<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities
----- Exchange Act of 1934.
For the quarterly period ended March 31, 1996.
_____ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from to
--------------- ---------------
Commission File Number 333-2600
ALVEY SYSTEMS, INC.
101 S. Hanley Road, Suite 1300
St. Louis, MO 63105
314/863-5776
I.R.S. Employment I.D. 43-0157210
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 twelve months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past ninety days.
Yes No X
------- -------
The number of shares of common stock outstanding at April 30, 1996 was 1,000
shares.
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ALVEY SYSTEMS, INC. AND SUBSIDIARIES
INDEX
Page
Number
Part I - Financial Information
Item 1. Financial Statements
Consolidated Statements of Operations -
three months ended March 31, 1996 and 1995
(Unaudited) 3
Consolidated Balance Sheet - March 31, 1996
(Unaudited) and December 31, 1995 4
Consolidated Statement of Cash Flows -
three months ended March 31, 1996 and
1995 (Unaudited) 5-6
Consolidated Statement of Net Investment
of Parent for the three months ended March 31,
1996 (Unaudited) 7
Notes to Consolidated Financial Statements 8-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13-19
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 19
Signature 20
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PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
ALVEY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
THREE MONTHS ENDED
MARCH 31,
1996 1995
-------- -------
<S> <C> <C>
Net sales $ 80,717 $67,008
Cost of goods sold 61,235 51,485
-------- -------
Gross profit 19,482 15,523
Selling, general and administrative expenses 15,309 11,828
Research and development expenses 639 438
Writeoff of purchased research and development costs 11,700 --
Amortization expense 438 468
Other expense, net 1,372 48
-------- -------
Operating income (loss) (9,976) 2,741
Interest expense 2,504 2,074
-------- -------
Income (loss) before provision for income taxes
and extraordinary loss (12,480) 667
Provision for income taxes 75 341
-------- -------
Net income (loss) before extraordinary loss (12,555) 326
Extraordinary loss, net of tax benefit of $1,328 (1,993) --
-------- -------
Net income (loss) $(14,548) $ 326
-------- -------
-------- -------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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ALVEY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
MARCH 31, DECEMBER 31,
1996 1995
(UNAUDITED)
----------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,113 $ 3,405
Receivables:
Trade (less allowance for doubtful accounts of $695 and $824, respectively) 45,228 42,567
Unbilled and other 4,616 6,211
Accumulated costs and earnings in excess of billings on uncompleted contracts 12,626 8,317
Inventories:
Raw materials 12,873 13,966
Work in process 4,917 5,720
Deferred income taxes 5,371 4,699
Prepaid expenses and other assets 2,028 1,665
---------- --------
Total current assets 94,772 86,550
Property, plant and equipment, net 26,728 25,675
Other assets 10,181 6,031
Goodwill, net 36,650 32,029
---------- --------
$ 168,331 $150,285
---------- --------
---------- --------
LIABILITIES, REDEEMABLE PREFERRED STOCK AND NET INVESTMENT OF PARENT
Current Liabilities:
Current portion of long-term debt $ 334 $ 6,915
Accounts payable 20,828 24,368
Accrued expenses 25,892 27,764
Customer deposits 13,808 12,107
Billings in excess of accumulated costs and earnings on uncompleted contracts 16,152 13,904
Deferred revenues 2,544 899
Taxes payable 378 994
---------- --------
Total current liabilities 79,936 86,951
---------- --------
Long-term debt 100,717 42,460
Other long-term liabilities 8,989 5,075
Deferred income taxes 3,002 4,196
Commitments and contingencies (Notes 3 and 9)
Redeemable preferred stock:
Redeemable preferred stock of $.01 par value per share, authorized 0 and 500,000
shares, respectively:
Series A Senior Cumulative Exchangeable Preferred Stock of Pinnacle Automation, Inc.,
0 and 250,000 designated, respectively, 0 and 210,770 shares issued, 0 and 210,697
outstanding, respectively -- 21,077
Cumulative Exchangeable Preferred Stock of Pinnacle Automation, Inc., 0 and
100,000 shares designated, 62,524 shares issued and outstanding, respectively -- 6,252
Preferred stock in treasury, 0 and 73 Series A Senior Cumulative Stock of Pinnacle
Automation, Inc. -- (7)
---------- --------
Total redeemable preferred stock -- 27,322
Net investment of Parent (24,313) (15,719)
---------- --------
$ 168,331 $150,285
---------- --------
---------- --------
</TABLE>
See accompanying Notes to Consolidated Financial Statements
Page 4
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ALVEY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
THREE MONTHS ENDED MARCH 31,
1996 1995
--------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $(14,548) $ 326
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 716 668
Amortization 438 468
Writeoff of purchased research and development costs 11,700
Other 10
Deferred taxes, net of effect of acquisitions (769) 757
Reduction of unamortized debt issue costs
included in extraordinary loss 2,963
(Increase) decrease in current assets, excluding
effect of acquisitions:
Receivables (714) (3,819)
Accumulated costs and earnings in excess of
billings on uncompleted contracts (4,309) (1,700)
Inventories 1,896 (1,421)
Other assets 17 (743)
(Decrease) increase in current liabilities,
excluding effect of acquisitions
Accounts payable (3,629) (1,479)
Accrued expenses (2,265) (636)
Customer deposits 1,701 5,686
Billings in excess of accumulated costs and
earnings on uncompleted contracts 2,248 (1,909)
Deferred revenues 755 (343)
Taxes payable (616) 1,287
Other liabilities 1,742 (730)
--------- --------
Net cash used for operating activities (2,664) (3,588)
--------- --------
INVESTING ACTIVITIES:
Acquisition of Weseley, net of cash acquired of $28 (14,972)
Cash payments to dispose of Lewiston (191) (306)
Software development costs (100)
Additions to property, plant and equipment, net (1,543) (459)
--------- --------
Net cash used for investing activities $(16,806) $ (765)
--------- --------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
Page 5
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ALVEY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
THREE MONTHS ENDED MARCH 31,
1996 1995
-------- ---------
<S> <C> <C>
FINANCING ACTIVITIES:
Proceeds of borrowings $102,019 $ 13,625
Payments of debt and capital leases (50,343) (11,241)
Redemption of preferred stock (27,600)
Investment of Parent 6,225 (12)
Payments of debt issuance costs (7,123)
-------- ---------
Net cash provided by financing activities 23,178 2,372
-------- ---------
Net increase in cash and cash equivalents 3,708 (1,981)
Cash and cash equivalents, beginning of period 3,405 2,580
-------- ---------
Cash and cash equivalents, end of period $ 7,113 $ 599
-------- ---------
-------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest on financings $ 610 $ 1,418
Income taxes 132 0
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ATIVITIES:
Alvey Systems, Inc. purchased Weseley Software Development Corp. in January 1996.
