<PAGE>
- - - --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 COMMISSION FILE NO.: 0-16182
VERNITRON CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 11-1962029
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
645 MADISON AVENUE
NEW YORK, NEW YORK 10022
(Address of principal executive offices) (Zip Code)
(212) 593-7900
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $.01 per share
$1.20 Cumulative Exchangeable Redeemable Preferred Stock,
par value $.01 per share
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
----------------
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K [X].
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of the close of business on February 28, 1996. $6,103,000
Common Stock outstanding at February 28, 1996: 12,659,957 shares.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT FORM 10-K REFERENCE
Portion of Vernitron Corporation Notice of Annual
Meeting of Stockholders and Proxy Statement. Part III, Items 10-13
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<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Vernitron Corporation (the "Company"), incorporated in New York in 1959 and
reincorporated in Delaware in 1968, is primarily engaged in the design,
manufacture and sale of high performance electromagnetic components and sub-
systems and electrical/electronic terminal blocks and connectors, and the
distribution and service of precision ball bearings. The Company's products are
manufactured primarily for use in high reliability applications in the
aerospace, defense, communications, medical equipment, office equipment and
industrial markets.
BUSINESS OF THE COMPANY
The Company operates in three manufacturing plants and three distribution
facilities located in the United States in one business segment,
electromechanical components and sub-systems, which is organized into two
product groups: the Motion Control group and the Industrial Components group.
The Company also uses contract production capacity in Mexico.
The Motion Control and Industrial Components groups accounted for 38% and
62%, respectively, of the Company's consolidated net sales of $65.2 million in
1995, (see Management's Discussion and Analysis of Financial Condition and
Results of Operations for three year sales comparisons).
MOTION CONTROL GROUP. The Motion Control group designs, manufactures and
sells high performance electromagnetic components and sub-systems. The group's
products generally involve a high degree of interactive applications engineering
to meet each customer's unique requirements for reliability and accuracy under
demanding and often hostile environmental or shock conditions, such as space
flight or industrial automation. Average unit prices generally exceed $100 and
range upward to more than $1,000 with individual purchase orders generally
covering small unit quantities. Approximately 54% and 12% of current bookings
by this group are for U.S. and foreign government defense applications,
respectively. The remainder of the business is spread over a variety of
commercial aerospace, industrial automation and instrumentation applications. A
large percentage of the defense business is used in or to support tactical
missile programs, shipboard instruments and infrared night vision systems.
The Motion Control group offers one of the broadest range of
electromechanical components in the motion control industry. The group's
product offerings include prime movers or motors ("motors"), position and speed
feedback devices, and pressure sensors. The motor products consist of AC
motors, stepper motors, brush and brushless DC torque motors and brush and
brushless custom DC servo motors. These motors are used in applications that
require precise speed control, large torque, small size or low power consumption
such as computer disk drives, laser scanners in high-speed printers and bar code
readers, missile guidance systems, industrial controls, aircraft instrumentation
and controls, and robotics. The position and speed feedback devices consist of
resolvers, synchros, tachometers, optical encoders and potentiometers. These
devices measure linear or angular position and speed and have applications in
the guidance systems of ships, aircraft and missiles, as well as in ground based
radar, medical and printing equipment and industrial control systems. The
pressure sensors are used to measure static or dynamic air, hydraulic or other
pressure and have applications in machine tools, HVAC, transportation and
aircraft flight controls.
The Motion Control group's breath of component product offerings positions
it to provide a single solution to their customer's often diverse motion control
requirements. These capabilities also enable the Motion Control group to
provide higher level solutions in the form of sub-systems which integrate and
package various motors, feedback devices and pressure sensors with gears or
optics, electronic devices and controls. Sub-system products include, among
others, laser scanners, robotic arm actuators, aircraft actuators and air data
computers. In 1995, sub-systems represented approximately 14% of the Motion
Control group's sales.
INDUSTRIAL COMPONENTS GROUP. The Industrial Components group manufactures
electrical/electronic terminal blocks and connector products and distributes and
services precision miniature ball bearings. The group's products
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are almost always sold as components and require a minimum amount of specialized
application engineering. Average unit selling prices range from $1 to $3 and
individual purchase orders generally cover large unit quantities. Substantially
all of the Industrial Components group sales are to domestic commercial and
industrial markets.
The Industrial Components group's electrical/electronic terminal blocks and
connector product line focuses mainly on safety agency approved barrier terminal
blocks in the .5 amp to 50 amp range. These terminal blocks are used in a broad
range of power applications, including telecommunications, power supplies,
security and fire alarms and industrial controls. This product line also
includes power connectors for frequent connect/disconnect applications, such as
vending machines and coin changers.
The Industrial Components group also distributes precision miniature ball
bearings from three warehouse locations - Montville, New Jersey, Irvine,
California and Dallas, Texas - to bearing distributors and to end users in a
variety of industries, including manufacturers of computer equipment, medical
equipment and a variety of other precision instruments.
MARKETING. The Company's products are sold directly to original equipment
manufacturers and U.S. Government agencies and contractors, and through a
network of manufacturers' representatives and distributors.
DOMESTIC AND FOREIGN SALES. The following table sets forth, for each of
the last three fiscal years, information concerning the Company's domestic and
foreign net sales and operating income from continuing operations and
identifiable assets (dollars in thousands):
<TABLE>
<CAPTION>
FISCAL YEARS
---------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Net sales:
USA. . . . . . . . . . . . . . . . . . . . $57,402 $57,752 $53,668
Foreign. . . . . . . . . . . . . . . . . . 7,811 4,380 4,981
------- ------- -------
$65,213 $62,132 $58,649
------- ------- -------
------- ------- -------
Export sales as a % of total sales: 12.0% 7.0% 8.5%
------- ------- -------
------- ------- -------
Operating income (loss):
USA. . . . . . . . . . . . . . . . . . . . $ 3,155 $ 3,363 $ 1,969
Foreign. . . . . . . . . . . . . . . . . . 540 314 183
Restructuring/inventory writedown
charges (USA) . . . . . . . . . . . . . . - (1,315) (3,500)
------- ------- -------
$ 3,695 $ 2,362 $ (1,348)
------- ------- -------
------- ------- -------
Identifiable assets:
USA. . . . . . . . . . . . . . . . . . . . $40,485 $42,197 $47,261
------- ------- -------
------- ------- -------
</TABLE>
COMPETITION. The Company competes primarily on the basis of its ability to
design and engineer its products to meet performance specifications set by its
customers, most of whom are original equipment manufacturers who purchase
component parts or sub-systems for inclusion in their end products. Quality,
customer service and competitive pricing are also critical success factors.
There are a limited number of competitors in each of the markets for the
various types of electromechanical components and sub-systems and
electrical/electronic terminal blocks and connector products manufactured and
sold by the Company. These competitors, especially those in electromechanical
components and sub-systems, are typically focused on a smaller number of product
offerings than the Company and are often well entrenched. Some of these
competitors have substantially greater resources than the Company. The Company
believes, however, that the breath of its electromagnetic component product
offering provides it with a competitive advantage over its sub-system
competitors in terms of performance and cost. Reductions in Government defense
spending have resulted in shrinking markets for certain electromechanical
components and increased competition for the remaining business.
3
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There are numerous competitors in markets to which we distribute precision
ball bearings. These competitors, who vary in size, include other bearing
distributors as well as bearing manufacturers.
CUSTOMERS. There is no customer or group of affiliated customers to which
sales during the fiscal year ended December 31, 1995 were in the aggregate 10%
or more of the Company's consolidated net sales, and there is no customer, the
loss of which would have a material adverse effect on the Company's operations
taken as a whole.
In fiscal 1995, the Company had aggregate sales, both military and non-
military, of approximately $3.0 million directly to the U.S. Government,
including its agencies and departments. These sales accounted for approximately
5% of total net sales in 1995 as compared to 6% in 1994 and 5% in 1993.
Approximately 13% of net sales in 1995 were derived from subcontracts with U.S.
Government contractors as compared to 18% in 1994 and 21% in 1993. The majority
of these contracts may be subject to termination at the convenience of the
Government, and certain of them may also be subject to renegotiation.
Currently, the Company is not aware of any termination or renegotiation of such
contracts which would have a material adverse effect on its business. Because
approximately 18% of the Company's business is derived directly from contracts
with the U.S. Government or agencies or departments thereof, or indirectly
through subcontracts with U.S. Government contractors, the Company's results of
operations could be materially affected by changes in Government expenditures
for products using component parts it produces. However, the Company believes
that its exposure to such risk may be lessened by the conventional tactical
nature of the programs it participates in as well as the broad number and
diversity of its product applications and the strength of its engineering
capabilities.
BACKLOG; SEASONALITY. As of December 31, 1995 and December 31, 1994, the
Company had a backlog of orders of $28.0 million and $23.0 million,
respectively. Management believes that a substantial portion of the backlog of
orders at December 31, 1995 will be shipped during fiscal 1996. Bookings and
shipments, while subject to fluctuation due to the build-to-order nature of a
substantial portion of the Company's business, are not subject to significant
seasonal variations.
PRODUCT DEVELOPMENT. The Company develops new electromechanical components
and sub-systems and improves existing products in order to keep pace with the
technological advances which generally characterize its markets. During fiscal
1995, 1994, and 1993, combined Company and customer sponsored engineering
expense associated with product development, before customer reimbursement, was
$1.2 million, $1.2 million and $1.3 million, respectively. In general, the
Company recovers from customers between a quarter and a third of such
engineering expense.
RAW MATERIALS; OTHER SUPPLIERS. There is no one supplier whose delivery of
raw materials or other products is material to the operations of the Company.
While several divisions use substantial amounts of cobalt, silver and copper in
certain of their products, the Company has not experienced any serious
difficulty in obtaining adequate supplies.
PATENTS, TRADEMARKS AND LICENSES. The Company's business is not dependent
on any patent or trademark.
ENVIRONMENTAL REGULATIONS. The Company does not believe that its
compliance with federal, state and local laws and regulations governing the
discharge of materials into the environment or otherwise relating to the
protection of the environment has or will have any material effect upon its
capital expenditures, earnings or competitive position. There can be no
assurance, however, (i) that changes in federal, state or local laws or
regulations, changes in regulatory policy or the discovery of unknown problems
or conditions will not in the future require substantial expenditures, or (ii)
as to the extent of the Company's liabilities, if any, for past failures, if
any, to comply with applicable environmental laws, regulations and permits.
EMPLOYEES. The Company employs approximately 550 persons, all in the
United States. Approximately 35 of such employees are subject to union
contracts. The Company considers its relations with its employees to be
satisfactory. There has been no significant interruption of operations due to
labor disputes.
WORKING CAPITAL PRACTICES. The markets in which the Company competes are
not characterized by any unusual inventory or collection practices.
4
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ITEM 2. PROPERTIES
The Company leases its executive office, located at 645 Madison Avenue, New
York, New York. The principal plants and other materially important properties
at December 31, 1995 are:
OWNED OR
TYPE OF SQUARE LEASED;
LOCATION FACILITY FOOTAGE EXPIRATION
- - - -------- -------- ------- ----------
St. Petersburg, FL Industrial 52,500 Owned
San Diego, CA Industrial 60,100 Leased; 2000
Montville, NJ Industrial 76,200 Leased; 1999
Gilford, NH Industrial 84,250 Owned
Irvine, CA Industrial 7,800 Leased; 2000
All of the facilities owned by the Company are subject to mortgages or
security interests which secure the Company's obligations under its revolving
credit facility or industrial development bonds (see Note 4 to the Financial
Statements).
The Company believes that its properties are suitable and adequate for its
operations.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in various lawsuits, none of which is expected
to have a material adverse affect on the Company's financial position, liquidity
or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is traded on the National Association of Securities
Dealers Automated Quotation Small-Cap Market ("NASDAQ") under the symbol VRNT.
The following table sets forth the range of high and low bid prices for the
fiscal quarters indicated as quoted on NASDAQ:
1995 1994
---------------- -----------------
High Low High Low
------ ------ ------ -------
Fiscal Years Ended December 31:
First Quarter $ 3/4 $ 5/8 $ 5/8 $ 5/8
Second Quarter 1 3/4 1 1/8 5/8
Third Quarter 1 5/8 1 1 11/16
Fourth Quarter 1 3/8 1 3/4 5/8
The high and low market price information presented above is based on real-
time sales.
On March 1, 1996, the high and low bid price was $7/8.
On March 1, 1996, the approximate number of holders of record of the Common
Stock was 1,000.
The Company did not pay cash dividends on the Common Stock during the three
fiscal years ended December 31, 1995. The Company's policy is to retain
earnings for the foreseeable future. The Company's credit facility prohibits
the payment of cash dividends.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data for the five fiscal years presented
below is derived from the audited Financial Statements of the Company as
adjusted to reflect the discontinuance of the Electronic Components group (see
Note 2 to the Financial Statements). The data should be read in conjunction
with the Financial Statements and the related Notes thereto included elsewhere
herein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $65,213 $62,132 $58,649 $62,912 $67,091
Operating income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . 3,695 2,362 (1,348) 1,595 1,936
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,994 2,264 2,437 2,597 3,371
Income (loss) from continuing operations . . . . . . . . . . . . . . . . . 884 27 (3,856) (1,042) (1,335)
Net income (loss) from continuing operations per common share. . . . . . . 0.02 (0.04) (0.82) (0.23) (0.39)
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,485 42,197 47,261 52,247 54,479
Total debt (1) (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,513 12,363 26,470 26,920 28,836
Shareholders' Equity (2) . . . . . . . . . . . . . . . . . . . . . . . . . 14,745 13,269 5,076 9,603 9,463
</TABLE>
- - - ---------------
(1) Includes short-term debt and current portion of long-term debt of $466,000
in 1995, $442,000 in 1994 $1,200,000 in 1993, $1,000,000 in 1992 and
$2,130,000 in 1991.
(2) On July 20, 1994, the Company repurchased its senior bank debt at a
discount and recorded a pretax gain of $9.6 million (see Note 4 to the
Financial Statements).
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales by product group for continuing operations for the past three
years are presented in the table below. In 1994, the Company adopted a plan to
dispose of its Electronic Components business which, together with the
Industrial Components business, was previously reported as part of the Precision
Components product group (see Note 2 to the Financial Statements). As a result,
the net sales and results of operations of the discontinued product group have
been excluded from the table and the discussion which follow.
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Motion Control . . . . . . . . . . . . . . . $24,750 $26,052 $26,648
Industrial Components. . . . . . . . . . . . 40,463 36,080 32,001
------- ------- -------
Net Sales. . . . . . . . . . . . . . . . . . $65,213 $62,132 $58,649
------- ------- -------
------- ------- -------
</TABLE>
1995 VS. 1994
Net sales increased by $3.1 million, or 5%, in 1995, compared to 1994.
The Motion Control group's sales declined by $1.3 million, or 5%, in 1995,
as compared to 1994, primarily as a result of lower shipments of synchros due to
reduced Government spending on spare parts. The conditions which resulted in
these lower synchro sales are not expected to worsen in 1996 although there can
be no assurance that this will be the case.
The Industrial Components group's sales increased in 1995 by $4.4 million,
or 12%, as compared to 1994. Sales of bearings and terminal blocks/connectors
were up by 15% and 8%, respectively, primarily due to new and increased activity
with original equipment manufacturers and the growing acceptance of new and/or
enhanced products offered by the group.
The Company's backlog at December 31, 1995 of $28.0 million was $5.0
million, or 22%, higher than 1994 year-end backlog, while bookings in 1995 of
$70.2 million were $9.0 million, or 15%, higher than 1994. The higher backlog
was primarily due to an increase of backlog in the Motion Control group of $3.5
million resulting from the award of a large U.S. Government sub-contract for
tactical weapon components and favorable industrial and defense related bookings
resulting from a more focused approach to the European market. The Industrial
Components group's backlog increased $1.5 million, due primarily to increased
bookings from original equipment manufacturers.
Operating income in 1995 of $3.7 million was substantially the same as the
prior year, after excluding the restructuring/inventory writedown charges of
$1.3 million in 1994. The gross margin earned on the incremental sales volume
($.7 million) and cost reductions in the Motion Control group resulting from
restructuring actions completed during 1994 ($.7 million), were offset by an
unfavorable sales mix in both business groups ($1.0 million) and higher material
costs in the Industrial Components group ($.2 million). Overall, gross margins
on sales was 26.4% in 1995, as compared to 27.7% in 1994.
Selling, general and administrative expense, as a percentage of sales,
declined to 20.5% in 1995 from 21.5% in 1994. Selling, general and
administrative expense of $13.3 million in 1995 was substantially the same as
the prior year.
Interest expense declined by $.3 million in 1995 as a result of lower
average borrowings due primarily to the repurchase of the Company's bank
indebtedness at a discount (see Note 4 to the Financial Statements). This was
partially offset by higher interest rates.
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At December 31, 1995, the Company had approximately $13 million of net
operating loss carryforwards available to reduce future taxable income.
1994 VS. 1993
Net sales increased by $3.5 million, or 6%, in 1994, compared to 1993.
The Motion Control group's sales declined by $.6 million, or 2%, in 1994,
as compared to 1993, primarily as a result of lower shipments of AC motors and
potentiometers ($2.5 million) due largely to lower U.S. and foreign government
bookings and lower bookings for certain technologically mature product
applications. These lower shipments were partially offset by higher shipments
of resolvers ($.8 million), due to the timing of certain large orders received
in 1993, and higher electromagnetic sub-system shipments ($1.0 million) due to
new product introductions. The lower U.S. and foreign government bookings were
due primarily to reductions in defense spending for the Company's products and
the timing of various Government programs. New business initiatives are ongoing
which are designed to identify additional opportunities for all Motion Control
products using both traditional and alternative product applications in the
military/aerospace, industrial and commercial market. The Company believes,
although it can not be assured, that these initiatives, along with new product
introductions, will lessen the impact of continued reductions in defense
spending and the reduced demand for certain technologically mature products.
The Industrial Components group's sales increased in 1994 by $4.1 million,
or 13%, as compared to 1993. Sales of bearings were up by $2.9 million, or 16%,
reflecting sales to new customers and an improvement in general economic
conditions. Sales of connector products rose by $1.2 million, or 9%,
principally as a result of sales to new customers in the OEM market, higher
sales of Eurostyle connectors and an improvement in general economic conditions.
The Company's backlog at December 31, 1994 of $23.0 million was $1.0
million, or 4% lower, than 1993 year-end, while bookings of $61.2 million were
substantially the same as the prior year. The lower backlog was primarily due
to a reduction of backlog in the Motion Control group of $1.9 million resulting
from lower bookings in resolvers ($1.7 million), primarily due to timing as
several large orders received in 1993 did not repeat in 1994, and potentiometers
($1.4 million), primarily due to lower U.S. Government and foreign bookings.
These lower bookings were partially offset by higher bookings of electromagnetic
sub-systems ($.7 million) due to new product introductions. The Industrial
Components group's backlog increased $1.0 million due primarily to increased
bookings in the bearings product line resulting from an improvement in general
economic conditions.
Operating income, excluding restructuring/inventory writedown charges of
$1.3 million and $3.5 million in 1994 and 1993, respectively, was $3.7 million
in 1994, as compared to $2.2 million in 1993, representing a $1.5 million
increase. This increase was primarily due to the gross margin earned on the
incremental sales volume ($1.3 million) and improved profit margins in the
Motion Control product group resulting from restructuring actions taken in 1993
($.8 million), which were partially offset by higher selling, general and
administrative expenses ($.4 million). Gross margins were 27.7% in 1994, up
from 26.1% in 1993.
Selling, general and administrative expense, as a percentage of sales,
declined to 21.5% in 1994 from 22.1% in 1993. Selling, general and
administrative expense was up by $.4 million in 1994 as a result of increased
expenses related to the relocation of Motion Control's potentiometer and
pressure transducer product lines from the Company's Deer Park, New York
facility to St. Petersburg, Florida ($.5 million) and the reinstatement of
certain profit sharing provisions ($.4 million). These incremental costs were
partially offset by efficiencies resulting from the aforementioned Motion
Control restructuring initiated in 1993 ($.5 million).
