<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 June 30, 1997.
_____ 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 X No
---------- ----------
The number of shares of common stock outstanding at July 31, 1997 was 1,000
shares.
<PAGE>
ALVEY SYSTEMS, INC. AND SUBSIDIARIES
INDEX
Page
Number
Part I - Financial Information
Item 1. Financial Statements
Consolidated Statement of Operations -
three and six months ended June 30, 1997
(Unaudited) and 1996 (Unaudited) 3
Consolidated Balance Sheet - June 30, 1997
(Unaudited) and December 31, 1996 4
Consolidated Statement of Cash Flows -
six months ended June 30, 1997 (Unaudited)
and 1996 (Unaudited) 5-6
Consolidated Statement of Net Investment
of Parent for the six months ended June 30,
1997 (Unaudited) 7
Notes to Consolidated Financial Statements 8-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-19
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 19
Signature 20
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
ALVEY SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 90,746 $ 83,338 $ 174,483 $ 164,055
Cost of goods sold 69,445 63,109 131,302 124,344
--------- --------- ---------- ----------
Gross profit 21,301 20,229 43,181 39,711
Selling, general and administrative expenses 15,949 14,561 31,978 29,870
Research and development expenses 2,113 1,184 4,166 1,823
Write-off of purchased research and development costs -- -- -- 11,700
Restructuring costs 15,284 -- 15,284 --
Amortization expense 406 400 832 838
Other expense (income), net 14 96 (7) 1,468
--------- --------- ---------- ----------
Operating income (loss) (12,465) 3,988 (9,072) (5,988)
Interest expense 3,552 3,169 6,975 5,673
--------- --------- ---------- ----------
Income (loss) before income taxes
and extraordinary loss (16,017) 819 (16,047) (11,661)
Income tax expense (benefit) (5,486) 345 (5,373) 420
--------- --------- ---------- ----------
Net income (loss) before extraordinary loss (10,531) 474 (10,674) (12,081)
Extraordinary loss, net of tax benefit of $1,328 -- -- -- 1,993
--------- --------- ---------- ----------
Net income (loss) $ (10,531) $ 474 $ (10,674) $ (14,074)
--------- --------- ---------- ----------
--------- --------- ---------- ----------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
-3-
<PAGE>
ALVEY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
(UNAUDITED)
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,174 $ 5,025
Receivables:
Trade (less allowance for doubtful accounts of
$1,816 and $1,206, respectively) 49,930 53,189
Unbilled and other 8,321 7,909
Accumulated costs and earnings in excess of
billings on uncompleted contracts 13,217 15,647
Inventories:
Raw materials 14,612 14,634
Work in process 3,994 3,909
Deferred income taxes 12,395 8,509
Taxes receivable 1,950
Prepaid expenses and other assets 3,175 3,189
----------- ------------
Total current assets 111,768 112,011
Property, plant and equipment, net 34,900 34,367
Other assets 8,201 8,963
Goodwill, net 26,060 26,510
----------- ------------
$ 180,929 $ 181,851
----------- ------------
----------- ------------
LIABILITIES AND NET INVESTMENT OF PARENT
Current Liabilities:
Current portion of long-term debt $ 236 $ 280
Accounts payable 28,445 34,405
Accrued expenses 40,690 40,685
Customer deposits 7,947 11,232
Billings in excess of accumulated costs and
earnings on uncompleted contracts 26,780 20,426
Deferred revenues 3,284 4,379
----------- ------------
Total current liabilities 107,382 111,407
Long-term debt 111,410 100,493
Other long-term liabilities 12,536 9,125
Deferred income taxes 1,507 1,955
Commitments and contingencies (Note 6)
Net investment of Parent (51,906) (41,129)
----------- ------------
$ 180,929 $ 181,851
----------- ------------
----------- ------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements
-4-
<PAGE>
ALVEY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1997 1996
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(10,674) $(14,074)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and software amortization 2,320 1,614
Amortization 832 838
Write-off of purchased research and development costs 11,700
Other 248 10
Deferred taxes, net of effect of acquisitions (4,548) (1,371)
Reduction of unamortized debt issue costs
included in extraordinary loss 2,963
(Increase) decrease in assets, excluding effect
of acquisitions:
Receivables 2,847 (5,413)
Accumulated costs and earnings in excess of
billings on uncompleted contracts 2,430 (2,588)
Inventories (63) 3,447
Other assets 513 60
(Decrease) increase in liabilities, excluding
effect of acquisitions:
Accounts payable (5,960) (4,665)
Accrued expenses 676 2,337
Customer deposits (3,285) (2,283)
Billings in excess of accumulated costs and
earnings on uncompleted contracts 6,354 3,952
Deferred revenues (1,095) 394
Taxes payable (2,258) 26
Other liabilities 3,561 2,328
--------- ---------
Net cash used for operating activities (8,102) (725)
--------- ---------
INVESTING ACTIVITIES:
Acquisition of Weseley, net of cash acquired of $28 (14,972)
Payments for agreements not to compete (150) (150)
Cash payments to dispose of Diamond (363) (365)
Software development costs (212)
Additions to property, plant and equipment, net (3,006) (4,613)
--------- ---------
Net cash used for investing activities (3,519) (20,312)
--------- ---------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
-5-
<PAGE>
ALVEY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1997 1996
---------- ---------
<S> <C> <C>
FINANCING ACTIVITIES:
Proceeds of borrowings 55,600 102,019
Payments of debt and capital leases (44,727) (50,441)
Redemption of preferred stock (27,600)
Net contributions from (to) Parent (103) 5,981
Payments of debt issuance costs (7,416)
---------- ---------
Net cash provided by financing activities 10,770 22,543
---------- ---------
Net increase (decrease) in cash and cash equivalents (851) 1,506
Cash and cash equivalents, beginning of period 5,025 3,405
---------- ---------
Cash and cash equivalents, end of period $ 4,174 $ 4,911
---------- ---------
---------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest on financings $ 6,400 $ 623
Income taxes 1,383 362
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 $ 12,812
Fair value assigned to goodwill 5,137
Cash paid concurrent with the acquisition,
excluding cash acquired (14,972)
---------
Liabilities assumed $ 2,977
---------
---------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
-6-
<PAGE>
ALVEY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF NET INVESTMENT OF PARENT
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED NET INVESTMENT
JUNE 30, 1997 OF PARENT
<S> <C>
Balance December 31, 1996 $ (41,129)
Net loss (10,674)
Net contributions to Parent (103)
-----------
Balance June 30, 1997 $ (51,906)
-----------
-----------
</TABLE>
See accompanying Notes to Consolidated Financial Statements
-7-
<PAGE>
ALVEY SYSTEMS, INC. AND SUBSIDIARIES
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, 1996.
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 Systems, Inc. ("White"), Weseley Software Development
Corp. ("Weseley") and Real Time Solutions, Inc. ("RTS"). 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. RESTRUCTURING AND OTHER CHARGES
During the second quarter of 1997, the Board of Directors initiated a plan
to reorganize and streamline the Company's corporate structure and to
restructure certain business entities within Pinnacle. In connection with
this plan, the Board defined management priorities as (1) satisfactory
completion and elimination of specific projects with continuing cost
overruns primarily related to products which will be discontinued,
(2) restructure or eliminate, when appropriate, products that
-8-
<PAGE>
are not strategic or profitable, (3) restructure and streamline the
Company's corporate organization and (4) eliminate redundancies and
streamline the organizational structure of the Software Logistics Group
(the "SLG") (see definition on Page 12) by further consolidating the
operations of MFA and Weseley.
As a result, the Company recorded a $15.3 million restructuring charge
($9.2 million, net of tax). Restructuring charges include costs to
discontinue offering certain proprietary systems software products at one
subsidiary, to reorganize and reduce the size of the Company's corporate
organization and to restructure and streamline the executive and marketing
functions at the SLG. Costs to discontinue certain proprietary software
products consist primarily of costs to complete certain projects
incorporating this software, payroll and facility charges during the
phase-out of the product, severance charges, sales returns and allowances
(relative to prior period sales) anticipated as a result of the
discontinuance, the write-off of assets that became obsolete or slow-moving
as a result of the discontinuance and other miscellaneous restructuring
charges. The corporate reorganization and SLG reorganization charges are
primarily severance costs. The reduction of the amount of the accrued
restructuring costs in the second quarter of 1997 consisted primarily of
the recording of sales returns and allowances, the write-off of obsolete
and slow-moving assets, payroll and facility costs associated with the
discontinued software product, costs to complete projects involving the
discontinued product, severance and other costs. It is anticipated that
costs accrued as restructuring will be fully paid by April 30, 2004.
The following table displays a rollforward of the liabilities, both current
and long-term, for restructuring from the initial accrual to June 30, 1997:
<TABLE>
<CAPTION>
June 30,
Initial Payments/ 1997
Type of Cost Accrual Reductions Balance
------------ ------- ---------- --------
<S> <C> <C> <C>
Costs to discontinue
product offerings $8,566 ($3,457) $5,109
Corporate reorganization 2,768 (761) 2,007
SLG reorganization 3,950 (200) 3,750
------- ---------- --------
Total $15,284 ($4,418) $10,866
------- ---------- --------
------- ---------- --------
</TABLE>
In addition, one-time asset write-down and other non-recurring charges
totaling $2.3 million ($1.4 million, net of tax), were recorded in the
second quarter of 1997. These non-recurring charges primarily include a
write-down in the carrying value of inventory at a restructured subsidiary,
employee moving costs associated with exiting certain product offerings
and costs associated with bringing restructured production facilities up
to Company standards.
-9-
<PAGE>
4. SUPPLEMENTAL BALANCE SHEET INFORMATION
Accrued expenses include the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30, 1997 DECEMBER 31,
(UNAUDITED) 1996
------------- -------------
<S> <C> <C>
Project expenses $4,594 $ 8,476
Bonuses, incentives and profit sharing 6,463 10,642
Wages and salaries 2,142 2,147
Vacation and other employee costs 8,006 8,171
Interest expense 4,943 4,927
Restructuring costs 7,980 --
Other expenses 6,562 6,322
------------- -------------
$40,690 $40,685
------------- -------------
------------- -------------
</TABLE>
5. LONG-TERM DEBT
Effective August 12, 1997, the Company's $30 million revolving credit
facility with NationsBank, N.A. was amended to revise debt covenant
calculations. At June 30, 1997, the Company was in compliance with such
covenants as amended. Prior to the amendment, a waiver was received
regarding compliance with debt covenants from June 30, 1997 through
August 15, 1997.
6. COMMITMENTS AND CONTINGENCIES
The Company is involved in various litigation matters 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 $27 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.
-10-
<PAGE>
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 results 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 and six months ended June 30, 1997 compared to the three and six
months ended June 30, 1996. This discussion should be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
The Company's parent, Pinnacle, is considering a series of transactions
pursuant to which it would spin-off the material handling businesses presently
conducted by the Company, Buschman, White, Busse and RTS (together, the
"Equipment Business") to the stockholders of Pinnacle (the "Spin-Off") and
immediately thereafter effect an initial public offering of the common stock of
Pinnacle (the "IPO") which, following the Spin-Off, would continue to own and
operate the businesses currently operated by MFA and Weseley (together, the
"Software Business"). The proposed Spin-Off of the Equipment Business and the
contemporaneous IPO of the Software Business would be conditioned on a number
of factors, including the Company's ability to restructure the terms of its
outstanding Senior Subordinated Notes and Pinnacle's outstanding Preferred Stock
on acceptable terms, the receipt of a private letter ruling from the IRS
confirming the "tax-free" nature of the Spin-Off and certain other
contingencies. Pinnacle and the Company presently anticipate that the proposed
Spin-Off and IPO would occur no sooner than the first quarter of 1998. In
addition, the IPO would only occur if and to the extent the Company deems it
advisable, in its sole discretion. It is currently contemplated that the
Company would offer to exchange its outstanding Senior Subordinated Notes in one
or more steps for a combination of cash (which would be provided by the proceeds
from the IPO) and Senior Subordinated Notes of the Equipment Business. As a
result of these contingencies, no assurances can be given that either the Spin-
Off or the IPO will be consummated. No offer in connection with the IPO or
related restructuring of the Senior Subordinated Notes is made hereby.
