Public Accountants .....................................15
Consolidated Balance Sheets as of January 2, 1998 and
January 3, 1997 ............................................................16
Consolidated Statements of Operations for the Years
Ended January 2, 1998, January 3, 1997, and December 29, 1995 ..............17
Consolidated Statements of Changes in Shareholders'
Equity (Deficit) for the Years Ended January 2, 1998,
January 3, 1997, and December 29, 1995 .....................................18
Consolidated Statements of Cash Flows for the Years Ended
January 2, 1998, January 3, 1997, and December 29, 1995 ....................19
Notes to Consolidated Financial Statements ...................................20
14
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of TB Wood's Corporation:
We have audited the accompanying consolidated balance sheets of TB Wood's
Corporation (a Delaware corporation) and subsidiaries as of January 2, 1998, and
January 3, 1997, and the related consolidated statements of operations, changes
in shareholders' equity (deficit), and cash flows for each of the three years in
the period ended January 2, 1998. These financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of TB Wood's Corporation and
subsidiaries as of January 2, 1998 and January 3, 1997 and the results of their
operations and their cash flows for each of the three years in the period ended
January 2, 1998 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed under Item 14(a)(2)
of this Form 10-K is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the
audits of the basic financial statements and, in our opinion, fairly states, in
all material respects, the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
January 30, 1998
15
<PAGE>
<TABLE>
<CAPTION>
TB Wood's Corporation And Subsidiaries
Consolidated Balance Sheets
(in thousands, except per share and share amounts) 1997 1996
- -------------------------------------------------- ---- ----
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $2,552 $306
Accounts receivable, less allowances for doubtful accounts, discounts,
and claims of $476 and $437 in 1997 and 1996, respectively 20,174 15,518
Inventories:
Finished goods 15,417 16,293
Work in process 8,467 7,994
Raw materials 6,073 3,755
LIFO reserve (3,819) (4,057)
--------- ---------
26,138 23,985
Other current assets 967 1,053
--------- ---------
Total current assets 49,831 40,862
--------- ---------
Property, Plant, and Equipment:
Machinery and equipment 36,782 33,075
Land, buildings, and improvements 11,100 8,577
47,882 41,652
Less accumulated depreciation (23,794) (21,154)
--------- ---------
24,088 20,498
Other Assets:
Deferred income taxes (Note 5) 4,602 5,249
Goodwill, net of accumulated amortization of
$1,123 and $958 in 1997 and 1996, respectively 9,122 4,603
Other 1,974 2,183
--------- ---------
Total other assets 15,698 12,035
--------- ---------
$89,617 $73,395
========= =========
Liabilities and Shareholders' Equity (Deficit)
Current Liabilities:
Current maturities of long-term debt (Note 4) $611 $520
Accounts payable 8,610 5,210
Checks outstanding 1,615 1,532
Accrued expenses (Note 3) 10,987 8,384
Deferred income taxes (Note 5) 729 539
--------- ---------
Total current liabilities 22,552 16,185
Long-term debt, less current maturities (Note 4) 25,928 21,707
Postretirement benefit obligation, less current portion 17,531 18,628
Commitments and Contingencies (Note 8)
Shareholders' Equity (Deficit):
Preferred stock, $.01 par value; 5,000,000 shares authorized,
no shares issued or outstanding 0 0
Common stock, $.01 par value; 40,000,000 shares authorized, 5,859,286 issued
and
5,849,772 outstanding in 1997, and 5,827,397 shares issued and 58 58
outstanding in 1996
Common stock held in treasury at cost; 9,514 in 1997 and 0 in 1996 (181) 0
Additional paid-in capital 28,340 28,158
Accumulated deficit (4,408) (11,306)
Foreign currency translation adjustment (203) (35)
--------- ---------
Total shareholders' equity 23,606 16,875
--------- ---------
$89,617 $73,395
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
16
<PAGE>
<TABLE>
<CAPTION>
TB Wood's Corporation And Subsidiaries
Consolidated Statements of Operations
(in thousands, except per share amounts) 1997 1996 1995
---------------------------------------- ---- ---- ----
<S> <C> <C> <C>
Net sales $124,027 $102,505 $102,307
Cost of sales 79,015 64,758 66,196
---------- ---------- ----------
Gross profit 45,012 37,747 36,111
Selling, general, and administrative expenses 28,061 25,174 23,518
---------- ---------- ----------
Operating income 16,951 12,573 12,593
---------- ---------- ----------
Other expense:
Interest expense and other finance charges (1,695) (1,982) (4,461)
Other, net (773) (593) (467)
---------- ---------- ----------
Other expense, net (2,468) (2,575) (4,928)
---------- ---------- ----------
Income before provision for income taxes and extraordinary item 14,483 9,998 7,665
Provision for income taxes (Note 5) 5,794 4,053 3,066
---------- ---------- ----------
Income before extraordinary item 8,689 5,945 4,599
Extraordinary item, early extinguishment of debt
(less related income tax benefit of $870) 0 (1,305) 0
---------- ---------- ----------
Net income $8,689 $4,640 $4,599
========== ========== ==========
Per share of common stock:
Basic:
Income before extraordinary item $1.49 $1.08 $1.36
Extraordinary item .00 (.24) .00
---------- ---------- ----------
Net income per common share $1.49 $.84 $1.36
---------- ---------- ----------
Weighted average shares of common stock 5,833 5,520 3,375
========== ========== ==========
Diluted:
Income before extraordinary item $1.47 $1.06 $1.21
Extraordinary item .00 (.23) .00
---------- ---------- ----------
Net income per common share $1.47 $.83 $1.21
========== ========== ==========
Weighted average shares of common stock
and equivalents outstanding 5,921 5,600 3,810
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
17
<PAGE>
<TABLE>
<CAPTION>
TB Wood's Corporation And Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity (Deficit)
Foreign
Additional Currency
Common Treasury Paid-In Accumulated Translation
(in thousands) Stock Warrants Stock Capital Equity(Deficit) Adjustment
- -------------- ----- -------- ----- ------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $33 $500 $0 $5,429 $(18,693) $(135)
Net income 0 0 0 0 4,599 0
Stock option compensation 0 0 0 675 0 0
Foreign currency translation adjustment 0 0 0 0 0 104
------ ------ ------ -------- ---------- -------
Balance, December 29, 1995 33 500 0 6,104 (14,094) (31)
Net income 0 0 0 0 4,640 0
Issuance of stock in connection with ------ ------ ------ -------- ---------- -------
the
Initial Public Offering 20 0 0 19,803 0 0
Investment in Wood's-Canada 0 0 0 (1,600) 0 0
Exercise of warrants 4 (500) 0 500 0 0
Gain on repayment of subordinated note 0 0 0 2,992 0 0
Dividends declared 0 0 0 0 (1,852) 0
Stock option compensation and proceeds
from
options exercised 1 0 0 359 0 0
Foreign currency translation adjustment 0 0 0 0 0 (4)
------ ------ ------ -------- ---------- -------
Balance, January 3, 1997 58 0 0 28,158 (11,306) (35)
Net income 0 0 0 0 8,689 0
Stock issuance for 401k plan 0 0 0 100 0 0
Dividends declared 0 0 0 0 (1,400) 0
Stock option compensation and proceeds
from
options exercised 0 0 95 82 0 0
Treasury stock, net 0 0 (276) 0 (391) 0
Foreign currency translation adjustment 0 0 0 0 0 (168)
------ ------ ------ -------- ---------- -------
Balance, January 2, 1998 $58 $0 $(181) $28,340 $(4,408) $(203)
====== ====== ======= ======== ======== =====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
18
<PAGE>
<TABLE>
<CAPTION>
TB Wood's Corporation And Subsidiaries
Consolidated Statements of Cash Flows
(in thousands) 1997 1996 1995
- -------------- ---- ---- ----
Cash Flows from Operating Activities:
<S> <C> <C> <C>
Net income $8,689 $4,640 $4,599
-------- -------- --------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 4,097 3,427 3,618
Deferral of interest and management fees payable to 0 288 1,152
affiliates
Change in deferred income taxes, net 837 (1,095) 205
Stock option compensation expense 101 140 675
Net loss (gain) on sale of assets 10 (44) 0
Write-off of noncompete agreement 0 563 0
Extraordinary loss on early extinguishment of debt, net 0 1,305 0
Changes in working capital, net of effects of acquisitions:
Accounts receivable (173) (854) (115)
Inventories 1,876 (1,615) (1,612)
Prepaid expenses and other current assets (227) (751) (34)
Accounts payable 1,531 631 (467)
Accrued and other liabilities 88 2,455 1,193
-------- -------- --------
Total adjustments 8,140 4,450 4,615
-------- -------- --------
Net cash provided by operating activities 16,829 9,090 9,214
-------- -------- --------
Cash Flows from Investing Activities:
Acquisitions, net of cash acquired (9,914) (2,920) 0
Capital expenditures (5,824) (3,762) (4,531)
Purchase of minority interest in subsidiary 0 (1,600) 0
Proceeds from sales of fixed assets 65 128 44
Other, net (1,003) (1,004) (1,915)
-------- -------- --------
Net cash used in investing activities (16,676) (9,158) (6,402)
-------- -------- --------
Cash Flows from Financing Activities:
Change in checks outstanding 83 (516) (383)
Repayments of subordinated note and associated taxes 0 (13,094) 0
Proceeds from (repayments of ) long-term debt, net 2,003 (14,564) (2,131)
Repayments of original revolving credit facility, net 0 (10,721) (313)
Proceeds from new revolving credit facility, net (Note 4) 2,300 20,200 0
Proceeds from public sale of common stock 0 19,823 0
Payment of dividends (1,866) (1,386) 0
Proceeds from issuance of stock upon option exercise 17 219 0
Treasury Stock (276) 0 0
-------- -------- --------
Net cash provided by (used in) financing activities 2,261 (39) (2,827)
-------- -------- --------
Effect of changes in foreign exchange rates (168) (4) 103
-------- -------- --------
Net increase(decrease) in cash and cash equivalents 2,246 (111) 88
Cash and cash equivalents at beginning of year 306 417 329
======== ======== ========
Cash and cash equivalents at end of year $2,552 $306 $417
======== ======== ========
Income taxes paid during the year $6,307 $5,409 $2,140
======== ======== ========
Interest paid during the year $1,573 $2,040 $2,868
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
19
<PAGE>
TB Wood's Corporation And Subsidiaries
Notes To Consolidated Financial Statements
(in thousands, except per share and share amounts)
1. NATURE OF BUSINESS AND PRINCIPLES OF CONSOLIDATION
TB Wood's Corporation and Subsidiaries (collectively, "Wood's" or the
"Company") is an established designer, manufacturer, and marketer of electronic
and mechanical industrial power transmission products which are sold to domestic
and international manufacturers and users of industrial equipment. Principal
products of TB Wood's Incorporated ("Wood's-U.S."), a wholly owned subsidiary of
TB Wood's Corporation, include electronic drives, integrated electronic drive
systems, mechanical belted drives, and flexible couplings. Plant Engineering
Consultants, Inc. ("PEC"), a wholly owned subsidiary of Wood's-U.S.,
manufactures integrated electronic drive systems. TB Wood's Canada, Ltd.
("Wood's-Canada" {Note 9}) and TB Wood's Mexico, S.A., de C.V. ("Wood's-Mexico"
{Note 9}), wholly owned subsidiaries of Wood's-U.S., manufacture and market
mechanical industrial power transmission products and act as distributors for
electronic and mechanical products manufactured by the domestic operations of
Wood's-U.S. TB Wood's North Carolina ("Wood's-NC" {Note 9}), a wholly owned
subsidiary of Wood's-U.S., manufactures and markets Volkmann (TM) brand of
high-frequency AC drives, other AC drives, Ambi-Tech brand and other electronic
brakes and Soft Starts. Berges electronic GmbH ("Berges" {Note 9}), a wholly
owned subsidiary of Wood's-U.S., designs, manufactures and markets its own line
of AC drives for the European market and acts as the European distributor for
electronic products manufactured by the domestic operations of Wood's-U.S. To
allow for more timely consolidation and reporting, Berges' operations will be
reported beginning in fiscal 1998 using a fiscal year starting December 1997 and
ending December 1998. Wood's-U.S. was organized in 1857 and was incorporated in
Pennsylvania in 1906.
The accompanying consolidated financial statements include the accounts of
TB Wood's Corporation and its wholly owned subsidiaries. The minority interest
in Wood's-Canada, purchased by Wood's-U.S. in connection with the Initial Public
Offering ("Offering" {Note 9}), was not separately classified in the
accompanying financial statements for 1995 because the minority owners were the
same individuals who owned the common stock of Wood's-U.S. All significant
intercompany balances and transactions have been eliminated.
Year-End
Fiscal year-ends are as follows:
1997 January 2, 1998
1996 January 3, 1997
1995 December 29, 1995
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Restricted Cash
At January 2, 1998, $420 of cash is restricted, under the Variable Rate
Demand Revenue Bonds (Note 4). This cash may be used for building renovations,
improvements or other capital expenditures related to the new production
facility for the electronics systems business. The funds will be used to repay
the bonds if not spent prior to April 1999.
Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
20
<PAGE>
Property, Plant, and Equipment
The Company depreciates its property, plant, and equipment using
principally the straight-line method over the estimated useful lives of the
assets. Equipment under capital leases is depreciated over the assets estimated
useful life and is included in machinery and equipment. Maintenance and repair
costs are charged to expense as incurred, and major renewals and betterments are
capitalized. When property and equipment are retired or otherwise disposed of,
the related carrying value and accumulated depreciation are removed from the
accounts and any resulting gain or loss is reflected in income.
Inventories
Wood's-U.S., PEC, and Wood's-NC inventories are stated at the lower of cost
or market using the last-in, first-out ("LIFO") method. Wood's-Canada,
Wood's-Mexico, and Berges inventories are stated at the lower of cost or market
using the first-in, first-out method. Market is defined as net realizable value.
Cost includes raw materials, direct labor, and manufacturing overhead.
Approximately 78% and 90% of total inventories were valued using the LIFO method
at January 2, 1998 and January 3, 1997, respectively.
Self-Insurance
The Company maintains workers' compensation insurance policies, which have
the potential for retrospective premium adjustments, and a partially
self-insured group health insurance policy, which is subject to specific
retention levels. Insurance administrators assist the Company in estimating the
fully developed workers' compensation liability and group health insurance
reserves which are accrued by the Company. In the opinion of management,
adequate provision has been made for all incurred claims. The Company has issued
letters of credit totaling $950 to cover incurred claims and other costs related
to the workers' compensation policy.
Foreign Currency Translation
The financial statements of Wood's-Canada, Wood's-Mexico and the balance
sheet of Berges have been translated into U.S. dollars in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency
Translation." Translation adjustments, which result from the process of
translating financial statements into U.S. dollars, are accumulated as a
separate component of shareholders' equity(deficit). Exchange gains and losses
resulting from foreign currency transactions, primarily intercompany sales of
products between Wood's-U.S., Wood's-Canada and Wood's-Mexico, are included in
other expense in the accompanying statements of operations and are not material.
The Securities and Exchange Commission has qualified Mexico as a highly
inflationary economy under the provisions of SFAS No. 52. As of January 2, 1998,
the remeasurement of the Mexico operation did not have a material effect on the
Company's statement of operations.
Goodwill
The excess of cost over the net assets acquired ("Goodwill") is being
amortized on a straight-line basis over a period of 40 years. Goodwill relates
to the acquisition of the Company in 1986 and the acquisition of certain
businesses and product lines (Note 9).
Long-Lived Assets and Intangible Assets
The Company reviews the carrying values assigned to long-lived assets and
certain identifiable intangible assets based on expectations of undiscounted
future cash flows and operating income generated by the long-lived assets or the
tangible assets underlying certain identifiable intangible assets in determining
whether the carrying amount of such assets is recoverable.
21
<PAGE>
Shareholders' Equity
In 1996, the board of directors authorized, subject to certain business and
market conditions, the purchase of up to 200,000 of the Company's common shares.
At January 2, 1998 the number of treasury shares purchased under this
authorization was 20,100 and the number of treasury shares issued to employees
under option and purchase plans was 4,436 and under the 401(k) profit sharing
plan was 6,150.
The Company's Employee Stock Purchase Plan ("ESPP") enables employees of
the Company to subscribe for shares of common stock on quarterly offering dates
at a purchase price which is the lesser of 90% of the fair market value of the
shares on the first day or the last day of the quarterly period. Employee
contributions to the ESPP were $63 for 1997. Pursuant to the ESPP, 4,436 shares
were issued to employees during 1997. At the annual meeting on March 10, 1997,
the Company's shareholders approved the reservation of 500,000 shares to be
issued under the ESPP. As of January 2, 1998, 495,564 shares are available for
future issuances.
Fair Value of Financial Instruments
The fair value of financial instruments classified as current assets or
liabilities, including cash and cash equivalents, accounts receivable and
accounts payable, approximate carrying value due to the short-term maturity of
the instruments. The fair value of short-term and long-term debt and deferred
compensation amounts approximate carrying value and are based on their effective
interest rates compared to current market rates.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cyclical Industry
The markets for some of the Company's products are cyclical, generally
following changes in the overall economy. Consequently, during periods of
economic expansion, the Company has experienced increased demand for its
products, and during periods of economic contraction, the Company has
experienced decreased demand for its products. Such changes in the general
economy affect the Company's results of operations in the relevant fiscal
periods.
22
<PAGE>
Sales
The Company's five largest customers accounted for approximately 30%,
29%, and 28% of net sales for fiscal years 1997, 1996, and 1995, respectively.
Of these customers, one accounted for approximately 20% of net sales for the
year ended January 2, 1998. The loss of one or more of these customers could
have an adverse effect on the Company's performance and operations. Export sales
accounted for 17.0%, 17.7%, and 14.7% of total sales in fiscal years 1997, 1996,
and 1995, respectively. Intercompany transactions are consummated on terms
equivalent to those that prevail in arms-length transactions. Information
regarding the Company's domestic and foreign operations is as follows:
<TABLE>
<CAPTION>
United Wood's- Foreign
States Canada Berges Other Eliminations Consolidated
------ ------ ------ ----- ------------ ------------
Year ended
January 2, 1998
<S> <C> <C> <C> <C> <C> <C>
Net Sales $122,613 $14,134 $0 $2,747 $(15,467) $124,027
Operating Profit 16,068 740 0 143 0 16,951
Identifiable Assets 95,101 5,221 10,636 2,220 (23,561) 89,617
</TABLE>
Supply of Electronic Raw Materials and Purchased Components
Historically, the electronics component industry, which supplies components
for the Company's electronic products, has from time to time experienced heavy
demand for certain components during periods of growth in the consumer
electronic industry. The rapid growth of the AC electronic drive market has also
created heavy demand for power control electronics. While certain of the
Company's components are obtained from a single or limited number of sources,
the Company has potential alternate suppliers for most of the specialty
components used in its manufacturing operations. There can be no assurance,
however, that the Company will not experience shortages of raw materials or
components essential to the production of its products or be forced to seek
alternative sources of supply, which may increase costs or adversely affect the
Company's ability to obtain and fulfill orders for its products.
Net Income Per Share
In March 1997, the Financial Accounting Standards Board issued SFAS 128,
"Earnings Per Share," ("EPS") which the Company adopted for the year ended
January 2, 1998. Basic net EPS is computed by dividing reported earnings
available to common shareholders by weighted average shares outstanding. No
dilution for any potentially dilutive securities is included in basic EPS.
Diluted EPS is computed by dividing reported earnings available to common
shareholders by weighted average shares and common equivalent shares
outstanding. All prior year EPS amounts have been restated to conform to the
provisions of SFAS 128.
23
<PAGE>
<TABLE>
<CAPTION>
The computation of weighted average shares outstanding and net income per share are as follows:
(in thousands, except per share data) 1997 1996 1995
- ------------------------------------- ---- ---- ----
Weighted average shares outstanding
<S> <C> <C> <C>
Common shares outstanding for basic EPS 5,833 5,520 3,375
Shares issued upon assumed exercise of outstanding warrants 0 0 375
Shares issued upon assumed exercise of outstanding stock options 88 80 60
-------- -------- --------
Weighted average number of common and common equivalent shares
outstanding 5,921 5,600 3,810
-------- -------- --------
Income before extraordinary item $8,689 $5,945 $4,599
Extraordinary item 0 (1,305) 0
-------- -------- --------
Net income $8,689 $4,640 $4,599
======== ======== ========
Basic net income per common share:
Before extraordinary item $1.49 $1.08 $1.36
Extraordinary item 0.00 (0.24) 0.00
-------- -------- --------
Net Income $1.49 $.84 $1.36
======== ======== ========
Diluted net income per common share:
Before extraordinary item $1.47 $1.06 $1.21
Extraordinary item 0.00 (0.23) 0.00
-------- -------- --------
Net Income $1.47 $.83 $1.21
======== ======== ========
</TABLE>
Effective in 1997, the Company adopted Statement of Financial Accounting
Standards No. 129 ("SFAS 129") "Disclosure of Information and Capital
Structure". SFAS 129 requires disclosure of the pertinent rights and privileges
of all securities other than ordinary common stock. The Company has disclosed
such information in previous years' annual reports filed in Form 10-K.
In July 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income".
The statement addresses the reporting and display of changes in equity that
result from transactions and other economic events, excluding transactions with
owners. Management has not evaluated the impact of this statement on the
financial statements.
In 1998, the Company plans to adopt Statement of Financial Accounting
Standard No. 131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and
Related Information". The statement addresses reporting of segment information.
Management has not evaluated the impact of this statement on the financial
statements.
Reclassifications
Certain prior period amounts have been reclassified to conform with the
current period presentation.
24
<PAGE>
3. ACCRUED EXPENSES
Components of accrued expenses were as follows:
1997 1996
---- ----
Accrued payroll and other compensation $3,428 $2,619
Other accrued liabilities 6,352 4,525
Accrued workers' compensation 1,207 1,240
--------- --------
Total $10,987 $8,384
========= ========
4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations consist of the following:
1997 1996
---- ----
Unsecured revolving line of credit $22,500 $20,200
Capital lease obligations 35 307
Industrial revenue bond 2,550 0
Other 1,454 1,720
--------- --------
26,539 22,227
Less current maturities (611) (520)
========= ========
$25,928 $21,707
========= ========
Aggregate future maturities of long-term debt and capital lease obligations
as of January 2, 1998 are as follows:
1998 $611
1999 306
2000 279
2001 225
2002 22,568
Thereafter 2,550
---------
$26,539
=========
On July 18, 1996, the Company repaid principal of approximately $16,674 on
a junior subordinated note payable to a company formerly related by common
ownership for approximately $10,677. The gain on extinguishment of $2,992, net
of tax, is reflected as a component of shareholders' equity.
In connection with the proceeds received from the Offering of the Company's
common stock (Note 9), the Company repaid a term loan with Fleet, a debt
agreement with USL, and a portion of a revolver loan with Fleet. An
extraordinary loss of approximately $1,305, net of taxes, was incurred in the
first quarter 1996 as a result of the repayment of certain indebtedness.
On October 10, 1996, the Company entered into a $40,000 unsecured revolving
credit facility arranged by PNC Bank, N.A. The Company used the proceeds of the
credit facility to repay the balance of a revolver loan with Fleet. The Company
realized an initial rate reduction of approximately 50 basis points with future
rates based on the ratio of total indebtedness to EBITDA, as defined. The loan
agreement contains numerous restrictive financial covenants which require the
Company to comply with certain financial tests, including, among other things,
maintaining minimum tangible net worth, as defined, and maintaining certain
specified ratios. The loan agreement also contains other restrictive covenants
which include, among other things, restrictions on outside investments and
restrictions on capital expenditures.
25
<PAGE>
In April 1997, the Company borrowed $2.6 million by issuing Variable Rate
Demand Revenue Bonds, under the authority of The Industrial Revenue Board of the
City of Chattanooga, to finance the new production facility for the electronics
systems business.
The gross proceeds from (repayments of) the revolving credit facilities
are as follows:
1997 1996 1995
---- ---- ----
Proceeds from the Fleet
revolving credit facility $0 $88,507 $100,977
Repayments of Fleet
revolving credit facility 0 (99,228) (101,290)
Proceeds from the PNC
revolving credit facility 46,400 32,900 0
Repayments of the PNC
revolving credit facility (44,100) (12,700) 0
5. INCOME TAXES
The components of the provision (benefit) for income taxes are shown
below:
1997 1996 1995
---- ---- ----
Current:
Federal and state $4,365 $4,407 $2,837
Foreign 592 442 24
-------- -------- --------
4,957 4,849 2,861
-------- -------- --------
Deferred:
Federal and state 837 (796) 203
Foreign 0 0 2
-------- -------- --------
837 (796) 205
-------- -------- --------
Provision for income taxes $5,794 $4,053 $3,066
======== ======== ========
Under SFAS No. 109, deferred tax assets or liabilities at the end of each
period are determined by applying the current tax rate to the difference between
the financial reporting and income tax bases of assets and liabilities. The
deferred tax provision (benefit) is determined based on changes in deferred tax
items exclusive of deferred tax implications of the early extinguishment of debt
and reclassifications between deferred and current taxes.
26
<PAGE>
The components of deferred income taxes are as follows:
1997 1996
---- ----
Deferred income tax liabilities:
Book basis in property over tax basis $(2,163) $(1,536)
LIFO inventory basis differences (3,046) (3,127)
Other (1,085) (964)
--------- ---------
Total deferred income tax liabilities (6,294) (5,627)
--------- ---------
Deferred income tax assets:
Postretirement benefits not
currently deductible 7,212 7,652
Accrued liabilities not currently deductible 1,498 1,394
Allowance for doubtful accounts and
inventory reserves 825 662
Stock option compensation not
currently deductible 106 326
Other 526 303
--------- ---------
Total deferred income tax assets 10,167 10,337
--------- ---------
Net deferred income tax asset $3,873 $4,710
========= =========
A reconciliation of the provision for income taxes at the statutory federal
income tax rate to the Company's tax provision as reported in the accompanying
statements of operations is shown below:
1997 1996 1995
---- ---- ----
Federal statutory income tax $4,924 $3,399 $2,606
State income taxes, net of
federal income tax benefit 651 456 460
Changes in the valuation
allowance 0 0 (112)
Other, net 219 198 112
-------- -------- --------
$5,794 $4,05 $3,066
======== ======= ========
In 1997, 1996, and 1995, earnings before income taxes included $1,259,
$884, and $283, respectively, of earnings generated by the Company's foreign
operations. No federal or state income taxes have been provided on such
earnings, since undistributed earnings have been reinvested and are not expected
to be remitted to the parent company.
In September 1997, the Internal Revenue Service completed its review of the
Company's 1993, 1994, and 1995 federal income tax returns. The review did not
have a material effect on operations.
6. BENEFIT PLANS
Compensation Plans
Wood's maintains a discretionary compensation plan for its salaried and
hourly employees which provides for incentive awards based on certain levels of
earnings, as defined. Amounts awarded under the plan and charged to expense in
the accompanying statements of operations were $2,002, $1,664, and $1,443 for
fiscal years 1997, 1996, and 1995, respectively.
27
<PAGE>
Profit-Sharing Plans
Since January 1, 1988, the Company has maintained a separate defined
contribution 401(k) profit-sharing plan covering all salaried and nonproduction
unit domestic hourly employees. Under this plan, the Company matches a specified
percentage of each eligible employee's contribution. Amounts contributed by the
Company under this profit-sharing plan were approximately $530, $500, and $500,
for fiscal years 1997, 1996, and 1995, respectively. In addition, the Company
has other noncontributory profit-sharing plans covering its eligible production
employees and Canadian employees for which $37, $40, and $41, were charged to
expense for the fiscal years 1997, 1996, and 1995, respectively.
