<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 September 30, 1999.
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.
9301 Olive Boulevard
St. Louis, MO 63132
314/993-4700
IRS 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 October 31, 1999 was 1,000
shares.
<PAGE>
ALVEY SYSTEMS, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
Number
<S> <C>
Part I - Financial Information
Item 1. Financial Statements
Consolidated Statement of Operations -
three and nine months ended September 30, 1999
and 1998 (Unaudited) 3
Consolidated Balance Sheet - September 30, 1999
(Unaudited) and December 31, 1998 4
Consolidated Statement of Cash Flows -
nine months ended September 30, 1999 and
1998 (Unaudited) 5-6
Consolidated Statement of Net Investment
of Parent for the nine months ended September 30,
1999 (Unaudited) 7
Notes to Consolidated Financial Statements
(Unaudited) 8-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-19
Item 3. Quantitative and Qualitative Disclosure About
Market Risk 19
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 20
Signature 20
</TABLE>
<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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
--------------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net sales $ 117,251 $ 70,213 $ 282,624 $ 220,336
Cost of goods sold 89,504 50,416 211,602 163,441
--------------- ---------------- -------------- ---------------
Gross profit 27,747 19,797 71,022 56,895
Selling, general and administrative expenses 14,987 13,465 41,819 38,206
Research and development expenses 1,203 1,164 3,333 3,338
Amortization expense 196 195 586 585
Operating loss (income) from divested operations -- 2,461 (97) 4,977
Other expense (income), net 89 (43) 118 (536)
--------------- ---------------- -------------- ---------------
Operating income 11,272 2,555 25,263 10,325
Interest expense 2,144 3,222 6,572 9,924
--------------- ---------------- -------------- ---------------
Income (loss) before income taxes 9,128 (667) 18,691 401
Income tax expense 3,690 914 7,599 1,792
--------------- ---------------- -------------- ---------------
Net income (loss) $ 5,438 $ (1,581) $ 11,092 $ (1,391)
=============== ================ ============== ===============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
-3-
<PAGE>
ALVEY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999 DECEMBER 31,
(UNAUDITED) 1998
--------------- ----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,649 $ 2,499
Receivables:
Trade (less allowance for doubtful accounts of $737 and $657, respectively) 45,493 29,782
Unbilled and other 3,785 3,607
Accumulated costs and earnings in excess of billings on uncompleted contracts 9,970 5,910
Inventories:
Raw materials 14,122 11,473
Work in process 5,144 5,217
Deferred income taxes 7,275 11,792
Net assets of divested operations -- 2,831
Prepaid expenses and other assets 1,782 2,056
-------------- ----------------
Total current assets 91,220 75,167
Property, plant and equipment, net 29,207 27,058
Other assets 3,581 3,229
Goodwill, net 17,850 18,381
-------------- ----------------
$ 141,858 $ 123,835
============== ================
LIABILITIES AND NET INVESTMENT OF PARENT
Current liabilities:
Current portion of long-term debt $ 185 $ 185
Accounts payable 38,516 24,288
Accrued expenses 28,532 35,382
Customer deposits 6,292 5,399
Billings in excess of accumulated costs and earnings on uncompleted contracts 19,356 18,029
Deferred revenues 1,661 1,516
Taxes payable 3,239 710
-------------- ----------------
Total current liabilities 97,781 85,509
Long-term debt 71,961 76,696
Other long-term liabilities 8,065 8,246
Deferred income taxes 211 466
Commitments and contingencies (Note 6)
Net investment of Parent (36,160) (47,082)
-------------- ----------------
$ 141,858 $ 123,835
============== ================
</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>
NINE MONTHS ENDED SEPTEMBER 30,
1999 1998
-------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income, excluding operating income (loss)
from divested operations $ 10,995 $ 3,586
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 3,156 2,909
Amortization 586 585
Operating activities of divested operations 515 (671)
Deferred taxes 4,262 948
(Increase) decrease in assets:
Receivables (15,889) 15,243
Accumulated costs and earnings in excess of
billings on uncompleted contracts (4,060) 5,955
Inventories (2,576) (1,396)
Other assets 798 302
(Decrease) increase in liabilities:
Accounts payable 14,228 (8,504)
Accrued expenses (7,252) (3,703)
Customer deposits 893 (3,156)
Billings in excess of accumulated costs and
earnings on uncompleted contracts 1,327 3,115
Deferred revenues 145 107
Taxes payable 2,529 271
Other liabilities (166) (124)
-------------- ----------------
Net cash provided by operating activities 9,491 15,467
-------------- ----------------
INVESTING ACTIVITIES:
Cash received from the sale of Busse, net of related costs 1,921 --
Additions to property, plant and equipment, net (5,305) (2,744)
Investing activities of divested operations (26) (5,927)
-------------- ----------------
Net cash used for investing activities (3,410) (8,671)
-------------- ----------------
</TABLE>
(continued)
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>
NINE MONTHS ENDED SEPTEMBER 30,
1999 1998
-------------- ----------------
<S> <C> <C>
FINANCING ACTIVITIES:
Proceeds of borrowings $ 43,600 $ 42,310
Payments of debt and capital leases (48,335) (48,753)
Financing activities of divested operations (26) 5
Net distributions to Parent (170) (7)
-------------- ----------------
Net cash used for financing activities (4,931) (6,445)
-------------- ----------------
Net increase in cash and cash equivalents 1,150 351
Cash and cash equivalents, beginning of period 2,499 2,752
-------------- ----------------
Cash and cash equivalents, end of period $ 3,649 $ 3,103
============== ================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest on financings $ 8,379 $ 12,003
Income taxes 948 517
</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>
<S> <C>
FOR THE NINE MONTHS ENDED NET INVESTMENT
SEPTEMBER 30, 1999 OF PARENT
Balance December 31, 1998 $ (47,082)
Net income 11,092
Net distributions to Parent (170)
-------------------
Balance September 30, 1999 $ (36,160)
===================
</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, 1998.
2. PRINCIPLES OF CONSOLIDATION, EARNINGS PER SHARE INFORMATION
Alvey is a wholly-owned subsidiary of Pinnacle Automation, Inc.
("Pinnacle" or "Parent"). Pinnacle does not have any operations or
assets other than its investment in Alvey. The Company's financial
statements include the accounts of Alvey and its three current
operating subsidiaries: The Buschman Company ("Buschman"); Real Time
Solutions, Inc. ("RTS"); and White Systems, Inc. ("White"). See Notes 3
and 4 for a discussion of divested operations which include the sale of
Busse Bros., Inc. ("Busse") on June 29, 1999 and the spin-off of McHugh
Software International, Inc. ("McHugh") and its subsidiaries on October
27, 1998.
All significant intercompany transactions, which primarily consist of
sales, have been eliminated. The operating results of divested
operations, including McHugh in 1998 and Busse in 1998 and 1999, are
reflected in the Company's consolidated statement of operations as
operating loss (income) from divested operations. The net assets of
divested operations are presented as a separate line item in the
Company's consolidated balance sheet. Prior year financial statements
have been reclassified to be consistent with the current year with
respect to divested operations.
Given the Company's historical organization and capital structure,
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.
8
<PAGE>
3. SALE OF BUSSE BROS., INC.
On June 29, 1999, the Company sold all of the outstanding common stock
of Busse to a third party for approximately $3.5 million which was
comprised of $2.5 million in cash, $785,000 in the form of a note
receivable and $200,000 through the assumption of debt. Approximately
$236,000 of the note is due on June 29, 2001, with the remainder due
June 29, 2002. The purchase price is subject to further adjustment
based upon the balance of working capital at the date of sale, which is
estimated to be an increase to the purchase price of approximately
$169,000. Any purchase price adjustments will be made through a
combination of cash and an adjustment to the aforementioned note
receivable balance. Under the terms of the sale agreement, Alvey will
provide certain transitional information services to Busse for a one
year period from the closing date.
The president of Busse is a shareholder in the acquiring company. Just
prior to the sale of Busse, the Company paid the president of Busse
approximately $632,000 to settle certain employment related matters.
Under the terms of a settlement agreement, if prior to April 15, 2000,
Pinnacle enters into certain binding agreements pertaining to the sale
of stock or assets or an initial public offering, Pinnacle may be
obligated to pay this individual an additional sum as defined in the
agreement.
During the fourth quarter of 1998, the Company recorded a potential
loss on the sale of Busse totaling $3.2 million, which includes
approximately $402,000 accrued at September 30,1999 pending any final
purchase price adjustments.
4. DIVESTED OPERATIONS
During October 1998, the Company issued as a dividend its previously
held shares in McHugh to Pinnacle. On October 27, 1998, Pinnacle
effected a spin-off of the common stock of McHugh to Pinnacle's
stockholders. Additionally, on June 29, 1999, and as described in Note
3, the Company sold Busse to a third party.
The operating loss (income) of McHugh and Busse is reflected in the
Company's consolidated statement of operations as operating loss
(income) from divested operations for the three and nine months ended
September 30, 1999 and 1998, with the 1999 results related solely to
Busse. The net assets of Busse are reflected in the Company's
consolidated balance sheet as net assets of divested operations at
December 31, 1998. Primary components of the operating (loss) income
from divested operations and net assets of divested operations are
reflected on the next page.
9
<PAGE>
Operating (loss) income from divested operations for the three and nine
months ended September 30 (in thousands):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
--------------------------- -----------------------------------
<S> <C> <C> <C>
1998 1999 1998
--------------- -------------- ---------------
Net sales $ 23,001 $ 5,828 $ 73,121
Cost of goods sold 17,194 4,040 52,093
--------------- -------------- ---------------
Gross profit 5,807 1,788 21,028
Selling, general and
administrative expenses 5,731 1,467 16,497
Research and development
expenses 2,353 193 6,218
Amortization expense 185 19 593
Write-off of purchased R&D --- --- 2,700
Other (income) expense, net (1) 12 (3)
--------------- -------------- ---------------
Operating (loss) income
from divested operations $ (2,461) $ 97 $ (4,977)
=============== ============== ===============
</TABLE>
Net assets of divested operations (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1998
---------------
<S> <C>
Current assets $ 3,235
Property, plant and equipment, net 3,658
Goodwill, net 1,385
Other assets 182
Less:
Current liabilities 5,472
Other liabilities 157
---------------
Net assets of divested operations $ 2,831
===============
</TABLE>
10
<PAGE>
5. SUPPLEMENTAL BALANCE SHEET INFORMATION
Accrued expenses include the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
(unaudited)
----------------------- ---------------------
<S> <C> <C>
Project expenses $ 3,177 $ 6,058
Bonuses, incentives and profit sharing 8,275 9,244
Wages and salaries 1,810 1,315
Vacation and other employee costs 6,454 5,762
Interest expense 1,362 3,367
Accrued professional fees 1,081 2,118
Other expenses 6,373 7,518
----------------------- ---------------------
$ 28,532 $ 35,382
======================= =====================
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
The Company is involved in various litigation consisting almost
entirely of product and general liability claims arising in the normal
course of its business. After deduction of a per occurrence
self-insured retention, the Company is insured for losses of up to $52
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.
In February 1999, the Chapter 7 Trustee for Foxmeyer Corporation,
Foxmeyer Drug Company, Healthcare Transportation System, Inc.,
Merchandise Coordinator Services Corporation, Foxmeyer Software, Inc.,
and Health Mart, Inc. (collectively, "Foxmeyer") filed suit against
Buschman, White, Pinnacle, Alvey and McHugh in the United States
District Court for the District of Delaware alleging fraud, negligence
and breach of contract relating to conveyor, carousel and warehouse
management systems delivered and installed in Foxmeyer's distribution
warehouse at Washington Court House, Ohio. Only McHugh and Buschman
(with White as its subcontractor) had separate contracts with Foxmeyer.
The monetary relief sought by the Foxmeyer complaint is unspecified;
however, compensatory and punitive damages are claimed. The Company has
filed a motion to dismiss on numerous counts. Foxmeyer opposition
briefs have been filed along with the Company's response briefs, and
the motion is pending before the Delaware court. Discovery has not
commenced and a trial date has not been set, but the Company intends to
contest the allegations made and vigorously defend the matter.
11
<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 result of any revisions to these forward-looking statements which may be
made to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
GENERAL
The following discussion summarizes the significant factors affecting the
consolidated operating results and financial condition of Alvey Systems, Inc.
for the three and nine months ended September 30, 1999 compared to the three and
nine months ended September 30, 1998. 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, 1998.
On October 27, 1998, McHugh was spun-off from Alvey to Pinnacle and from
Pinnacle to its common stockholders. In addition, on June 29, 1999 Busse was
sold to a third party. (See Notes 3 and 4 to the consolidated financial
statements.) The operating results of divested operations, including McHugh in
1998 and Busse in 1998 and 1999, are reflected in the Company's consolidated
statement of operations as operating loss (income) from divested operations.
Prior year financial information has been reclassified to be consistent with the
current year with respect to divested operations.
12
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, net sales and
categories of expense (income) as a percentage of net sales.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(unaudited) (unaudited)
----------------------------------- ------------------------------------
1999 1998 1999 1998
---------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold 76.3 71.8 74.9 74.2
Gross profit 23.7 28.2 25.1 25.8
Selling, general & administrative
expenses 12.8 19.2 14.8 17.3
Research & development
expenses 1.0 1.7 1.2 1.5
Amortization expense 0.2 0.3 0.2 0.3
Operating loss (income) from
divested operations 0.0 3.5 (0.0) 2.2
Other expense (income), net 0.1 (0.1) 0.0 (0.2)
Operating income 9.6 3.6 8.9 4.7
Interest expense 1.8 4.6 2.3 4.5
Income (loss) before income taxes 7.8 (1.0) 6.6 0.2
Income tax expense 3.2 1.3 2.7 0.8
Net income (loss) 4.6 % (2.3)% 3.9 % (0.6)%
</TABLE>
COMPARISON OF THE QUARTER ENDED SEPTEMBER 30, 1999 TO THE QUARTER ENDED
SEPTEMBER 30, 1998
NET SALES were $117.3 million for the quarter ended September 30, 1999,
representing an increase of $47.0 million, or 67.0%, over net sales of $70.2
million for the quarter ended September 30, 1998. This significant increase was
primarily attributable to record sales of distribution and e-commerce
fulfillment systems, which are up $44.4 million over the third quarter of 1998.
Additionally, sales of systems for consumer goods producers increased $5.7
million. Revenues attributable to the delivery of e-commerce fulfillment systems
continue to grow and represent approximately 39% of third quarter 1999 revenues.
NEW ORDER BOOKINGS were $85.1 million for the quarter ended September 30, 1999,
representing an increase of $28.9 million, or 51.5%, from bookings in the
quarter ended September 30, 1998. Bookings for distribution and e-commerce
fulfillment systems increased $29.5 million, or 115%, in the third quarter of
1999 as compared to the third quarter of 1998.
13
<PAGE>
GROSS PROFIT was $27.7 million for the quarter ended September 30, 1999, an
increase of $8.0 million, or 40.2%, over the quarter ended September 30, 1998.
As a percent of sales, gross margins were 23.7% for the third quarter of 1999,
decreasing 4.5 percentage points from the same period of 1998. Higher volume
attributable to distribution and e-commerce fulfillment systems was the primary
contributor to the increase in gross profit. Significantly increased volume was
offset, in part, by lower margins resulting from the sale of equipment
manufactured by others and integrated into the Company's systems, production
inefficiencies attributable to the significant outsourcing required to meet
customer requirements and additional costs incurred to staff and start up a new
production facility.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A) were $15.0 million for the
quarter ended September 30, 1999, representing an increase of $1.5 million, or
11.3%, over the quarter ended September 30, 1998. As a percentage of sales, SG&A
was 12.8% in the third quarter of 1999 as compared to 19.2% in the same period
of 1998. This dollar increase was driven by increased bonus, incentive and
profit sharing expense resulting from record sales and rising income levels; a
one-time charge related to an uncollectible account and increased staffing
related to selling systems through new direct sales offices. The percentage
decrease is attributable to increasing sales levels while various SG&A costs are
more fixed in nature.
RESEARCH AND DEVELOPMENT EXPENSES were $1.2 million in both the third quarter of
1999 and 1998. Customer-sponsored research and development remains at a high
level.
OPERATING LOSS FROM DIVESTED OPERATIONS was $0 for the quarter ended September
30, 1999 as compared to $2.5 million for the quarter ended September 30, 1998.
This improvement is attributable to the spin-off of McHugh in October 1998 and
the sale of Busse in June 1999.
OTHER EXPENSE (INCOME), NET was expense of $89,000 for the quarter ended
September 30, 1999 as compared to income of $43,000 for the quarter ended
September 30, 1998. Fluctuations in other expense (income), net are attributable
to the timing of royalty income, expenses related to consulting fees and other
miscellaneous and one-time items.
OPERATING INCOME for the quarter ended September 30, 1999 was $11.3 million as
compared to $2.6 million in the third quarter of 1998, an increase of $8.7
million, or 341%. Excluding divested operations, operating income was $5.0
million in the third quarter of 1998. As a percentage of sales and excluding
divested operations, operating income was 9.6% in the third quarter of 1999
compared to 7.1% for the same period of 1998. The increase in operating income
reflects the various factors described above.