-11-
<PAGE>
As part of an overall corporate reorganization and realignment of
responsibilities in 1996, the Company began to serve its major markets through
three groups. The Consumer Products Group ("CPG"), which is comprised of Alvey
and Busse, primarily serves the food, beverage and manufacturing sector of the
Company's market. The Distribution Logistics Group ("DLG"), which is comprised
of Bushman, White and RTS, primarily serves the distribution logistics
market. The Software Logistics Group ("SLG"), which is comprised of MFA and
Weseley, provides logistics solutions for warehouse and transportation
management needs.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, net sales and
categories of expenses as a percentage of net sales.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(UNAUDITED) (UNAUDITED)
------------------ -----------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 76.5 75.7 75.3 75.8
------ ------ ------ ------
Gross profit 23.5 24.3 24.7 24.2
Selling, general & administrative
expenses 17.6 17.5 18.3 18.2
Research & development
expenses 2.3 1.4 2.4 1.1
Write-off of purchased R&D -- -- -- 7.1
Restructuring costs 16.8 -- 8.8 --
Amortization expense 0.5 0.5 0.4 0.5
Other expense, net 0.0 0.1 0.0 0.9
------ ------ ------ ------
Operating income (loss) (13.7) 4.8 (5.2) (3.6)
Interest expense 3.9 3.8 4.0 3.5
------ ------ ------ ------
Income (loss) before income
taxes and extraordinary loss (17.6) 1.0 (9.2) (7.1)
Income tax expense (benefit) (6.0) 0.4 (3.1) 0.3
------ ------ ------ ------
Net income (loss) before
extraordinary loss (11.6) 0.6 (6.1) (7.4)
Extraordinary loss, net -- -- -- 1.2
------ ------ ------ ------
Net income (loss) (11.6)% 0.6% (6.1)% (8.6)%
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
COMPARISON OF THE QUARTER ENDED JUNE 30, 1997 TO THE QUARTER ENDED
JUNE 30, 1996
NET SALES were $90.7 million for the quarter ended June 30, 1997, representing
an increase of $7.4 million, or 8.9%, over net sales of $83.3 million for the
quarter ended June 30, 1996. Excluding RTS, which the Company acquired in
December 1996, "same store" sales increased $3.4 million, or 4.1%, over the same
period of 1996. SLG
-12-
<PAGE>
and DLG "same store" sales increases over the second quarter of 1996 totaling
$6.2 million were offset in part by decreases of $2.8 million in CPG sales.
NEW ORDER BOOKINGS were $98.5 million for the quarter ended June 30, 1997,
representing an increase of $13.1 million, or 15.3% over the quarter ended June
30, 1996. Excluding the first time inclusion of RTS, year-over-year bookings
increased $10.2 million, or 12.0%. This increase was attributable to near-
record second quarter bookings recorded at the CPG. Bookings for the CPG have
benefited significantly from numerous new and enhanced products offered in late
1996, cycle time reductions and excellent sales coverage.
GROSS PROFIT was $21.3 million for the quarter ended June 30, 1997, an
increase of $1.1 million, or 5.3% over the quarter ended June 30, 1996. As a
percent of sales, gross margins were 23.5% for the second quarter of 1997, a
decrease of 0.8 percentage points over the same period of 1996. The first-time
inclusion of RTS increased gross profit by $1.2 million or 5.9%. The SLG
reported an increase in gross profit of $2.2 million or 46.5% over the prior
year quarter, reflecting increased volume. Gross margins at the DLG were
adversely affected by one-time asset write-down and other non-recurring
charges totaling $2.2 million which primarily included a write-down in the
carrying value of inventory at a restructured subsidiary, moving costs
associated with employees affected by exiting certain product offerings and
the costs associated with bringing restructured production facilities up to
Company standards. Excluding these one-time asset write-down and other
non-recurring charges, "same store" gross profit for the quarter ended June
30, 1997 was $22.3 million, an increase of 10.2% or 1.3 percentage points as a
percent of sales over the same quarter of 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A) were $15.9 million for the
quarter ended June 30, 1997, representing an increase of $1.4 million, or 9.5%
over the quarter ended June 30, 1996. Excluding RTS, the "same store" increase
in SG&A was $620,000, a 4.3% increase over the same period of 1996. As a
percentage of sales, "same store" SG&A was 17.5%, approximating the second
quarter of 1996. Increases in SG&A, resulting largely from increased staffing
to support higher sales volumes, particularly in the SLG, were offset by lower
charges for annual bonus and profit sharing expense to reflect adjustments based
on individual company performance.
RESEARCH AND DEVELOPMENT EXPENSES were $2.1 million for the second quarter of
1997, an increase of $929,000, compared to $1.2 million for the second quarter
of 1996. These increases are primarily the result of increased development
activities in the SLG, as well as the first-time inclusion of the results of
RTS.
RESTRUCTURING COSTS totaling $15.3 million were recorded in the second quarter
of 1997. During this quarter, the Board of Directors initiated a plan to
reorganize and streamline the Company's corporate structure and to restructure
certain business entities within Pinnacle. In connection with this plan,
Stephen J. O'Neill, President of Alvey, was elected to the additional positions
of President of Pinnacle and CEO of both companies.
-13-
<PAGE>
Christopher C. Cole, CEO of Buschman, was appointed to the newly created
position of COO of Pinnacle. In addition, both Messrs. O'Neill and Cole were
elected to the Boards of both Pinnacle and Alvey. Furthermore, the Board
defined management priorities as (1) satisfactory completion and elimination
of specific projects with continuing cost overruns primarily related to
products which will be discontinued, (2) restructure or eliminate, when
appropriate, products that are not strategic or profitable, (3) restructure
and streamline the Company's corporate organization and (4) eliminate
redundancies and streamline the organizational structure of the SLG by further
consolidating the operations of MFA and Weseley. Restructuring charges include
costs to discontinue offering certain proprietary systems software products at
one subsidiary, to reorganize and reduce the size of the Company's corporate
organization and to restructure and streamline the executive and marketing
functions at the SLG. Costs to discontinue certain proprietary software
products consist primarily of costs to complete certain projects incorporating
this software, payroll and facility charges during the phase-out of the
product, severance charges, sales returns and allowances (relative to prior
period sales) anticipated as a result of the discontinuance, write-off of
assets that became obsolete or slow-moving as a result of the discontinuance
and other miscellaneous restructuring charges. The corporate reorganization
and SLG reorganization charges are primarily severance costs. It is
anticipated that costs accrued as restructuring will be fully paid by April
30, 2004.
OPERATING INCOME (LOSS) for the quarter ended June 30, 1997 was a loss of
$12.5 million as compared to income of $4.0 million in the second quarter
of 1996. However, excluding 1997 non-recurring charges of $17.6 million
resulting from the $15.3 million restructuring charge and $2.3 million of
asset write-down and other non-recurring charges, operating income would have
been $5.1 million, an increase of $1.1 million or 27.9% over the same quarter
of 1996. As a percentage of sales, and excluding such 1997 non-recurring
charges, operating income was 5.6% in the second quarter of 1997, compared to
4.8% for the same period of 1996. The increase in operating income reflects
the various factors described above.
INTEREST EXPENSE increased to $3.6 million for the quarter ended June 30, 1997,
representing a $383,000 or 12.1% increase as compared to $3.2 million of
interest expense for the quarter ended June 30, 1996. This increase is a result
of increased borrowings under the Company's credit facility.
INCOME TAX EXPENSE (BENEFIT) was a benefit of $5.5 million for the quarter
ended June 30, 1997, representing a decrease of $5.8 million from the $345,000
of tax expense for the second quarter of 1996. The significant difference
between the effective tax rate on income (loss) before income taxes and
extraordinary loss and the expected statutory rates is attributable to the
non-deductibility of expenses related to the amortization of goodwill.
NET LOSS was $10.5 million for the quarter ended June 30, 1997, as compared to
income of $474,000 for the quarter ended June 30, 1996. This decrease is
primarily a result of one-time restructuring charges and asset write-down and
other non-recurring costs, net of tax, incurred during the quarter as discussed
above.
-14-
<PAGE>
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1997 TO THE SIX MONTHS ENDED
JUNE 30, 1996
NET SALES were $174.5 million for the six months ended June 30, 1997,
representing an increase of $10.4 million, or 6.4% over net sales of $164.1
million for the six months ended June 30, 1996. Excluding the first-time
inclusion of RTS, "same store" sales increased $3.0 million, or 1.8% over the
same period of 1996. The SLG and DLG realized sales increases of $8.7 million,
or 39.1%, and $6.3 million, or 8.0%, respectively. These increases were
offset in part by a decrease at the CPG due to a depressed order backlog
entering 1997. The CPG backlog has increased $18.2 million or 39.3% since
year-end 1996.
NEW ORDER BOOKINGS were $202.6 million for the six months ended June 30, 1997
representing an increase of $43.7 million, or 27.5% over the six months ended
June 30, 1996. Record bookings at the CPG were particularly strong at
$84.9 million, which represents a 45.5% increase over the first six months of
1996. This record first half is attributable to numerous new and enhanced
products offered in late 1996, cycle time reductions and excellent sales
coverage. RTS contributed $8.9 million to the growth in bookings, while "same
store" bookings at the DLG increased 14.7%.
GROSS PROFIT was $43.2 million for the six months ended June 30, 1997, an
increase of $3.5 million, or 8.7% over the six months ended June 30, 1996. As
a percentage of sales, gross profit for the first half of 1997 is 24.7%, a 0.5
percentage point increase over the same period in 1996. Excluding the effects
of RTS, gross profit increased $1.2 million or 3.1% and, as a percentage of
sales, was 24.5% or 0.3 points above the first half of 1996. Gross margins at
the DLG were adversely affected by asset write-down and other non-recurring
charges totaling $2.2 million, which primarily included a write-down in the
carrying value of inventory at a restructured subsidiary, employee moving
costs associated with exiting certain product offerings and the costs
associated with bringing restructured production facilities up to Company
standards. Additionally, gross margins were adversely affected by project
overruns primarily attributable to supporting customer production during the
start-up and commissioning phase of a number of major projects. Despite the
high level of project overruns and excluding the one-time asset write-down and
other non-recurring charges, "same store" gross profit for the six months
ended June 30, 1997 was $43.1 million, an increase of 8.6% or 1.6 percentage
points as a percent of sales over the same period of 1996. Gross profit was
particularly strong at the SLG, which realized an increase of $4.5 million or
54.7% over the first six months of 1996. This profit growth results from the
increase in revenues (39.1%) and higher margins (4.1 points) reflecting the
growth in high-margin license revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES were $32.0 million for the six
months ended June 30, 1997, representing an increase of $2.1 million or 7.1%
over the
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six months ended June 30, 1996. As a percentage of sales, SG&A was 18.3% for
the first six months of 1997, an increase of 0.1 percentage points over the
same period of 1996. Excluding RTS, the "same store" increase in SG&A was
$652,000, a 2.2% increase, while SG&A as a percentage of sales was 18.3% or
0.1 percentage points above the first six months of 1996. This increase is
primarily attributable to increased staffing to support higher sales volumes
within the SLG, offset by lower charges for annual bonus and profit sharing
expense.
RESEARCH AND DEVELOPMENT EXPENSES were $4.2 million for the first half of 1997,
an increase of $2.3 million compared to $1.8 million for the same period of
1996. This increase is primarily the result of increased development activities
in the SLG, as well as the first-time inclusion of the results of RTS.