In conjunction with the acquisition, liabilities were assumed as follows:
Fair value of assets acquired $ 12,674
Fair value assigned to goodwill 4,923
Cash paid concurent with the acquisition
excluding cash acquired (14,972)
--------
Liabilities assumed $ 2,625
--------
--------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
Page 6
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ALVEY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF NET INVESTMENT OF PARENT
(UNAUDITED)
(DOLLARS IN THOUSANDS)
FOR THE THREE MONTHS ENDED NET INVESTMENT
MARCH 31, 1996 OF PARENT
Balance December 31, 1995 $(15,719)
Net loss (14,548)
Net investment of Parent 6,225
Preferred stock dividend declared (271)
--------
Balance March 31, 1996 $(24,313)
--------
--------
See accompanying Notes to Consolidated Financial Statements.
Page 7
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ALVEY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements of Alvey
Systems, Inc. ("Alvey" or the "Company") have been prepared in accordance
with the instructions for Form 10-Q and do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. However, in the opinion of
management, such information includes all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the
results of operations for the periods presented. Operating results for any
quarter are not necessarily indicative of the results for any other quarter
or for the full year. These statements should be read in conjunction with
the consolidated financial statements and notes to the consolidated
financial statements thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1995.
2. PRINCIPLES OF CONSOLIDATION, EARNINGS PER SHARE INFORMATION
Alvey is a wholly-owned subsidiary of Pinnacle Automation, Inc. ("Pinnacle"
or "Parent"). Pinnacle has no operations and no assets other than its
investment in Alvey. The financial statements of the Company include the
accounts of Alvey and Alvey's wholly-owned subsidiaries: McHugh Freeman &
Associates, Inc. ("MFA"), Busse Bros., Inc. ("Busse"), The Buschman Company
("Buschman"), White Storage & Retrieval Systems, Inc. ("White"), Automation
Equipment Corporation ("AEC") and Weseley Software Development Corp.
("Weseley"). All significant intercompany transactions, which primarily
consist of sales, have been eliminated.
Given the historical organization and capital structure of the Company,
earnings per share information is not considered meaningful or relevant and
has not been presented in the accompanying unaudited consolidated financial
statements or notes thereto.
3. ACQUISITIONS
On January 29, 1996, Pinnacle, Alvey and MFA purchased all of the
outstanding capital stock of Weseley for a purchase price of $15 million in
cash. The acquisition was financed with a portion of the proceeds of the
Debt Offering as
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described in Note 4. In addition, subject to the continued employment
of the former principal shareholder of Weseley and certain other
conditions, certain employees of Weseley have an opportunity to earn stay
bonuses in the aggregate of $625,000 per year for each of eight years
which will be charged to income in the year earned and employee incentive
compensation up to an aggregate maximum of $13 million which will be
charged to income when such amounts are estimatable and payment thereof is
deemed probable.
The following table sets forth pro forma income statement data for Alvey as
if the Weseley acquisition had taken place on January 1, 1995. Such data
reflects the application of the purchase method of accounting. Amounts
have been preliminarily assigned to assets acquired and liabilities assumed
based on estimated fair values as of the date of acquisition pursuant to
valuations and other studies. This income statement data is unaudited and
does not purport to represent the results of operations had the acquisition
actually occurred on January 1, 1995.
PRO FORMA INFORMATION
(in thousands)
THREE MONTHS ENDED
MARCH 31,
(UNAUDITED)
------------------
1996 1995
------- -------
Net sales $80,902 $67,857
Net loss before extraordinary loss (1,049) (90)
Net loss (3,042) (90)
The pro forma results of Weseley for the quarters ended March 31, 1996 and
1995 include actual results of Weseley for the periods prior to and since
the date of acquisition and certain pro forma adjustments. Based on the
results of an independent appraisal, $11.7 million of the Weseley purchase
price was allocated to purchased research and development costs at the
date of acquisition and was recorded as research and development expense
in Alvey's consolidated statement of operations during the quarter ended
March 31, 1996. This research and development expense has been excluded
from the pro forma statement of operations as it represents a
non-recurring charge to income which results directly from the Weseley
acquisition. Additional goodwill amortization resulting from the
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Weseley purchase price allocation is incorporated and is being amortized
over a period of 10 years.
4. DEBT OFFERING AND RECAPITALIZATION OF PINNACLE
On January 24, 1996, Alvey issued and sold $100 million of 11 3/8% Senior
Subordinated Notes due 2003 (the "Debt Offering"). The proceeds of the
Debt Offering were used to repay all of Alvey's outstanding senior
indebtedness and certain other indebtedness, fund the acquisition of
Weseley, pay transaction fees, fund a dividend to Pinnacle of $21.5 million
and provide working capital for the ongoing operation of Alvey. As a
result of the repayment of the outstanding senior indebtedness, the
Company recorded an extraordinary loss of $2.0 million representing the
writeoff of related debt issuance costs and debt prepayment penalties, net
of tax. In accordance with the terms of the Debt Offering, Alvey filed a
registration statement with the Securities and Exchange Commission with
respect to an offer to exchange the 11 3/8% Senior Subordinated Notes for
a new issue of debt securities of Alvey registered under the Securities
Act of 1933 with terms substantially identical to those of the 11 3/8%
Senior Subordinated Notes. Such registration statement was declared
effective on May 9, 1996. In addition, concurrent with the consummation
of the Debt Offering, Pinnacle sold $30 million in preferred stock and
warrants (the "Preferred Stock Offering"). The proceeds of the Preferred
Stock Offering, together with the dividend from Alvey to Pinnacle, were
used to buy back certain shares of Pinnacle's outstanding common stock and
to redeem certain shares of its outstanding preferred stock which had been
pushed down to Alvey's consolidated financial statements. The preferred
stock and warrants from the Preferred Stock Offering have not been pushed
down to Alvey's consolidated financial statements as such preferred stock
and warrants are not exchangeable into securities of Alvey. While Alvey has
not guaranteed, nor is it contingently obligated with respect to the
preferred stock and warrants issued in the Preferred Stock Offering,
Pinnacle has no financial resources, other than from Alvey and Alvey's
operating subsidiaries, to satisfy cash requirements relative to these
shares.