Stock Options
In March 1991, the Company granted nonqualified stock options to the
president of the Company to purchase 157,893 shares of the Company's common
stock at an option price of $6.33 per share. The options vest 30% in January
1993, 15% in January 1994, 1995, 1996, and 1997, and 10% in January 1998. On
March 30, 1992, the option agreement was amended to set the option price at
$1.58 per share plus an amount equal to the average yield on the 30-year U.S.
Treasury bond maturing on the day closest to the fifteenth anniversary of the
option measurement date. The options are exercisable on or after the seventh
anniversary of the measurement date and expire one year thereafter. During 1992,
the controlling shareholder granted an additional 47,367 options on the
controlling shareholder's shares to a director, with terms similar to the 1991
options, as amended. Also in 1992, the Company granted an additional 30,000
options to an employee with terms similar to the 1991 options, as amended, with
vesting beginning in 1994. The options are exercisable beginning on the seventh
anniversary of the measurement date, as defined, and expire on the eighth
anniversary of the measurement date.
As a result of the above amendment, beginning in March 1992, the Company
began accounting for the options under variable plan accounting, whereby
increases in the value of the Company's common stock above the option price
resulted in the recording of compensation expense by the Company. Through
December 31, 1994, the Company recorded no compensation expense related to the
options as, in the opinion of management, the fair value of the Company's common
stock was equal to or below the option price, as adjusted. Due to increases in
the estimated fair value of the Company's common stock, as determined by an
independent appraiser, the Company recorded stock option compensation expense of
$675 for the year ended December 29, 1995. Additional stock option compensation
expense of approximately $230 will be recorded in future periods based on the
vesting schedule of options. In July 1995, the option agreements were amended to
remove features of the options that resulted in variable plan accounting.
Accordingly, subsequent to July 1, 1995, the options are being accounted for as
fixed options whereby future increases in the value of the Company's common
stock will not result in additional stock option compensation expense.
In February 1994, the Company granted an additional 105,000 options with
terms similar to those discussed above, except that the February 1994 options do
not have a put feature and have an option price which escalates during the
vesting period at a fixed rate of 6% per year. The February 1994 options are
exercisable at a fixed exercise price for a one-year period following the
vesting period. The Company accounts for the February 1994 options as fixed
options whereby future increases in the value of the Company's common stock do
not result in the recording of compensation expense by the Company. The option
agreements contain various fair value puts and calls, with fair value to be
determined by the board of directors or an independent appraiser. In December
1994, the controlling shareholder of the Company granted 89,004 options on the
controlling shareholder's shares to certain members of management which contain
terms similar to the February 1994 options, except that the option price
escalates during the vesting period at a fixed rate of 7.86% per year.
28
<PAGE>
The Company adopted a 1996 Stock-Based Incentive Compensation Plan (the
"1996 Plan"), the purpose of which is to assist the Company in attracting and
retaining valued personnel by offering them a greater stake in the Company's
success and a closer identity with the Company and to encourage ownership of the
Company's common stock by such personnel.
The 1996 Plan is administered by a committee designated by the board of
directors (the "Committee"). The aggregate maximum number of shares of common
stock available for awards under the 1996 Plan is 500,000, subject to adjustment
to reflect changes in the Company's capitalization. Awards under the 1996 Plan
may be made to officers and key employees of the Company. No awards can be
made under the 1996 Plan after January 31, 2006.
The Committee may grant shares of common stock in the form of either
deferred stock or restricted stock, as defined in the 1996 Plan. Options granted
under the 1996 Plan may be either incentive stock options ("ISOs") or
nonqualified stock options. ISOs are intended to qualify as incentive stock
options within the meaning of Section 422 of the Internal Revenue Code. Unless
an option is specifically designated at the time of grant as an ISO, options
under the 1996 Plan will be nonqualified. The exercise price of the options will
be determined by the Committee. The maximum term of an option or Stock
Appreciation Rights ("SAR") granted under the 1996 Plan shall not exceed ten
years from the date of grant or five years from the date of grant if the
recipient on the date of grant owns, directly or indirectly, shares possessing
more than 10% of the total combined voting power of all classes of stock of the
Company. No option or SAR may be exercisable sooner than six months from the
date the option or SAR is granted.
In June 1997, the Company granted 46,250 options at an option price of
$14.00 per share and 92,500 at an option price of $23.00. The options vest
evenly over a three-year period from the grant date. The options may be
exercised as they vest. The $14.00 options expire ten years from the grant date,
and the $23.00 options expire five years from the grant date.
As of January 2, 1998, 143,063 options have been exercised and 135,189
are exercisable under the above plans at prices ranging from $2.52 to $7.74.
Effective fiscal year 1996, the Company adopted SFAS No. 123, "Accounting
for Stock-Based Compensation." SFAS No. 123 requires companies to estimate the
value of all stock-based compensation using a recognized pricing model. However,
it also allows an entity to continue to measure compensation cost for those
plans using the method of accounting prescribed by Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." Entities
electing to remain with the accounting in APB No. 25 must make pro forma
disclosures of net income and, if presented, earnings per share, as if the fair
value-based method of accounting defined in the statement had been applied.
The Company has elected to account for its stock-based compensation plans
under APB No. 25; however, the Company has computed for pro forma disclosure
purposes the value of all options amended during 1995 and granted during 1997
using the Black Scholes option pricing model as prescribed by SFAS No. 123 using
the following assumptions:
1997 1995
---- ----
Risk free interest rate 5.5% 5.7%
Expected lives 10 years 4 years
Expected volatility 31.3% 33.0%
Dividend yield 2.3% 0%
29
<PAGE>
The total value of the options granted in 1997 was $265, which would be
amortized over the vesting period. The total value of the options amended during
the year ended December 29, 1995 was $975, which would be amortized over the
vesting period of the options. If the Company had accounted for these plans in
accordance with SFAS No. 123, the Company's reported pro forma net income and
pro forma net income per share for the fiscal years 1997, 1996, and 1995 would
have been as follows:
1997 1996 1995
---- ---- ----
Net income as reported $8,689 $4,640 $4,599
Pro forma 8,646 4,629 4,575
EPS as reported
Basic 1.49 .84 1.36
Diluted 1.47 .83 1.21
Pro forma
Basic 1.48 .84 1.36
Diluted 1.46 .83 1.20
Postretirement Benefits
The Company sponsors a defined benefit postretirement medical plan which
provides coverage for retirees and their dependents. A portion of the plan is
paid for by retiree cost sharing. The accounting for the plan anticipates future
cost sharing increases to keep pace with health care inflation. The plan is
unfunded.
The following table summarizes the Company's postretirement benefit
obligations and the assumptions used in determining postretirement benefit cost.
1997 1996
---- ----
Accumulated postretirement benefit obligation:
Retirees $4,326 $4,061
Fully eligible active plan participants 999 938
Other active participants 1,572 1,474
--------- ---------
Total obligation 6,897 6,473
Unrecognized prior service gain
and actuarial gains 11,134 12,655
---------- ---------
Postretirement benefit obligation $18,031 $19,128
========= =========
Discount rate 7.75% 7.75%
---------- ---------
Initial health care cost trend 8.00% 8.00%
---------- ---------
Ultimate health care cost trend rate 5.00% 5.00%
---------- ---------
Year ultimate health care cost
trend rate reached 2004 2004
---------- ----------
The health care cost trend rate has an effect on the amounts reported. To
illustrate, increasing the assumed health care cost trend rate by 1.0% for each
year would increase the APBO as of January 2, 1998 by approximately $950 and the
aggregate of service and interest costs components of net periodic
postretirement benefit cost for fiscal year 1997 by approximately $135.
30
<PAGE>
Net periodic postretirement benefit costs include the following components:
1997 1996
---- ----
Service cost $185 $140
Interest cost 483 762
Amortization (1,521) (475)
------- -------
Net benefit (income) cost $(853) $427
======= =======
In 1997, the Company changed the remaining amortization period for the
unrecognized prior service cost from 14.4 years to 5.4 years.
7. TRANSACTIONS WITH AFFILIATE
Prior to the Offering (Note 9), the Company had a management services
agreement and aircraft use agreement. The Company paid The NTC Group, Inc. an
aggregate of $36 and $400 in fiscal years 1996 and 1995, respectively.
8. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Company is subject to a number of legal actions arising in the ordinary
course of business. In management's opinion, the ultimate resolution of these
actions will not materially affect the Company's financial position or results
of operations.
Environmental Risks
The Company's operations and properties are subject to federal, state, and
local laws, regulations, and ordinances relating to certain materials,
substances, and wastes. The nature of the Company's operations exposes it to the
risk of claims with respect to environmental matters. Based on the Company's
experience to date, management believes that the future cost of compliance with
existing environmental requirements will not have a material adverse effect on
the Company's operations or financial position.
Operating Lease Commitments
The Company leases office space, office equipment, and other items under
noncancelable operating leases. The expense for noncancelable operating leases
was approximately $642, $600, and $582, for fiscal years 1997, 1996, and 1995,
respectively. At January 2, 1998, future minimum lease payments under
noncancelable operating leases are as follows:
1998 $418
1999 260
2000 63
2001 20
2002 and thereafter 12
------
$773
======
31
<PAGE>
9. ACQUISITIONS, MERGER AND PUBLIC OFFERING
Acquisitions
In February 1996, the Company exercised an option to purchase the
outstanding shares of Grupo Blaju, S.A., de C.V. (subsequently renamed TB Wood's
Mexico, S.A., de C.V.) and its subsidiaries for approximately $458, including
legal and professional fees. There was no goodwill associated with the purchase.
In October 1996, the Company purchased the assets of Ambi-Tech Industries,
Inc., a leading manufacturer of electronic brakes for electric motors, for
approximately $991 cash, including legal and professional fees, and an $800 note
payable at 7% interest. Principal is due in five annual installments of $160
beginning September, 1997. Goodwill associated with the purchase is being
amortized over 40 years using the straight-line method (Note 2).
In November 1996, the Company acquired certain assets of Deck Manufacturing
Corp., an established designer and manufacturer of industrial disc and gear
couplings, for approximately $1,471 cash, including legal and professional fees.
Goodwill associated with the purchase is being amortized over 40 years using the
straight-line method (Note 2). The Company also loaned Deck $400 which is
secured by the excess accounts receivable and the inventory not acquired. The
note receivable is included in other assets.
In May 1997, the Company purchased the stock of Wood's-NC, formerly Graseby
Controls, Inc., a subsidiary of Graseby plc, for cash of approximately $5,000.
Wood's-NC manufactures and sells industrial AC Drives, including the Volkmann
(TM) brand of high frequency AC drives, electronic brakes, and Soft Starts.
Goodwill associated with the purchase is being amortized over 40 years using the
straight-line method (Note 2).
In November 1997, the Company purchased the stock of Berges electronics
GmbH, for cash of approximately $1,480 and assumed liabilities of $4,765. Berges
designs, manufactures, and markets its own line of AC inverters for the European
market and sells TB Wood's inverters on a private label basis. Goodwill
associated with the purchase is being amortized over 40 years using the
straight-line method (Note 2).
The acquisitions of Wood's-NC and Berges are not material to the
consolidated financial statements. Accordingly, pro forma results of operations
for the year ended January 2, 1998 have not been presented.
Merger
In January 1996, the Company completed a merger (the "Merger") in
contemplation of an Initial Public Offering of the Company's common stock.
Pursuant to the Merger, a subsidiary of a newly formed holding company merged
with Wood's-U.S., with Wood's-U.S. as the surviving corporation. In the Merger,
the shareholders of Wood's-U.S. received three shares of the holding company's
stock in exchange for each share of Wood's-U.S. stock. The financial statements
of the Company prior to January 1996 have been restated to include the effects
of the Merger.
32
<PAGE>
Initial Public Offering
Effective February 8, 1996, the Company completed an Offering of its common
stock that raised approximately $22,478 in aggregate gross proceeds for the
Company. The net proceeds (after deducting issuance costs) of approximately
$19,823 from the Offering were used to repay $4,767 of the Fleet Term Loan,
$5,203 of the Senior Fleet Revolver Loan, and $10,000 of the USL Fixed and
Floating Rate Notes ("USL"). In addition, the Company paid approximately $616 to
USL. In conjunction with the Offering, USL redeemed warrants to purchase 375,000
shares of the Company's stock, which were included in the shares of common stock
issued by selling shareholders. The Company also purchased the remaining 21.0%
interest of Wood's-Canada held by the shareholders of Wood's-U.S. for
approximately $1,600.
The effects of interest and other charges in fiscal 1996, prior to the
Offering, are not material to the consolidated financial statements.
Accordingly, pro forma results of operations for the year ended January 3, 1997
have not been presented.
10. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Fiscal Quarters
1997 First Second Third Fourth
- ---- ----- ------ ----- ------
<S> <C> <C> <C> <C>
Sales $30,489 $31,739 $31,257 $30,542
Gross profit 10,951 11,507 11,487 11,067
Gross profit % 35.9% 36.3% 36.8% 36.2%
Net income 2,137 2,145 2,199 2,208
Basic net income per share 0.37 0.37 0.38 0.38
Diluted net income per share 0.36 0.36 0.37 0.37
Dividends declared .00 .08 .08 .08
Dividends paid .08 .08 .08 .08
</TABLE>
<TABLE>
<CAPTION>
1996 First Second Third Fourth
- ---- ----- ------ ----- ------
<S> <C> <C> <C> <C>
Sales $23,813 $25,107 $25,849 $27,736
Gross profit 8,892 9,190 9,324 10,341
Gross profit % 37.3% 36.6% 36.1% 37.3%
Income before
extraordinary item 933 (1) 1,515 1,684 1,813
Basic net income per share
before extraordinary item .20 (1) .26 .29 .31
Basic net income (loss) per share (.08) .26 .29 .31
Diluted net income per share
before extraordinary item .19 (1) .26 .29 .31
Diluted net income (loss) per share (.08)(2) .26 .29 .31
Dividends declared - .08 .08 .16
Dividends paid - .08 .08 .08
</TABLE>
- --------------------------------------------
(1) Includes a nonrecurring charge of $349 ($.07 per share) net of taxes,
related to the write-off of a noncompete agreement in February 1996.
(2) Includes extraordinary charges of $1,305 ($.27 per share), net of taxes, for
the early repayment of debt related to the Offering of stock in February 1996.
33
<PAGE>
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information called for by this item regarding directors and executive
officers is set forth in the Company's definitive Proxy Statement for the 1998
Annual Meeting in the sections entitled "Election of Directors", "Management"
and "Compliance with Section 16(a) of the Exchange Act" and is incorporated
herein by reference.
Item 11. Executive Compensation
The information called for by this item is set forth in the Company's
definitive Proxy Statement for the 1998 Annual Meeting in the section entitled
"Executive Compensation" and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information called for by this item is set forth in the Company's
definitive Proxy Statement for the 1998 Annual Meeting in the section entitled
"Security Ownership of Certain Beneficial Owners and Management" and is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
None.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as a part of this report:
(1) All financial statements;
The consolidated financial statements of the Company and its
subsidiaries on pages 14 through 34 hereof and the report thereon of
Arthur Andersen LLP appearing on page 15 hereof.
(2) Financial statement schedule
Schedule II for the fiscal year ended January 2, 1998 and the report of
Arthur Andersen thereon.
(3) Exhibits
Number Description
- ------ -----------
3.1 Amended Certificate of Incorporation of the Company (incorporated by
reference to TB Wood's Corporation Registration Statement filed on
Form S-1, as amended, File No. 33-96498 ("Form S-1") Exhibit 3.1).
3.2 Amended and Restated Bylaws of the Company (incorporated by reference
to Form S-1 Exhibit 3.2).
34
<PAGE>
4.1 Shareholders' Agreements by and among TB Wood's Sons Company, Thomas
C. Foley and Gifford P. Foley, Barton J. Winokur, Kurt A. Herwald,
Michael L. Hurt, Michael H. Iversen, David H. Halleen, Stanley L.
Mann, Lee J. McCullough, Carl R. Christenson, Harold L. Coder, III,
James E. Williams, Joseph S. Augustine, Bernard M. Goldsmith, Harvey
R. Heller, Robert Patterson Saltsman, F. Philip Handy, F. Philip
Handy, as Guardian of the Property of Kate Elizabeth Handy, F. Philip
Handy, as Guardian of the Property of Philip Breckenridge Handy and F.
Philip Handy, as Guardian of the Property of Abigail Slocum Handy
(incorporated by reference to Form S-1 Exhibit 4.1).
4.2 Amendments to Shareholders' Agreements by and among TB Wood's
Incorporated (formerly known as "T.B. Wood's Sons Company"), Thomas C.
Foley and Gifford P. Foley, Barton J. Winokur, Kurt A. Herwald,
Michael L. Hurt, Michael H. Iversen, David H. Halleen, Stanley L.
Mann, Lee J. McCullough, Carl R. Christenson, Harold L. Coder, III,
James E. Williams, Joseph S. Augustine (incorporated by reference to
Form S-1 Exhibit 4.2).
10.1 Stock Purchase Agreement dated January 7, 1994 by and among T.B.
Wood's Sons Company, Plant Engineering Consultants, Inc. and John
Morris, Jesse Batten, Ralph Pedigo, Ronald Bingham, Walter Taeubel and
Cook Family Trust (incorporated by reference to Form S-1 Exhibit
10.1).
10.2 Asset Purchase Agreement dated May 12, 1994 by and between T.B. Wood's
Sons Company and Magnetic Power Systems, Inc. (incorporated by
reference to Form S-1 Exhibit 10.2).
10.31 Junior Subordinated Promissory Note dated March 31, 1993 issued by
T.B. Wood's Sons Company in favor of The Bibb Company (incorporated by
reference to Form S-1 Exhibit 10.31).
10.32 Warrant to Purchase Common Stock dated April 1993 issued by T.B.
Wood's Sons Company to The Bibb Company (incorporated by reference to
Form S-1 Exhibit 10.32).
10.33 Subordinated Promissory Note dated April 2, 1993 issued by T.B. Wood's
Sons Company in favor of Charles O. Wood, III, together with a
Subordination Agreement dated April 2, 1993 by T.B. Wood's Sons
Company, TB Wood's Canada, Ltd., Mr. Wood and the subordinated
creditors listed on the signature pages thereto (incorporated by
reference to Form S-1 Exhibit 10.33).
10.36 Non-Qualified Stock Option Agreements between T.B. Wood's Sons Company
and Joseph S. Augustine, Michael H. Iversen, David H. Halleen, Stanley
L. Mann, Lee J. McCullough, Carl R. Christenson, Harold L. Coder, III
and James E. Williams (incorporated by reference to Form S-1 Exhibit
10.36).
10.37 Non-Qualified Stock Option Agreement dated as of March 15, 1991
between T.B. Wood's Sons Company and Michael L. Hurt, together with
Addendum dated as of March 30, 1992 (incorporated by reference to Form
S-1 Exhibit 10.37).
10.38 Asset Purchase Agreement between T.B. Wood's Sons Company and Dana
Corporation dated March 31, 1993 (includes Schedule 7.11 On-Site
Environmental Procedures) (incorporated by reference to Form S-1
Exhibit 10.38).
10.39 TB Wood's Corporation 1996 Stock-Based Incentive Compensation Plan
(incorporated by reference to Form S-1 Exhibit 10.39).
10.40 Amendments to the Non-Qualified Stock Option Agreements between TB
Wood's Incorporated (formerly known as "T.B. Wood's Sons Company") and
Joseph S. Augustine, Michael H. Iversen, David H. Halleen, Stanley L.
Mann, Lee J. McCullough, Carl R. Christenson, Harold L. Coder, III and
James E. Williams (incorporated by reference to Form S-1 Exhibit
10.40).
35
<PAGE>
10.41 Second Addendum dated July 1, 1995 to the Non-Qualified Stock Option
Agreement dated as of March 15, 1991 between TB Wood's Incorporated
(formerly known as "T. B. Wood's Sons Company") and Michael L. Hurt
(incorporated by reference to Form S-1 Exhibit 10.41).
10.43 Stock Purchase Agreement by and among TB Wood's Incorporated and Grupo
Blaju, S.A. de C.V. and Jorge R. Kiewek, Ninfa D. de Callejas and
Marcela Kiewek G., dated February 14, 1996 (incorporated by reference
to Form 10K, for fiscal year 1995, Exhibit 10.43).
10.44 Revolving Credit Agreement by and among TB Wood's Incorporated, Plant
Engineering Consultants, Inc., Grupo Blaju, S.A., de C.V., TB Wood's
Canada, Ltd. and the Banks Party thereto and PNC Bank, National
Association, as Agent, dated October 10, 1996 (incorporated by
reference to form 10K, for fiscal year 1996, Exhibit 10.44).
10.45 TB Wood's Employee Stock Purchase Plan, dated March 1,
1997(incorporated by reference to form 10K, for fiscal year 1996,
Exhibit 10.45).
10.46 Stock Purchase Agreement by and between TB Wood's Incorporated and
Graseby Electro-Optics Inc., dated May 8, 1997
10.47 Translated Stock Purchase Agreement by and among TB Wood's
Incorporated and Berges Antriebstechnik GmbH and Karen Sarstedt, dated
October 23, 1997.
10.48 Form of the Non-Qualified Stock Option Agreements between TB Wood's
Corporation and Thomas C. Foley, Michael L. Hurt, Carl Christenson,
Michael H. Iversen, Willard C. Macfarland, Jr., and other key
employees dated June 17, 1997 and between TB Wood's Corporation and
Robert J. Dole dated July 29, 1997 issued under the 1996 Plan.
10.49 Form of the Non-Qualified Stock Option Agreements between TB Wood's
Corporation and Thomas C. Foley, Michael L. Hurt, Carl Christenson,
Michael H. Iversen, Willard C. Macfarland, Jr., and other key
employees dated January 29, 1998 issued under the 1996 Plan.
21.1 Subsidiaries of Registrant.
23.1 Consent of Independent Public Accountants.
(b) Reports on Form 8-K.
There were no reports on Form 8-K by the Registrant during the fourth
quarter of fiscal year 1997.
36
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Chambersburg and Commonwealth of Pennsylvania, on March 31, 1998.
TB WOOD'S CORPORATION
By: /s/ MICHAEL L. HURT
-------------------
Michael L. Hurt
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ THOMAS C. FOLEY Chairman of the Board and Director March 31, 1998
- -------------------
Thomas C. Foley (Principal Executive Officer)
/s/ MICHAEL L. HURT President and Director March 31, 1998
- -------------------
Michael L. Hurt (Principal Executive Officer)
/s/ JEAN-PIERRE L. CONTE Director March 31, 1998
- ------------------------
Jean-Pierre L. Conte
/s/ CRAIG R. STAPLETON Director March 31, 1998
- ----------------------
Craig R. Stapleton
/s/ ROBERT J. DOLE Director March 31, 1998
- ------------------
Robert J. Dole
/s/ PHILIP A. GARTON Vice President of Finance, March 31, 1998
- --------------------
Philip A. Garton Corporate Controller
(Principal Financial Officer and
Principal Accounting Officer)
37
<PAGE>
<TABLE>
<CAPTION>
TB Wood's Corporation And Subsidiaries
Schedule II
Valuation and Qualifying Accounts
Column A Column B Column C Column D Column E
Additions
Balance at Deductions (write-offs
beginning of Charged to costs Charged to other of bad debts, discounts Balance at
Description period and expenses accounts and claims in excess of end of period
provision)(1)
- ----------------------------------------------------------------------------------------------------------------------------
Year ended December 29, 1995:
<S> <C> <C> <C> <C>
Allowance for doubtful $172 273 (81) $364
accounts
Allowance for discounts and 207 62 (123) 146
claims ----- ----- ----- -----
379 335 0 (204) 510
===== ===== ===== ===== =====
Year ended January 3, 1997:
Allowance for doubtful $364 65 (63) $366
accounts
Allowance for discounts and 146 (75) 71
claims ----- ----- ----- -----
510 65 0 (138) 437
===== ===== ===== ===== =====
Year ended January 2, 1998:
Allowance for doubtful $366 0 (32) $334
accounts
Allowance for discounts and 71 71 0 142
claims ----- ----- ----- -----
437 71 0 (32) 476
===== ===== ===== ===== =====
</TABLE>
- --------------
Note:
(1) Represents write-off accounts to be uncollectible, less recoveries
of amounts previously written off.
38
<PAGE>
STOCK PURCHASE AGREEMENT
Between
GRASEBY ELECTRO-OPTICS INC., the sole Shareholder
of
GRASEBY CONTROLS INCORPORATED,
a Delaware corporation,
as SELLER
and
TB WOOD'S INCORPORATED,
a Pennsylvania Corporation
as BUYER
Dated As of May 8, 1997
39
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS ......................................................1
ARTICLE II PURCHASE AND SALE OF SHARES ......................................6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER .........................7
Section 3.01 - Organization, Good Standing and Authority
of the Company ....................................7
Section 3.02 - Warranty of Title to the Shares ...................7
Section 3.03 - Capital Structure of the Company ..................7
Section 3.04 - No Subsidiaries ...................................7
Section 3.05 - Authorized and Effective Agreement;
No Violation ......................................8
Section 3.06 - Financial Statements; Organizational Documents;
Minute Books ......................................8
Section 3.07 - Operations Subsequent to December 31, 1996 ........9
Section 3.08 - Governmental Authorizations ......................10
Section 3.09 - Consents .........................................10
Section 3.10 - Intangibles ......................................10
Section 3.11 - Properties .......................................11
Section 3.12 - Environmental Matters ............................12
Section 3.13 - Tax Matters ......................................14
Section 3.14 - Employee Benefit Plans ...........................15
Section 3.15 - Certain Contracts ................................19
Section 3.16 - Legal Proceedings; Regulatory Approvals ..........19
Section 3.17 - Compliance with Laws .............................19
Section 3.18 - Brokers and Finders ..............................20
Section 3.19 - Inventory ........................................20
Section 3.20 - Accounts Receivable ..............................20
Section 3.21 - No Undisclosed Liabilities .......................20
Section 3.22 - Title ............................................21
Section 3.23 - Transactions with Related Parties ................21
Section 3.24 - Compensation Arrangements; Bank Accounts;
Officers and Directors ...........................21
Section 3.25 - Labor Relations ..................................21
Section 3.26 - Products Liability ...............................22
Section 3.27 - Insurance ........................................22
(i)
40
<PAGE>
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER .........................23
Section 4.01 - Organization, Standing and Authority of Buyer ....23
Section 4.02 - Authorized and Effective Agreement ...............23
Section 4.03 - Legal Proceedings; Regulatory Approvals ..........23
Section 4.04 - Securities .......................................24
Section 4.05 - Brokers and Finders ..............................24
ARTICLE V CONDITIONS PRECEDENT ............................................24
Section 5.01 - Conditions Precedent -- Buyer and Seller .........24
Section 5.02 - Conditions Precedent -- Seller ...................25
Section 5.03 - Conditions Precedent -- Buyer ....................25
ARTICLE VI CLOSING .........................................................27
ARTICLE VII WAIVER ..........................................................27
ARTICLE VIII CERTAIN POST-CLOSING OBLIGATIONS ................................28
Section 8.01 - Confidential Information .........................28
Section 8.02 - Indemnification by Seller ........................28
Section 8.03 - Indemnification by Buyer .........................30
Section 8.04 - Indemnification Procedures .......................30
Section 8.05 - Claims Against the Company .......................31
Section 8.06 - Tax Matters ......................................32
Section 8.07 - Noncompetition Covenant ..........................35
Section 8.08 - Nature and Survival of Representations ...........35
Section 8.09 - Employees; 401(k) Plan ...........................35
ARTICLE IX MISCELLANEOUS ...................................................36
Section 9.01 - Authorized and Effective Agreement;
No Violation (Guarantors) ............36
Section 9.02 - Expenses .........................................37
Section 9.03 - Consent to Jurisdiction; Forum Selection .........37
Section 9.04 - Entire Agreement .................................37
Section 9.05 - Assignment .......................................37
Section 9.06 - Notices ..........................................37
Section 9.07 - Captions; Headings ...............................39
Section 9.08 - Amendments .......................................39
(ii)
41
<PAGE>
Section 9.09 - Severability .....................................39
Section 9.10 - Construction .....................................39
Section 9.11 - Counterparts .....................................39
Section 9.12 - Post-Closing Cooperation .........................39
Section 9.13 - Governing Law ....................................40
List of Exhibits..............................................................44
List of Schedules.............................................................44
42
<PAGE>
(iii)
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement"), is made and entered
into this 8th day of May, 1997 by and among GRASEBY ELECTRO-OPTICS INC., a
Delaware corporation ("Seller"), the sole shareholder of Graseby Controls
Incorporated (the "Company"), a Delaware corporation, TB WOOD'S INCORPORATED, a
Pennsylvania corporation ("Buyer"), GRASEBY plc, an English corporation, and
GRASEBY ANDERSEN INC., a Delaware corporation (Graseby plc and Graseby Andersen
Inc. are sometimes collectively referred to hereinafter as "Guarantors").