RESTRUCTURING COSTS totaling $15.3 million were recorded in the first half of
1997 as described in the comparison of the quarter ended June 30, 1997 to the
quarter ended June 30, 1996.
OTHER EXPENSE (INCOME), NET was income of $7,000 for the six months ended June
30, 1997, compared to expense of $1.5 million for the six months ended June 30,
1996. This improvement of $1.5 million is primarily attributable to a one-time
charge related to the termination of a management agreement in the first quarter
of 1996.
OPERATING INCOME (LOSS) for the first six months of 1997 was a loss of $9.1
million compared to a loss of $6.0 million for the first half of 1996.
However, excluding 1997 non-recurring charges of $17.6 million resulting from
the $15.3 million restructuring charge and $2.3 million of asset write-down
and other non-recurring charges, 1997 operating income for the first six
months was $8.5 million. Additionally, 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 and the $1.4
million expense associated with the termination of a consulting agreement,
1996 operating income for the first six months was $7.2 million. Operating
income for the six months ended June 30, 1997, after exclusions, represents an
increase of $1.3 million, or 18.7%, compared to operating income after
exclusions for the six months ended June 30, 1996. As a percentage of sales,
and excluding the non-recurring charges, operating income increased to 4.9% in
the first six months of 1997 compared to 4.4% for the same period of 1996. The
increase in operating income reflects the various factors described above.
INTEREST EXPENSE increased to $7.0 million for the first half of 1997,
representing a $1.3 million or 23.0% increase as compared to the $5.7 million
for the period ended June 30, 1996. This increase reflects the higher level of
borrowings resulting from the issuance of the $100 million Senior Subordinated
Notes in January 1996, the higher interest rate on these notes, the increase in
non-cash charges related to the amortization of debt issuance costs and
increased borrowings under the Company's credit facility.
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INCOME TAX EXPENSE (BENEFIT) was a benefit of $5.4 million for the six months
ended June 30, 1997, representing a decrease of $5.8 million from the $420,000
tax expense for the first half of 1996. The significant difference between the
effective tax rate on loss before income taxes and extraordinary loss and the
expected statutory rates is attributable to the non-deductibility of expenses
related to the write-off 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 six months ended June 30, 1996. This extraordinary loss represents the
write-off of debt issuance costs and related debt prepayment penalties, net
of tax, resulting from the early extinguishment of the Company's debt as part
of a recapitalization in January 1996.
NET INCOME was a loss of $10.7 million for the six months ended June 30, 1997,
an improvement of $3.4 million from the six months ended June 30, 1996,
as a result of the various factors described above.
LIQUIDITY AND CAPITAL RESOURCES
CASH USED FOR OPERATING ACTIVITIES. During the six months ended June 30, 1997
and 1996, cash used for operating activities was $8.1 million and $725,000,
respectively. This $7.4 million increase in the use of cash is primarily
attributable to an interest payment of $5.7 million on the $100 million Senior
Subordinated Notes, the payment of $876,000 associated with the restructuring
and the payment of a $625,000 stay bonus at Weseley, all of which occurred in
the first half of 1997, but were not present in the first half of 1996.
Additionally, more aggressive collection and billing efforts have minimized
the effect of cash outlays for project overruns. First quarter funding of
annual profit sharing plan contributions, incentive compensation and bonus
plans, disproportionate tax withholding requirements and certain professional
services historically result in a significant use of cash in the first quarter.
CAPITAL EXPENDITURES for the six months ended June 30, 1997 and 1996 were
$3.0 million and $4.6 million, respectively. Management anticipates that
current year capital expenditures will approximate $6.5 million, including
amounts required to complete the purchase of machinery and equipment for two
1996 expansion projects.
DEBT OFFERING AND RECAPITALIZATION OF PINNACLE. Concurrently with the Debt
Offering in January 1996, as discussed below, the Company entered into a
senior bank credit agreement with NationsBank, N.A., consisting of a $30 million
revolving credit facility which matures in 2001 (the "Revolving Credit
Facility"). Borrowings under the Revolving Credit Facility bear interest at a
rate based upon, at Alvey's option, the Base Rate (as defined in the Revolving
Credit Facility) plus 1.50% or the Euro-dollar Rate (as defined in the Revolving
Credit Facility) plus 2.50%, with a step down in rates based upon achieving
predefined earnings objectives. Borrowings under the Revolving Credit Facility
are guaranteed by Pinnacle and subsidiaries of Alvey and secured by
substantially all of the assets of Alvey and its subsidiaries. At June 30, 1997
and 1996,
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borrowings outstanding under the Revolving Credit Facility were $11.0 million
and $0, respectively. At June 30, 1997, an additional $14.4 million would
have been available under the Company's credit facility.
In the Debt Offering, Alvey issued $100 million of 11.375% Senior
Subordinated Notes which are due in January 2003. 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
11.375% Senior Subordinated Notes for a new issue of debt securities of Alvey
registered under the Securities Act of 1933, as amended, with terms
substantially identical to those of the 11.375% Senior Subordinated Notes.
Such registration statement was declared effective on May 9, 1996 and the
exchange of $100 million in principal amount of the original notes for
$100 million in principal amount of registered notes was completed on
June 11, 1996. Interest payments on such notes, which are payable
semiannually, commenced in July 1996.
Concurrent with the Debt Offering, Pinnacle sold $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, together
with warrants to purchase up to 256,075 shares of Pinnacle Common Stock (the
"Preferred Stock Offering"). Dividends on the Pinnacle Series A, B and C
Preferred Stock are payable quarterly. 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 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 then outstanding 11.95% subordinated
debt; (iii) approximately $21.6 million was distributed as a dividend from
Alvey to Pinnacle, which together with the net proceeds from the Pinnacle
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); (iv) approximately $7.5 million was used to
pay transaction costs; and (v) approximately $8.9 million was used for
general corporate purposes (including capital expenditures in 1996).
Prepayment penalties of $371,000 were incurred in connection with the
repayment of the subordinated debt. In addition, the Company used $15.0 million
of the proceeds of the Debt Offering to consummate the Weseley acquisition in
January 1996.
ONGOING CASH FLOWS FROM OPERATIONS. The Company believes that its funds from
operations, together with available funds under the Company's existing credit
facility, will be sufficient to meet its currently anticipated operating,
debt service and capital
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expenditure requirements, including capital requirements related to potential
acquisitions, although no acquisitions are pending or contemplated. Of the
$17.6 million restructuring cost and asset write-down and other non-recurring
charges, approximately $12.6 million of these charges require future cash
payments. It is anticipated that approximately $5.1 million of these payments
will occur during the last half of 1997, $3.6 million in 1998 and $1.7 million
in 1999, with the remaining payments in 2000 or beyond.
BACKLOG. As of June 30, 1997, the Company had a record backlog of
$163.6 million, as compared to $141.5 million and $136.1 million as of
June 30, 1996 and December 31, 1996, 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 virtually all orders in backlog at
June 30, 1997 will be shipped within one year.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit
Number Description
------- -----------
10.1 Second Amended and Restated Employment Agreement,
dated June 2, 1997, by and among Pinnacle Automation,
Inc., Alvey Systems, Inc. and William R. Michaels
10.2 Separation Agreement and General and Special Release,
dated June 2, 1997, by and among Pinnacle Automation,
Inc., Alvey Systems, Inc. and Michael J. Tilton
10.3 Amendment No. 3 dated August 12, 1997 to the Credit
Agreement, dated as of January 24,1996, among Alvey
Systems, Inc., the lenders named therein and NationsBank,
N.A.
(b) No current reports on Form 8-K were filed during the quarter ended
June 30, 1997.
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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/ J.A. Sharp
Date: August 14, 1997 -------------------------------------------
James A. Sharp
Secretary and Senior Vice President, Finance
Chief Financial Officer
(Principal Financial and Accounting Officer)
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<PAGE>
EXHIBIT 10.1
SECOND AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
This Agreement (this "Agreement") is made and entered into as of June 2, 1997,
by and among Pinnacle Automation, Inc., a Delaware corporation ("Pinnacle"),
Alvey Systems, Inc., a Delaware corporation ("Alvey"), and William R. Michaels
("Executive").
W I T N E S S E T H:
WHEREAS, the parties hereto are the original parties to that certain
Amended and Restated Employment Agreement, dated March 31, 1995 (the
"Superseded Agreement"), which amended, restated and superseded the original
Employment Agreement entered into among the parties hereto, dated as of
September 7, 1988;
WHEREAS, under the terms of the Superseded Agreement, Executive was the
Chairman of the Board, President and Chief Executive Officer of Pinnacle and
the Chairman of the Board and Chief Executive Officer of Alvey;
WHEREAS, Executive, Pinnacle and Alvey have agreed that, effective as of
the date hereof, Executive will resign (i) as President and Chief Executive
Officer of Pinnacle, (ii) as Chief Executive Officer of Alvey and (iii) from
all other offices and directorships that Executive may hold for any and all
direct and indirect subsidiaries of Pinnacle and Alvey, other than the
position of Chairman of the Board of each of Pinnacle and Alvey;
WHEREAS, Executive will continue to serve as Chairman of the Board of
Pinnacle and Alvey through at least the period ending on December 31, 1999
and for such longer period as the Boards of Pinnacle and Alvey and Executive
shall determine at that time;
WHEREAS, Pinnacle is considering a series of transactions pursuant to
which it would spin-off (the "Spin-Off") to its existing stockholders all of
the common stock of a newly formed corporation ("Newco") that would operate
the material handling business presently conducted by Alvey and its
subsidiaries, The Buschman Company ("Buschman"), White Systems, Inc.
("White"), Busse Bros., Inc. ("Busse") and Real Time Solutions, Inc. ("RTS");
WHEREAS, if and when the Spin-Off is consummated, (i) Alvey's sole
remaining asset will be the common stock of McHugh, Freeman & Associates,
Inc. ("MFA"), which in turn owns all of the common stock of Weseley Software
Development Corp. ("Weseley"), and (ii) Pinnacle's sole remaining asset will
be the common stock of Alvey;
WHEREAS, upon consummation of the Spin-Off, (i) Pinnacle will change its
name to McHugh Freeman, Inc. (or such other name as determined by the Board
of Directors of Pinnacle) and commence the initial public offering (the
"IPO") of its common stock, representing ownership interests in the software
business presently conducted by MFA and
<PAGE>
Weseley (the "Software Business") and (ii) MFA will merge with and into
Alvey, which will subsequently change its name to McHugh, Freeman &
Associates, Inc.;
WHEREAS, if the Spin-Off is consummated during the term of this
Agreement, Executive will assume the position of Chairman of the Board of
Newco, resign from the position of Chairman of the Board of Alvey and
thereafter serve as Chairman of the Board of each of Pinnacle and Newco
through at least the period ending on December 31, 1999 and for such longer
period as the Boards of Pinnacle and Newco and Executive shall determine at
that time; and
WHEREAS, in light of the foregoing, the parties hereto now desire to
further amend the Superseded Agreement and to restate the same in its
entirety, as hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows.
1. RESIGNATION OF VARIOUS OFFICES; TITLE AND DUTIES.
(A) RESIGNATION OF VARIOUS OFFICES. Pinnacle, Alvey and Executive
agree that effective as of the date hereof, Executive hereby resigns (i) as
the President and Chief Executive Officer of Pinnacle, (ii) as the Chief
Executive Officer of Alvey and (iii) from all other offices and directorships
that Executive may hold for any and all direct and indirect subsidiaries of
Pinnacle and Alvey, other than the position of Chairman of the Board of each
of Pinnacle and Alvey.