5. REVOLVING CREDIT FACILITY
Concurrently with the consummation of the Debt Offering, Alvey entered into
a credit agreement for a $30 million revolving credit facility (the
"Revolving Credit Facility ") which is guaranteed by Pinnacle, Alvey and by
each direct and indirect subsidiary of Alvey. Indebtedness of Alvey under
the Credit Agreement is secured by substantially all of the personal
property of Alvey and its subsidiaries, all capital stock of Alvey and 100%
of the capital stock of its domestic subsidiaries (other than the portion
of the shares of capital stock of Busse which are pledged to secure certain
non-compete payments). Indebtedness under the Revolving Credit Facility
will bear interest at a rate based (at Alvey's option) upon (i) the Base
Rate (as defined in the Revolving Credit Facility) plus 1.50% or (ii) the
Euro-dollar Rate (as defined in the Revolving Credit Facility) for one,
two, three, six or, if available, nine or twelve months, plus 2.5%;
provided, however, the interest rate margins are subject to 0.25%
reductions in the event Alvey meets certain performance targets. The
Revolving Credit Facility is due January 24, 2001. At March 31, 1996
there were no
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borrowings outstanding under the Revolving Credit Facility.
6. REINCORPORATION
Effective January 16, 1996, the Company reincorporated in the State of
Delaware under the name Alvey Systems, Inc. The Company historically
conducted business as a Missouri corporation under the name Alvey, Inc.
7. SUPPLEMENTAL BALANCE SHEET INFORMATION
Accrued expenses include the following, (dollars in thousands):
MARCH 31, DECEMBER 31,
1996 1995
(unaudited)
---------- ------------
Project expenses $ 4,704 $ 4,013
Bonuses, incentives and profit sharing 4,829 7,507
Wages and salaries 1,739 2,407
Vacation and other employee costs 6,940 7,064
Plant disposal costs 928 1,119
Other expenses 6,752 5,654
---------- ------------
$25,892 $27,764
---------- ------------
---------- ------------
8. STOCK OPTIONS
Management employees have received options to purchase Pinnacle common
stock which were granted at exercise prices which approximated fair market
value of the shares at the dates of grant. Certain of these shares vest
based on performance while others vest over a period of employment. The
option term expires in periods ranging from eight to ten years subsequent
to the grant date. For the period ended March 31, 1996, these options are
summarized as follows:
SHARES SUBJECT
AVERAGE PRICE TO OPTION
Exercisable at January 1, 1996 $20.53 36,691
Options granted in 1996 30.24 58,375
--------
Exercisable at March 31, 1996 26.49 95,066
--------
--------
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123
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"Accounting for Stock-Based Compensation" ("SFAS 123"), which addresses
accounting for stock option, purchase and award plans. SFAS 123 specifies
that companies utilize either the "Fair value based method" or the
"Intrinsic value based method" for valuing stock options granted. The
Company currently utilizes and expects to continue to utilize the
"Intrinsic value based method" for valuing stock options granted when it
adopts SFAS 123. It is anticipated that the Company will adopt SFAS 123 in
the fourth quarter of 1996. The Company anticipates that, when adopted,
SFAS 123 will have no material effect on consolidated financial position
or results of operations.
9. COMMITMENTS AND CONTINGENCIES
The Company is involved in various litigation consisting almost entirely of
product and general liability claims arising in the normal course of its
business. After deduction of a per occurrence self-insured retention, the
Company is insured for losses of up to $17 million per year for products
and general liability claims. The Company has provided reserves for the
estimated cost of the self-insured retention; accordingly, these actions,
when ultimately concluded, are not expected to have a material adverse
effect on the financial position, results of operations or liquidity of the
Company.
At December 31, 1995, Alvey had two agreements with related parties under
which Alvey received investment banking and other consulting services.
These agreements were to terminate in the years 2000 and 2002,
respectively. The agreements required annual payments by Alvey totaling
$500,000 plus out-of-pocket expenses. In addition, Alvey was required to
pay an aggregate 2% investment banking fee on the total amount of
consideration paid or received through a merger, consolidation or sale of
more than 10% of Alvey's assets or outstanding securities, or the
acquisition of assets or stock of another company. In January 1996,
concurrent with the Debt Offering, (see Note 4), these agreements were
terminated at a cost of $1.4 million. Effective January 24, 1996,
Pinnacle established consulting agreements with two related parties
whereby the Company is obligated to payments of $350,000 per year plus
expenses and, under one contract, annual increases of up to 3%.
Additionally, the Company is obligated to compensate one related party for
certain merger, acquisition and financing transactions. Costs of these
agreements, including the termination fee, are included in other expense,
net in the accompanying financial statements.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
When used in the following discussion, the words "believes", "anticipates" and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from those projected. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof. The Company undertakes no obligation to publicly
release the result of any revisions to these forward-looking statements which
may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
GENERAL
The following discussion summarizes the significant factors affecting the
consolidated operating results and financial condition of Alvey Systems, Inc.
for the three months ended March 31, 1996 compared to the three months ended
March 31, 1995. This discussion should be read in conjunction with the
consolidated financial statements and notes to the consolidated financial
statements thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
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RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, net sales and
categories of expenses, including "Other expense, net", in thousands of
dollars and as a percentage of net sales.