W I T N E S S E T H:
WHEREAS, Seller owns one hundred percent (100%) of the issued and
outstanding shares of $1.00 par value common stock of the Company (the
"Shares"); and
WHEREAS, Seller desires to sell, transfer and assign to Buyer, and Buyer
desires to purchase, assume, and accept from Seller, the Shares, for the price
and on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants and promises contained herein, Seller and Buyer, intending to be
legally bound, hereby agree as follows:
ARTICLE I
DEFINITIONS
"Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated
under the Securities Exchange Act of 1934, as amended.
"Business" shall mean the business presently conducted by the Company,
including the business of designing, manufacturing, selling, and servicing
electronic controllers for rotating electrical machinery.
"Buyer" shall mean TB Wood's Incorporated.
"Closing" shall have the meaning set forth in Article VI of this Agreement.
"Closing Date" shall have the meaning set forth in Article VI of this
Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company" shall mean Graseby Controls Incorporated.
"Consents" shall mean consents, permits or approvals of third parties
necessary to transfer the Shares to Buyer or otherwise consummate the
transactions contemplated hereby and to conduct the Business.
"Damage" or "Damages" shall mean the aggregate amount of losses,
liabilities, claims, obligations, damages, deficiencies, costs, expenses, fines
or penalties, including without limitation reasonable attorney fees and other
defense costs, costs of investigation, remediation or other response actions,
each to the extent reasonable and actually incurred, with respect to a matter
for which an indemnification obligation exists under this Agreement.
"Effective Time" shall mean the time and date specified pursuant to Article
VI hereof as the effective time of the Sale.
43
<PAGE>
"Encroachment" shall mean (i) encroachments of any buildings or other
improvements onto the Real Property, and (ii) encroachments of any buildings or
other improvements situated on the Real Property onto properties or
rights-of-way abutting the Real Property.
"Financial Statements" shall mean the unaudited balance sheets (including
related notes and schedules, if any) of the Company as of December 31, 1995 and
1996 and the related unaudited statements of operations and shareholders' equity
(including related notes and schedules, if any) for each of the periods ended
December 31, 1994, 1995, and 1996, copies of which are attached hereto as
Exhibit A.
"GAAP" shall mean generally accepted accounting principles in effect in the
United States from time to time, as applied by the entity in respect of which
the term is used, consistently with its past practices.
"Governmental Body" shall mean any foreign, federal, state, local or other
governmental authority or regulatory body.
"Intangibles" shall mean (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
and trade names, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (c) all
copyrightable works, all copyrights, and all applications, registrations, and
renewals in connection therewith, (d) all mask works and all applications,
registrations and renewals in connection therewith, (e) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing plans
and proposals), (f) all computer software (including data and related
documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium). Notwithstanding the
foregoing and any other provision in this Agreement or any agreement, document,
or instrument delivered or to be delivered pursuant to this Agreement,
"Intangibles" does not and shall not include, and this Agreement shall in no
manner represent an agreement by Seller to convey to Buyer, any right or
interest in or to the name "Graseby" or any translation, adaptation, derivation,
or combination thereof, provided, however, that (i) Seller hereby grants to
Buyer a license to use the corporate name "Graseby Controls Incorporated" as the
name of the Company, and for no other purpose, for the one (1) month period
commencing on the Closing Date, it being agreed by the parties that on or before
the expiration of such one (1) month period Buyer shall cause the name of the
Company to be changed to a name which does not include the name "Graseby" or any
translation, adaptation, derivation, or combination thereof, and (ii) the
Company may use and sell, for a period of six (6) months commencing on the
Closing Date, the Company's inventories
44
<PAGE>
of products, components, supplies, brochures, stationery, business forms, and
other similar materials in stock as of the Closing Date which contain the name
"Graseby Controls Incorporated" and translations, adaptations, derivations, and
combinations thereof, it being agreed by the parties that after the expiration
of such six (6) month period Buyer shall no longer use the name "Graseby
Controls Incorporated" or any translation, adaptation, derivation, or
combination thereof on any product, component, supply, brochure, stationery,
business forms, or other similar materials.
"Knowledge," when used in the phrase "to the knowledge of" or a similar
phrase, shall mean the knowledge of the officers and management (including,
without limitation, the officers responsible for tax matters) of the Person to
whom such phrase refers, it being understood that the Knowledge of Seller shall
always be deemed to include the Knowledge of the Company.
"Licenses" shall mean all licenses, permits and other authorizations issued
by any federal, state or local governmental authorities to the Company in
connection with the Business or required for the conduct of the Business.
"Lien" shall mean any mortgage, lease, covenant, condition, restriction,
deed of trust, lien, pledge, hypothecation, assignment, deposit arrangement,
option, right of first refusal, indenture, license, security interest,
encumbrance, right of way, easement, encroachment or similar arrangement of any
kind or nature or any title defect whatsoever.
"Material Adverse Effect" shall mean, with reference to any event, matter,
item or circumstance (other than as a result of changes (a) in applicable laws
or regulations of general applicability or interpretations thereof by court or
governmental entities, or (b) in GAAP), that in and of itself, or when combined
with all other events, matters, items or circumstances, such event, matter, item
or circumstance reasonably could be expected to have, now or in the future, a
material adverse effect on the Business, properties, financial condition,
operations, or results of operations of the Company, as the case may be, but
shall not include those changes which would reasonably be expected to occur as a
reasonable consequence of the Sale, including, without limitation, the
consequences of employee resignations and employee relations difficulties.
"Ordinary Course of Business" shall mean the ordinary course of business of
the entity with respect to which this term is used, conducted in the same manner
as theretofore conducted during the three (3) year period preceding the date of
this Agreement and consistent with the entity's past policies, practices, and
methods (including with respect to quantity and frequency) in effect during such
three (3) year period. When used with reference to the Company, Ordinary Course
of Business shall mean the (a) Ordinary Course of Business of the Company, and
(b) the Ordinary Course of Business of Graseby Volkmann Corporation prior to its
merger with and into the Company.
"Permitted Exceptions" shall have the meaning set forth in Section
3.11(b)(ii) of this Agreement.
45
<PAGE>
"Person" shall mean an individual, a partnership, a corporation, a
commercial bank, an industrial bank, a savings association, a savings bank, a
limited liability company, an association, a joint stock company, a trust, a
business trust, a joint venture, an unincorporated organization, or a
governmental entity (or any department, agency, or political subdivision
thereof).
"Personal Property" shall mean the machinery, equipment, tools, vehicles,
furniture, leasehold improvements, office equipment, plant and other tangible
personal property used or useful in the Business, and all computer disks and
tapes, plans, diagrams, blueprints, schematics and books and records relating to
the Company or the Business.
"Predecessor in Interest" shall mean, with respect to the entity to which
such phrase refers, all entities to which such entity has succeeded by way of
merger or acquisition. When used with respect to the Company, the phrase
"Predecessor in Interest" shall mean and include, but shall not be limited to,
Graseby Volkmann Corporation, Tasc Drives, Inc., and Electrical South, Inc.
"Purchase Price" shall have the meaning set forth in Article II.
"Real Property" shall mean that certain parcel or parcels of land located
in Greensboro, Guilford County, North Carolina and more particularly described
in Exhibit B hereto, together with all fixtures, fittings, buildings, structures
and other improvements thereon, and all easements, rights and privileges of
every type and nature used by the Company in connection therewith or appurtenant
thereto.
"Regulations" shall mean the federal income tax regulations under the Code,
promulgated by the Treasury Department and contained in Title 26 of the Code of
Federal Regulations, including any amendments or any substitute or successor
provisions thereto.
"Related Party" shall mean Seller, any of the officers or directors of the
Company or Seller, any Affiliate of Seller, the Company, or any business or
entity in which Seller, the Company, or any Affiliate of any such Person has any
direct, or material indirect, interest.
"Rights" shall mean warrants, options, rights (whether stock appreciation
rights, conversion rights, exchange rights, profit participation rights, or
otherwise), convertible securities and other arrangements or commitments which
obligate a Person to issue, otherwise cause to become outstanding, sell,
transfer, pledge, or otherwise dispose of any of its or any other Person's
capital stock or other ownership interests, or any voting rights thereof or
therein.
"Sale" shall mean the sale of the Shares by Seller to Buyer pursuant to
this Agreement.
46
<PAGE>
"Seller" shall mean Graseby Electro-Optics Inc., successor by merger to
Graseby Overseas Corporation.
"Shares" shall mean all of the issued and outstanding shares of capital
stock of the Company.
"Significant Contract" shall mean, with respect to the Company, (a) any
note, bond, mortgage or other instrument which evidences or secures indebtedness
of the Company with a balance outstanding of Twenty Five Thousand Dollars
($25,000) or more, (b) any agreement, arrangement, commitment, contract or other
instrument, except a lease of Real or Personal Property, to which the Company is
a party or by which the Company is bound, the performance or nonperformance of
which could either (i) increase the liabilities or decrease the assets of the
Company or (ii) decrease the income or increase the expenses of the Company, in
each case by Twenty Five Thousand Dollars ($25,000) or more over the remaining
term of the obligation, exclusive of all optional renewal periods and extensions
of the term, provided, however, that any such agreement, arrangement,
commitment, contract or other instrument shall not be deemed to be a Significant
Contract in the event the Company has the contractual right to terminate the
agreement, arrangement, commitment, contract or other instrument in question on
thirty (30) days' notice or less without incurring a penalty, premium, or other
expense in excess of Twenty Five Thousand Dollars ($25,000).
"Significant Lease" shall mean, with respect to the Company, (a) any lease
of Real or Personal Property, or any sublease of Real Property, by the Company,
as lessee or sublessee, pursuant to which the Company reasonably anticipates the
payment of aggregate rent, taxes, insurance, utilities (if applicable) and other
charges in excess of Twenty Five Thousand Dollars ($25,000) over the remaining
term of such lease or sublease, exclusive of all optional renewal periods and
optional extensions of the term thereof (provided, however, that any such lease
or sublease shall not be deemed a Significant Lease in the event that the
Company has the contractual right to terminate such lease in question on thirty
(30) days' notice or less without incurring a penalty, premium, or other expense
in excess of Twenty Five Thousand Dollars ($25,000)), and (b) any lease of Real
or Personal Property, or any sublease of Real Property, by the Company as lessor
or sublessor.
"Survey" shall mean that certain survey of the Real Property prepared by
Andrew G. Zoutewelle (L-3098), dated April 23, 1997, last revised on May 6,
1997, entitled "Boundary Survey of Lot 1 Welker's Inc. Greensboro, Guilford
County, N.C. Graseby Controls Inc.," a copy of which is attached hereto as
Exhibit C.
"Survey Defect" shall mean any of the following shown on or discernable
from the Survey: (a) a lack of vehicular access to and from the Real Property to
and from a dedicated and accepted public right-of-way; (b) any zoning or land
use ordinances (other than Permitted Exceptions); (c) noncompliance with any
applicable zoning law, including, without limitation, those relating to setback
or height restrictions; (d) noncompliance with any covenant, restriction or
condition affecting the Real Property; or (e) any Lien (other than Permitted
Exceptions) which
47
<PAGE>
individually or when aggregated with other matters affecting title (other than
Permitted Exceptions): (i) materially detracts from the value of the Real
Property, (ii) impairs, or reasonably could be expected to impair, the use of
the Real Property in the manner such property is currently being used by the
Company in connection with the Business, (iii) impairs, or reasonably could be
expected to impair, the operations of the Company or the conduct of the
Business, or (iv) renders the title to the Real Property unmarketable.
"Tax" or "Taxes" shall mean any federal, state, local, foreign or other net
income, gross income, gross receipts, windfall profits, severance, property,
production, sales, use, transfer, gains, license, excise, franchise, employment,
payroll, withholding (which includes, without limitation, income, payroll tax,
foreign withholding, backup withholding, and any other withholding obligation
imposed by the Code or a Governmental Body), value added, estimated, alternative
or add-on minimum tax, or any other tax, custom, duty, governmental fee or other
like assessment or charge of any kind whatsoever, together with any interest or
any penalty, addition to tax or additional amount imposed by any Governmental
Body.
"Tax Return" shall mean any return, report or similar statement required to
be filed with respect to any Taxes (including any required schedules),
including, without limitation, any information return, claim for refund, amended
return and declaration of estimated Tax.
Other terms used herein are defined elsewhere in this Agreement.
ARTICLE II
PURCHASE AND SALE OF SHARES
At the Closing, upon satisfaction of the conditions contained in this
Agreement, (i) Seller shall sell and deliver the Shares to Buyer, and (ii) in
exchange therefor, Buyer shall pay the Purchase Price in full in immediate
funds. The "Purchase Price" for the Shares shall be the sum of Four Million Nine
Hundred Fifty Thousand United States Dollars ($4,950,000.00), of which Three
Million Eight Hundred Eighteen Thousand One Hundred Ninety-Seven United States
Dollars ($3,818,197.00) shall be paid to Seller in full satisfaction of the loan
in that amount to the Company by Graseby Overseas Corporation (to which Seller
has succeeded as payee pursuant to a merger between Graseby Overseas Corporation
and Seller, with Seller as the surviving entity) and One Million One Hundred
Thirty-One Thousand Eight Hundred Three United States Dollars ($1,131,803.00)
shall be paid to Seller.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer as follows:
48
<PAGE>
Section 3.1. Organization, Good Standing and Authority of the Company.
The Company is duly organized, validly existing, and in good standing as a
general business corporation under the laws of the State of Delaware, is duly
qualified to do business in the State of North Carolina, and has the powers and
privileges of a general business corporation, including, without limitation,
full power to carry on the Business. The Company is not required by law to
qualify to do business in any foreign jurisdiction other than North Carolina,
except where failure to qualify in such foreign jurisdiction would not have a
Material Adverse Effect.
Section 3.2. Warranty of Title to the Shares.
Seller holds of record and beneficially owns, and has good and marketable
title to, the Shares. The Shares are not subject to any Taxes, Liens, or Rights.
Seller is not a party to any voting trust, shareholders' agreement, proxy,
voting trust, or other agreement or understanding with respect to the Shares
owned by Seller or the voting rights associated therewith.
Section 3.3. Capital Structure of the Company.
The authorized capital stock of the Company consists of One Thousand
(1,000) shares of common stock, par value $1.00 per share ("Common Stock"). As
of the date hereof, there were One Thousand (1,000) shares of Common Stock
issued and outstanding. The Shares constitute all of such outstanding Common
Stock. The Shares were not issued in violation of the terms of any agreement or
other understanding binding upon the Company, and were issued in compliance with
all applicable federal and state securities or "blue-sky" laws and regulations.
All Shares have been duly issued and constitute validly outstanding, fully paid,
and nonassessable shares of Common Stock. There are no Rights authorized, issued
or outstanding with respect to any capital stock of the Company. None of the
outstanding shares of the Company's capital stock has been issued in violation
of the preemptive rights of any Person.
Section 3.4. No Subsidiaries.
The Company does not own and has not owned, directly or indirectly, any
outstanding capital stock or other voting securities or ownership interests of
any corporation, partnership, limited liability company, or other organization.
Section 3.5. Authorized and Effective Agreement; No Violation.
(a) Seller has all requisite power and authority to enter into, to deliver,
and (subject to receipt of all Consents set forth in Schedule 3.9 hereto) to
perform all of its obligations under this
49
<PAGE>
Agreement. This Agreement and all other agreements and instruments required to
be executed and delivered by Seller and the Company, as applicable, in
connection with or pursuant hereto have been duly executed and delivered by
Seller and the Company, as applicable, and constitute the legal, valid and
binding obligations of Seller and the Company, as applicable, enforceable in
accordance with their terms, subject as to enforceability, to bankruptcy,
insolvency and other laws of general applicability relating to or affecting
creditors' rights, and to general equity principles. Upon delivery to Buyer at
the Closing of certificates representing the Shares in accordance herewith,
Buyer will acquire good and valid title to the Shares, free and clear of all
liens, claims, security interests, pledges, charges, equities, options,
restrictions and encumbrances of whatsoever nature. The execution, delivery and
performance of this Agreement have been duly authorized by all necessary
corporate action on the part of Seller and the Company (including shareholder
approval).
(b) Neither the execution and delivery of this Agreement, the consummation
of the transactions contemplated hereby, nor compliance by Seller or the Company
with any of the provisions hereof will: (i) conflict with or result in a breach
of any provision of the articles of incorporation or bylaws of Seller or the
Company; (ii) conflict with or constitute or result in a breach of any term,
condition or provision of, or constitute a default under, or give rise to any
right of termination, cancellation or acceleration with respect to, any note,
bond, mortgage, indenture, lease, license, agreement, instrument, or other
arrangement or obligation to which Seller or the Company is a party or by which
any of them is bound, or result in the creation or imposition of any Lien upon
any property or asset of Seller or the Company, except where such occurrence
would not have a Material Adverse Effect; or (iii) violate any order, ruling,
decree, charge, writ, injunction, regulatory agreement or memorandum of
understanding, constitution, statute, rule or regulation applicable to Seller,
the Guarantors, or the Company, except where such violation would not have a
Material Adverse Effect.
Section 3.6. Financial Statements; Organizational Documents; Minute Books.
(a) The books of account and related records of the Company fairly reflect
in all material respects and in reasonable detail all assets, liabilities and
transactions of the Company in accordance with GAAP. Seller has previously
delivered to Buyer the Financial Statements. The Financial Statements: (i) are
correct and complete in all material respects and in accordance with the books
and records of the Company; (ii) fairly present in all material respects the
financial condition, assets and liabilities of the Company and the Business as
of their respective dates and the results of operations and cash flows of the
Company and the Business for the periods covered thereby; and (iii) reflect
accurately in all material respects all costs and expenses of the Company and
the Business as if the Company were independent and not affiliated with any
other corporation or business, except as set forth in Schedule 3.6(a) attached
hereto.
(b) Seller previously has delivered to Buyer true, complete and correct
copies of the articles of incorporation and bylaws of the Company, and
previously has provided to Buyer
50
<PAGE>
access to all minute books, stock certificate books and stock transfer records
of the Company. The minute books of the Company contain all material actions of
its shareholders and its board of directors.
Section 3.7. Operations Subsequent to December 31, 1996.
(a) Except as set forth in Schedule 3.7(a) attached hereto, since December
31, 1996, the Company has conducted the Business only in the Ordinary Course of
Business consistent with historical practice.
(b) Except as set forth in Schedule 3.7(b) attached hereto, since December
31, 1996, there has not been any change in the Business, financial condition,
operations or results of operations of the Company which would have a Material
Adverse Effect.
(c) Except as set forth in Schedule 3.7(c) attached hereto, since
December 31, 1996: (i) the Company has not sold, leased, transferred, or
assigned any of its assets, tangible or intangible, other than for a fair
consideration in the Ordinary Course of Business; (ii) the Company has not
entered into any Significant Contract or Significant Lease; (iii) the Company
has not accelerated, terminated, modified or canceled any agreement, contract,
lease, license, (or series of related agreements, contracts, leases, or
licenses), involving more than Twenty Five Thousand Dollars ($25,000) to which
the Company is a party or by which the Company is bound outside the Ordinary
Course of Business; (iv) the Company has not imposed, nor suffered the
imposition of, any Lien upon any of its assets, tangible or intangible, except
Liens granted in connection with the purchase of equipment or supplies in the
Ordinary Course of Business which in the aggregate do not exceed Fifty Thousand
Dollars ($50,000); (v) there has been no change made or authorized in the
articles of incorporation or bylaws of the Company; (vi) the Company has not
issued, sold, or otherwise disposed of any of its capital stock, or granted any
Rights with respect to its capital stock, or agreed to, or allowed the
imposition of, any Lien with respect to its capital stock; (vii) the Company has
not declared, set aside, or paid any dividend or made any distribution with
respect to its capital stock (whether in cash or in kind) or redeemed,
purchased, or otherwise acquired any of its capital stock; (viii) the Company
has not experienced any damage, destruction, or loss (whether or not covered by
insurance) to its property in excess of Fifty Thousand Dollars ($50,000) per
occurrence; (ix) the Company has not granted any material increase in the
compensation of any of its directors, officers, employees, or independent
contractors outside the Ordinary Course of Business; (x) the Company has not
adopted, amended, modified or terminated any bonus, profit-sharing, incentive,
severance, or other plan, contract, or commitment for the benefit of any of its
directors, officers, and employees (or taken any such action with respect to any
other Employee Benefit Plan); (xi) the Company has not made or pledged to make
any charitable or other capital contribution; (xii) there has been no material
change in the Company's accounting principles, practices or methods; (xiii)
there has been no organized labor walkout, work stoppage or slowdown by any of
the Company's employees or, to the Knowledge of Seller, any threat thereof or
any organized attempts to establish unions or collectively bargain with respect
to the employees of the Company; (xiv) there has been no cancellation or waiver
by the Company of any right material to the operation of
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the Company nor any disposition of or failure to keep in effect any rights in,
to, or for the use of any material patent, or any trademark, service mark, or
tradename used in any jurisdiction where the Company has a material amount of
product sales, nor has there been any disclosure by the Company to any person
not an employee of the Company or other disposal of any trade secret, process,
or know-how; (xv) the Company has not made, nor has the Company or any taxing
authority changed or revoked, any Tax election relating to the Company; (xvi) to
the Knowledge of Seller, there has not been any other occurrence, event,
incident, action, failure to act, or transaction outside the Ordinary Course of
Business involving the Company which has or will have a Material Adverse Effect;
and (xvii) the Company has not committed to do, or to permit the occurrence of,
any of the foregoing.
Section 3.8. Governmental Authorizations.
To the Knowledge of Seller, the Company possesses and is in material
compliance with all of the Licenses and other federal, state, and local
governmental approvals, certificates, filings, franchises, licenses, notices,
permits, and rights ("Permits") necessary for the Company to own, lease, or
operate its properties and assets and to carry on the Business as it is now
conducted, which are set forth in Schedule 3.8 attached hereto. No default has
occurred under any License which would have a Material Adverse Effect. The
Company has conducted the Business and is now doing so in compliance with all
applicable laws, rules, regulations, judgments and orders, except for such
non-compliance which could not have a Material Adverse Effect.
Section 3.9. Consents.
Except as set forth in Schedule 3.9 attached hereto, no consent, approval,
permit or authorization of, or declaration to, or filing with, any governmental
or regulatory authority or any other third party is required to consummate this
Agreement and the transactions contemplated hereby.
Section 3.10. Intangibles.
Schedule 3.10 attached hereto sets forth all Intangibles owned by or
licensed to the Company (the "Company's Intangibles"). Except as set forth in
Schedule 3.10: (a) no Intangibles, other than the Company's Intangibles, are
required to conduct the Business in the Ordinary Course of Business; (b) none of
the Company's Intangibles is used pursuant to a license from a third party or
licensed to a third party; (c) all of the Company's Intangibles which consist of
patents, registered trademarks, service marks and copyrights are in full force
and effect and are held of record in the Company's name; (d) there is no
agreement to which the Company is a party or to which the Company is legally
bound, and to Seller's Knowledge no restriction, materially and adversely
affecting the use by the Company of any of the Company's Intangibles; (e) there
is no pending reexamination of or pending litigation with respect to any of the
Company's Intangibles; (f) there is no order, holding, decision or judgment
which has been rendered by any governmental authority, and no agreement, consent
or stipulation exists to which the Company is a party or of which the Company
has Knowledge which would prevent the
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Company from using any of the Company's Intangibles; (g) there is no pending or,
to the Company's knowledge threatened, objection or claim being asserted against
the Company in any administrative or judicial proceeding or by any person with
respect to the ownership, validity, enforceability, or use of any of the
Company's Intangibles or challenging or questioning the validity or
effectiveness of the Company's ownership or license of any of the Company's
Intangibles; (h) no notice of rejection, opposition, interference or refusal to
register has been received by the Company in connection with any patent
application or any application for trademark, service mark or copyright
registration included within the Company's Intangibles; (i) the Company has not
infringed or misappropriated any rights of any other Person with respect to any
United States or foreign patents, trademarks, trade names, service marks,
copyrights or applications therefor or any other intellectual property rights in
its operation of the Business, nor does the Company have Knowledge of any
infringement or misappropriation which will occur as a result of the continued
operation of the Business as now conducted; and (j) the Company has not taken
any action which would permit any party other than the Company, or its agents,
officers or employees (acting on behalf of the Company), to use, license,
sublicense or operate under any of the Company's Intangibles.
Section 3.11. Properties.
(a) Personal Property; Company's Intangibles. The Company has good and
marketable title to, or leasehold interests in, all of the Personal Property and
the Company's Intangibles reflected on the balance sheet included in the
Financial Statements as of December 31, 1996, or acquired between that date and
the Effective Time, free and clear of all Liens, except (i) such imperfections
of title, restrictions, covenants, and encumbrances, if any, as would not have a
Material Adverse Effect, and (ii) dispositions and encumbrances for adequate
consideration in the Ordinary Course of Business of the Company. The Personal
Property constitutes substantially all of the personal property that is used or
held by the Company for use in the operation of the Business.
(b) Real Property.
(i) Except for the Real Property, the Company does not own, lease or
otherwise occupy any real property or interest therein and no other real
property or interest therein is used in the conduct of the Business.
