SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES ACT OF 1934
Date of Report (Date of earliest event reported): JULY 30, 1999.
HEICO CORPORATION
(Exact name of registrant as specified in its charter)
FLORIDA
(State or other jurisdiction of incorporation)
001-04604 65-0341002
(Commission File Number) (IRS Employer Identification No.)
3000 TAFT STREET
HOLLYWOOD, FLORIDA 33021
(Address of principal offices)
Registrant's telephone number, including area code: (954) 987-6101
--------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Pursuant to a Stock Purchase Agreement dated as of July 12, 1999 (the "Stock
Purchase Agreement"), the Registrant acquired all of the outstanding capital
stock of Thermal Structures, Inc. and its Quality Honeycomb, Inc. affiliate
(together "Thermal"). The closing of the transaction occurred on July 30, 1999
and was effective as of June 30, 1999. In consideration of this acquisition, the
Registrant paid $29,150,000 in cash at the closing, and assumed approximately
$4,000,000 in debt. The assumed debt was repaid by the Registrant at closing.
Subject to meeting certain earnings objectives, one of Thermal's selling
shareholders could receive additional consideration of up to $1,000,000 over
three years. The purchase price will be adjusted based on the actual net worth
of Thermal as of June 30, 1999. The purchase price was determined through
arms-length negotiations. This acquisition is being accounted for using the
purchase method of accounting.
Corona, CA-based Thermal is a leading manufacturer of thermal insulation
products and related components primarily for aerospace and defense
applications. Founded in 1975, Thermal's customers include major airlines
worldwide, certain aerospace, defense and other transportation original
equipment manufacturers as well as electrical power generation turbine
manufacturers.
The source of the purchase price was proceeds from the Registrant's $120 million
revolving credit facility.
ITEM 7. FINANCIAL STATEMENT, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial statements of businesses acquired
The financial statements of Thermal Structures, Inc. required by Rule
3-05(b) of Regulation S-X are included as Exhibits 99.1 and 99.2.
Financial statements of Quality Honeycomb, Inc. are not included herein
in accordance with 3.05(b) due to insignificance.
(b) Pro forma financial information
The following unaudited pro forma consolidated condensed financial
information is furnished in accordance with Article 11 of Regulation
S-X:
Introductory note to unaudited pro forma consolidated condensed
financial statements (page 3).
Unaudited pro forma consolidated condensed balance sheet as of April
30, 1999 (page 4).
Unaudited pro forma consolidated condensed statement of operations for
the six months ended April 30, 1999 (page 5).
Unaudited pro forma consolidated condensed statement of operations for
the year ended October 31, 1998 (page 6).
Notes to unaudited pro forma consolidated condensed financial
statements (pages 7-9).
(c) Exhibits
2.1 Stock Purchase Agreement dated as of July 12, 1999 among HEICO
Corporation, Thermal Structures, Inc., Quality Honeycomb,
Inc., David A. Janes, Vaughn Barnes, Stephen T. Braunheim, DLD
Investments, LLC, and Acme Freight, LLC (without schedules and
exhibits).
1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HEICO CORPORATION
Date: August 13, 1999
By: /S/ THOMAS S. IRWIN
-----------------------------------------
Thomas S. Irwin, Executive Vice President
and Chief Financial Officer
2
<PAGE>
HEICO CORPORATION AND SUBSIDIARIES
INTRODUCTORY NOTE TO UNAUDITED
PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated condensed balance sheet and
statements of operations utilize the historical financial condition and results
of operations of HEICO Corporation and subsidiaries (the Company) as of April
30, 1999 and for the six months then ended and for the year ended October 31,
1998. The unaudited pro forma consolidated condensed financial statements have
been prepared on the basis summarized below:
1. The unaudited pro forma consolidated condensed balance sheet as of
April 30, 1999, assumes that the Company's acquisition of all of the
outstanding stock of Thermal Structures, Inc. (TSI) and its Quality
Honeycomb, Inc. (QHC) affiliate had been consummated as of that
date.
2. The unaudited pro forma consolidated condensed statement of
operations for the six months ended April 30, 1999, assumes that the
Company's acquisition of all of the outstanding capital stock of TSI
and QHC had been consummated as of the beginning of the six-month
period ended April 30, 1999.
3. The unaudited pro forma consolidated condensed statement of
operations for the year ended October 31, 1998, assumes the
acquisitions of all of the outstanding capital stock of McClain
International, Inc. (see Form 8-K dated July 31, 1998 for
description of acquisition), TSI and QHC had been consummated as of
the beginning of the year ended October 31, 1998.
The unaudited pro forma consolidated condensed statements of operations are not
necessarily indicative of actual operating results had the acquisitions been
made at the beginning of the periods presented or of future results of
operations.