In 1993, the Company recorded a $3.5 million charge related to the
restructuring of the Motion Control group, of which $2.3 million was related to
the write-down of certain slow-moving and excess raw material inventory related
to wire wound potentiometer products. As part of this restructuring, the
Company also announced its intention to close and sell the Deer Park, New York
facility. In 1994, the Company recorded an additional $1.3 million charge
related to this restructuring, $1.0 million of which is to provide additional
inventory reserves to reflect slower turnover of the aforementioned raw material
inventory than was anticipated in the 1993 charge
9
<PAGE>
calculation. The carrying value of this raw material inventory, after the
additional $1.0 million reserve, was $1.5 million. The remaining $.3 million of
the 1994 charge is to adjust the carrying amount of the Deer Park, New York
facility held for disposal in connection with the restructuring to reflect
current market values.
Interest expense declined by $.2 million in 1994 as a result of lower
average borrowings due primarily to the repurchase of the Company's bank
indebtedness at a discount (see Note 4 to the Financial Statements). This was
partially offset by higher interest rates.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operations was $1.0 million in 1995 as compared to cash
provided by operations of $1.4 million and $.8 million in 1994 and 1993,
respectively. This increase in use of cash was primarily due to a $2.0 million
investment in inventory to support the higher sales level of the Industrial
Components group and the significant increase in the year-end backlog of the
Motion Control group, as well as reductions in accounts payable and accrued
expenses, and other long-term liabilities of $1.3 million and $.9 million,
respectively.
Cash provided by investing activities was $1.9 million in 1995 as compared
to cash used in investing activities of $.2 million and $.4 million in 1994 and
1993, respectively. This cash was generated primarily from the sale of assets
of $2.9 million which is comprised of $1.5 million from the sale of assets of
the Electronic Components business discontinued during 1994 (see Note 2 to the
Financial Statements) and $1.4 million from the sale of an idle facility in Deer
Park, New York (see Note 8 to the Financial Statements). Partially offsetting
these sale proceeds was capital expenditures of $1.0 million.
Overall, the Company reduced borrowings under its $17.5 million credit
facility by $.9 million.
The Company had no material commitments for capital expenditures as of
December 31, 1995. It is anticipated that capital expenditures in 1996 could
range from $1.5 million to $2.0 million as compared to the $1.0 million expended
in 1995. Working capital requirements are determined by a number of factors
including sales, bookings, backlog and projected growth. The Company believes
that its $17.5 million credit facility and cash generated from operations will
be sufficient to meet its future capital expenditure and working capital
requirements and required debt amortization.
In February, 1996, the Company entered into a definitive merger agreement
to acquire Precision Aerotech, Inc. Completion of the transaction is subject to
the satisfaction of customary conditions, including the receipt of all necessary
financing by the Company. The Company expects that its new financing
arrangements (which would replace its current credit facility) and cash
generated from the combined operations will be sufficient to meet the future
capital expenditure and working capital requirements of the combined companies
and required debt amortization under its new credit facility (see Note 10 to the
Financial Statements).
10
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item is included in Item 14(a) of this Report.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None. See Item 14(b) of this Report.
PART III
The information required by Part III is incorporated by reference to the
Company's definitive proxy statement in connection with its 1995 Annual Meeting
of Stockholders to be filed with the Securities and Exchange Commission within
120 days following the end of the Company's fiscal year ended December 31, 1995.
If such proxy statement is not so filed, such information will be filed as an
amendment to this Form 10-K within 120 days following the end of the Company's
fiscal year ended December 31, 1995.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) AND (2) FINANCIAL STATEMENTS
See accompanying index to financial statements and schedule.
(a)(3) EXHIBITS
See accompanying index to Exhibits.
(b) REPORTS ON FORM 8-K
During the quarter ended December 31, 1995, the Company filed one report on
Form 8-K dated December 18, 1995, which included a press release announcing
the Company's signing of a letter of intent to acquire Precision Aerotech,
Inc.
11
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: VERNITRON CORPORATION
(REGISTRANT)
By /s/ STEPHEN W. BERSHAD
STEPHEN W. BERSHAD
CHAIRMAN OF THE BOARD OF DIRECTORS
AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated this 26th day of March, 1996.
/s/ Stephen W. Bershad Chairman of the Board of
STEPHEN W. BERSHAD Directors and Chief Executive
Officer
/s/ Raymond F. Kunzmann Vice President - Finance, Controller
RAYMOND F. KUNZMANN and Chief Financial Officer
/s/ Anthony J. Fiorelli, Jr. Director
ANTHONY J. FIORELLI, JR.
/s/ Eliot M. Fried Director
ELIOT M. FRIED
12
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a)(1) AND (2) AND ITEM 14(d)
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1995
VERNITRON CORPORATION
<PAGE>
FORM 10-K -- ITEM 14(a)(1) AND (2) AND ITEM 14(d)
VERNITRON CORPORATION
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
The following financial statements of Vernitron Corporation are included in
Item 8:
Balance sheets -- December 31, 1995 and 1994. . . . . . . . . . . . . . F-4
Statement of operations -- For the years ended December 31, 1995,
1994 and 1993. . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Statement of cash flows -- For the years ended December 31, 1995,
1994 and 1993. . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
Statement of shareholders' equity -- For the years ended December 31,
1995, 1994 and 1993. . . . . . . . . . . . . . . . . . . . . . . . . . F-8
Notes to financial statements . . . . . . . . . . . . . . . . . . . . . F-9
The following financial statement schedule of Vernitron Corporation is
included in Item 14(d):
Schedule II -- Valuation and qualifying accounts. . . . . . . . . . . .F-17
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Vernitron Corporation:
We have audited the accompanying balance sheets of Vernitron
Corporation (a Delaware corporation) as of December 31, 1995 and 1994, and the
related statements of operations, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1995. These financial
statements and the schedule referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Vernitron
Corporation as of December 31, 1995 and 1994, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1995 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedule listed in the index
to financial statements and financial statement schedule is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audits of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
New York, New York
March 21, 1996
F-3
<PAGE>
VERNITRON CORPORATION
BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
-----------------
1995 1994
------- -------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash . . . . . . . . . . . . . . . . . . . . . . . . $ 91 $ 27
Accounts receivable, net of allowance
for doubtful accounts of
$233 in 1995 and $345 in 1994 . . . . . . . . . . . 8,525 9,293
Inventories, net . . . . . . . . . . . . . . . . . . 16,544 14,527
Other current assets . . . . . . . . . . . . . . . . 651 468
------- -------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . 25,811 24,315
NET PROPERTY, PLANT AND EQUIPMENT. . . . . . . . . . . 7,603 7,990
EXCESS OF COST OVER NET ASSETS ACQUIRED, net of
accumulated amortization of $836 in 1995
and $627 in 1994. . . . . . . . . . . . . . . . . . 6,624 6,832
NET ASSETS HELD FOR DISPOSAL . . . . . . . . . . . . . -- 2,507
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . 447 553
------- -------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . $40,485 $42,197
------- -------
------- -------
</TABLE>
See notes to financial statements.
F-4
<PAGE>
VERNITRON CORPORATION
BALANCE SHEETS
(Dollars in thousands, except per share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31,
-----------------
1995 1994
------- -------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . . . . $ 5,315 $ 6,394
Accrued expenses and other liabilities . . . . . . . 5,696 5,941
Current portion of long-term debt. . . . . . . . . . 466 442
------- -------
TOTAL CURRENT LIABILITIES. . . . . . . . . . . . . 11,477 12,777
LONG-TERM DEBT, less current portion . . . . . . . . . 11,047 11,921
OTHER LONG-TERM LIABILITIES. . . . . . . . . . . . . . 2,697 3,579
DEFERRED INCOME. . . . . . . . . . . . . . . . . . . . 519 651
SHAREHOLDERS' EQUITY:
$1.20 CUMULATIVE EXCHANGEABLE REDEEMABLE
PREFERRED STOCK $.01 PAR VALUE: authorized 1,400,000
shares, issued and outstanding 781,642 shares in
1995 and 672,344 shares in 1994 . . . . . . . . . . . 8 7
COMMON STOCK, $.01 PAR VALUE:
authorized 20,000,000 shares, issued and outstanding
12,604,107 in 1995 and 12,538,012 shares in 1994. . . 126 125
CAPITAL IN EXCESS OF PAR . . . . . . . . . . . . . . . 14,611 13,982
RETAINED EARNINGS (Reflects application of
quasi-reorganization accounting principles as
of December 31, 1991, eliminating a deficit of
$14,094). . . . . . . . . . . . . . . . . . . . . . . (845)
------- -------
TOTAL SHAREHOLDERS' EQUITY . . . . . . . . . . . . 14,745 13,269
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . $40,485 $42,197
------- -------
------- -------
</TABLE>
See notes to financial statements.
F-5
<PAGE>
VERNITRON CORPORATION
STATEMENT OF OPERATIONS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1995 1994 1993
------------ ---------- ----------
<S> <C> <C> <C>
NET SALES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 65,213 $ 62,132 $ 58,649
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,973 44,903 43,338
Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . 13,336 13,343 12,950
Restructuring/inventory writedown charges. . . . . . . . . . . . . . . . . . . . 1,315 3,500
Amortization of intangible assets. . . . . . . . . . . . . . . . . . . . . . . . 209 209 209
----------- ---------- ----------
OPERATING INCOME (LOSS). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,695 2,362 (1,348)
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,994 2,264 2,437
Other expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252 54 71
----------- ---------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES AND EXTRAORDINARY GAIN . . 1,449 44 (3,856)
Charge in lieu of taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 565 17
----------- ---------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY GAIN . . . . . . . 884 27 (3,856)
DISCONTINUED OPERATIONS:
Loss from operations, net of tax benefit of $92 in 1994. . . . . . . . . . . . (143) (670)
Loss on disposal, net of tax benefit of $1,317 in 1994 . . . . . . . . . . . . (2,059)
----------- ---------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY GAIN 884 (2,175) (4,526)
Extraordinary gain on debt repurchase, net of charge in lieu of taxes
of $3,744 in 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,856
----------- ---------- ----------
NET INCOME (LOSS). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 884 3,681 (4,526)
Preferred stock dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . 574 355 375
----------- ---------- ----------
NET INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS' . . . . . . . . . . . . . . $ 310 $ 3,326 $ (4,901)
----------- ---------- ----------
----------- ---------- ----------
NET INCOME (LOSS) PER COMMON SHARE:
Continuing operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.02 $ (0.04) $ (0.82)
Discontinued operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.26) (0.13)
Extraordinary gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.69
----------- ---------- ----------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.02 $ 0.39 $ (0.95)
----------- ---------- ----------
----------- ---------- ----------
Weighted average common shares outstanding . . . . . . . . . . . . . . . . . . 12,555,368 8,509,003 5,185,070
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
See notes to financial statements.
F-6
<PAGE>
VERNITRON CORPORATION
STATEMENT OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1995 1994 1993
------------ ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 884 $ 3,681 $ (4,526)
Adjustments to reconcile net income (loss) to cash (used in) provided by
operating activities:
Extraordinary gain on debt repurchase, net . . . . . . . . . . . . . . . . . (5,856)
Loss on disposal of discontinued operations, net . . . . . . . . . . . . . . 2,059
Utilization of pre quasi-reorganization tax benefits . . . . . . . . . . . . 519 16
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . 1,622 1,742 1,732
(Increase) decrease in accounts receivable . . . . . . . . . . . . . . . . . 768 (970) 934
(Increase) decrease in inventories . . . . . . . . . . . . . . . . . . . . . (2,017) 682 2,019
(Increase) decrease in other current assets. . . . . . . . . . . . . . . . . (183) 498 449
Increase (decrease) in accounts payable, accrued expenses and other
liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,324) 349 10
Increase (decrease) in other long-term liabilities . . . . . . . . . . . . . (882) (461) 113
Other -- net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (343) (349) 87
----------- ---------- ----------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES. . . . . . . . . . . . (956) 1,391 818
----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,026) (797) (381)
Proceeds from sale of assets . . . . . . . . . . . . . . . . . . . . . . . . . 2,896 605
----------- ---------- ----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES. . . . . . . . . . . . 1,870 (192) (381)
----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . 69,614 45,665 3,900
Repayment from borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . (70,464) (49,272) (4,350)
Net proceeds from common stock rights offering . . . . . . . . . . . . . . . . 2,332
----------- ---------- ----------
NET CASH USED IN FINANCING ACTIVITIES. . . . . . . . . . . . . . . . . . . (850) (1,275) (450)
----------- ---------- ----------
NET INCREASE (DECREASE) IN CASH. . . . . . . . . . . . . . . . . . . . . . 64 (76) (13)
CASH AT BEGINNING OF YEAR. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 103 116
----------- ---------- ----------
CASH AT END OF YEAR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 91 $ 27 $ 103
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
See notes to financial statements.
F-7
<PAGE>
VERNITRON CORPORATION
STATEMENT OF SHAREHOLDERS' EQUITY
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK CAPITAL RETAINED
-------------------------- -------------------------- IN EXCESS EARNINGS
SHARES AMOUNT SHARES AMOUNT OF PAR (DEFICIT)
------------ ---------- ---------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 495,896 $ 5 $5,185,070 $ 52 $ 9,546 $ --
Net Loss . . . . . . . . . . . . (4,526)
Dividends (a). . . . . . . . . . 82,050 1 374 (375)
Transfer to Capital in Excess
of Par (b). . . . . . . . . . . (375) 375
Other. . . . . . . . . . . . . . (1)
------------ ---------- ---------- ------------ --------- ---------
Balance at December 31, 1993 . . . 577,946 6 5,185,070 52 9,544 (4,526)
------------ ---------- ---------- ------------ --------- ---------
Net Income . . . . . . . . . . . 3,681
Dividends (a). . . . . . . . . . 94,398 1 354 (355)
Transfer to Capital in Excess
of Par (b). . . . . . . . . . . (355) 355
Common Stock rights offering . . 7,352,942 73 2,259
Amount realized from
utilization of pre quasi-
reorganization tax benefits . . 2,182
Other. . . . . . . . . . . . . . (2)
------------ ---------- ---------- ------------ --------- ---------
Balance at December 31, 1994 . . . 672,344 7 12,538,012 125 13,982 (845)
------------ ---------- ---------- ------------ --------- ---------
Net Income . . . . . . . . . . . 884
Dividends (a). . . . . . . . . . 109,298 1 573 (574)
Transfer to Capital in Excess
of Par (b). . . . . . . . . . . (535) 535
Contribution to 401(k) plan. . . 58,095 1 66
Amount realized from
utilization of pre quasi-
reorganization tax benefits . . 519
Other. . . . . . . . . . . . . . 8,000 6
------------ ---------- ---------- ------------ --------- ---------
Balance at December 31, 1995 . . . 781,642 $ 8 12,604,107 $ 126 $ 14,611 $ --
------------ ---------- ---------- ------------ --------- ---------
------------ ---------- ---------- ------------ --------- ---------
</TABLE>
(a) Represents a 15% dividend paid in additional shares and valued at the
average of the closing bid and ask price as of the dividend record date.
The per share amounts of these dividends were $.70, $.57 and $.79 per share
of Preferred Stock in 1993, 1994 and 1995, respectively.
(b) Represents transfer of the excess of Preferred Stock dividends over
available Retained Earnings.
See notes to financial statements.
F-8
<PAGE>
VERNITRON CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(Dollars in thousands, except per share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue is recognized upon the shipment of product or when services are
rendered.
Inventories are priced at the lower of cost (principally first-in, first-
out, or average) or market.
Deferred financing costs are amortized ratably over the life of the
corresponding debt or commitment.
The excess of cost over net assets acquired is being amortized over thirty-
five years using the straight-line method. The Company continually reviews
goodwill to assess recoverability from future operations using undiscounted cash
flows. Impairments would be recognized in operating results if a permanent
diminution in value occurred.
Property, plant and equipment are stated at cost, less accumulated
depreciation. Depreciation is provided primarily by the straight-line method
using estimated lives for buildings and improvements of 20 years and for
machinery and equipment using estimated useful lives ranging from 3 to 8 years.
Inter-division items and transactions have been eliminated in
consolidation.
Certain items in the 1994 and 1993 financial statements have been
reclassified to conform to the 1995 presentation.
Per share data is based upon the weighted average of common shares
outstanding during each period. Outstanding common stock options or warrants
have not been included in the 1995, 1994 or 1993 computation of per share data
as they were deemed to have been anti-dilutive.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 2 - DISCONTINUED OPERATIONS
In September 1994, the Company adopted a plan to dispose of all of its
Electronic Components business which was comprised of the trimmer, transformer
and microwave component product lines. The disposal has been accounted for as a
discontinued operation and, accordingly, the related net assets and operating
results have been reported separately from continuing operations. The Company's
1993 Statement of Operation has been restated to reflect continuing operations.
The loss on disposal of the Electronic Components business for the year ended
December 31, 1994 is comprised of the loss on disposal of the net assets of the
business and operating losses until disposal. During 1994, the Company sold a
portion of the assets of its Electronic Components business for $605. During
1995, the Company sold the remaining discontinued business assets for $1,500.
F-9
<PAGE>
VERNITRON CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - DISCONTINUED OPERATIONS (CONT'D)
Net assets held for disposal as of December 31, 1994 consisted of the following:
<TABLE>
<S> <C>
Inventory $ 1,992
Machinery & Equipment 365
Other current assets 59
Current liabilities (478)
Reserve to write-down net assets
held for disposal to net realizable value (1,065)
-------
Net assets of discontinued operations 873
Idle facility (See Note 8) 1,634
-------
Net assets held for disposal $ 2,507
-------
-------
</TABLE>
Revenues applicable to the discontinued business for the years ended
December 31, 1995, 1994 and 1993 were $290, $6,897 and $9,095, respectively.
The loss from operations of the discontinued Electronic Components business from
September 30, 1994 to December 31, 1994 and through the date of disposal in
1995, were $326 and $40, respectively, net of related tax benefits. These
losses were charged to a reserve established in 1994 as part of the loss on
disposal.
NOTE 3 - SHAREHOLDERS' EQUITY
COMMON STOCK -
In July 1994, the Company completed a rights offering of Common Stock in
which 7,352,942 shares were issued for gross proceeds of $2,500 ($2,332, net of
expenses).
PREFERRED STOCK -
The certificate of designation setting forth the amended terms of the
Company's $1.20 Cumulative Exchangeable Redeemable Preferred Stock provides for,
among other things, (1) a liquidation preference of $8 per share, (2) an annual
dividend of $1.20 per share, and (3) the ability to pay dividends thereon in
additional shares instead of cash up to March 1, 1996. Under the certificate of
designation, the right to receive cash dividends is expressly subject to, among
other things, any provision contained from time to time in the Company's
financing agreements prohibiting the payment of cash dividends. The Company's
Senior Credit Facility prohibits the payment of cash dividends (see Note 4) and
the financing agreements to be entered into by the Company in connection with
the acquisition of Precision Aerotech, Inc. will contain a similar prohibition
(see Note 10). The Company at its option may redeem the Preferred Stock at a
price of $8.00 per share or an amount per share equal to the product of 1.1 and
the average of the NASDAQ daily closing prices per share (defined in general to
be the average of the highest reported bid and the lowest reported asked prices)
for ten consecutive trading days, as defined, together with all accrued and
unpaid dividends to the redemption date.
Since August, 1991, the Company has paid quarterly dividends on the Preferred
Stock in additional shares at an annual rate of 15% based on the shares
outstanding.