(ii) The Company has (and will continue to have immediately
following consummation of the transactions contemplated hereby) good, valid,
marketable and indefeasible fee simple title to, and is in actual possession of,
the Real Property. The legal description of the Real Property attached hereto as
Exhibit B is accurate, current and complete. Seller has delivered to Buyer
complete copies of all title reports, title opinions, title insurance
commitments, title insurance policies and surveys, if any, pertaining to the
Real Property that are known by Seller, after reasonable inquiry, to exist and
are in the possession or control of Seller, the Company or any Affiliate of
either of the same (Seller, the Company and all Affiliates of either of the same
being hereinafter collectively referred to in this Section 3.11(b)(ii) as
"Seller
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Entities"). The Real Property is free and clear of all Liens and Survey Defects,
including, without limitation, security interests, including, without
limitation, any conditional sale or other title or interest retention agreements
or arrangements, options to purchase, liens, encumbrances, mortgages, pledges,
assessments, easements, covenants, restrictions, reservations, defects in title,
Encroachments, leases, subleases, rights of occupancy, chattel mortgages and
collateral security arrangements, rights-of-way, building use restrictions,
exceptions, variances or reservations of any nature whatsoever, except the
following (collectively, "Permitted Exceptions"): (A) matters set forth on
Schedule 3.22; (B) minor imperfections of title, conditions, easements,
covenants and restrictions, if any, none of which have a Material Adverse
Effect; (C) zoning and land use ordinances, none of which, individually or in
the aggregate, to the Knowledge of Seller has a Material Adverse Effect; and (D)
liens for real estate taxes and assessments not yet due and payable. None of the
Seller Entities has received written notice of any violation of or nonconformity
with any zoning, subdivision, wetlands, or other similar law, code, rule,
regulation or ordinance from any governmental authority with respect to the Real
Property, or of any condemnation action, eminent domain proceeding or other
litigation concerning any of the Real Property. The water, gas, electricity and
other utilities serving the Real Property have been and are currently adequate
to service the Business.
Section 3.12. Environmental Matters.
(a) The Company holds and is in compliance with all Permits required under
all applicable environmental statutes, rules, regulations, ordinances and orders
of any governmental entity, including those relating to Hazardous Substances (as
defined below) ("Environmental Laws") in connection with the Business, and all
of such Permits are in full force and effect. All such Permits are listed on
Schedule 3.8 attached hereto and any that are not transferable are so
designated. The Company has complied with and is not in violation of
Environmental Laws. The Company has made timely application for renewals of all
such Permits for which Environmental Laws require that applications must be
filed on or before the Closing to maintain such Permits in full force and
effect. Neither Seller nor the Company has reason to believe that such renewals
will not be issued in the ordinary course or will require payment of money or
imposition of conditions, other than as set forth in Schedule 3.8.
(b) No notice, citation, summons or order has been issued, no complaint has
been filed, no penalty has been assessed and no investigation or review is
pending, or to Seller's Knowledge threatened, by any governmental or other
entity: (i) with respect to any alleged violation by the Company of any
Environmental Laws; (ii) with respect to any alleged failure by the Company to
have any Permit required in connection with the Business; or (iii) with respect
to any use, possession, generation, treatment, storage, recycling,
transportation or disposal (collectively, "Management" or "Manage") of any
hazardous or toxic substance or waste, pollutant or contaminant including
petroleum products and radioactive materials ("Hazardous Substances") by or on
behalf of the Company or any Predecessor in Interest of the Company.
(c) The Company has not received any written request for information,
notice of claim, demand or notification that it is or may be potentially
responsible with respect to any
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investigation or cleanup of any threatened or actual Release (as defined below)
of any Hazardous Substance.
(d) Except as set forth on Schedule 3.12(d): (i) the Company has not used,
generated, treated, stored for more than ninety (90) days, recycled or disposed
of any Hazardous Substances on any property now or previously owned, operated or
leased by the Company, nor to Seller's Knowledge has any other Person treated,
stored for more than ninety (90) days, recycled or disposed of any Hazardous
Substances on any property now or previously owned, operated, or leased by the
Company at any time during the Company's ownership, lease, or operation of such
property; (ii) no polychlorinated biphenyls ("PCBs") or asbestos-containing
materials are or have been present at any property now or previously owned,
operated or leased by the Company at any time during the Company's ownership,
operation, or lease of such property; and (iii) no underground storage tanks,
active or abandoned, are or have been present at any property now or previously
owned, operated or leased by the Company at any time during the Company's
ownership, operation, or lease of such property.
(e) No Hazardous Substance Managed by the Company has been recycled,
treated, stored, disposed of or transported by any Person other than those
listed on Schedule 3.12(e). Except as set forth on Schedule 3.12(e), no
Hazardous Substance Managed by or on behalf of the Company or any Predecessor in
Interest of the Company has come to be located at any site which is listed or
proposed for listing under the National Priority List promulgated pursuant to
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"), the Comprehensive Environmental Response,
Compensation and Liability Information System ("CERCLIS") or on any similar
state list, or which is the subject of federal, state or local enforcement
actions or other investigations which may lead to claims against the Company or
Buyer for clean-up costs, remedial work, damages to natural resources or for
personal injury claims, including, but not limited to, claims under CERCLA.
(f) Except as set forth in Schedule 3.12(f), no Hazardous Substance has
been released, spilled, leaked, discharged, or disposed of, pumped, poured,
emitted, emptied, injected, leached, dumped or allowed to escape ("Released")
at, on, about or under any property now or formerly owned, operated or leased by
the Company or any Predecessor in Interest of the Company at any time during the
ownership, operation, or lease of such property by the Company or a Predecessor
in Interest of the Company, which Release would have a Material Adverse Effect.
(g) Except as set forth in Schedule 3.12(g), no oral or written
notification of a Release or threat of Release of a Hazardous Substance has been
filed by or on behalf of the Company or in relation to any property now or
previously owned, operated or leased by the Company or any Predecessor in
Interest of the Company. No property currently owned, leased, or operated by the
Company is listed or proposed for listing on the National Priority List
promulgated pursuant to CERCLA or CERCLIS or on any similar state list of sites
requiring investigation or clean-up.
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(h) There are no environmental liens on any properties currently owned or
leased by the Company and no government actions have been taken or are in
process or pending which could subject any of such properties to such liens.
(i) The Company would not be required to place any notice or restriction
relating to the presence of Hazardous Substances in the deed to any property
currently owned by it, and to Seller's Knowledge no property now or formerly
owned by the Company has such notice or restriction in its deed.
(j) No consent, approval or authorization of, or registration or filing
with any Person, including any environmental governmental authority or
regulatory agency, is required in connection with the execution and delivery of
this Agreement or the consummation of the transactions contemplated hereby. The
Company has or will prepare and file all applications for Permit transfers, if
any, in adequate time for transfer to occur prior to the Closing.
(k) Except as set forth in Schedule 3.12(k) and as heretofore provided to
Buyer, to Seller's Knowledge there have been no environmental inspections,
investigations, studies, audits, tests, reviews or other analyses conducted in
relation to any property now or previously owned, operated or leased by the
Company.
(l) Neither Seller nor the Company has Knowledge of any other facts or
circumstances related to the properties of the Company or any Predecessor in
Interest of the Company, or to the Business, that could reasonably be expected
to lead to any future environmental claims, liabilities or responsibilities
affecting the Company or Buyer.
Section 3.13. Tax Matters.
(a) All Tax Returns that are required to have been filed by the Company
have been filed within the time and in the manner required by law, and all such
Tax Returns are in all material respects true and correct and accurately reflect
the Tax liabilities of the Company. All Taxes of the Company that have become
due pursuant to such Tax Returns, or any assessments or demand for payment
received, have been paid. The provision for Taxes reflected on the Company's
December 31, 1996, balance sheet is adequate to cover all Tax liabilities,
whether or not disputed, of the Company and any Predecessor in Interest of the
Company with respect to any taxable year or taxable period ending on or before
December 31, 1996, and nothing has occurred subsequent to December 31, 1996, to
make any such provision inadequate. All Taxes related to taxable periods of the
Company subsequent to December 31, 1996, have been paid or are adequately
reserved for on the books and records of the Company. Except as set forth in
Schedule 3.13(a), there are no current, pending, or to Seller's Knowledge or the
Company's Knowledge threatened, claims, assessments, notices, proposals to
assess, deficiencies, or audits with respect to any Taxes. No Governmental Body
with respect to which the Company does not file Tax Returns has claimed that the
Company is or may be subject to taxation by that Governmental Body. The Company
has withheld and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, shareholder, creditor,
independent contractor or other party. The Company has not executed any
presently effective waiver or extension of any statute of limitations against
assessments and collections of Taxes. Except as set forth in Schedule 3.13(a),
no Tax Returns of the Company are presently subject to an extension of time to
file.
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(b) The Company has not filed and has not had filed on its behalf an
election under Section 341(f) of the Code that is applicable to the Company or
any of its assets. The Company has not made any payments, is not obligated to
make any payments, nor is a party to any agreement that under any circumstances
could obligate it to make any payments that will not be deductible under Code
Section 280G. The Company is not a party to any Tax allocation or sharing
agreement. Except as disclosed on Schedule 3.13(b)(i), the Company (or any
Predecessor in Interest of the Company), has never been a member of an
affiliated group that elected to file or was required to file consolidated
returns for federal income tax purposes or consolidated, combined or unitary tax
returns for state or local income tax purposes. Except for this Agreement, and
except as set forth in Schedule 3.13(b)(ii), there is no agreement with any
Person pursuant to which the Company would have any obligation after Closing in
respect of Taxes of such other Person.
(c) None of the assets of the Company is property that the Company is
required to treat as being owned by any other Person pursuant to the "safe
harbor lease" provisions of former Section 168(f)(8) of the Code. None of the
assets of the Company directly or indirectly secures any debt the interest on
which is tax-exempt under Section 103(a) of the Code. None of the assets of the
Company is "tax-exempt use property" within the meaning of Section 168(h) of the
Code.
(d) The Company has not agreed to make nor is it required to make any
adjustment under Section 481(a) of the Code by reason of a change in accounting
or otherwise.
(e) Neither the Company nor Seller is a "foreign person" within the meaning
of the Code and the Regulations.
(f) The Company has no interest in any entity that is treated as a
partnership for federal income tax purposes.
(g) Except as disclosed in Schedule 3.13(g), the Company is not a successor
to any other business entity by way of merger, reorganization, liquidation or
similar transaction.
(h) There is no ruling issued to the Company, or closing agreement or gain
recognition agreement to which the Company is a party, concerning Taxes from or
with any Governmental Body which would have a continuing effect on the Company
after the Closing Date.
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Section 3.14. Employee Benefit Plans.
(a) Schedule 3.14(a) lists all "employee benefit plans," as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and all pension, profit sharing, retirement, supplemental retirement,
stock, stock option, basic and supplemental accidental death and dismemberment,
basic and supplemental life and health insurance, post-retirement medical or
life, welfare, dental, vision, savings, bonus, deferred compensation, incentive
compensation, business travel and accident, holiday, vacation, severance pay,
salary continuation, sick pay, sick leave, short and long term disability,
tuition refund, service award, company car, scholarship, relocation, patent
award, fringe benefit and other employee benefit plans, arrangements, contracts,
policies, or practices whether written or unwritten, qualified or unqualified,
funded or unfunded, (i) maintained, contributed to, or required to be
contributed to by the Company or any ERISA Affiliate (as defined below) with
respect to any Company employees, or (ii) pursuant to which the Company or any
ERISA Affiliate may have any liability with respect to any Company employees,
within the United States (the "Benefit Plans"). For purposes of this Agreement,
the term "ERISA Affiliate" means: (i) any corporation included with the Company
in a controlled group of corporations within the meaning of Section 414(b) of
the Code; (ii) any trade or business (whether or not incorporated) which is
under common control with the Company within the meaning of Section 414(c) of
the Code; (iii) any member of an affiliated service group of which the Company
is a member within the meaning of Section 414(m) of the Code; or (iv) any other
person or entity treated as an affiliate of the Company under Section 414(o) of
the Code.
(b) As applicable, with respect to each of the Benefit Plans, true and
complete copies of the following have been delivered to Buyer: (i) all plan
documents (including all amendments and modifications thereof) pertaining to the
"Graseby Savings and Investment Plan" and the Company's medical plan with United
Health Care of North Carolina, Inc., and in the case of an unwritten Benefit
Plan a written description thereof; (ii) the filed Form 5500 series and all
schedules thereto, as applicable, for 1993, 1994 and 1995; (iii) the "Financial
Statements and Supplemental Schedules to the Graseby Savings and Investment
Plan" for 1992, 1993, 1994, and 1995; and (iv) copies of determination letters
issued with respect to the Benefit Plans within the past five years.
(c) The Company and each ERISA Affiliate are in compliance in all material
respects with the provisions of ERISA and the Code applicable to the Benefit
Plans. Each Benefit Plan has been maintained, operated and administered in
compliance in all material respects with its terms and any related documents or
agreements and the applicable provisions of ERISA and the Code.
(d) No Benefit Plan is, or at any time has been, a "multiemployer plan" as
defined in Section 3(37) of ERISA.
(e) The Company's 401(k) plan is the only Benefit Plan which are "employee
pension benefit plans" within the meaning of Section 3(2) of ERISA and which are
intended to meet the qualification requirements of Section 401(a) of the Code
(each a "Pension Plan"). Each Pension Plan now meets and at all times since its
inception has met the qualification requirements of Section 401(a) of the Code
and each related trust is now, and at all times since its inception has been,
exempt from taxation under Section 501(a) of the Code.
(f) Each Pension Plan has received a determination letter from the IRS to
the effect that such Pension Plan is qualified and all related trusts are exempt
from federal income taxes and no determination letter with respect to any
Pension Plan has been revoked nor, is there any reason for such revocation, nor
has any Pension Plan been amended since the date of its most recent
determination letter in any respect which would adversely affect its
qualification.
(g) All contributions to, and payments from, any Benefit Plan which may
have been required in accordance with the terms of such Benefit Plan or any
related document and, when applicable, Section 302 of ERISA or Section 412 of
the Code, have been timely made. No Benefit Plan has incurred an "accumulated
funding deficiency" within the meaning of Section 302 of ERISA or Section 412 of
the Code, nor has any waiver of the minimum funding standards of Section 302 of
ERISA or Section 412 of the Code been requested, or granted, with respect to any
Benefit Plan. The funding method used in connection with each Benefit Plan which
is subject to the minimum funding requirements of ERISA and the Code is
acceptable under current IRS guidelines, and the actuarial assumptions used in
connection with funding each such Benefit Plan are reasonable.
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(h) Each Benefit Plan subject to Title IV of ERISA has assets sufficient on
a plan termination basis to be eligible on the Closing Date for standard
termination pursuant to Section 4041 of ERISA. The PBGC has not instituted
proceedings to terminate any Benefit Plan or to appoint a trustee or
administrator of any such Benefit Plan, and no circumstances exist that
constitute grounds under Title IV of ERISA for any such proceeding. There has
been no "reportable event" within the meaning of Section 4043 of ERISA that has
not been fully and accurately reported in a timely fashion, as required, or
which, whether or nor reported, would authorize the PBGC to institute
termination proceedings with respect to any Benefit Plan. No liability under
Title IV of ERISA has been incurred or is expected to be incurred that could
result in liability to any Benefit Plan, the Seller, any ERISA Affiliate or the
Buyer, other than for premiums pursuant to Section 4007 of ERISA that are not
yet due.
(i) There are no pending audits or investigations by any governmental
agency involving the Benefit Plans, and no pending, or to Seller's Knowledge
threatened, claims (except for individual claims for benefits payable in the
normal operation of the Benefit Plans), suits or proceedings involving any
Benefit Plan, any fiduciary thereof or service provider thereto, nor to the
Knowledge of the Seller is there any reasonable basis for any such claim, suit
or proceeding.
(j) Neither the Company nor any ERISA Affiliate, or any employee of the
Company or any ERISA Affiliate, has engaged in a "prohibited transaction" within
the meaning of Section 406 of ERISA or Section 4975 of the Code, nor has any
such Person breached any duty imposed by Title I of ERISA, with respect to any
Benefit Plan. To the Knowledge of Seller, no other Person has engaged in such a
prohibited transaction or breach.
(k) Any insurance premium under any insurance policy related to a Benefit
Plan for any period up to and including the Closing Date has been paid, or
accrued and booked on or before the Closing Date, and, with respect to any such
insurance policy or premium payment obligation, none of the Company, or any
ERISA Affiliate nor Buyer shall be subject to a retroactive rate adjustment,
loss sharing arrangement or other actual or contingent liability.
(l) With respect to each Benefit Plan that is a "group health plan" within
the meaning of Section 607 of ERISA and that is subject to Section 4980B of the
Code, the Company and each ERISA Affiliate comply in all material respects with
the continuation coverage requirements of the Code and ERISA.
(m) Except as set forth in Schedule 3.14(m), no Benefit Plan provides
benefits, including, without limitation, death or medical benefits, beyond
termination of service or retirement other than (i) coverage mandated by law or
(ii) death or retirement benefits under a Benefit Plan qualified under Section
401(a) of the Code.
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(n) Except as set forth in Schedule 3.14(n), the execution of, and
performance of the transactions contemplated by, this Agreement will not
constitute an event under the "Graseby Savings and Investment Plan" or the
Company's medical plan with United Health Care of North Carolina, Inc. that will
result in any payment (whether as severance pay or otherwise), acceleration,
vesting or increase in benefits with respect to any employee. Except as set
forth in Schedule 3.14(n), no Benefit Plan provides for "parachute payments"
within the meaning of Section 280G of the Code.
(o) Schedule 3.14(o) lists all pension, profit sharing, retirement,
supplemental retirement, stock, stock option, basic and supplemental accidental
death and dismemberment, basic and supplemental life and health insurance,
post-retirement medical or life, welfare, dental, vision, savings, bonus,
deferred compensation, incentive compensation, business travel and accident,
holiday, vacation, severance pay, salary continuation, sick pay, sick leave,
short and long term disability, tuition refund, service award, company car,
scholarship, relocation, patent award, fringe benefit and other employee benefit
plans, arrangements, contracts, policies or practices whether written or
unwritten, funded or unfunded (i) maintained, contributed to, or required to be
contributed to by the Company or any Affiliate with respect to any Company
employees, or (ii) pursuant to which the Company or any Affiliate may have any
liability with respect to any Company employees, outside the United States (the
"Foreign Plans").
(p) A true and complete copy of each Foreign Plan, including all amendments
and modifications thereof (and in the case of an unwritten Foreign Plan, a
written description thereof), together with all related agreements including,
without limitation, trust agreements, insurance contracts and investment
management agreements have been delivered to Buyer.
(q) Each Foreign Plan has been maintained, operated and administered in
compliance in all material respects with its terms and any related documents or
agreements and with all applicable laws.
(r) There are no unfunded liabilities with respect to any Foreign Plan and
all contributions and other payments required to be made by the Company or any
affiliate to any Foreign Plan with respect to any period up to and including the
Closing Date shall have been made or accrued and booked on or before the Closing
Date.
(s) There are no pending audits or investigations by any governmental or
quasi-governmental agency involving the Foreign Plans and pending, or to
Seller's Knowledge threatened, claims (except for individual claims for benefits
payable in the normal operation of the Foreign Plan), suits or proceedings
involving any Foreign Plan, any fiduciary thereof or service provider thereto,
nor to the Knowledge of the Seller is there any reasonable basis for any such
claim, suit or proceeding.
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Section 3.15. Certain Contracts.
(a) Except as set forth in Schedule 3.15(a), as of the date hereof the
Company is not a party to, bound or affected by, nor receives benefits under (in
each case whether written or oral): (i) any Significant Contract; (ii) any
Significant Lease; (iii) any agreement, arrangement or commitment relating to
the employment of an independent contractor or the employment, election or
retention in office of any present or former officer, director, or employee,
other than contracts terminable at will or on less than thirty (30) days' notice
with no liability other than paying that person's usual compensation through the
date of termination; or (iv) any collective bargaining agreement or other
understanding with a labor union.
(b) All agreements to which the Company is a party or by which it is bound
are in full force and effect. The Company (i) is not in default under any such
agreement, (ii) has not, during the three-year period immediately prior to the
Closing, been in default under any agreement with any of its distributors or
agents, which default could have a Material Adverse Effect, and (iii) to
Seller's Knowledge, all other parties to any agreement to which the Company is a
party or by which it is bound have complied with the provisions thereof. To
Seller's Knowledge, no such other party is in default, which default would have
a Material Adverse Effect, under any Significant Contract, Significant Lease, or
any agreement, commitment, arrangement or other indenture described in Section
3.15(a), whether written or oral, and there has not occurred any event that,
with the lapse of time or giving of notice or both, would constitute such a
default.
Section 3.16. Legal Proceedings; Regulatory Approvals.
Except as set forth in Schedule 3.16, as of the date hereof there are: (i)
no outstanding injunctions, judgments, orders, decrees, rulings or regulatory
directives against the Company or to which the Company is a party; and (ii) no
actions, suits, claims, governmental investigations or proceedings have been
instituted, are pending, or to the Knowledge of Seller are threatened, against
the Company that in any such case, if decided adversely, would reasonably be
expected to have a Material Adverse Effect. There are no actual or, to Seller's
Knowledge threatened, actions, suits or proceedings against the Company which
present a claim to restrain or which would have the effect of prohibiting the
transactions contemplated herein.
Section 3.17. Compliance with Laws.
The Company is, and for the three-year period immediately prior to the
Closing has been, in compliance in all respects with all federal, state, and
local statutes and regulations applicable to the conduct of the Business (except
for any violations that do not have a Material Adverse Effect), and the Company
has not received notification from any agency or department of federal, state or
local government (i) asserting a violation or possible violation of any such
statute or regulation, which violation would have a Material Adverse Effect,
(ii) threatening to revoke any License, or (iii) restricting or limiting in any
respect its operation of the Business, which restriction or limitation would
have a Material Adverse Effect.
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Section 3.18. Brokers and Finders.
Except as set forth in Schedule 3.18 hereto, neither Seller, the Company,
nor any of their respective officers, directors, employees or Affiliates has
employed any broker, finder or financial advisor or incurred any liability for
any fees or commissions or other payments in connection with the transactions
contemplated herein (except for fees to accountants, lawyers and advisors).
Section 3.19. Inventory.
All of the inventories of the Company are valued at the lower of cost or
market value, the cost thereof being determined on a first-in, first-out basis,
except as disclosed in the Financial Statements. Attached hereto as Schedule
3.19 is a summary of the Company's inventory of finished goods as of the last
day of the month for the month immediately preceding the present month. All of
the net inventories of the Company reflected in the balance sheet dated December
31, 1996 (the "Balance Sheet") and all such inventories acquired since the date
of the Balance Sheet consist of items of a quality and quantity useable and
saleable in the Ordinary Course of Business within a reasonable period of time
and at normal profit margins.
Section 3.20. Accounts Receivable.
All of the accounts and notes receivable of the Company represent amounts
receivable for merchandise actually delivered or services actually provided (or,
in the case of non-trade accounts or notes represent amounts receivable in
respect of other bona-fide business transactions), have arisen in the Ordinary
Course of Business, are not subject to any defenses, counterclaims or offsets
and have been billed and are generally due within thirty (30) days after such
billing. Schedule 3.20 attached hereto sets forth (a) the total amount of
accounts receivable of the Company outstanding as of the last day of the month
immediately preceding the present month, and (b) the agings of such receivables
based on the following schedule: 0-30 days, 31-60 days, 61-90 days, and over 90
days, from the due date thereof. All such receivables are fully collectible in
the Ordinary Course of Business of the Company, except to the extent of a
reserve in an amount not in excess of the reserve for doubtful accounts
reflected on the Balance Sheet.
Section 3.21. No Undisclosed Liabilities.
The Company has no liability or obligation of any nature, whether due or to
become due, absolute, contingent or otherwise, including liabilities for or in
respect of federal, state and local taxes and any interest or penalties relating
thereto, except (a) to the extent reflected as a liability on the Balance Sheet,
(b) liabilities incurred in the Ordinary Course of Business since December 31,
1996, and of the same character, kind and magnitude as are consistent with past
practice and fully reflected as liabilities on the Company's books of account,
none of which would have a Material Adverse Effect, and (c) liabilities
disclosed on Schedule 3.21 attached hereto.
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Section 3.22. Title.
The Company has good and marketable title to all of its personal properties
and assets, including the properties and assets reflected in the Balance Sheet
(except those disposed of in the Ordinary Course of Business since December 31,
1996), free and clear of any mortgage, pledge, lien, restriction, encumbrance,
tenancy, license, encroachment, covenant, condition, right of way, easement,
claim, security interest, charge or any other matter affecting title, except (a)
minor imperfections of title, none of which, individually or in the aggregate,
materially detracts from the value of or impairs the use of the affected
properties or impairs the operations of the Company, (b) liens for current taxes
not yet due and payable, and (c) Permitted Exceptions (as set forth in Schedule
3.22).
Section 3.23. Transactions with Related Parties.
Except as disclosed on Schedule 3.23 attached hereto, no Related Party:
(a) has borrowed money or loaned money to the Company that has not
been repaid;
(b) has any contractual or other claim, express or implied, of any
kind whatsoever against the Company;
(c) has any interest in any Intangibles used by the Company with
respect to the Business; or
(d) has been engaged, since January 1, 1996, in any other transaction
(or series of transactions) involving in excess of Twenty Five
Thousand Dollars ($25,000) in any twelve-month period with the
Company (other than employment relationships at the salaries
disclosed on Schedule 3.24 attached hereto).
Section 3.24. Compensation Arrangements; Bank Accounts; Officers and Directors.
Schedule 3.24 attached hereto sets forth the following information:
(a) the names and current annual salary, including any bonus, if
applicable, of all present officers and employees of the Company
whose current annual salary, including any promised, expected or
customary bonus, equals or exceeds Fifty Thousand Dollars
($50,000), together with a statement of the full amount of all
remuneration paid by the Company to each such person and to any
director of the Company, during the twelve-month period preceding
the date hereof; and
(b) the name of each bank in which the Company has an account or safe
deposit box, the identifying numbers or symbols thereof and the
names of all persons authorized to draw thereon or to have access
thereto; and the names and titles of all directors and officers
of the Company and of each trustee, fiduciary or plan
administrator of each employee benefit plan of the Company.
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Section 3.25. Labor Relations.
Except as set forth in Schedule 3.25 attached hereto: (a) no employee of
the Company is represented by any union or other labor organization; (b) there
is no unfair labor practice complaint against the Company pending, or to
Seller's Knowledge threatened, before the National Labor Relations Board; (c)
there is no labor strike, dispute, slow down or stoppage actually pending or, to
Seller's Knowledge threatened, against or involving the Company; (d) no
grievance is pending which would have a Material Adverse Effect; (e) no private
agreement restricts the Company from relocating, closing or terminating any of
its operations or facilities; and (f) the Company in the past three (3) years
has not experienced any work stoppage or other labor difficulty or committed any
unfair labor practice.
Section 3.26. Products Liability.
Except for lawsuits, claims, damages and expenses adequately covered by
insurance or fully indemnified by the Company's suppliers, and except as
disclosed on Schedule 3.26 attached hereto, there are no (a) liabilities of the
Company, fixed or contingent, asserted or unasserted, with respect to any
product liability or any similar claim that relates to any product stored,
distributed or sold by the Company to others, or (b) liabilities of the Company,
fixed or contingent, asserted or unasserted, with respect to any claim for the
breach of any express or implied product warranty or any other similar claim
with respect to any product stored, distributed or sold by the Company to
others.
Section 3.27. Insurance.