INTEREST EXPENSE was $2.1 million in the third quarter of 1999 representing a
decrease of $1.1 million, or 33.5%, from $3.2 million in the third quarter of
1998. This decrease reflects the repurchase of $30.0 million of Senior
Subordinated Notes in November 1998, lower borrowings under the Company's
revolving credit facility, the inclusion of interest income from 1999 short-term
investments and a decrease in non-cash charges as a result of the write-off of
debt issuance costs attributable to the 1998 refinancing.
14
<PAGE>
INCOME TAX expense was $3.7 million for the quarter ended September 30, 1999,
representing an increase of $2.8 million from $914,000 for the third quarter of
1998. The significant difference between the effective tax rate on income (loss)
before income taxes and the expected statutory rates is primarily attributable
to the non-deductibility of expenses related to the amortization of goodwill.
NET INCOME was $5.4 million for the quarter ended September 30, 1999, an
improvement of $7.0 million from the quarter ended September 30, 1998. This
increase is the result of the various factors discussed above.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1999 TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1998
NET SALES were $282.6 million for the nine months ended September 30, 1999,
representing an increase of $62.3 million, or 28.3%, over net sales of $220.3
million for the nine months ended September 30, 1998. Record sales levels
attributable to distribution, e-commerce fulfillment and consumer goods systems
were somewhat offset by decreased sales of office automation products as a
result of the December 1998 sale of the White office products line. For the
first three-quarters of 1999, approximately 25% of total net sales were
associated with e-commerce fulfillment systems.
NEW ORDER BOOKINGS were $321.8 million for the nine months ended September 30,
1999; $97.9 million, or 43.8%, above the nine months ended September 30, 1998.
Bookings for both distribution systems and paperless picking systems increased
in excess of 70%, while bookings of consumer goods systems increased 21.2% for
the first three quarters of 1999 as compared to the same period of 1998.
GROSS PROFIT was $71.0 million for the nine months ended September 30, 1999, an
increase of $14.1 million, or 24.8%, over the nine months ended September 30,
1998. As a percentage of sales, gross margins were 25.1%, a 0.7 percentage point
decrease from the same period in 1998. The improvement in gross profit is
primarily attributable to increased volume related to distribution, e-commerce
fulfillment and consumer goods systems; while lower margins reflect a change in
product mix, the outsourcing of significant production and various costs
associated with plant start-up.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A) were $41.8 million for the
nine months ended September 30, 1999, representing an increase of $3.6 million,
or 9.5%, over the nine months ended September 30, 1998. As a percentage of
sales, SG&A was 14.8% for the first nine months of 1999, a decrease of 2.5
percentage points from the same period of 1998. This dollar increase was driven
by increased bonus and incentive expense related to record sales and increasing
income levels as well as increased staffing and expenses related to new field
offices for distribution systems. The percentage decrease is attributable to
increasing sales levels while various SG&A costs are more fixed in nature.
RESEARCH AND DEVELOPMENT EXPENSES were $3.3 million in both the first three
quarters of 1999 and 1998. Customer-sponsored research and development remains
at a high level.
15
<PAGE>
OPERATING LOSS (INCOME) FROM DIVESTED OPERATIONS was income of $97,000 for the
nine months ended September 30, 1999 as compared to a loss of $5.0 million for
the nine months ended September 30, 1998. This increase is primarily
attributable to the absence in 1999 of losses experienced by McHugh and Busse in
the first nine months of 1998 which included a $2.7 million write-off of
purchased research and development.
OTHER EXPENSE (INCOME), NET was expense of $118,000 for the nine months ended
September 30, 1999, compared to income of $536,000 for the nine months ended
September 30, 1998. This change is primarily attributable to the absence in 1999
of income recognized from the proceeds of a life insurance settlement in the
first quarter of 1998. Remaining fluctuations in other expense (income), net are
attributable to the timing of royalty income, expenses related to consulting
fees and other miscellaneous and one-time items.
OPERATING INCOME for the first nine months of 1999 was $25.3 million compared to
$10.3 million for the first three quarters of 1998. Excluding divested
operations, operating income was $25.2 million and $15.3 million for the nine
months ended September 30, 1999 and 1998, respectively. As a percentage of
sales, and excluding divested operations, operating income increased to 8.9% in
the first nine months of 1999 compared to 6.9% for the same period of 1998. The
increase in operating income reflects the various factors described above.
INTEREST EXPENSE was $6.6 million in the first three quarters of 1999 as
compared to $9.9 million in the first three quarters of 1998. This decrease
reflects the repurchase of $30.0 million of Senior Subordinated Notes in
November 1998, lower borrowings under the Company's revolving credit facility,
the inclusion of interest income from 1999 short-term investments and a decrease
in non-cash charges as a result of the write-off of debt issuance costs
attributable to the 1998 refinancing.
INCOME TAX EXPENSE was $7.6 million for the nine months ended September 30,
1999, representing an increase of $5.8 million from the $1.8 million for the
first three quarters of 1998. The significant difference between the effective
tax rate on income before income taxes and the expected statutory rates is
attributable to the non-deductibility of expenses related to the write-off of
purchased in-process research and development costs and the amortization of
goodwill.
NET INCOME was $11.1 million for the nine months ended September 30, 1999, an
increase of $12.5 million from the nine months ended September 30, 1998, as a
result of the various factors described above.
LIQUIDITY AND CAPITAL RESOURCES
CASH PROVIDED BY OPERATING ACTIVITIES. During the nine months ended September
30, 1999 and 1998, cash provided by operating activities was $9.5 million and
$15.5 million, respectively. Although income levels are significantly higher in
1999 compared to 1998, the timing of billing and collection activity as well as
expenditures has resulted in a lower increase in cash from operations in 1999
than was experienced in 1998.
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CAPITAL EXPENDITURES for the nine months ended September 30, 1999 and 1998 were
$5.3 million and $2.7 million, respectively. Management anticipates that current
year capital expenditures will approximate $6.7 million.
CASH FLOW FROM FINANCING ACTIVITIES. Net borrowings decreased by $4.7 million
and $6.4 million in the nine months ended September 30, 1999 and 1998,
respectively. Such decreases reflect the application of cash provided by
operating activities against the revolving credit facility. For a discussion of
the Company's credit facilities, see Note 8 to the consolidated financial
statements included in the Company's annual report on Form 10-K for the year
ended December 31, 1998.
ONGOING CASH FLOWS FROM OPERATIONS. The Company believes that its funds from
operations, together with available funds under its credit facility, will be
sufficient to meet its currently anticipated operating, debt service and capital
expenditure requirements with minimal additional borrowings. The Company
continues to evaluate and consider business acquisition candidates and
continually evaluates strategies to reduce costs and streamline operations.
BACKLOG. At September 30, 1999 the Company had a backlog of $138.9 million, as
compared to $119.0 million at September 30, 1998 and $99.4 million at December
31, 1998. This significant increase is attributable to record bookings in the
first three quarters of 1999. The Company's backlog is based upon firm customer
commitments that are supported by a combination of 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 Company's future operating performance. Additionally, various
backlog orders may be subject to cancellation in certain circumstances. The
Company believes that substantially all orders in backlog at September 30, 1999
will be shipped within one year.
SEASONALITY AND QUARTERLY RESULTS. The price of certain of the Company's systems
can exceed several million dollars, and therefore, a relatively small number of
orders can constitute a significant percentage of the Company's revenues in any
one period. Similarly, a relatively small reduction in the number of large
orders can have a material impact on the Company's revenues in any one quarter
or year. The timing of shipments and product revenue recognition could affect
the Company's operating results for a particular period. In addition, most of
the Company's revenues come from fixed price contracts. To the extent that the
original cost estimates prove to be inaccurate, profitability from a particular
contract may be adversely affected. As a result, the Company's operating results
can vary significantly from quarter to quarter, and the financial results for
any particular quarter are not necessarily indicative of results in any
subsequent quarter or fiscal year.
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YEAR 2000. The Company utilizes computer information systems to internally
record and track information and interact with customers, suppliers, financial
institutions and other organizations. The Company also incorporates software and
computerized functions in products sold throughout the Company. The Company has
appointed a Director of Year 2000 Issues to coordinate and lead the Year 2000
("Y2K") project. Each Alvey subsidiary has a Year 2000 Coordinator who reports
to the Director of Year 2000 and leads the Y2K effort for that subsidiary.
Additionally, the Company has selected a law firm to consult on Y2K issues. The
Company established a corporate definition of Y2K Readiness, and incorporated it
into a position statement now being used in response to customers' Y2K inquiries
as well as in new business proposals.
All subsidiaries have developed detailed implementation plans based on a five
phase resolution process that includes Phase I (Awareness), Phase II
(Assessment), Phase III (Renovation), Phase IV (Validation) and Phase V
(Contingency Planning). Company systems have been separated into three areas: 1)
internal, 2) business partners and 3) external customers. These areas have been
subdivided to address specific issues with: A) internally engineered systems, B)
purchased systems and C) embedded systems.
Phase I and II are complete at all companies. Throughout the assessment phase,
several of the subsidiaries have found that the types of equipment supplied to
their customers typically do not utilize date functions, and therefore, present
only minimal Y2K issues. The exceptions are the computer-based systems supplied
with commercially available and custom-designed software packages.
Phase III work is complete for all mission critical systems. These systems have
either been corrected or replaced at all subsidiaries. Renovations to personal
computers will most likely continue throughout 1999 as many "off the shelf"
software manufacturers continue to review and upgrade their products.
Phase IV testing has been completed on mission critical systems. The testing
identified only minor issues, which have subsequently been corrected. We have
performed system-wide tests, where applicable, and continue to test other
systems to help ensure that no new date-related problems are introduced into
previously tested or newly developed systems. Testing of hardware devices, such
as Programmable Logic Controllers and Human/Machine Interfaces, utilized on the
majority of the Company's systems, is underway and has been completed on
numerous units. This testing will be ongoing throughout the year as new and
different versions of hardware are utilized. Testing of several customer systems
has also been completed with favorable results.
Phase V contingency plans have been developed at all subsidiaries and are now
being reviewed for completeness. Completion of all contingency plans is expected
by the end of November 1999.
Alvey and its subsidiaries have received compliance statements from most
suppliers and business partners. Questionnaires have been mailed to all critical
vendors and responses have been received from most.
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Based on findings to-date, the Company believes its costs for the Year 2000
project will be approximately $2.5 million through December 1999 and any amounts
thereafter are not expected to have a material impact on the Company's operating
income. All such costs have been or are expected to be charged to operations.
Approximately 40% of these costs are considered incremental, while the remaining
60% are a utilization of current Company employees or expenditures that would
have been made in the normal course of business but may have been accelerated
due to Y2K issues.
Alvey is dependent upon its own internal computer technology, relies upon timely
performance by its business partners and provides computerized functions to
customers. A large-scale internal Year 2000 failure could, while believed to be
remote, impair the Company's ability to timely deliver products and services to
customers, resulting in potential lost sales opportunities and additional
expenses. Significant computer failures by critical vendors could disrupt the
Company's ability to produce and timely deliver products or services. However,
given the nature of the products and services provided, the Company believes any
such disruption can be minimized through the utilization of readily available
alternative sources. In the event computerized functions provided by Alvey to
its customers encounter a Y2K failure, those customers may look to Alvey to
provide assistance or services. A large scale failure could exceed the Company's
ability to timely respond to the needs of these customers, resulting in
additional expenses and potential loss of customers. The Company's Y2K program
seeks to identify and minimize this risk and includes testing of its systems to
ensure, to the extent feasible, all such systems will function properly before
and after the Year 2000. Alvey is continually refining its understanding of the
risks posed by the Year 2000, and will continue to do so through the remainder
of 1999.
Almost every company in today's business world will be affected by the Year 2000
in some way. Because there are many indirect relationships and external factors
over which the Company has little or no control, it is impossible to guarantee
that all of the Company's systems will perform perfectly. The Company believes,
however, that its analysis and efforts to identify and correct potential Y2K
problems will enable it to resolve effectively any date-related systems issues
in a timely manner and that such issues will not have a material adverse effect
on the Company's consolidated results of operation.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
In the ordinary course of business and to the extent short-term borrowings are
utilized, the Company is exposed to interest rate risks by way of changes in
short-term interest rates. The Company does not have any significant amount of
export sales denominated in foreign currencies, and acquires its raw material
supply needs in U. S. dollar-denominated transactions. Therefore, the Company is
not viewed as being exposed to foreign currency fluctuation market risks.
The Company has no material derivative financial instruments and does not enter
into derivative financial instruments for trading purposes. Market risks that
the Company has currently elected not to hedge primarily relate to its floating
rate debt.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 10.1 Agreement and Plan of Merger dated as of June 8,
1999 among Arrowhead Conveyor, LLC, Busse Acquisition Corp.,
Busse Bros., Inc. and Alvey Systems, Inc.
(b) No current reports on Form 8-K were filed during the quarter
ended September 30, 1999.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALVEY SYSTEMS, INC.
/s/James A. Sharp
------------------------------
Date: November 10, 1999 James A. Sharp
Secretary and Senior Vice President
Chief Financial Officer
(Principal Financial and Accounting Officer)
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EXHIBIT 10.1
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
DATED AS OF JUNE 8, 1999
AMONG
ARROWHEAD CONVEYOR LLC,
BUSSE ACQUISITION CORP.,
BUSSE BROS., INC.
and
ALVEY SYSTEMS, INC.
<PAGE>
TABLE OF CONTENTS
SCHEDULE OF DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . .I-1
ARTICLE I The Merger. . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.1 The Merger. . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.2 Effect of the Merger. . . . . . . . . . . . . . . . . . . . . .1
1.3 Consummation of the Merger. . . . . . . . . . . . . . . . . . .1
1.4 Terms of the Merger . . . . . . . . . . . . . . . . . . . . . .2
1.5 Conversion of Capital Stock . . . . . . . . . . . . . . . . . .2
1.6 Adjustment to the Merger Consideration. . . . . . . . . . . . .2
1.7 Time and Place of Closing . . . . . . . . . . . . . . . . . . .2
1.8 Manner of Payment . . . . . . . . . . . . . . . . . . . . . . .3
1.9 Determination of Net Working Capital. . . . . . . . . . . . . .3
1.10 Disputes Regarding Closing Balance Sheet. . . . . . . . . . . .4
1.11 Additional Consideration. . . . . . . . . . . . . . . . . . . .5
1.12 Disputes Regarding Additional Consideration . . . . . . . . . .5
1.13 Closing Deliveries. . . . . . . . . . . . . . . . . . . . . . .6
ARTICLE II Representations and Warranties. . . . . . . . . . . . . . . . .6
2.1 Purchaser's and Merger Sub's Representations and Warranties . .6
2.2 Sellers' Representations and Warranties . . . . . . . . . . . .7
2.3 Limitation on Warranties. . . . . . . . . . . . . . . . . . . 15
ARTICLE III Conduct Prior to the Closing. . . . . . . . . . . . . . . . . 15
3.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.2 Joint Obligations . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE IV Conditions to Closing . . . . . . . . . . . . . . . . . . . . 17
4.1 Conditions to Sellers' Obligations. . . . . . . . . . . . . . 17
4.2 Conditions to Purchaser's and Merger Sub's Obligations. . . . 18
4.3 Casualty. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE V Post-Closing Agreements . . . . . . . . . . . . . . . . . . . 19
5.1 Post-Closing Agreements . . . . . . . . . . . . . . . . . . . 19
5.2 Inspection of Records; Cooperation. . . . . . . . . . . . . . 19
5.3 Certain Assignments . . . . . . . . . . . . . . . . . . . . . 19
5.4 Sales and Transfer Taxes and Fees . . . . . . . . . . . . . . 20
5.5 Disclosure of Confidential Information. . . . . . . . . . . . 20
5.6 Injunctive Relief . . . . . . . . . . . . . . . . . . . . . . 21
5.7 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.8 Use of Trademarks . . . . . . . . . . . . . . . . . . . . . . 21
5.9 Collection of the Accounts Receivable . . . . . . . . . . . . 21
5.10 Merger of Surviving Corporation . . . . . . . . . . . . . . . 22
5.11 Further Assurances. . . . . . . . . . . . . . . . . . . . . . 22
5.12 Certain Medical Benefits. . . . . . . . . . . . . . . . . . . 22
ARTICLE VI Indemnification . . . . . . . . . . . . . . . . . . . . . . . 22
6.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
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6.2 Indemnification Obligations of Sellers. . . . . . . . . . . . 22
6.3 Limitations on Sellers' Indemnification Obligations . . . . . 23
6.4 Purchaser and Merger Sub's Indemnification Covenants. . . . . 24
6.5 Limitations on Purchaser and Merger Sub's Indemnification
Obligations . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.6 Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE VII Effect of Termination/Proceeding. . . . . . . . . . . . . . . 25
7.1 Right to Terminate. . . . . . . . . . . . . . . . . . . . . . 25
7.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . 25
7.3 Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE VIII Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . 26
8.1 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.3 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.4 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . 27
8.5 Non-Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.6 Applicable Law. . . . . . . . . . . . . . . . . . . . . . . . 28
8.7 Binding Effect; Benefit . . . . . . . . . . . . . . . . . . . 28
8.8 Assignability . . . . . . . . . . . . . . . . . . . . . . . . 28
8.9 Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.10 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.11 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . 28
8.12 No Third Party Rights . . . . . . . . . . . . . . . . . . . . 28
8.13 Severability. . . . . . . . . . . . . . . . . . . . . . . . . 28
EXHIBIT A Form of Note
EXHIBIT B Form of Transition Services Agreement
EXHIBIT C Form of Settlement Agreement
EXHIBIT D Closing Deliveries
EXHIBIT E Form of Opinion of Altheimer & Gray
EXHIBIT F Form of Opinion of Summers, Compton, Wells & Hamburg, P.C.