F-10
<PAGE>
VERNITRON CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - LONG-TERM DEBT
<TABLE>
<CAPTION>
1995 1994
------- ------
<S> <C> <C>
Credit Facility. . . . . . . . . . . . . . . . . . . . $ 9,643 $10,493
Industrial Revenue Bond. . . . . . . . . . . . . . . . 1,870 1,870
------- -------
11,513 12,363
Less current portion . . . . . . . . . . . . . . . . . 466 442
------- -------
$11,047 $11,921
------- -------
------- -------
</TABLE>
In July 1994, the Company obtained a new $15,000 four-year, senior secured
credit facility (the "Senior Credit Facility"). The proceeds of the Senior
Credit Facility along with the net proceeds of the rights offering (see Note 3)
were used to repurchase the Company's bank indebtedness at a discount and to
provide additional working capital. As a result of the repurchase of
indebtedness, an extraordinary gain of $5,856, net of a charge in lieu of taxes
of $3,744, was recorded.
During 1995, the Company negotiated an amendment to the Senior Credit
Facility increasing the amount that can be borrowed under the facility to
$17,500, subject to availability based on the satisfaction of certain borrowing
base formulas. As of December 31, 1995, $13,600 of the $17,500 credit facility
was available to the Company.
Borrowings under the Senior Credit Facility bear interest at a fluctuating
rate per annum equal to the rate of interest publicly announced by Chemical Bank
as its prime rate plus 2.5% (the prime rate was 8.5% at December 31, 1995). A
commitment fee of .5% is payable on any unused amount of the Senior Credit
Facility. The Senior Credit Facility contains certain restrictive covenants
which, among other things, impose limitations with respect to the incurrence of
additional liens, mergers, consolidations and specified sale of assets. In
addition, the Senior Credit Facility prohibits the payment of cash dividends.
Borrowings under the Senior Credit Facility are secured by substantially all of
the assets of the Company.
The Company had outstanding at December 31, 1995, industrial development
revenue bonds (the "Bonds") in the amount of $1,870 secured by its Gilford, NH
manufacturing facility which has a net carrying amount of approximately $2,200.
The Bonds are payable in 2005. During 1994, the Bonds were remarketed and, as a
result, a letter of credit securing repayment was released and the interest rate
was converted from a floating rate to a fixed rate of 13% per annum.
Scheduled debt maturities during the next five years, which are comprised solely
of payment under the Company's Senior Credit Facility (as amended) are $466
(1996), $466 (1997) and $8,711 (1998).
F-11
<PAGE>
VERNITRON CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - BALANCE SHEET INFORMATION
The details of certain balance sheet accounts are as follows:
<TABLE>
<CAPTION>
1995 1994
------- ------
<S> <C> <C>
Inventories:
Raw materials. . . . . . . . . . . . . . . . . . . . $ 7,203 $ 7,623
Work-in-process. . . . . . . . . . . . . . . . . . . 5,293 6,098
Finished goods . . . . . . . . . . . . . . . . . . . 9,255 8,532
------- -------
21,751 22,253
Less reserves. . . . . . . . . . . . . . . . . . . . 5,207 7,726
------- -------
$16,544 $14,527
------- -------
------- -------
Net property, plant and equipment:
Land . . . . . . . . . . . . . . . . . . . . . . . . $ 600 $ 600
Buildings and improvements . . . . . . . . . . . . . 3,923 3,562
Machinery and equipment. . . . . . . . . . . . . . . 8,155 7,490
------- -------
12,678 11,652
Less accumulated depreciation and amortization . . . 5,075 3,662
------- -------
$ 7,603 $ 7,990
------- -------
------- -------
Accrued expenses and other liabilities:
Compensation and related benefits. . . . . . . . . . $ 2,180 $ 2,180
Legal. . . . . . . . . . . . . . . . . . . . . . . . 280 443
Other. . . . . . . . . . . . . . . . . . . . . . . . 3,236 3,318
------- -------
$ 5,696 $ 5,941
------- -------
------- -------
</TABLE>
NOTE 6 - INCOME TAXES
At December 31, 1995, the Company has net operating loss carryforwards of
approximately $13,300 which expire in the years 2005 through 2009 and
alternative minimum tax credit carryforwards of approximately $270. In
addition, the Company has approximately $7,200 of previously unrecognized tax
benefits, principally related to inventories. As the portion of the loss
carryforwards and deferred tax benefits originating prior to the 1991 quasi-
reorganization are realized, the corresponding tax effect will be credited to
Capital in Excess of Par under quasi-reorganization accounting principles rather
than reducing the Provision for Taxes. In 1995, $519 was credited to Capital in
Excess of Par representing the utilization of such pre quasi-reorganization tax
benefits to offset current year tax expense. As of December 31, 1995, $4,526 of
the pre quasi-reorganization tax effected benefits remain unutilized. The
utilization and realization of the carryforwards and future tax benefits will
substantially reduce or eliminate the amount of cash taxes payable on taxable
income in the future.
The Company utilizes the liability method (SFAS No. 109) in accounting for
income taxes. Income (loss) from continuing operations before taxes is from
domestic sources only for each of the three years ended December 31, 1995.
F-12
<PAGE>
VERNITRON CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - INCOME TAXES (CONT'D)
The provision for taxes on income from continuing operations consists of:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Current taxes:
U.S. Federal - charge in lieu of taxes . . $ 454 $ 14 $ --
State and local. . . . . . . . . . . . . . 111 3 --
------ ------ ------
565 17 --
------ ------ ------
Deferred taxes:
U.S. Federal . . . . . . . . . . . . . . .
------ ------ ------
$ 565 $ 17 $ --
------ ------ ------
------ ------ ------
</TABLE>
The reasons for the difference between the provision for taxes and the
amount computed by applying the statutory federal income tax rate to income
(loss) before taxes are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ -------
<S> <C> <C> <C>
U.S. federal statutory rate. . . . . . . . . 34% 34% 34%
Computed expected tax provision (benefit). . $ 493 $ 15 $(1,539)
Increase (decrease) in taxes resulting from:
State and local taxes, net of federal
tax benefit . . . . . . . . . . . . . . . 72 2
Amortization of goodwill . . . . . . . . . 71 71 71
Portion of loss not currently
realizable. . . . . . . . . . . . . . . . 1,468
Other. . . . . . . . . . . . . . . . . . . (71) (71)
------ ------ -------
Actual tax provision . . . . . . . . . . . . $ 565 $ 17 $ --
------ ------ -------
------ ------ -------
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
------- ------
<S> <C> <C>
Tax net operating loss carryforwards . . . . . . . . . $ 4,794 $ 4,130
Inventory valuation differences. . . . . . . . . . . . 2,070 1,736
Other, net . . . . . . . . . . . . . . . . . . . . . . 389 1,057
------- -------
Sub-Total 7,253 6,923
Valuation allowance. . . . . . . . . . . . . . . . . . (7,253) (6,923)
------- -------
Total deferred taxes . . . . . . . . . . . . . . . . . $ -- $ --
------- -------
------- -------
</TABLE>
The net change in the valuation allowance in 1995 and 1994 was an increase
of $330 and a decrease of $1,713, respectively.
Total net federal, foreign and state and local income taxes paid
(refunded), in 1995, 1994, and 1993 were $52, $(9), and $(8), respectively.
F-13
<PAGE>
VERNITRON CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - PENSION ARRANGEMENTS
The Company has two pension plans for which benefits and participation have
been frozen. Pension benefits under these plans are generally based upon years
of service and compensation. The Company's funding policy is to contribute
amounts to these plans sufficient to meet the minimum funding requirements set
forth in the Employee Retirement Income Security Act of 1974, plus such
additional amounts as the Company may determine to be appropriate from time to
time.
Multi-employer plans covering certain union members generally provided
benefits of stated amounts for each year of service. During 1994, in connection
with the restructuring of the Motion Control group (see Note 8), the employment
of the union members participating in these multi-employer plans ended and, as a
result, contributions to these plans ceased. As of December 31, 1995, there
were no unpaid contributions to multi-employer plans.
A summary of components of net periodic pension cost for the defined
benefit plans and the total contribution charged to pension expense for the
multi-employer plans follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Defined benefit plans:
Service cost-benefits earned during
the period. . . . . . . . . . . . . . . . . $ -- $ -- $ --
Interest cost on projected benefit
obligation. . . . . . . . . . . . . . . . . 74 73 105
Actual return on plan assets . . . . . . . . (25) 1 5
Net amortization and deferral. . . . . . . . 17 (5) (10)
------ ----- -----
Net pension cost of defined benefit plans. . 66 69 100
Multi-employer plans . . . . . . . . . . . . 59 301
------ ----- -----
Total pension expense. . . . . . . . . . . . $ 66 $ 128 $ 401
------ ----- -----
------ ----- -----
</TABLE>
Assumptions used in accounting for the defined benefit plans as of the plans'
measurement dates were:
1995 1994 1993
------ ------ ------
Weighted-average discount rate . . . . . . . 7.5% 7.5% 7.5%
Expected long-term rate of return on
assets. . . . . . . . . . . . . . . . . . . 6.0% 6.0% 7.3%
F-14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
VERNITRON CORPORATION
NOTE 7 - PENSION ARRANGEMENTS, (CONT'D)
The following table sets forth the funded status and amount recognized in
the consolidated balance sheets for the Company's defined benefit pension plans.
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation. . . . . . . . . . $ 1,116 $ 1,026 $ 1,003
------- ------- -------
------- ------- -------
Accumulated benefit obligation . . . . . . . $ 1,116 $ 1,026 $ 1,003
------- ------- -------
------- ------- -------
Projected benefit obligations. . . . . . . . $ 1,116 $ 1,026 $ 1,003
Less plan assets at fair market value. . . . 231 32 35
------- ------- -------
Projected benefit obligation in excess
of plan assets. . . . . . . . . . . . . . . 885 994 968
Unrecognized net gain. . . . . . . . . . . . 98 83 80
------- ------- -------
Net pension liability recognized in the
balance sheet . . . . . . . . . . . . . . . $ 983 $ 1,077 $ 1,048
------- ------- -------
------- ------- -------
</TABLE>
Unrecognized net gains and losses are amortized over the average future
service lives of participants. Plan assets are invested in a managed portfolio
consisting primarily of equity securities.
Under the Company's 401(k) plan, eligible employees may elect to contribute
a percentage of their earnings which the Company has matched up to 3% of gross
earnings based on the level of income. Company matching contributions were $325
in 1995 and $363 in 1994. The Company made no matching contribution in 1993.
NOTE 8 - OTHER INFORMATION
RESTRUCTURING PLAN -
During 1993, the Company announced its plan to restructure its Motion
Control group. The motion control business had been organized as two separate
divisions. The plan consolidated the two divisions under a single operating
management based in San Diego. In connection with the restructuring, the
Company recorded a charge of $3,500. The charge included $2,300 for the write-
down of slow moving and excess inventory to net realizable value. In addition,
$1,200 was recorded for severance, early retirement, other employee-related
benefits and other related charges. As part of the restructuring, the Company
closed its Deer Park, New York facility.
During 1994, the Company recorded an additional $1,315 charge related to this
restructuring, $1,015 of which provided additional inventory reserves to reflect
slower turnover of the inventory than was anticipated in the 1993 charge
calculation. The remaining $300 of the 1994 charge was to adjust the carrying
amount of the Deer Park, New York facility.
In September 1995, the Company sold the idle Deer Park, New York facility for
net proceeds of $1,401. Included in other expense, is a loss in the sale of
this facility of $233.
F-15
<PAGE>
VERNITRON CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - OTHER INFORMATION, (CONT'D)
STOCK OPTIONS -
Options to purchase up to 193,000 shares of Vernitron common stock, with
exercise prices of $.75 - $.83 per share, have been issued to certain key
employees of the Company. Of that amount, 133,900 options are vested, with the
balance becoming vested as follows: 30,300 (1996) and 28,800 (1997). These
options are exercisable for up to seven years from the date of grant. There are
249,000 shares available for future grant.
INTEREST PAID - in 1995, 1994, and 1993 was $1,989, $1,883 and $2,168
respectively.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Future minimum payments, under noncancellable operating leases (exclusive
of property expenses and net of sublease rental income), as of December 31,
1995, are as follows:
<TABLE>
<S> <C>
1996 . . . . . . . . . . . . . . . . . . . . . . . . . $1,399
1997 . . . . . . . . . . . . . . . . . . . . . . . . . 1,333
1998 . . . . . . . . . . . . . . . . . . . . . . . . . 1,088
1999 . . . . . . . . . . . . . . . . . . . . . . . . . 1,177
2000 . . . . . . . . . . . . . . . . . . . . . . . . . 139
2001 and thereafter. . . . . . . . . . . . . . . . . . 272
------
$5,408
------
------
</TABLE>
Rent expense under such leases, net of sublease rental income, amounted to
$1,539 in 1995, $1,379 in 1994 and $1,348 in 1993.
In February 1990, the Company sold and leased back its San Diego,
California facility under an operating lease. The Company has a deferred gain
as of December 31, 1995 on this transaction of $519, which is being amortized to
income over the ten year lease term as a reduction of annual rent expense.
The Company is a defendant in various lawsuits, none of which is expected
to have a material adverse effect on the Company's financial position or results
of operations.
NOTE 10 - SUBSEQUENT EVENTS
In February 1996, the company entered into a definitive merger agreement to
acquire Precision Aerotech, Inc. Precision Aerotech designs, manufactures and
markets laser scanners, precision metal optics, high performance air bearings
and precision machined parts sold predominantly in commercial markets.
Precision Aerotech's sales for the twelve months ended January 31, 1996 were
approximately $43.5 million.
The definitive merger agreement contemplates the payment of $5 per share in
cash for each outstanding share of common stock of Precision Aerotech and the
repayment of Precision Aerotech's debt. It is expected that the purchase will
require approximately $19 million in cash, all of which Vernitron expects will
be financed with additional borrowings. Completion of the transaction is
subject to the satisfaction of customary conditions, including receipt of all
necessary financing by the Company. Shareholders owning 95% of Precision
Aerotech's common stock have agreed to sell their shares to Vernitron and vote
in favor of the merger. Subject to the foregoing, the acquisition is expected
to close in the second quarter of 1996.
F-16
<PAGE>
VERNITRON CORPORATION
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- - - ----------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F
- - - ----------------------------------------------------------------------------------------------------------
Additions
----------------------
Balance at Charged to Charged to
Beginning Costs and Other Balance at
Classification of Period Expenses Accounts Deductions End of Period
-------------- ---------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Year ended December 31, 1995: $345 $106 $218(a) $233
Year ended December 31, 1994: $278 $124 $ 57(a) $345
Year ended December 31, 1993: $291 $ 40 $ 53(a) $278
</TABLE>
- - - ---------------
(a) Uncollectible accounts written off, net of recoveries.
F-17
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION SEQ. PG. NO.
- - - ------- ----------- ------------
<S> <C> <C>
3(1) Certificate of Incorporation of the Registrant (filed as
Exhibit 1 to the Form 8-A, filed on August 8, 1991 (the
"Form 8-A") and incorporated herein by reference).
3(2) By-Laws of the Registrant (filed as Exhibit 2 to the Form 8-
A and incorporated herein by reference).
4(1) Certificate of the Designation, Powers, Preferences and
Rights of the $3.75 Cumulative Exchangeable Redeemable
Preferred Stock ("Preferred Stock") (filed as Exhibit 4(2)
to the Registrant's Registration Statement on Form S-4
(Registration Number 33-16310), filed on August 6, 1987
(the "Registration Statement") and incorporated herein by
reference).
4(2) Certificate of Amendment of Certificate of Incorporation
Effecting the Amendment and Restatement of the Certificate
of the Designation, Powers, Preferences and Rights of the
Preferred Stock, dated as of August 14, 1991 (filed as
Exhibit 4(2) to the Registrant's Annual Report on Form 10-
K for the year ended December 31, 1991 (the "1991 Form 10-
K") and incorporated herein by reference).
4(3) Form of Indenture between Registrant and the Bank of
Montreal Trust Company, as Trustee, relating to the 15%
Subordinated Debentures of the Registrant, issuable at the
option of the Registrant in exchange for the Preferred
Stock (filed as Exhibit 4(1) to the Registration Statement
and incorporated herein by reference).
10(1) Indenture of Trust by and between the Industrial Development
Authority of the State of New Hampshire and Laconia
Peoples National Bank and Trust Company for $3,000,000
principal amount of Industrial Development Authority of
the State of New Hampshire Floating Rate Monthly Demand
Industry Facility Bonds (filed as Exhibit 10(18) to the
Registrant's Annual Report or Form 10-K for the fiscal
year ended December 28, 1985, filed on April 15, 1986 (the
"1985 Form 10-K") and incorporated herein by reference).
10(2) Loan Agreement by and among the Industrial Development
Authority of the State of New Hampshire, the Registrant
and V Land Corporation for $3,000,000 principal amount of
Industrial Development Authority of the State of New
Hampshire Floating Rate Monthly Demand Industry Facility
Bonds (filed as Exhibit 10(19) to the 1985 Form 10-K and
incorporated herein by reference).
</TABLE>
E-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION SEQ. PG. NO.
- - - ------- ----------- ------------
<S> <C> <C>
10(3) Reimbursement Agreement by and among V Land Corporation, the
Registrant and National Westminster Bank PLC for
$3,000,000 principal amount of Industrial Development
Authority of the State of New Hampshire Floating Rate
Monthly Demand Industry Facility Bonds (filed as Exhibit
10(20) to the 1985 Form 10-K and incorporated herein by
reference).
10(4) Bond Purchase Agreement by and between E.F. Hutton &
Company, Inc. and the Industrial Development
Authority of the State of New Hampshire for
$3,000,000 principal amount of the Industrial
Development Authority of the State of New Hampshire
Floating Rate Monthly Demand Industry Facility
Bonds (filed as Exhibit 10(21) to the 1985 Form 10-
K and incorporated herein by reference).
10(5) Amended and Restated Credit Agreement, dated as of March
28, 1991 (the "Credit Agreement") by and among the
Registrant, The Bank of New York and National
Westminster Bank USA (filed as Exhibit 10(5) to the
Form 10-K for the fiscal year ended December 30,
1990, filed on March 28, 1991 (the "1990 Form 10-
K") and incorporated herein by reference).
10(6) Amendment No. 1 to the Credit Agreement, dated as of
December 31, 1991 (filed as Exhibit 10(6) to the
1991 Form 10-K and incorporated herein by
reference).
10(7) Security Agreement dated as of August 28, 1987 among the
Registrant, certain subsidiaries of the Registrant,
Irving Trust Company, National Westminster Bank USA
and Irving Trust Company, as Collateral Agent
(filed as Exhibit 10(79) to Post-Effective
Amendment No. 1, filed on September 2, 1987 to the
Registration Statement (the "Post-Effective
Amendment") and incorporated herein by reference).
10(8) Stock Pledge and Security Agreement dated as of August 28,
1987 among the Registrant, certain subsidiaries of
the Registrant, Irving Trust Company, National
Westminster Bank USA and Irving Trust Company as
Collateral Agent (filed as Exhibit 10(80) to the
Post-Effective Amendment and incorporated herein by
reference).
10(9) Reimbursement, Contribution and Subrogation Agreement (the
"Reimbursement Agreement") dated as of August 28,
1987 among certain subsidiaries of the Registrant
(filed as Exhibit 10(81) to the Post-Effective
Amendment and incorporated herein by reference).
10(10) Waiver/Amendment dated as of August 28, 1987 to
Reimbursement Agreement, as amended, between the
Registrant, V Land Corporation and National
Westminster Bank PC (filed as Exhibit 10(78) to the
Post-Effective Amendment and incorporated herein by
reference).
</TABLE>
E-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION SEQ. PG. NO.
- - - ------- ----------- ------------
<S> <C> <C>
10(11) Fifth amendment dated as of June 15, 1990, to Reimbursement
Agreement (filed as Exhibit 10(10) to the 1990 Form
10-K and incorporated herein by reference).
10(12) Employment Agreement dated as of September 5, 1989, by and
between the Registrant and Edward M. Murchie (filed
as Exhibit 10(32) to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1989,
filed on March 28, 1990 (the "1989 Form 10-K") and
incorporated herein by reference).