Attached hereto as Schedule 3.27 is a complete and correct list of all
policies and binders of insurance of which the Company is the owner, insured or
beneficiary, or covering any of its property (showing for each policy or binder,
the carrier, risks insured, the amounts of coverage, deductible, premium rate,
cash value if any, expiration date and any pending claims thereunder). All such
policies are outstanding and in full force and effect. There is no default with
respect to any provision contained in any such policy, nor has there been any
failure to give any notice or present any claim under any such policy in a
timely fashion or in the manner or detail required by the policy. There are no
outstanding unpaid premiums or claims under such policies. Schedule 3.27
attached hereto contains an accurate and complete description of any provision
contained in such policies which provide for retrospective or retroactive
premium adjustments. No notice of cancellation or non-renewal with respect to,
or disallowance of any claim under, any such policy has been received by the
Company. The Company has not been refused any insurance, nor has its coverage
been limited by any insurance carrier to which it has applied for insurance or
with which it has carried insurance, during the last five years. Since January
1992, all products liability and general liability policies maintained by or for
the benefit of the Company have been "occurrence" policies and not "claims made"
policies; Schedule 3.27 attached hereto contains a complete and correct list of
all such products liability and general liability policies, indicating for each
policy, the carrier, risks insured, the amount and dates of coverage, deductible
and any pending claims thereunder; and all such policies are in full force and
effect.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
Section 4.1. Organization, Standing and Authority of Buyer.
Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Pennsylvania with full corporate
power and authority to carry on its business as now conducted and is duly
qualified to do business in the states of the United States and foreign
jurisdictions where its ownership or leasing of property or the conduct of its
business requires such qualification.
Section 4.2. Authorized and Effective Agreement.
(a) Buyer has all requisite corporate power and authority to enter into and
perform all of its obligations under this Agreement. The execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
have been duly and validly authorized by all necessary corporate action in
respect thereof on the part of Buyer. This Agreement constitutes a legal, valid
and binding obligation of Buyer, enforceable against it in accordance with its
terms subject, as to enforceability, to bankruptcy, insolvency and other laws of
general applicability relating to or affecting creditors' rights and to general
equity principles.
(b) Neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, nor compliance by Buyer
with any of the provisions hereof shall (i) conflict with or result in a breach
of any provision of the articles or certificate of incorporation (or charter) or
bylaws of Buyer, (ii) constitute or result in a breach of any term, condition or
provision of, or constitute a default under, or give rise to any right of
termination, cancellation or acceleration with respect to, or result in the
creation of any lien, charge or encumbrance upon any property or asset of Buyer
pursuant to, any note, bond, mortgage, indenture, license, agreement or other
instrument or obligation, or (iii) subject to receipt of all required Consents,
violate any order, ruling, decree, charge, writ, injunction, regulatory
agreement or memorandum of understanding, constitution, statute, rule or
regulation applicable to Buyer.
Section 4.3. Legal Proceedings; Regulatory Approvals.
There are no actual, or to the Knowledge of Buyer threatened, actions,
suits or proceedings which present a claim or restrain or prohibit the
transactions contemplated herein. To the Knowledge of Buyer, Buyer is qualified
legally, financially and otherwise to become the owner, as contemplated herein,
of the Shares.
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Section 4.4. Securities.
Solely for purposes of enabling Seller to comply with applicable federal
and state securities laws: (a) Buyer acknowledges that the offering and sale of
the Shares pursuant hereto will not be registered under the Securities Act of
1933, as amended, or any other securities laws (the "Acts") and that the Shares
are characterized as "restricted securities" under the Acts and may not be
transferred unless a registration statement for the re-offering and sale of the
Shares is appropriately filed or unless the Shares are subject to exemption from
registration under the Acts; and (b) Buyer agrees that it (i) shall acquire the
Shares for investment for its own account, not as a nominee or agent and not
with a view to the resale or distribution of any part thereof, (ii) has no
present intention of selling, granting or participating in, or otherwise
distributing all or part of the Shares, (iii) has had sufficient opportunity to
ask questions and receive answers from Seller and the Company regarding the
Company, the Business, and the terms and conditions of this Agreement, (iv) has
received all the information it considers necessary or appropriate for deciding
whether to acquire the Shares, and if so under what terms and conditions, (v) is
an "accredited investor," as defined in Rule 501(a) under Regulation D adopted
by the Securities and Exchange Commission under the Securities Act of 1933, (vi)
has no need for liquidity in its investment in the Shares, and (vii) is aware of
and able to bear the risks of the investment in the Shares for an indefinite
period of time.
Section 4.5. Brokers and Finders.
Neither Buyer nor its officers, directors, employees or Affiliates has
employed any broker, finder or financial advisor or incurred any liability for
any fees or commissions or other payments in connection with the transactions
contemplated herein (except for fees to accountants, lawyers, and advisors).
ARTICLE V
CONDITIONS PRECEDENT
Section 5.1. Conditions Precedent -- Buyer and Seller.
The respective obligations of Buyer and Seller to effect the transactions
contemplated by this Agreement shall be subject to satisfaction or waiver of the
following conditions at or prior to the Effective Time: Neither Buyer, Seller,
nor the Company shall be subject to any order, decree, judgment, ruling or
injunction of a court or governmental body of competent jurisdiction which
enjoins or prohibits consummation of the transactions contemplated herein, nor
shall any of them be a party or subject to any pending action, suit or
proceeding before any court or governmental agency of competent jurisdiction
wherein an unfavorable order, decree, judgment, ruling or injunction would (i)
enjoin or prohibit consummation of the transactions contemplated herein, (ii)
cause any of the transactions contemplated herein to be rescinded following
consummation, (iii) adversely affect the right of Buyer to own and/or to vote
the Shares or to control the Company, or (iv) affect adversely the right of the
Company to own its assets and to operate the Business.
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Section 5.2. Conditions Precedent -- Seller.
The obligations of Seller to effect the transactions contemplated by this
Agreement shall be subject to satisfaction of the following additional
conditions at or prior to the Effective Time unless waived by Seller pursuant to
Article VII hereof:
(a) The representations and warranties of Buyer set forth in Article IV
hereof shall be true and correct in all material respects as of the date of this
Agreement and as of the Effective Time with the same force and effect as though
such representations and warranties had been made on, as of, and with reference
to such Effective Time;
(b) Buyer shall have performed all obligations and complied with all
covenants required by this Agreement to be performed by Buyer on or before
Closing;
(c) Buyer shall have demonstrated its ability to make the deliveries
required of it pursuant to this Agreement;
(d) The Company shall have received the Consents;
(e) Buyer shall have assumed responsibility for payment of the severance
obligations of the Company set forth in Schedule 5.2(e) attached hereto; and
(f) All instruments and documents required on Buyer's part to effectuate
and consummate the transactions contemplated hereby shall be delivered to Seller
and shall be in form and substance reasonably satisfactory to Seller and its
counsel.
Section 5.3. Conditions Precedent -- Buyer.
The obligations of Buyer to effect the transactions contemplated by this
Agreement shall be subject to satisfaction of the following additional
conditions at or prior to the Effective Time unless waived by Buyer pursuant to
Article VII hereof:
(a) The representations and warranties of Seller set forth in Article III
hereof shall be true and correct in all material respects as of the date of this
Agreement and as of the Effective Time with the same force and effect as though
such representations and warranties had been made on, as of, and with reference
to such Effective Time;
(b) Seller and the Company shall have in all material respects performed
all material obligations and complied with all material covenants required by
this Agreement to be performed by them on or before Closing;
(c) Seller shall have demonstrated its ability to make the deliveries
required pursuant to this Agreement;
(d) The Company shall have received the Consents;
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(e) All instruments and documents required on Seller's and the Company's
part to effectuate and consummate the transactions contemplated hereby shall be
delivered to Buyer and shall be in form and substance reasonably satisfactory to
Buyer and its counsel;
(f) No order of any court or administrative agency shall be in effect which
restrains or prohibits the transactions contemplated hereby or which would limit
or adversely affect Buyer's ownership or control of the Company or the Business,
and there shall not have been threatened, nor shall there be pending, any action
or proceeding by or before any court or governmental agency or other regulatory
or administrative agency or commission, (i) challenging any of the transactions
contemplated by this Agreement or seeking monetary relief by reason of the
consummation of such transactions or (ii) by any present or former owner of any
capital stock or equity interest in the Company (whether through a derivative
action or otherwise) against the Company or any officer, director or shareholder
of the Company in his, her or its capacity as such or (iii) which might have a
Material Adverse Effect;
(g) All loans by the Company to any Related Party shall have been repaid in
full and there shall be no outstanding debts or obligations due from any Related
Party to the Company;
(h) Buyer shall have received all Licenses, Permits and certificates and
governmental approvals listed on Schedule 3.8;
(i) Seller shall have delivered to Buyer the written resignation of each
member of the board of directors and each of the officers of the Company;
(j) Buyer shall have obtained, at Buyer's expense, a good and valid,
irrevocable ALTA title insurance binder or commitment (the "Title Commitment"),
in final form from First American Title Insurance Company (the "Title Company"),
committing the Title Company to issuing an ALTA extended coverage form of title
insurance policy (the "Title Policy") insuring the Buyer's fee title to the Real
Property in the amount of not less than Six Hundred Thousand Dollars
($600,000.00), subject to no Liens or exceptions to title other than the
Permitted Exceptions; provided that the commitment of the Title Company to issue
the Title Policy may be subject to and the Title Commitment may set forth or be
subject to such standard requirements relating to the issuance of final policies
of title insurance as are reasonably acceptable to Buyer and to the payment of
the Title Company's premiums and other charges for the issuance of the Title
Policy. The Title Commitment shall be effective as of a date occurring not
earlier than April 18, 1997 and, if required by Buyer, the effective date of the
Title Commitment shall be brought down to the morning of the Closing Date; and
(k) Buyer shall have received from Seller and Graseby plc a release in the
form of Exhibit D attached hereto.
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ARTICLE VI
CLOSING
The transactions contemplated by this Agreement shall be consummated at
a closing (the "Closing") to be held at the offices of Seller's counsel, Brooks,
Pierce, McLendon, Humphrey & Leonard, L.L.P., Suite 2000, Renaissance Plaza, 230
North Elm Street, Greensboro, North Carolina, or such other place as may be
agreed to by Buyer and Seller, on the date hereof or such later date as may be
agreed to by Buyer and Seller (the "Closing Date"). The Sale shall be effective
as of the Closing on the Closing Date or at such other time and date specified
by the parties at the Closing (the "Effective Time"); provided, however, that
solely for financial accounting and Tax reporting purposes, the Sale shall be
deemed effective as of 11:59:59 o'clock p.m., Greensboro, North Carolina local
time, on the Closing Date.
At Closing: (a) Seller shall deliver to Buyer (i) the various certificates,
instruments and documents required of it pursuant to this Agreement, (ii) stock
certificates representing ownership of the Shares, endorsed for transfer to
Buyer, and (iii) any other documents that are necessary to transfer to Buyer
good title to the Shares free and clear of all liens, claims, security
interests, pledges, charges, equities, options, restrictions, and encumbrances
of whatever nature; and (b) Buyer shall (i) deliver to Seller the various
certificates, instruments and documents required of it pursuant to this
Agreement, (ii) deliver to Seller copies of resolutions adopted by Buyer
authorizing and approving the execution of this Agreement and the consummation
of the transactions contemplated herein, certified by Buyer's Secretary as being
true and correct on the Closing Date, and (iii) deliver to Seller the Purchase
Price in immediately available funds.
In the case at any time after the Effective Time any further action is
necessary to carry out the purposes of this Agreement, Seller and Buyer shall
take such further action (including the execution and delivery of such further
instruments and documents) as the other may reasonably request, all at the sole
cost and expense of the requesting party.
ARTICLE VII
WAIVER
Except with respect to any required regulatory approval, each party hereto
by written instrument, may at any time extend the time for the performance of
any of the obligations or other acts of the other party hereto and may waive (a)
any inaccuracies of the other party in the representations and warranties
contained in this Agreement or any document delivered pursuant hereto, (b)
compliance with any of the covenants, undertakings or agreements of the other
party, or satisfaction of any of the conditions precedent to its obligations,
contained herein or (c) the performance by the other party of any of its
obligations set out herein. No waiver by either such party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
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ARTICLE VIII
CERTAIN POST-CLOSING OBLIGATIONS
Section 8.1. Confidential Information.
Seller acknowledges that after the Closing, Buyer could be irreparably
damaged if Seller's or any of its Affiliates' confidential knowledge of the
operations of the Company were disclosed to or utilized on behalf of any Person
other than Buyer or its Affiliates, and Seller covenants and agrees that it will
not following the Closing, without the prior written consent of Buyer, disclose
(or permit to be disclosed) or use in any way any such confidential information,
unless (i) compelled to disclose such confidential information by judicial or
administrative process or, in the opinion of its counsel, by other requirements
of law, or (ii) such confidential information is generally available to the
public through no fault of Seller.
Section 8.2. Indemnification by Seller, Graseby Andersen Inc. and Graseby plc.
(a) Extent of Indemnity. Seller and the Guarantors, jointly and severally,
hereby agree to indemnify, defend and hold harmless Buyer and the Company from
and against:
(i) any Damages of or to Buyer or the Company arising out of or resulting
from any misrepresentation or breach of representation or warranty of Seller
contained in this Agreement or in any agreement or statement or certificate
furnished or to be furnished by Seller or the Company to Buyer pursuant hereto
or in connection with the transactions contemplated hereby;
(ii) any Damages of or to Buyer or the Company arising out of or resulting
from any breach or nonfulfillment of any covenant or agreement of Seller
contained in this Agreement or in any agreement or statement or certificate
furnished or to be furnished by Seller or the Company to Buyer pursuant hereto
or in connection with the transactions contemplated hereby;
(iii) regardless of whether any of the following are contained in any
disclosure schedule to this Agreement or were otherwise disclosed to Buyer prior
to the Closing, any and all Damages known or unknown, foreseen or unforeseen,
whether contingent or otherwise, fixed or absolute, present or future, asserted
against or incurred by Buyer or the Company arising out of or related to (A) the
off-site transportation, storage, treatment, recycling or disposal of Hazardous
Materials Managed or Released by the Company or in connection with the Business
prior to the Closing; (B) any Release at, on, in or under the Real Property that
requires investigation, remediation, or other response action relating to or
arising from the Company's drum handling prior to Closing; and (C) any failure
by the Company at any time prior to the Closing to have any Permit or give any
notice required in connection with the Company's wastewater or other discharge
to the applicable sewer authority including without limitation fines, penalties,
and assessments arising from any such discharge;
(iv) the matters described on Schedule 8.2(a)(iv); and
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(v) any Damages incident to any of the foregoing, including reasonable
attorneys' fees actually incurred by Buyer as the prevailing party in an action
to enforce this Section.
(b) Time Limit on Certain Indemnification Claims. No action or claim for
Damages resulting from breaches of the representations and warranties of Seller
shall be brought or made after June 1, 1998, except that such time limitation
shall not apply to (i) claims for misrepresentations or breaches of warranty
relating to Sections 3.2 (Warranty of Title to the Shares), 3.3 (Capital
Structure of the Company), and 3.5 (Authorized and Effective Agreement; No
Violation), (ii) claims for misrepresentations or breaches of warranty relating
to Sections 3.13 (Tax Matters), 3.14 (Employee Benefit Plans), 3.18 (Brokers and
Finders), 3.23 (Transactions with Related Parties), or 9.1 (Authorized and
Effective Agreement; No Violations (Guarantors)), each of which may be asserted
until the running of the applicable statute of limitations with respect to the
period to which the particular claims relate, or (iii) any claims which have
been the subject of a written notice from Buyer to Seller prior to the
expiration of any of the foregoing periods, which notice specifies in reasonable
detail the nature of the claim. No action or claim for Damages pursuant to
Section 8.2(a)(iii)(A) or Section 8.2(a)(iii)(B) shall be brought by Buyer after
expiration of the five-year period commencing on the Closing Date. No action or
claim for Damages pursuant to Section 8.2(a)(iii)(C) shall be brought by Buyer
after the expiration of the three-year period commencing on the Closing Date.
(c) Limitations on Liability. None of Seller or either of the Guarantors
shall be required to make an indemnity payment for Damages arising pursuant to
Section 8.2(a)(i) unless and until the aggregate amount of Damages arising
pursuant to Section 8.2(a)(i) exceeds Two Hundred Thousand Dollars
($200,000.00)(the "Deductible"). Only Damages arising pursuant to Section
8.2(a)(i) which, with respect to a single claim or a series of related claims
arising pursuant to Section 8.2(a)(i), exceed Seven Thousand Five Hundred
Dollars ($7,500.00) shall be taken into account in determining whether the
Deductible has been reached. After the Deductible has been reached, Seller,
Graseby Andersen Inc. and Graseby plc, jointly and severally, shall thereafter
(subject to the time limitations indemnification procedures set forth in this
section 8.2) be required to make an indemnity payment for Damages arising
pursuant to Section 8.2(a)(i) which, with respect to a single claim or a series
of related claims, in the aggregate exceed Seven Thousand Five Hundred Dollars
($7,500.00)(the "Basket"). None of Seller or either of the Guarantors shall have
any obligation to indemnify Buyer for aggregate indemnification payments arising
pursuant to Section 8.2(a)(i) in excess of the Purchase Price, notwithstanding
any provision in this Agreement to the contrary, provided. however, that the
foregoing limitations on liability shall not apply to Damages which arise (i)
from fraud or other intentional misrepresentations or omissions on the part of
Seller or the Company with respect to this Agreement or the transactions
contemplated by this Agreement, or (ii) a misrepresentation or breach of
warranty with respect to any one or more of Sections 3.2 (Warranty of Title to
the Shares), 3.3 (Capital Structure of the Company), 3.5 (Authorized and
Effective Agreement; No Violation), 3.13 (Tax Matters), 3.14 (Employee Benefit
Plans), 3.18 (Brokers and Finders), 3.23 (Transactions with Related Parties), or
9.1 (Authorized and Effective Agreement; No Violations (Guarantors)) For
purposes of this section, all qualifications in this Agreement regarding
Material Adverse Effects and materiality shall be disregarded for purposes of
applying the Deductible and the Basket to claims for Damages arising pursuant to
Section 8.2(a)(i).
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Section 8.3. Indemnification by Buyer.
Buyer hereby agrees to indemnify, defend and hold harmless Seller from and
against:
(a) any Damage of or to Seller arising out of or resulting from any
misrepresentation or breach of representation or warranty of Buyer contained in
this Agreement or in any agreement or statement or certificate furnished or to
be furnished by Buyer pursuant hereto or in connection with the transactions
contemplated hereby;
(b) any Damage of or to Seller arising out of or resulting from any breach
or nonfulfillment of any covenant or agreement of Buyer contained in this
Agreement or in any agreement or statement or certificate furnished or to be
furnished to Buyer pursuant hereto or in connection with the transactions
contemplated hereby; and
(c) any Damages incident to any of the foregoing, including reasonable
attorneys' fees actually incurred by Seller as the prevailing party in an action
to enforce this Section.
Section 8.4. Indemnification Procedures.
(a) A party seeking indemnification pursuant to this Agreement (an
"Indemnified Party") shall give prompt notice to the party from whom such
indemnification is sought (the "Indemnifying Party") of the assertion of any
claim, or the commencement of any action, suit or proceeding by a third party
which is not an Affiliate of any party hereto in respect of which indemnity may
be sought hereunder (a "Third Party Claim"), and will give the Indemnifying
Party such information with respect thereto as the Indemnifying Party may
reasonably request, but failure to give such notice shall not relieve the
Indemnifying Party of any liability hereunder except to the extent that the
Indemnifying Party is actually prejudiced thereby.
(b) The Indemnifying Party shall have the right, exercisable by written
notice to the Indemnified Party within thirty (30) days of receipt of notice
from the Indemnified Party of the commencement or assertion of any Third Party
Claim in respect of which indemnity may be sought hereunder, to assume and
conduct the defense of such Third Party Claim with counsel selected by the
Indemnifying Party and reasonably acceptable to the Indemnified Party; provided
that: (i) the defense of such Third Party Claim by the Indemnifying Party will
not, in the judgment of the Indemnified Party, have a Material Adverse Effect on
the Indemnified Party; (ii) the Indemnifying Party has sufficient financial
resources, in the judgment of the Indemnified Party, to satisfy the amount of
any adverse monetary judgment that is reasonably likely to result; (iii) the
Third Party Claim solely seeks (and continues to seek) monetary damages; and
(iv) the Indemnifying Party expressly agrees in writing that as between the
Indemnifying Party and the Indemnified Party, the Indemnifying Party shall be
solely obligated to satisfy and discharge the Third Party Claim (the conditions
set forth in clauses (i) through (iv) are collectively referred to as the
"Litigation Conditions") . If the Indemnifying Party does not assume the defense
of such Third Party Claim in accordance with this Section 8.4, the Indemnified
Party may continue to defend the Third Party Claim. If the Indemnifying Party
has assumed the defense of a Third Party Claim, the Indemnifying Party will not
be liable for any legal expenses subsequently incurred by the Indemnified Party
in connection with the defense thereof; provided, however, that if (i) the
Litigation Conditions cease to be met, or (ii) the Indemnifying Party fails to
take reasonable steps necessary to defend diligently such Third Party Claim, the
Indemnified Party may assume its own defense, and the Indemnifying Party will be
liable for all reasonable costs or expenses paid or incurred in connection
therewith.
(c) The Indemnifying Party or the Indemnified Party, as the case may be,
shall have the right to participate in (but not control), at its own expense,
the defense of any Third Party Claim which the other is defending as provided in
this Agreement.
(d) The Indemnifying Party, if it shall have assumed the defense of any
Third Party Claim as provided in this Agreement, shall not, without the prior
written consent of the Indemnified Party, consent to a settlement of, or the
entry of any judgment arising from, any such Third Party Claim (i) which does
not include as an unconditional term thereof the giving by the claimant or the
plaintiff to the Indemnified Party a complete release from all liability in
respect of such Third Party Claim, or (ii) which grants any injunctive or
equitable relief, or (iii) which may reasonably be expected to have a Material
Adverse Effect on the affected business of the Indemnified Party. The
Indemnified Party shall have the right to settle any Third Party Claim, the
defense of which has not been assumed by the Indemnifying Party, with the
written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld or delayed.
(e) Amounts payable in respect of indemnification obligations of the
parties shall be treated as an adjustment to the Purchase Price. Whether or not
the Indemnifying Party chooses to defend or prosecute any Third Party Claim, all
the parties hereto shall cooperate in the defense or prosecution thereof and
shall furnish such records, information and testimony, and attend such
conferences, discovery proceedings, hearings, trials and appeals, as may be
reasonably requested in connection therewith.
(f) Sections 8.2 through 8.4 shall not be interpreted to permit a double
recovery with respect to Taxes for which indemnification is provided under
Section 8.6 nor to permit a party to recover amounts with respect to Taxes that
are such party's responsibility under Section 8.6.
Section 8.5. Claims Against the Company.
Notwithstanding any provision in this Agreement to the contrary, Seller
agrees that it shall not be entitled to any indemnification from, or to make or
receive any amount for any claim against, the Company in respect of any Damage
or Damages arising out of or resulting from this Agreement or the transactions
contemplated by this Agreement.
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Section 8.6. Tax Matters.
(a) Seller's Pre-Closing Returns.
(i) The Company shall continue to be included for all taxable periods
ending on or before the Closing Date in the consolidated federal income Tax
Return that includes Seller and any required state or local consolidated or
combined income or franchise Tax Returns of Seller or its Affiliates that
include the Company.
(ii) Seller shall timely prepare and file (or cause to be prepared and
filed) (A) all federal, state and local income and franchise tax returns
required by law, covering the Company for all taxable periods ending on or
before the Closing Date (including all Tax Returns due by virtue of the
Elections described below in section 8.6(f)) and (B) all other Tax Returns
required by law covering the Company that are required to be filed on or before
the Closing Date (all Tax Returns specified in subparagraphs (A) and (B) are
hereinafter referred to as "Seller's Pre-Closing Returns"). Sellers shall timely
pay (or cause to be paid) on behalf of the Company all Taxes shown as due and
payable on Seller's Pre-Closing Returns.
(iii) Buyer and Seller agree that if the Company is permitted under any
applicable state or local income tax law to treat the Closing Date as the last
day of the taxable period during which the Closing occurs, Buyer and Seller
shall treat (and cause their respective affiliates to treat) such date as the
last day of such taxable period.
(b) Buyer's Tax Returns. Buyer shall timely prepare and file (or cause to
be so prepared and filed) (i) all federal, state or local income and franchise
Tax Returns required by law covering the Company for all taxable periods ending
after the Closing Date and (ii) all other Tax Returns required by law covering
the Company that are required to be filed after the Closing Date (all Tax
Returns specified in subparagraphs (i) and (ii) are hereinafter referred to as
"Buyer's Tax Returns"). Buyer shall submit to Seller copies of all Buyer's Tax
Returns, as filed, that include a taxable period or date prior to or including
the Closing Date.
(c) Tax Cooperation. After the Closing Date, Seller shall submit to Buyer
blank Tax Return work paper packages. Buyer shall cause the Company to prepare
completely and accurately all information that Seller shall reasonably request
in such work paper packages and shall submit to Seller such packages within the
later of sixty (60) calendar days after Buyer's receipt thereof or sixty (60)
calendar days after the close of the taxable period to which a work paper
package relates. Buyer and Seller and their Affiliates shall reasonably
cooperate with each other in connection with the preparation of Tax Returns
related to the Company and shall preserve all information, returns, books,
records and documents relating to any liabilities for Taxes with respect to a
taxable period until the later of the expiration of all applicable statutes of
limitation and extensions thereof, or a final determination with respect to
Taxes for such period and shall not destroy or otherwise dispose of any record
without first providing the other party with a reasonable opportunity to review
and copy the same. Buyer shall provide Seller (or cause the Company to provide
Seller) with applicable powers of attorney with respect to Seller's Pre-Closing
Returns.
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(d) Post-Closing Audits.
(i) Buyer shall notify Seller in writing within ten (10) days after receipt
by Buyer, the Company, or any Affiliate thereof, of any official inquiry,
examination, audit or proceeding ("Audit") regarding any Tax Return or period
with respect to which Seller may be liable for Taxes pursuant to section 8.6(a)
or for which Seller may have an indemnification obligation under section 8.6(e).
Seller shall have the right to exercise, at its own expense, control at any time
over the handling, disposition and/or settlement of any issue raised in any
Audit regarding any Seller's Pre-Closing Return. Buyer shall cooperate with
Seller, as Seller may reasonably request, in any such Audit.
(ii) Buyer shall have the right, at its own expense, to exercise control at
any time over the handling, disposition and/or settlement of any issue raised in
any official inquiry, examination or proceeding regarding any Tax Return other
than as described in section 8.6(d)(i) above (including the right to settle or
otherwise terminate any contest with respect thereto); provided that, in the
case of any Tax Return for a period beginning before the Closing Date, Buyer
shall settle any issue (if such settlement would result in a required
indemnification payment by Seller under section 8.6(e)) only with the prior
consent of Seller, which consent shall not be unreasonably withheld.
(e) Indemnification.