SCHEDULE 3.1 Material Consents
SCHEDULE 4.2(g)(1) Transferred Assets
DISCLOSURE SCHEDULE
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SCHEDULE OF DEFINITIONS
"ADDITIONAL CONSIDERATION DISPUTE" shall have the meaning set forth in
Section 1.12(a) of this Agreement.
"ADDITIONAL CONSIDERATION DISPUTE NOTICE" shall have the meaning set
forth in Section 1.12(a) of this Agreement.
"ADDITIONAL CONSIDERATION DISPUTE PERIOD" shall have the meaning set
forth in Section 1.12(a) of this Agreement.
"AFFILIATE" shall mean any Person which Controls a party to this
Agreement, which that party Controls or which is under common Control with that
party. In the case of the Company, an Affiliate shall include any Related
Party.
"AGREEMENT" shall mean the Agreement and Plan of Merger dated as of June
8, 1999 among Purchaser, Merger Sub, the Company and Alvey.
"ALVEY" shall have the meaning set forth in the preamble to the
Agreement.
"BASKET" shall have the meaning set forth in Section 6.3(b) to the
Agreement.
"BUSINESS" shall have the meaning set forth in Recital A to the
Agreement.
"BUSSE DIVISION" shall mean the business unit of Purchaser comprised of
the Surviving Corporation's operations immediately following the Surviving
Corporation's merger with and into the Purchaser and shall for this purpose not
include any machinery, equipment or operations thereafter acquired or otherwise
placed into service at such business unit.
"CAP" shall have the meaning set forth in Section 6.3(c) of the
Agreement.
"CASH AND CASH EQUIVALENTS" shall mean cash and marketable securities
which would be current assets under GAAP at the close of business on the day
prior to the Closing Date.
"CASH PAYMENT" shall have the meaning set forth in Section 1.5 of the
Agreement.
"CLOSING" shall mean the consummation of the transactions contemplated by
the Agreement.
"CLOSING BALANCE SHEET" shall have the meaning set forth in Section 1.9
of the Agreement.
"CLOSING DATE" shall mean the date that the Closing occurs.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMMON SHARES" shall mean shares of common stock of the Company, no par
value per share.
"COMPANY" shall have the meaning set forth in the preamble to the
Agreement.
"CONSENTS" shall have the meaning set forth in Section 3.1(b) of the
Agreement.
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"CONSTITUENT ENTITIES" shall have the meaning set forth in Section 1.1 of
the Agreement.
"CONTRACTS" shall mean all contracts, agreements, instruments, quotations
and bids, including, without limitation, all Material Contracts.
"CONTROL" shall mean the power, direct or indirect, to direct or cause
the direction of the management and policies of a Person through voting
securities, contract or otherwise.
"DAMAGES" shall have the meaning set forth in Section 6.1 of the
Agreement.
"DELAWARE LAW" shall mean the Delaware General Corporation Law.
"DISCLOSURE SCHEDULE" shall have the meaning set forth in Section 2.2 of
the Agreement.
"DISPUTE" shall have the meaning set forth in Section 1.10(a) of the
Agreement.
"DISPUTE NOTICE" shall have the meaning set forth in Section 1.10(a) of
the Agreement.
"DISPUTE PERIOD" shall have the meaning set forth in Section 1.10(a) of
the Agreement.
"EFFECTIVE TIME" shall mean the time of the filing of the Certificate of
Merger with the office of the Delaware Secretary of State pursuant to Section
1.3 of the Agreement or at such later date and time specified in the Certificate
of Merger.
"EMPLOYEE BENEFIT PLANS" shall have the meaning set forth in Section
2.2(s) of the Agreement.
"ENCUMBRANCE" shall mean any charge, claim, condition, equitable
interest, lien, option, pledge, security interest, right of first refusal or
first offer, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income, or exercise of any other attribute of
ownership.
"ENVIRONMENTAL LAWS" shall mean all applicable federal, state and local
laws, statutes, regulations, ordinances, rules, regulations and policies,
judgments, orders and decrees, all arbitration awards, and the common law, which
pertain to health, safety, environmental matters or contamination of any type
whatsoever.
"ENVIRONMENTAL PERMITS" shall mean licenses, permits, notifications,
registrations, approvals, agreements and consents which are required under,
issued or made pursuant to Environmental Laws.
"EQUIPMENT" shall mean all furniture, fixtures, equipment (including
office equipment), machinery, parts, computer hardware, tools, dies, jigs,
patterns, molds, automobiles, trucks and all other tangible personal property
other than the Inventory.
"ERISA" shall have the meaning set forth in Section 2.2(s) of the
Agreement.
"ERISA AFFILIATE" shall have the meaning set forth in Section 2.2(s) of
the Agreement.
"ESTIMATED CASH PAYMENT" shall be equal to seventy-six percent (76%) of
the Estimated Merger Consideration.
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"ESTIMATED MERGER CONSIDERATION" shall have the meaning set forth in
Section 1.8(a) of the Agreement.
"EXCLUDED LIABILITIES" shall mean only the following liabilities: (i) any
liability of the Company for Taxes (including, without limitation, Taxes based
on the Company's income) to the extent not included on the Closing Balance
Sheet; (ii) any liability of the Company with respect to Funded Debt (other than
the Utility Debt); (iii) any liabilities or obligations owed by the Company to
Related Parties including the obligations under lease #008 with CSI for
computers but excluding specific Related Party obligations described in
Permitted Liabilities; (iv) any liabilities for accrued dividends; (v) any
liabilities for legal, accounting, audit and investment banking fees, brokerage
commissions, and any other expenses incurred by the Company in connection with
the negotiation and preparation of this Agreement and Seller's Ancillary
Documents and the consummation of the transactions contemplated thereby; (vi)
liabilities of the Company for injury to or death of persons or damage to or
destruction of property (including, without limitation, any workmen's
compensation claims) provided the claim is asserted by the injured party on or
prior to the Closing Date, including, without limitation, any claim or liability
for consequential or punitive damages in connection with the foregoing; (vii)
any liabilities arising out of or in connection with the Company's Welfare Plans
and pension benefit plans arising out of or by virtue of the Company's failure
to comply with the terms of such plans on or prior to the Closing Date; and
(viii) any bonus or other compensation payments to the Company's employees which
are known to the Seller to be owed by reason of the transaction contemplated
hereby.
"FINANCIAL STATEMENTS" shall have the meaning set forth in Section 2.2(k)
of the Agreement.
"FINANCING" shall mean the senior debt financing to be provided in
connection with the Merger upon terms and conditions satisfactory to Purchaser.
"FUNDED DEBT" shall mean indebtedness to banks, financial institutions or
other Persons with respect to borrowed money and liabilities of the Company for
overdrafts and checks in transit (including any interest, penalties, premium or
fees with respect to the foregoing), any guarantees by the Company of
indebtedness or obligations of other Persons, and any liability for or related
to leases of personal property that are required by GAAP to be set forth on a
balance sheet of the Company, but which is not set forth on the Closing Balance
Sheet, and any interest, penalties, premium or fees with respect to any of the
foregoing.
"GAAP" shall mean generally accepted accounting principles, consistently
applied.
"GOVERNMENTAL AUTHORITY" shall mean the United States of America or any
other nation, any state or other political subdivision thereof, or any federal,
state, local or foreign entity exercising executive, legislative, judicial,
regulatory or administrative powers or functions of government.
"HAZARDOUS MATERIALS" shall mean any material substance or waste,
including, without limitation, pollutants, contaminants, pesticides, petroleum
or petroleum products, radioactive substances, solid wastes or hazardous or
extremely hazardous, special, dangerous, or toxic wastes, substances, chemicals
or materials defined in or within the meaning of, or the generation, use,
storage, handling, treatment, disposal or Release of which is regulated by or
subject to liability or obligation under, any Environmental Law, including,
without limitation, any "hazardous substance" as defined in the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C., Sec. 9601, ET
SEQ., and any
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"hazardous waste" as defined in the Resource Conservation and Recovery Act,
42 U.S.C., Sec. 6902 ET SEQ.
"INDEMNIFIED PARTY" shall mean a party to the Agreement who is entitled
to indemnification from another party pursuant to Article IV of the Agreement.
"INDEMNIFYING PARTY" shall mean a party to the Agreement who is required
to provide indemnification under Article IV of the Agreement to another party.
"INTELLECTUAL PROPERTY" shall mean (a) all inventions (whether patentable
or unpatentable and whether or not reduced to practice), all improvements
thereto, and all patents, patent applications, and patent disclosures, together
with all reissuances, continuations, continuations-in-part, revisions,
extensions, and reexaminations thereof, (b) all trademarks, service marks, trade
dress, logos, trade names, and corporate names, together with all translations,
adaptations, derivations, and combinations thereof and including all goodwill
associated therewith, and all applications, registrations, and renewals in
connection therewith, (c) all copyrightable works, all copyrights, and all
applications, registrations, and renewals in connection therewith, (d) all mask
works and all applications, registrations, and renewals in connection therewith,
(e) all trade secrets and confidential business information (including ideas,
research and development, know-how, formulas, compositions, manufacturing and
production processes and techniques, technical data, designs, drawings,
specifications, customer and supplier lists, pricing and cost information, and
business and marketing plans and proposals), (f) all computer software
(including data and related documentation), and (g) all copies and tangible
embodiments thereof (in whatever form or medium).
"INVENTORY" shall mean all inventory, including, without limitation, raw
materials, work in process, finished goods, service parts and supplies.
"LIABILITIES" shall have the meaning set forth in Section 2.2(z) of the
Agreement.
"MATERIAL CONTRACT" shall mean any oral or written: (i) purchase orders
and purchase contracts and sales orders and sales contracts involving receipts
or expenditures during a one (1) year period in excess of $100,000; (ii)
contracts or bids for or relating to capital expenditures in excess of $50,000;
(iii) agreements or arrangements regarding confidentiality, non-competition or
non-solicitation and other agreements containing restrictive covenants binding
on or affecting the Company; (iv) requirements contracts or output contracts
involving receipts or expenditures during a one (1) year period in excess of
$100,000; (v) loan agreements and indentures, notes and security agreements;
(vi) employment, employment-related, professional services agreements and
consulting agreements; (vii) collective bargaining agreements; (viii) sales
representative, distribution, franchise, advertising and similar agreements
involving receipts or expenditures during a one (1) year period in excess of
$30,000 or not terminable upon sixty (60) days written notice or less without
payment of any amounts or any further legal obligations; (ix) partnership or
joint venture agreements; (x) plans, contracts or arrangements providing for
bonuses, options, deferred compensation, retirement payments, profit sharing,
medical and dental payments and the like; (xi) leases and subleases of real
estate; (xii) leases and subleases of personal property where the annual
payments thereunder exceed $30,000 or which cannot be canceled by the Company
without payment or penalty upon notice of sixty (60) days or less; (xiii)
license or sublicense agreements; and (xiv) all other agreements or arrangements
(oral or written) to which the Company is a party or by which the Company or any
of its assets is bound and which have a notice for termination period of more
than sixty (60) days or obligate any party thereto to make an annual payment of
more than $30,000 or total payments of more than $50,000 during the term of such
agreement or arrangement.
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"MATERIAL CONSENTS" shall have the meaning set forth in Section 3.1(b) of
the Agreement.
"MERGER" shall have the meaning set forth in Section 1.1 of the
Agreement.
"MERGER CONSIDERATION" shall have the meaning set forth in Section 1.5(a)
of the Agreement.
"MERGER SUB" shall have the meaning set forth in the preamble of the
Agreement.
"MULTIEMPLOYER PLAN" shall have the meaning set forth in Section 2.2(s)
of the Agreement.
"NET WORKING CAPITAL" shall mean the excess of (i) the Company's current
assets (excluding cost over billings intercompany, the current portion of
deferred income taxes and prepaid intercompany services) as of the close of
business on the day preceding the Closing Date as shown on the Closing Balance
Sheet over (ii) the Company's current liabilities (excluding billings over cost
intercompany and the current portion of Funded Debt) as of the close of business
on the day preceding the Closing Date as shown on the Closing Balance Sheet.
"NOTE" shall mean a note, in the form attached hereto as EXHIBIT A, dated
as of the Closing Date, in the principal amount representing the difference
between the Estimated Merger Consideration and the Estimated Cash Payment.
"ORDINARY COURSE OF BUSINESS" shall mean an action taken by a Person will
be deemed to have been taken in the "Ordinary Course of Business" if such action
is consistent with the past practices of such Person and is taken in the
ordinary course of the normal day-to-day operations of such Person.
"PBGC" shall have the meaning set forth in Section 2.2(s) of the
Agreement.
"PERMITS" shall have the meaning set forth in Section 2.2(r) of the
Agreement.
"PERMITTED ENCUMBRANCES" shall mean (i) Encumbrances for Taxes not yet
due and payable or being contested in good faith by appropriate proceedings;
(ii) with respect to real property, easements, covenants, conditions and
restrictions of record which in the aggregate do not interfere or detract, in
any material respect, from the use or value of such real property; and (iii)
mechanics', materialmans', suppliers' or vendors' liens or similar Encumbrances
arising by operation of law and in the Ordinary Course of Business securing
amounts which are not delinquent.
"PERMITTED LIABILITIES" shall mean all liabilities of the Company other
than Excluded Liabilities, including, without limitation: (i) trade accounts
payable incurred in the Ordinary Course of Business of the Business; (ii)
accrued and unpaid expenses incurred in the Ordinary Course of Business of the
Business; (iii) liabilities of the Company, whether or not reflected on the
Closing Balance Sheet, under any written Contract, Permit or Environmental
Permit by which the Company is bound on the Closing Date which was made,
incurred or issued in the Ordinary Course of Business of the Business or is
disclosed in the Disclosure Schedule; (iv) Taxes which are accrued as of the day
preceding the Closing Date and set forth on the Closing Balance Sheet; (v)
indebtedness pursuant to the Utility Debt; (vi) product warranty liabilities of
the Company with respect to products manufactured or sold on or prior to the
Closing Date; (vii) liabilities relating to relocation expenses of Thomas J.
Young; (viii) costs of making the Company's telephone system Year 2000
Compliant; and (ix) the following obligations owed to Related Parties (A)
obligations to Alvey with respect to the sale and production of the jobs in
progress
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at the Company which were sold by Alvey on or before the Closing Date,
(B) obligations under the lease with Manchester Leasing for the truck, and (C)
obligations under the lease with CSI for the phone system.
"PERSON" shall mean an individual, partnership, limited partnership,
corporation, limited liability company, association, joint stock company, trust,
joint venture or unincorporated organization, or any Governmental Authority.
"PINNACLE" shall mean Pinnacle Automation, Inc., a Delaware corporation.
"PLAN" shall have the meaning set forth in Section 2.2(s) of the
Agreement.
"PREFERRED SHARES" shall mean the shares of preferred stock of the
Company, no par value per share.
"PURCHASER" shall have the meaning set forth in the preamble to the
Agreement.
"PURCHASER INDEMNITEE(S)" shall mean Purchaser, Merger Sub and their
Affiliates and each of their respective stockholders, partners, officers,
directors, employees, lenders and agents (and their respective stockholders,
partners, officers, directors and employees), and the respective heirs,
successors and permitted assigns of each of the foregoing. Notwithstanding that
Sellers may continue to have a business relationship with Merger Sub after the
Closing Date, references in this Agreement to Purchaser, its Affiliates, Related
Parties, representatives or agents shall not be construed to include Sellers,
their Affiliates, Related Parties, representatives or agents.
"PURCHASER'S ANCILLARY DOCUMENTS" shall have the meaning set forth in
Section 2.1(b) of the Agreement.
"REAL ESTATE" shall have the meaning set forth in Section 2.2(bb) of the
Agreement.
"REGISTERED INTELLECTUAL PROPERTY" shall have the meaning set forth in
Section 2.2(aa) of the Agreement.
"RELATED PARTY" shall have the meaning set forth in Section 2.2(n) of the
Agreement.
"RELEASE" shall mean any spill, discharge, disposal, leach, leak,
emission, escape, injection, dumping or other release or threatened release of
any material, waste or substance into the environment, whether or not
notification or reporting to any governmental agency was or is required.
"REPLACEMENT NOTE" shall mean a note, dated as of the Closing Date, in
the principal amount representing the difference between the final Merger
Consideration and the final Cash Payment and except for the principal amount
thereof, the Replacement Note shall be identical to the Note and shall be
subject to all the same provisions herein as the Note delivered to Alvey at the
Closing, and all references in this Agreement to the Note shall include
references to the Replacement Note.
"RESOLUTION ACCOUNTANT" shall have the meaning set forth in Section
1.10(b) of the Agreement.
"RETENTION PERIOD" shall have the meaning set forth in Section 5.2 of the
Agreement.
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"RETURNS" shall mean all returns, declarations, reports, statements and
other documents required to be filed in respect of Taxes.