THREE MONTHS ENDED MARCH 31,
(unaudited)
1996 % 1995 %
-------- ------ ------- ------
Net sales $ 80,717 100.0% $67,008 100.0%
Cost of goods sold 61,235 75.9 51,485 76.8
-------- -------
Gross profit 19,482 24.1 15,523 23.2
Selling, general & administrative
expenses 15,309 19.0 11,828 17.7
Research & development expenses 639 0.8 438 0.7
Writeoff of purchased R&D 11,700 14.5
Amortization expense 438 0.5 468 0.7
Other expense, net 1,372 1.7 48 0.1
-------- -------
Operating income (loss) (9,976) (12.4) 2,741 4.1
Interest expense 2,504 3.1 2,074 3.1
-------- -------
Income (loss) before income
taxes and extraordinary loss (12,480) (15.5) 667 1.0
Provision for income taxes 75 0.1 341 0.5
-------- -------
Net income (loss) before
extraordinary loss (12,555) (15.6) 326 0.5
Extraordinary loss, net (1,993) (2.5)
-------- -------
Net income (loss) $(14,548) (18.0) $ 326 0.5
-------- -------
-------- -------
COMPARISON OF THE QUARTER ENDED MARCH 31, 1996 TO THE QUARTER
ENDED MARCH 31, 1995
NET SALES were $80.7 million for the quarter ended March 31, 1996, representing
an increase of $13.7 million, or 20.4% over net sales of $67.0 million for the
quarter ended March 31, 1995. Sales increases were realized at each of the
Company's operating subsidiaries with Weseley, acquired January 29th, accounting
for $623,000 of the
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increase. Sales, including intercompany sales, were particularly strong at
Buschman, increasing $5.5 million, or 27.2% over sales for the first quarter
of 1995. This revenue increase reflects the continuing demand for integrated
and systems projects as sales of these systems increased $4.0 million, or
45.0% over the same period of 1995. In addition, Buschman's significantly
higher backlog (31.1%), at the beginning of the current quarter compared to
the same period in the prior year provided the necessary base for operating
at this significantly higher production level. Continuing strong demand for
warehouse management systems and work force productivity improvements
provided sales increases at MFA of $2.1 million or 24.7% for the quarter
ended March 31, 1996 over the same period of 1995. Despite a temporary
shortage of specialized engineering resources and plant capacity, revenues at
Alvey increased $4.6 million or 17.9% over the same period of 1995.
NEW ORDER BOOKINGS were $74.5 million for the quarter ended March 31, 1996
representing an increase of $5.2 million, or 7.6% over the quarter ended
March 31, 1995. The inclusion of recently acquired Weseley accounted for
$2.5 million of this increase. Absent significant growth in first quarter
new order bookings, the order backlog remains strong at $139.5 million which
is $23.4 million or 20.1% above the level at March 31, 1995. This backlog
provides the basis for continuing strength in second quarter sales.
GROSS PROFIT was $19.5 for the quarter ended March 31, 1996, an increase of
$4.0 million, or 25.5% over the quarter ended March 31, 1995. Gross margins,
as a percent of sales, were 24.1% for the first quarter of 1996, an increase
of .9 percentage points over the same period of 1995. Approximately $3.0
million of the increase in gross profit is attributable to the year-over-year
growth in net sales, with an additional $480,000 attributable to improved
margins, both amounts excluding Weseley as its inclusion in 1996 results
accounted for only $443,000 of the increase. Improved gross margin
percentages were recorded at each of the operating companies except Alvey.
These improved percentages are generally a result of greater utilization of
the work force attributable to the higher sales volume and improved
productivity, particularly at Buschman and MFA. Gross margin as a percent of
sales decreased at Alvey primarily due to cost overruns on a variety of
projects. These overruns are attributable to additional cost incurred on a
major project utilizing first-time product applications and the unfavorable
effects of operating at levels above practical capacity. Management believes
the additional capacity expected to be available in the fourth quarter of
1996 will provide the opportunity to improve the efficiency of Alvey's work
force.
SELLING, GENERAL AND ADMINISTRATIVE expenses (SG&A) were $15.3 million for
the quarter ended March 31, 1996 representing an increase of $3.5 million or
29.4% over the quarter ended March 31, 1995. This increase is primarily
attributable to sales commissions and expenses associated with increased
revenues at each of the operating entities, the growth of two marketing and
sales support teams at Alvey, responsible for integrated systems and design
services, increased charges for annual bonuses and profit sharing based upon
individual company performance, non-recurring charges associated with the
placement and reorganization of senior management at White and the first-time
inclusion of Weseley.
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As a percentage of sales, selling, general and administrative expenses
increased to 19.0% for the first quarter of 1996 from 17.7% for the same
period of 1995. This increase is a result of the non-recurring charge
recorded during the quarter related to the reorganization at White, resulting
in a .5 percentage point increase, and the inclusion of Weseley where SG&A
expenses are significantly higher as a percentage of sales and result in a .4
percent increase for the quarter. Additionally, bonuses and profit sharing
were 3.1% of sales during the current quarter compared to 2.5% for the same
quarter of 1995.
RESEARCH AND DEVELOPMENT EXPENSES were $639,000 for the first quarter of
1996, an increase of $201,000 or 45.9% compared to $438,000 for the first
quarter of 1995. Research and development expenses increased primarily as a
result of the inclusion of Weseley ($90,000), as they continue the
development of a client server based suite of software products, cost to
develop equipment at White ($65,000) for specific applications in the meat
industry, and the continuing development of a new generation bulk palletizer
at Busse ($34,000).
OTHER INCOME/EXPENSE, net was expense of $1.4 million for the quarter ended
March 31, 1996 compared to expense of $48,000 for the quarter ended March 31,
1995. This increase of $1.3 million is primarily attributable to the
termination of the Raebarn management agreement in connection with the
refinancing and recapitalization transactions described in the following
section which totaled $1.4 million.
OPERATING INCOME for the quarter ended March 31, 1996 was a loss of $10.0
million. However, excluding non-recurring charges of $13.1 million resulting
from the $11.7 million write-off of purchased research and development costs
associated with the acquisition of Weseley (see Note 3 to the unaudited
consolidated financial statements for further discussion) and the $1.4
million expense associated with the termination of the Raebarn management
agreement, operating income would have been $3.2 million, representing an
increase of $428,000 or 15.6 % compared to operating income for the quarter
ended March 31, 1995. As a percentage of sales, and excluding the
non-recurring charges, operating income decreased to 3.9% in the first
quarter of 1996 compared to 4.1% for the same period of 1995. This decrease
is primarily attributable to the 1.3 percentage point increase in selling,
general and administrative expense, reduced in part by the .9 point increase
in gross profit margins; both as further explained above.