(B) TITLE AND DUTIES PRIOR TO SPIN-OFF. Pinnacle and Alvey hereby
agree that Executive will continue to serve as their Chairman of the Board
through the Term of the Agreement (as defined in Section 2 below). As the
Chairman of the Board of Pinnacle and Alvey, Executive shall have the powers
and duties customarily accorded to a Chairman of the Board, including, but
not limited to, the powers and duties set forth in the Bylaws of Pinnacle and
Alvey for such office. By way of example, such duties may include
participating in the development and implementation of strategic and
operating plans for Pinnacle and Alvey, assisting the Chief Executive Officer
of Pinnacle and Alvey with the day-to-day general management of Pinnacle and
Alvey, and performing such other functions as reasonably requested by the
Board of Directors of each of Pinnacle and Alvey. In connection therewith,
Executive shall be provided with an office located in Pinnacle's corporate
headquarters in St. Louis, Missouri, along with secretarial services and
other services consistent with the dignity of his position.
(C) TITLE AND DUTIES UPON CONSUMMATION OF THE SPIN-OFF. If the
Spin-Off is consummated during the Term of the Agreement, Executive (i) shall
continue to serve as the Chairman of the Board of Pinnacle through the Term
of the Agreement, (ii) shall
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<PAGE>
assume the position of Chairman of the Board of Newco effective upon
consummation of the Spin-Off, and shall serve in such position through the
Term of the Agreement and (iii) shall resign from the Board of Directors of
Alvey effective upon consummation of the Spin-Off.
2. TERM OF AGREEMENT. Executive shall serve as the Chairman of the Board
of Pinnacle and Alvey, and, if the Spin-Off is consummated during the Term of
the Agreement, as Chairman of the Board of Pinnacle and Newco, through the
period ending on December 31, 1999 unless sooner terminated as set forth in
Section 5 hereof or by mutual agreement of the parties hereto (the "Initial
Term"). At the expiration of the Initial Term and each anniversary thereafter,
the term of this Agreement shall automatically be extended for an additional
year (the "Extension Term") unless any party hereto (or Newco, if applicable)
shall have given written notice to the other party at least sixty (60) days
prior to the end of the Initial Term or the Extension Term, as the case may be,
that it does not desire to extend the term of this Agreement. If Executive's
engagement under this Agreement is extended for an Extension Term, it shall
thereafter or during any Extension Term be terminable (other than upon
expiration) only as provided in Section 5 or by mutual agreement of the parties
hereto. The Initial Term and Extension Term (if any) shall be referred to
herein as the "Term of the Agreement." Notwithstanding the foregoing, the
provisions of Sections 3(e), 4(b), 6 and 8 shall survive the termination of this
Agreement.
3. COMPENSATION.
(A) COMPENSATION IN CALENDAR 1997. Notwithstanding Executive's
resignation from the position of President and Chief Executive Officer of
Pinnacle and Chief Executive Officer of Alvey, and the other positions from
which he resigned under Section 1(a) above, Executive shall be entitled to his
full base salary and bonus as provided in Section 2 of the Superseded Agreement
as if Executive held the positions of President and Chief Executive Officer of
Pinnacle and Alvey through December 31, 1997. As a result, Executive shall be
entitled to (i) continue to receive his 1997 base salary of $333,550 for the
remainder of 1997, payable in accordance with Pinnacle's normal payroll practice
and (ii) receive an annual bonus for 1997 determined in accordance with the
formula set forth on Exhibit A attached hereto. Such bonus shall be payable as
soon as practicable after determination of the bonus amount, but no later than
seventy-five (75) days after the end of Pinnacle's fiscal year. In addition,
Pinnacle and Alvey shall continue to provide Executive with each of the
following benefits through December 31, 1997:
(I) DISABILITY. In the event that Executive is unable to
perform his normal duties as Chairman of the Board of Pinnacle and Alvey
(or Pinnacle and Newco, if the Spin-Off is consummated prior to December
31, 1997) because of physical or mental injury or illness (a "disability")
that occurs prior to December 31, 1997, the Company shall nonetheless
continue the Executive's base salary as currently in effect through
December 31, 1997. In addition, the Company shall continue to maintain in
effect through December 31, 1997 the long-term disability insurance
coverage provided to Executive pursuant to Section 4(a) of the Superseded
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<PAGE>
Agreement. Disability shall be certified to the Company by a physician
selected by the Executive and satisfactory to the Company in its reasonable
judgment.
(II) AUTOMOBILE. Pinnacle and Alvey shall continue to provide
Executive with the use of the leased automobile currently provided to
Executive pursuant to Section 4(c) of the Superseded Agreement until March
1998, the end of the lease term for such automobile. At or prior to the
end of the lease term, Executive shall return the automobile to such
location as specified in the lease.
(III) CLUB MEMBERSHIP. Pinnacle and Alvey shall continue to
pay the periodic dues and assessments for Executive's membership in a
country club and a downtown or luncheon club of his selection pursuant to
Section 4(d) of the Superseded Agreement through December 31, 1997,
provided the aggregate annual dues and assessments payable by Pinnacle
and/or Alvey for the year ending December 31, 1997 shall not exceed
$10,000.
(IV) HEALTH INSURANCE. Pinnacle shall provide Executive and his
dependents health insurance coverage under its group health insurance plan
in effect for its executives from time to time.
(V) VACATION. Executive shall be entitled to four (4) weeks of
vacation time in 1997.
(VI) ADDITIONAL BENEFITS. Executive shall be entitled to
continue to receive any additional benefits made available by Pinnacle or
Alvey (or Pinnacle and Newco, if the Spin-Off in consummated prior to
December 31, 1997) to any of their directors, officers or senior management
employees through December 31, 1997.
(B) COMPENSATION IN CALENDAR 1998 AND CALENDAR 1999. Beginning in
calendar 1998 and continuing thereafter for the remainder of the Initial Term of
the Agreement, Executive shall receive an aggregate annual salary of $100,000
for his role as Chairman of the Board of Pinnacle and Alvey, payable in
accordance with Pinnacle's normal payroll practice; PROVIDED, HOWEVER, if the
Spin-Off is consummated during the Initial Term of this Agreement, (i) Executive
shall receive an annual salary of $100,000 for serving as the Chairman of the
Board of Newco for the period commencing upon consummation of the Spin-Off and
ending upon termination of the Initial Term of this Agreement (which period
shall in no event commence prior to January 1, 1998 for purposes of compensation
under this Section 3(b)) and (ii) Executive shall no longer be entitled to
receive any payments from Pinnacle for serving as its Chairman of the Board
other than such payments as may be received by the other non-employee directors
of Pinnacle.
(C) COMPENSATION DURING THE EXTENSION TERM. If the Term of this
Agreement is extended beyond the Initial Term pursuant to Section 2 above,
Executive's annual compensation as the Chairman of the Board of Pinnacle, Alvey
and/or Newco shall be
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<PAGE>
determined by the parties hereto at the beginning of each year beyond the
Initial Term during which Executive serves as the Chairman of the Board of
Pinnacle, Alvey and/or Newco.
(D) BONUS UPON CONSUMMATION OF THE IPO. If the IPO is consummated on
or prior to December 31, 1998, Executive shall receive a cash bonus of $300,000
payable by either Pinnacle or Newco, as shall be determined by the Boards of
Directors of Pinnacle and Newco, on the date of consummation of the IPO.
(E) DEFERRED COMPENSATION. Pursuant to Section 4(e) of the
Superseded Agreement and this Section 3(e), commencing in 1998, Pinnacle shall
make an annual payment in the amount of $237,500 to Executive (commencing in
1998) for the longer of ten (10) years and the remainder of his lifetime. The
first payment under this Section 3(e) will be made on January 31, 1998 and
subsequent payments will be made on each anniversary thereof. In the event
Executive dies before having received ten (10) annual payments, the remaining
payments for the fixed ten (10) year period shall be paid to his estate or his
beneficiary designated in writing to Pinnacle (or, in the event the Spin-Off is
consummated prior to the tenth (10th) such payment being made to Executive or
his designated beneficiary, as designated in writing to Newco). The parties
hereto acknowledge and agree that the deferred compensation payments provided by
this Section 3(e) are in addition to any other payments owing to Executive under
this Agreement. The parties hereto further acknowledge and agree that Executive
will be a general unsecured creditor of Pinnacle with respect to payments owing
to him under this Section 3(e), and that Executive will not be able to assign
the benefits provided to him under this Section 3(e) other than to his
designated beneficiary or estate upon his death.
4. OTHER EXECUTIVE BENEFITS. From the date hereof and through the Term
of the Agreement, Pinnacle (or Newco, upon consummation of the Spin-Off during
the Term hereof) shall provide Executive with the following benefits:
(A) HEALTH INSURANCE. Pinnacle shall provide Executive and his
dependents health insurance coverage under its group health insurance plan in
effect for its executives from time to time. The parties hereto agree that upon
consummation of the Spin-Off, Newco will assume the obligations of Pinnacle
under this Section 4(a).
(B) SPLIT DOLLAR LIFE INSURANCE. Pinnacle will continue to maintain
in full force and effect the split-dollar life insurance policy in the amount of
$3,000,000 (the "Split-Dollar Policy") that was obtained for, and that is owned
by, Executive pursuant to that certain Split Dollar Agreement among Pinnacle,
Executive and the trust established by and for the benefit of Executive.
Subject to Section 8 below, Pinnacle will make or cause to be made the annual
premium payments owing on the Split-Dollar Policy for the remainder of
Executive's lifetime.
(C) CLUB MEMBERSHIP. During the Term of the Agreement, Pinnacle
shall continue to pay the periodic dues and assessments for Executive's
membership in the St.
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Louis Club, provided the aggregate annual dues and assessments payable by
Pinnacle for the calendar years from and after 1998 shall not exceed $2,000.
The parties hereto acknowledge and agree that upon consummation of the
Spin-Off, Newco will assume the obligations of Pinnacle under this Section
4(c).
(D) BUSINESS EXPENSES. Pinnacle and Alvey (and, upon consummation of
the Spin-Off, Pinnacle and Newco) will pay or reimburse Executive for any
reasonable out-of-pocket expenses, including such travel expenses commensurate
with the dignity of the office of Chairman of the Board as may be incurred by
Executive in the course of providing his services hereunder. Such reimbursement
shall be made within 30 days after receipt of a statement therefor from
Executive setting forth in reasonable detail the expenses for which
reimbursement is requested, accompanied by reasonable documentation evidencing
such expenses.
5. TERMINATION OF AGREEMENT. Subject to Section 8 below, this Agreement
shall terminate on the earlier of (i) a Sale Event (as defined below), (ii) the
death of Executive during the term hereof, (iii) the failure or unwillingness of
Executive to perform the duties specified in Section 1 of this Agreement or (iv)
the delivery of written notice pursuant to Section 2 hereof of any party's
desire to terminate this Agreement upon the expiration of the Initial Term or
upon any anniversary thereafter; PROVIDED, HOWEVER, that nothing contained in
this Section 5 or elsewhere herein shall terminate or in any way affect
Pinnacle's and/or Newco's obligations to provide Executive with the compensation
provided for in Sections 3(a) and 3(e) hereof and to provide Executive with the
full benefits of the Split Dollar Agreement as provided for in Section 4(b)
hereof. Notwithstanding the foregoing, the provisions of Sections 3(e), 4(b), 6
and 8 shall survive the termination of this Agreement.
A "SALE EVENT" shall mean any of following transactions (or series of
related transactions) other than the Spin-Off, an initial public offering
(including the IPO) or a management-led buyout:
(1) a sale or other disposition of all or substantially all of
the assets of Pinnacle and its subsidiaries, taken as a whole, or, upon
consummation of the Spin-Off, of Newco and its subsidiaries, taken as a
whole;
(2) a sale or other disposition of the capital stock of
Pinnacle, or, upon consummation of the Spin-Off, of Newco (either by
Pinnacle or Newco, as the case may be, or the existing stockholders of
Pinnacle or Newco, as the case may be) which has the effect, on a pro forma
basis after giving effect to such transaction, of transferring at least 50%
of the outstanding capital stock of Pinnacle or Newco, as the case may be,
in a transaction other than an underwritten initial public offering (except
to the extent that such initial public offering includes a secondary
tranche which would have the effect of clause (3) below);
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(3) a sale or other disposition of at least a majority of the
capital stock of Pinnacle held as of the date hereof by the Management
Stockholders and Raebarn Stockholders (as defined in the Stockholders
Agreement).