10(13) Agreement by and between the Registrant and John R. Slowik,
dated as of September 17, 1990 (filed as Exhibit
10(14) to the 1990 Form 10-K and incorporated
herein by reference).
10(14) Agreement by and between the Registrant and One Lambda,
Inc., dated as of December 27, 1990 (filed as
Exhibit 10(15) to the 1990 Form 10-K and
incorporated herein by reference).
10(15) Form of Indemnification Agreement (filed as Exhibit 10(16)
to the 1990 Form 10-K and incorporated herein by
reference).
10(16) Vernitron Corporation Long-Term Stock Incentive Plan (filed
as Exhibit 10(16) to the 1991 Form 10-K and
incorporated herein by reference).
10(17) Form of Stock Option Agreement, dated as of September 30,
1991 (filed as Exhibit 10(17) to the 1991 Form 10-K
and incorporated herein by reference).
10(18) Amendment No. 2 to the Credit Agreement, dated as of
December 31, 1992 (filed as Exhibit 10(18) to the
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1992 (the "1992 Form 10-K")
and incorporated herein by reference).
10(19) Amendment No. 3 to the Credit Agreement, dated as of
September 30, 1993 (filed as Exhibit 10(19) to the
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1993 (the "1993 Form 10-K")
and incorporated herein by reference).
10(20) Amendment No. 4 to the Credit Agreement, dated as of
December 29, 1993 (filed as Exhibit 10(20) to the
1993 Form 10-K and incorporated herein by
reference).
10(21) Amendment No. 5 to the Credit Agreement, dated as of March
15, 1994 (filed as Exhibit 10(21) to the 1993 Form
10-K and incorporated herein by reference).
</TABLE>
E-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION SEQ. PG. NO.
- - - ------- ----------- ------------
<S> <C> <C>
10(22) Letter Agreement, dated March 15, 1994, between Vernitron
Corporation and The Bank of New York and National
Westminster Bank USA (filed as Exhibit 10(1) to the
Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 1994 (the "1994
First Quarter Form 10-Q") and incorporated herein
by reference).
10(23) Letter Agreement, dated May 4, 1994, between Vernitron
Corporation and The Bank of New York and National
Westminster Bank USA (filed as Exhibit 10(2) to the
1994 First Quarter Form 10-Q and incorporated
herein by reference).
10(24) Letter Agreement, dated May 6, 1994, between Vernitron
Corporation and Stephen W. Bershad (filed as
Exhibit 10(3) to the 1994 First Quarter Form 10-Q
and incorporated herein by reference).
10(25) Letter Agreement, dated May 4, 1994, between Vernitron
Corporation and Lehman Brothers, Inc. (filed as
Exhibit 10(4) to the 1994 First Quarter Form 10-Q
and incorporated herein by reference).
10(26) Commitment Letter, dated May 6, 1994, between Vernitron and
The CIT Group/Credit Finance, Inc. (filed as
Exhibit 10(5) to the 1994 First Quarter Form 10-Q
and incorporated herein by reference).
10(27) Letter Agreement, dated June 24, 1994, between the Company
and National Westminster Bank USA and The Bank of
New York (the "Banks") (filed as Exhibit 10(1) to
the Registrant's Quarterly Report on Form 10-Q for
the fiscal quarter ended June 30, 1994 (the "1994
Second Quarter Form 10-Q") and incorporated herein
by reference).
10(28) Amendment No. 6, dated as July 20, 1994, to the Amended
and Restated Credit of Agreement, dated as of
March 28, 1991, by and between the Company and the
Banks (filed as Exhibit 10(2) to the 1994 Second
Quarter Form 10-Q and incorporated herein by
reference).
10(29) Intercreditor and Subordination Agreement, dated as of
July 20, 1994, between the Company, the Banks and
CIT Group/Credit Finance, Inc. ("CIT") (filed as
Exhibit 10(3) to the 1994 Second Quarter Form 10-Q
and incorporated herein by reference).
10(30) Loan and Security Agreement, dated as of July 20, 1994,
between the Company and CIT (filed as Exhibit
10(4) to the 1994 Second Quarter Form 10-Q and
incorporated herein by reference).
10(31) $2,451,000 Promissory Note, dated July 20, 1994, of the
Company payable to CIT (filed as Exhibit 10(5) to
the 1994 Second Quarter Form 10-Q and incorporated
herein by reference).
</TABLE>
E-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION SEQ. PG. NO.
- - - ------- ----------- ------------
<S> <C> <C>
10(32) Trademark and Patent Security Agreement, dated as of July
20, 1994, between the Company and CIT (filed as
Exhibit 10(6) to the 1994 Second Quarter Form 10-Q
and incorporated herein by reference).
10(33) Mortgage and Security Agreement, dated as of July 20,
1994, between the Company and CIT with respect to
the Company's facility located in St. Petersburg,
Florida (filed as Exhibit 10(7) to the 1994 Second
Quarter Form 10-Q and incorporated herein by
reference).
10(34) Mortgage and Security Agreement, dated as of July 20, 1994,
between the Company and CIT with respect to the
Company's facility located in Deer Park, New York
(filed as Exhibit 10(8) to the 1994 Second Quarter
Form 10-Q and incorporated herein by reference).
10(35) Warrant, dated as of July 20, 1994, granted by the Company
in favor of CIT (filed as Exhibit 10(9) to the 1994
Second Quarter Form 10-Q and incorporated herein by
reference).
10(36) Letter Agreement, dated June 24, 1994, between the Company
and Lehman Brothers, Inc. (filed as Exhibit 10(10)
to the 1994 Second Quarter Form 10-Q and
incorporated herein by reference).
10(37) Amendment No. 1, dated March 17, 1995, to Loan and Security
Agreement, dated as of July 20, 1994, between the
Company and CIT (filed as Exhibit 10(37) to the
Form 10-K for the year ended December 31, 1994 (the
"1994 Form 10-K").
10(38) Amended and Restated $2,701,334 Promissory Note, dated
March 17, 1995, between the Company and CIT (filed
as Exhibit 10(38) to the 1994 Form 10-K).
10(39) Amendment No. 1, dated March 17, 1995, to Mortgage and
Security Agreement, dated as of July 20, 1994,
between the Company and CIT, with respect to the
Company's St. Petersburg, Florida facility (filed
as Exhibit 10(39) to the 1994 Form 10-K).
10(40) Agreement and Plan of Merger, dated as of February 16,1996,
between Vernitron Corporation, PA Acquisition
Corporation and Precision Aerotech, Inc.
10(41) Shareholders Agreement, dated as of February 16,1996,
between Vernitron Corporation, PA Acquisition
Corporation, Teachers Insurance and Annuity
Association of America and Foothill Capital
Corporation.
22 Subsidiaries of the Registrant.
</TABLE>
E-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION SEQ. PG. NO.
- - - ------- ----------- ------------
<S> <C> <C>
28(1) Agreement of Limited Partnership of SWB Associates, L.P.,
(the "Partnership") dated as of December 4, 1988
(filed as Exhibit 1 to the Registrant's current
report on Form 8-K dated as of December 7, 1988,
filed on December 8, 1988 (the "December 1988 8-K")
and incorporated herein by reference).
28(2) Agreement by and between SWB Associates, L.P., SWB Holding
Corporation, Shearson Lehman Brothers Holdings
Inc., and Shearson Electric, Inc., dated as of
March 22, 1991 (filed as Exhibit 28(4) to the 1990
Form 10-K and incorporated herein by reference).
</TABLE>
E-6
<PAGE>
EXHIBIT 10(40)
AGREEMENT AND PLAN OF MERGER
Agreement and Plan of Merger, dated as of February 16, 1996, by and
among Vernitron Corporation, a Delaware corporation ("Parent"), PA
Acquisition Corporation, a Delaware corporation and wholly owned subsidiary
of Parent (the Purchaser"), and Precision Aerotech, Inc., a Delaware
corporation (the Company).
The Boards of Directors of Parent, the Purchaser and the Company have
approved the acquisition of the Company by the Purchaser and, in furtherance
of such acquisition, the purchase, immediately prior to the Effective Time of
the Merger (as such terms are defined herein), of all shares of common stock,
$.01 par value per share (the "Shares"), of the Company owned by Foothill
Capital Corporation ("Foothill") and Teachers Insurance and Annuity
Association of America ("TIAA") pursuant to a Shareholders Agreement between
Parent, Purchaser, Foothill and TIAA entered into concurrently herewith (the
"Shareholders Agreement"). The Boards of Directors of Parent, the Purchaser
and the Company have each determined that it is advisable, immediately
following the purchase of such Shares, to merge the Purchaser with and into
the Company pursuant to this Agreement with the result that the Company shall
become an indirect wholly owned subsidiary of Parent.
Accordingly, in consideration of the mutual covenants and agreements set
forth herein, Parent, the Purchaser and the Company hereby agree as follows:
1. THE MERGER
1.1. MERGER.
1.1.1. Upon the terms and subject to the conditions hereof, the
Purchaser will be merged with and into the Company (the "Merger") in
accordance with the applicable provisions of the General Corporation Law of
the State of Delaware (the "GCL") as soon as practicable following the
satisfaction or waiver of the conditions set forth in Section 4 hereof. The
Company and the Purchaser are sometimes hereinafter referred to as the
"Constituent Corporations."
1.1.2. The Company shall be the surviving corporation in the
Merger (sometimes hereinafter referred to as the Surviving Corporation") and
shall continue its existence under the laws of the State of Delaware. The
separate existence of the Purchaser shall cease. The Certificate of
Incorporation and the Bylaws of the Purchaser in effect upon consummation of
the Merger shall be the Certificate of Incorporation and Bylaws of the
Surviving Corporation, provided that Article First of the Certificate of
Incorporation of the Surviving Corporation shall be amended to read in its
entirety as follows: "FIRST: The name of the Corporation is Precision
Aerotech, Inc. The directors of the Purchaser upon consummation of the
Merger shall be the directors of the
<PAGE>
Surviving Corporation. Upon the consummation of the Merger, all the property,
real, personal and mixed, and franchises of each of the Constituent
Corporations, and all debts due on whatever account to each of them,
including subscriptions for stock and other choses in action belonging to
each of them, shall be taken and deemed to be transferred to and vested in
the Surviving Corporation without further act or deed. The Surviving
Corporation shall thenceforth be responsible for all the liabilities and
obligations of each of the Constituent Corporations, with the effect set
forth in the GCL.
1.1.3. At the Effective Time (as hereinafter defined), by virtue
of the Merger and without any action on the part of the holder thereof, (a)
each then outstanding Share not owned by Parent, the Purchaser, or any other
direct or indirect subsidiary or affiliate of Parent (other than those Shares
held in the treasury of the Company or Dissenting Shares (as hereinafter
defined)) shall be converted into a right to receive in cash an amount per
Share equal to $5.00 (the "Merger Price"), without interest, (b) each then
outstanding Share owned by Parent, the Purchaser, or any other direct or
indirect subsidiary or affiliate of Parent and Shares held in the treasury of
the Company shall be cancelled, and (c) the shares of the Purchaser shall
become the shares of common stock of the Surviving Corporation.
1.2. SHAREHOLDERS' MEETING OF THE COMPANY. If necessary, the Company
will take all action in accordance with applicable law and its Certificate of
Incorporation and By-Laws to convene a meeting of its shareholders promptly
after the execution hereof to consider and vote upon the approval of the
Merger, if such shareholder approval for the Merger is required by applicable
law. At any such meeting all of the Shares then owned by Parent, the
Purchaser or any other direct or indirect subsidiary of Parent will be voted
in favor of the Merger. The Board of Directors of the Company, subject to its
fiduciary duties under applicable law, will recommend that the Company's
shareholders approve the Merger and take all lawful action to solicit such
approval if such vote is required or sought.
1.3. CONSUMMATION OF THE MERGER. The closing of the Merger (the
"Closing") shall take place (a) at the offices of Vernitron Corporation, 645
Madison Avenue, New York, New York, 10022, at 9:00 A.M., local time, on the
later of (i) the day of (and immediately following) the receipt of approval
of the Merger by the Company's shareholders if such approval is required, or
(ii) the day on which (and immediately following such time as) the last of
the conditions set forth in Section 4 is fulfilled or waived, or (b) at such
other time and place and on such other date as the Purchaser and the Company
shall agree. As soon as practicable after the Closing, the parties hereto
will cause the Merger to be consummated by the filing with the Secretary of
State of Delaware of a certificate of merger in such form as required by and
executed in accordance with the relevant provisions of the GCL. The time the
Merger becomes effective in accordance with applicable law shall hereinafter
be referred to as the "Effective Time."
1.4. DISSENTERS' RIGHTS. Shares that have not been voted for adoption
of the Merger and with respect to which appraisal shall have been properly
demanded in accordance with Section 262 of the GCL ("Dissenting Shares")
shall not be converted into the right to receive the Merger Price per Share
in cash at or after the Effective Time unless and until the holder of such
Shares withdraws his or her demand for such appraisal (in accordance with
Section 262(k) of the
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GCL) or becomes ineligible for such appraisal. If a holder of Dissenting
Shares shall withdraw (in accordance with Section 262(k) of the GCL) his or
her demand for such appraisal or shall become ineligible for such appraisal,
then, as of the Effective Time or the occurrence of such event, whichever
last occurs, such holder's Dissenting Shares shall cease to be Dissenting
Shares and shall be converted into and represent the right to receive the
Merger Price. The Company shall give Parent (i) prompt notice of any written
demands for appraisal, withdrawals of demands for appraisal and any other
instruments served pursuant to Section 262 of the GCL received by the Company
and (ii) the opportunity to direct all negotiations and proceedings with
respect to demands for appraisal under Section 262. The Company will not
voluntarily make any payment with respect to any demands for appraisal and
will not, except with the prior written consent of Parent, settle or offer to
settle any such demands.
1.5. PAYMENT FOR SHARES. The Purchaser shall act as Paying Agent
hereunder (the "Paying Agent"). As soon as practicable after the Effective
Time, the Paying Agent shall mail to each record holder, as of the Effective
Time, of an outstanding certificate or certificates which immediately prior
to the Effective Time represented Shares (the "Certificates"), a form letter
of transmittal (which shall specify that delivery shall be effected, and risk
of loss and title to the Certificates shall pass, only upon proper delivery
of the Certificates to the Paying Agent) and instructions for use in
effecting the surrender of the Certificates for payment therefor. Each holder
of a Certificate or Certificates shall be entitled to receive, upon surrender
to the Paying Agent of the Certificate or Certificates for cancellation,
together with such letter of transmittal duly executed, and subject to any
required withholding of taxes, the aggregate amount of cash into which the
Shares previously represented by such Certificate or Certificates shall have
been converted in the Merger. Until surrendered to the Paying Agent, each
Certificate (other than Dissenting Shares, Shares held in the treasury of the
Company and Shares owned by Parent, the Purchaser or any other direct or
indirect subsidiary of Parent) shall be deemed for all corporate purposes to
evidence only the right to receive upon such surrender the aggregate amount
of cash into which the Shares represented thereby shall have been converted,
subject to any required withholding of taxes. No interest shall accrue or be
paid on the cash payable upon the surrender of the Certificate or
Certificates. If payment is to be made to a person other than the person in
whose name the Certificate surrendered is registered, it shall be a condition
of payment that the Certificate so surrendered shall be properly endorsed or
otherwise in proper form for transfer and that the person requesting such
payment shall pay any transfer or other taxes required by reason of the
payment to a person other than the registered holder of the Certificate
surrendered or establish to the satisfaction of the Surviving Corporation
that such tax has been paid or is not applicable. Notwithstanding the
foregoing, neither the Paying Agent nor any party hereto shall be liable to a
holder of Shares for any cash or interest thereon delivered to a public
official pursuant to applicable abandoned property laws.
1.6. CLOSING OF THE COMPANY'S TRANSFER BOOKS. At the Effective Time,
the stock transfer books of the Company shall be closed and no transfer of
Shares shall thereafter be made. If, after the Effective Time, Certificates
formerly representing Shares are presented to the Surviving Corporation, they
shall be cancelled and exchanged for cash as provided in Section 1.5, subject
to applicable law in the case of Dissenting Shares.
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2. REPRESENTATIONS AND WARRANTIES
2.1. REPRESENTATIONS AND WARRANTIES OF PARENT AND THE PURCHASER. Parent
and the Purchaser hereby jointly and severally represent and warrant to the
Company that:
2.1.1. CORPORATE ORGANIZATION. Parent and the Purchaser are
corporations duly organized, validly existing and in good standing under the
laws of the State of Delaware and have the requisite corporate power to carry
on their respective businesses as they are now being conducted. Parent
directly owns all of the issued and outstanding capital stock of the
Purchaser.
2.1.2. AUTHORITY. Each of Parent and the Purchaser has the
requisite corporate power to enter into this Agreement and carry out its
obligations hereunder. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Parent and the
Purchaser. This Agreement has been duly executed and delivered by Parent and
the Purchaser and is a valid and binding obligation of each of them,
enforceable against each of Parent and the Purchaser in accordance with its
terms, except to the extent that enforceability (i) may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting or
relating to the enforcement of creditors' rights generally and (ii) is
subject to general principles of equity.
2.1.3. PROXY STATEMENT. None of the information supplied by
Parent or the Purchaser for inclusion in the Proxy Statement (as defined in
Section 2.2.11) mailed in connection with any required meeting of the
Company's shareholders described in Section 1.2 (or the taking of action in
lieu thereof) or in any amendments thereof or supplements thereto will, at
the time of the meeting of shareholders to be held in connection with the
Merger (or the taking of such action), contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
2.1.4. CONSENTS. No consent, approval or authorization of,
declaration to, or filing with, any governmental agency or regulatory
authority on the part of Parent or the Purchaser which has not been made or
received is required in connection with the execution or delivery by Parent
and the Purchaser of this Agreement and the consummation of the transactions
contemplated hereby other than (i) the filing of a Certificate of Merger with
the Secretary of State of Delaware in accordance with the GCL, (ii) filings
with the Securities and Exchange Commission and any applicable national
securities exchange or NASDAQ, (iii) any applicable filings under state
securities, "Blue Sky" or anti-takeover laws, and (iv) filings,
authorizations, consents or approvals relating to matters which, if not
obtained or made, will not, in the aggregate, have a material adverse effect
on the business, financial condition, results of operations, properties,
assets or liabilities of Parent and its subsidiaries, taken as a whole.
2.2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to Parent and the Purchaser that, except as set forth
in the Company's referenced Schedules attached hereto:
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2.2.1. CORPORATE ORGANIZATION. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of
the State of Delaware. All subsidiaries (the "Subsidiaries") of the Company
are corporations duly incorporated, validly existing and in good standing
under the laws of their respective jurisdictions of incorporation. The only
Subsidiaries are Speedring, Inc., a Delaware corporation, Speedring Systems,
Inc., a Delaware corporation, and L&S Aerotech, Inc., a Kansas corporation,
each of which is wholly owned by the Company. The Company and the
Subsidiaries do not own, directly or indirectly, any interest in any business
entity other than the Subsidiaries. Each of the Company and the Subsidiaries
have the requisite corporate power to own, operate and lease all property
that they purport to own, operate or lease and to conduct their respective
businesses as they are currently being conducted, and are duly qualified as
foreign corporations to do business in the respective jurisdictions where the
character of their properties owned or leased by them or the nature of their
activities makes such qualification necessary, except to the extent that lack
of such qualification would not have a material adverse effect on the
financial condition, results of operations, business, properties, assets or
liabilities (the Business Condition") of the Company and the Subsidiaries
taken as a whole. The Company owns the entire equity interest in each of the
Subsidiaries and all of the outstanding shares of capital stock of each
Subsidiary are validly issued, fully paid and nonassessable and are owned by
the Company free and clear of all liens, claims or encumbrances. There are no
existing subscriptions, options, warrants, rights, convertible securities or
other agreements or commitments of any character relating to the issued or
unissued capital stock or other securities (including stock appreciation
rights and other phantom securities) of any of the Subsidiaries obligating
any Subsidiary to issue any securities. No person other than the Company or
any of the Subsidiaries has any preemptive, stock purchase or other rights to
acquire any shares of capital stock or other securities (including stock
appreciation rights and other phantom securities) of any Subsidiary of the
Company.