(i) After the Closing Date, and regardless of whether Buyer or the Company
would be entitled to indemnification for such amount under Section 8.2, Seller
shall indemnify and hold harmless Buyer and the Company and each of their
respective affiliates, successors and assigns from and against any Tax liability
with respect to Seller's Pre-Closing Returns (whether or not such Taxes are
shown to be due on such Seller's Pre-Closing Returns). Seller shall pay such
amounts as it is obligated to pay to Buyer or the Company within fifteen (15)
calendar days after payment of any applicable Tax liability by Buyer or the
Company. Seller shall also indemnify and hold harmless Buyer and the Company,
regardless of whether Buyer or the Company would be entitled to indemnification
for such amount under Section 8.2, from and against (A) any Tax liability for
periods prior to and including the Closing Date resulting from the Company being
severally liable for any Taxes of any consolidated group of which the Company as
of the Closing Date is, or prior the Closing Date was, a member pursuant to
Treasury Regulations ss.1.1502-6 or any analogous state or local tax provision,
and (B) any Tax liability for Buyer's Tax Returns attributable to the Business
and/or the Company for the period prior to the Closing.
(ii) Any Taxes for a period of time including both a pre-Closing period and
a post-Closing period shall be apportioned between such pre-Closing period and
the post-Closing period based, in the case of real and personal property Taxes,
on a per diem basis and in the case of other Taxes, on the actual activities,
taxable income or taxable loss of the Company during such pre-Closing period and
post-Closing period determined as if the books of the Company were closed on the
close of the Closing Date.
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(f) Section 338(h)(10). Seller and Buyer agree that they shall jointly make
or cause to be made the election under Section 338(h)(10) of the Code and
Treasury Regulation Section 1.338(h)(10)-1(d) (and any corresponding election
under state, local or foreign tax law) with respect to the purchase and sale of
the Shares (the "Election"). If Seller is not the common parent of a "selling
consolidated group" of which the Company is a member, as that term is defined
under Treasury Regulation Section 1.338(h)(10)-1, Seller shall cause the Person
that is the common parent with respect to the Company to join in making the
Election with Buyer. (The Person authorized to make the Election with respect to
the Company is referred to as the "Authorized Person" herein.) Schedule 8.6(f)
sets forth the principles of Seller's and the Buyer's allocation of the modified
aggregate deemed sale price ("MADSP") (as defined in Treasury Regulation section
1.338(h)(10)-1(f)) among the assets of the Company. Seller and Buyer shall agree
to a final allocation of the MADSP consistent with the principles set forth in
Schedule 8.6(f) as soon as practicable following the Closing Date. Buyer shall
prepare IRS Form 8023-A and any similar state, local or foreign tax forms
required to make the Election (collectively, the "Election Forms") and submit
the Election Forms to Seller no later than seventy five (75) days prior to the
date the Election Forms are required to be filed. Seller then shall deliver to
Buyer the Election Forms, which shall have been executed by the Authorized
Person, no later than thirty (30) days prior to the date the Election Forms are
required to be filed. Buyer shall thereafter complete any required attachments
to the Election Forms, execute and timely file the Election Forms, and provide
Seller with a copy of the Election Forms as filed. Seller and Buyer shall each
take or cause to be taken any other actions that are necessary for making or
perfecting the Elections. Seller and Buyer shall each report all transactions
pursuant to this Agreement in a manner that is consistent with the Elections and
shall take no position contrary thereto unless required to do so pursuant to a
"determination" within the meaning of Section 1313 of the Code. The parties
agree that a violation of the provisions of this Section 8.6(f) is a proper
subject of injunctive relief.
(g) Tax Effect of Payments. The amount of any payments required to be made
under this section 8.6 shall be reduced by the amount of any tax benefit
actually received by (including by refund or by reduction of or offset against
Taxes otherwise payable) the recipient by reason of the payment or incurrence by
such recipient of the item for which the indemnity is being sought. Each party
shall notify the other of such receipt of any such tax benefits.
(h) Refunds. Buyer shall pay to Seller or cause the Company to pay to
Seller any refund of any Tax received with respect to any taxable period ending
on or before the Closing Date reduced by the amount of any cost incurred by the
Company or Buyer as a result of such refund. If any refund of any Tax is
received with respect to a taxable period that includes both a pre-Closing
period and a post-Closing period, such a refund shall be apportioned between
Seller and Buyer (or the Company) in the same manner as Tax liability is
apportioned under section 8.6(e)(ii).
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Section 8.7. Noncompetition Covenant.
Neither Seller nor any of Seller's Affiliates shall compete with Buyer with
respect to the Business for a period of two (2) years after the Closing Date at
any location within (a) North America, (b) the State of North Carolina, and (c)
the Commonwealth of Pennsylvania. Notwithstanding the foregoing, Seller and
Seller's Affiliates shall, during such two (2) year period, have the right to
acquire or merge with one or more entities which, as an incidental portion of
their business, are engaged in the business of designing, manufacturing, and
selling motor drives, provided that within one (1) year after the effective date
of such acquisition or merger Seller or Seller's Affiliate, as the case may be,
shall divest itself of such motor drive business.
Section 8.8. Nature and Survival of Representations.
(a) The representations, warranties, covenants and agreements of Buyer and
Seller contained in this Agreement, and all statements contained in this
Agreement or any exhibit or schedule hereto, or any certificate, financial
statement or report or other document delivered pursuant to this Agreement, or
in connection with the transactions contemplated hereby, shall be deemed to
constitute representations, warranties, covenants and agreements of the
respective party delivering the same.
(b) Seller and the Company acknowledge that their representations and
warranties in this Agreement shall not be affected or mitigated by any
investigation conducted by Buyer or its representatives prior to Closing or to
any Knowledge of Buyer.
Section 8.9. Employees; 401(k) Plan.
(a) Employee Matters. Buyer intends to continue the employment of those
employees of the Company who wish to continue employment with the Company
following Buyer's purchase of the Shares ("Employees") on terms and conditions
that provide employee benefits substantially similar to those provided to other
similarly situated employees of Buyer, with credit for services under Seller's
Benefit Plans taken into account and with no pre-existing condition limitations
or waiting periods beyond those imposed by Seller's Benefit Plans. Seller
covenants and agrees that it will provide Buyer with any employment, benefit
participation, medical, OSHA or other records pertaining to those Employees that
are not in the Company's custody that Buyer may reasonably request. Seller
further agrees that it will cause any Benefit Plan, other than a plan maintained
exclusively by the Company for the benefit of its employees, to cooperate with
Buyer, as Buyer may reasonably request, to effect the transfer of coverage of
the Employees from any Benefit Plan maintained by Seller to those employee
benefit plans maintained by Buyer, in accordance with the terms of the
respective plans.
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(b) 401(k) Transfer.
(i) Participation. Effective as of the Closing Date, all Employees
shall cease participation in the Graseby Savings & Investment
Plan ("Seller's 401(k) Plan"). As soon as practicable, following
Closing, Buyer shall designate an existing savings plan,
qualified under Code ss. 401(a) and ss. 401(k), and a trust
thereunder that is exempt from tax under Code ss.
501(a)(collectively, "Buyer's Savings Plan"), and shall allow
Employees to participate in Buyer's Savings Plan on the same
terms and conditions as apply to other similarly situated
employees of Buyer.
(ii) 401(k) Transfer. As soon as practicable after the designation of
Buyer's Savings Plan, and upon evidence reasonably satisfactory
to Seller, which may be in the form of an opinion of Buyer's
counsel, that Buyer's Savings Plan is qualified under Codess.
401(a) and exempt from tax under Codess.501(a), Seller's 401(k)
Plan shall allow all participating Employees the option to
transfer their full account balances in Seller's 401(k) Plan,
determined as of the most recent valuation date and determined
without regard to any applicable vesting schedule, either to (A)
Buyer's Savings Plan, or (B) to an individual retirement account
selected by the Employee, in either case in a transaction
qualifying as a direct rollover under Codess.401(a)(31).
ARTICLE IX
MISCELLANEOUS
Section 9.1. Authorized and Effective Agreement; No Violation (Guarantors).
Guarantors hereby represent and warrant to Buyer as follows:
(a) Each of the Guarantors has all requisite power and authority to enter
into, to deliver, and to perform all of their respective obligations under this
Agreement. This Agreement and all other agreements and instruments required to
be executed and delivered by the Guarantors in connection with or pursuant
hereto have been duly executed and delivered by the Guarantors and constitute
the legal, valid and binding obligations of Guarantors, enforceable in
accordance with their terms, subject as to enforceability, to bankruptcy,
insolvency and other laws of general applicability relating to or affecting
creditors' rights, and to general equity principles. The execution, delivery and
performance of this Agreement have been duly authorized by all necessary
corporate action on the part of the Guarantors.
(b) Neither the execution and delivery of this Agreement, the consummation
of the transactions contemplated hereby, nor compliance by either or both of the
Guarantors with any of the provisions hereof will: (i) conflict with or result
in a breach of any provision of the articles of incorporation, bylaws, or other
constitutive documents of either of the Guarantors; (ii) conflict with or
constitute or result in a breach of any term, condition or provision of, or
constitute a default under, or give rise to any right of termination,
cancellation or acceleration with respect to, any note, bond, mortgage,
indenture, lease, license, agreement, instrument, or other arrangement or
obligation to which either of the Guarantors is a party or by which either of
the Guarantors is bound, or result in the creation or imposition of any Lien
upon any property or asset of either of the Guarantors, except where such
occurrence would not have a Material Adverse Effect; or (iii) violate any order,
ruling, decree, charge, writ, injunction, regulatory agreement or memorandum of
understanding, constitution, statute, rule or regulation applicable to the
Guarantors, except where such violation would not have a Material Adverse
Effect.
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Section 9.2. Expenses.
Each party hereto shall bear and pay all costs and expenses incurred by it
in connection with the transactions contemplated by this Agreement, including
fees and expenses of its own financial consultants, accountants and counsel,
except as may otherwise be specifically provided for herein.
Section 9.3. Consent to Jurisdiction; Forum Selection.
(a) Buyer hereby irrevocably (i) consents to the non-exclusive personal
jurisdiction of the state and federal courts located in the City of Greensboro,
North Carolina in any action, claim or other proceeding arising out of any
dispute in connection with this Agreement or the transactions contemplated or
consummated pursuant to this Agreement, and (ii) consents to the service of a
summons and complaint and other process in any action, claim or proceeding
brought by Seller arising out of any dispute in connection with this Agreement
or the transactions contemplated or consummated pursuant to this Agreement in
the manner set forth in Section 9.6 of this Agreement.
(b) All parties to this Agreement hereby acknowledge and agree that nothing
in this Agreement affects Graseby plc's amenability, if any, to service of
process in the United States, nor the ability, if any, of any state, or any
state or federal court, in the United States to assert personal jurisdiction
over Graseby plc, nor the right of Graseby plc to contest the personal
jurisdiction, if any, of any state, or of any state or federal court, in the
United States.
Section 9.4. Entire Agreement.
This Agreement contains the entire agreement between the parties with
respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereto, written or oral, other than
documents referred to herein that are to be executed at or in connection with
the Closing. The terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the parties hereto, and their respective
successors and permissible assignees. Nothing in this Agreement, expressed or
implied, is intended to confer upon any party, other than the parties hereto,
and their successors, any rights, remedies, obligations or liabilities.
Section 9.5. Assignment.
No party hereto may assign any of its rights or obligations under this
Agreement to any other Person without the prior written consent of the other
parties hereto.
Section 9.6. Notices.
All notices or other communications which are required or permitted
hereunder shall be in writing and sufficient if delivered personally or sent by
overnight express or by registered or certified mail, postage prepaid, addressed
as follows:
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If to Seller, Graseby Andersen Inc., or Graseby plc:
Graseby plc
Lynton House
7-12 Tavistock Square
London, UK WC1H 9LT
c/o Lawrence Irving, Financial Director
(For Overnight Delivery):
Same.
With a required copy (which shall not constitute notice to Seller) to:
Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P.
Post Office Box 1800
Raleigh, North Carolina 27602
Attn: Robert A. Singer, Esq. and
Daniel M. Sroka, Esq.
(For Overnight Delivery):
Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P.
2000 Renaissance Plaza, 230 North Elm Street
Greensboro, North Carolina 27401
Attn: Robert A. Singer, Esq.
Daniel M. Sroka, Esq.
If to Buyer:
TB Wood's Incorporated
440 North Fifth Avenue
Chambersburg, Pennsylvania 17201-1778
(For Overnight Delivery):
Same.
With a required copy to:
Dechert Price & Rhoads
1717 Arch Street
Philadelphia, Pennsylvania 19103
Attention:........David E. Schulman, Esq.
(For Overnight Delivery):
Same.
Section 9.7. Captions; Headings.
The captions and section headings contained in this Agreement are for
reference purposes only and are not part of this Agreement.
Section 9.8. Amendments.
No amendment of any provision of this Agreement shall be valid unless the
same shall be in writing and signed by Buyer and Seller.
Section 9.9. Severability.
Any term or provision of this Agreement that is invalid or unenforceable in
any situation in any jurisdiction shall not affect the validity or
enforceability of the remaining terms and provisions hereof or the validity or
enforceability of the offending term or provision in any other situation or in
any other jurisdiction.
Section 9.10. Construction.
Seller and Buyer have participated jointly in the negotiation and drafting
of this Agreement. In the event an ambiguity or a question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties hereto and no presumption or burden of proof shall arise favoring
or disfavoring either party by virtue of the authorship of any of the provisions
of this Agreement. Any reference to any federal, state, local, or foreign
statute or law shall be deemed also to refer to all rules and regulations
promulgated thereunder, unless the context requires otherwise. The word
"including" shall mean including without limitation. Seller and Buyer intend
that each representation, warranty, covenant and agreement contained herein
shall have independent significance.
Section 9.11. Counterparts.
This Agreement may be executed in any number of counterparts, and each such
counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.
Section 9.12. Post-Closing Cooperation.
Buyer and Seller and their Affiliates shall reasonably cooperate with each
other subsequent to the Closing by preparing, executing, and delivering any
documents reasonably requested by another party hereto necessary to effectuate
and consummate the transactions contemplated by this Agreement.
Section 9.13. Governing Law.
This Agreement shall be governed by and construed in accordance with the
laws of the State of North Carolina applicable to agreements made and entirely
to be performed within such jurisdiction, without giving effect to any conflict
of laws provisions of North Carolina law that would otherwise cause the laws of
another jurisdiction to apply.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
ATTEST: TB Wood's Incorporated
____________________ By: ____________________
__________ Secretary ___________ President
[Corporate Seal]
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ATTEST: Graseby Electro-Optics Inc.
_________________________ By: _______________________________
_________ Secretary Title:
[Corporate Seal]
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Graseby Andersen Inc.
By:
Title:
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Graseby plc
By:
Title:
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List of Exhibits
Exhibit A Financial Statements
Exhibit B Real Property
Exhibit C Survey
Exhibit D Release
List of Schedules
Schedule Topic
3.6(a) Business with Affiliated Persons
3.7(a), (b) and (c) Operations Subsequent to December 31, 1996
3.8 Permits
3.9 Consents
3.10 Company's Intangibles
3.12(d), (e), (f) and (g) Hazardous Substances
3.12(k) Environmental Reports
3.13(a) Tax Matters
3.13(b)(i) Consolidated Groups
3.13(b)(ii) Post-Closing Tax Agreements
3.13(g) Company as Successor by Merger
3.14(a), (m), (n) and (o) Employee Benefit Plans
3.15(a) Certain Contracts
3.16 Legal Proceedings; Regulatory Approvals
3.18 Brokers and Finders
3.19 Inventory
3.20 Accounts Receivable
3.21 Undisclosed Liabilities
3.22 Permitted Exceptions
3.23 Transactions With Related Parties
3.24 Compensation Arrangements; Bank Accounts;
Officers and Directors
3.25 Labor Relations
3.26 Products Liability
3.27 Insurance
5.2(e) Severance Obligations
8.2(a)(iv) Certain Indemnification Obligations
8.6(f) Modified Aggregate Deemed Sale Price
Purchase Agreement
between
1. Berges Antriebstechnik GmbH & Co. KG (Gummersbach Local Court, HRA
1942), represented by its general partner Berges Antriebstechnik GmbH
(Gummersbach Local Court, HRB 1283) which is itself represented by its
managing directors with power to represent the company alone Dietmar
Sarstedt and Herbert Wolfslast, all with business address at
Industriestr. 13, 51709 Marienheide,
- hereinafter: the "Seller",
2. Mrs. Karen Sarstedt, nee Wolfslast, Landwehrstra(beta)e 10 a, 51709
Marienheide,
and
3. TB Wood's (Deutschland) GmbH, formerly JFP Achte
Vermogensverwaltungsgesellschaft mbH with its seat in Wiesbaden
(Wiesbaden Local Court, HRB 10579),
- hereinafter: the "Buyer" -
4. Mr. Thomas C. Foley, with business address TB Wood's Incorporated, 440
North Fifth Avenue, Chambersburg, PA 17201-1778, USA,
5. TB Wood's Incorporated, 440 North Fifth Avenue, Chambersburg, PA
17201-1778, USA, represented by Mr. Thomas C. Foley as Chairman of the
Board,
- hereinafter: the "Guarantor" -
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The parties No. 3 through 5 are represented by Mr. Martin Schulte, attorney at
law, Punder, Volhard, Weber & Axster, Cecilienallee 6, 40474 Dusseldorf
Recitals
The Seller is the sole shareholder of
Berges electronic GmbH
(Gummersbach Local Court, hrb 1671)
(hereinafter: "GmbH");
The Seller holds five shares of DM 19,000, DM 1,000, DM 30,000, DM 50,000 and DM
400,000 in GmbH's capital stock of DM 500,000;
GmbH and Mrs. Karen Sarstedt are the sole shareholders of
Berges electronic S.r.l. (Naturns, Italy)
(Bozen Commercial Register, No. 8404)
(hereinafter: "S.r.l.");
GmbH holds 17,820 shares of LIT 10,000 each and Mrs. Karen Sarstedt hold 180
shares of LIT 10,000 each in the capital stock of S.r.l.;
Messrs. Dietmar Sarstedt and Herbert Wolfslast are Managing Directors of GmbH
with sole powers of representation and have been released from all limitations,
while the management of S.r.l. is the responsibility of the Board of Directors,
to which belong Mr. Dietmar Sarstedt as Chairman, Mr. Bruno Svaldi as Vice
Chairman and
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Mrs. Karen Sarstedt as member (updated commercial registry excerpts for the
Seller and the personally liable shareholder thereof, as well as for GmbH,
S.r.l. and Berges Italiana S.r.l. have been attached hereto as Annex 1);
Mr. Dietmar Sarstedt is the sole shareholder and Managing Director of Berges
Scandinavia AB, Malmo, Sweden. He is prepared to sell the shares to the Buyer or
to liquidate the company as of 31 December 1997. The parties are yet to discuss
and come to an agreement on this issue.
NOW, THEREFORE, the Parties hereby execute the following
Purchase Agreement.
1. Object of Agreement; Transfer
1.1 The Seller hereby sells and transfers its five (fully paid-in) shares
with respective par values of DM 19,000, DM 1,000, DM 30,000, DM
50,000 and DM 400,000 in GmbH along with all of the dividend
participation rights associated therewith for the current 1997
financial year as well as any ancillary rights to the Buyer.
Immediately following the execution of this Agreement, the Seller and
the Buyer shall execute the agreement on the transfer of the shares
referred to in Section 1.1 attached hereto as Annex 1 A in notarial
form.
1.2 The Buyer hereby accepts the above purchase offer.
1.3 Mrs. Karen Sarstedt sells and transfers the 180 shares of LIT 10,000
each, which she holds in S.r.l. to Mr. Thomas C. Foley within the
framework of the agreement attached as Annex 2; Thomas C. Foley
accepts this purchase offer.
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1.4 The Seller and GmbH have each provided guarantees for the other
company or have taken out loans which can be used by both companies.
Berges Italiana S.r.l. and S.r.l. have likewise issued mutual
guarantees vis-a-vis the financing banks. Reference is hereby made to
Annex 3.
Attached hereto as Annex 4 are certificates from the relevant banks
which, in the opinion of the Seller and Berges Italiana S.r.l.,
disclose the amount of the liabilities of GmbH and S.r.l. vis-a-vis
such banks as of 30 June 1997 and which, in the opinion of the Seller
and Berges Italiana S.r.l., furthermore confirm that GmbH and S.r.l.
shall no longer be liable for any liabilities of the Seller or Berges
Italiana S.r.l. from 1 July 1997. Reference is made to Section 5.10.1
i) of this Agreement.
The Buyer shall be obligated to effect prior to the Transfer Date the
release of the Seller and Berges Italiana S.r.l. from the joint
liability and any guarantees in favor of the companies taken over.
This shall transpire through the redemption of bank loans, the
provision of other securities or through refinancing.
1.5 The Guarantor waives its right resulting from the Stand By letter of
Credit No. 4765500264 i-a. (Appendix 5) against Deutsche Bank AG under
the condition precedent that the transfer of shares contemplated in
Section 1.1 has occurred. It will confirm this waiver vis-a-vis
Deutsche Bank AG as soon as practically possible. The Parties agree
that the liability potentially arising from such Letter of Credit
against Deutsche Bank AG is not counted as part of the loan and bank
liabilities pursuant to Section 3.3 hereof.
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2. Transfer Date
In the terms of this Agreement, the Transfer Date shall be 12:00 a.m.
on December 1, 1997. The Companies are deemed to be conducted for the
account of and at the risk of the Buyer from that date.
3. Purchase Price; Loans
3.1 The purchase price for all shares in GmbH shall consist of a premium
of DM 2,200,000.00 (in words: two million two hundred thousand
Deutsche marks) +/- the Asset Book Value of the Equity (as defined in
No. 3.2 below) as of 30 June 1997, which is to be computed on the
basis of the Consolidated Half-Year Financial Statements (as defined
in No. 3.6 below) of GmbH and S.r.l. Out of the purchase price, an
amount of DM 40,000.00 is allocated to the shares transferred by Mrs.
Karen Sarstedt.
The purchase price shall bear interest for the time from July 1, 1997
at a rate of 3%.
3.2 The Asset Book Value of the Equity is to be computed in accordance
with the following example, which is based on the figures as of 31
December 1996:
a) Equity
(1.) Subscribed capital DM 500,000.00
(2.) Surplus capital DM 1,135,300.00
(3.) Retained earnings/accumulated deficit DM 1,698,874.47
---------------
(4.) Interim sum DM 3,334,174.47
(5.) Compensatory item for currency translation DM 41,772.84
(6.) Compensatory item for shares of other
shareholders
a) in subscribed capital DM 1,810.08
b) in surplus capital DM 781.27
c) in retained earnings/accumulated deficit DM 10,331.89
------------
DM 12,923.24
------------
(7.) Total equity DM 3,388,870.55
b) less
(1.) Intangible assets
Franchises, trademarks, patents, licenses DM 1,050,430.53
(2.) Goodwill DM 2,086,470.18
(3.) Advance payments DM 0.00
(4.) Total DM 3,136,900.71
Material book value of net equity (a minus b) + DM 251,969.84
3.3 The Parties assume that the sum of a) the purchase price under No. 3.1
above, b) the liabilities of the companies taken over (after deduction
of accounts receivable) vis-a-vis subsidiary and c) affiliated
companies and d) the loan liabilities of the companies taken over
shall not exceed DM 11,000,000.00. In the event such assumption be
wrong, the purchase price under No. 3.1 above shall be reduced until
the sum of a), b), c) and d) be DM 11,000,000.00. For the avoidance of
doubt, the term "loan liabilities" shall not encompass any liabilities
listed under the heading "trade liabilities" or "other liabilities" in
the Consolidated Half-Year Financial Statements.
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The figures are as follows as of December 31, 1996:
a) Purchase price under No. 3.1
Asset Book Value of the Equity DM 251,969.84
Premium DM 2,200,000.00
b) Liabilities to subsidiary companies (Berges
Antriebstechnik GmbH & Co. KG) DM 381,391.55
c) Liabilities to affiliated companies (Berges
Italiana S.r.l.) DM 2,025,608.22
less accounts receivable from affiliated
companies - DM 67,511.83
d) Loan liabilities (vis-a-vis banks and other
loan creditors) DM 4,818,047.50
Total DM 9,609,505.28
3.4 Prior to the Transfer Date, the Buyer shall pay a partial amount of DM
1,660,000 (in words: one million six hundred and sixty thousand
Deutsche marks) to Seller and Mr. Thomas C. Foley shall pay DM 40,000
(in words: forty thousand Deutsche Marks) to Mrs. Karen Sarstedt onto
the following bank accounts:
Seller:
Account Holder: Berges Antriebstechnik GmbH & Co. KG
Account No.: 0104364
Bank: Deutsche Bank AG, Gummersbach
Bank Code: 384 700 91
Mrs. Karen Sarstedt:
Account Holder: Dietmar Sarstedt
Account No.: 0161091
Bank: Deutsche Bank AG, Gummersbach
Bank Code: 384 700 91
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The remainder of the purchase price must be paid onto the
above-mentioned bank account within 10 days after the Parties agree on
the Consolidated Half-Year Financial Statements.
The following shall apply in the event the Buyer not recognize the
Consolidated Half-Year Financial Statements presented by the Seller:
A purchase price established on the basis of the variant version
prepared by Arthur Andersen (see No. 3.7 below) shall be payable
within 10 days after presentation of the modified version. Any further
remaining amounts must be paid within 10 days of the Arbitrator's
decision on the Consolidated Half-Year Financial Statements.
3.5 In the event any actual additional tax expense arise for the
assessment periods prior to the Transfer Date - even as a consequence
of any subsequent tax audits by the Revenue Service - which is not
covered by corresponding liability items - including reserves - and
which is not offset by any reduction of taxes or earnings in the
subsequent years, the purchase price shall be reduced by the
additional tax expense. With regard to the computation of the
additional tax expense, the allocation of profit to reserves on a pro
rata temporis basis must be assumed. The Buyer and Seller shall
mutually provide each other any assistance related to the defense of
any tax claim. In the event any audit by the Revenue Service reveal a
refund, the Buyer shall be obligated to forward the resulting amount
to the Seller.
3.6 The Asset Book Value of the Equity as of the Transfer Date must be
computed on the basis of the consolidated financial statements of GmbH
and S.r.l. to be prepared as of 30 June 1997 (Consolidated Half-Year
Financial Statements).
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GmbH and S.r.l. (hereinafter jointly referred to as "the Companies")
have taken inventories as of 30 June 1997. The Guarantor did not
exercise the possibility granted it to participate in the taking of
the inventories. The Parties agree, however, that no acknowledgment of
the results of the inventories on the part of the Buyer or the
Guarantor is to be seen herein. The Seller commissioned the
independent auditing firm Tombers u. Partner GmbH (Gummersbach) to
audit and certify the half-year financial statements of GmbH and to
prepare the Consolidated Half-Year Financial Statements on the basis
thereof and on the basis of the financial statements of S.r.l. The
Seller shall present these financial statements prior to November 30,
1997 at the latest. The financial statement must be prepared observing
balance sheet consistency and in accordance with generally accepted
accounting principles in Germany and Italy. However, in order to
compute profit on an accrual basis, trade fair costs, insurance
premiums, allocations rendered for insurance premiums as well as
vacation pay accrued over the year must be accounted for on a pro rata
temporis basis. No liability items are to be set up for the
preparation and auditing of the interim financial statements. Any
claim for the reimbursement of corporate income tax resulting from a
potential loss as of June 30, 1997 shall be activated.
3.7 After receipt thereof, the Seller shall immediately forward one copy
respectively of the semi-annual financial statements of GmbH and
S.r.l. as well as the Consolidated Half-Year Financial Statements to
the Buyer as well as to Arthur Andersen GmbH (hereinafter, "AA") as
well as to PUENDER, VOLHARD, WEBER & AXSTER, Attorneys at Law (Attn.:
Attorney Martin Schulte). Insofar as the Buyer not raise any
objections to the Consolidated Half-Year Financial Statements in
writing within six weeks after receipt thereof, which deadline shall
under no circumstances expire prior to December 15, 1997, such
financial statements shall become binding.