INTEREST EXPENSE increased to $2.5 million for the quarter ended March 31,
1996, representing a $430,000 or 20.7% increase as compared to the $2.1
million for the period ended March 31, 1995. This increase reflects the
higher level of borrowings during the quarter resulting from the issuance of
the $100 million Senior Subordinated Notes on January 24, 1996, the higher
interest rate, 11.375%, on these notes and the increased non-cash charges
relating to the amortization of debt issuance cost also associated with the
Senior Subordinated Notes.
INCOME TAXES on continuing operations were $75,000 for the quarter ended
March 31, 1996, representing a decrease of $266,000 or 78.0% from the
$341,000 tax expense for the first
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quarter of 1995. The significant difference between the effective tax rate
on loss before income taxes and extraordinary items and the expected
statutory rates is attributable to the non-deductibility of expenses related
to the writeoff of purchased research and development and the amortization of
goodwill.
EXTRAORDINARY LOSS, net of tax benefit of $1.3 million was $2.0 million for
the quarter ended March 31, 1996 compared to $0 for the same period of 1995.
This extraordinary loss represents the writeoff of debt issuance cost and
related debt prepayment penalties, net of tax, resulting from the early
extinguishment of the Company's debt as part of the recapitalization. (See
Note 4 to the unaudited consolidated financial statements for further
discussion).
NET INCOME was a loss of $14.5 million for the quarter ended March 31, 1996,
a decrease of $14.9 million from the quarter ended March 31, 1995. This
decrease is a result of the $13.1 million of non-recurring charges and the
$2.0 million extraordinary loss, net of income taxes, discussed above.
Excluding non-recurring charges and extraordinary loss, net income would have
been approximately $14.6 million higher than reported.
LIQUIDITY AND CAPITAL RESOURCES
CASH USED FOR OPERATING ACTIVITIES. During the three months ended March 31,
1996 and 1995, cash used for operating activities was $2.7 million and $3.6
million, respectively. This $924,000 decrease in the use of cash is
primarily attributable to a decrease in working capital and other cash
resources required to fund operations. First quarter funding of annual
profit sharing plan contributions, incentive compensation and bonus plans,
disproportionate tax withholding requirements and certain insurance and
professional services generally result in a high use of cash in the first
quarter.
CAPITAL EXPENDITURES for the three months ended March 31, 1996 and 1995 were
$1.5 million and $459,000, respectively. Expenditures increased for 1996 as
a result of the capital expansion projects in process at Alvey and Busse.
The Company is funding these projects, including purchases of machinery and
equipment, through available cash and, if necessary, existing credit
facilities. Management anticipates that current year capital expenditures
will approximate $12.2 million, including $7.2 million for the two expansion
projects, and that 1997 capital expenditures will approximate $7.0 million
which includes an additional $1.5 million to complete the purchase of
machinery and equipment for the expansion projects.
RESEARCH AND DEVELOPMENT COSTS. As described in Note 3 to the Company's
financial statements, approximately $11.7 million of the Weseley purchase
price was allocated to purchased research and development and charged to
expense in the quarter ended March 31, 1996. The purchased research and
development relates to the TRACS Version 3.0 product of Weseley. The Company
expects to incur between $500,000 and $800,000 of additional research and
development expenditures in the last three quarters of 1996 in connection
with TRACS Version 3.0.
Page 17
<PAGE>
ACQUISITIONS. The Company expended $15.0 million, net of cash acquired and
excluding professional fees, to acquire Weseley on January 29, 1996. This
acquisition was financed primarily with proceeds from the issuance of the
$100 million Senior Subordinated Notes. (See Notes 3 and 4 to the unaudited
consolidated financial statements for further discussion).
DEBT OFFERING AND RECAPITALIZATION OF PINNACLE. Since the financing
transaction which was completed in January 1996, Alvey has had senior bank
debt available with NationsBank, N.A. consisting of a $30 million Revolving
Credit Facility which matures in 2001. Borrowings under the credit facility
initially bear interest at the Base Rate (as defined in the Credit Agreement)
plus 1.5% or the Eurodollar Rate (as defined in the Credit Agreement) plus
2.5% at Alvey's option, with a step down in rates based upon achieving
predefined earnings objectives. Borrowings under the Revolving Credit
Facility are guaranteed by Pinnacle, Alvey and subsidiaries of Alvey. At
March 31, 1996 there were no borrowings outstanding under the Revolving
Credit Facility. Pursuant to the Debt Offering (see Note 4 to unaudited
consolidated financial statements), Alvey has $100 million of Senior
Subordinated Notes (Notes) which are due in January 2003. Interest on the
Notes is payable semiannually commencing in July 1996.
As a result of the recapitalization, Pinnacle has $23.0 million of Pinnacle
Series A Preferred Stock, $7.0 million of Pinnacle Series C Preferred Stock
and approximately $11.3 million of Pinnacle Series B Preferred Stock
outstanding, together with warrants to purchase up to 256,075 shares of
Pinnacle Common Stock. Dividends on the Pinnacle Series A, B and C Preferred
Stock are payable quarterly. The preferred stock and warrants from the
Preferred Stock Offering have not been pushed down to Alvey's consolidated
financial statements as such preferred stock and warrants are not
exchangeable into securities of Alvey. While Alvey has not guaranteed nor is
it contingently obligated with respect to any such series of Preferred Stock,
Pinnacle has no financial resources, other than from Alvey and Alvey's
operating subsidiaries, to satisfy cash requirements relative to these
preferred shares.
USE OF PROCEEDS. The Company applied the net proceeds of the Debt Offering
in the following manner: (i) approximately $46.2 million was used to repay
the Company's outstanding senior indebtedness; (ii) approximately $2.3
million was used to repay the Company's outstanding 11.95% Unsecured
Subordinated Debt Agreement; (iii) approximately $21.5 million was
distributed as a dividend from Alvey to Pinnacle, which, together with the
net proceeds from the Preferred Stock Offering, was used by Pinnacle to fund,
in part, the cash necessary to buy back certain shares of Pinnacle's
outstanding common stock ($23.8 million) and to redeem certain shares of
Pinnacle's outstanding preferred stock ($25.3 million); and (iv)
approximately $8.9 million will be used for general corporate purposes in
1996. Prepayment penalties of $371,000 were incurred in connection with the
repayment of debt. In addition, the Company used $15.0 million of the
proceeds of the Debt Offering to consummate the Weseley Acquisition in
January 1996 and intends to use, if necessary, borrowings under the Revolving
Credit Agreement to finance
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<PAGE>
approximately $8.7 million of capital expenditures, of which approximately
$7.2 million will be spent in 1996, related to the construction and equipping
of two new manufacturing facilities.