6. INDEMNIFICATION. Pinnacle and Alvey agree to indemnify Executive to
the fullest extent permitted under applicable law as provided in their Bylaws
for directors generally. Pinnacle shall also continue in effect the Indemnity
Agreement entered into between Pinnacle and Executive pursuant to which Pinnacle
has agreed to indemnify and hold Executive harmless from certain liabilities
arising in the course of discharging his duties hereunder.
7. NOTICES. Any notice to be given pursuant to this Agreement shall be
in writing and shall be deemed duly given (i) three days after deposit in the
mail, certified mail, return receipt requested, to the party to receive such
notice at the address specified below or (ii) immediately upon actual delivery
and receipt of the notice:
If to Pinnacle or Alvey, to: 101 S. Hanley, Suite 1300
St. Louis, Missouri 63105
Attn.: Chief Executive Officer
Facsimile No.: (314) 863-5778
If to Executive, to: Mr. William R. Michaels
14102 Woods Mill Cove
Chesterfield, Missouri 63017
Facsimile No.: (314) 576-7769
The parties hereto may change their names and/or addresses for
purposes of this Section by giving the other written notice of the new name
and/or address in the manner set forth above.
8. SUCCESSORS AND ASSIGNS.
(A) GENERAL. This Agreement shall bind and shall inure to the
benefit of Pinnacle, Alvey and any and all of their respective successors and
assigns. This Agreement is personal to Executive and shall not be assignable by
Executive, except for certain benefits hereunder which are payable to
Executive's heirs, beneficiaries and/or to his estate upon the death of
Executive.
(B) PRIOR TO CONSUMMATION OF THE SPIN-OFF. Pinnacle may assign this
Agreement to any entity (an "Acquiror") which (i) purchases all or substantially
all of its assets or (ii) is a direct or indirect successor (whether by merger,
sale of stock or transfer of assets) of Pinnacle; PROVIDED that Pinnacle shall
only be permitted to assign its rights and obligations hereunder (whether by
operation of law or otherwise) if the Acquiror (A) expressly assumes all of the
payment obligations of Pinnacle hereunder (except with respect to any payments
which may be made to Executive as a non-employee director of
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Pinnacle) and (B) the Acquiror, after giving pro forma effect to the
acquisition of Alvey, has at least the Minimum Credit Rating (as hereinafter
defined) specified in Section 8(e) below; PROVIDED, FURTHER, that if the
Acquiror does not satisfy each of (A) and (B) above, Pinnacle shall purchase
the self-amortizing annuity on Executive's behalf as provided for in Section
8(f) below.
(C) CONSUMMATION OF THE SPIN-OFF. Notwithstanding anything contained
herein, the consummation of the Spin-Off will not accelerate any payments
hereunder or otherwise give rise to any obligation of Pinnacle or Newco to
purchase an annuity on Executive's behalf pursuant to Section 8(f) below so long
as Newco expressly assumes all of Pinnacle's obligations hereunder as a part of,
and a condition to, the Spin-Off.
(D) FROM AND AFTER CONSUMMATION OF THE SPIN-OFF. Upon consummation
of the Spin-Off, Pinnacle shall cause Newco to assume the obligations of
Pinnacle to make payments to Executive under this Agreement (except with respect
to any payments which may be made to Executive as a non-employee director of
Pinnacle). Upon such assumption by Newco of Pinnacle's payment obligations
hereunder, Pinnacle shall be relieved of any further payment obligations to
Executive under this Agreement. Newco may subsequently assign this Agreement to
an Acquiror which (i) purchases all or substantially all of its assets or
(ii) is a direct or indirect successor (whether by merger, sale of stock or
transfer of assets) of Newco; PROVIDED that Newco shall only be permitted to
assign its rights and obligations hereunder (whether by operation of law or
otherwise) if the Acquiror (A) expressly assumes all of the payment obligations
of Newco hereunder and (B) the Acquiror, after giving pro forma effect to the
acquisition of Newco, has at least the Minimum Credit Rating specified in
Section 8(e) below; PROVIDED, FURTHER, that if the Acquiror does not satisfy
each of (A) and (B) above, Newco shall purchase the self-amortizing annuity on
Executive's behalf as provided for in Section 8(f) below.
(E) SALE OF ALVEY; MINIMUM CREDIT RATING. Subject to the last
sentence of this Section 8(e) below, neither Pinnacle, Newco nor Alvey, as the
case may be, shall be permitted to sell all or substantially all of the capital
stock or assets of Alvey considered on a stand-alone basis and without giving
effect to any of its direct or indirect subsidiaries (whether before or after
the Spin-Off, but not including any transfer or sale of Alvey which is effected
in connection with the Spin-Off), unless (i) the Acquiror expressly assumes all
of the payment obligations of Pinnacle and/or Newco hereunder (except with
respect to any payments which may be made to Executive as a non-employee
director of Pinnacle) and (ii) the Acquiror, after giving pro forma effect to
the acquisition of Alvey, has a credit rating (the "Minimum Credit Rating") from
Standard & Poor's Corporation ("S&P") of no less than "B-" or the equivalent
such rating from Moody's Investor Services, Inc. ("Moody's") or Fitch Investors
Service, L.P. ("Fitch"). In the event that the Acquiror has not been assigned a
credit rating from any of S&P, Moody's or Fitch, then Pinnacle, Newco or Alvey,
as the case may be, shall engage an investment banking firm of national
reputation to determine what credit rating would be assigned to the Acquiror, on
a pro forma basis giving effect to the purchase of Alvey, with the fees of such
investment banking firm to be paid by Pinnacle,
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Newco or Alvey, as the case may be. The notional credit rating as determined
by such investment banking firm will be final and conclusive. Pinnacle, Newco
or Alvey, as the case may be, shall be permitted to sell all or substantially
all of the capital stock or assets of Alvey without regard to the conditions
set forth in clauses (i) and (ii) of this Section 8(e) so long as it
purchases the self-amortizing annuity on Executive's behalf as provided for
in Section 8(f) below.
(F) PURCHASE OF ANNUITY. In the event that under Section 8(b), 8(d)
or 8(e) above, (i) the Acquiror fails to expressly assume all of the payment
obligations to Executive hereunder (except with respect to any payments which
may be made to Executive as a non-employee director of Pinnacle, Alvey or Newco)
OR (ii) the Acquiror, after giving pro forma effect to the acquisition of
Pinnacle, Newco or Alvey, as the case may be, fails to have at least the Minimum
Credit Rating specified in Section 8(e) above, then Pinnacle, Newco or Alvey,
as the case may be, shall purchase a self-amortizing annuity from an insurance
company having an A.M. Best's rating of no less than "A" that provides, for the
balance of Executive's actuarial life as determined by the insurance company
from which the annuity is purchased, the amounts necessary to fund for the
remainder of Executive's actuarial life (A) the deferred compensation payment
obligations to Executive under Section 3(e) above and (B) the annual premium
payments on the Split-Dollar Policy under Section 4(b) above. The annuity will
be deposited into a rabbi trust (the "Rabbi Trust") established for the benefit
of Executive. The Rabbi Trust shall be irrevocable and shall provide that the
trust assets can be used for no purpose other than to provide said deferred
compensation payments and Split-Dollar Policy premium payments to Executive or
on his behalf, or to pay the claims of the creditors of Pinnacle, Newco or
Alvey, as the case may be, in the event that Pinnacle, Newco or Alvey, as the
case may be, becomes insolvent. If a separate annuity and trust are required to
provide for each of the deferred compensation payments and Split-Dollar Policy
premium payments, then Pinnacle, Newco or Alvey, as the case may be, shall
purchase two self-amortizing annuities under this Section 8(f) and deposit such
annuities in the respective Rabbi Trusts on Executive's behalf.
(G) SALE OF SIGNIFICANT SUBSIDIARIES. Notwithstanding anything
herein to the contrary, Pinnacle, Newco and/or Alvey shall be permitted to sell
the assets or capital stock of any of Buschman, Busse, MFA, RTS, Weseley, White
and/or any direct or indirect subsidiary of Pinnacle acquired after the date
hereof without any restriction or limitation whatsoever pursuant to this
Agreement, including without limitation, any acceleration of payments due
hereunder or obligation to purchase an annuity as contemplated by Section 8(e)
above.
9. WAIVER OF BREACH. The waiver by Pinnacle, Alvey or Executive of a
breach of any provision of this Agreement by the other shall not operate or be
construed as a waiver of any subsequent breach by the other.
10. ENTIRE AGREEMENT/MODIFICATION. This Agreement contains all of the
covenants and agreements among the parties with respect to such engagement in
any manner
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whatsoever. Any modification of this Agreement will be effective only if it
is in writing, signed by the party to be charged.
11. PARTIAL INVALIDITY. If any provision of this Agreement is held by a
court of competent jurisdiction to be invalid, void or unenforceable, the
remaining provisions shall nevertheless continue in full force without being
impaired or invalidated in any way.
12. GOVERNING LAW. The validity of this Agreement and the interpretation
and performance of all of its terms shall be governed by the laws of the State
of Missouri.
13. ARBITRATION. Any dispute, controversy or claim arising out of or
relating to this Agreement or the breach, termination, or invalidity hereof,
shall promptly and expeditiously be submitted to binding arbitration in
accordance with the rules of procedure of the American Arbitration Association
in effect at the time of such arbitration proceeding utilizing a single
arbitrator. The arbitrator shall be a retired or former judge of any appellate
court or Superior Court of the State of Missouri, any United States appellate
court or the United States District Court for any District in the State of
Missouri, provided that such individual has substantial professional experience
with regard to employment matters. The arbitration shall be held in St. Louis,
Missouri. Either party may apply to an appropriate tribunal having jurisdiction
for specific performance of the other party's obligations under this provision.
The arbitrator shall have the right to retain and consult with experts and
competent authorities skilled in the matters under arbitration, but any such
consultation shall be made in the presence of both parties with full right on
their part to cross-examine such experts and authorities. The parties further
agree that the decision of the arbitrator shall, if requested by either party,
transmit to all interested parties the decision in the form of an "official
notice" duly signed by the arbitrator. Judgment upon the arbitration award
rendered may be entered in any court having jurisdiction or application may be
made to such court for a judicial acceptance of the award and an order of
enforcement. The prevailing party in any such dispute under this Section 13
shall be entitled to reimbursement of reasonable attorneys' fees and
disbursements from the non-prevailing party.
14. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but together which
shall constitute one and the same document.
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IN WITNESS WHEREOF, Pinnacle and Alvey have caused this Agreement to be
executed on their behalf by their duly authorized officers, and Executive has
executed the same as of the day and year first written above.
PINNACLE AUTOMATION, INC.
By: /s/ Stephen J. O'Neill
-------------------------------------
Stephen J. O'Neill,
President and Chief Executive Officer
ALVEY SYSTEMS, INC.
By: /s/ Stephen J. O'Neill
-------------------------------------
Stephen J. O'Neill,
President and Chief Executive Officer
EXECUTIVE
/s/ William R. Michaels
----------------------------------------
William R. Michaels
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EXHIBIT A
PINNACLE AUTOMATION, INC.
ALVEY SYSTEMS, INC.