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The Buyer shall have AA audit the Consolidated Half-Year Financial
Statements which are prepared by the Seller. If necessary in the
opinion of AA, AA shall prepare a modified version of the Consolidated
Half-Year Financial Statements, which the Buyer shall then forward to
the Seller within the six-week period. Insofar as the Seller not raise
any written objections to the version of the Consolidated Half-Year
Financial Statements modified by AA within six weeks after receipt
thereof, the version of the Consolidated Half-Year Financial
Statements modified by AA shall become binding.
Any objections must be made in writing, whereby communication per fax
shall satisfy the requirement for the written form. Objections
- of the Seller are to be addressed to:
Mr. Thomas C. Foley, TB Wood's Incorporated, 440 North Fifth
Avenue, Chambersburg, PA 17201-1778, Telefax 203 622 6538
Arthur Andersen Wirtschaftsprufungsgesellschaft
Steuerberatungsgesellschaft mbH, Mergenthalerallee 10-12, 65760
Eschborn/Frankfurt am Main
PUENDER, VOLHARD, WEBER & AXSTER (Attn.: Attorney Martin
Schulte), Cecilienallee 6, 40474 Duesseldorf, Telefax: 0211
4355600
The aforementioned six-week period is satisfied if the objections
have reached either of the three aforementioned addressees in
time.
- of the Buyer are to be addressed to:
Mr. Dietmar Sarstedt at Berges Antriebstechnik GmbH & Co. KG,
Industriestr. 13, 51709 Marienheide, fax: (+49 2264) 17130.
3.8 In the event each Party object to the Consolidated Half-Year Financial
Statements presented by the other Party, the Parties hereby agree to
initially enter into negotiations to attain a concerted arrangement.
Such negotiations shall include a personal meeting at which Messrs.
Thomas C. Foley and Dietmar Sarstedt must be in attendance. In the
event such negotiations and meetings not lead to any settlement
arrangement within four weeks after the receipt of the most recent
objection, the two versions of the Consolidated Half-Year Financial
Statements shall be presented to KPMG Deutsche Treuhandgesellschaft
AG, Wirtschaftsprufungsgesellschaft, Cologne (hereinafter, "the
Arbitrator"). The Arbitrator shall then make a final decision
regarding the Consolidated Half-Year Financial Statements. Within the
framework of such decision, the Arbitrator shall audit the drafts
prepared by each Party and shall take into consideration the
objections raised by each Party against the draft of the respective
other Party. The Arbitrator must request to hold a joint meeting with
both Parties at which the respective opinions may be explained in
order to attain a concerted arrangement. This meeting may also take
place within the framework of a phone conference.
3.9 The Seller shall render any advance payments requested by the
Arbitrator. Upon the relevant request, the Buyer shall be obligated to
immediately reimburse the Seller for half of the amounts paid in
advance.
3.10 The costs for the preparation and formulation of the half-year
financial statements of S.r.l. and the Consolidated Half-Year
Financial Statements as well as the costs for the preparation,
formulation and auditing of the half-year financial statements of GmbH
shall be borne by the respective company. Insofar as any review by the
Arbitrator be necessary, the Arbitrator must divide the costs in its
invoice between the Seller and the Buyer in accordance with the
principles of ss.ss. 91 et seq. of the Civil Procedure Code.
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4. Compensation of Liabilities; INDEL
4.1 In the past, GmbH and S.r.l. regularly executed exchange transactions
with the Seller on the one hand and Berges Italiana S.r.l. on the
other. The liabilities of GmbH and S.r.l. currently amount to (after
deduction of counter-claims):
a) Liabilities of S.r.l. vis-a-vis Berges Italiana S.r.l.: around DM
1,630,000.00
b) Liabilities of GmbH vis-a-vis the Seller: around DM 500,000.00
c) Liabilities of S.r.l. vis-a-vis the Seller: none
The Buyer is aware that the respective balance bears interest at a
rate of 5.5% p.a.
The Buyer shall ensure that GmbH and S.r.l. repay the above-mentioned
amounts to the respective creditors prior to the Transfer Date.
4.2 The figures specified in Section 4.1 above have been computed roughly.
The exact amounts of the balances of the transfer accounts have yet to
be determined, given, for example, that rent and allocations are still
to be settled on a prorated basis. Insofar as it become evident after
the Transfer Date that the above-mentioned values are not accurate,
the Parties shall compensate any difference upon presentation of
proof.
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4.3 The Buyer shall assume an absolute guarantee for the above-mentioned
claims of the Seller and Berges Italiana S.r.l. against the Companies.
4.4 S.r.l. is entitled to a claim against INDEL (Austria) in the amount of
ATS 4,106,486.10 (in words: four million one hundred and six thousand
four hundred eighty-six Austrian shillings). S.r.l. sold and assigned
this claim at the nominal value to Berges Italiana S.r.l. by way of
the Deed of 24 July 1997, which is attached hereto as Annex 6. The
purchase price shall be offset by the claims to which Berges Italiana
S.r.l. is entitled against S.r.l.
The Buyer shall instruct S.r.l. to pay Berges Italiana S.r.l. a
commission of 3% plus the applicable value-added tax for all
transactions conducted with Vogel Pumpen (Austria). This payment duty
shall not apply so long as and insofar as INDEL be entitled to any
commission claim against S.r.l. for these types of transactions. By
way of the agreement with INDEL attached hereto as Annex 6, it shall
be ensured that the commission due to INDEL shall be disbursed to
Berges Italiana S.r.l. S.r.l. shall not have to pay the provision
twice. The duty to pay commission to Berges Italiana S.r.l. shall end
as soon as Berges Italiana S.r.l. has received the amount of ATS
4,106,486.10 from INDEL or S.r.l.
5. Representations and Warranties
5.1 The Seller does not assume any warranty or guarantee for the long-term
value or earnings capacity of the shares or the two Companies.
However, the Seller hereby represents and warrants that the following
facts and circumstances are
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accurate and complete in relation to the Transfer Date. Insofar as the
following representations not represent any "warranted features"
(zugesicherte Eigenschaften), the Seller shall assume an independent
guarantee for the accuracy and completeness of the following facts and
circumstances.
5.2 The Companies
5.2.1 The Companies have been properly formed in accordance with the
respective laws of the places of incorporation and the registered
offices under the bylaws, and continue to operate with legal effect.
5.2.2 The shareholders of the Companies have neither proposed nor approved
the dissolution or windup of the Companies; likewise, no merger of the
Companies with other companies has been proposed or approved.
5.2.3 No petition to initiate bankruptcy or composition proceedings has been
filed with regard to the Companies.
5.2.4 The commercial registry excerpts which are attached hereto as Annex 1
are accurate and complete. All shareholders' resolutions and other
circumstances which are subject to registration are reflected in such
commercial registry excerpts.
5.2.5 The Companies are not bound by any company agreements in the terms
ofss.ss. 291 et seq. of the Corporation Act.
5.2.6 Beyond the holdings mentioned in the Recitals, neither of the
Companies holds any shares or other holdings in other companies. ASEL,
a former subsidiary of S.r.l., has been wound up. No liabilities
remain.
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5.3 Shares
5.3.1 The factual data in the Recitals are accurate and complete.
5.3.2 The shares in GmbH and S.r.l. (hereinafter collectively: "the Shares")
are free of any pledges, seizures, usufructs or other encumbrances,
including any options or preemption rights in favor of third parties.
The Seller may dispose of the Shares without the cooperation or
approval of third parties. The Seller hereby expressly declares its
approval of the share sale executed by way of this Agreement (see ss.
13 of the GmbH's Articles of Association). The approval of GmbH as
shareholder of S.r.l. has likewise been obtained (Annex 7). No further
restrictions exist in relation to the transferability of the Shares.
5.3.3 Since January 1, 1997, no dividends or interim dividends have been
approved with regard to the Shares. No rights to future dividends or
other rights related to profit have been promised, transferred or
pledged to third parties. No other payments to shareholders have been
made outside the course of ordinary business; the Companies have
likewise not made any promises to make such payments in the future.
5.3.4 Neither the Seller itself nor the shareholders thereof nor relatives
in the first or second degree of such shareholders nor any companies
controlled by these groups of people hold shares directly or
indirectly in companies which compete with the Companies. As a
supplement hereto, reference is hereby made to No. 6.2 hereof.
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5.4 Financial Information
5.4.1 The annual financial statements of the Companies as of December 31,
1994, 1995 and 1996 (hereinafter jointly referred to as "the Financial
Statements"), which are attached hereto as Annexes 8 - 13,
a) have been prepared in relation to the past five financial years
in accordance with the applicable laws and generally accepted
accounting principles in Germany and Italy, observing balance
sheet consistency;
b) provide in the terms of the Commercial Code a true and fair view
of the financial position and earnings and performance of the
Companies.
5.4.2 The annual financial statements of GmbH have been given an unqualified
auditor's opinion by the company's independent auditor. The annual
financial statements of S.r.l. have been formulated by the company's
independent auditor and accountant.
5.4.3 All accounting documents, main ledgers and financial and other
documents of the Companies (including electronically stored financial
information and data):
a) are in the possession of the Companies;
b) have been properly kept with due diligence;
c) have been stored for the periods prescribed by law.
5.4.4 Upon the balance sheet cutoff dates relevant to the respective
financial statements, no liabilities or obligations were known,
whether conditional or not, due or not due, except for those
liabilities and obligations which have been listed in the attached
financial statements or for which reserves have been built.
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5.4.5 As far as is known, the Companies have no contingent liabilities
except for those which have been completely accounted for in the
Financial Statements or the Consolidated Half-Year Financial
Statements.
5.4.6 For the period from 1 January 1997, the following is true:
a) As far as is known, the Companies have not conducted any
transactions or entered into any liabilities which were in
themselves or in their entirety serious in relation to the
Companies' business activity, except for those transactions which
fell within the course of ordinary business.
b) The Seller has not made any withdrawals. The Companies have
likewise not rendered directly or indirectly to the Seller or the
shareholders thereof any payments beyond the fulfillment of
obligations arising in the course of ordinary business.
c) Irrespective of whether insurance protection existed or not, no
damage has occurred and no damage compensation claims against the
Companies have been asserted which have affected the business
activity or the assets of the Companies in any significant way
beyond the course of ordinary business.
d) The Companies have neither provided guarantees nor assumed joint
and several liability nor issued any guaranties for the
liabilities of third parties, unless such occurred within the
course of ordinary business upon conditions and in amounts which
were consistent with the previous business practice.
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e) The inventory has neither increased nor decreased exceptionally.
Apart from common exceptions in the course of ordinary business,
the Companies have neither sold goods under any amount which was
below the valuation in the 1996 annual financial statements nor
have they sold inventory at any prices which did not cover costs.
f) No severance payments have been rendered to managing directors of
the Companies. The total payments rendered in relation to
severance pay or dismissals have not increased in relation to the
average of the previous year.
g) The salaries, ancillary compensation, bonuses and other benefits
which the managing directors or other employees of the Companies
are to be granted have not increased except for the normal
increases and adjustments in the course of ordinary business.
5.4.7 In the period from June 30, 1997, the economic situation of the
Companies did not deteriorate in any identifiable or material fashion
such that the Companies were burdened either individually or together
by more than DM 500,000.00.
5.5 Leased Property
5.5.1 Neither of the Companies owns property.
5.5.2 The subject-premises described in the lease agreements attached hereto
as Annex 14 are rented or leased by the Companies at the terms and
conditions evident in the Annexes; the subject-premises are suited for
the use for which they are intended.
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5.5.3 According to the Seller's knowledge, the current use of the
subject-premises is neither hindered nor prejudiced by any public law
or third-party right. According to the Seller's knowledge, the
official permits and approvals required for the current use have been
presented.
5.5.4 The Buyer hereby confirms that the subject-premises are in good
conditions in conformance with the provisions of the lease agreement.
5.5.5 The Companies have not used or possessed any other property in the
10-year period prior to the execution hereof.
5.5.6 According to the Seller's knowledge, the subject-premises contain
neither asbestos nor any other substances which are harmful in
accordance with the current state of scientific knowledge.
5.5.7 The Seller is unaware of any contamination of the subject-premises,
the surroundings or ground water thereof which require redress.
5.6 Legality of Business Activity
5.6.1 According to the Seller's knowledge, no applicable laws, regulations
or provisions are being violated by the business activity. This
applies in particular to environmental law.
5.6.2 According to the Seller's knowledge, the Companies have always
observed the provisions applicable to employment protection, safety at
the workplace and hygiene.
5.6.3 According to the Seller's knowledge, the Companies have not used,
stored, removed or emitted into the environment any substances which
harm or pollute the environment in any way which violates applicable
provisions and which is thus inadmissible and could disrupt business
activity.
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5.6.4 According to the Seller's knowledge, the Companies possess all
necessary official permits so that nothing opposes the continuance of
the business activity at the same place, in the same type and way and
in the current scope. No issued permits have been canceled or
restricted nor is any cancellation, revocation or restriction
currently foreseeable. The business activity of the Companies is
operated within the framework of the admissible.
5.6.5 The Seller is unaware of any serious on-the-job accidents which are
not fully covered by insurance and which could lead to claims against
the Companies. No employees have asserted claims against the Companies
for any other work-related illnesses.
5.6.6 The Seller is unaware of any facts which make it evident that the
products it produces have not always complied with all applicable laws
and regulations as well as the applicable industrial standards.
5.7 Insurance
5.7.1 The Companies have concluded the insurance agreements listed in Annex
15 the policies of which are attached. The Companies have undertaken
everything in order to maintain the insurance coverage resulting
therefrom.
5.7.2 All insurance premiums which are due in accordance with the
above-mentioned policies have been paid and all obligations for which
the Companies are responsible in accordance with such policies have
been fulfilled.
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5.7.3 The insurance agreements shall remain valid until December 31, 1997,
unless the respective insurance companies terminate such agreements.
5.7.4 The Companies have not been presented any notices, whereby the
insurance companies intend to terminate or no longer renew the
insurance agreements.
5.7.5 The Seller is unaware of any circumstances which could invalidate any
of the insurance agreements or enable the insurance companies to
exercise the special right to termination. The Seller is also unaware
of any circumstances which could lead to an increase of the insurance
premiums or deductibles.
5.8 Intellectual and Industrial Property Rights
5.8.1 The Companies are the sole and exclusive owners of the copyrights,
patents and trademark rights which are listed in the certificate from
the patent attorney active for the Companies, which is attached as
Annex 16 and specifies the respective registration numbers, terms and
material contents thereof. None of the above-mentioned property rights
is encumbered in favor of third parties. The Companies shall be
entitled to continue the use of the company logo (right No. 117288 of
Seller) in red.
5.8.2 To the best of Sellers' knowledge, the Companies have taken all the
measures necessary to maintain the above-mentioned licenses and
property rights; insofar as possible, these property rights have been
registered in the names of the Companies. No registration has expired.
5.8.3 The Companies have not entered into any obligations to provide third
parties access to their business secrets, know-how, confidential
information or lists of customers or suppliers. According to the
Seller's knowledge, such information was exclusively provided in the
past to the Guarantor.
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5.8.4 As far as the Seller is aware, the performance of the business
activity of the Companies does not infringe upon any third-party
property rights.
5.8.5 The Companies have only concluded the license agreements listed in
Annex 17 hereto. All relevant details, including the amounts of the
license fees, are evident in such annex. Insofar as the Seller, one of
the shareholders thereof or any of the other companies controlled
thereby hold rights which pertain to the business, the Seller shall
ensure that GmbH or S.r.l. be granted irrevocable, unlimited and
exclusive licenses free of charge.
5.9 Employees; Supplementary Pensions
5.9.1 All of the persons employed with the Companies as of the Transfer Date
are listed in Annex 18. The Annex also contains part-time employees
and managing directors (hereinafter jointly referred to as
"Employees"). The Annex lists the birth date, date of entry, current
remuneration and other benefits, such as vacation pay, Christmas
money, private use of company cars, benefits for retirement pension
within the framework of direct company insurance, as well as the
position of each Employee. No benefits granted in the past on the
occasion of company anniversaries have been listed.
No employment relations exist with persons not specified in the
above-mentioned Annex. No obligations have been entered into vis-a-vis
the Employees beyond the above-mentioned performances, unless such was
required by law or collective agreements. No benefits for
supplementary retirement pension beyond the direct insurance mentioned
in the Annex have been promised. This also applies to former
Employees.
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5.9.2 No obligations from the cessation, termination, or rescission of
employment agreements are in arrears.
5.9.3 With the exception of the Company Agreement on Premiums under Article
9 of the Collective Agreement (Annex 19), the Companies have not
reached any agreements which the Employees or works councils which
grant Employees claims to profit shares in relation to early
retirement or to any acquisition of shares in the broadest sense. Mr.
Dietmar Sarstedt receives a percentage of profit, while the commercial
agents active for the Companies are remunerated independent of
turnover.
5.10 Material Agreements
5.10.1 With the exception of the agreements listed in Annex 20 hereto, the
Companies are not bound by any of the following agreements ("material
agreements"):
(a) lease or lease-purchase agreements with a term of more than six
months;
(b) agreements for the acquisition of goods or services for a period
of more than six months and/or with a value of more than DM
60,000.00;
(c) purchase or similar agreements whereby the Companies be obligated
to acquire goods, provided such agreements have a term of more
than six months and/or a value of more than DM 60,000.00;
(d) shareholders', joint venture and similar agreements;
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(e) loan and other bank and overdraft agreements other than those
referred to in Section 3.3;
(f) agreements which significantly restrict the freedom of the
Companies in the future to compete in any business sector or
vis-a-vis any particular persons;
(g) agreements or obligations related to the business of either of
the Companies as a whole;
(h) powers of attorney in favor of third parties;
(i) guarantees, sureties or similar obligations in favor of the
Seller, Berges Italiana S.r.l. or third parties or agreements to
provide securities in favor of others (In particular, no claim
can be brought against the Companies based on the guarantees or
the joint acceptance of bank lonas with respect to liabilities of
the Seller of or Berges Italiana S.r.l.);
(j) pledges or other securities (including the assignment of claims)
other than those given to the banks;
(k) agreements outside of the course of ordinary business and/or at
conditions which would not normally be agreed upon with external
third parties;
(l) any other agreement which obligates the Companies to pay expenses
of more than DM 60,000.00;
(m) commercial agent and authorized dealer agreements.
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5.10.2 According to the Seller's knowledge, within the framework of the
material agreements concluded, no breach of contract has been
committed by the parties to the agreements such that any significant
prejudicial effects on the business activity of the Companies are to
be anticipated.
5.10.3 According to the Seller's knowledge, no customer of the Companies
intends to terminate or modify any existing agreements. In addition,
no reason exists to assume that any customer of supplier of the
Companies shall terminate or restrict its business relations with the
Companies due to the execution of this Agreement and the covenants
related hereto.
5.10.4 No reason exists to assume that any of the Employees of the Companies
decisive for the business activity shall terminate his or her
employment relation with either of the Companies due to this Agreement
or the covenants related hereto.
5.10.5 Through the execution hereof and the covenants related hereto, the
Seller shall not breach any other agreement to which the Companies are
bound. The execution hereof shall furthermore neither enable the
termination of any other agreement nor obligate either of the
Companies to fulfill their obligations from any other agreement early
nor shall either of the Companies fall into arrears in their
obligations as a result hereof. In no case does the continuation of
the agreements entered into by the Companies depend upon the fact that
particular persons (as managing director or in any other capacity)
have a legal relation to the Companies.
5.10.6 Beyond the course of ordinary business, the Companies have not issued
any guaranties or undertakings or commitments in relation to the goods
sold thereby. No servicing agreements which obligate the Companies to
service the goods distributed thereby have been executed. The Seller
is unaware of any warranty claims or claims to subsequent improvement
or replacement deliveries which exceed the average framework of the
previous year.
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5.11 Legal Violations and Litigation
5.11.1 The Seller is unaware of any pending or threatened administrative or
judicial proceedings or proceedings by the district attorney's office
against the Companies or any of the Employees thereof which would
significantly affect the financial or economic position of the
Companies.
5.11.2 Apart from disputes related to individual rights, no labor disputes
have occurred between the Companies and the Employees in the previous
five years. No circumstances which could lead to labor disputes are
currently evident to the Seller.
5.11.3 According to the Seller's knowledge, the Companies are not party to
any agreements or covenants which violate the Act against Restraints
on Competition or the corresponding provisions of other countries. No
agreements or covenants are known which have been or should be
registered in accordance with the above-mentioned laws or which have
been or should have been notified to the European Commission in
accordance with Article 85 of the EU Treaty.
5.11.4 The Companies have not received any requests or notices from the
European Commission or from the authorities competent for cartel and
competition matters in Germany or any other country which could affect
the activities of the Companies in any aspect.
5.11.5 The Companies are not party to any legal disputes, whether they be
criminal, civil (including labor law proceedings), administrative,
arbitration or other proceedings, which are directed toward either of
the Companies or affect them. Likewise, no such proceedings or
investigations against the Companies are foreseeable.
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5.12 Taxes
5.12.1 The Companies have properly filed in a timely fashion all tax and
other declarations which had to be issued in relation to the taxes to
be paid prior to the Transfer Date. All taxes were paid when due.
Insofar as taxes for the period prior to the Transfer Date not yet be
due, reserves shall be built for such in the Consolidated Half-Year
Financial Statements. The Companies have properly and completely
conducted all relevant fiscal transactions.
5.12.2 According to the Seller's knowledge, the Companies shall not lose any
tax advantages due either to the performance of this Agreement or to
any other transactions prior to the Transfer Date.
5.12.3 The structure of the available equity of GmbH as of 31 December 1996
is evident in Annex 21.
5.12.4 According to the Seller's knowledge, no hidden distributions of profit
have been made.
5.12.5 Pursuant to the tax declaration as of 31 December 1996, the GmbH does
not have any loss carry-forward for corporate income tax purposes.
Pursuant to verbal information given by the auditor, the tax audit
performed by the tax authority in 1997 did not result in any
objections. A written confirmation has not yet been received.
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5.13 Performance of Business Activity
5.13.1 According to the Seller's knowledge, the tangible and intangible
assets and rights and know-how at the disposal of the Companies are
sufficient to continue the business activity in the same manner as
before the Transfer Date.
5.13.2 The Companies have access to all business documents and files,
including such documents to which the Companies do not hold exclusive
title or which are not under the direct control of the Companies. The
Buyer is aware that the Companies have jointly used the computer
systems of the Seller and Berges Italiana S.r.l. and shall also do so
in the future. The Seller and Berges Italiana S.r.l. hereby agree to
grant the Companies access at any time to the data which affects them.
5.13.3 During the 12 months prior to the execution of this Agreement, no
material changes occurred in relation to the clientele, the business
or other terms and conditions. This is true with the exception of the
price changes known to the Buyer as well as the customers ICBT
(France) and INAG (Germany). In addition, no significant customer or
supplier of the Companies discontinued or significantly reduced its
business relation with the Companies during such period. The Companies
and the Seller have no reason to assume that any such change,
discontinuation or reduction will occur in the foreseeable future.
5.14 Legal Relation between the Companies and the Seller as well as the
Limited Partners Thereof and Berges Italiana S.r.l.
The managing director agreements between GmbH and Messrs. Dietmar
Sarstedt and Herbert Wolfslast will be rescinded by mutual agreement
as of November 30, 1997. This also applies to the agreements upon
which the activity of both Mr. Dietmar Sarstedt as Chairman of the
Board of Directors of S.r.l. and Mrs. Karen Sarstedt as member thereof
is based. Moreover, the lease and allocation agreements existing
between GmbH and the Seller as well as S.r.l. and Berges Italiana
S.r.l. have also been rescinded as of the above-mentioned date.
Reference is hereby made to the new arrangements agreed upon in
accordance with Nos. 7 to 9 hereof.
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The Parties are aware that agreements for the exchange of goods and
services have continuously been and shall still continuously be
executed in the future between the Seller and Berges Italiana of the
one part and the Companies of the other.
5.15 Product Liability
No claims which have not been dealt with have been asserted from the
point of view of product liability. The Seller is unaware that the
products distributed by the Companies could disclose any design or
series production defects. Reference is hereby made to No. 5.18.3
above.
5.16 Grants and Subsidies
The Companies have not been granted or paid any grants, subsidies or
similar preferential treatment during the last three years from any
international, national or regional agency or authority.
5.17 Miscellaneous
5.17.1 All written information which has been provided by the Seller and the
advisors thereof to the legal representatives, employees or advisors
of the Buyer within the course of the negotiations over this Agreement
is true, complete and accurate in every respect; such information is
likewise not misleading as a result of any omissions or ambiguities or
for any other reason. The contents of such information corresponds to
the state of the Seller's knowledge.
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5.17.2 The Buyer has audited both Companies within the framework of due
diligence proceedings. The Seller hereby warrants and represents that
all inquiries made within the framework of the purchase agreement
negotiations and the due diligence proceedings have been answered
completely and accurately to the best knowledge of the Seller. This
applies in particular to inquiries related to the assets, the business
activity and the financial situation of the Companies.
5.17.3 The Parties hereby agree that ss. 377 and 378 of the Commercial Code
and the second sentence of ss. 460 of the Civil Code shall not be
applicable hereto.
5.17.4 Through the execution or performance of this Agreement, the Seller is
not selling either its entire assets or any substantial part thereof.
5.18 Legal Consequences
5.18.1 Insofar as the Seller has limited the above-mentioned representations
and warranties by reference to its knowledge or lack thereof, warranty
or damage compensation claims shall not exist if such statements
merely be objectively false but shall only exist when such statements
be consciously false.
5.18.2 The right to rescind this Agreement shall be excluded hereby. Insofar
as any warranty claims or claims due to breach of contractual duties,
warranties or representations exist, such shall be limited to
reduction of the purchase price and damage compensation due to
non-performance. Payment need only be rendered insofar as the sum of
the justified reductions and damage compensation claims exceed DM
200,000.00.
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This limitation shall apply neither to claims arising from the
violations of Sections 5.2, 5.3, 5.4.7 or 5.12 above nor to the
provisions regarding the formulation of the Consolidated Half-Year
Financial Statements.
The Buyer must establish a reasonable period of at least one month by
way of registered letter for the Seller to produce the conditions in
accordance herewith.
5.18.3 The representations and warranties issued by the Seller do not relate
to the merchandise procured from the Guarantor or to any claims
related to such merchandise.
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5.19 Limitation of Claims
5.19.1 Unless provided otherwise herein, all claims of the Buyer, even
warranty and damage compensation claims on whatever legal ground,
shall lapse upon the expiration of June 30, 1999.
5.19.2 The Seller shall be liable for the legal existence of the shares as
well as for the right to transfer such to the Buyer for a period of 30
years from the Transfer Date.
5.19.3 Any claims of the Buyer related to taxes and social security
contributions, including any claims to exemptions, shall lapse within
one year after the corresponding decision by the relevant authority
has become non-appealable.
6. Covenant Not to Compete
6.1 The Seller hereby agrees for the period of five years from the
Transfer Date to desist from any competition with the Companies in
their current geographical and technical sector of activity. In
particular, the Seller shall not hold shares either directly or
indirectly in competing companies nor enter the service of any
competing company nor promote any such company directly or indirectly
in any way through advice or action.