"REVENUE" shall mean gross product sales for the applicable period
attributable to equipment sales of products commercially available on or prior
to September 30, 1999 less returns, discounts, credits, allowances, freight
expenses and sales and use taxes, all of the foregoing specifically related to
the gross product sales for the applicable period.
"SELLER INDEMNITEE(S)" shall mean Alvey, the Company and their Affiliates
and each of their respective stockholders, partners, officers, directors,
employees, lenders and agents (and their respective stockholders, partners,
officers, directors and employees), and their respective heirs, successors and
permitted assigns of each of the foregoing. Notwithstanding that Thomas J.
Young will be an owner of capital stock of Pinnacle on the Closing Date,
references in this Agreement to Sellers, their Affiliates, Related Parties,
representatives or agents shall not be construed to include Thomas J. Young, or
through him, Purchaser or Merger Sub, and their respective Affiliates, Related
Parties, representatives or Agents.
"SELLERS" shall have the meaning set forth in the preamble to the
Agreement.
"SELLERS' ANCILLARY DOCUMENTS" shall have the meaning set forth in
Section 2.2(d) of the Agreement.
"SELLERS' KNOWLEDGE" shall mean (i) the actual knowledge of Alvey and its
officers and employees and (ii) the knowledge that should be obtained by Alvey
and its officers and employees provided that they are conducting themselves
reasonably and with sound discretion in the management of Alvey's affairs and
the affairs of its subsidiaries. Purchaser shall not be entitled to rely on
subparagraph (ii) above to the extent that the matter involves knowledge that
should be obtained by Thomas J. Young, Brian Rau or Dawn Gorsuch provided they
are conducting themselves reasonably and with sound discretion in the management
of the Company's affairs, or Thad Overturf with respect to matters involving
Year 2000 Compliance of the Company.
"SIGNIFICANT CUSTOMER" shall have the meaning set forth in Section
2.2(dd) of the Agreement.
"SIGNIFICANT SUPPLIER" shall have the meaning set forth in Section
2.2(dd) of the Agreement.
"SURVIVING CORPORATION" shall have the meaning set forth in Section 1.1
of the Agreement.
"TAXES" shall mean all applicable federal, state, local, foreign and
other net income, gross income, gross receipts, sales, use, ad valorem,
transfer, franchise, profits, license, lease, service, service use, withholding,
payroll, employment, estimated excise, severance, stamp, occupation, premium,
property (including personal property), windfall profits, customs, duties or
other taxes, fees, assessments or charges of any kind whatever, payable to the
IRS or other Governmental Authority, together with any interest and any
penalties, additions to tax or additional amounts with respect thereto.
"THIRD PARTY CLAIM" shall mean any claim, action, suit, charge,
indictment, proceeding, investigation, subpoena, summons, inquiry, appeal or
like matter which has been or is asserted, served, commenced, brought or
threatened by a Person other than the parties hereto, their successors and
permitted assigns, against any Indemnified Party or to which an Indemnified
Party is subject.
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"TRADEMARKS" shall mean all trademarks, service marks, trade names, trade
dress and the like, including all common law marks, together with the associated
goodwill of each.
"TRANSFERRED ASSETS" shall have the meaning set forth in Section 4.2(g)
of the Agreement.
"UTILITY DEBT" shall mean the obligation of the Company to Wisconsin
Power and Light in the principal amount not to exceed $192,000.
"WELFARE PLAN" shall have the meaning set forth in Section 2.2(s) of the
Agreement.
"WISCONSIN LAW" shall mean the Wisconsin Business Corporation Law.
"YEAR 2000 COMPLIANT" shall mean (i) with respect to data that includes
date or time information or that is otherwise derived from or dependent upon
date or time information ("Date Data"), that such data is in proper format and
accurate for all dates and times (A) from, into and between the twentieth and
twenty-first centuries, (B) from and into date values representing September 9,
1999, and (C) for date values representing dates during leap years, and (ii)
with respect to all systems and information technology (including, without
limitation, software, hardware, equipment, microcode, embedded chips and any
electronic or electronically controlled systems or components), that such
systems and information technology accurately process (including, without
limitation, calculating, receiving, comparing, sequencing, storing, transmitting
or displaying) Date Data, including processing such data described in clauses
(A) through (C) of clause (i) hereof, without loss of any functionality or
performance, when used as a stand-alone system or in combination with other
software, hardware, system, component, equipment, embedded chip or other
information technology of clause (i) hereof, without loss of any functionality
or performance, when used as a stand-alone system or in combination with other
software, hardware, system, component, equipment, embedded chip or other
information technology.
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the "AGREEMENT") is made as of June 8,
1999 among ARROWHEAD CONVEYOR LLC, a Delaware limited liability company
("PURCHASER"), BUSSE ACQUISITION CORP., a Delaware corporation and wholly owned
subsidiary of Purchaser ("MERGER SUB"), BUSSE BROS., INC., a Wisconsin
corporation (the "COMPANY"), and ALVEY SYSTEMS, INC., a Delaware corporation
("ALVEY") (the Company and Alvey are sometimes referred to herein individually
as "SELLER" and collectively as "SELLERS").
R E C I T A L S
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A. The Company is engaged in the business of manufacturing bulk
palletizing and depalletizing systems (the "BUSINESS").
B. Purchaser desires to acquire the Company by means of a merger of
the Company with and into Merger Sub, with Merger Sub being the surviving
corporation, on the terms and subject to the conditions herein contained.
A G R E E M E N T S
-------------------
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
THE MERGER
I.1 THE MERGER. On the terms and subject to the conditions contained
in this Agreement, at the Effective Time, in accordance with this Agreement, the
Delaware Law and the Wisconsin Law, the Company shall merge with and into Merger
Sub (the "MERGER"), Merger Sub shall continue as the surviving corporation
(sometimes hereinafter referred to as the "SURVIVING CORPORATION") and the
separate corporate existence of the Company shall cease. The Company and Merger
Sub are sometimes herein referred to as the "CONSTITUENT ENTITIES."
I.2 EFFECT OF THE MERGER. Immediately following the Merger, the
Surviving Corporation shall (a) possess all the rights, privileges, immunities
and franchises, both public and private, of the Constituent Entities, (b) be
vested with all property, whether real, personal or mixed, and all debts due on
whatever account, and all other causes of action, and all and every other
interest belonging to or due to each of the Constituent Entities, and (c) be
responsible and liable for all the obligations and liabilities of each of the
Constituent Entities, all with the effect set forth in the Delaware Law and the
Wisconsin Law.
I.3 CONSUMMATION OF THE MERGER. On the Closing Date, the parties
hereto shall cause a Certificate of Merger to be filed with the Secretary of
State of Delaware and an Articles of Merger to be filed with the Department of
Financial Institutions of the State of Wisconsin in such form as required by,
and executed in accordance with, Section 252 of the Delaware Law and Section
180.1105 of the Wisconsin Law. The Merger shall be effective as of the
Effective Time.
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I.4 TERMS OF THE MERGER. From and after the Effective Time, the
Certificate of Incorporation of Merger Sub, as in effect immediately prior to
the Effective Time, shall be the Certificate of Incorporation of the Surviving
Corporation, and shall thereafter continue in effect until amended as provided
therein and in accordance with the Delaware Law.
I.5 CONVERSION OF CAPITAL STOCK. At the Effective Time, by virtue of
the Merger, the manner and the basis of converting the shares of capital stock
of the Company and Merger Sub shall be as follows:
(a) all of the Common Shares and Preferred Shares issued and
outstanding at the Effective Time shall, by virtue of the Merger and
without any action on the part of the Company or Alvey, be converted into
the right to receive, subject to the adjustment provided for in Section
1.6, the amount of Two Million Nine Hundred Seven Thousand Seven Hundred
Twenty Eight Dollars ($2,907,728) (the "MERGER CONSIDERATION") consisting
of a cash payment representing seventy-six percent (76%) of the Merger
Consideration (the "CASH PAYMENT") and the Note representing the
remainder of the Merger Consideration;
(b) each issued and outstanding share of capital stock in
Merger Sub shall remain outstanding; and
(c) all of the certificates representing the outstanding Common
Shares and Preferred Shares shall, by virtue of the Merger and without
any action on the part of the Company or Alvey, be deemed to be no longer
outstanding, not be transferable on the books of the Surviving
Corporation and shall represent solely the right to receive the Merger
Consideration.
I.6 ADJUSTMENT TO THE MERGER CONSIDERATION. The Merger Consideration
shall be:
(a) increased dollar for dollar by the amount of positive Net
Working Capital; or
(b) reduced dollar for dollar by the amount of negative Net
Working Capital.
I.7 TIME AND PLACE OF CLOSING. The transaction contemplated by
this Agreement shall be consummated (the "CLOSING") at 10:00 a.m. local time,
at the offices of Altheimer & Gray, 10 South Wacker Drive, Suite 4000,
Chicago, Illinois 60606, on or prior to June 21, 1999 or on such other date,
or at such other time or place, as shall be mutually agreed upon by Sellers
and Purchaser; PROVIDED, HOWEVER, that the date of the Closing shall be
automatically extended from time to time for so long as any of the conditions
set forth in Article IV shall not be satisfied or waived, subject, however,
to the provisions of Section 7.1. The date on which the Closing occurs in
accordance with the preceding sentence is referred to herein as the "CLOSING
DATE." To facilitate the Closing, the parties shall convene at 10:00 a.m. at
the offices of Altheimer & Gray, 10 South Wacker Drive, Chicago, Illinois
60606 on June 10, 1999 to, as applicable, deliver in escrow with Altheimer &
Gray the closing deliveries contemplated by Section 1.13 hereof (other than
the Estimated Cash Payment and the Note). In connection with the foregoing,
the parties hereby appoint Altheimer & Gray to serve as escrowee without fee.
On the date that the Closing shall occur, if it is to occur, (i) Purchaser
shall deliver the Estimated Cash payment as set forth in Section 1.8 and the
Note and (ii) upon written notice from Purchaser and Sellers, by telecopy or
other written instrument, Altheimer & Gray (as escrowee) shall deliver
executed counterparts of such documents deposited with it to Purchaser and
Sellers, and each such document shall be deemed to have been executed and
delivered as of the date thereof. If either Purchaser or Sellers shall give
written notice to Altheimer & Gray (as escrowee) that the Closing shall not
take place due to the nonsatisfaction by the
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other party of one of the conditions to Closing, then unless instructed
otherwise by both Purchaser and Sellers and within ten (10) days after
receipt of said written notice, Altheimer & Gray (as escrowee) shall
thereupon destroy all documents deposited with it and such documents shall be
deemed by all parties to have never been executed or delivered. Altheimer &
Gray (as escrowee) shall not be liable for any action or inaction taken by
it, except for its own gross negligence or wilful misconduct. In the event
of any conflicting instructions by the parties, Altheimer & Gray (as
escrowee) shall not be required to act until receipt of mutually consistent
instructions or judicial determination.
I.8 MANNER OF PAYMENT.
(a) For purposes of the Closing, the parties shall make a good
faith estimate of the Merger Consideration as adjusted pursuant to
Section 1.6, based upon the most recently available financial information
(as so adjusted, the "ESTIMATED MERGER CONSIDERATION"). On the Closing
Date, the Surviving Corporation shall (i) deliver the Estimated Cash
Payment to Alvey by wire transfer, to such account as Alvey shall
designate by written notice delivered to Purchaser not later than three
(3) days prior to the Closing Date and (ii) deliver to Alvey the Note.
(b) Following the Closing, the parties shall determine the
final Merger Consideration, taking into account the adjustments required
pursuant to Section 1.6 and employing the procedures and criteria set
forth in Sections 1.9 and 1.10:
(i) if, the Merger Consideration as finally determined
exceeds the Estimated Merger Consideration, forthwith (but in any
event within five (5) business days following the final
determination of the Merger Consideration), the Surviving
Corporation shall pay seventy-six percent (76%) of the excess to
Alvey, in cash by wire transfer of immediately available funds
and shall issue to Alvey the Replacement Note in substitution of
the Note (which at the time of the issuance of the Replacement
Note, will be surrendered by Alvey to the Surviving Corporation
for cancellation); or
(ii) if, the Estimated Merger Consideration exceeds the
Merger Consideration as finally determined, forthwith (but in any
event within five (5) business days of the final determination of
the Merger Consideration), Alvey shall pay seventy-six percent
(76%) of the excess to the Surviving Corporation, in cash by wire
transfer of immediately available funds and the Surviving
Corporation shall issue to Alvey the Replacement Note in
substitution of the Note (which at the time of issuance of the
Replacement Note, will be surrendered by Alvey to the Surviving
Corporation for cancellation);
in the case of either (i) or (ii) above, together with interest on the
cash portion at the rate of eight percent (8.0%) per annum from the
Closing Date to the date of payout.
I.9 DETERMINATION OF NET WORKING CAPITAL. The Net Working Capital
shall be determined from a statement of assets and liabilities of the Company
as of the close of business on the day immediately preceding the Closing Date
taking into account the exclusions of the Transferred Assets and Excluded
Liabilities (the "CLOSING BALANCE SHEET"). The Closing Balance Sheet shall
be prepared by Alvey in accordance with GAAP, applied in a manner consistent
with the accounting principles applied in the preparation of the Financial
Statements (as herein defined) to the extent the Financial Statements were
prepared in accordance with GAAP, except that the Closing Balance Sheet shall
not show the Transferred Assets and the Excluded Liabilities.
Notwithstanding, or without limitation, as the case may be, of the
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foregoing: (a) the Closing Balance Sheet shall contain pro rata accruals for
any ordinary, discretionary or contingent amounts reasonably anticipated to
be paid in accordance with past custom and practice and consistent with
Schedule 1.9 under any Employee Benefit Plans (but excluding any bonuses to
employees) and for accrued salaries, wages, vacation pay, payroll Taxes with
respect to employees of the Company, utilities, real estate Taxes, and like
items; (b) all inventory of the Company shall be determined pursuant to a
physical count of such inventory conducted within the ten (10) day period
immediately preceding or following the Closing Date and valued, on an item by
item basis, at the lower of the actual cost thereof or market value (as of
the close of business on the day immediately preceding the Closing Date)
thereof, using the first-in, first-out method of accounting; PROVIDED,
HOWEVER, that obsolete inventories, inventories which are unsalable or
unusable in the Ordinary Course of Business and slow moving inventories shall
be valued at net realizable value in accordance with GAAP; (c) assets and
liabilities shall be reflected without regard to materiality; (d) the Closing
Balance Sheet shall contain a reserve for product warranty liabilities of the
Company determined in a manner consistent with past custom and practice; (e)
the Closing Balance Sheet shall be prepared on the basis that it is being
used in the computation of the Merger Consideration; and (f) Cash on the
Closing Balance Sheet will be petty cash of $500.00. Alvey shall make
available to Purchaser, upon request of Purchaser, Alvey's work papers and
shall permit Purchaser and Purchaser's accountants to observe in the taking
of the physical inventory. Alvey shall use its best efforts to deliver the
Closing Balance Sheet to Purchaser not later than sixty (60) days following
the Closing Date.
I.10 DISPUTES REGARDING CLOSING BALANCE SHEET. Disputes with respect
to the Closing Balance Sheet shall be resolved as follows:
(a) Purchaser shall have forty-five (45) days following the
receipt of the Closing Balance Sheet (the "DISPUTE PERIOD") to dispute
any of the elements of or amounts reflected thereon (a "DISPUTE"). If
Purchaser does not give written notice to Alvey of a Dispute within the
Dispute Period (a "DISPUTE NOTICE"), or if it delivers written notice to
Alvey of its approval of the Closing Balance Sheet before the end of the
Dispute Period, the Closing Balance Sheet shall be deemed to have been
accepted and agreed to in the form in which it was delivered and shall be
final and binding upon the parties hereto. If Purchaser has a Dispute,
Purchaser shall give Alvey a Dispute Notice within the Dispute Period,
setting forth in reasonable detail the elements and amounts of the
disagreement. Within thirty (30) days following delivery of such Dispute
Notice, Alvey and Purchaser shall attempt to resolve such Dispute and
agree in writing upon the final content of the Closing Balance Sheet.
(b) If Alvey and Purchaser are unable to resolve the Dispute
within the thirty (30) day period following Alvey's receipt of a Dispute
Notice, Alvey and Purchaser shall submit such Dispute, together with a
statement of facts agreed to by Alvey and Purchaser and such arguments as
either of them choose to make in connection therewith, in writing to the
St. Louis, Missouri office of a nationally recognized certified public
accounting firm (provided that neither Alvey, Purchaser nor any of their
Affiliates shall have engaged such firm to perform services during the
two-year period immediately preceding the date of such Dispute other than
as an independent third party engaged in dispute resolution) (the
"RESOLUTION ACCOUNTANT"). Alvey and Purchaser shall cause the Resolution
Accountant to resolve the Dispute within thirty (30) days following their
submission of the Dispute to him in writing, which resolution shall be
binding on the parties. The fees and expenses of the Resolution
Accountant shall be shared equally by Alvey and Purchaser.
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I.11 ADDITIONAL CONSIDERATION.