ONGOING CASH FLOWS FROM OPERATIONS. Based on its ability to generate funds
from operations, the Company believes that it will have sufficient funds
available to meet its currently anticipated operating, debt service and
capital expenditure requirements with minimal, if any, additional borrowings.
In addition, the Company expects to continue to acquire businesses, although,
no acquisitions are pending or contemplated. The Company believes that its
funds from operations will be sufficient to meet its short-term capital
requirements and that such funds, together with available funds under the
Credit Agreement, will be sufficient to meet its long-term capital
requirements, including capital requirements related to potential
acquisitions.
BACKLOG. As of March 31, 1996 the Company had a backlog of $139.5 million,
as compared to $116.1 million and $143.9 million as of March 31, 1995 and
December 31, 1995, respectively. The Company's backlog is based upon firm
customer commitments that are supported by purchase orders, other contractual
documents and cash payments. While the level of backlog at any particular
time may be an indication of future sales, it is not necessarily indicative
of the future operating performance of the Company. Additionally, certain
backlog orders may be subject to cancellation in certain circumstances. The
Company believes that approximately 95% of orders in backlog at March 31,
1996 will be shipped within one year.
PART II. OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 10.28 Termination Agreement with Donald J. Weiss, dated April
26, 1996 by and among Pinnacle Automation, Inc., Alvey Systems, Inc.,
White Storage and Retrieval Systems, Inc. and Donald J. Weiss.
(b) No current reports on Form 8-K were filed during the quarter ended
March 31, 1996.
Page 19
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALVEY SYSTEMS, INC.
/s/ James A. Sharp
------------------------------------
Date: May 13, 1996 James A. Sharp
Vice President, Finance
Chief Financial Officer
(Principal Financial and Accounting Officer)
Page 20
<PAGE>
EXHIBIT 10.28
MEMORANDUM OF UNDERSTANDING
THIS MEMORANDUM OF UNDERSTANDING (this "Memorandum"), dated April 5,
1996, is made and entered into by and among PINNACLE AUTOMATION, INC., a
Delaware corporation ("Pinnacle"), ALVEY SYSTEMS, INC., a Delaware
corporation ("Alvey"), WHITE STORAGE & RETRIEVAL SYSTEMS, INC., a New Jersey
corporation (the "Company"), and DONALD J. WEISS, an individual
("Executive"). As used herein, Pinnacle, Alvey, the Company, together with
their respective direct or indirect subsidiaries, shall sometimes be referred
to as the "Pinnacle Entities."
RECITALS
WHEREAS, Alvey purchased all the issued and outstanding capital stock of
the Company pursuant to that certain Stock Purchase Agreement, dated August
6, 1993, by and among Executive, Pinnacle and Alvey, as amended (the "Stock
Purchase Agreement");
WHEREAS, contemporaneously with the purchase of the Company by Alvey,
the Company and Executive entered into that certain Employment Agreement,
dated as of December 14, 1993 (the "Employment Agreement"), pursuant to which
Executive agreed to serve as President of the Company for a term of three
years; and
WHEREAS, each of the parties hereto desires to set forth certain mutual
understandings and agreements regarding Executive's ongoing relationship
with, and responsibilities to, the Company, Alvey and Pinnacle.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants herein contained, and other good and valuable considerations,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto hereby agree as follows:
1. TERMINATION. Pursuant to Section 8(b) of the Employment Agreement,
Executive's employment shall be terminated effective as of April 26, 1996
(the "Effective Date")
<PAGE>
and the Employment Agreement shall no longer be in force or effect as of such
date except as provided herein; PROVIDED, HOWEVER, that the Company will
continue to pay the base compensation and annual bonus compensation in
accordance with Section 4 of the Employment Agreement, as modified by that
certain Memorandum, dated February 28, 1995, from W. R. Michaels to Executive
(the "Compensation Memorandum"), from the Effective Date through December 14,
1996 without regard to whether Executive does or does not obtain other
employment or has other earnings or income from other sources. Executive
hereby acknowledges and agrees that he is not be entitled to any additional
compensation or other benefits from any of the Pinnacle Entities arising out
of his termination or otherwise. Executive further acknowledges and agrees
that this Memorandum constitutes timely notice of termination (or
non-renewal) pursuant to Section 2 of the Employment Agreement. In addition,
Executive acknowledges and agrees that (a) Section 3(a) of the Employment
Agreement shall survive the termination of the Employment Agreement for a
period of two years following the Effective Date notwithstanding the fact
that Executive has been terminated "without cause" pursuant to Section 8(b)
thereof and (b) he shall remain bound by, and subject to, Section 3(b) of the
Employment Agreement through December 14, 1996.
2. BONUS PAYMENT. Notwithstanding Section 4 of the Employment
Agreement, that certain Compensation Memorandum or any other agreement or
understanding, written or oral, the Company hereby agrees to pay to Executive
on or before the Effective Date $35,000 as payment-in-full of any and all
bonuses due to Executive for the 1995 fiscal year.
3. RANGERS TICKETS. The Company hereby acknowledges and agrees that
the tickets to the New York Rangers' games and the subscription renewal
rights referred to in Section 5(c) of the Employment Agreement shall be the
sole and exclusive property of Executive as of the Effective Date.
4. AUTOMOBILE. On or before the Effective Date, Executive agrees to
assume, and become responsible for, the Company's obligations for any
automobile leased by the Company for Executive's business use pursuant to
Section 5(e) of the Employment Agreement (the "Automobile Lease"). Executive
will indemnify, and hold the Pinnacle Entities harmless from
2
<PAGE>
and against, any and all claims, liabilities, obligations, promises,
agreements, charges, complaints, damages, actions, causes of action, suits,
rights, demands, remedies, costs, losses, debts, expenses, costs of
investigation and attorneys' fees and expenses (collectively, "Claims"), that
any of the Pinnacle Entities may incur or suffer from and after the Effective
Date, by reason of the Automobile Lease.