1997 BONUS PLAN FOR WILLIAM R. MICHAELS
The annual bonus is based on the total EBITDAM achieved by Pinnacle
Automation, Inc. ("Pinnacle") in 1997. The 1997 budgeted EBITDAM for Pinnacle
is $27,000,000. The annual bonus amount earned is calculated as follows:
% OF BUDGETED
PINNACLE EBITDAM BONUS
ACHEIVED AMOUNT
---------------- ---------
80% $ 0
85% $100,000
90% $200,000
95% $300,000
100% $360,000
105% $420,000
110% $480,000
115% $540,000
120% $600,000
The earned bonus amount for 1997 (if any) will be fully vested and will
be paid to Executive as soon as practicable after determination of the bonus
amount, but no later than seventy-five (75) days after the end of Pinnacle's
fiscal year.
<PAGE>
EXHIBIT 10.2
SEPARATION AGREEMENT AND GENERAL AND SPECIAL RELEASE
This Separation Agreement and General and Special Release (the
"Agreement"), dated as of June 2, 1997 (the "Effective Date"), is made and
entered into by and among Michael J. Tilton, an individual (hereinafter
"Executive"), Pinnacle Automation, Inc., a Delaware corporation ("Pinnacle"),
and Alvey Systems, Inc., a Delaware corporation ("Alvey," and collectively
referred to herein with Pinnacle as the "Company").
W I T N E S S E T H
WHEREAS, pursuant to that certain Amended and Restated Employment
Agreement, dated as of June 27, 1995, by and among Executive, Pinnacle and
Alvey, which will be terminated as of June 2, 1997 (the "Employment Agreement"),
Executive has been employed by Pinnacle as its Executive Vice President -
Operations and Finance, and by Alvey as its Senior Vice President and Secretary;
WHEREAS, pursuant to a notice given by Pinnacle and Alvey to Executive,
Executive has been terminated (i) as Pinnacle's Executive Vice President -
Operations and Finance, (ii) as Alvey Senior Vice President and Secretary and
(iii) from all other offices and any directorships that Executive may hold for
any and all direct and indirect subsidiaries of the Company, effective as of
June 2, 1997;
WHEREAS, Pinnacle is considering a series of transactions pursuant to which
it would spin-off (the "Spin-Off") to its existing stockholders all of the
common stock of a newly formed corporation ("Newco") that would operate the
materials handling business presently conducted by Alvey and its subsidiaries,
The Buschman Company, White Systems, Inc., Busse Bros. Inc. and Real Time
Solutions, Inc.;
WHEREAS, upon consummation of the Spin-Off, Pinnacle will change its name
to McHugh Freeman, Inc. (or such other name as determined by the Board of
Directors of Pinnacle) and commence the initial public offering (the "IPO") of
its common stock, representing ownership interests in the software business
presently conducted by MFA and Weseley (the "Software Business"); and
WHEREAS, the parties desire to finally and forever amicably settle and
resolve all matters among them and all matters arising from Executive's
employment with the Company.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Executive and the Company agree as
follows:
1. EMPLOYMENT TERMINATION. Executive hereby acknowledges that, effective
as of June 2, 1997, he will be terminated (i) as Pinnacle's Executive Vice
President - Operations and
<PAGE>
Finance, (ii) as Alvey's Senior Vice President and Secretary and (iii) from
all other offices and any directorships that Executive may hold for any and
all direct and indirect subsidiaries of the Company. Executive expressly
waives any right to employment by the Company or any affiliate or successor
of the Company, present or future, including his rights, if any, under any
express or implied employment agreement, from and after June 2, 1997.
2. RECITATION OF COMPENSATION. In addition to the continuation of
Executive's salary and benefits through the period ending on July 31, 1997,
Executive will also receive the following:
(A) MONTHLY COMPENSATION FROM AUGUST 1997 THROUGH 1999. Subject to
Section 3 below, commencing in August 1997 and continuing monthly through and
including December 1999, the Company shall make payments to Executive in the
amount of $18,375 per month (the "Severance Payments"). Such payments shall be
made on or about the last day of each month, with the initial payment being made
on August 31, 1997 and the last such payment being made on December 31, 1999.
(B) DEFERRED BONUS COMPENSATION PAYMENT. Pursuant to Exhibit A of
the Employment Agreement and this Section 2(b), on or before July 31, 1997, the
Company shall pay to Executive an amount equal to the principal amount of
$48,620 plus interest on such amount at the rate of 200 basis points over the
interest rate for three-year Treasury Bills, calculated to the date of payment.
Such amount shall represent payment in full of bonuses that were earned by
Executive for calendar years prior to 1997 but not yet paid.
(C) BONUS FOR 1997. Executive shall be entitled to receive a bonus
for 1997 determined in accordance with the formula set forth on EXHIBIT A
attached hereto, with such bonus amount prorated in column (c) of EXHIBIT A to
reflect Executive's employment by the Company for seven of 12 months in 1997.
Such bonus shall be payable as soon as practicable after determination of the
bonus amount, but no later than the earlier of (i) seventy-five (75) days after
the end of Pinnacle's fiscal year and (ii) the date on which the executive
officers of the Company receive their bonuses for 1997.
(D) BONUS UPON CONSUMMATION OF THE IPO. If the IPO is consummated on
or prior to December 31, 1998, Executive shall receive a cash bonus of $100,000
payable by either Pinnacle or Newco, as shall be determined by the Boards of
Directors of Pinnacle and Newco, on the date of consummation of the IPO.
(E) PAYMENT OF ACCRUED BUT UNUSED VACATION TIME. On or before July
31, 1997, the Company shall pay to Executive the sum of $18,375, representing
payment in full for vacation time accrued but unused by Executive as of June 1,
1997.
The payments referred to above in this Section 2 will be offset by
applicable tax withholdings and deductions. Such payments will constitute
consideration for the promises and covenants contained herein.
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3. TERMINATION OF CERTAIN PAYMENTS IN THE EVENT OF COMPETITION.
(a) For purposes of this Section 3, a "Company Line of Business" shall
mean any and all businesses conducted by the Company or any of its subsidiaries
or affiliated entities on July 31, 1997, including but not limited to businesses
that involve (i) the manufacture or development of materials handling equipment
such as case palletizers, de-palletizers, bulk palletizers, conveyors, sorters,
carousels, power systems, movable aisle systems or paperless inventory picking
systems, or (ii) the development of software in connection with warehouse
management systems or transportation management systems.
(b) If at any time on or after August 1, 1998 and prior to December 31,
1999, Executive is employed by an entity involved in any Company Line of
Business, no further payments shall be owing to Executive under Section 2(a)
from and after the later of (i) August 1, 1998 and (ii) the date Executive's
employment commences with an entity engaged in a Company Line of Business;
PROVIDED, HOWEVER, that if at the time Executive's employment commences with an
entity engaged in a Company Line of Business the Company and its subsidiaries
are no longer engaged in such Company Line of Business (and the Company and its
subsidiaries are no longer engaged in any other Company Line of Business in
which such entity is engaged), the Company (or Newco, as the case may be) will
continue making the payments to Executive provided for in Section 2(a) above.
4. BENEFITS THROUGH JULY 31, 1998. From the date hereof through July 31,
1998, the Company (or Newco, upon consummation of the Spin-Off prior to July 31,
1998) shall provide Executive with the following benefits:
(A) HEALTH INSURANCE COVERAGE. The Company shall continue to provide
Executive and his dependents health insurance coverage under its group health
insurance plan in effect for its executives from time to time through the period
ending on July 31, 1998. The parties hereto agree that upon consummation of the
Spin-Off prior to July 31, 1998, Newco will assume the obligations of the
Company under this Section 4(a). The parties hereto further agree that if after
July 31, 1998, Executive elects to continue coverage for himself and his
dependents, if any, pursuant to the Consolidated Omnibus Budget Reconciliation
Act of 1985 ("COBRA") and under the Company's (or Newco's) employee health
plan(s), in accordance with written plan provisions and applicable law, then
Executive shall be responsible for all premium payments for such continued
coverage under COBRA.
(B) AUTOMOBILE. The Company shall continue in effect Executive's car
allowance of $1,250 per month, with the last of such payments being made for the
month of July 1998.
(C) CLUB MEMBERSHIP. The Company shall continue to pay the periodic
dues and assessments for Executive's membership in the Forest Hills Country Club
and the University Club of St. Louis through the period ending on July 31, 1998;
PROVIDED, HOWEVER, that the aggregate amount of payments made on Executive's
behalf pursuant to this Section 4(c) during the period commencing on August 1,
1997 and ending on July 31, 1998 shall not exceed $7,500;
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PROVIDED, FURTHER, that any gross-up adjustments made pursuant to Section
4(e) below shall not count towards the maximum amount payable under this
Section 4(c).
(D) TAX PREPARATION REIMBURSEMENT. The Company shall reimburse
Executive for up to $1,500 of reasonable expenses incurred in connection with
tax preparation services provided to Executive by Price Waterhouse LLP (or
another accounting firm or tax preparation service of Executive's choosing) in
connection with local, state and federal tax returns required to be filed by
Executive for the tax years ending December 31, 1997 and 1998. Any gross-up
adjustments made pursuant to Section 4(e) below shall not count towards the
maximum amount payable under this Section 4(d).
(E) AFTER-TAX BASIS. The benefits provided to Executive pursuant to
this Section 4 shall be provided to Executive on an after-tax basis, at assumed
overall tax rate of 40%, to the extent the foregoing benefits are determined to
constitute taxable income to Executive.
5. COVERAGE OF MISCELLANEOUS EXPENSES. Upon the execution of this
Agreement by Executive, the Company shall pay to Executive a one-time fee of
$50,000 to cover (i) any expenses (legal or otherwise) incurred by Executive in
connection with this Agreement and (ii) any outplacement services provided to
Executive in connection with finding employment.
6. SPLIT DOLLAR LIFE INSURANCE. Pinnacle will continue to maintain in
full force and effect the split-dollar life insurance policy in the amount of
$1,000,000 (the "Split-Dollar Policy") that was obtained for, and that is owned
by, Executive pursuant to that certain Endorsement Split Dollar Agreement dated
July 18, 1995 between Pinnacle and Executive. Subject to Section 17 below,
Pinnacle will make or cause to be made the annual premium payments owing on the
Split-Dollar Policy for the remainder of Executive's lifetime. Proof of annual
premium payments on the Split-Dollar Policy shall be provided to Executive by
Pinnacle within 30 days of the payment of such premium.
7. CONTINUATION OF PAYMENTS IN THE EVENT OF DEATH. Subject to Section 3
above, in the event of Executive's death during the term of this Agreement, any
payments owing to Executive under Paragraphs 2(a), 2(b), 2(c) and 2(e) above
shall continue to be made to a beneficiary designated in writing by Executive,
or if no such beneficiary is designated in writing, to Executive's estate, until
the later of (i) July 31, 1998 and (ii) Executive's death. Payment will not be
made to Executive under Section 2(d) above in the event that Executive's death
precedes the consummation of the IPO. The benefits provided to Executive under
Section 4 above shall terminate on the sooner of (i) July 31, 1998 and (ii)
Executive's death.
8. RETENTION OF CERTAIN PROPERTY; RETURN OF OTHER PROPERTY. Executive
may retain the home office computer, fax machine and portable computer owned by
the Company and used by Executive, each as more particularly described on
EXHIBIT B hereto. Concurrently with the execution and delivery of this
Agreement, Executive agrees to surrender to the Company all property (other than
the property set forth on EXHIBIT B hereto), documents and duplicates and copies
thereof, of the Company or any affiliate thereof which he possess or controls,
including but not limited to papers, computer disks, files, booklets, manuals,
customer lists, company
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credit cards, identification cards and keys (other than such property that is
necessary to access Pinnacle's headquarters in connection with Executive's
use of an office pursuant to Section 10 below).
9. ROLL-OVER OF 401(K) PLAN BENEFITS. The Company hereby covenants and
agrees to cooperate with Executive in connection with the timely transfer of the
vested portion of his 401(k) plan in accordance with any written request from
Executive to do so. Upon receiving a written request from Executive, the
Company shall use its good faith best efforts to effect the transfer of the
vested portion of his 401(k) plan to an account specified in the written request
within ninety (90) days of the receipt of such written request.