(a) In addition to the Merger Consideration, Purchaser shall
pay to Alvey the following contingent amounts (the "ADDITIONAL
CONSIDERATION") if earned in accordance with the following terms:
(i) within ninety (90) days following receipt by
Purchaser of its audited financial statements for its fiscal year
ended December 31, 1999, the Purchaser shall pay to Alvey an
amount equal to seven and one-half percent (7.5%) of the amount
by which the Revenue for the Busse Division during such fiscal
year exceeds $6,000,000; and
(ii) within ninety (90) days following receipt by
Purchaser of audited financial statements of Purchaser for its
fiscal year ended December 31, 2000, Purchaser shall pay to Alvey
an aggregate amount equal to seven and one-half percent (7.5%) of
the amount by which the Revenue for the Busse Division during
such fiscal year exceeds $13,000,000.
(b) The payments required by clauses (i) and (ii) of Section
1.11(a) shall be made by wire transfer of immediately available funds
within five (5) business days following the date upon which the amount of
Additional Consideration has become final and binding.
(c) Within fifteen (15) business days following receipt by
Purchaser of each of the audited financial statements referred to in
Section 1.11(a), Purchaser shall deliver to Alvey a schedule setting
forth the computation of the Additional Consideration and financial
information reasonably appropriate to support such computation. Any
disputes regarding the computation of the Additional Consideration shall
be determined pursuant to Section 1.12.
(d) In determining the Revenue for the Busse Division for any
fiscal year, the business of the Busse Division will be treated as a
stand-alone enterprise, separate and distinct from the rest of
Purchaser's operations. Without limiting the generality of the
foregoing, in computing the Revenue for the Busse Division for any period
designated in this Section 1.11, all products purchased by the Busse
Division from other business units of Purchaser and all products sold by
the Busse Division to other business units of Purchaser shall be priced
on an arms-length basis as if such products were purchased from or sold
to a third party.
I.12 DISPUTES REGARDING ADDITIONAL CONSIDERATION. Disputes with
respect to the computation of the Additional Consideration shall be resolved as
follows:
(a) Alvey shall have forty-five (45) days following the receipt
of the schedule setting forth the computation of the Additional
Consideration and financial information reasonably appropriate to support
such computation (the "ADDITIONAL CONSIDERATION DISPUTE PERIOD") to
dispute any of the elements of or amounts reflected thereon (an
"ADDITIONAL CONSIDERATION DISPUTE"). If Alvey does not give written
notice to Purchaser of a Additional Consideration Dispute within the
Additional Consideration Dispute Period (an "ADDITIONAL CONSIDERATION
DISPUTE NOTICE"), or if it delivers written notice to Purchaser of its
approval of the Additional Consideration before the end of the ADDITIONAL
CONSIDERATION Dispute Period, the Additional Consideration shall be
deemed to have been accepted and agreed to in the form in which it was
delivered and shall be final and binding upon the parties hereto. If
Alvey has an Additional Consideration Dispute, Alvey shall give Purchaser
an Additional Consideration Dispute Notice
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within the Additional Consideration Dispute Period, setting forth in
reasonable detail the elements and amounts of the disagreement.
Within thirty (30) days following delivery of such Additional
Consideration Dispute Notice, Alvey and Purchaser shall attempt to
resolve such Dispute and agree in writing upon the Additional
Consideration.
(b) If Alvey and Purchaser are unable to resolve the Additional
Consideration Dispute within the thirty (30) day period following
Purchaser's receipt of a Additional Consideration Dispute Notice, Alvey
and Purchaser shall submit such Additional Consideration Dispute,
together with a statement of facts agreed to by Alvey and Purchaser and
such arguments as either of them choose to make in connection therewith,
in writing to the Resolution Accountant. Alvey and Purchaser shall cause
the Resolution Accountant to resolve the Additional Consideration Dispute
within thirty (30) days following their submission of the Additional
Consideration Dispute to him in writing, which resolution shall be
binding on the parties. The fees and expenses of the Resolution
Accountant shall be shared equally by Alvey and Purchaser.
I.13 CLOSING DELIVERIES. At the Closing, the parties shall execute
and deliver a Transition Services Agreement in the form of EXHIBIT B hereto, a
Settlement Agreement in the form of EXHIBIT C hereto, a sales agreement and such
closing certificates, good standing certificates and other documents as are
reasonably required in order to effectuate the consummation of the transaction
contemplated hereby, including, without limitation, the documents, instruments
and other deliveries to be made by the parties as set forth on EXHIBIT D hereto.
All documents to be delivered by a party shall be in form and substance
reasonably satisfactory to the other party hereto.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
II.1 PURCHASER'S AND MERGER SUB'S REPRESENTATIONS AND WARRANTIES.
Purchaser and Merger Sub represent and warrant to Sellers, jointly and
severally, that:
(a) GOOD STANDING. Purchaser and Merger Sub are limited
liability companies duly organized, existing and in good standing under
the laws of the State of Delaware.
(b) POWER AND AUTHORITY. Purchaser and Merger Sub have full
power and authority to enter into and perform (i) this Agreement and (ii)
all documents and instruments to be executed by Purchaser and Merger Sub
pursuant to this Agreement (including, without limitation, those
identified on EXHIBIT D hereto) (collectively, "PURCHASER'S ANCILLARY
DOCUMENTS"). This Agreement has been, and Purchaser's Ancillary
Documents will be, duly executed and delivered by duly authorized
officers of Purchaser and Merger Sub. Assuming the due execution and
delivery of this Agreement by Sellers, this Agreement constitutes, and
Purchaser's Ancillary Documents when executed will constitute, a valid
and legally binding obligation of Purchaser and Merger Sub, enforceable
against Purchaser and Merger Sub in accordance with its terms, subject to
applicable bankruptcy, insolvency and similar laws affecting creditors'
rights generally, and subject, as to enforceability, to general
principles of equity regardless of whether enforcement is sought in an
action of law or a suit in equity.
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(c) CONSENTS. No consent, authorization, order or approval of,
or filing or registration with, any Governmental Authority or other
Person which has not been obtained on or prior to the date hereof is
required for the execution and delivery by Purchaser and Merger Sub of
this Agreement and Purchaser's Ancillary Agreements, and the consummation
by Purchaser and Merger Sub of the transaction contemplated by this
Agreement and Purchaser's Ancillary Documents.
(d) CONFLICTS. Neither the execution and delivery of this
Agreement and Purchaser's Ancillary Documents by Purchaser and Merger
Sub, nor the consummation by Purchaser and Merger Sub of the transaction
contemplated hereby, will conflict with or result in a breach or
violation of any of the terms, conditions or provisions of Purchaser's or
Merger Sub's Certificate of Formation or Operating Agreement or of any
statute or administrative regulation, or of any order, writ, injunction,
judgment or decree of any court or Governmental Authority or of any
arbitration award.
(e) DEFAULTS. Purchaser and Merger Sub are not a party to any
unexpired, undischarged or unsatisfied written or oral contract,
agreement, indenture, mortgage, debenture, note or other instrument under
the terms of which performance by Purchaser and Merger Sub according to
the terms of this Agreement will be a default, or whereby timely
performance by Purchaser and Merger Sub according to the terms of this
Agreement may be prohibited, prevented or delayed or would constitute a
violation of, or conflict with, or result in the creation or imposition
of any liens upon any property of Purchaser and Merger Sub.
(f) BROKER'S FEES. Neither Purchaser, Merger Sub, nor any of
their Affiliates, has dealt with any Person who is or may be entitled to
a broker's commission, finder's fee, investment banker's fee or similar
payment for arranging the transaction contemplated hereby or introducing
the parties to each other.
II.2 SELLERS' REPRESENTATIONS AND WARRANTIES. Alvey represents and
warrants to Purchaser, that, except as set forth in the schedules delivered by
Sellers to Purchaser on the date hereof and identified collectively as the
"DISCLOSURE SCHEDULE" (each exception noted in the Disclosure Schedule being
numbered to correspond to, and only to, the applicable paragraph of Section 2.2
to which such exception refers):
(a) TITLE TO SHARES. Alvey has good, valid, and marketable
title to the Common Shares and Preferred Shares free and clear of any and
all Encumbrances. There are no agreements, restrictions or
understandings to which Alvey is a party with respect to the sale,
transfer, or voting of any Shares.
(b) CORPORATE. The Company is a corporation duly organized,
existing and in good standing under the laws of the State of Wisconsin.
Alvey is a corporation duly organized, existing and in good standing
under the laws of the State of Delaware. The Company has all necessary
corporate power and authority to conduct the Business as the Business is
now being conducted.
(c) GOOD STANDING. The Company is duly qualified to conduct the
Business as a foreign corporation in each jurisdiction where the failure
to so qualify would have a material adverse effect on the Company. All
jurisdictions in which the Company is qualified as a foreign corporation
are set forth on SCHEDULE 2.2(C) to the Disclosure Schedule.
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(d) POWER AND AUTHORITY. Each Seller has full power and
authority to enter into and perform (i) this Agreement and (ii) all
documents and instruments to be executed by each Seller pursuant to this
Agreement (including, without limitation, those identified on EXHIBIT D
hereto) (collectively, "SELLERS' ANCILLARY DOCUMENTS"). This Agreement
has been, and Sellers' Ancillary Documents will be, duly executed and
delivered by duly authorized officers of the Company and Alvey. Assuming
the due execution and delivery of this Agreement by Purchaser and Merger
Sub, this Agreement constitutes, and Sellers' Ancillary Documents when
executed will constitute, a valid and legally binding obligation of each
Seller, enforceable against each Seller in accordance with its terms,
subject to applicable bankruptcy, insolvency and similar laws affecting
creditors' rights generally, and subject, as to enforceability, to
general principles of equity regardless of whether enforcement is sought
in an action of law or a suit in equity.
(e) CAPITALIZATION.
(i) The Company's authorized capital stock consists of
3,000 Common Shares of which 1,500 Common Shares are issued and
outstanding and owned by Alvey and 2,200 Preferred Shares, of
which 2,132 Preferred Shares are issued and outstanding and owned
by Alvey. There are no shares of capital stock of the Company of
any other class authorized, issued or outstanding. All
outstanding shares of such stock are owned and held beneficially
and of record by Alvey.
(ii) All of the issued and outstanding Common Shares and
Preferred Shares have been validly issued and are fully paid and
nonassessable.
(iii) Except as disclosed on SCHEDULE 2.2(E), there are no
right of first refusal options or other restrictions on transfer
applicable to any Common Shares or Preferred Shares.
(f) RIGHTS TO ACQUIRE SECURITIES; STOCK APPRECIATION RIGHTS.
(i) The Company does not have outstanding any preemptive
or subscription rights, options, warrants, rights to convert,
capital stock equivalents, or other rights to purchase or
otherwise acquire, now or in the future, any of its capital stock
or other securities.
(ii) The Company does not have outstanding any stock
appreciation rights or other rights granting to any Person the
right to be paid money or other property based on the value of
securities of the Company.
(iii) Except as disclosed on SCHEDULE 2.2(F), the Company
has no agreements, restrictions, or understandings to which the
Company is a party with respect to the sale, transfer, or voting
of any Common Shares or Preferred Shares.
(g) SUBSIDIARIES. The Company has no subsidiaries.
(h) CONSENTS. Except as disclosed on SCHEDULE 2.2(H), no
consent, authorization, order or approval of, or filing or registration
with, any Governmental Authority or other Person is required for the
execution and delivery by each Seller of this Agreement and Sellers'
Ancillary
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Documents by Sellers and the consummation by each Seller of the
transaction contemplated by this Agreement and Sellers' Ancillary
Documents.
(i) CONFLICTS. Neither the execution and delivery of this
Agreement and Sellers' Ancillary Documents by each Seller, nor the
consummation by each Seller of the transaction contemplated hereby, will
(i) conflict with or result in a breach or violation of any of the terms,
conditions or provisions of the Company's or Alvey's Articles of
Incorporation or By-laws, or of any order, writ, injunction, judgment or
decree of any court or any Governmental Authority or of any arbitration
award, or (ii) violate any statute or administrative regulation in any
material respect.
(j) BOOKS AND RECORDS. The Company's books, accounts and
records with respect to the Business are, and have been, maintained in
the Company's usual, regular and ordinary manner, in accordance with
GAAP, and all transactions to which the Company is or has been a party
with respect to the Business and which impact the Financial Statements in
a material respect are properly reflected therein.
(k) FINANCIAL STATEMENTS. SCHEDULE 2.2(K) of the Disclosure
Schedule contains complete and accurate copies of the unaudited balance
sheets and statements of income and cash flows, and notes to financial
statements, if any, of the Company, all as of and for the years ended
December 31, 1996, December 31, 1997 and December 31, 1998, respectively.
The financial statements described in the immediately preceding sentence
are referred to herein as the "FINANCIAL STATEMENTS." The Financial
Statements were used in the preparation of the audited consolidated
financial statements of Alvey. The Financial Statements present fairly,
in all material respects, the financial position of the Company as of the
respective dates thereof, and the results of operations and cash flows of
the Company for the respective periods covered thereby, in accordance
with GAAP consistently applied.
(l) TITLE OF ASSETS. The Company has good and marketable title
to, and the corporate power to sell its assets, free and clear of any
Encumbrances except for the Permitted Encumbrances and any Encumbrances
disclosed on SCHEDULE 2.2(L) to the Disclosure Schedule. No unreleased
and unsatisfied mortgage, trust deed, chattel mortgage, security
agreement, financing statement or other instrument encumbering any of its
assets has been recorded, filed, executed or delivered.
(m) INSURANCE. SCHEDULE 2.2(M) to the Disclosure Schedule
contains a true and correct list and summary description of all insurance
policies which are applicable to the Company with respect to the Business
or which name the Company as an insured and which pertain to the Business
or the Company's employees with respect to the Business.
(n) RELATED PARTY TRANSACTIONS. SCHEDULE 2.2(N) to the
Disclosure Schedule describes each: (i) business relationship existing
on the date of this Agreement with respect to or involving the Business
between (A) Sellers, (B) its direct or indirect subsidiaries, or (C) any
present or former officer, director, shareholder or Affiliate, or any
present or former known spouse, ancestor or descendant of any of the
aforementioned Persons or any trust or other similar entity for the
benefit of any of the foregoing Persons (all such Persons described in
clauses (B) and (C) being sometimes referred to herein collectively as
the "RELATED PARTIES" and individually as a "RELATED PARTY"); and
(ii) amount owing by or to any of the Related Parties, respectively, to
or from Sellers as of the date of this Agreement. Except as set forth on
SCHEDULE 2.2(N) to the Disclosure Schedule, no property or interest in
any property (including, without limitation,
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designs and drawings concerning machinery) which relates to and is
necessary or useful in the present operation of the Business is
presently owned by or leased or licensed by or to any Related Party.
(o) TAXES. Except as set forth in SCHEDULE 2.2(O) to the
Disclosure Schedule, all Returns required to be filed by or on behalf of
the Company with respect to Taxes and financial results have been timely
completed and filed. All such Returns were and are correct and complete
in all material respects. All Taxes payable by on or behalf of the
Company or for which the Company is or may be liable, whether to taxing
authorities or others (for example, by way of tax sharing agreements or
arrangements), whether or not shown on any Return, have been paid in full
or are reserved for in full on the Financial Statements. There have been
withheld and paid all Taxes or other amounts required to be withheld or
paid by or on behalf of the Company in connection with amounts paid or
owing to any employee. The foregoing Returns correctly reflected the
facts regarding the income, business, assets, operations, activities,
status or other matters of the Company or any other information required
to be shown thereon, and no extension of time within which to file any
such Return has been requested or granted. All tax laws affecting the
Company have been complied with in all material respects. The
transactions contemplated herein are not subject to any tax withholding
provisions of law.
(p) DISCLOSURE OF INFORMATION. Sellers acknowledge that: (i)
prior to the date hereof, the Company prepared, and Sellers disseminated
to each of (and only) the Persons set forth on SCHEDULE 2.2(p) to the
Disclosure Schedule, information related to the Company and the Business
which is of a confidential, sensitive and/or proprietary nature in
anticipation of a potential transaction involving the Company; (ii) as a
condition to the furnishing of such information, Sellers required each
such Person to execute and deliver to Sellers a confidentiality agreement
(copies of which are attached to SCHEDULE 2.2(p)); and (iii) each such
Person has returned to Sellers all of its copies of such information or,
in the alternative, has destroyed such information in a manner
contemplated by the terms of such confidentiality agreement.
(q) MATERIAL CONTRACTS. SCHEDULE 2.2(Q) to the Disclosure
Schedule correctly and completely lists all of the Material Contracts.
The Company has not executed any express written waivers which could
release or waive any rights under any Material Contract or otherwise
waived any rights which are material, alone or together with other such
waivers. All Material Contracts are in full force and binding upon the
parties thereto, assuming due execution of the Material Contracts by the
other parties thereto. No default by the Company has occurred thereunder
and, to the knowledge of Sellers, no default by the other contracting
parties has occurred thereunder. To the knowledge of Sellers, no event,
occurrence or condition exists which, with the lapse of time, the giving
of notice, or both, or the happening of any further event or condition,
would become a default by the Company thereunder.
(r) PERMITS. SCHEDULE 2.2(R) to the Disclosure Schedule
contains a true and correct copy of every material unexpired license,
permit, registration and governmental approval, agreement and consent
currently applied for or pending by, issued or given to Sellers in
connection with the conduct of the Business as presently conducted by
Sellers, exclusive of Environmental Permits (collectively, the
"PERMITS").
(s) EMPLOYEE BENEFITS.