5. RESIGNATIONS. Executive hereby covenants and agrees to deliver to
Pinnacle resignations in form and substance satisfactory to it from any and
all offices and/or directorships held by Executive in any of the Pinnacle
Entities which will become effective as of the Effective Date.
6. LOAN REIMBURSEMENT. Subject to obtaining any requisite consents,
Pinnacle hereby agrees to reimburse Executive on or before the Effective Date
in an amount equal to the outstanding principal balance of the loans made by
Executive pursuant to Section 6.05 of the Stock Purchase Agreement to the
Employee Offerees (as defined in the Stock Purchase Agreement), plus accrued
but unpaid interest thereon from December 14, 1995 through the Effective
Date, as more particularly described on EXHIBIT A attached hereto (the
"Management Loans"). On or before the Effective Date, Executive will execute
and deliver an Assignment Agreement in form and substance reasonably
satisfactory to Pinnacle pursuant to which Executive shall assign to Pinnacle
all of his rights under any pledge agreements or other Encumbrances (as
defined in the Stock Purchase Agreement) made by the Employee Offerees to
Executive to secure payment of the Management Loans. In connection with the
execution and delivery of the Assignment Agreement, Executive shall deliver
to the Company the original share certificates (together with related stock
powers executed in blank), the original promissory notes, the original pledge
agreements and any other documentation relating to the terms and conditions
of the Management Loans. As a result of such assignment, Pinnacle shall have
a first priority lien on the shares of Common Stock securing the Management
Loans. Executive hereby represents and warrants that (i) all payments
contemplated by the Management Loans to have been made as of the date hereof
have been made and (ii) the notes and related pledge agreements relating to
the Management Loans as provided to Pinnacle hereunder have not been modified
or amended, are in full force and effect and are not subject to any right of
offset. It is understood
3
<PAGE>
and agreed that in the event that Pinnacle is unable to secure any requisite
consents to its ability to perform its obligations pursuant to Section 6 of
this Memorandum, the remaining provisions of this Memorandum shall
nonetheless remain in full force and effect.
7. ALEMBIC INSURANCE PROGRAM. Notwithstanding Section 6.03(d) of the
Stock Purchase Agreement or anything else to the contrary, the parties hereto
agree that the Company will no longer be obliged to, and will not, renew the
insurance coverages currently maintained by the Company with or through the
Alembic Insurance Program ("Alembic") upon its expiration as of June 30,
1996. Executive further acknowledges and agrees that he shall remain solely
and fully responsible for, and shall timely satisfy, any and all obligations
to the named beneficiary or any third parties in connection with that certain
United Jersey Bank Standby Letter of Credit (No. 90912012) for the benefit of
Alembic (as the same may be increased or decreased subsequent to the date
hereof) which, as of the date hereof, is estimated to be approximately
$418,000. Executive hereby covenants and agrees to defend and hold the
Pinnacle Entities and each and all of their past and present stockholders,
employees, officers, directors, agents, servants, representatives, attorneys,
predecessors-in-interest and successors-in-interest harmless from and against
any and all Claims that any of them may incur or suffer by reason of the
insurance coverages maintained by Alembic or the Letter of Credit referred to
above.
8. NO EFFECT ON THE BORIGHT LEASE. Executive acknowledges and agrees
that nothing contained herein shall amend, modify, alter or supplement the
terms contained in Section 6.06 of the Stock Purchase Agreement relating to
the lease of the Kenilworth facility from Boright.
9. MUTUAL RELEASE.
(a) RELEASE BY EXECUTIVE. Except as otherwise provided herein,
Executive, on behalf of himself and his executors, legatees, devisees, heirs,
administrators, successors and assigns does hereby forever release and
discharge each of the Pinnacle Entities and each and all of their past and
present stockholders, employees, officers, directors, agents, servants,
representatives, attorneys, predecessors-in-interest and
successors-in-interest from any and all Claims including, without limitation,
those arising out of (i) Executive's employment
4
<PAGE>
relationship with the Company or the termination of that relationship as
contemplated hereby, (ii) the terms of any of the Employment Agreement, the
Stock Purchase Agreement or the Amended and Restated Stockholders' Agreement
among Pinnacle and its stockholders or (iii) Executive's status as a
stockholder of Pinnacle or an officer and/or director of any of the Pinnacle
Entities; PROVIDED, HOWEVER, that this release shall not extend to, and shall
in no way limit or modify, obligations arising pursuant to this Memorandum.
The foregoing release includes, but is not limited to, the release of any
claim under the Age Discrimination in Employment Act of 1967, as amended, and
any comparable state statute.
(b) RELEASE BY THE PINNACLE ENTITIES. Except as otherwise
provided herein, the Pinnacle Entities hereby release, remise, forever
discharge and release Executive and his heirs, successors, attorneys and
assigns from any and all Claims, including, without limitation, those arising
out of (i) Executive's employment relationship with the Company or the
termination of that relationship as contemplated hereby, (ii) the terms of
any of the Employment Agreement, the Stock Purchase Agreement or the Amended
and Restated Stockholders' Agreement among Pinnacle and its stockholders or
(iii) Executive's status as a stockholder of Pinnacle or an officer and/or
director of any of the Pinnacle Entities; PROVIDED, HOWEVER, that this
release shall not extend to, and shall in no way limit or otherwise modify,
(A) obligations arising pursuant to this Memorandum, (B) claims relating to
Taxes (as defined in the Stock Purchase Agreement) other than those Taxes
specifically referred to in Paragraph 2B of that certain letter, dated April
2, 1996, from Michael B. Tischman to Kenneth M. Doran, for which other Taxes
Executive shall remain fully responsible for in the manner described in the
Stock Purchase Agreement, (C) claims in any way relating to Environmental
Conditions, Environmental Laws or Environmental Matters (in each case, as
defined in the Stock Purchase Agreement) for which Executive shall remain
fully responsible for in the manner described in the Stock Purchase
Agreement, (D) any claims relating to an alleged breach of representation
contained in Section 2.01 of the Stock Purchase Agreement and (E) any claims
related, directly or indirectly, to fraudulent or criminal activities on the
part of Executive.