10. OFFICE AT PINNACLE'S HEADQUARTERS. Executive shall be provided with
use of an office at Pinnacle's headquarters in St. Louis, Missouri until the
earlier of the date (i) the lease for such office space terminates in July 1999
(without regard to any renewal thereof) and (ii) Pinnacle subleases such space
to a third party and Pinnacle and Alvey no longer occupy such space. While a
secretary will not be assigned to work for Executive on a full-time basis after
the June 2, 1997, Executive shall have access to reasonable secretarial
assistance while occupying an office at Pinnacle's headquarters.
11. SOLE ENTITLEMENT. Executive agrees that his sole entitlement to
compensation, including base salary and any bonus or other payments of any kind,
monetary or nonmonetary benefits, or perquisites, with respect to his employment
with or his services rendered to the Company, and all other matters between
Executive and the Company and all affiliated persons and entities, including but
not limited to, any and all rights or claims arising from or relating to the
Employment Agreement, is as expressly set forth in this Agreement.
12. RELEASE.
(a) Excepting only those obligations to be performed under this
Agreement, Executive (for himself, his agents, heirs, successors, assigns,
executors and administrators) does hereby and forever release and discharge the
Company and any and all past and present parent, subsidiaries, and otherwise
affiliated corporations and divisions of the Company, as well as the successors,
shareholders, officers, directors, predecessors, assigns, agents, employees,
attorneys, accountants and representatives of each of them, past or present,
from any and all causes of action or claims of whatsoever kind or character
whether or not heretofore brought before any state or federal court or before
any state or federal agency or other governmental entity, which Executive has or
may have by reason of any and all acts, omissions, events or facts occurring or
existing prior to the date hereof, including, without limitation, all claims
attributable to or arising from the employment of Executive by the Company
(whether pursuant to the Employment Agreement or otherwise), all claims
attributable to or arising from the termination of his employment, and all
claims arising under any federal, state or other governmental statute,
regulation or ordinance or common law or equity on any theory of pleading or
proof, such as, for example and without limitation, Title VII of the Civil
Rights Act of 1964, as amended, which prohibits discrimination on the basis of
race, religion, color, sex and national origin, the Civil
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Rights Act of 1866, the Age Discrimination in Employment Act, as amended,
which prohibits discrimination on the basis of age over 40, and any wrongful
termination claims.
(b) Executive hereby waives his right to file any charge or complaint
arising out of his employment with or separation from the Company before any
federal, state or local court or any state or local administrative agency,
except whereas such waivers are prohibited by law. This statement of general
release and waiver shall include, but not be limited to, all claims or actions
arising out of, or relating in any way to, Executive's employment and severance
of Executive's employment with the Company. Executive further agrees that if he
brings a claim against the Company (or any of the Company's officers, directors,
stockholders, affiliates and agents) in violation of this paragraph, Executive
will return to the Company all consideration that Executive has received
pursuant to this Agreement, together with interest thereon calculated at a rate
of 10% per annum. In the event that Executive fails to return any consideration
under such circumstance, Executive will pay the Company's attorneys' fees and
other expenses incurred by the Company in recovering such consideration and in
otherwise enforcing the terms of this Agreement.
(c) Executive understands that if this Agreement is not signed,
Executive would have the right to voluntarily assist other individuals or
entities in bringing claims against the Company (or any of the Company's
officers, directors, stockholders, affiliates and agents). Executive further
understands and agrees hereby that Executive waives such right and will not
provide any such assistance other than assistance in an investigation or
proceeding conducted by the United States Equal Employment Opportunity
Commission. The Company and Executive further agree that Executive may provide
information pursuant to any valid subpoena or other compulsory process. To the
extent the law allows any government agency to file such charges on Executive's
behalf and this Agreement does not prohibit Executive's cooperation with such
agency, Executive agrees this Agreement will nonetheless act as a waiver of any
recovery by Executive in such government-instituted action.
(d) If Executive violates this Agreement by suing the Company, its
subsidiaries or affiliates (including its officers, directors and stockholders)
or those associated with the Company, for any claim arising under, or in
connection with, this Agreement, Executive agrees that Executive will pay all
costs and expenses of defending against that suit incurred by the Company or its
parent, affiliates (including its officers, directors and stockholders) or those
associated with the Company, including reasonable attorneys' fees.
13. CONFIDENTIALITY.
(a) Executive agrees not to, at any time and for any reason, disclose
or use, directly or indirectly, confidential information (as defined herein) by
the Company. Confidential information means financial or any type of personal
information pertaining to the Company, its subsidiaries or affiliated entities
and their respective officers, directors, shareholders or affiliates. Executive
acknowledges and agrees that the disclosure of confidential information would
cause irreparable injury to the Company, its subsidiaries or affiliated entities
and their respective officers, directors, shareholders and affiliates.
6
<PAGE>
(b) Executive and his attorneys further acknowledge and agree that
the terms, provisions and fact of this Agreement were made and entered into in
strict confidence. Executive and his attorneys promise, warrant and represent
that they shall not disclose or offer to disclose, and have not disclosed
privately or publicly, any of the terms or provisions of this Agreement to any
person or entity, including, but not limited to, any past or current employee of
the Company or any member of the print, electronic or other media, with the
exception of (i) a disclosure required by law or to enforce any obligations
hereunder, (ii) a disclosure to Executive's wife, attorneys, accountants or
financial advisors who will be advised of the confidential nature of this
Agreement and must agree in writing to be bound by its terms and (iii) truthful
testimony in court or in response to a lawful governmental inquiry. Executive
shall give to the Chief Executive Officer of the Company reasonable advance
notice of any contemplated disclosure under parts (i) or (iii) of the preceding
sentence, so that the Company may appear in the matter and assert its legitimate
interests. Executive and his attorneys understand and agree that the
confidentiality and nondisclosure provisions contained herein are material terms
of this Agreement.
14. TRADE SECRETS. Executive agrees that he will not divulge or utilize
any confidential or proprietary information acquired during his employment with
the Company concerning matters affecting or relating to the business of the
Company, including, without limiting the generality of the foregoing, the
practices of any of its customers, its marketing methods and related data, the
names of any of its vendors or suppliers, its customer lists, the prices it
obtains or has obtained or at which it sells or has sold its services,
compensation paid to employees of the Company and other terms of employment, or
any other confidential or proprietary information of, about or concerning the
business of the Company (or any of its affiliated companies), or its manner of
operation. The parties agree that as between them, these matters and each of
them are important, material and confidential trade secrets, having an economic
value arising from their not being generally known in the industry, and affect
the successful conduct of the Company's business and its goodwill, and that any
breach of any term of this paragraph is a material breach of this Agreement.
15. NON-SOLICITATION OF EMPLOYEES. Executive further agrees that while
payments are being made to Executive under Section 2(a) of this Agreement, he
will not solicit or entice or endeavor to solicit or entice away any employee of
the Company, its subsidiaries or affiliated entities, either on his own account
or for any person, firm, corporation or other organization, whether or not such
person would commit any breach of his or her contract of employment by reason of
leaving the service of the Company, its subsidiaries or affiliated entities, as
the case may be.
16. ENFORCEMENT OF AGREEMENT; ARBITRATION. To the extent allowed by
applicable law, this Section 16 shall apply to any controversy between Executive
and the Company (or any of its affiliated companies) that might be brought in
any forum.
(a) As a material part of this Agreement, Executive and the Company
expressly agree that any and all disputes, controversies or claims arising out
of or concerning this Agreement, any alleged breach of this Agreement, or the
matters resolved and settled by this Agreement, including but not limited to
disputes, controversies or claims arising out of
7
<PAGE>
Executive's employment by the Company or the termination of Executive's
employment or this Agreement, whether arising under theories of liability or
damages based on contract, tort or statute, shall be determined exclusively
by final and binding arbitration conducted in St. Louis, Missouri before a
single arbitrator in accordance with the Employment Dispute Resolution Rules
of the American Arbitration Association. Any party hereto may apply to an
appropriate tribunal having jurisdiction for specific performance of another
party's obligations under this provision. The arbitrator shall have the right
to retain and consult with experts and competent authorities skilled in the
matters under arbitration, but any such consultation shall be made in the
presence of both parties with full right on their part to cross-examine such
experts and authorities. The parties further agree that the decision of the
arbitrator shall, if requested by either party, transmit to all interested
parties the decision in the form of an "official notice" duly signed by the
arbitrator. Judgment upon the arbitration award rendered may be entered in
any court having jurisdiction or application may be made to such court for a
judicial acceptance of the award and an order of enforcement. The prevailing
party in any such dispute under this Section 16 shall be entitled to
reimbursement of reasonable attorneys' fees and disbursements from the
non-prevailing party.
(b) Notwithstanding the foregoing provisions, Executive and the
Company agree that any breach of Executive's obligations concerning confidential
information or trade secrets or the agreement not to solicit employees under
Sections 13, 14 or 15 of this Agreement, cannot adequately be remedied at law or
in arbitration, and that the Company may seek and obtain otherwise available
injunctive relief, including ancillary monetary relief, in court, for any
violation by Executive of his obligations with respect to confidential
information or trade secrets known to him or his agreement not to solicit
employees.
17. SUCCESSORS AND ASSIGNS.
(A) GENERAL. This Agreement shall bind and shall inure to the
benefit of Pinnacle, Alvey and any and all of their respective successors and
assigns. This Agreement is personal to Executive and shall not be assignable by
Executive, except for certain benefits hereunder which are payable to
Executive's heirs, beneficiaries or to his estate upon the death of Executive.
(B) PRIOR TO CONSUMMATION OF THE SPIN-OFF. Prior to consummation of
the Spin-Off, Pinnacle may assign this Agreement to any entity (an "Acquiror")
which (i) purchases all or substantially all of its assets or (ii) is a direct
or indirect successor (whether by merger, sale of stock or transfer of assets)
of Pinnacle; PROVIDED that Pinnacle shall only be permitted to assign its rights
and obligations hereunder (whether by operation of law or otherwise) if the
Acquiror expressly assumes all of the payment obligations of Pinnacle hereunder.
(C) FROM AND AFTER CONSUMMATION OF THE SPIN-OFF. Upon consummation
of the Spin-Off, Pinnacle shall cause Newco to assume the obligations of
Pinnacle to make payments to Executive under this Agreement. Upon such
assumption by Newco of Pinnacle's payment obligations hereunder, Pinnacle shall
be relieved of any further payment obligations to Executive under this
Agreement. Newco may subsequently assign this Agreement to an
8
<PAGE>
Acquiror which (i) purchases all or substantially all of its assets or (ii)
is a direct or indirect successor (whether by merger, sale of stock or
transfer of assets) of Newco; PROVIDED that Newco shall only be permitted to
assign its rights and obligations hereunder (whether by operation of law or
otherwise) if the Acquiror expressly assumes all of the payment obligations
of Newco hereunder.
18. REPRESENTATIONS AND WARRANTIES.
(a) Each of the parties hereby represents and warrants that he or it
has not heretofore assigned or transferred or purported to assign or transfer to
any person or entity not a signatory to this Agreement any claim or matter
herein released, disclaimed, discharged or terminated. In the event of any such
assignment or transfer of any claims or other matters herein released,
discharged, terminated or disclaimed herein, each of the parties hereto agrees
to indemnify and hold harmless each of the other parties from and against any
liability or loss, and for any cost, expense or judgment or settlement arising
out of or occasioned by, or arising in connection with any such assignment or
transfer.
(b) Executive represents that he has received independent legal
advise regarding this Agreement, including without limitation, his tax
obligations arising from this Agreement or payments pursuant to this Agreement,
and has not relied upon any representation of the Company or its counsel
regarding such matters.