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(i) SCHEDULE 2.2(S) to the Disclosure Schedule contains
a list of all employee pension benefit plans (as defined in
section 3(2) of the Employment Retirement Income Security Act of
1974, as amended ("ERISA")) ("PLANS"), including, without
limitation, all multiemployer plans as defined in section 3(37)
of ERISA ("MULTIEMPLOYER PLANS"); employee welfare benefit plans
(as defined in section 3(1) of ERISA) ("WELFARE PLANS"); and
bonus, deferred compensation, stock purchase, stock option,
severance plans, salary continuation, vacation, sick leave,
fringe benefit, incentive, insurance, welfare or similar
arrangement ("EMPLOYEE BENEFIT PLANS") which Seller or any
affiliate as determined under section 414(b), (c), (m) or (o) of
the Code ("ERISA AFFILIATE") maintains, administers or
contributes to, or has maintained, administered or contributed
to, or pursuant to which the employees of the Company or any
ERISA Affiliate receive or expect to receive benefits as a
condition of employment.
(ii) All Plans, Welfare Plans and Employee Benefit Plans
and any related trust agreements or annuity contracts comply with
and are and have been operated in accordance with, in all
material respects, each applicable provision of ERISA, the Code
(including, without limitation, the requirements of
section 401(a) of the Code to the extent any Plan is intended to
conform to that section), other Federal statutes, state law
(including, without limitation, state insurance law) and the
regulations and rules promulgated pursuant thereto or in
connection therewith. Neither any Seller nor any ERISA Affiliate
has any notice or knowledge of any violation of any of the
foregoing by any Plan, Welfare Plan or Employee Benefit Plan.
Each Welfare Plan which is a group health plan (within the
meaning of section 5000(b)(1) of the Code) complies with and has
been maintained and operated in accordance with, in all material
respects, each of the requirements of section 4980B of the Code
and Part 6 of Subtitle B of Title I of ERISA and similar state
law. A favorable determination as to the qualification under the
Code of each of the Plans and each amendment thereto has been
made by the Internal Revenue Service, each trust funding Welfare
Plans or Plans is and has been tax-exempt and each Plan and
related trust agreement remain qualified under the Code.
(iii) Neither any Seller nor any ERISA Affiliate has ever
maintained, administered or contributed to or has any liability
with respect to Title IV of ERISA or any Multiemployer Plan.
There is currently no active filing by any Seller or any ERISA
Affiliate with the Pension Benefit Guaranty Corporation ("PBGC")
(and no proceeding has been commenced by the PBGC) to terminate
any Plan which is subject to Title IV of ERISA and which has been
maintained or funded, in whole or in part, by any Seller or any
ERISA Affiliate.
(t) EMPLOYEES. With respect to employees of the Company who
are or were employed in the conduct of the Business: (i) there are no
pending or, to Sellers' knowledge, threatened unfair labor practice
charges or employee grievance charges; (ii) there is no union
representation of the Company's employees, and no request for union
representation, labor strike, dispute, slowdown or stoppage actually
pending or, to Sellers' knowledge, threatened against or directly
affecting the Company; (iii) no grievance or arbitration proceeding
arising out of or under collective bargaining agreements is pending and,
to the knowledge of each Seller, no claims therefor exist; and (iv) the
employment of each of the Company's employees is terminable at will
without cost to the Company except for payments required under the
employee benefit plans and payment of accrued salaries or wages.
SCHEDULE 2.2(T) to the Disclosure Schedule contains a true and complete
list of (x) all employees who are employed by the Company in the
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conduct of the Business as of May 1, 1999, and such list correctly
reflects their salaries, wages and other compensation (other than
benefits under the Employee Benefit Plans), dates of employment and
positions as of May 1, 1999, and (y) all such employees (or former
employees) receiving (or entitled to receive) medical benefits under
or in connection with section 4980B of the Code. No employee or
former employee has any right to be rehired by the Company prior to
the Company's hiring a person not previously employed by the Company.
Except as required by section 4980B of the Code, the Company has no
liability to provide medical benefits or other welfare benefits to
former employees of the Company or their spouses or dependents or any
other individual during any period any such individual is not an
employee of the Company or a spouse or dependent of such employee.
(u) LITIGATION. There is no litigation or proceeding, in law or
in equity, and there are no claims, proceedings or governmental
investigations before any commission or other administrative authority,
pending, or, to each Seller's knowledge, threatened, against or involving
(i) the Company, (ii) any of the Company's officers, directors or
employees in their capacity as such, (iii) any of the Company's Employee
Benefit Plans or (iv) the consummation of the transaction contemplated
hereby, or the use of the Company's assets (whether used by the Surviving
Corporation after the Closing or by the Company prior thereto). SCHEDULE
2.2(U) to the Disclosure Schedule contains (x) a complete list and
description of all employment related litigation and (y) a complete list
and description of all other litigation and governmental proceedings, in
each case, involving the Company with respect to the Business during the
past three (3) years.
(v) WARRANTIES. SCHEDULE 2.2(V) to the Disclosure Schedule
sets forth a true and complete copy of the Company's standard warranty
terms and conditions and lists, in reasonable detail, the Company's
warranty claims experience with respect to the Business for the three (3)
year period immediately preceding the date hereof. There are no claims
pending or, to each Seller's knowledge, threatened against the Company
with respect to the quality of or absence of defects in the products or
services of the Business. During the past three (3) years, none of the
Business' current or former products is or has been the subject of a
governmental investigation or voluntary or involuntary recall. Neither
Seller has knowledge of facts which, if known by a potential claimant or
Governmental Authority, is reasonably likely to give rise to a claim or
proceeding.
(w) DECREES AND ORDERS. Except as disclosed on SCHEDULE
2.2(W), the Company is not a party to, or bound by, any decree, order or
arbitration award (or agreement entered into in any administrative,
judicial or arbitration proceeding with any Governmental Authority) with
respect to its properties, assets, personnel or business activities.
(x) LAWS. With respect to the Business, the Company is not, in
any material respect, in violation of, or delinquent under any decree,
order or arbitration award or law, statute or regulation of or agreement
with, or Permit from, any federal, state or local Governmental Authority
(including, without limitation, those to which the properties, assets,
personnel, business activities of the Business are subject), including,
without limitation, laws, statutes and regulations relating to equal
employment opportunities, occupational safety and health, fair employment
practices, unfair labor practices, terms of employment, wages and hours
and discrimination, the Americans with Disabilities Act, and zoning
ordinances and building codes. To Sellers' knowledge, the Company is
not, with respect to the Business, in violation of any law regarding
occupational health and safety. Copies of all notices of violation of
any of the foregoing which
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the Company has received within the past three (3) years are contained
on SCHEDULE 2.2(X) to the Disclosure Schedule.
(y) ENVIRONMENTAL. To Sellers' knowledge, the Company and its
assets are in compliance with all Environmental Laws in all material
respects. A copy of any notice, citation, inquiry or complaint which the
Company has received in the past five (5) years of any alleged violation
of any Environmental Law or Environmental Permit relating to the Business
is contained ON SCHEDULE 2.2(Y) to the Disclosure Schedule. To Sellers'
knowledge, the Company possesses all Environmental Permits which are
required for the operation of the Business as presently conducted by the
Company, and is in compliance with the provisions of all such
Environmental Permits in all material respects. Copies of all such
Environmental Permits issued to the Company are contained ON SCHEDULE
2.2(Y) to the Disclosure Schedule. To Sellers' knowledge, there has been
no storage, treatment, generation, transportation, discharge or Release
of any Hazardous Materials with respect to the Business by the Company
which could give rise to any obligation or liability, under any
Environmental Law. SCHEDULE 2.2(Y) to the Disclosure Schedule contains a
list and brief description of all above-ground and underground storage
tanks located, or formerly located, on the Company's property. Any tanks
previously removed from service on the Company's property were removed
from service in accordance with all Environmental Laws (as in effect at
the time of such removal) in all material respects.
(z) NO UNDISCLOSED LIABILITIES. To Sellers' knowledge, except
as stated on SCHEDULE 2.2(Z) to the Disclosure Schedule, the Company has
no obligation or liability of any nature whatsoever (direct or indirect,
matured or unmatured, absolute, accrued, contingent or otherwise),
whether or not required by GAAP to be provided or reserved against on a
balance sheet (all the foregoing herein collectively being referred to as
the "LIABILITIES"), except for (i) Liabilities provided for or reserved
against in the Financial Statements; (ii) Liabilities which have been
incurred subsequent to the date of the Financial Statements in the
Ordinary Course of Business of the Business and consistent with past
practice; (iii) Liabilities under the executory portion of any written
Contract by which the Company is bound and which was entered into in the
Ordinary Course of Business of the Business and consistent with past
practices, all of which are disclosed on SCHEDULE 2.2(Z); (iv)
Liabilities under the executory portion of Permits, Environmental
Permits, and governmental directives and agreements issued to, or entered
into by, the Company in the Ordinary Course of Business of the Business
and consistent with past practices, all of which are disclosed on
SCHEDULE 2.2(Z); and (v) the Liabilities constituting Excluded
Liabilities. To Sellers' knowledge, except as disclosed on SCHEDULE
2.2(Z), none of the Liabilities described in subsections (i) through (v)
of this Section 2.2(z) relates to or has arisen out of a breach of
contract, breach of warranty, tort, infringement, violation of law,
statute, governmental rule, regulation or directive by or against the
Company.
(aa) INTELLECTUAL PROPERTY. SCHEDULE 2.2(AA) to the Disclosure
Schedule lists all registrations for the Intellectual Property that are
owned or claimed by the Company and used in, or held for use in
connection with, or necessary for the conduct of the Business as
presently conducted by the Company (other than inventions for which
patent protection has not been sought, trade secrets, secret processes,
formulas and designs, confidential business and technical information,
and unregistered copyrights) (collectively, the "REGISTERED INTELLECTUAL
PROPERTY"). The Company has no patent, trademark or copyright
applications pending. The Company owns or has the right to use pursuant
to license, sublicense, agreement or permission all the Registered
Intellectual Property, and to Sellers' knowledge, the other Intellectual
Property. To the knowledge of Sellers, all of the Registered
Intellectual Property is currently in substantial
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compliance with all formal legal requirements, is valid and
enforceable and is not subject to any fees, taxes, or actions falling
due within six (6) months after the Closing Date, except as described
on SCHEDULE 2.2(AA). To the knowledge of Sellers, none of the
Registered Intellectual Property is being infringed by any other
Person. No claim or demand of any Person has been made nor is there
any proceeding that is pending, or to the knowledge of Sellers,
threatened, which: (i) challenges the rights of the Company in
respect of the Registered Intellectual Property, or, to the knowledge
of Sellers, to the other Intellectual Property except as described ON
SCHEDULE 2.2(AA) to the Disclosure Schedule; or (ii) asserts that the
Company is infringing or is required to pay any royalty, license fee,
charge or other amount with regard to its use of the Registered
Intellectual Property, or, to the knowledge of Sellers, the other
Intellectual Property except as described ON SCHEDULE 2.2(AA) to the
Disclosure Schedule. The Company has (a) undertaken an assessment of
steps necessary to become Year 2000 Complaint on a timely basis, (b)
developed a detailed plan (including the estimated cost of becoming
Year 2000 Compliant) and timeline for becoming Year 2000 Compliant on
a timely basis which has been provided to Purchaser, (c) to date,
implemented that plan in accordance with that timetable in all
material respects and (d) anticipates that it will become Year 2000
Compliant consistent with the plan and timetable on a timely basis.
Notwithstanding anything in the foregoing, this representation is not
to be interpreted as a guarantee that the Company has done all things
possible to prevent a loss of functionality or performance or any
other problem with respect to proper format and accuracy of date or
time information, but rather that the Company has a reasonable belief
that its Year 2000 readiness approach is sound.
(bb) REAL PROPERTY.
(i) The Company has no interests in real property other
than the real property (the "REAL ESTATE") and leasehold
interests which are set forth on SCHEDULE 2.2(BB) to the
Disclosure Schedule.
(ii) The Company holds fee simple title to the Real
Estate, subject only to real estate taxes not delinquent and to
covenants, conditions, restrictions and easements of record
described on SCHEDULE 2.2(BB). The Real Estate is not subject to
any leases or tenancies.
(iii) The facilities of the Company do not encroach on the
property of others, and conform in all material respects with all
applicable ordinances, regulations, and zoning laws, except as
disclosed on SCHEDULE 2.2(BB).
(cc) LEASES. Except as stated on SCHEDULE 2.2(CC) to the
Disclosure Schedule:
(i) The leases contained in the Disclosure Schedule
constitute all the leases of real or personal property,
respectively, under which the Company is bound or to which the
Company is a party.
(ii) Each lease listed in the Disclosure Schedule is
valid, binding, and enforceable in accordance with its terms, and
neither the Company nor any landlord or lessor is in default or
in arrears in the performance or satisfaction of any agreement or
condition on its part to be performed or satisfied thereunder,
and no waiver or indulgence has been granted by any of the
landlords or lessors under those leases.
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(iii) The Company is not the landlord or lessor under any
leases of real or personal property.
(dd) SIGNIFICANT CUSTOMERS AND SIGNIFICANT SUPPLIERS. The
Company has not suffered nor, to the Sellers' knowledge, been threatened
with, any material adverse change in, or loss of, any relationship
between the Company and any of its "Significant Customers," "Significant
Suppliers" or key employees. The Sellers do not have any knowledge of
any intention or indication by a Significant Customer that such
Significant Customer intends to terminate, limit or materially alter its
business relationship with the Company. The Sellers do not have any
knowledge of any intention or indication of intention by a Significant
Supplier that such Significant Supplier intends to terminate, limit or
materially alter its business relationship with the Company. As used
herein, (i) "Significant Customer" means any of the customers of the
Company set forth on SCHEDULE 2.2(DD) to the Disclosure Schedule hereto,
and (ii) "Significant Supplier" means any suppliers of the Company set
forth on SCHEDULE 22.2(DD) to the Disclosure Schedule hereto.
(ee) BROKER'S FEES. Other than amounts due Mammoth Capital,
Inc. ("MAMMOTH") under that certain Consulting Agreement, dated December
31, 1995, between Pinnacle, Alvey and Mammoth, which amounts will be paid
by Sellers, neither Sellers nor any of their Affiliates have dealt with
any Person who is or may be entitled to a broker's commission, finder's
fee, investment banker's fee or similar payment for arranging the
transaction contemplated hereby or introducing the parties to each other.
II.3 LIMITATION ON WARRANTIES. Except as expressly set forth in
Section 2.2, Sellers make no express or implied warranty of any kind whatsoever,
including, without limitation, any representation as to physical condition or
value of any of the Company's assets or the future profitability or future
earnings performance of the Business. ALL IMPLIED WARRANTIES OF MERCHANTABILITY
AND FITNESS FOR A PARTICULAR PURPOSE ARE EXPRESSLY EXCLUDED.
ARTICLE III
CONDUCT PRIOR TO THE CLOSING
III.1 GENERAL. Between the date hereof and the Closing Date:
(a) The Company shall give to Purchaser's and Merger Sub's
officers, employees, attorneys, consultants, accountants and lenders
reasonable access during normal business hours to the properties, books,
contracts, documents, records and personnel of the Company relating to
the Business and shall furnish to Purchaser and Merger Sub such
information with respect to the Business of the Company as Purchaser and
Merger Sub may at any time and from time to time reasonably request.
Purchaser and Merger Sub may meet with the Company's customers and
suppliers, and personnel of the Company, and the Company shall be
notified in advance of such meetings and shall be permitted to
participate in such meetings with Purchaser and Merger Sub.
(b) The Company shall use its reasonable efforts and make every
good faith attempt (and Purchaser and Merger Sub shall cooperate with the
Company) to obtain all consents to the assignment of, any Contract,
Permit or Environmental Permit which is to be assigned or transferred to
the Surviving Corporation hereunder and which may be required for such
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assignment to be effective (collectively, the "CONSENTS), including,
without limitation, those Consents set forth on SCHEDULE 3.1
(collectively, the "MATERIAL CONSENTS").
(c) The Company shall use its reasonable efforts and make every
good faith attempt (and shall cooperate with Purchaser and Merger Sub) if
Purchaser and Merger Sub desire to (i) hire third party professionals to
conduct a Phase I environmental review (and, if necessary, further
reviews of the Company's facilities and operations), (ii) conduct a
physical and quality assessment of the Company's Inventory and (iii)
conduct a physical inspection of the Company's business records,
Equipment, and other physical assets, subject, in each case, to
reasonable scheduling to be approved by the Company.
(d) The Company shall carry on the Business in the usual and
Ordinary Course of Business, consistent with past practices and shall use
its reasonable efforts in good faith to preserve the Business and the
goodwill of its customers, suppliers and others having business relations
with the Company with respect to the Business and to retain its business
organization intact, including keeping available the services of its
present officers, employees, representatives and agents, and shall
maintain the relations and good will with suppliers, customers,
landlords, creditors, employees, agents and others having business
relationships with the Company.