2.2.2. CAPITALIZATION. The authorized capital stock of the
Company consists of 15,000,000 Shares. As of the date hereof, 789,520 Shares
are issued and outstanding, all of which are validly issued, fully paid and
nonassessable. Foothill and TIAA are the record owners of 532,744 and 217,044
Shares, respectively. There are outstanding employee stock options to
purchase an aggregate of 1,032 Shares under the Company's Stock Option Plan
(the "Option Plan"), and no Shares are reserved for issuance under the Option
Plan. Except as set forth above, there are no shares of capital stock of the
Company issued or outstanding and there are no outstanding subscriptions,
options, warrants, rights, convertible securities or other agreements or
commitments of any character relating to the issued or unissued capital stock
or other securities (including stock appreciation rights and other phantom
securities) of the Company obligating the Company to issue any securities
(including stock appreciation rights and other phantom securities).
2.2.3. AUTHORITY. The Company has the requisite corporate power
to enter into this Agreement and to carry out its obligations hereunder. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company, subject only, to the extent
required, to approval by the shareholders of the Company as provided in
Section 1.2. This
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Agreement has been duly executed and delivered by, and is a valid and binding
obligation of, the Company, enforceable against the Company in accordance
with its terms, except to the extent that enforceability (i) may be limited
by bankruptcy, insolvency, moratorium or other similar laws affecting or
relating to the enforcement of creditors' rights generally and (ii) is
subject to general principles of equity.
2.2.4. CONSENTS; NO VIOLATION. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby will not constitute, with or without the passage of time,
a breach, violation or default, create a lien, impose a penalty, or give rise
to any right of termination, modification, cancellation, prepayment or
acceleration, under (i) the Certificate of Incorporation or the By-Laws of
the Company or (ii) any law, rule or regulation or any judgment, decree,
order, governmental permit or license, or any agreement, indenture or
instrument of the Company or any of the Subsidiaries or to which the Company
or any of the Subsidiaries or any of their properties is subject, except in
the case of clause (ii) above for breaches, violations, defaults, liens,
penalties or rights of termination, modification, cancellation, prepayment or
acceleration which, singly or in the aggregate, would not have a material
adverse effect on the Business Condition of the Company and its Subsidiaries
taken as a whole, but not in any event with respect to Significant Contracts
(as such term is defined below) except as set forth in Schedule 2.2.4.
hereto. Except for compliance with the Exchange Act, the securities laws of
the various states, and the filing of a certificate of merger with respect to
the Merger in accordance with the GCL, the acquisition of Shares by Purchaser
pursuant to the Shareholders Agreement and the consummation of the Merger and
the other transactions contemplated hereby will not (x) require the consent,
approval, authorization or permit of, or filing with or notification to, any
other party to any of the above, (y) affect the validity or effectiveness of
any of the above or (z) require the consent, approval, authorization or
permit of, or filing with or notification to, any governmental authority,
except in the case of clauses (x), (y) and (z) for any failure to obtain any
such required consent, approval, authorization or permit or to make any such
filing which, singly or in the aggregate, would not have a material adverse
effect on the Business Condition of the Company and its Subsidiaries taken as
a whole, but not in any event with respect to Significant Contracts (except
as set forth in Schedule 2.2.4 hereto).
2.2.5. SEC REPORTS; FINANCIAL STATEMENTS. The Company has
heretofore filed all reports, statements and schedules with the Commission
required to be filed pursuant to the Exchange Act or other federal securities
laws since January 1, 1993 (the "SEC Reports") and has delivered to Parent
copies of all SEC Reports. The SEC Reports did not (as of their respective
filing dates) contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements made therein, in light of the circumstances under which
they were made, not misleading. The audited and unaudited consolidated
financial statements of the Company included in the SEC Reports have been
prepared in accordance with generally accepted accounting principles applied
on a consistent basis (except as stated in such financial statements) and
fairly present the financial position of the Company and its consolidated
Subsidiaries as of the dates thereof and the results of their operations and
changes in financial position for the periods then ended, subject, in the
case of the unaudited financial statements, to normal year-end audit
adjustments which shall not be materially adverse to the Company and the
Subsidiaries taken as a whole.
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2.2.6. ABSENCE OF CERTAIN CHANGES. Except as disclosed in
Schedule 2.2.6. hereto, since April 30, 1995, the Company and the
Subsidiaries have operated their respective businesses in the ordinary course
and there has not been (i) any material adverse change in the Business
Condition of the Company and the Subsidiaries taken as a whole; (ii) any
damage, destruction or loss, whether covered by insurance or not, materially
and adversely affecting the properties or businesses of the Company and the
Subsidiaries taken as a whole, (iii) any declaration, setting aside or
payment of any dividend (whether in cash, stock or property) with respect to
the capital stock of the Company, and no dividend is accrued or otherwise
payable, (iv) any entry by any of them into an employment, severance,
termination, consulting, bonus, benefits or other similar agreement or policy
(other than the agreement, dated the date hereof, between the Company and
Richard Detweiler) (collectively "Employee Arrangements") or (other than
normal increases in the ordinary course of the Company's business that are
consistent with past practices and that, in the aggregate, have not resulted
in a material increase in benefits, compensation or severance expense to the
Company) any increase in the compensation payable or to become payable by the
Company to its directors, officers or employees or any increase in any bonus,
insurance, pension or other employee benefit plan, payment or arrangement
made to, for or with any such directors, officers or employees: (v) any entry
by any of them into any transaction (or commitment to enter into any
transaction) material to the Company and the Subsidiaries taken as a whole
(including, without limitation, any borrowing, capital expenditure in excess
of $2,150,000 in the aggregate, sale of assets or issuance of capital stock
or other securities of the Company); (vi) any change by the Company in
accounting principles, policies or methods except to the extent required by a
change in generally accepted accounting principles; (vii) any labor dispute,
litigation or governmental investigation; or (viii) any amendments or changes
in the charters or by-laws of the Company or any of the Subsidiaries.
Schedule 2.2.6. hereto sets forth a true and complete list of all Employee
Arrangements.
2.2.7. LIABILITIES. Except as and to the extent reflected,
reserved against or otherwise disclosed in the Company's consolidated balance
sheet at October 31, 1995 (including the notes thereto), or as otherwise
disclosed in writing to the Parent pursuant to this Agreement, to the best of
the Company's knowledge, neither the Company nor any of the Subsidiaries has
any liabilities or obligations of any kind, whether accrued, absolute,
asserted or unasserted, contingent or otherwise, whether or not such
liabilities would have been required to be disclosed on a balance sheet
prepared in accordance with generally accepted accounting principles
consistently applied, except for liabilities not exceeding $100,000 in the
aggregate. The accounts receivable reflected on the Company's consolidated
balance sheet at October 31, 1995 or thereafter created by the Company on or
prior to the Effective Time arose and will arise from bona fide transactions
in the ordinary course of business and will have been collected in full or be
fully collectible at their face amounts (less any applicable reserves
reflected on the October 31, 1995 balance sheet or thereafter established on
a basis consistent with the reserves reflected on the October 31, 1995
balance sheet) within 60 days after the Effective Time. The inventories
acquired on or prior to the Effective Time will be recorded in accordance
with generally accepted accounting principles consistently applied. The
quantity of inventories on hand on the Effective Time will be of a type and
at levels customary for that time of year and sufficient to meet the
Company's then existing backlog of orders in the ordinary course of business.
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2.2.8. COMPLIANCE WITH LAWS; NO VIOLATIONS; LEGAL PROCEEDINGS.
The businesses of the Company and its Subsidiaries have been conducted in
material compliance with all applicable Laws (as hereinafter defined), and
neither the Company nor any of the Subsidiaries is in default, and no event
has occurred which would constitute a default, under any contract, lease or
agreement to which the Company or any of the Subsidiaries is a party or by
which it is bound, except for violations and defaults which either singly or
in the aggregate do not and will not have a material adverse effect on the
Business Condition of the Company and the Subsidiaries taken as a whole, but,
in any event, not with respect to the Significant Contracts except as set
forth in Schedule 2.2.15 hereto. The term "Laws" means all laws of any
federal, state, local or foreign government (and all agencies and
instrumentalities thereof), including, but not limited to, all rules,
regulations, codes, plans, injunctions, judgments, orders, decrees and other
rulings, and all environmental and occupational safety and health and other
laws relating to the workplace. Except as set forth in the Schedule 2.2.8(a)
hereto, and subject to Section 2.2.15 hereof, there is no suit, action,
proceeding or governmental investigation pending or, to the knowledge of the
Company, threatened, nor is there any basis therefor, against or affecting
the Company or any of its Subsidiaries which, if adversely determined, might
individually or in the aggregate materially and adversely affect the Business
Condition of the Company and its Subsidiaries taken as a whole, nor is there
any judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or arbitrator outstanding
against the Company or any of the Subsidiaries. The Company and its
Subsidiaries have all permits, licenses and franchises from governmental
agencies required to conduct their businesses now being conducted, except for
such permits, licenses and franchises, the absence of which would not, in the
aggregate, have a material adverse effect on the Business Condition of the
Company and its Subsidiaries taken as a whole.
2.2.9. APPROVALS; PRINCIPAL SHAREHOLDERS AGREEMENTS. The Board
of Directors of the Company has expressly approved in advance the acquisition
of Shares pursuant to this Agreement and the Shareholders Agreement, and the
Merger, in accordance with any applicable provision of the Company's
Certificate of Incorporation and By-Laws, Section 203 of the GCL and any
applicable state take-over statute. No provision of the Certificate of
Incorporation, By-Laws or other instrument applicable to the Company requires
a vote of the Company's shareholders in excess of a majority of the
outstanding shares entitled to vote thereon or of any particular shareholder
of the Company in order to approve the acquisition of Shares pursuant to this
Agreement or Shareholders Agreement or the Merger in accordance with the
terms of this Agreement, including without limitation, any agreement between
the Company and/or any of its Subsidiaries, on the one hand, and Foothill,
TIAA and/or any of their affiliates on the other hand (collectively, the
"Principal Shareholders Agreements"). The Company has delivered to Parent
true and complete copies of the Principal Shareholders Agreements. None of
the Principal Shareholders Agreements has been amended or modified, or any
waiver granted in respect thereof, since April 30, 1995 or in anticipation of
the consummation of the transactions contemplated hereby.
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2.2.10. FINDERS. Neither the Company nor any of the
Subsidiaries has paid or become obligated to pay any fee or commission to any
broker, finder or intermediary in connection with the transactions
contemplated hereby.
2.2.11. PROXY STATEMENT. (a) The letter to stockholders,
notice of meeting, proxy statement and form of proxy, or the information
statement, as the case may be, to be distributed to stockholders in
connection with the Merger (including any supplements thereto), or any
schedules required to be filed with the Commission in connection therewith
are collectively referred to herein as the "Proxy Statement."
(b) If a Proxy Statement is required for the consummation of
the Merger under applicable law, the Proxy Statement will comply in all
material respects with the Exchange Act, and the rules and regulations
thereunder, and will not, at the date of the filing of the Proxy Statement
with the Commission and at the time of the taking of action by written
consent in lieu of a meeting of shareholders or at a meeting of shareholders
of the Company to be taken or held in connection with the Merger, as the case
may be, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except that no representation is made by the Company with
respect to information supplied in writing by Parent or any affiliate of
Parent specifically for inclusion in the Proxy Statement.
2.2.12. EMPLOYEE ARRANGEMENTS; BENEFIT PLANS. (a) Except as
disclosed in Schedule 2.2.12(a), there are no bonus, profit sharing,
severance, termination, stock option, pension, retirement, deferred
compensation, employment or other employee benefit plans, agreements, trusts,
plans, funds or other arrangements for the benefit or welfare of any
director, officer or employee to which the Company or any of the Subsidiaries
is a party or adopted by the Company or any of the Subsidiaries or to which
any of them is subject. Except for the Bonus and Severance Payment Agreement
and the Employment Agreement, dated the date hereof, between Richard
Detweiler and the Company, there are no plans, agreements, understandings or
arrangements which would give any person any rights to receive any payment
from the Company or any of the Subsidiaries upon the acquisition of Shares by
any person or group (including pursuant to the Shareholders Agreement or
Merger), the commencement of any tender or exchange offer for or proposal to
acquire Shares, any change in the membership of the Company's board of
directors, or any other change in control event with respect to the Company.
The Company has previously delivered to Parent true and correct copies of all
such plans, arrangements, trusts, funds, understandings or other arrangements
set forth in Schedule 2.2.12(a).
(b) The Company and each Subsidiary has complied with and
performed all contractual obligations and all obligations under applicable
Laws required to be performed by it under or with respect to any of the
Company Benefit Plans (as defined below) or any related trust agreement or
insurance contract, other than where the failure to so comply or perform does
not have, nor is reasonably likely to have, a material adverse effect on the
Company. All contributions and other payments required to be made by the
Company and its Subsidiaries to any Company Benefit Plan have been made, and
all accruals required to be made under any Company
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Benefit Plan have been made. There is no claim, dispute, grievance, charge,
complaint, restraining or injunctive order, litigation or proceeding pending,
or, to the best knowledge of the Company and its Subsidiaries, threatened or
anticipated (other than routine claims for benefits) against or relating to
any Company Benefit Plan or against the assets of any Company Benefit Plan,
which is reasonably likely to have a material adverse effect on the Company
and its Subsidiaries taken as a whole. Neither the Company nor any of its
Subsidiaries has communicated generally to employees or specifically to any
employee regarding any future increase of benefit levels (or future creations
of new benefits) with respect to any Company Benefit Plan beyond those
reflected in the Company Benefit Plans, which benefit increases or creations,
either individually or in the aggregate, will have or are reasonably likely
to have, a material adverse effect on the Company and its Subsidiaries taken
as a whole. Neither the Company nor any of its Subsidiaries presently
sponsors, maintains, contributes to, nor is the Company or its Subsidiaries
required to contribute to, nor has the Company or any of its Subsidiaries
ever sponsored, maintained, contributed to, or been required to contribute
to, any employee pension benefit plan within the meaning of section 3(2) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
other than as set forth in Schedule 2.2.12(b) hereto, and except for any such
pension benefit plan which has been terminated, is fully funded and with
respect to which none of the Company, Subsidiaries, Parent or Purchaser has
or will have any liability.
With respect to each Company Benefit Plan subject to Title IV
of ERISA, (i) no termination of any Company Benefit Plan has occurred
pursuant to which all liabilities have not been satisfied in full, and no
event has occurred and no condition exists that could reasonably be expected
to result in the Company or any Subsidiary incurring a liability under Title
IV of ERISA or could constitute grounds for terminating any Pension Plan;
(ii) each such Company Benefit Plan which is subject to Part 3 of Subtitle B
of Title I of ERISA or Section 412 of the Code, has been maintained in
compliance with the minimum funding standards of ERISA and the Code and no
such Company Benefit Plan has incurred any "accumulated funding deficiency,"
as defined in Section 412 of the Code and Section 302 of ERISA, whether or
not waived; (iii) neither the Company or any Subsidiary has sought or
received a waiver of its funding requirements with respect to any Company
Benefit Plan and all contributions payable with respect to each Pension Plan
have been timely made; (iv) no reportable event, within the meaning of
Section 4043 of ERISA (with respect to which notice to the Pension Benefit
Guaranty Corporation has not been waived), and no event described in Section
4062 or 4063 of ERISA, has occurred with respect to any Company Benefit Plan;
and (v) the aggregate accumulated benefit obligations of each Company Benefit
Plan subject to Title IV of ERISA (as of the date of the most recent
actuarial valuation prepared for such Company Benefit Plan) do not exceed the
fair market value of the assets of such Company Benefit Plan (as of the date
of such valuation).
Neither the Company nor any of its Subsidiaries has incurred,
nor has any event occurred which has imposed or is reasonably likely to
impose upon the Company or any of its Subsidiaries, any withdrawal liability
(complete or partial within the meanings of sections 4203 or 4205 or ERISA,
respectively) in respect of any multiemployer plan (within the meaning of
section 3(37) or 4001(a)(3) of ERISA) (a "Multiemployer Plan"), which
withdrawal liability has not been satisfied or discharged in full or which,
either individually or in the aggregate, will cause,
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or is reasonably likely to cause, a material adverse effect on the Company
and its Subsidiaries taken as a whole.
Except as set forth in Schedule 2.2.12(c) hereto, neither the
Company nor any Subsidiary maintains or contributes (or has maintained or
contributed to) any Company Benefit Plan which provides, or has a liability
to provide, life insurance, medical, severance, or other employee welfare
benefit to any employee upon his retirement or termination of employment,
except as may be required by Section 4980B of the Code.
"Plan" means any bonus, incentive compensation, deferred
compensation, pension, profit sharing, retirement, stock purchase, stock
option, stock ownership, stock appreciation rights, phantom stock, leave of
absence, layoff, vacation, day or dependent care, legal services, cafeteria,
life, health, accident, disability, workers' compensation or other insurance,
severance, separation or other employee benefit plan, practice, policy or
arrangement of any kind, including, but not limited to, any "employee benefit
plan" within the meaning of section 3(3) of ERISA. "Company Benefit Plan"
means any Plan, other than a Multiemployer Plan, established by the Company
or any of its Subsidiaries or to which the Company or any of its Subsidiaries
contributes or has contributed (including any such Plans not now maintained
by the Company or any of its Subsidiaries or to which the Company or any of
its Subsidiaries does not now contribute, but with respect to which the
Company or any of its Subsidiaries has or may have any liability). True and
complete copies of all Company Benefit Plans (and, if applicable, related
trust agreements) and all amendments thereto and significant written
interpretations thereof with respect to which the Company or any of its
Subsidiaries has or may have any liability and the most recent Forms 5500
required to be filed with respect thereto have been furnished to Parent after
the date of this Agreement. Schedule 2.2.12(d) sets forth each Company
Benefit Plan with respect to which benefits will be accelerated, vested,
increased or paid as a result of the transactions contemplated by this
Agreement.