Effective June 30, 1999, TSI consummated an agreement and plan of merger whereby
TSI's parent, Thermal Holdings, Inc., formerly a subsidiary of California
Manufacturing Enterprises, Inc. (CME), was merged with TSI and CME. TSI
continues as the surviving entity. TSI has accounted for the merger as an
exchange of common stock between companies under common control, accordingly,
assets and liabilities transferred were accounted for at historical costs in a
manner similar to that in pooling-of-interests accounting. The accompanying
unaudited pro forma consolidated condensed balance sheet and statements of
operations as of April 30, 1999 and for the six months then ended and for the
year ended October 31, 1998 were not retroactively restated to reflect this
transaction due to immateriality.
3
<PAGE>
HEICO CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
as of April 30, 1999
(unaudited)
<TABLE>
<CAPTION>
HEICO Thermal Quality
Corporation(1) Structures, Inc.(2) Honeycomb, Inc.(3)
------------- ------------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 17,674,000 $ 412,000 $ 23,000
Short-term investments 5,548,000 -- --
Accounts receivable, net 22,138,000 3,296,000 49,000
Inventories 31,456,000 1,718,000 92,000
Prepaid expenses and other current assets 3,117,000 630,000 9,000
Deferred income taxes 1,241,000 149,000 --
------------- ------------- -------------
Total current assets 81,174,000 6,205,000 173,000
Property, plant and equipment, net 20,985,000 780,000 120,000
Intangible assets, net 71,858,000 -- --
Unexpended bond proceeds 1,795,000 -- --
Deferred income taxes 1,724,000 -- --
Other assets 5,480,000 522,000 90,000
------------- ------------- -------------
Total assets $ 183,016,000 $ 7,507,000 $ 383,000
============= ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 398,000 $ -- $ --
Trade accounts payable 7,498,000 667,000 7,000
Accrued expenses and other current liabilities 7,981,000 466,000 21,000
Income taxes payable 286,000 201,000 1,000
------------- ------------- -------------
Total current liabilities 16,163,000 1,334,000 29,000
------------- ------------- -------------
Long-term debt, net of current maturities 10,009,000 -- --
Other non-current liabilities 3,683,000 -- --
------------- ------------- -------------
Minority interest in consolidated subsidiary 19,550,000 -- --
------------- ------------- -------------
Shareholders' equity:
Preferred stock, none issued -- -- --
Common stock 85,000 221,000 50,000
Class A common stock 72,000 -- --
Capital in excess of par value 92,649,000 -- --
Accumulated other comprehensive income (816,000) -- --
Retained earnings (deficit) 43,628,000 12,667,000 (131,000)
Due to (from) affiliates -- (6,715,000) 435,000
------------- ------------- -------------
135,618,000 6,173,000 354,000
Less: Note receivable from employee savings
and investment plan (2,007,000) -- --
------------- ------------- -------------
Total shareholders' equity 133,611,000 6,173,000 354,000
------------- ------------- -------------
Total liabilities and shareholders' equity $ 183,016,000 $ 7,507,000 $ 383,000
============= ============= =============
Pro Forma Pro Forma
Adjustments Combined
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ (2,747,000)* $ 15,362,000
Short-term investments -- 5,548,000
Accounts receivable, net -- 25,483,000
Inventories -- 33,266,000
Prepaid expenses and other current assets -- 3,756,000
Deferred income taxes -- 1,390,000
------------- -------------
Total current assets (2,747,000) 84,805,000
Property, plant and equipment, net -- 21,885,000
Intangible assets, net 27,638,000 99,496,000
Unexpended bond proceeds -- 1,795,000
Deferred income taxes -- 1,724,000
Other assets (418,000)(4) 5,674,000
------------- -------------
Total assets $ 24,473,000 $ 215,379,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ -- $ 398,000
Trade accounts payable -- 8,172,000
Accrued expenses and other current liabilities -- 8,468,000
Income taxes payable -- 488,000
------------- -------------
Total current liabilities -- 17,526,000
------------- -------------
Long-term debt, net of current maturities 24,338,000 ** 34,347,000
Other non-current liabilities -- 3,683,000
------------- -------------
Minority interest in consolidated subsidiary 6,662,000 (6) 26,212,000
------------- -------------
Shareholders' equity:
Preferred stock, none issued
Common stock (271,000)(7) 85,000
Class A common stock -- 72,000
Capital in excess of par value -- 92,649,000
Unrealized loss on investments -- (816,000)
Retained earnings (12,536,000)(7) 43,628,000
Due to (from) affiliates 6,280,000 (7) --
------------- -------------
(6,527,000) 135,618,000
Less: Note receivable from employee savings
and investment plan -- (2,007,000)
------------- -------------
Total shareholders' equity (6,527,000) 133,611,000
------------- -------------
Total liabilities and shareholders' equity $ 24,473,000 $ 215,379,000
============= =============
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial statements
* PRO-FORMA ADJUSTMENT TO CASH AND CASH EQUIVALENTS
Estimated purchase price adjustment $ (397,000)(5)
Cash used for purchase price (2,350,000)(5)
=============
$ (2,747,000)
=============
** PRO-FORMA ADJUSTMENT TO LONG-TERM DEBT
Proceeds from revolving credit facility $ 31,000,000 (5)