(e) Without the prior written consent of Purchaser and Merger
Sub, which consent shall not be unreasonably withheld, and without
limiting the generality of any other provision of this Agreement, Alvey
shall not cause the Company, with respect to the Business, to do any of
the following:
(i) sell or in any way transfer or otherwise dispose of
any of its assets or property, except for (A) sales of Inventory
in the usual and Ordinary Course of Business and sales of
miscellaneous assets insignificant to the value or operation of
the Business and (B) cash applied in payment of the Company's
liabilities in the usual and Ordinary Course of Business;
(ii) make any changes (adverse or otherwise), either
individually or in the aggregate, taking into account the
completion of the transaction contemplated hereby, in the
business, operations, assets, liabilities, financial condition or
prospects of the Business or in the conduct or nature of any
aspect of the Business (including, without limitation, labor
relations or relations between the Company and any of its
customers, suppliers or key employees) which would be likely to
have a material adverse effect on the business, operations,
assets, liabilities, financial condition or prospects of the
Business;
(iii) waive any right or cancel or compromise any debt or
claim, other than in the Ordinary Course of Business;
(iv) make (or commit to make) capital expenditures in an
amount which exceeds $10,000 for any item or $50,000 in the
aggregate;
(v) increase the compensation payable to any employee
where such increase is inconsistent with the Company's Ordinary
Course of Business;
(vi) make any change in accounting methods or principles;
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(vii) make any new elections, or any changes in current
elections, with respect to Taxes affecting the Company's assets
of the Business; or
(viii) without limitation by the enumeration of any of the
foregoing, except for the execution of this Agreement, enter into
any transaction other than in the usual and Ordinary Course of
Business or alter the conduct of the business in any material
respect.
(f) From the date of this Agreement through the Closing Date
(or such earlier date as this Agreement is terminated in accordance with
its terms), each Seller shall not, and shall cause its respective
Affiliates, officers, directors, employees, representatives, agents and
shareholders not to, directly or indirectly, solicit or initiate or enter
into discussions or transactions with, or provide any information to, any
person, corporation, partnership or other entity or group (other than
Purchaser or its designees) concerning any sale of stock (as the case may
be), or any merger or sale of securities or substantial assets, or any
similar transaction, of or involving the Company.
III.2 JOINT OBLIGATIONS. Between the date hereof and the Closing Date:
(a) No party shall intentionally perform any act which, if
performed, or omit to perform any act which, if omitted to be performed,
would prevent or excuse the performance of this Agreement by any party
hereto or which would result in any representation or warranty herein
contained of such party being untrue in any material respect as if
originally made on and as of the Closing Date.
(b) Each party shall give the other party written notice of the
existence or occurrence of any condition which would make any
representation or warranty herein contained of either party untrue or
which might reasonably be expected to prevent the consummation of the
transaction contemplated hereby promptly after becoming aware thereof.
ARTICLE IV
CONDITIONS TO CLOSING
IV.1 CONDITIONS TO SELLERS' OBLIGATIONS. The obligation of Sellers to
consummate the transaction contemplated hereby is subject to the fulfillment of
all of the following conditions on or prior to the Closing Date, upon the
non-fulfillment of any of which this Agreement may, at Sellers' option, be
terminated pursuant to and with the effect set forth in Article VII:
(a) Each and every representation and warranty made by
Purchaser and Merger Sub shall have been true and correct when made and
shall be true and correct in all material respects as if originally made
on and as of the Closing Date.
(b) All obligations of Purchaser and Merger Sub to be performed
hereunder through, and including on, the Closing Date shall have been
performed.
(c) No suit, proceeding or investigation shall have been
commenced or threatened by any Governmental Authority or private Person
on any grounds to restrain, enjoin or hinder, or to seek material damages
on account of, the consummation of the transaction contemplated hereby.
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(d) The subordination agreement required to be executed by
Sellers regarding the Note in connection with the Financing shall have
terms reasonably consistent with the subordination language contained in
the letter of intent, dated December 15, 1998 between Seneca Capital
Partners, LLC and Pinnacle.
IV.2 CONDITIONS TO PURCHASER'S AND MERGER SUB'S OBLIGATIONS. The
obligation of Purchaser and Merger Sub to consummate the transaction
contemplated hereby is subject to the fulfillment of all of the following
conditions on or prior to the Closing Date, upon the non-fulfillment of any of
which this Agreement may, at Purchaser's and Merger Sub's option, be terminated
pursuant to and with the effect set forth in Article VII:
(a) Each and every representation and warranty made by each
Seller shall have been true and correct when made and shall be true and
correct in all material respects as if originally made on and as of the
Closing Date.
(b) All obligations of Sellers to be performed hereunder
through, and including on, the Closing Date shall have been performed.
(c) All of the Material Consents shall have been obtained and
delivered to Purchaser and Merger Sub.
(d) No suit, proceeding or investigation shall have been
commenced or threatened by any Governmental Authority or private Person
on any grounds to restrain, enjoin or hinder, or to seek material damages
on account of, the consummation of the transaction contemplated hereby.
(e) Purchaser and Merger Sub shall have completed their due
diligence investigation of the Company's assets and the Business
(including an environmental assessment thereof) and shall be satisfied in
their sole discretion with the results of such investigation, including,
but not limited to, the nature and extent of the Permitted Liabilities.
(f) Purchaser and Merger Sub shall have executed definitive
loan documents with respect to the Financing, all conditions to the
Financing under such documents shall have been satisfied and such
Financing shall have been obtained by Purchaser and Merger Sub.
(g) (i) Prior to the Closing, except as provided in
paragraph (ii) below, the Company shall (A) transfer to Alvey, by
way of dividend or otherwise, all of the assets, properties and
rights of the Company set forth on SCHEDULE 4.2(G) (the
"TRANSFERRED ASSETS"), and Alvey will assume all obligations and
liabilities in connection with the Transferred Assets and (B)
transfer to Alvey all of the Excluded Liabilities and Alvey shall
assume all obligations and liabilities in connection with the
Excluded Liabilities.
(ii) If any Transferred Asset is not capable of being
conveyed, assigned or transferred without the consent, release or
waiver of any third party, including, without limitation, any
governmental or regulatory authority, and such consent, release
or waiver has not been obtained prior to the closing, and as a
result, such Transferred Asset is not conveyed, assigned or
transferred, this Agreement shall constitute an equitable
assignment by the Company to Alvey of all of the Company's
rights, benefits, title and interest in and to such Transferred
Assets, and where necessary or appropriate, the Company shall be
deemed to be Alvey's agent for the purpose of completing,
fulfilling
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and discharging all of Alvey's rights and liabilities
arising after the Closing Date with respect to such Transferred
Assets. The Surviving Corporation shall take all reasonably
necessary steps and actions (at the request and expense of Alvey)
to provide Alvey with the benefit of such Transferred Assets
(including, but not limited to, (A) enforcing any rights of Alvey
arising with respect to any such Transferred Assets or (B)
permitting Alvey to enforce any rights arising with respect to
Transferred Assets) as if they had been conveyed, assigned or
transferred to Alvey. Without limiting the rights of Purchaser
Indemnitees in Section 6.2, Purchaser Indemnitees shall be
indemnified by Sellers for all actions or steps taken by them on
behalf of Alvey pursuant to the preceding sentence.
IV.3 CASUALTY. If, prior to the Closing, any damage to or loss of any
of the Company's assets occurs due to fire, flood, riot, theft, Act of God or
other casualty, and if Purchaser and Merger Sub do not elect, or is not
permitted by the terms of this Agreement to elect, to terminate this Agreement,
Purchaser and Merger Sub shall be entitled to receive the right to receive any
business interruption or similar insurance proceeds payable by reason of such
occurrence.
ARTICLE V
POST-CLOSING AGREEMENTS
V.1 POST-CLOSING AGREEMENTS. From and after the Closing, the parties
shall have the respective rights and obligations which are set forth in the
remainder of this Article V.
V.2 INSPECTION OF RECORDS; COOPERATION. Sellers and the Surviving
Corporation shall each retain and make their respective books and records
(including work papers in possession of their respective accountants) related to
the Business available for inspection by the other party, or by its duly
accredited representatives, for reasonable business purposes at all reasonable
times during normal business hours, for a seven (7) year period after the
Closing Date (the "RETENTION PERIOD"), with respect to all transactions
occurring prior to and those relating to the Closing, the historical financial
condition, assets, liabilities, results of operations and cash flows of the
Company. As used in this Section 5.2, the right of inspection includes the
right to make extracts or copies. The representatives of a party inspecting the
records of the other party shall be reasonably satisfactory to the other party.
Before the end of the Retention Period, either Sellers or the Surviving
Corporation may request, and the other party shall promptly deliver, at the
requesting party's expense, possession of any books and records relating to the
transactions occurring on or prior to the Closing Date. Sellers and the
Surviving Corporation (and each of their respective officers, employees,
representatives or Affiliates) shall reasonably cooperate with each other to
provide information (including the prompt forwarding of correspondence properly
addressed to the other party), explain material provided hereunder, assist in
completing Returns with respect to the Business or testify at proceedings
relating to the contest of any Tax claim with respect to the Business. The
party requesting such information or assistance shall pay the reasonable costs
of the party providing the requested information or assistance.
V.3 CERTAIN ASSIGNMENTS. Notwithstanding any other provision
contained in this Agreement to the contrary, this Agreement shall not constitute
an agreement to transfer or assign, or a transfer or assignment of, any
Contract, Permit, Environmental Permit or any benefit arising thereunder or
resulting therefrom, if an attempt at transfer or assignment thereof without the
consent required or necessary for such assignment, would constitute a breach
thereof or in any way adversely affect the rights of the Surviving Corporation
or Sellers thereunder. If such a consent or agreement to transfer or assign is
not
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obtained for any reason, Sellers shall cooperate with the Surviving
Corporation in any arrangement the Surviving Corporation may reasonably
request to provide for the Surviving Corporation the benefits under such
Contract, Permit, Environmental Permit or the like.
V.4 SALES AND TRANSFER TAXES AND FEES. Either Sellers or the
Surviving Corporation shall pay when due, consistent with local custom, all
stock transfer Taxes, real property transfer Taxes, sales Taxes, documentary
stamp Taxes, recording charges and all other taxes and fees arising in
connection with the transactions contemplated hereby under applicable state
laws.
V.5 DISCLOSURE OF CONFIDENTIAL INFORMATION.
(a) Alvey and its Affiliates and Purchaser both acknowledge
that they may have or had access to certain Confidential Information (as
herein defined), the disclosure of which may damage their respective
business operations and is or may be prohibited by applicable law.
"Confidential Information" means all information, and all documents and
other tangible things which record it, relating to their respective
business operations, whether or not a "trade secret" within the meaning
of applicable law, which at the time or times concerned is not generally
known to competitors. Confidential Information includes, but is not
limited to, the following especially sensitive information: (i) any
product development and marketing plans and strategies; (ii) financial
information pertaining to business operations; (iii) the identity,
purchase and payment patterns of, and special relations with, any
customers; (iv) the identity, net prices and credit terms of, and special
relations with, any suppliers; (v) proprietary software and business
records; and (vi) any other information or documents which Alvey and its
Affiliates or Purchaser knows or reasonably ought to know the other party
regards as confidential.
(b) Alvey and its Affiliates and Purchaser shall keep, and
shall cause their Affiliates to keep secret and hold Confidential
Information in the strictest confidence.
(c) Alvey and its Affiliates and Purchaser agree that all
Confidential Information is and shall remain the sole property of the
other party and acknowledge that the Confidential Information constitutes
valuable, special and unique assets of each party's respective business
operations. Alvey and its Affiliates and Purchaser shall comply with all
instructions for preserving the confidentiality of Confidential
Information, and shall not, except as otherwise directed: (i) directly or
indirectly sell, give, loan or otherwise transfer or disclose any
Confidential Information to any person; or (ii) use Confidential
Information for their own benefit or for the benefit of any third party.
Notwithstanding the foregoing, if Alvey and its Affiliates or Purchaser
are legally compelled (by subpoena, civil investigative demand or other
similar process or legal requirement) to disclose any Confidential
Information, they shall be entitled to do so, provided that (x) the party
that is legally compelled to disclose Confidential Information gives the
other party reasonable advance written notice thereof so that such party
may seek a protective order or other appropriate remedy and (y) such
disclosure is limited only to the extent of Confidential Information that
the disclosing party is legally compelled to disclose.
(d) To the extent that any court or agency seeks to have either
party disclose any Confidential Information, the potential disclosing
party shall promptly inform the non-disclosing party, and shall take such
reasonable steps at the non-disclosing party's expense to prevent
disclosure of Confidential Information until the non-disclosing party has
been informed of such requested disclosure, and has an opportunity to
respond to such court or agency. To the extent that either party or
their Affiliates obtain information that may be subject to
attorney-client
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privilege as to the other party's attorneys, such party shall take
reasonable steps to maintain the confidentiality of such information and
to preserve such privilege.
(e) Nothing in the foregoing provisions of this Section 5.5
shall be construed so as to prevent the disclosure or use of Confidential
Information which (i) is generally known to Persons of their experience
in other companies in the same industry or (ii) has become public,
published or is otherwise in the public domain through no fault of the
disclosing party prior to any disclosure thereof by the disclosing party.
The obligations under this Section 5.5 shall remain in effect with respect to
particular information for the longest period of time permitted by applicable
law.
V.6 INJUNCTIVE RELIEF. Each of the parties specifically
recognizes that any breach of Section 5.5 shall cause irreparable injury to
the other and that actual damages may be difficult to ascertain, and in any
event, may be inadequate. Accordingly (and without limiting the availability
of legal or equitable, including injunctive, remedies under any other
provisions of this Agreement), each party agrees that in the event of any
such breach, the non-breaching party shall be entitled to injunctive relief
in addition to such other legal and equitable remedies that may be available.
V.7 TAXES. Each party hereto shall, to the extent reasonable with
respect to any other party (a) provide the other with such assistance as may
reasonably be requested by either of them in connection with the preparation of
any Return, audit or other examination by any taxing authority or judicial or
administrative proceedings relating to liability for Taxes, (b) retain and
provide the other with any records or other information that may be relevant to
such Return, audit or examination, proceeding, or determination, and (c) provide
the other with any final determination of any such audit or examination,
proceeding, or determination that affects any amount required to be shown on any
Return of the other for any period. Without limiting the generality of the
foregoing, parties hereto shall retain, until the applicable statutes of
limitation (including any extensions) have expired, copies of all Returns,
supporting work schedules and other records or information that may be relevant
to such Returns for all tax periods or portions thereof ending before or
including the Closing Date and shall not destroy or otherwise dispose of any
such records without first providing the other party with a reasonable
opportunity to review and copy the same.
V.8 USE OF TRADEMARKS. Sellers shall cease to use and shall not
license or permit any third party to use any of the Intellectual Property,
including, without limitation, the name "Busse Bros. Inc.," "Busse, Inc." or any
name, slogan, logo or trademark which is similar or deceptively similar to any
of the trademarks of the Business. Notwithstanding the foregoing, Sellers
currently use the name "Busse U.K." for certain of their operations and will
continue to use such name until an orderly transition to a new name is
accomplished, but in no event for longer than six (6) months from the Closing
Date. Additionally, certain printed and other informational and marketing
materials such as packaging materials and stationary will exist at the Closing
Date which contain the names, trademarks, logos and similar property of the
parties hereto. The parties may continue to use said items until the supplies
are depleted, provided that no representation is made to third parties that the
Busse Division or the Surviving Corporation is an Alvey or Pinnacle company. No
new materials will be produced by the parties or their Affiliates using the name
of the other parties or their Affiliates and use of all such items must cease no
later than one year after the Closing Date.
V.9 COLLECTION OF THE ACCOUNTS RECEIVABLE. Subject to the
description of Transferred Assets on SCHEDULE 4.2(G), in the event Alvey shall
receive any instrument of payment of any of the Company's
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accounts receivable, Alvey shall forthwith deliver same to the Surviving
Corporation, endorsed where necessary, without recourse, in favor of the
Surviving Corporation.
V.10 MERGER OF SURVIVING CORPORATION. Purchaser and Merger Sub hereby
agree to merge the Surviving Corporation with and into Purchaser within thirty
(30) days from the Closing Date.
V.11 FURTHER ASSURANCES. The parties shall execute such further
documents, and perform such further acts, as may be necessary to effect the
Merger on the terms herein contained and to otherwise comply with the terms of
this Agreement and consummate the transaction contemplated hereby.
V.12 CERTAIN MEDICAL BENEFITS. Alvey shall continue to provide
coverage under the Pinnacle medical benefit plan to the employees of the Company
who are enrolled in the Pinnacle medical benefit plan prior to the Closing for a
period of 90 days following the Closing and Surviving Corporation shall
reimburse Alvey for any benefit payments made under such medical benefit plan
for such employees for expenses incurred during such 90 day period to the extent
such expenses exceed the aggregate amount of any premiums paid for such
coverage, if any.
ARTICLE VI
INDEMNIFICATION
VI.1 GENERAL. From and after the Closing, the parties shall indemnify
each other as provided in this Article VI. For the purposes of this Article VI,
each party shall be deemed to have remade all of its representations and
warranties contained in this Agreement at the Closing with the same effect as if
originally made at the Closing except to the extent such representations and
warranties relate to a specific date. As used in this Agreement, the term
"DAMAGES" shall mean all liabilities, demands, claims, actions or causes of
action, regulatory, legislative or judicial proceedings or investigations,
assessments, levies, losses, fines, penalties, damages, costs and expenses,
including, without limitation, reasonable attorneys', accountants',
investigators', and experts' fees and expenses, sustained or incurred in
connection with the defense or investigation of any claim. Notwithstanding any
implication to the contrary, no indemnified party hereunder shall be required to
assert or otherwise exhaust any remedies to which it may be entitled against
persons or entities (including insurers) other than an indemnifying party
hereunder before it is entitled to indemnification hereunder.