6.2 The Parties are aware of the following:
The Companies are active in the production and distribution of
electrical and electronic propulsion elements, while the Seller and
Berges Italiana S.r.l. produce and distribute mechanical propulsion
elements which are merely electrically controlled. The Parties agree
that the above-mentioned companies may continue to be active in their
respective fields in the future, without such representing any breach
of this Covenant Not to Compete.
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This shall apply irrespective of the fact that electrical and
mechanical propulsion elements are interchangeable in specific cases.
So long as Mr. Dietmar Sarstedt be Managing Director of the Seller and
Chairman or member of the Board of Directors of Berges Italiana S.r.l.
on the one hand and Managing Director of GmbH and Chairman of the
Board of Directors of S.r.l. on the other, such shall not represent a
breach of any covenant not to compete arising from his fiduciary duty
vis-a-vis the individual companies.
7. Management
7.1 Effective immediately, Mr. Herbert Wolfslast hereby resigns from his
office as Managing Director of GmbH. Effective immediately, Mrs. Karen
Sarstedt hereby withdraws as Prokuristin [holder of a general power of
attorney] of the GmbH and from the Board of Directors of S.r.l. and
shall provide any statements which are necessary to enter her
withdrawal in the competent registry.
7.2 After the Buyer's take over of the shares in the Companies, Mr.
Dietmar Sarstedt shall also manage the business of GmbH and S.r.l. as
Managing Director and Chairman of the Board of Directors. The
contractual relations between Mr. Dietmar Sarstedt and the two
Companies shall be regulated as of the Transfer Date by way of the
Employment Agreement attached hereto as Annex 22. Mr. Dietmar Sarstedt
shall be entitled to Christmas money and a percentage of profit on a
pro rata temporis basis for the 1997 calendar year from the employment
agreements rescinded as of November 30, 1997. No further claims shall
exist from the employment agreements rescinded as of November 30,
1997.
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8. Lease Agreements
The lease agreements existing between the Seller and Berges Italiana S.r.l. as
Lessors of the one part and GmbH and S.r.l. as Lessees of the other regarding
the commercial space used in Marienheide and Naturns shall be replaced as of the
Transfer Date by the lease agreements attached hereto as Annex 14.
9. Allocation Agreements
9.1 Employees of the Seller and Berges Italiana S.r.l. are active for GmbH
and S.r.l. particularly in the accounting and controlling areas as
well as in the warehouse and shipping departments. Conversely,
employees of GmbH and S.r.l. also render services for the Seller and
Berges Italiana S.r.l.
9.2 Furthermore, various material costs, such as for electricity, postal
fees, cleaning costs, insurance premiums, etc. are mutually settled
between the above-mentioned companies. The amounts mutually settled in
the period from 1994 to 1996 may be found in Annex 23. In relation
thereto, the following is hereby agreed upon between the Parties:
GmbH and S.r.l. shall modify the present phone and fax systems at
their own expense in order to determine in detail which of the
Companies is to be allocated the specific costs. New systems shall be
installed if necessary.
In relation to the other costs, the Parties hereby agree that such
shall be divided and settled as far as possible in accordance with the
scope of the actual use or instigation. Any agreements reached in the
past between the Seller and Berges Italiana S.r.l. of the one part and
GmbH and S.r.l. of the other shall lose their validity as of the
Transfer Date. In the event no exact costs can be calculated, an
estimate shall be made as appears just based on the percentages
evident in Annex 23.
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The cost prices shall always be decisive. The settlement shall be made
for each calendar year prior to 31 March of the following year. The
Seller and Berges Italiana S.r.l. shall be entitled to claim monthly
payments on account in the amount of 1/12 of the costs paid in the
previous year after deductions. In the event any individual costs
which were considered in the previous year be eliminated or in the
event new costs arise, such shall be taken into account accordingly.
10. Guarantee; Modified Joint and Several Liability
10.1 The Guarantor hereby assumes the absolute guarantee for all of the
Seller's claims arising from this Agreement vis-a-vis the Buyer.
10.2 The Seller shall be liable jointly and severally for the obligations
of Mrs. Karen Sarstedt arising from this Agreement and the Annexes
hereto. The Buyer hereby waives the assertion of any claims from this
Agreement against Mrs. Karen Sarstedt, with the exception of the claim
to share transfer under Section1.3 hereof.
11. Transition
11.1 As soon as this Agreement becomes binding for both Parties, the Seller
shall ensure that the Buyer's agents be provided upon request any
information regarding business transactions and be granted the
opportunity to inspect all business documents.
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11.2 From the execution hereof, the Seller shall ensure that the Companies
only conduct any transactions outside the course of ordinary business
after obtaining the Buyer's prior approval.
11.3 The Seller and the Buyer shall be obligated to provide each other any
information and to cooperate in all transactions and legal acts which
are necessary for the performance of this Agreement and to desist from
anything which opposes the performance hereof. In relation to the
assertion of claims against third parties or the defense against
third-party claims, the Parties shall provide each other all necessary
information and grant each other the opportunity to inspect any
business documents necessary in this regard. The Companies shall
authorize the Seller to conduct any necessary administrative
proceedings on behalf of the Companies but at the costs of the Seller,
insofar as the financial results of such proceedings affect the
Seller.
12. Final Provisions
12.1 Any modifications of or additions to this Agreement must be made in
writing, unless notarization be required.
12.2 The Parties hereby confirm that no collateral agreements have been
made. This Agreement completely and accurately reflects the will of
the Parties.
12.3 In the event any provision hereof be null and void now or in the
future, the remaining parts of this Agreement shall not be affected
thereby. In the event of the nullity or invalidity of any clause
hereof, such clause shall be replaced by that valid clause which most
closely approximates the financial purpose of the invalid provision.
This shall also apply in the event of any contractual gaps.
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12.4 This Agreement shall replace all written and verbal declarations of
intent of the Parties hereto which were issued in relation to the
contractual negotiations, even in the event such declarations deviate
from the content hereof.
12.5 This Agreement shall be subject to German law. Duesseldorf is hereby
agreed upon as the jurisdiction for the settlement of all claims
arising herefrom.
12.6 The Parties hereby declare that no property forms part of the assets
of the Companies.
13. Costs
The Buyer shall bear the costs of the notarization of the agreements pursuant to
Section 1.2 and Section 1.3 and any further costs which might result from the
application for registration with the commercial register of any actions under
this Agreement. Each Party shall bear the costs of its advisors.
Dusseldorf, this 23rd day of October 1997, 7 p.m.
signed by K. Sarstedt, H. Wolfslast, D. Sarstedt and M. Schulte
TB WOOD'S CORPORATION
GRANT OF FAIR MARKET VALUE (FMV)NON-QUALIFIED STOCK OPTION
1. Grant of Option and Exercise Price. Subject to the terms and conditions
set forth herein and in the TB Wood's Corporation 1996 Stock-Based Incentive
Compensation Plan (the "Plan"), TB Wood's Corporation (the "Company") hereby
grants to ________________, (the "Optionee"), a stock option (the "Option") to
purchase up to ________shares of Common Stock of the Company, par value $.01 per
share (the "Common Stock"), at an exercise price of $_____ per share (the
"Exercise Price"). The Option is a non-qualified stock option.
2. Vesting of Options. One-third of the shares of Common Stock subject to
the option shall vest on the first anniversary of the date of grant of the
Option (the "Grant Date"), an additional one-third of the shares of Common Stock
subject to the option shall vest on the second anniversary of the Grant Date,
and the final one-third of the shares of Common Stock subject to the option
shall vest on the third anniversary of the Grant Date.
3. Time of Exercise. The Option may be exercised from time to time with
respect to shares for which the Option has vested but no later than the tenth
anniversary of the Grant Date. Upon the tenth anniversary of the Grant Date, the
Optionee's right to exercise the Option shall terminate absolutely.
4. Payment for Shares of Common Stock. Upon exercise of an Option and
before delivery of the shares of Common Stock, full payment for shares of Common
Stock purchased upon the exercise of the Option shall be made in cash or,
subject to the approval of the Company committee administering the Plan (the
"Committee"), in whole or in part in shares of Common Stock valued at the fair
market value on the date of exercise.
5. Manner of Exercise. The Option shall be exercised by giving written
notice of exercise to the Company (Attn: Chief Financial Officer) at the
Company's main office at 440 North Fifth Avenue, Chambersburg, Pennsylvania
17201-1778. Such notice of exercise must include a statement of preference as to
the manner in which payment to the Company shall be made. Such notice shall be
deemed to have been given when hand-delivered, telecopied or mailed, first-class
postage prepaid, and shall be irrevocable once given.
6. Issuance of Certificates. As promptly as is reasonably practicable after
the exercise of the Option as determined by the Company, a certificate for the
shares of Common Stock issuable on the exercise of the Option shall be delivered
to Optionee or to his personal representative, heir or legatee.
7. Nontransferability of Option. The Option may not be transferred or
assigned by Optionee otherwise than by will or the laws of descent and
distribution or be exercised other than by Optionee or, in the case of his
death, by his personal representative, heir or legatee.
8. Taxes. Optionee shall be responsible to make appropriate provision for
all taxes required to be withheld in connection with any Option, the exercise
thereof and the transfer of the shares of Common Stock. Such responsibility
shall extend to all applicable federal, state, local or foreign withholding
taxes. In the case of exercise of the Option, the Company shall, at the election
of Optionee, have the right to retain the number of shares of Common Stock whose
aggregate fair market value equals the amount to be withheld in satisfaction of
the applicable withholding taxes.
9. Termination of Employment. If the Optionee's employment by the Company
(or a subsidiary thereof) is terminated for any reason, all unvested Options
shall be forfeited and the Optionee shall have no further right to exercise such
Options. If the Optionee's employment by the Company (or a subsidiary thereof)
is terminated by reason of disability or retirement, all unexercised, vested
Options may be exercised pursuant to the terms of the Option for a period of
three months from the date of such termination of employment or until the
expiration of the term of the Option, whichever period is shorter; provided,
however, that if the Optionee's employment is terminated by death, all
unexercised, vested Options may be exercised pursuant to the terms of the Option
for a period of six months from the date of such termination of employment or
until the expiration of the term of the Option, whichever period is shorter. If
the Optionee's employment by the Company (or a subsidiary thereof) is terminated
for any reason other than death, disability or retirement, all unexercised,
vested options shall terminate three months from the date of such termination of
employment.
10. Rights Prior to Exercise. Neither Optionee nor his personal
representative, heir or legatee shall have any of the rights of a stockholder
with respect to any Common Stock until the date of the issuance to him or her of
a certificate for such Common Stock as provided herein.
11. Amendments. The Committee may from time to time amend the terms of this
Option to the extent it deems appropriate to carry out the terms and provisions
of the Plan.
12. Interpretation. The Committee shall have sole power to resolve any
dispute or disagreement arising out of this Agreement. The interpretation and
construction of any provision of this Option or the Plan made by the Committee
shall be final and conclusive and, insofar as possible, shall be consistent with
the requirements of a non-qualified stock option.
13. Option Not to Affect Employment. The Option granted hereunder shall not
confer upon Optionee any right to continue in the employment of the Company or
any Subsidiary.
TB WOOD'S CORPORATION
By:____________________________
Michael L. Hurt, President
Dated as of June 17, 1997
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TB WOOD'S CORPORATION
GRANT OF PREMIUM PRICED NON-QUALIFIED STOCK OPTION
1. Grant of Option and Exercise Price. Subject to the terms and conditions
set forth herein and in the TB Wood's Corporation 1996 Stock-Based Incentive
Compensation Plan (the "Plan"), TB Wood's Corporation (the "Company") hereby
grants to ______________, (the "Optionee"), a stock option (the "Option") to
purchase up to _________shares of Common Stock of the Company, par value $.01
per share (the "Common Stock"), at an exercise price of $_______b per share (the
"Exercise Price"). The Option is a non-qualified stock option.
2. Vesting of Options. One-third of the shares of Common Stock subject to
the option shall vest on the first anniversary of the date of grant of the
Option (the "Grant Date"), an additional one-third of the shares of Common Stock
subject to the option shall vest on the second anniversary of the Grant Date,
and the final one-third of the shares of Common Stock subject to the option
shall vest on the third anniversary of the Grant Date.
3. Time of Exercise. The Option may be exercised from time to time with
respect to shares for which the Option has vested but no later than the fifth
anniversary of the Grant Date. Upon the fifth anniversary of the Grant Date, the
Optionee's right to exercise the Option shall terminate absolutely.
4. Payment for Shares of Common Stock. Upon exercise of an Option and
before delivery of the shares of Common Stock, full payment for shares of Common
Stock purchased upon the exercise of the Option shall be made in cash or,
subject to the approval of the Company committee administering the Plan (the
"Committee"), in whole or in part in shares of Common Stock valued at the fair
market value on the date of exercise.
5. Manner of Exercise. The Option shall be exercised by giving written
notice of exercise to the Company (Attn: Chief Financial Officer) at the
Company's main office at 440 North Fifth Avenue, Chambersburg, Pennsylvania
17201-1778. Such notice of exercise must include a statement of preference as to
the manner in which payment to the Company shall be made. Such notice shall be
deemed to have been given when hand-delivered, telecopied or mailed, first-class
postage prepaid, and shall be irrevocable once given.
6. Issuance of Certificates. As promptly as is reasonably practicable after
the exercise of the Option as determined by the Company, a certificate for the
shares of Common Stock issuable on the exercise of the Option shall be delivered
to Optionee or to his personal representative, heir or legatee.
7. Nontransferability of Option. The Option may not be transferred or
assigned by Optionee otherwise than by will or the laws of descent and
distribution or be exercised other than by Optionee or, in the case of his
death, by his personal representative, heir or legatee.
8. Taxes. Optionee shall be responsible to make appropriate provision for
all taxes required to be withheld in connection with any Option, the exercise
thereof and the transfer of the shares of Common Stock. Such responsibility
shall extend to all applicable federal, state, local or foreign withholding
taxes. In the case of exercise of the Option, the Company shall, at the election
of Optionee, have the right to retain the number of shares of Common Stock whose
aggregate fair market value equals the amount to be withheld in satisfaction of
the applicable withholding taxes.
9. Termination of Employment. If the Optionee's employment by the Company
(or a subsidiary thereof) is terminated for any reason, all unvested Options
shall be forfeited and the Optionee shall have no further right to exercise such
Options. If the Optionee's employment by the Company (or a subsidiary thereof)
is terminated by reason of disability or retirement, all unexercised, vested
Options may be exercised pursuant to the terms of the Option for a period of
three months from the date of such termination of employment or until the
expiration of the term of the Option, whichever period is shorter; provided,
however, that if the Optionee's employment is terminated by death, all
unexercised, vested Options may be exercised pursuant to the terms of the Option
for a period of six months from the date of such termination of employment or
until the expiration of the term of the Option, whichever period is shorter. If
the Optionee's employment by the Company (or a subsidiary thereof) is terminated
for any reason other than death, disability or retirement, all unexercised,
vested options shall terminate three months from the date of such termination of
employment.
10. Rights Prior to Exercise. Neither Optionee nor his personal
representative, heir or legatee shall have any of the rights of a stockholder
with respect to any Common Stock until the date of the issuance to him or her of
a certificate for such Common Stock as provided herein.
11. Amendments. The Committee may from time to time amend the terms of this
Option to the extent it deems appropriate to carry out the terms and provisions
of the Plan.
12. Interpretation. The Committee shall have sole power to resolve any
dispute or disagreement arising out of this Agreement. The interpretation and
construction of any provision of this Option or the Plan made by the Committee
shall be final and conclusive and, insofar as possible, shall be consistent with
the requirements of a non-qualified stock option.
13. Option Not to Affect Employment. The Option granted hereunder shall not
confer upon Optionee any right to continue in the employment of the Company or
any Subsidiary.
TB WOOD'S CORPORATION
By:____________________________
Michael L. Hurt, President
Dated as of June 17, 1997
TB WOOD'S CORPORATION
GRANT OF FAIR MARKET VALUE (FMV)NON-QUALIFIED STOCK OPTION
1. Grant of Option and Exercise Price. Subject to the terms and conditions
set forth herein and in the TB Wood's Corporation 1996 Stock-Based Incentive
Compensation Plan (the "Plan"), TB Wood's Corporation (the "Company") hereby
grants to ________________, (the "Optionee"), a stock option (the "Option") to
purchase up to ________ shares of Common Stock of the Company, par value $.01
per share (the "Common Stock"), at an exercise price of $_____ per share (the
"Exercise Price"). The Option is a non-qualified stock option.
2. Vesting of Options. One-third of the shares of Common Stock subject to
the option shall vest on the first anniversary of the date of grant of the
Option (the "Grant Date"), an additional one-third of the shares of Common Stock
subject to the option shall vest on the second anniversary of the Grant Date,
and the final one-third of the shares of Common Stock subject to the option
shall vest on the third anniversary of the Grant Date.
3. Time of Exercise. The Option may be exercised from time to time with
respect to shares for which the Option has vested but no later than the tenth
anniversary of the Grant Date. Upon the tenth anniversary of the Grant Date, the
Optionee's right to exercise the Option shall terminate absolutely.
4. Payment for Shares of Common Stock. Upon exercise of an Option and
before delivery of the shares of Common Stock, full payment for shares of Common
Stock purchased upon the exercise of the Option shall be made in cash or,
subject to the approval of the Company committee administering the Plan (the
"Committee"), in whole or in part in shares of Common Stock valued at the fair
market value on the date of exercise.
5. Manner of Exercise. The Option shall be exercised by giving written
notice of exercise to the Company (Attn: Chief Financial Officer) at the
Company's main office at 440 North Fifth Avenue, Chambersburg, Pennsylvania
17201-1778. Such notice of exercise must include a statement of preference as to
the manner in which payment to the Company shall be made. Such notice shall be
deemed to have been given when hand-delivered, telecopied or mailed, first-class
postage prepaid, and shall be irrevocable once given.
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6. Issuance of Certificates. As promptly as is reasonably practicable after
the exercise of the Option as determined by the Company, a certificate for the
shares of Common Stock issuable on the exercise of the Option shall be delivered
to Optionee or to his personal representative, heir or legatee.
7. Nontransferability of Option. The Option may not be transferred or
assigned by Optionee otherwise than by will or the laws of descent and
distribution or be exercised other than by Optionee or, in the case of his
death, by his personal representative, heir or legatee.
8. Taxes. Optionee shall be responsible to make appropriate provision for
all taxes required to be withheld in connection with any Option, the exercise
thereof and the transfer of the shares of Common Stock. Such responsibility
shall extend to all applicable federal, state, local or foreign withholding
taxes. In the case of exercise of the Option, the Company shall, at the election
of Optionee, have the right to retain the number of shares of Common Stock whose
aggregate fair market value equals the amount to be withheld in satisfaction of
the applicable withholding taxes.
9. Termination of Employment. If the Optionee's employment by the Company
(or a subsidiary thereof) is terminated for any reason, all unvested Options
shall be forfeited and the Optionee shall have no further right to exercise such
Options. If the Optionee's employment by the Company (or a subsidiary thereof)
is terminated by reason of disability or retirement, all unexercised, vested
Options may be exercised pursuant to the terms of the Option for a period of
three months from the date of such termination of employment or until the
expiration of the term of the Option, whichever period is shorter; provided,
however, that if the Optionee's employment is terminated by death, all
unexercised, vested Options may be exercised pursuant to the terms of the Option
for a period of six months from the date of such termination of employment or
until the expiration of the term of the Option, whichever period is shorter. If
the Optionee's employment by the Company (or a subsidiary thereof) is terminated
for any reason other than death, disability or retirement, all unexercised,
vested options shall terminate three months from the date of such termination of
employment.
122
<PAGE>
10. Rights Prior to Exercise. Neither Optionee nor his personal
representative, heir or legatee shall have any of the rights of a stockholder
with respect to any Common Stock until the date of the issuance to him or her of
a certificate for such Common Stock as provided herein.
11. Amendments. The Committee may from time to time amend the terms of this
Option to the extent it deems appropriate to carry out the terms and provisions
of the Plan.
12. Interpretation. The Committee shall have sole power to resolve any
dispute or disagreement arising out of this Agreement. The interpretation and
construction of any provision of this Option or the Plan made by the Committee
shall be final and conclusive and, insofar as possible, shall be consistent with
the requirements of a non-qualified stock option.
13. Option Not to Affect Employment. The Option granted hereunder shall not
confer upon Optionee any right to continue in the employment of the Company or
any Subsidiary.
TB WOOD'S CORPORATION
By:____________________________
Michael L. Hurt, President
Dated as of January 29, 1998
119
<PAGE>
TB WOOD'S CORPORATION
GRANT OF PREMIUM PRICED NON-QUALIFIED STOCK OPTION
1. Grant of Option and Exercise Price. Subject to the terms and conditions
set forth herein and in the TB Wood's Corporation 1996 Stock-Based Incentive
Compensation Plan (the "Plan"), TB Wood's Corporation (the "Company") hereby
grants to __________________, (the "Optionee"), a stock option (the "Option") to
purchase up to ____________shares of Common Stock of the Company, par value $.01
per share (the "Common Stock"), at an exercise price of $_________per share (the
"Exercise Price"). The Option is a non-qualified stock option.
2. Vesting of Options. One-third of the shares of Common Stock subject to
the option shall vest on the first anniversary of the date of grant of the
Option (the "Grant Date"), an additional one-third of the shares of Common Stock
subject to the option shall vest on the second anniversary of the Grant Date,
and the final one-third of the shares of Common Stock subject to the option
shall vest on the third anniversary of the Grant Date.
3. Time of Exercise. The Option may be exercised from time to time with
respect to shares for which the Option has vested but no later than the fifth
anniversary of the Grant Date. Upon the fifth anniversary of the Grant Date, the
Optionee's right to exercise the Option shall terminate absolutely.
4. Payment for Shares of Common Stock. Upon exercise of an Option and
before delivery of the shares of Common Stock, full payment for shares of Common
Stock purchased upon the exercise of the Option shall be made in cash or,
subject to the approval of the Company committee administering the Plan (the
"Committee"), in whole or in part in shares of Common Stock valued at the fair
market value on the date of exercise.
5. Manner of Exercise. The Option shall be exercised by giving written
notice of exercise to the Company (Attn: Chief Financial Officer) at the
Company's main office at 440 North Fifth Avenue, Chambersburg, Pennsylvania
17201-1778. Such notice of exercise must include a statement of preference as to
the manner in which payment to the Company shall be made. Such notice shall be
deemed to have been given when hand-delivered, telecopied or mailed, first-class
postage prepaid, and shall be irrevocable once given.
123
<PAGE>
6. Issuance of Certificates. As promptly as is reasonably practicable after
the exercise of the Option as determined by the Company, a certificate for the
shares of Common Stock issuable on the exercise of the Option shall be delivered
to Optionee or to his personal representative, heir or legatee. 7.
Nontransferability of Option. The Option may not be transferred or assigned by
Optionee otherwise than by will or the laws of descent and distribution or be
exercised other than by Optionee or, in the case of his death, by his personal
representative, heir or legatee.
8. Taxes. Optionee shall be responsible to make appropriate provision for
all taxes required to be withheld in connection with any Option, the exercise
thereof and the transfer of the shares of Common Stock. Such responsibility
shall extend to all applicable federal, state, local or foreign withholding
taxes. In the case of exercise of the Option, the Company shall, at the election
of Optionee, have the right to retain the number of shares of Common Stock whose
aggregate fair market value equals the amount to be withheld in satisfaction of
the applicable withholding taxes.
9. Termination of Employment. If the Optionee's employment by the Company
(or a subsidiary thereof) is terminated for any reason, all unvested Options
shall be forfeited and the Optionee shall have no further right to exercise such
Options. If the Optionee's employment by the Company (or a subsidiary thereof)
is terminated by reason of disability or retirement, all unexercised, vested
Options may be exercised pursuant to the terms of the Option for a period of
three months from the date of such termination of employment or until the
expiration of the term of the Option, whichever period is shorter; provided,
however, that if the Optionee's employment is terminated by death, all
unexercised, vested Options may be exercised pursuant to the terms of the Option
for a period of six months from the date of such termination of employment or
until the expiration of the term of the Option, whichever period is shorter. If
the Optionee's employment by the Company (or a subsidiary thereof) is terminated
for any reason other than death, disability or retirement, all unexercised,
vested options shall terminate three months from the date of such termination of
employment.
124
<PAGE>
10. Rights Prior to Exercise. Neither Optionee nor his personal
representative, heir or legatee shall have any of the rights of a stockholder
with respect to any Common Stock until the date of the issuance to him or her of
a certificate for such Common Stock as provided herein.
11. Amendments. The Committee may from time to time amend the terms of this
Option to the extent it deems appropriate to carry out the terms and provisions
of the Plan.
12. Interpretation. The Committee shall have sole power to resolve any
dispute or disagreement arising out of this Agreement. The interpretation and
construction of any provision of this Option or the Plan made by the Committee
shall be final and conclusive and, insofar as possible, shall be consistent with
the requirements of a non-qualified stock option.
13. Option Not to Affect Employment. The Option granted hereunder shall not
confer upon Optionee any right to continue in the employment of the Company or
any Subsidiary.
TB WOOD'S CORPORATION
By:____________________________
Michael L. Hurt, President
Dated as of January 29, 1998
EXHIBIT 21.1
Subsidiaries of Registrant
TB Wood's Corporation and Subsidiaries
January 2, 1998
Registrant: TB Wood's Corporation, Delaware
Subsidiary: TB Wood's Incorporated, Pennsylvania
Subsidiaries: Plant Engineering Consultants, Incorporated, Tennessee
TB Wood's North Carolina, North Carolina
TB Wood's Canada, LTD., Ontario, Canada
TB Wood's Mexico, S.A. de C.V., Mexico City, Mexico
TB Wood's Foreign Sales Corporation, Delaware
TB Wood's Foreign Investment Company, Delaware
Subsidiaries: Berges electronics, GmbH, Marienheide, Germany
Berges electronics, S.R.L., Naturns, Italy
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in the Form 10-K, into the Company's previously filed
Registration Statement File No. 333-07231, File No. 333-31785, and File No.
333-31787.
Atlanta, Georgia
March 25, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE FISCAL YEAR ENDED JANUARY 2, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
Amounts inapplicable or not disclosed as a seperate line on the Statement of
Operations are reported as herein.
</LEGEND>
<CIK> 0001000227
<NAME> TB WOOD'S CORPORATIONS & SUBSIDIARIES
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-2-1998
<PERIOD-END> JAN-2-1998
<EXCHANGE-RATE> 1.000
<CASH> 2552
<SECURITIES> 0
<RECEIVABLES> 19698
<ALLOWANCES> 476
<INVENTORY> 26138
<CURRENT-ASSETS> 49831
<PP&E> 47882
<DEPRECIATION> 23794
<TOTAL-ASSETS> 89617
<CURRENT-LIABILITIES> 22552
<BONDS> 25928
0
0
<COMMON> 58
<OTHER-SE> 23606
<TOTAL-LIABILITY-AND-EQUITY> 89617
<SALES> 124027
<TOTAL-REVENUES> 126237<F1>
<CGS> 79015
<TOTAL-COSTS> 28061
<OTHER-EXPENSES> 773
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1695
<INCOME-PRETAX> 14483
<INCOME-TAX> 5794
<INCOME-CONTINUING> 8689
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8689
<EPS-PRIMARY> 1.49
<EPS-DILUTED> 1.47
<FN>
Revenues are reported net of credits in the Statement of Operations.
</FN>
</TABLE>