Assumed additional cash investment by Luftansa
in HEICO Aerospace used to repay debt (6,662,000)(6)
=============
$ 24,338,000
=============
4
<PAGE>
HEICO CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
For the six months ended April 30, 1999
(unaudited)
<TABLE>
<CAPTION>
HEICO Thermal Quality Pro Forma Pro Forma
Corporation(1) Structures, Inc.(2) Honeycomb, Inc.(3) Adjustments Combined
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 60,942,000 $ 8,393,000 $ 203,000 $ -- $ 69,538,000
------------ ------------ ------------ ------------ ------------
Operating costs and expenses:
Cost of sales 35,830,000 4,719,000 258,000 -- 40,807,000
Selling, general and administrative
expenses 10,563,000 3,170,000 54,000 (1,185,000)(8) 12,602,000
------------ ------------ ------------ ------------ ------------
Total operating costs and expenses 46,393,000 7,889,000 312,000 (1,185,000) 53,409,000
------------ ------------ ------------ ------------ ------------
Operating income (loss) 14,549,000 504,000 (109,000) 1,185,000 16,129,000
Interest and other expense (821,000) (11,000) -- (969,000)(9) (1,801,000)
Interest and other income 547,000 -- -- (64,000)(10) 483,000
------------ ------------ ------------ ------------ ------------
Income (loss) before income taxes
and minority interest 14,275,000 493,000 (109,000) 152,000 14,811,000
Income tax expense 5,151,000 201,000 -- 205,000(11) 5,557,000
------------ ------------ ------------ ------------ ------------
Income (loss) before
minority interest 9,124,000 292,000 (109,000) (53,000) 9,254,000
Minority interest 1,831,000 -- -- (5,000) 1,826,000
------------ ------------ ------------ ------------ ------------
Net income (loss) $ 7,293,000 $ 292,000 $ (109,000) $ (48,000) $ 7,428,000
============ ============ ============ ============ ============
Net income per share
Basic $ 0.52 $ 0.53
============ ============
Diluted $ 0.43 $ 0.44
============ ============
Weighted average number of common
shares outstanding
Basic 13,911,609 13,911,609
============ ============
Diluted 16,845,280 16,845,280
============ ============
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial statements
5
<PAGE>
HEICO CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
For the twelve months ended October 31, 1998
(unaudited)
<TABLE>
<CAPTION>
HEICO Thermal Quality
Corporation(13) Structures, Inc.(14) Honeycomb, Inc.(15)
------------- ------------- -------------
<S> <C> <C> <C>
Net sales $ 95,351,000 $ 19,022,000 $ 548,000
------------- ------------- -------------
Operating costs and expenses:
Cost of sales 59,247,000 10,065,000 497,000
Selling, general and administrative expenses 17,140,000 5,620,000 73,000
------------- ------------- -------------
Total operating costs and expenses 76,387,000 15,685,000 570,000
------------- ------------- -------------
Operating income (loss) 18,964,000 3,337,000 (22,000)
Interest and other expense (984,000) -- --
Interest and other income 2,062,000 52,000 --
------------- ------------- -------------
Income (loss) before income taxes and
minority interest 20,042,000 3,389,000 (22,000)
Income tax expense 6,914,000 1,296,000 1,000
------------- ------------- -------------
Income (loss) before minority interest 13,128,000 2,093,000 (23,000)
Minority interest 2,619,000 -- --
------------- ------------- -------------
Net income (loss) $ 10,509,000 $ 2,093,000 $ (23,000)
============= ============= =============
Net income per share:
Basic $ 0.84
=============
Diluted $ 0.68
=============
Weighted average number of common
shares outstanding
Basic 12,499,079
=============
Diluted 15,540,620
=============
McClain Pro Forma Pro Forma
International, Inc.(16) Adjustments Combined
------------- ------------- -------------
<S> <C> <C> <C>
Net sales $ 9,696,000 $ -- $ 124,617,000
------------- ------------- -------------
Operating costs and expenses:
Cost of sales 4,720,000 -- 74,529,000
Selling, general and administrative expenses 1,759,000 (1,938,000)(8) 22,654,000
------------- ------------- -------------
Total operating costs and expenses 6,479,000 (1,938,000) 97,183,000
------------- ------------- -------------
Operating income (loss) 3,217,000 1,938,000 27,434,000
Interest and other expense -- (3,359,000)(9) (4,343,000)
Interest and other income 93,000 (688,000)(10) 1,519,000
------------- ------------- -------------
Income (loss) before income taxes and
minority interest 3,310,000 (2,109,000) 24,610,000
Income tax expense -- 904,000 9,115,000
------------- ------------- -------------
Income (loss) before minority interest 3,310,000 (3,013,000) 15,495,000
Minority interest -- 643,000 3,262,000
------------- ------------- -------------
Net income (loss) $ 3,310,000 $ (3,656,000) $ 12,233,000
============= ============= =============
Net income per share:
Basic $ 0.98
=============
Diluted $ 0.79
=============
Weighted average number of common
shares outstanding
Basic 12,499,079
=============
Diluted 15,540,620
=============
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial statements
6
<PAGE>
HEICO CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(1) As reported in the Company's Form 10-Q as of and for the six-month period
ended April 30, 1999.