VI.2 INDEMNIFICATION OBLIGATIONS OF SELLERS. Alvey (and if the
transaction contemplated by this Agreement is not consummated, Sellers, jointly
and severally) shall defend, indemnify, save and keep Purchaser Indemnitees
forever harmless against and from all Damages sustained or incurred by any
Purchaser Indemnitee as a result of or arising out of or by virtue of or in
connection with:
(a) any inaccuracy in or breach of any representation and
warranty made by the Sellers in this Agreement;
(b) any breach by the Sellers of, or failure by Sellers to
comply with, any of their obligations under this Agreement (including,
without limitation, their obligations under this Article VI);
(c) any Excluded Liability, or any claim against Purchaser or
the Surviving Corporation with respect to any Excluded Liability or
alleged Excluded Liability (including,
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without limitation, liability on account of Taxes payable by the Company
or for which the Company is liable (except as otherwise provided by this
Agreement), either by operation of law or pursuant to the provisions of
this Agreement);
(d) without being limited by paragraphs (a) through (c) above
and without regard to the fact that information with regard to or related
to any one or more of the items referred to in this Section 6.2(d) may be
disclosed in the Disclosure Schedule or in any documents included or
referred to therein or may be otherwise known to Purchaser or Merger Sub
at the date of this Agreement or on the Closing Date:
(i) any failure timely to pay any and all Taxes
(including estimated Taxes), file all Returns and otherwise do
any and all acts and things required to be paid, filed or done,
as the case may be, by the Company with respect to all taxable
periods or portions of periods ending on or prior to the
Effective Time, and any and all penalties, interest and other
costs or expenses associated with the failure to timely pay such
Taxes, file such Returns or do such acts and things, and any
failure to establish sufficient reserves for such Taxes,
penalties, interest and other costs or expenses, and
(ii) any Taxes (including estimated Taxes) unpaid as of
the Effective Time (whether or not due and payable on or before
the Closing Date and whether or not described above) imposed on
the Company with respect to all taxable periods or portions of
periods ending on or prior to the Closing Date imposed on the
Company or by reason of the affiliation of the Company, on or
prior to the Closing Date, with any Person (such as liability
under consolidated returns);
(e) Alvey's continued use of the name "Busse U.K." consistent
with the terms of Section 5.8;
(f) any Liability incurred for claims for benefits arising
under any Employee Benefit Plan or arising from any action or omission
with respect to any Employee Benefit Plan on or before the Closing Date
except to the extent such Liability has been accrued on the Closing
Balance Sheet; or
(g) without limiting the generality of Section 6.2(c) and
without regard to the fact that information with regard to or related to
this Section 6.2(g) may be disclosed in the Disclosure Schedule or in any
documents included or referred to therein or may be otherwise known to
Purchaser or Merger Sub at the date of this Agreement or on the Closing
Date, any breach by Sellers of, or failure of Sellers to comply with, any
of their obligations under that certain Developers Agreement by and
between the Village of Randolph, Wisconsin and the Company dated February
5, 1996.
VI.3 LIMITATIONS ON SELLERS' INDEMNIFICATION OBLIGATIONS. Sellers'
obligations pursuant to the provisions of Section 6.2 are subject to the
following limitations:
(a) the Purchaser Indemnitees shall not be entitled to recover
under Section 6.2(a), unless a claim has been asserted by written notice,
specifying the details of the alleged inaccuracy in or breach of any
representation or warranty, delivered to Sellers at any time on or prior
to the third anniversary of the date hereof; PROVIDED, HOWEVER, that
claims under Section 6.2(a) with respect to any alleged inaccuracy in or
breach of any representation or warranty in Sections
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2.2(a), 2.2(b), 2.2(d), 2.2(n), 2.2(o), 2.2(s) and 2.2(y), may be
asserted by such written notice, delivered to the Sellers at any time on
or prior to the expiration of the applicable statute of limitations;
(b) the Purchaser Indemnitees shall not be entitled to recover
under Section 6.2 until the total amount which the Purchaser Indemnitees
would recover under Section 6.2(a) but for this Section 6.3(b), exceeds
Fifty Thousand Dollars ($50,000) (the "BASKET"), provided that in the
event that Damages resulting from such breaches exceed the Basket,
Sellers shall be obligated to indemnify Purchaser Indemnitees to the full
extent of such Damages, including the amounts less than Fifty Thousand
Dollars ($50,000); PROVIDED, HOWEVER that the Basket shall not apply to
any breach of any representation or warranty in Sections 2.2(a), 2.2(d),
2.2(e), 2.2(n), 2.2(o), 2.2(s), and 2.2(y); PROVIDED FURTHER, HOWEVER if
a fact exists which is known to Sellers has not been disclosed to
Purchaser, and the failure to disclose such fact would be a breach of one
or more of Sellers' representations or warranties hereunder, any Damages
incurred by the Purchaser Indemnitees as a result of such breach shall
not be subject to the Basket limitation; and
(c) the Purchaser Indemnitees shall not be allowed to recover
under Section 6.2(a) with respect to any inaccuracy in or breach of any
representation or warranty made by Sellers in this Agreement, if at or
prior to the Closing Date, Thomas J. Young, Brian Rau or Dawn Gorsuch had
actual knowledge of such inaccuracy or breach.
VI.4 PURCHASER AND MERGER SUB'S INDEMNIFICATION COVENANTS. Purchaser
and Merger Sub shall defend, indemnify, save and keep the Seller Indemnitees
forever harmless against and from all Damages sustained or incurred by any
Seller, as a result of or arising out of or by virtue of or in connection with:
(a) any inaccuracy in or breach of any representation and
warranty made by Purchaser and Merger Sub in this Agreement;
(b) any breach by Purchaser and Merger Sub of, or failure by
Purchaser and Merger Sub to comply with, any of its covenants or
obligations under this Agreement (including, without limitation, its
obligations under this Article VI); or
(c) operations or activities of the Surviving Corporation,
including any Liability for claims for benefits arising under any
Employee Benefit Plan or with respect to any employees of the Surviving
Corporation incurred after the Closing Date (or arising from any action
or omission occurring after the Closing Date) with respect to any
Employee Benefit Plan maintained by the Surviving Corporation, PROVIDED,
HOWEVER, that the foregoing in no way modifies or otherwise limits
Sellers' indemnification obligations set forth herein.
VI.5 LIMITATIONS ON PURCHASER AND MERGER SUB'S INDEMNIFICATION
OBLIGATIONS. Seller Indemnitees shall not be entitled to indemnification with
respect to a breach of any of Purchaser's and Merger Sub's representations and
warranties contained in Section 2.1 hereof, unless a claim therefor has been
asserted by written notice, specifying the details of such breach, delivered to
Purchaser on or prior to the third anniversary of the date hereof.
Notwithstanding anything to the contrary contained herein, each of the Seller
Indemnitees hereby agrees that it will not make any claim for indemnification or
contribution against the Company (and will cause its Affiliates not to make any
claim for indemnification or contribution against the Company), by reason of the
fact that such Seller Indemnitee was a stockholder, director, officer, employee
or agent of the Company with respect to or in connection with (a) any action,
suit, proceeding, complaint, claim or demand brought by the Company or the
Purchaser against such
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Seller Indemnitee (whether such action, suit, proceeding, complaint, claim or
demand is brought pursuant to this Agreement or otherwise) or (b) any action,
suit, proceeding, complaint, claim or demand arising out of or in connection
with the other transactions contemplated herein, in Sellers' Ancillary
Documents or in Purchaser's Ancillary Documents.
VI.6 SUBROGATION. The Indemnifying Party shall not be entitled to
require that any action be brought against any other Person before action is
brought against it hereunder by the Indemnified Party, but shall be subrogated
to any right of action to the extent that it has paid or successfully defended
against any Third Party Claim.
ARTICLE VII
EFFECT OF TERMINATION/PROCEEDING
VII.1 RIGHT TO TERMINATE. This Agreement and the transaction
contemplated hereby may be terminated at any time prior to the Closing by prompt
notice given in accordance with Section 8.2:
(a) by the mutual written consent of Purchaser, Merger Sub and
Sellers;
(b) by Sellers (if Sellers are not then in breach of any term
of this Agreement), if any of the conditions set forth in Section 4.1 of
this Agreement shall have become incapable of fulfillment, and shall not
have been waived by Sellers;
(c) by Purchaser and Merger Sub (if Purchaser and Merger Sub
are not then in breach of any term of this Agreement), if any of the
conditions set forth in Section 4.2 of this Agreement shall have become
incapable of fulfillment, and shall not have been waived by Purchaser;
(d) by Purchaser and Merger Sub if, prior to the Closing,
substantial damage to or loss of the Company's assets occurs such that
Purchaser and Merger Sub determine, in their reasonable sole discretion,
that the value or prospects of the Business shall be significantly
diminished; or
(e) by either of such parties if the Closing shall not have
occurred at or before 11:59 p.m. on July 1, 1999; PROVIDED, HOWEVER, that
the right to terminate this Agreement under this Section 7.1(e) shall not
be available to any party whose failure to fulfill any material
obligation under this Agreement has been the cause of or resulted in the
failure of the Closing to occur on or prior to the aforesaid date.
VII.2 EFFECT OF TERMINATION. If this Agreement is terminated and the
transaction contemplated hereby are not consummated as provided above, this
Agreement shall become void and of no further force and effect, except for any
liability for any willful breach of a covenant or agreement contained in this
Agreement causing or permitting such termination in which case the non-breaching
party shall be entitled to pursue all available legal and equitable rights and
remedies, and shall be entitled to recover all of its reasonable costs and
expenses incurred in pursuing such rights and remedies (including, without
limitation, reasonable attorneys' fees).
25
<PAGE>
VII.3 REMEDIES. Notwithstanding any termination right granted in
Section 7.1, in the event of the nonfulfillment of any condition to a party's
closing obligations, in the alternative, such party may elect to do one of the
following:
(a) proceed to close despite the nonfulfillment of any closing
condition, it being understood that consummation of the Closing shall be
deemed a waiver of a breach of any representation, warranty or covenant
or of such party's rights and remedies with respect thereto to the extent
that such party shall have actual knowledge of such breach and the
Closing shall nonetheless occur;
(b) decline to close, terminate this Agreement as provided in
Section 7.1, and thereafter seek damages to the extent permitted in
Section 7.2; or
(c) seek specific performance of the obligations of the other
party. Each party hereby agreed that in the event of any breach by such
party of this Agreement, the remedies available to the other party at law
would be inadequate and that such party's obligations under this
Agreement may be specifically enforced.
ARTICLE VIII
MISCELLANEOUS
VIII.1 PUBLICITY. Except as otherwise required by law or stock exchange
regulations, press releases concerning this transaction shall be made only with
the prior agreement of the Sellers and Purchaser and Merger Sub, and no such
press releases or other publicity shall state the amount of the Merger
Consideration.
VIII.2 NOTICES. All notices required or permitted to be given hereunder
shall be in writing and may be delivered by hand, by facsimile, by nationally
recognized private courier, or by United States mail. Notices delivered by mail
shall be deemed given three (3) business days after being deposited in the
United States mail, postage prepaid, registered or certified mail. Notices
delivered by hand, by facsimile or by nationally recognized private carrier
shall be deemed given on the first business day following receipt; PROVIDED,
HOWEVER, that a notice delivered by facsimile shall only be effective if such
notice is also delivered by hand, by nationally recognized private courier or
deposited in the United States mail, postage prepaid, registered or certified
mail, on or before three (3) business days after its delivery by facsimile. All
notices shall be addressed as follows:
If to Sellers, addressed to:
Alvey Systems, Inc.
9301 Olive Boulevard
St. Louis, Missouri 63132-3299
Attention: James A. Sharp
Telecopier: (314) 995-2417
26
<PAGE>
with a copy to:
Summers, Compton, Wells & Hamburg, P.C.
8909 Ladue Road
St. Louis, MO 63124
Attention: Susan Z. Gamble
Telecopier: (314) 991-2413
If to Purchaser, addressed to:
Seneca Capital Partners, LLC
335 Madison Avenue, 26th Floor
New York, New York 10017
Attention: Ronald N. Beck and Caleb S. Kramer
Telecopier: (212) 878-3530
and
Arrowhead Conveyor LLC
3255 Medalist Drive
Oshkosh, Wisconsin 54903
Attention: Thomas J. Young
Telecopier: (314) 273-5494
with a copy to:
Altheimer & Gray
Suite 4000
10 South Wacker Drive
Chicago, Illinois 60606
Attention: Laurence R. Bronska, Esq.
Telecopier: (312) 715-4800
and/or to such other respective addresses and/or addressees as may be designated
by notice given in accordance with the provisions of this Section 8.2.
VIII.3 EXPENSES. Except as set forth in Sections 5.4 and 7.2 and
Article VI, each party hereto shall bear all fees and expenses incurred by such
party in connection with, relating to or arising out of the execution, delivery
and performance of this Agreement and the consummation of the transaction
contemplated hereby, including, without limitation, attorneys', accountants' and
other professional fees and expenses.
VIII.4 ENTIRE AGREEMENT. This Agreement (including the exhibits,
schedules and the Disclosure Schedule hereto, which are incorporated herein and
made a part hereof) and the instruments to be delivered by the parties pursuant
to the provisions hereof constitute the entire agreement between the parties as
to the matters covered herein and supersedes and replaces any prior or
contemporaneous understanding, agreement or statement of intent, in each case,
written or oral, including without limitation the letter of intent and other
correspondence heretofore exchanged between the parties.
27
<PAGE>
VIII.5 NON-WAIVER. All representations, warranties and covenants set
forth in this Agreement and in each Seller's Ancillary Documents or Purchaser
Ancillary Documents shall survive the Closing (and none shall merge into any
instrument of conveyance). No specific representation and warranty shall limit
the generality or applicability of a more general representation and warranty.
The failure in any one or more instances of a party to insist upon performance
of any of the terms, covenants or conditions of this Agreement, to exercise any
right or privilege in this Agreement conferred, or the waiver by said party of
any breach of any of the terms, covenants or conditions of this Agreement, shall
not be construed as a subsequent waiver of any such terms, covenants,
conditions, right or privileges, but the same shall continue and remain in full
force and effect as if no such forbearance or waiver had occurred. No waiver
shall be effective unless it is in writing and signed by an authorized
representative of the waiving party.
VIII.6 APPLICABLE LAW. This Agreement shall be governed and controlled
as to validity, enforcement, interpretation, construction, effect and in all
other respects by the internal laws of the State of Missouri applicable to
contracts made in that State.
VIII.7 BINDING EFFECT; BENEFIT. This Agreement shall inure to the
benefit of and be binding upon the parties hereto, and their successors and
permitted assigns. Nothing in this Agreement, express or implied, is intended
to confer on any Person other than the parties hereto, and their respective
successors and permitted assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
VIII.8 ASSIGNABILITY. This Agreement shall not be assignable by either
party without the prior written consent of the other party or by operation of
law, except that, at or prior to the Closing, Purchaser and Merger Sub may
assign their rights and delegate their duties under this Agreement to an
Affiliate and may assign their rights under this Agreement to its lenders for
collateral security purposes, and after the Closing, the Purchaser and Merger
Sub and all other Purchaser Indemnitees may assign their respective rights and
delegate their respective duties under this Agreement to any third party. No
such assignment shall relieve Purchaser of any of its liabilities or obligations
under this Agreement.
VIII.9 AMENDMENTS. This Agreement shall not be modified or amended
except pursuant to an instrument in writing executed and delivered on behalf of
each of the parties hereto.
VIII.10 HEADINGS. The headings contained in this Agreement are for
convenience of reference only and shall not affect the meaning or interpretation
of this Agreement.
VIII.11 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original; and all such
counterparts shall constitute one instrument.
VIII.12 NO THIRD PARTY RIGHTS. Except as expressly set forth in this
Agreement, nothing herein express or implied is intended or shall be construed
to confer upon or give any Person, other than the parties hereto, any rights or
remedies under or by reason of this Agreement.
VIII.13 SEVERABILITY. If any one or more of the provisions contained in
this Agreement or any document executed in connection herewith shall be invalid,
illegal or unenforceable in any respect under any applicable law, the validity,
legality and enforceability of the remaining provisions contained herein or
therein shall not in any way be affected or impaired. In the case of any such
invalidity, illegality or unenforceability, the parties hereto agree to use
their best efforts to achieve the purpose of such provision by a new legally
valid and enforceable stipulation.
28
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
ALVEY SYSTEMS, INC.
By:
------------------------------------
Its:
------------------------------------
BUSSE BROS., INC.
By:
------------------------------------
Its:
------------------------------------
ARROWHEAD CONVEYOR LLC
By:
------------------------------------
Its:
------------------------------------
BUSSE ACQUISITION CORP.
By:
------------------------------------
Its:
------------------------------------
29
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,649
<SECURITIES> 0
<RECEIVABLES> 50,015
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<INVENTORY> 19,266
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<CURRENT-LIABILITIES> 97,781
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (36,160)
<TOTAL-LIABILITY-AND-EQUITY> 141,858
<SALES> 282,624
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<OTHER-EXPENSES> 45,239
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</TABLE>