2.2.13. TAX RETURNS; AUDITS AND LIABILITIES. Except as disclosed
in Schedule 2.2.13 hereto, the Company and each of the Subsidiaries have
filed or validly extended all federal, state, local and foreign income and
other tax returns required to be filed by them due on or prior to the date
hereof and on or prior to the Closing, and each such filed return is complete
and accurate in all material respects. Except as previously disclosed in
Schedule 2.2.13 hereto, the Company and each of the Subsidiaries have paid
all taxes of any nature whatsoever, with any related penalties and interest
(any of the foregoing being referred to herein as a "Tax"), required to be
paid on or before the date hereof, other than such Taxes as are being
contested in good faith and for which adequate reserves have been provided;
PROVIDED, HOWEVER, that it shall not be a breach of this or any other
representation and warranty contained herein or any other term hereof if it
shall be determined that Speedring, Inc. and/or the Company owes in the
aggregate not more than $600,000 in respect of franchise Taxes, including
interest and penalties (collectively the "Disputed Alabama Taxes"), to the
State of Alabama, Department of Revenue in connection with its dispute which
is the subject of SPEEDRING, INC., TAXPAYER, V. STATE OF ALABAMA DEPARTMENT
OF REVENUE (Docket Number, F.95-237, F.95-288). The amount of the Disputed
Alabama Taxes (excluding interest and penalties) is $387,830 and, as of
December 31, 1995, the amount of such interest and penalties is $176,470. To
the best of the Company's knowledge, there are no written
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claims or written assessments pending against the Company or any of the
Subsidiaries for any alleged deficiency, except for the Disputed Alabama
Taxes. Except as previously disclosed in Schedule 2.2.13 hereto or as
discussed below, there are no agreements in effect with respect to the
Company or any of the Subsidiaries to extend the period of limitations for
the assessment or collection of any tax imposed by the Internal Revenue Code
of 1986, as amended (the "Code"). No consent has been filed relating to the
Company or any of the Subsidiaries pursuant to Section 341 of the Code, and
neither the Company nor any of the Subsidiaries has agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as
such term is defined in Section 341(f)(4) of the Code). To the best of the
Company's knowledge, no property of the Company or of any of the Subsidiaries
is property which the Purchaser, the Company or any of the Subsidiaries is or
will be required to treat as being owned by another person pursuant to the
provisions of Section 168(f)(8) of the Code. Audits of federal income tax
returns by the Internal Revenue Service have been completed for the tax years
set forth on Schedule 2.2.13. True and complete copies of any closing
agreements entered into with the Internal Revenue Service have been furnished
to Parent. Neither the Company nor any of the Subsidiaries is a party to, is
bound by, or has any obligation under any tax sharing or similar agreement
with any unaffiliated third party, TIAA or Foothill. The forgiveness of
indebtedness in connection with the Company's restructuring approved at a
special meeting of stockholders of the Company held on March 22, 1994 was
properly excluded from income under Section 108(a)(1)(B) of the Code. To the
best of the Company's knowledge, no written claim has ever been made by an
authority in a jurisdiction where any of the Company and its Subsidiaries
does not file Tax returns that it is or may be subject to taxation by that
jurisdiction. Each of the Company and its Subsidiaries has withheld and paid
all Taxes required to have been withheld and paid in connection with amounts
paid or owing to any employee, independent contractor, creditor, stockholder
or other third party. None of the Company and its Subsidiaries pursuant to
this plan of merger has made any payments, is obligated to make any payments,
or is a party to any agreement that under certain circumstances could
obligate it to make any payments that will not be deductible under Section
280G of the Code. None of the Company and its Subsidiaries (A) has been a
member of an affiliated group filing a consolidated federal income Tax return
(other than a group the common parent of which was the Company) or (B) has
any liability for federal income Taxes of any person (other than any of the
Company and its Subsidiaries) under Treas. Reg. Section 1.1502-6 (or any
similar provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise.
2.2.14. INTELLECTUAL PROPERTY. The Company and the Subsidiaries have
all licenses, franchises, patents, patent applications, patent licenses, patent
rights, trademark rights, trade names, trade name rights, copyrights, permits,
authorizations and other rights as are necessary for the conduct of their
respective businesses (collectively, "Intellectual Property"), except for any
failure to have any such Intellectual Property which, singly or in the
aggregate, would not have a material adverse effect on the Business Condition of
the Company and its Subsidiaries taken as a whole. Schedule 2.2.14 hereto sets
forth a true and complete list of all Intellectual Property and in reasonable
detail the expiration date, registration number and other identifying
information of all patent and other rights as to which the Company or any of its
Subsidiaries has the exclusive right to use, including the exclusive right to
manufacture and market the systems covered by such patent rights until the
expiration of such patents. All of the foregoing are in full force and effect,
and the Company and each of the Subsidiaries are in compliance with the
foregoing without any
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known conflict with the valid rights of others, except for any failure to be
in full force and effect or in compliance which, singly or in the aggregate,
would not have a material adverse effect on the Business Condition of the
Company and its Subsidiaries taken as a whole. No event has occurred which
permits (or will, as a result of the execution and performance of this
Agreement and the transactions contemplated herein, permit), or after notice
or lapse of time or both would permit, the revocation of any such license or
other right, or adversely affect the rights thereunder, except for any
revocation or adverse affect which, singly or in the aggregate, would not
have a material adverse effect on the Business Condition of the Company and
its Subsidiaries taken as a whole. There is no litigation or other
governmental proceeding pending or, to the best knowledge of the Company,
threatened, the result of which may adversely affect the validity or the
extension or renewal of any of the foregoing, except for any such result
which, singly or in the aggregate, would not have a material adverse effect
on the Business Condition of the Company and its Subsidiaries taken as a
whole.
2.2.15 MATERIAL CONTRACTS; GOVERNMENT CONTRACTS. (a) Schedule
2.2.15(a) hereto contains a true and complete list of all agreements,
instruments, orders and other contracts (including any and all amendments
thereto), written or oral, to which the Company or any of its Subsidiaries is
a party and which are material to the Business Condition of the Company and
its Subsidiaries taken as a whole, and, in any event (i) all agreements,
instruments, orders and other contracts involving the payment or receipt of
more than $100,000, (ii) all agreements providing for the lease of real
property and (iii) all distribution and representative agreements
(collectively, "Significant Contracts"). True and complete copies of all
written Significant Contracts have been delivered to Parent. Except as
disclosed in Schedule 2.2.15(a), to the Company's knowledge, each such
Significant Contract is in full force and effect and constitutes a legal,
valid and binding obligation of the respective parties thereto, and neither
the Company nor any of its Subsidiaries is in default or breach of (with or
without the giving of notice or the passage of time) any such Significant
Contract, except breaches or defaults, if any, which would not have a
materially adverse effect on the Business Condition of the Company and its
Subsidiaries taken as a whole.
(b) Schedule 2.2.15(b) hereto sets forth a true and complete
list of (i) the five largest suppliers (by dollar volume) of products and
services to the Company or any of its Subsidiaries during the years ended
April 30, 1995 and 1994, indicating the existing contractual arrangements, if
any, with each such firm, and (ii) the names of any sole-source suppliers to
the Company or any of its Subsidiaries of significant materials or services
with respect to which practical alternative sources of supply are not
available on comparable terms and conditions, indicating the contractual
arrangements for continued supply from each such firm. The Company has no
knowledge of any termination, cancellation or limitation of, or any
modification or change in, the business relationship of the Company or any of
its Subsidiaries with any of the suppliers listed in Schedule 2.2.15(b)
hereto, except for any such termination, cancellation, limitation,
modification or change, which, singly or in the aggregate, would not have a
material adverse effect on the Business Condition of the Company and its
Subsidiaries taken as a whole, and except as set forth in such Schedule.
Schedule 2.2.15(b) hereto sets forth a true and complete list of the ten
largest customers (by dollar volume) of the Company and its Subsidiaries
during the years ended April 30, 1995 and 1994, indicating the existing
contractual arrangements, if any, with each such firm. The Company has no
knowledge of any termination, cancellation or
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limitation of, or any modification or change in, the business relationship of
the Company and its Subsidiaries with any of the customers listed in Schedule
2.2.15(b) hereto, except for any such termination, cancellation, limitation,
modification or change which, singly or in the aggregate, would not have a
material adverse effect on the Business Condition of the Company and its
Subsidiaries taken as a whole, and except as set forth in such schedule.
All unfilled purchase and sales orders and orders for the
provision of services made by the Company or any of its Subsidiaries were
made in the usual and ordinary course of business at the then current market
price. Except as set forth in Schedule 2.2.15(b) hereto, none of such orders
or other contracts calls for deliveries or performance thereunder beyond a
period of 90 days from the date hereof or, except as described in such
Schedule, contains any agreements granting special discounts or terms. The
Company has delivered to Parent a true and complete copy of its standard
form(s) of purchase and sales order(s) and warranty agreement(s) for the
Company and each of its Subsidiaries.
(c) "Federal Government Contract" means a mutually binding
legal relationship (including, but not limited to, bilateral contracts, job
orders, or task orders issued under basic ordering agreements, letter
contracts, purchase orders, or contract modifications) between the Company or
any of its Subsidiaries and any executive agency or instrumentality or any
independent establishment in the legislative or judicial branch of the
Federal Government, under which the Company or any of its Subsidiaries is
obligated to furnish supplies or services in return for payment by the
Federal Government. For purposes of this Agreement, the term Federal
Government Contract" includes subcontracts at any tier which the Company or
any of its Subsidiaries holds under a Federal Government Contract awarded to
any other person or party. Except as set forth in Schedule 2.2.15(c) hereto,
there are no outstanding claims asserted in writing, or to the knowledge of
the Company threatened in writing, against the Company or any of its
Subsidiaries or likely to be asserted by the Company or any of its
Subsidiaries against the Federal Government or another contractor under a
Federal Government Contract. Except as set forth in Schedule 2.2.15(c)
hereto, there are no outstanding claims asserted in writing or, to the
knowledge of the Company threatened in writing, by the Federal Government or
another contractor against the Company or any of its Subsidiaries under a
Federal Government Contract. Except as set forth in Schedule 2.2.15(c)
hereto, the Company and its Subsidiaries have no: (i) Federal Government
Contracts as to which any of them has failed to comply with any term or
condition in any material manner; (ii) Federal Government Contracts as to
which any of them has reason to believe that it will be unable to perform in
any material fashion with the requirements thereof; (iii) Federal Government
Contracts under which work is being performed, to the Company's knowledge,
without written contract coverage; (iv) Federal Government Contracts with
funding ceilings which (x) to Company's knowledge, have been exceeded or (y)
the Company reasonably anticipates will be exceeded; and (v) fixed-price
Federal Government Contracts which the Company anticipates can only be or
will be completed at a material loss. The accounting system of the Company
and its Subsidiaries meets the requirements of the Federal Acquisition
Regulation and the Cost Accounting Standards in all material respects.
Except as set forth in Schedule 2.2.15(c), none of the Company and its
Subsidiaries have received during the last six years any written governmental
reports (or reports of outside legal counsel which were submitted to any
governmental authority) arising from audits or other investigations of the
Federal
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Government Contracts (past or present) of the Company or any of its
Subsidiaries that assert (x) overcharging, defective pricing practices or
Cost Accounting Standards noncompliance, or (y) any other issues, except in
each case of assertions relating to clause (y), which, if true, would not
have a material adverse effect on the Business Condition of the Company and
its Subsidiaries, taken as a whole. Except as set forth in Schedule
2.2.15(c) hereto, to the Company's knowledge, there are no pending or actual
audits or investigations by any Government agency or instrumentally
concerning the Federal Government Contracts of the Company or any of its
Subsidiaries or any individual involved with those contracts. Except as set
forth in Schedule 2.2.15(c) hereto, there are no outstanding or anticipated
claims or obligations under any warranty provision of the Federal Government
Contracts. There are no pending debarment or suspension proceedings
involving the Company or any of its Subsidiaries, and none of the Company and
its Subsidiaries is aware of any facts or circumstances which could result in
a debarment or suspension. Except as set forth in Schedule 2.2.15(c) hereto,
the Company and its Subsidiaries have title or license to all inventions,
drawings, software, technical data, know-how and the like necessary to
perform its Federal Government Contracts, except for the absence of which,
singly or in the aggregate, would not have a material adverse effect on the
Business Condition of the Company and its Subsidiaries, taken as a whole.
None of the businesses conducted by the Company or any of its Subsidiaries
requires security clearances except for a U.S. Department of Energy clearance
held by Speedring, Inc.
2.2.16 TITLE TO PROPERTIES. Each of the Company and its
Subsidiaries has good and, in the case of real property interests,
marketable title to all of the assets and properties which it purports to
own, free and clear of all liens, claims, rights of third parties and other
encumbrances (collectively, "Encumbrances"), except as set forth in Schedule
2.2.16 hereto and except for (a) liens of current taxes not yet due and
payable or of taxes the validity of which is being contested in good faith by
appropriate proceedings, (b) Encumbrances to secure indebtedness owed to TIAA
or Foothill which shall be released and discharged in full at the Effective
Time and (c) Encumbrances which may be discharged by the payment of, or the
posting of a bond, in the aggregate amount not exceeding $50,000 and such
Encumbrances as do not interfere with the conduct of the businesses of the
Company and its Subsidiaries as now conducted.
2.2.17. UNION CONTRACT, LABOR RELATIONS, ETC. None of the Company
and its Subsidiaries is a party to any collective bargaining agreement and no
such agreement is being negotiated. The Company and its Subsidiaries have
been in material compliance with all applicable Laws respecting employment
terms, conditions and practices, have withheld all amounts required by Law or
contract to be withheld from the wages or salaries of its employees and are
not liable for any arrears of wages or any Taxes or penalties for failure to
comply with any of the foregoing. The Company and its Subsidiaries have not
engaged in any unfair labor practice and have not discriminated on the basis
of race, color, national origin, sex, religion, age, marital status or
handicap in its employment conditions or practices, and there exists no
pending, or to the knowledge of Seller, threatened, unfair labor practice
charges or discrimination complaints relating to race, color national origin,
sex, religion, age, marital status or handicap against the Company or any of
its Subsidiaries before any domestic (Federal, state or local) or foreign
board, department, commission or agency nor, to the knowledge of the Company,
does any basis
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therefor exist, except for any such basis which, if true, would not, singly
or in the aggregate, have a material adverse effect on the Business Condition
of the Company and its Subsidiaries taken as a whole. There are no existing
or, to the knowledge of the Company, threatened labor strikes, disputes,
grievances, controversies or other labor troubles affecting Company, in
connection with its operation of its businesses. There are no pending or, to
the knowledge of the Company, threatened representation questions respecting
the employees of the Company or any of its Subsidiaries, nor, to the
knowledge of the Company, does any basis therefor exist, except for any such
basis which, if true, would not, singly or in the aggregate, have a material
adverse effect on the Business Condition of the Company and its Subsidiaries
taken as a whole.
2.2.18. INSURANCE. (a) There are no outstanding or unsatisfied
requirements or recommendations by any insurance company that issued a policy
with respect to the Company or any of its Subsidiaries or by any Board of
Fire Underwriters or other body exercising similar functions or by any
governmental authority requiring or recommending any repairs or other work to
be done on or with respect to, or requiring or recommending any equipment or
facilities to be installed on or in connection with, the Company or any of
the Subsidiaries.
(b) Schedule 2.2.18 hereto contains a complete and accurate
list of all policies or binders of fire, liability, title, worker's
compensation and other forms of insurance (showing as to each policy or
binder the carrier, policy number, coverage limits, deductibles or
self-insured retentions, expiration dates, annual premiums and a general
description of the type of coverage provided) maintained by the Company or
any of its Subsidiaries on its business, property or personnel. All of such
policies are sufficient for material compliance with all requirements of Law
and of all contracts to which the Company or any of its subsidiaries is a
party. Neither the Company nor any of its Subsidiaries is in default under
any of such policies or binders, and none of them has failed to give any
notice in a timely fashion requesting coverage thereunder. There are no
facts upon which an insurer might be justified in reducing coverage or
increasing premiums on existing policies or binders, except for any such
reductions or increases which, singly or in the aggregate, would not have a
material adverse effect on the Business Condition of the Company and its
Subsidiaries taken as a whole. There are no outstanding unpaid claims under
any such policies or binders. Such policies and binders provide sufficient
coverage (in amounts and scope of coverage) for the risks insured against
(including, without limitation, in the case of workers' compensation
policies, sufficient coverage (in amount and scope) of any pending or future
claims of any current or former employees of the Company or any of its
Subsidiaries), are in full force and effect and shall be kept in full force
and effect by the Company through 12:01 A.M. on the day following the
Effective Time. The workers' compensation and unemployment insurance ratings
and contributions of the Company and its Subsidiaries since January 1, 1993
are set forth in Schedule 2.2.18 hereto.
2.2.19. ENVIRONMENTAL MATTERS.
(a) For the purposes of this Agreement: "Environmental Matters
means any matter arising out of, relating to or resulting from pollution,
protection of the environment and human health or safety, health or safety of
employees, sanitation, and any matters relating to emissions, discharges,
releases or threatened releases of Hazardous Materials or otherwise arising
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out of, resulting from or relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials.
"Environmental Costs" means any actual or potential cleanup costs,
remediation, removal, or other response costs (which shall include costs to
come into compliance with Environmental Laws), investigation costs, losses,
liabilities or other obligations, damages and amounts paid in settlement
arising out of or relating to or resulting from any Environmental Matter.
"Environmental Laws" means all federal, state or local Laws
governing Environmental Matters, as the same have been or may be amended from
time to time, including any common law cause of action providing any right or
remedy with respect to Environmental Matters, and all applicable judicial and
administrative decisions, orders, and decrees relating to Environmental
Matters.
"Hazardous Materials" means any pollutants, contaminants, or
hazardous or toxic substances, materials, wastes, constituents or chemicals
that are regulated by, or form the basis of liability under, any
Environmental Laws.
(b) (i) Each of the Company and its Subsidiaries has materially
complied with all applicable Environmental Laws. Except as set forth on
Schedule 2.2.19(b)(i), each of the Company and its Subsidiaries has obtained
and is in compliance with, all permits licenses, authorizations,
registrations and other governmental consents ("Environmental Permits")
required to be obtained by it by applicable Environmental Laws for the use,
storage, treatment, transportation, release, emission and disposal of raw
materials, by-products, wastes and other substances used or produced by or
otherwise relating to its business, except for any failure to be in full
force and effect or make such filings which, singly or in the aggregate,
would not have a material adverse effect on the Business Condition of the
Company and its Subsidiaries taken as a whole. Except as set forth on
Schedule 2.2.19(b)(i), all such Environmental Permits are in full force and
effect, and each of the Company and its Subsidiaries has made all appropriate
filings for issuance or renewal of such Environmental Permits, except for any
failure to obtain or be in compliance with such Environmental Permits which,
singly or in the aggregate, would not have a material adverse effect on the
Business Condition of the Company and its Subsidiaries taken as a whole.
Except as set forth on Schedule 2.2.19(b)(i), all of the assets of each of
the Company and its Subsidiaries are free of any Hazardous Materials (except
those authorized pursuant to and in accordance with Environmental Permits
held by the Company or any Subsidiary) and free of all contamination arising
from, relating to, or resulting from any such Hazardous Materials, except for
any such failure which, singly or in the aggregate, would not have a material
adverse effect on the Business Condition of the Company and its Subsidiaries
taken as a whole.
(ii) Except as set forth on Schedule 2.2.19(b)(ii), there are no
claims, notices civil, criminal or administrative actions suits, hearings,
investigations, inquiries or proceedings pending or threatened that are based
on or related to any Environmental Matters or the failure to have any
required Environmental Permits, which, if true are, either individually or in
the aggregate, reasonably expected to have a material adverse effect on the
Business Condition of the Company
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and its Subsidiaries, taken as a whole. Except as set forth on Schedule
2.2.19(b)(ii), there are no facts, events, conditions, circumstances,
activities, practices, incidents, actions, omissions or plans (collectively,
"Facts"), (1) that could reasonably be expected to interfere with or prevent
continued material compliance with the Environmental Laws and Environmental
Permits referred to in the first two sentences of (b)(i) above, or (2) that
could reasonably be expected to give rise to any liability or other
obligation under any Environmental Laws that may require any of the Company
or its Subsidiaries to incur any material Environmental Costs, or (3) that
are reasonably likely to form the basis of any claim, action, suit,
proceeding, hearing, investigation or inquiry based on or related to any
Environmental Matter involving any of the Company or its Subsidiaries, other
than Facts that are reasonably likely to form such basis which, if true,
would not, singly or in the aggregate, have a material adverse effect on the
Business Condition of the Company and its Subsidiaries taken as a whole.
Except as set forth on Schedule 2.2.19(b)(ii), each of the Company and its
Subsidiaries has not used any waste disposal site, or otherwise disposed of,
transported, or arranged for the transportation of, any Hazardous Materials
to any place or location, or in violation of any Environmental Laws. To the
best knowledge of the Company, there are no underground storage tanks or
surface impoundments at, on, about under or within any of the owned or leased
real property of and of the Company or its Subsidiaries, or any portion
thereof. Schedule 2.2.19(b)(ii) lists all underground storage tanks or
surface impoundments that were removed by the any of the Company or its
Subsidiaries or, to the knowledge of the Company, removed by others from any
of the owned or leased real property of any of the Company or its
Subsidiaries. Except as set forth in Schedule 2.2.19(b)(ii), none of the
Company and its Subsidiaries has received any written notice from a
governmental agency that it may be a "potentially responsible party" at any
waste disposal site or other location used for the disposal of any Hazardous
Materials.