19. TERMINATION OF EMPLOYMENT AGREEMENT. It is expressly agreed that any
and all express or implied employment agreements between Executive and the
Company are terminated as of June 2, 1997 and are of no force or effect
whatsoever after June 2, 1997.
20. WAITING PERIOD. Executive acknowledges that he is advised and aware
that he has the right to consider this Agreement for 21 days before signing it
and that if he signs this Agreement prior to the expiration of 21 days, he is
waiving his right freely and voluntarily. Executive also acknowledges that he
is aware of and is hereby advised of his right to revoke this Agreement for a
period of seven days following the signing of this Agreement and that this
Agreement shall not become effective or enforceable until the revocation period
has expired. To revoke this Agreement, Executive must notify the Company within
seven days of signing it.
21. NOTICES. Any written notices or other documents required or permitted
to be given under this Agreement, including payments, shall be personally
delivered by the Company to Executive or mailed, certified mail, return receipt
requested, to his residence address as reflected in the records of the Company,
which is:
Mr. Michael J. Tilton
260 Carlyle Lake Drive
Creve Coeur, Missouri 63141
9
<PAGE>
22. CONSTRUCTION OF AGREEMENT.
(a) NO ADMISSION. Executive and the Company understand, acknowledge
and agree that this is a separation agreement and general and special release,
and that neither this Agreement nor any of its provisions shall be deemed or
construed at any time or for any purpose to be an admission of liability of the
Company. Liability for any and all claims is expressly denied by the Company.
(b) GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with Missouri law.
(c) SEVERABILITY. If any portion, provision or part of this
Agreement is held, determined or adjudicated to be invalid, unenforceable or
void for any reason whatsoever, each such portion, provision or part shall be
severed from the remaining portions, provisions or parts of this Agreement and
shall not affect the validity or enforceability of such remaining portions,
provisions or parts.
(d) ENTIRE AGREEMENT. This Agreement constitutes a single integrated
contract expressing the entire agreement of the parties hereto; there are no
other agreements, written or oral, express or implied, among the parties hereto,
concerning the subject matter hereof, except the agreements set forth herein.
This Agreement can only be modified by a written agreement, executed by all
parties to this Agreement.
(e) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which together shall constitute the entire Agreement, and
each such counterpart shall be deemed an original as to the party to be charged.
(f) BINDING EFFECT. The parties to this Agreement further state that
they have carefully read this Agreement; that is has been fully explained to
them by their legal counsel; that they fully understand its final and binding
effect; that the only promises made to them in connection with this Agreement
are those stated above; and that they are signing this Agreement voluntarily.
IN WITNESS WHEREOF, Pinnacle and Alvey have caused this Agreement to be
executed on their behalf by their duly authorized officers, and Executive has
executed the same as of the day and year first written above.
PINNACLE AUTOMATION, INC.
By: /s/ Stephen J. O'Neill
-------------------------------------
Stephen J. O'Neill,
President and Chief Executive Officer
10
<PAGE>
ALVEY SYSTEMS, INC.
By: /s/ Stephen J. O'Neill
-------------------------------------
Stephen J. O'Neill,
President and Chief Executive Officer
/s/ Michael J.Tilton
-------------------------------------
Michael J. Tilton, an individual
11
<PAGE>
EXHIBIT A
PINNACLE AUTOMATION, INC.
ALVEY SYSTEMS, INC.
1997 BONUS PLAN FOR MICHAEL J. TILTON
The annual bonus is based on the total EBITDAM achieved by Pinnacle
Automation, Inc. ("Pinnacle") in 1997. The 1997 budgeted EBITDAM for Pinnacle
is $27,000,000. The annual bonus amount earned is calculated as follows:
(a) (b) (c)
% of Budgeted
Pinnacle EBITDAM Annualized
Achieved Bonus Amount As Prorated*
---------------- ------------ ------------
80% $ 0 $ 0
85% $ 50,000 $ 29,167
90% $ 95,000 $ 55,417
95% $145,000 $ 84,583
100% $170,000 $ 99,167
105% $200,000 $116,667
110% $230,000 $134,167
115% $260,000 $151,667
120% $290,000 $169,167
____________
* The bonus amount has been prorated to reflect that Executive was employed
by the Company for a full 7 of 12 months in 1997 (resulting in the use of a
proration factor of 58.33%).
The earned bonus amount for 1997 (if any) will be fully vested and will be
paid to Executive as soon as practicable after determination of the bonus
amount, but no later than the earlier of (i) seventy-five (75) days after the
end of Pinnacle's fiscal year and (ii) the date on which the executive officers
of the Company receive their bonuses for 1997.
<PAGE>
EXHIBIT B
PROPERTY TO BE RETAINED BY EXECUTIVE
1. Home computer, including the CPU, CRT, Keyboard, Printer and other
accessories.
2. Home fax machine, Muratec F-70.
3. Portable computer, Toshiba Portege 610CT.
<PAGE>
EXHIBIT 10.3
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (the "THIRD AMENDMENT") dated
as of August 12, 1997, is to that Credit Agreement dated as of January 24,
1996 as amended by that First Amendment to Credit Agreement dated as of May
15, 1996, as further amended and modified by that Second Amendment to Credit
Agreement dated as of March 14, 1997 (as amended and modified hereby and as
further amended and modified from time to time hereafter, the "CREDIT
AGREEMENT"; terms used but not otherwise defined herein shall have the
meanings assigned in the Credit Agreement), by and among ALVEY SYSTEMS, INC.,
a Delaware corporation (the "BORROWER"), THOSE SUBSIDIARIES AND CREDIT
PARTIES party thereto and identified on the signature pages hereof (together
with the Borrower sometimes being referred to as the "CREDIT PARTIES"), as
Guarantors and Credit Parties, the Lenders party thereto, and NATIONSBANK,
N.A., as Agent (the "AGENT").
W I T N E S S E T H
WHEREAS, the Lenders have, pursuant to the terms of the Credit Agreement,
made available to the Borrower a $30,000,000 credit facility;
WHEREAS, the Borrower has requested certain modifications to the Credit
Agreement; and
WHEREAS, the Required Lenders for and on behalf of the Lenders have agreed
to the requested changes on the terms and conditions hereinafter set forth;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
A. The Credit Agreement is amended in the following respects:
1. The definition of "CONSOLIDATED EBITDA" in Section 1.1 of the
Credit Agreement is hereby amended and restated to read as follows:
"CONSOLIDATED EBITDA" means for the four consecutive quarter
period ending as of the Calculation Date, the sum of Consolidated Net
Income PLUS Consolidated Interest Expense PLUS all provisions for any
Federal, state or other income taxes PLUS depreciation, amortization and
other non-cash charges (which shall include amortization of capitalized
interest and debt issuance costs) for the Borrower and its Restricted
Subsidiaries on a consolidated basis; provided, however, that with respect
to each of the fiscal quarters ending on the dates set forth below, the
amounts corresponding to such dates shall be added to the sum of the items
listed above to determine Consolidated EBITDA at such times:
<PAGE>
Date Amount
------ --------
June 30, 1997 $16,328,000
September 30, 1997 $15,183,000
December 31, 1997 $14,038,000
March 31, 1998 $12,893,000.
B. In connection with the execution of this Third Amendment, the Borrower
agrees to pay an amendment fee at closing in the amount of $30,000 (representing
10.0 basis points on the total Revolving Committed Amount) for the ratable
benefit of the Lenders.
C. The Borrower hereby represents and warrants that:
(i) any and all representations and warranties made by the Borrower
and contained in the Credit Agreement (other than those which expressly
relate to a prior period) are true and correct in all material respects as
of the date of this Third Amendment; and
(ii) No Default or Event of Default currently exists and is continuing
under the Credit Agreement as of the date of this Third Amendment.
D. The Borrower will execute such additional documents as are reasonably
requested by the Agent to reflect the terms and conditions of this Third
Amendment.
E. Except as modified hereby, all of the terms and provisions of the
Credit Agreement (and Exhibits) remain in full force and effect.
F. The Borrower agrees to pay all reasonable costs and expenses in
connection with the preparation, execution and delivery of this Third Amendment,
including without limitation the reasonable fees and expenses of the Agent's
legal counsel.
G. This Third Amendment may be executed in any number of counterparts,
each of which when so executed and delivered shall be deemed an original and it
shall not be necessary in making proof of this Third Amendment to produce or
account for more than one such counterpart.
H. This Third Amendment and the Credit Agreement, as amended hereby,
shall be deemed to be contracts made under, and for all purposes shall be
construed in accordance with the laws of the State of New York.
[Remainder of Page Intentionally Left Blank]
- 2 -
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Third Amendment to Credit Agreement to be duly executed under seal and
delivered as of the date and year first above written.
BORROWER:
ALVEY SYSTEMS, INC.,
a Delaware corporation
By /s/ J.A. Sharp
-------------------------------
Title Senior VP and CFO
----------------------------
GUARANTORS:
PINNACLE AUTOMATION, INC.,
a Delaware corporation
By /s/ J.A. Sharp
------------------------------
Title Executive VP and CFO
---------------------------
M&E INSTALLERS, INC.,
a Delaware corporation
By /s/ R.M. O'Brien
------------------------------
Title Vice President
---------------------------
MCHUGH, FREEMAN & ASSOCIATES, INC.,
a Wisconsin corporation
By /s/ J.A. Sharp
------------------------------
Title CFO and Assistant Treasurer
---------------------------
- 3 -
<PAGE>
NEWALV, INC.,
a Delaware corporation
By /s/ J.A. Sharp
------------------------------
Title President
---------------------------
BUSSE BROS., INC.,
a Wisconsin corporation
By /s/ J.A. Sharp
------------------------------
Title CFO and Treasurer
---------------------------
THE BUSCHMAN COMPANY,
an Ohio corporation
By /s/ J.A. Sharp
------------------------------
Title CFO and Senior VP
---------------------------
WHITE SYSTEMS, INC.,
(formerly know as White Storage
and Retrieval Systems, Inc.)
a New Jersey corporation
By /s/ J.A. Sharp
------------------------------
Title CFO and Treasurer
---------------------------
WESELEY SOFTWARE DEVELOPMENT CORP.,
a Connecticut corporation
By /s/ J.A. Sharp
------------------------------
Title CFO and Treasurer
---------------------------
- 4 -
<PAGE>
REAL TIME SOLUTIONS, INC.,
a Delaware corporation
By /s/ J.A. Sharp
------------------------------
Title CFO and Vice President
---------------------------
- 5 -
<PAGE>
Signature Pages to
Alvey Systems, Inc. Third Amendment
BANKS:
NATIONSBANK, N.A., individually in its
capacity as a Lender and in its capacity
as Agent
By /s/ Lisa S. Donoghue
------------------------------
Title Vice President
---------------------------
BANK OF SCOTLAND
By /s/ Janet Taffe
------------------------------
Title Asst. Vice President
---------------------------
HARRIS TRUST AND SAVINGS BANK
By /s/ Donald J. Buse
------------------------------
Title Vice President
---------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 4,174
<SECURITIES> 0
<RECEIVABLES> 60,067
<ALLOWANCES> 1,816
<INVENTORY> 18,606
<CURRENT-ASSETS> 111,768
<PP&E> 52,612
<DEPRECIATION> 17,712
<TOTAL-ASSETS> 180,929
<CURRENT-LIABILITIES> 107,382
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (51,906)
<TOTAL-LIABILITY-AND-EQUITY> 180,929
<SALES> 174,483
<TOTAL-REVENUES> 174,483
<CGS> 131,302
<TOTAL-COSTS> 131,302
<OTHER-EXPENSES> 51,251
<LOSS-PROVISION> 1,002
<INTEREST-EXPENSE> 6,975
<INCOME-PRETAX> (16,047)
<INCOME-TAX> (5,373)
<INCOME-CONTINUING> (10,674)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,674)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