10. ACCESS TO INFORMATION. Executive hereby represents and warrants
that, to the best of his knowledge, he has informed or otherwise provided the
Pinnacle Entities with full and
5
<PAGE>
complete access to, and copies of, all relevant information and other
relevant data relating to (a) the disputed hospital charges relating to the
New Jersey DRG System referred to in Section 6.03(d)(i) of the Stock Purchase
Agreement, (b) the resolution of the litigation matters referred to on
Schedule 2.16 of the Stock Purchase Agreement in a manner sufficient to
determine its effect, if any, on the Deductible (as defined therein) pursuant
to Section 6.03(d)(ii) of the Stock Purchase Agreement and (c) the Company's
actual loss experience in relation to its bad debt reserve in order to
determine its effect, if any, on the Deductible as contemplated by Section
9.02(a)(i) of the Stock Purchase Agreement.
11. COOPERATION. Executive hereby covenants and agrees to cooperate
fully with the Pinnacle Entities in an effort to ensure an orderly transition
at the Company at all times through the Effective Date and from time to time
thereafter through December 14, 1996.
12. DISPUTE RESOLUTION. In the event of any dispute concerning the
validity, interpretation, enforcement or breach of this Memorandum, the
dispute shall be resolved by arbitration in the State of New York in
accordance with the then existing rules for commercial arbitration of the
American Arbitration Association, and judgment upon any arbitration award may
be entered by any state or federal court having jurisdiction thereof. The
Arbitrator's decision in any such arbitration shall be final and binding.
The Arbitrator shall have no authority to award emotional distress or
punitive damages for any action related to the subject matter of this
Memorandum or a breach of this Memorandum. The parties intend this
arbitration provision to be construed as broadly as possible. The prevailing
party in any arbitration shall recover his, its or their costs and attorneys'
fees.
13. ENTIRE AGREEMENT. No promise, inducement or agreement other than
that expressed herein has been made by either party with respect to the
subject matter of this Memorandum. This Memorandum constitutes a single
integrated contract expressing the entire agreement of the parties. This
Memorandum supersedes all previous agreements, understandings, or promises,
whether written, oral or implied. This Memorandum shall be construed fairly
and not in favor of or against one party or parties as the draft. This
6
<PAGE>
Memorandum has nothing to do with any future relations of the parties not
covered by this Memorandum.
14. HEIRS AND SUCCESSORS. This Memorandum and each of its provisions
shall be binding on and shall inure to the benefit of the respective heirs,
devisees, legatees, executors, administrators, trustees, successors and
assigns of the parties to this Memorandum.
15. INVALIDITY. If any term, provision or application of this
Memorandum is held invalid or unenforceable, the remainder of this Memorandum
and any application of the terms and provisions shall not be affected
thereby, but shall remain valid and unenforceable.
16. COUNTERPARTS; FACSIMILE SIGNATURES. This Memorandum may be
executed in one or more counterparts and each such counterpart shall be
considered an original and all such counterparts shall be deemed one and the
same instrument. This Memorandum may be executed by facsimile, and such
facsimile signatures shall be effective for all purposes.
17. NOTICES. Any notice, request, instruction or other document to be
given hereunder by any party hereto to any other party hereto shall be in
writing and shall be given (and will be deemed to have been duly given upon
receipt) by delivery in person, by electronic facsimile transmission, cable,
telegram, telex or other standard forms of written telecommunications, by
overnight courier or by registered or certified mail, postage prepaid, as
follows:
if to Executive, to:
Mr. Donald J. Weiss
50 East Hartshorn Drive
Short Hills, New Jersey 07078
Telecopier No.: (201) 467-2451
with a copy to:
Sills Cummis Zuckerman Radin
Tischman Epstein & Gross, P.A.
One Riverfront Plaza
Newark, New Jersey 07102-5400
Attention: Simon Levin, Esq.
Telecopier No.: (201) 643-6500
7
<PAGE>
if to the Company, Alvey or Pinnacle, to:
Pinnacle Automation, Inc.
101 S. Hanley Road
Suite 1300
St. Louis, Missouri 63105
Attention: Mr. William R. Michaels
Chief Executive Officer
Telecopier No.: (314) 863-5778
with a copy to:
Gibson, Dunn & Crutcher
333 South Grand Avenue
Los Angeles, California 90071-3197
Attention: Kenneth M. Doran, Esq.
Telecopier No.: (213) 229-7520
or at such other address for a party as shall be specified by like notice.
Notices on behalf of a party may be signed and transmitted in accordance with
this Section 17 by an attorney for such party.
18. GOVERNING LAW. This Memorandum shall be construed in accordance
with and governed by the laws of the State of New Jersey applicable to
agreements made and to be performed wholly within such jurisdiction.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Memorandum to be
executed on the respective dates set forth below.
April 5, 1996 "PINNACLE"
PINNACLE AUTOMATION, INC.
By: /s/ WILLIAM R. MICHAELS
--------------------------------------
William R. Michaels,
Chairman of the Board and Chief
Executive Officer
April 5, 1996 "ALVEY"
ALVEY SYSTEMS, INC.
By: /s/ WILLIAM R. MICHAELS
--------------------------------------
William R. Michaels,
Chairman of the Board and Chief
Executive Officer
April 5, 1996 "THE COMPANY"
WHITE STORAGE & RETRIEVAL SYSTEMS, INC.
By: /s/ WILLIAM R. MICHAELS
--------------------------------------
William R. Michaels,
Senior Vice President
April 5, 1996 "EXECUTIVE"
/s/ DONALD J. WEISS
------------------------------------------
Donald J. Weiss, an individual
9
<PAGE>
EXHIBIT A
OUTSTANDING
NAME NO. OF COMMON SHARES PRINCIPAL BALANCE
- ---- -------------------- -----------------
John Costanzo 1,153 $25,000
Michael J. Doty 2,000 31,280
Rick Frye 1,153 25,000
Donald Gonzales 865 12,750
Terence Hinton 865 18,750
Steve Martyn 1,153 10,000
Joseph Penza 865 3,750
George Lynwood Rosser 1,153 25,000
Charles Scagliozzi 865 18,750
Edmund Stanevicius 1,500 37,500
Zoya Van Every 865 28,750
------- --------
TOTAL................... 12,437 $236,530
------- --------
------- --------
A-1