3. COVENANTS
3.1. ACQUISITION PROPOSALS. The Company shall not, and shall cause each
of its Subsidiaries and each of the Company's and Subsidiaries' respective
officers, directors, agents and representatives not to, solicit or encourage
(including by way of furnishing any non-public information concerning the
Company's or any Subsidiary's business, properties or assets), any
acquisition proposal, and neither the Company nor any of its Subsidiaries
shall engage in discussions, furnish any non-public information about the
Company or any of its Subsidiaries or enter into agreements with respect to
any acquisition proposal; PROVIDED, HOWEVER, the Board may furnish non-public
information about the Company or any of its Subsidiaries to a third party
which hereafter makes a bonafide acquisition proposal which the Board of
Directors of the Company, in its good faith, reasonable judgment determines
to be superior to the transaction contemplated by this Agreement and for
which financing is then committed if, upon the advice of outside legal
counsel, the failure to provide such information would impose significant
liability upon the Board of Directors or the Company. The Company shall
promptly provide written notice to Parent of the receipt of an acquisition
proposal, and any proposal, inquiry or contact with any person with respect
thereto, and shall, in any such notice, indicate in reasonable detail the
identity of the offeror and principal terms and conditions thereof and keep
Parent informed of the status thereof. The term "acquisition proposal" shall
mean any proposal for a merger or other business combination or similar
transaction involving the Company or any of its Subsidiaries or for the
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acquisition of a substantial equity interest in or a substantial part of the
assets of the Company or of any of its Subsidiaries (collectively, a "Sale
Transaction").
3.2. STOCK OPTIONS AND AWARDS. Prior to the Effective Time, the Company
shall make all necessary and appropriate adjustments to, and shall use its
best efforts to obtain all necessary consents with respect to, all options to
acquire Shares (whether or not currently exercisable) which have been granted
pursuant to the Option Plan and which are outstanding immediately prior to
the Effective Time to provide that in cancellation and settlement thereof the
Company shall, immediately prior to the Effective Time make a cash payment to
the holder of each such cancelled option in an amount equal to (i) the
positive excess, if any, of the Merger Price over the per Share exercise
price of such option, multiplied by (ii) the number of Shares covered by such
option (such amount being hereinafter referred to as the "Option
Consideration"). All amounts payable under this Section 3.2 shall be subject
to any required withholding of taxes and shall be paid without interest
thereon.
3.3. INTERIM OPERATIONS. During the period from the date of this
Agreement to the Effective Time, except as specifically provided by this
Agreement, or as otherwise approved in writing by the Purchaser:
3.3.1. The Company shall and shall cause each of the
Subsidiaries to conduct their respective businesses only in, and not to take
any action except in, the ordinary and usual course of business and
consistent with past practice;
3.3.2. The Company shall not and shall not permit any of the
Subsidiaries to make or propose any change or amendment in their respective
charters or by-laws;
3.3.3. The Company shall not and shall not permit any of the
Subsidiaries to issue, pledge or sell any shares of capital stock or any
other securities of any of them or issue any securities convertible into or
exchangeable for, or options, warrants to purchase, scrip, rights to
subscribe for, calls or commitments of any character whatsoever relating to,
or enter into any contract, understanding or arrangement with respect to the
issuance of, any shares of capital stock or any other securities of any of
them (other than pursuant to this Agreement or employee stock options issued
under the Option Plan and outstanding on the date of this Agreement), or
enter into any arrangement or contract with respect to the purchase or voting
of shares of their capital stock, or adjust, split, combine or reclassify any
of their securities, or make any other changes in their capital structures.
3.3.4. The Company shall not and shall not permit any of the
Subsidiaries to declare, set aside, pay or make any dividend or other
distribution or payment (whether in cash, stock or property) with respect to,
or purchase or redeem, any shares of the capital stock of any of them or
agree to do any of the foregoing.
3.3.5. The Company shall use its best efforts to preserve intact
the business organization of the Company and each of the Subsidiaries, to
keep available the services of its and
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their present officers and key employees, and to preserve the good will of
those having business relationships with it and the Subsidiaries.
3.3.6. Except as provided in this Agreement, the Company shall
not and shall not permit any of the Subsidiaries to adopt or amend any bonus,
profit sharing, compensation, severance, termination, stock option, pension,
retirement, deferred compensation, employment or other employee benefit plan,
agreement, trust, plan, fund or other arrangement for the benefit or welfare
of any director, officer or employee, or (except for normal increases in the
ordinary course of business that are consistent with past practices and that,
in the aggregate, do not result in a material increase in benefits or
compensation expense to the Company) increase in any manner the compensation
or fringe benefits of any director, officer or employee or pay any benefit
not required by any existing plan and arrangement (including, without
limitation, the granting of stock options or stock appreciation rights or the
removal of existing restrictions in any benefit plans or agreements) or enter
into any contract, agreement, commitment or arrangement to do any of the
foregoing.
3.3.7. Except with respect to transactions between and among the
Company and any of the Subsidiaries in the ordinary course of its business,
the Company shall not and shall not permit any of the Subsidiaries to incur
or assume any indebtedness for money borrowed (other than borrowings in the
ordinary course of business under its currently existing revolving credit
facility with TIAA and Foothill) or issue or sell any debt securities or
guarantee (except for the guarantee by the Company of Subsidiary trade
payables in the ordinary course of business consistent with past practice)
any indebtedness or enter into any contract, agreement, commitment or
arrangement to do any of the foregoing; PROVIDED, HOWEVER, that the Company
shall comply with all terms of its term loan agreements with TIAA and
Foothill, including, without limitation, making the scheduled amortizations
of principal and payments of interest required to be made thereunder on and
prior to the Effective Time and shall cause all borrowings and interest under
its revolving credit facility with Foothill to be repaid not later than the
Effective Time; PROVIDED FURTHER, HOWEVER, that the Company's performance of
such obligations with respect to the repayment of its term loans and
revolving credit facility shall not relieve the Company and its Subsidiaries
of their other obligations hereunder.
3.3.8. The Company shall not and shall not permit any of the
Subsidiaries to encumber, sell, lease or otherwise dispose of or acquire any
assets other than in the ordinary course of business and, in any event, sell
or compromise any accounts receivables (except for the compromise of accounts
receivables in an amount not to exceed $50,000 in the aggregate), or enter
into any merger or other agreement providing for the acquisition of the
Company or any of the Subsidiaries by any third party or acquire (by merger,
consolidation, or acquisition of stock or assets) any corporation,
partnership or other business organization or division thereof or enter into
any contract, agreement, commitment or arrangement to do any of the
foregoing, in each case without the prior written consent of Parent;
PROVIDED, HOWEVER, that none of the Company and its Subsidiaries shall
acquire or agree or commit to acquire any capital asset (by purchase or
lease) having a value greater than $50,000, except for the acquisition,
committed prior to the date hereof, made by lease on terms acceptable to
Parent of (w) a tube bender from Eaton Leonard, at a purchase price not
exceeding $165,000, (x) a SNK Five Axis Machinery Center, at a purchase
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price not exceeding $320,000, (y) a Zygo beam expander, at a purchase price
not exceeding $200,000 and (z) the overhaul of a machine used by L&S
AeroTech, Inc. by H&H Wilson, at a purchase price not exceeding $57,000,
which $57,000 item may be purchased if a lease is not available
(collectively, the "Excluded Commitments"); PROVIDED FURTHER, HOWEVER, that
none of the Company and its Subsidiaries shall acquire or agree or commit to
acquire any capital asset (by purchase or lease) having a value of $50,000 or
less if the value of all such acquisitions or agreements or commitments to
make such acquisitions, together with all acquisitions of capital assets
having a value greater than $50,000 and agreements and commitments to make
such acquisitions (other than the Excluded Commitments), shall exceed
$250,000.
3.4. ACCESS AND INFORMATION. The Company shall afford to Parent and its
representatives such access during normal business hours throughout the
period prior to the Effective Time to the Company's books, records (including
without limitation, tax returns and work papers of the Company's independent
auditors), plant, personnel, advisors and to such other information as Parent
shall reasonably request. The Confidentiality and Non-Disclosure Agreement,
dated October 31, 1995, between the Company and Parent (the "Confidentiality
Agreement") is hereby amended to delete Sections 2, 7 and 10 thereof. All
other terms and provisions of the Confidentiality Agreement remain in full
force and effect in accordance with their terms.
3.5. CERTAIN FILINGS; CONSENTS AND ARRANGEMENTS. Parent, the Purchaser
and the Company shall (a) promptly make their respective filings, and shall
thereafter use their best efforts to promptly make any required submissions
with respect to the purchase of Shares under the Shareholders Agreement, the
Merger and the transactions contemplated by this Agreement and (b) cooperate
with one another (i) in promptly determining whether any filings are required
to be made or consents, approvals, permits or authorizations are required to
be obtained under any other federal, state or foreign law or regulation or
any consents, approvals or waivers are required to be obtained from other
parties to contracts material to the Company's business (including, without
limitation, Significant Contracts) in connection with the consummation of the
purchase of Shares under the Shareholders Agreement or the Merger and (ii) in
promptly making any such filings, furnishing information required in
connection therewith and seeking timely to obtain any such consents, permits,
authorizations, approvals or waivers.
3.6. STATE TAKEOVER STATUTES. The Company shall, upon the request of the
Purchaser, take all reasonable steps to assist the Purchaser in complying
with, in rendering inapplicable, or in making any challenge to the validity
or applicability to the purchase of Shares under the Shareholders Agreement
or the Merger of, any state takeover, business combination, control share
acquisition or similar laws or regulations.
3.7. PROXY STATEMENT. The Company shall prepare the Proxy Statement,
file it with the Commission, and mail it to all holders of Shares. Parent,
the Purchaser and the Company shall cooperate with each other in the
preparation of the Proxy Statement.
3.8. ADDITIONAL AGREEMENTS. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use all reasonable efforts to
take promptly, or cause to be taken, all
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actions and to do promptly, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement, including using
its best efforts to obtain all necessary waivers, consents and approvals and
effecting all necessary registrations and filings, subject, however, to any
required approval of the Merger by the shareholders of the Company. In case
at any time after the Effective Time any further action is necessary or
desirable to carry out the purposes of this Agreement, the proper officers
and/or directors of Parent, the Purchaser and the Company shall take such
necessary action.
3.9. REPAYMENT OF TERM DEBT. At the Effective Time, Parent shall cause
to be repaid to TIAA and Foothill the aggregate remaining amount of principal
then due by the Company under its term loan agreements with TIAA and
Foothill, together with all accrued interest (without penalty or premium)
then due thereon.
4. CONDITIONS
4.1 CONDITIONS TO THE OBLIGATIONS OF PARENT, PURCHASER AND THE COMPANY.
The obligations of Parent, Purchaser and the Company to consummate the Merger
are subject to the satisfaction, at or before the Effective Time, of each of
the following conditions:
4.1.1. The shareholders of the Company shall have duly approved
the Merger, if required by applicable law.
4.1.2. The acquisition by Purchaser of the Shares owned by
Foothill and TIAA pursuant to the Shareholders Agreement and the consummation
of the Merger shall not be prohibited by any order, decree or injunction of a
court of competent jurisdiction (each party agreeing to use all reasonable
efforts to have any such order reversed or injunction lifted), and there
shall not have been any action taken or any statute, rule or regulation
enacted, promulgated or deemed applicable to such transactions by any
governmental entity that, in the written opinion of legal counsel to Parent
or the Company, as the case may be, make consummation of such transactions
illegal.
4.1.3. Any applicable waiting period under the Hart-Scott-Rodino
Antitrust Act shall have expired or been terminated.
4.2 CONDITIONS TO THE OBLIGATIONS OF PARENT AND PURCHASER. The
obligations of Parent and Purchaser to consummate the Merger are subject to
the satisfaction, at or before the Effective Time, of each of the following
additional conditions:
4.2.1. The representations and warranties of the Company set
forth in this Agreement shall have been true and correct in all material
respects when made and (unless made as of a specified date) shall be true and
correct in all material respects as if made as of the Effective Time.
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4.2.2. The Company shall have performed and complied in all
material respects with all covenants and agreements required by this
Agreement to be performed or complied with by them at or prior to the
Effective Time.
4.2.3. Parent and Purchaser shall have received an opinion from
Latham & Watkins, in the form previously agreed by the parties as set forth
in Exhibit A hereto and such other opinions as Parent or Parent's financing
sources may reasonably request, which may be given to Parent and Purchaser
with reliance permitted by such financing sources.
4.2.4. Foothill and TIAA shall have tendered for purchase by
Purchaser an aggregate of 749,788 Shares, constituting 95% of the Shares then
outstanding, free and clear of all Encumbrances, pursuant to the Shareholders
Agreement.
4.2.5. Parent and Purchaser shall have received all financing
necessary in connection with the purchase of Shares from Foothill and TIAA
and the Merger.
4.2.6. There shall not have been instituted or pending any
action or proceeding by any court or Governmental entity or tribunal,
domestic or foreign, which is reasonably likely to (i) restrain or prohibit
the consummation of the purchase of the Shares from Foothill and TIAA by
Purchaser pursuant to the Shareholders Agreement or the Merger or any of the
other transactions contemplated by this Agreement, or (ii) impose material
limitations on the ability of Parent or Purchaser effectively to acquire or
hold, or requiring Parent or Purchaser or any of its affiliates or
subsidiaries to dispose of or hold separate, the Shares, or any material
portion of the assets of the Company.
4.2.7. All required authorizations, orders, grants, consents,
permissions, approvals and waivers of third parties or any governmental
entity with jurisdiction over the transactions contemplated by this Agreement
shall have been received and shall remain in effect (including, in all
events, without limitation, Significant Contracts).
4.2.8. Parent shall be satisfied that all outstanding options
under the Option Plan shall, at and after the Effective Time, represent only
the right to receive the Option Consideration.
4.2.9. Parent shall have received evidence satisfactory to it
and its legal counsel that, at and after the Effective Time, (i) all
obligations under the Principal Shareholders Agreements shall have been
terminated without liability to the Company or any of its Subsidiaries and
(ii) all encumbrances on the assets of the Company and its Subsidiaries
created thereby shall have been released and discharged in full.
4.3. CONDITIONS TO THE COMPANY. The obligations of the Company to
consummate the Merger are subject to the satisfaction, at or before the
Effective Time, of each of the following additional conditions:
4.3.1. The representations and warranties of Parent and the
Purchaser set forth in this Agreement shall have been true and correct in all
material respects when made and (unless
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made as of a specified date) shall be true and correct in all material
respects as if made as of the Effective Time.
4.3.2. Parent and the Purchaser shall have performed and
complied in all material respects with all covenants and agreements required
by this Agreement to be performed or complied with by them at or prior to the
Effective Time.
4.3.3. There shall not have been instituted or pending any
action or proceeding by any court or Governmental entity or tribunal,
domestic or foreign, which is reasonably likely to restrain or prohibit the
consummation of the purchase of the Shares from Foothill and TIAA by
Purchaser pursuant to the Shareholders Agreement or the Merger or any of the
other transactions contemplated by this Agreement.
4.3.4. All required authorizations, orders, grants, consents,
permissions, approvals and waivers of any governmental entity with
jurisdiction over the transactions contemplated by this Agreement shall have
been received and remain in effect.
5. MISCELLANEOUS
5.1. TERMINATION. This Agreement may be terminated and the Merger
contemplated herein may be abandoned, whether prior to or after approval by
the stockholders of the Company:
(a) by the mutual consent of Parent and the Company;
(b) by either Parent or the Company, if either (or any permitted
assignee) is prohibited by an order or injunction (other than an order or
injunction on a temporary or preliminary basis) of a court of competent
jurisdiction from consummating the Merger and all means of appeal and all
appeals from such order or injunction have been finally exhausted;
(c) by either Parent or the Company if (i) any required approval by
stockholders of the Company of the Merger is not obtained or (ii) the Merger
shall not have been consummated, within 180 days after the date hereof;
(d) by (i) either Parent, on the one hand, or the Company, on the other
hand, if the representations and warranties of the other contained herein
shall not be true and correct in all material respects when made, or shall
have thereafter ceased to be true and correct in all material respects as if
made as of such later date (other than representations and warranties that
speak as of a specific date), or the other shall not in all material respects
have performed each obligation and agreement and complied with each covenant
to be performed and complied with by it under this Agreement, or (ii) Parent
if Foothill or TIAA shall have breached in any material respect any of their
representations, warranties or agreements contained in the Shareholders
Agreement with respect to the voting or disposition of their Shares.
(e) by Parent, if (i) the Board of Directors of the Company shall have
withdrawn or modified, or resolved to withdraw or modify, in any manner
adverse to Parent and Purchaser its
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recommendation or approval of the Merger or this Agreement, or (ii) the
Company's Board of Directors shall have accepted, adopted, approved, or
recommended acceptance, adoption or approval of any tender or exchange offer
for any Shares or other agreement with a third party with respect to the
acquisition or purchase of all or any substantial part of the assets of, or
equity interest in, the Company or other similar transaction or business
combination involving the Company or any of its Subsidiaries, or resolved to
do any of the foregoing;
(f) by Parent if any person, entity or "group" (as defined in the
Exchange Act) shall have commenced a tender or exchange offer seeking to
acquire a third or more of the then outstanding Shares or makes in writing or
announces an acquisition proposal.
In the event of such termination and abandonment, no party hereto (or
any of its directors or officers) shall have any liability or further
obligation to any other party to this Agreement except as provided in Section
5.11 and except that nothing herein will relieve any party from liability for
any breach of this Agreement.
5.2 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The
representations, warranties and agreements in this Agreement shall terminate
at the Effective Time or the termination of this Agreement pursuant to
Section 5.1, as the case may be, except that the agreements set forth in this
Section 5.2 and the last sentence of Section 3.8 shall survive the Effective
Time indefinitely, and those set forth in Sections 5.2, 5.11 and Section 3.4
shall survive termination indefinitely.
5.3. WAIVER AND AMENDMENT. Any provision of this Agreement may be waived
at any time by the party which is entitled to the benefits thereof and this
Agreement may be amended or supplemented at any time before or after adoption
of this Agreement by the stockholders of the Company but, after any such
approval, no amendment shall be made which decreases the cash price per
Share. No such waiver, amendment or supplement shall be effective unless in
writing and signed by the party or parties sought to be bound thereby.
5.4. ENTIRE AGREEMENT. This Agreement contains the entire agreement
among Parent, the Purchaser and the Company with respect to the Merger and
the other transactions contemplated hereby, and such agreements supersede all
prior agreements among the parties with respect to such matters, including
the Letter of Intent, dated December 15, 1995, between the Company and Parent.
5.5. APPLICABLE LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware applicable to contracts
made and to be performed in that State.
5.6. INTERPRETATION. For purposes of this Agreement, a "Subsidiary" of a
corporation means any corporation more than 50% of whose outstanding voting
securities are directly or indirectly owned by such other corporation. The
descriptive headings contained herein are for convenience and reference only
and shall not affect in any way the meaning or interpretation of this
Agreement.
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5.7. NOTICES. Each party shall promptly give written notice to the
other party upon becoming aware of the occurrence or, to its knowledge,
impending or threatened occurrence, of any event which would cause or
constitute a breach of any of its representations, warranties or covenants
contained or referenced to in this Agreement and will use its best efforts to
prevent or promptly remedy the same. All notices or other communications
hereunder shall be in writing and shall be given (and shall be deemed to have
been duly given only upon receipt) by delivery in person, by facsimile, or by
registered or certified mail, postage prepaid, return receipt requested
addressed as follows:
If to the Company:
Precision Aerotech, Inc.
7777 Fay Avenue, Suite 200
La Jolla, CA 92037
Attention: Richard W. Detweiler
With a copy to:
Latham & Watkins
701 B Street, Suite 2100
San Diego, CA 92101-8197
Attention: Thomas Edwards
If to Parent or the Purchaser:
Vernitron Corporation
645 Madison Avenue
New York, NY 10022
Attention: Stephen W. Bershad
With a copy to:
Vernitron Corporation
645 Madison Avenue
New York, NY 10022
Attention: Elliot N. Konopko
or to such other address as any party may have furnished to the other parties
in writing in accordance herewith.
5.8. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original but all of
which together shall constitute but one agreement.
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5.9. SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only so broad as is enforceable.
5.10. PARTIES IN INTEREST; ASSIGNMENT. This Agreement is binding upon
and is solely for the benefit of the parties hereto and their respective
successors, legal representatives and assigns. The Purchaser shall have the
right (a) to assign to Parent or any direct or indirect wholly owned
subsidiary of Parent any and all rights and obligations of the Purchaser
under this Agreement, including, without limitation, the right to substitute
in its place another subsidiary as one of the constituent corporations in the
Merger (such subsidiary assuming all of the obligations of the Purchaser in
connection with the Merger) and may require subsidiaries of the Company to
merge with or sell all or part of their assets to subsidiaries of the
Purchaser (or its assignees) in connection with the Merger, (b) to transfer
to Parent or to any direct or indirect wholly owned subsidiary of Parent the
right to purchase Shares from TIAA and Foothill and (c) to restructure the
transaction to provide for the merger of the Company with and into the
Purchaser or such other entity as provided above. If the Purchaser exercises
its right to so restructure the transaction, the Company shall promptly enter
into appropriate agreements to reflect such restructuring.
5.11. EXPENSES AND TERMINATION FEE.
5.11.1. Except as otherwise set forth in this Section 5.11,
whether or not the Merger is consummated, all costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such expenses.
5.11.2. As a condition and inducement to Parent's and Purchaser's
willingness to enter into this Agreement, in the event that (i) a fee is
payable to Parent pursuant to Section 5.11.3 hereof, or (ii) this Agreement
is terminated by Parent pursuant to Section 5.1(c)(i), 5.1(d), 5.1(e) or
5.1(f) hereof, provided that neither Parent nor Purchaser is then in material
breach of any of its representations and warranties or obligations hereunder,
the Company shall reimburse the Purchaser and Parent (not later than five
business days after submission of statements therefor) for all their
out-of-pocket expenses and fees (including, without limitation, legal,
investment banking, printing and depositary fees, commitment and other fees
and expenses of lenders and potential lenders, and related fees and expenses)
incurred by it or on its behalf in connection with the preparation,
negotiation, execution and performance of this Agreement, including the
Letter of Intent.
5.11.3. As a condition and inducement to Parent's and Purchaser's
willingness to enter into this Agreement, in the event this Agreement is
terminated by Parent (i) pursuant to Section 5.1(e) or 5.1(f) hereof and a
Sale Transaction shall have occurred within one year following termination or
(ii) pursuant to Section 5.1(d)(i) as a result of a material breach by the
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Company of any of its agreements contained in Sections 3.1, 3.3.2, 3.3.3,
3.3.4 or 3.3.7 or (iii) pursuant to Section 5.1(d)(ii) as a result of a
material breach by Foothill or TIAA of any of their agreements contained in
the Shareholders Agreement with respect to the voting or disposition of their
Shares, provided that neither Parent nor the Purchaser is then in material
breach of any of its obligations hereunder, the Company shall pay Parent (not
later than five business days after the date of such termination) a fee of
$800,000.
5.11.4 If the Company shall fail to make payment when due of all
or part of the amounts required to be paid pursuant to Sections 5.11.2 and/or
5.11.3 hereof (collectively, the "Expense Payments"), the Company shall also
pay to Parent all costs and expenses (including reasonable attorneys' fees)
incurred by Parent in connection with the collection thereof, plus interest
on the unpaid amount of the Expense Payments and costs of collection at the
rate of 12% per annum to the time of payment.
5.12. PUBLICITY. So long as this Agreement is in effect, Parent, the
Purchaser and the Company agree to consult with each other in issuing any
press release or otherwise making any public statement with respect to the
transactions contemplated hereby, and none of them shall issue any such press
release or make any such public statement prior to such consultation, except
as may be required by law or by obligations pursuant to any listing agreement
with the NASDAQ Small Cap Market. No party shall file or distribute this
Agreement or any document delivered in connection herewith without the prior
consent of the other parties hereto, except as required by law.
5.13. SPECIFIC PERFORMANCE. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the
United States or any state having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity.
5.14. EMPLOYMENT AGREEMENTS. Prior to the Effective Time, the Company
shall not amend, without the consent of Parent, the Bonus and Severance
Payment Agreement or Employment Agreement, dated the date hereof, between the
Company and Richard Detweiler.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement.
PRECISION AEROTECH, INC. VERNITRON CORPORATION
By: /s/ Richard W. Detweiler By: /s/ Elliot N. Konopko
------------------------ ---------------------
President Vice President
PA ACQUISITION CORPORATION
By: /s/ Elliot N. Konopko
---------------------
Vice President
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EXHIBIT 10(41)
SHAREHOLDERS AGREEMENT
Shareholders Agreement, dated as of February 16, 1996 (this
"Agreement"), between Vernitron Corporation, a Delaware corporation
("Parent"), its wholly owned subsidiary, PA Acquisition Corporation
("Purchaser"), and the parties listed on Schedule I hereto (collectively the
"Sellers").
Concurrently herewith, Parent, Purchaser and Precision Aerotech, Inc., a
Delaware corporation (the "Company"), are entering into an Agreement and Plan
of Merger of even date herewith (the "Merger Agreement"; terms used but not
defined herein shall have the meanings set forth in the Merger Agreement),
pursuant to which Purchaser agrees to merge into the Company and, in the
Merger, upon the terms and subject to the conditions set forth therein, each
Share will be converted into the right to receive the Merger Price.
As of the date hereof, Sellers beneficially own directly in the
aggregate 749,788 Shares (together with any other securities of the Company
or its subsidiaries hereafter acquired by either Seller, collectively, the
"Sellers' Shares").
As a condition to their willingness to enter into the Merger Agreement
and consummate the Merger, Parent and Purchaser have required that Sellers
agree, and Sellers have agreed, to sell all of Sellers' Shares to Purchaser
or its designees and grant a proxy to vote all of the Seller's Shares on the
terms and conditions provided for herein.
Accordingly, in consideration of the mutual covenants and agreements
contained herein, the parties hereto hereby agree as follows:
1. AGREEMENT TO SELL AND VOTE; PROXY.
1.1 SELL. (a) Immediately prior to the Effective Time, Seller
shall sell to Purchaser or one or more of its designees all of the Sellers'
Shares, free and clear of all Encumbrances, against payment to each Seller of
the amount set forth opposite such Seller's name on Schedule I hereto in
immediately available funds.
(b) In accordance with Section 3.9 of the Merger Agreement,
at the Effective Time, Parent shall cause to be repaid to Sellers the
aggregate remaining amount of principal then due by the Company under its
term loan agreements with them, together with all accrued interest (without
penalty or premium) then due thereon.
1.2 VOTING. During the time this Agreement is in effect, at any meeting
of the stockholders of the Company, however called, Sellers shall (a) vote
the Sellers' Shares in favor of the Merger; (b) vote the Sellers' Shares
against any action or agreement that would result in a breach in any material
respect of any covenant, representation or warranty or any other obligation
or agreement of the Company under the Merger Agreement; and (c) vote the
Sellers' Shares against any action or agreement (other than the Merger
Agreement or the transactions
<PAGE>
contemplated thereby) providing for any extraordinary corporate transaction,
such as a merger, consolidation or other business combination involving the
Company or its subsidiaries, a sale or transfer of a material amount of
assets of the Company or its subsidiaries, a reorganization, recapitalization
or liquidation of the Company or its subsidiaries or any change in the
present capitalization of the Company or its subsidiaries.
1.3 PROXY. Sellers shall execute, if requested by Parent, a written
consent in lieu of a meeting of stockholders, and hereby grant to Parent a
proxy to vote the Sellers' Shares, as indicated in subsection 1.2 above.
Sellers intend this proxy to be irrevocable and coupled with an interest and
will take such further actions or execute such other instruments as may be
necessary to effectuate the intent of this proxy and hereby revoke any proxy
previously granted by either of them with respect to any of the Sellers'
Shares.
2. EXPIRATION. This Agreement, Parent's right to vote the Shares and
Sellers' obligation to sell pursuant hereto shall terminate on the Expiration
Date. As used herein, the term "Expiration Date" means the first to occur of
(a) the Effective Time, (b) termination of the Merger Agreement in accordance
with its terms and (c) 180 days after the date hererof.
3. REPRESENTATIONS AND WARRANTIES OF SELLERS.
3.1 REPRESENTATIONS AND WARRANTIES OF PARENT AND THE PURCHASER. Parent
and the Purchaser hereby represent and warrant to the Sellers that:
3.1.1 CORPORATE ORGANIZATION. Parent and the Purchaser are
corporations duly organized, validly existing and in good standing under the
laws of the State of Delaware and have the requisite corporate power to carry
on their respective businesses as they are now being conducted. Parent owns
all of the issued and outstanding capital stock of the Purchaser.
3.1.2 AUTHORITY. Each of Parent and the Purchaser has the
requisite corporate power to enter into this Agreement and carry out its
obligations hereunder. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Parent and the
Purchaser. This Agreement has been duly executed and delivered by Parent and
the Purchaser and is a valid and binding obligation of each of them,
enforceable against each of Parent and the Purchaser in accordance with its
terms, except to the extent that enforceability (i) may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting or
relating to the enforcement of creditors' rights generally and (ii) is
subject to general principles of equity.
3.1.3 CONSENTS. No consent, approval or authorization of,
declaration to, or filing with, any governmental agency or regulatory
authority on the part of Parent or the Purchaser which has not been made or
received is required in connection with the execution or delivery by Parent
and the Purchaser of this Agreement and the consummation of the transactions
contemplated hereby other than (i) the filing of a Certificate of Merger with
the Secretary of State of Delaware in accordance with the GCL, (ii) filings
with the Commission and any applicable national securities exchange, (iii)
any applicable filings under state securities, "Blue Sky" or anti-takeover
laws, and (iv) filings, authorizations, consents or approvals relating to
matters which, if not obtained or made, will not, in the aggregate, have a
material adverse effect on the business,
2
<PAGE>
financial condition or results of operations of Parent and its subsidiaries,
taken as a whole. The Shares acquired by Purchaser hereunder shall be
cancelled in the Merger at the Effective Time.
3.2 REPRESENTATIONS AND WARRANTIES OF SELLERS. Sellers hereby
represent and warrant to Parent and Acquisition as follows:
(a) OWNERSHIP OF SHARES. On the date hereof, the Sellers' Shares
constitute all of the equity securities owned of record or beneficially by
Sellers. Each Seller has sole voting power and sole power of disposition
with respect to all of its Sellers' Shares with no Encumbrances, subject to
applicable federal securities laws, on Seller's rights of disposition
pertaining thereto (other than as set forth in the Principal Shareholders
Agreements which shall terminate immediately prior to the Closing and the
provisions of which are inapplicable to the transactions contemplated
hereunder).
(b) POWER; BINDING AGREEMENT. Each Seller has all necessary corporate
power and authority to enter into and perform all of its obligations under
this Agreement. The execution, delivery and performance of this Agreement by
each Seller will not violate any other agreement to which such Seller is a
party including, without limitation, the Principal Shareholders Agreements.
This Agreement has been duly and validly executed and delivered by each
Seller and constitutes a valid and binding agreement of such Seller,
enforceable against such Seller in accordance with its terms, except that
such enforceability (i) may be limited by bankruptcy, insolvency, moratorium
or other similar laws affecting or relating to enforcement of creditors'
rights generally and (ii) is subject to general principles of equity.
(c) NO CONFLICTS. Except for (i) the applicable requirements of the
Exchange Act and (ii) the applicable requirements of state securities,
takeover or Blue sky laws, (A) no filing with, and no permit authorization,
consent or approval of, any governmental body or authority is necessary for
the execution of this Agreement by either Seller or the consummation by
either Seller of the transactions contemplated hereby and (B) neither the
execution and delivery of this Agreement by either Seller nor the
consummation by either Seller of the transactions contemplated hereby nor
compliance by either Seller with any of the provisions hereof shall (x)
result in a violation or breach of, or constitute (with or without notice or
lapse of time or both) a default (or give rise to any third party right of
termination, cancellation, material modification or acceleration) under any
of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, contract, agreement or other instrument or obligation to
which either Seller is a party or by which he or any of its properties or
assets may be bound or (y) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to either Seller or any of its
properties or assets, except in the case of (x) or (y) for violations,
breaches or defaults which would not in the aggregate materially impair the
ability of either Seller to perform its obligations hereunder.
4. CERTAIN COVENANTS OF SELLER. Except in accordance with the terms
of this Agreement, each Seller hereby covenants and agrees as follows:
4.1 NO SOLICITATION. Each Seller shall not, and shall cause its
respective officers, directors, agents and representatives not to, solicit or
encourage (including by way of furnishing any non-public information
concerning the Company's or any Subsidiary's business, properties or assets),
any acquisition proposal, and neither Seller shall engage in discussions,
furnish any non-public information about the Company or any of its
Subsidiaries or enter into agreements with
3
<PAGE>
respect to any acquisition proposal. Sellers shall promptly provide written
notice to Parent of the receipt of an acquisition proposal, and any proposal,
inquiry or contact with any person with respect thereto, and shall, in any
such notice, indicate in reasonable detail the identity of the offeror and
principal terms and conditions thereof and keep Parent informed of the status
thereof. The obligations of any officer or director of either Seller who is
an officer or director of the Company, when acting in such capacity, shall be
governed by Section 3.1 of the Merger Agreement.
4.2 RESTRICTION ON TRANSFER, PROXIES AND NON-INTERFERENCE. Each
Seller, while this Agreement is in effect, and except as contemplated hereby,
shall not (i) sell, transfer, pledge, encumber, assign or otherwise dispose
of, or enter into any contract, option, or other arrangement or understanding
with respect to the sale, transfer, pledge, encumbrance, assignment or other
disposition of, any of the Sellers' Shares or (ii) grant any proxies, deposit
any Sellers' Shares or enter into a voting trust or enter into a voting
agreement with respect to any Sellers' Shares or (iii) take any action that
would make any representation or warranty of either Seller contained herein
untrue or incorrect or have the effect of preventing or disabling either
Seller from performing its obligations under this Agreement.
4.3 ADDITIONAL SHARES. Each Seller shall promptly notify Parent of the
number of any new shares of common stock or other securities of the Company
or its subsidiaries acquired by such Seller, if any, after the date hereof
and such securities shall constitute for all purposes hereof Sellers' Shares.
5. FURTHER ASSURANCES. From time to time, at the other party's
request and without further consideration, each party hereto shall execute
and deliver such additional documents and take all such further action as may
be necessary or desirable to consummate and make effective, in the most
expeditious manner practicable, the transactions contemplated by this
Agreement. Each Seller shall cause at the Effective Time all obligations of
the Company and its subsidiaries under the Principal Shareholders Agreements
as to each such Seller to be terminated without liability to the Company and
its subsidiaries on and after the Effective Time and all Encumbrances which
are for the benefit of such Seller on the assets of the Company and its
subsidiaries to be released and discharged in full.
6. STOP TRANSFER ORDER. In furtherance of this Agreement,
concurrently herewith, each Seller shall and hereby does authorize and direct
the Company's secretary to notify the Company's transfer agent that there is
a stop transfer order with respect to all of the Sellers' Shares and that
this Agreement places limits on the voting and transfer of such shares.
7. MISCELLANEOUS.
7.1 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement, and to the extent
applicable, the Merger Agreement, (i) constitutes the entire agreement among
the parties with respect to the subject matter hereof and supersedes all
other prior agreements and understandings, both written and oral, between the
parties with respect to the subject matter hereof; including that certain
letter of intent dated December 15, 1995, between Parent, Purchaser, the
Company and the Sellers and (ii) shall not be assigned by operation of law or
otherwise, provided that Parent may assign its rights and obligations
hereunder to any direct or indirect wholly owned subsidiary of Parent, but
4
<PAGE>
no such assignment shall relieve Parent of its obligations hereunder if such
assignee does not perform such obligations.
7.2 AMENDMENTS. This Agreement may not be modified, amended, altered
or supplemented, except upon the execution and delivery of a written
agreement executed by the parties hereto.
7.3 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery or by mail
(registered or certified mail, postage prepaid, return receipt requested) or
by any courier service, such as Federal Express, providing proof of delivery.
All communications hereunder shall be delivered to the respective parties at
the following addresses:
If to the Sellers: Teachers Insurance and Annuity Association of America
730 Third Avenue
New York, NY 10017
Attention: Shelly Zoler
Foothill Capital Corporation
11111 Santa Monica Boulevard, Suite 1500
Los Angeles, CA 90025
Attention: Jeff Nikora
with a copy to: Latham & Watkins
701 B Street, Suite 2100
San Diego, CA 92101-8197
Attention: Thomas Edwards
If to the Parent: Vernitron Corporation
645 Madison Avenue
New York, NY 10022
Attention: Elliot N. Konopko
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
7.4 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof.
7.5 SPECIFIC PERFORMANCE. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the other party to sustain damages for which it
would not have an adequate remedy at law for money damages, and therefore
each of the parties hereto agrees that in the event of any such breach the
aggrieved party shall be entitled to the remedy of specific performance of
such covenants and agreements and injunctive and other equitable relief in
addition to any other remedy to which it may be entitled, at law or in equity.
5
<PAGE>
7.6 COUNTERPARTS. This Agreement may be executed in two counterparts,
each of which shall be deemed to be an original, but both of which shall
constitute one and the same Agreement.
7.7 DESCRIPTIVE HEADINGS. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of
or to affect the meaning or interpretation of this Agreement.
7.8 SEVERABILITY. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of
any provision of this agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or portion of any provision in such jurisdiction, and
this Agreement will be reformed, construed and enforced in such jurisdiction
as if such invalid, illegal or unenforceable provision or portion of any
provision had never been contained herein.
7.9 OBLIGATIONS SEVERAL, NOT JOINT. The obligations, representations
and warranties of the Sellers hereunder are several and not joint, and
neither Seller shall be responsible for any breach by the other Seller of any
representation and warranty, covenant or agreement of such other Seller
hereunder.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
TEACHERS INSURANCE AND FOOTHILL CAPITAL CORPORATION
ANNUITY ASSOCIATION
OF AMERICA
by: /s/ Sharon Manewitz by: /s/ Jeff Nikora
------------------------- ---------------------
Director - Special Loans Vice President
VERNITRON CORPORATION PA ACQUISITION CORPORATION
by: /s/ Elliot N. Konopko by: /s/ Elliot N. Konopko
------------------------- ---------------------
Vice President Vice President
6
<PAGE>
SCHEDULE I
Foothill Capital Corporation $2,663,720
Teachers Insurance and Annuity
Association of America $1,085,220
7
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET OF VERNITRON CORPORATION AS OF DECEMBER 31, 1995 AND THE
RELATED STATEMENT OF OPERATIONS FOR THE YEAR THEN ENDED AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 91
<SECURITIES> 0
<RECEIVABLES> 8,758
<ALLOWANCES> 233
<INVENTORY> 16,544
<CURRENT-ASSETS> 25,811
<PP&E> 12,678
<DEPRECIATION> 5,075
<TOTAL-ASSETS> 40,485
<CURRENT-LIABILITIES> 11,477
<BONDS> 11,047
0
8
<COMMON> 126
<OTHER-SE> 14,611
<TOTAL-LIABILITY-AND-EQUITY> 40,485
<SALES> 65,213
<TOTAL-REVENUES> 65,213
<CGS> 47,973
<TOTAL-COSTS> 47,973
<OTHER-EXPENSES> 13,336
<LOSS-PROVISION> 106
<INTEREST-EXPENSE> 1,994
<INCOME-PRETAX> 1,449
<INCOME-TAX> 565
<INCOME-CONTINUING> 884
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 884
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>