(2) Represents Thermal Structure's balance sheet and statement of operations
as of and for six-month period ended April 30, 1999.
(3) Represents Quality Honeycomb's balance sheet and statement of operations
as of and for six-month period ended June 30, 1999.
(4) Represents other assets of $418,000 not acquired from the shareholders of
Thermal Structures.
(5) Represents adjustments to record acquired assets and assumed liabilities
based on their fair market values and the excess of cost over the fair
value of net assets acquired from the acquisition.
The origin of the purchase costs is as follows:
Purchase costs:
Cash paid from revolving credit facility proceeds ***$31,000,000
Cash paid from cash and cash equivalents on hand 2,350,000
Cash acquired (435,000)
Estimated purchase price adjustment 397,000
------------
Total purchase cost (including estimated acquisition
costs of $.2 million), net of cash acquired $ 33,312,000
============
Allocation of purchase costs:
Accounts receivable $ 3,345,000
Inventories 1,810,000
Prepaid expenses and other current assets 788,000
Property, plant and equipment 900,000
Other assets 194,000
Liabilities assumed (1,363,000)
------------
5,674,000
Excess of costs over the fair value of net assets acquired 27,638,000
------------
Total allocation of purchase costs $ 33,312,000
============
*** Cash paid from revolving credit proceeds of $31 million includes $4 million
in assumed debt repaid at closing. The assumed debt was incurred by Thermal
Structures in May 99 and the proceeds were distributed to its shareholders.
(6) Represents assumed additional cash investment by Luftansa Technik AG in
the Company's 80% owned subsidiary HEICO Aerospace Holdings Corp.
Pursuant to the Shareholders' Agreement between Luftansa Technik AG and
the Company, Luftansa Technik AG has the right to particpate in certain
investments by the Company in order to maintain its 20% interest. The
assumption of participation is based on Luftansa Technik AG's pro rata
participation in prior acquistions.
(7) Represents the elimination of Thermal Structures' and Quality Honeycomb's
stockholders' equity.
7
<PAGE>
(8) Represents the amortization of the excess of costs over the fair value of
net assets acquired and elimination of shareholders' compensation and
management fees.
Six months Twelve months
ended ended
April 30, 1999 October 31, 1998
----------- -----------
MCCLAIN
Amortization of the excess of costs
over the fair value of net assets acquired
(over 30 years)**** $ -- $ 942,000
Elimination of shareholders'
compensation -- (1,355,000)
----------- -----------
-- (413,000)
----------- -----------
THERMAL STRUCTURES AND QUALITY HONEYCOMB
Amortization of the excess of costs
over the fair value of net assets acquired
(over 30 years)**** 461,000 921,000
Elimination of management fees paid to sellers (1,646,000) (2,446,000)
----------- -----------
(1,185,000) (1,525,000)
----------- -----------
$(1,185,000) $(1,938,000)
=========== ===========
**** The costs of the acquisition of Thermal Structures and Quality Honeycomb
have been allocated to the assets acquired and the liabilities assumed
based on their fair values at the date of the acquisition as determined
by management. The allocation of the cost of the acquisitions is
preliminary while the Company obtains final information regarding the
fair values of all assets acquired; however, management believes that any
adjustments to the amounts allocated will not have a material effect on
the Company's financial position or results of operations.
(9) Represents interest expense incurred on borrowings under the revolving
credit facility.
Six months Twelve months
ended ended
April 30, 1999 October 31, 1998
----------- -----------
MCCLAIN
Interest expense on $25 million at 6.75% in 1998 -- (1,266,000)
----------- -----------
THERMAL STRUCTURES AND QUALITY HONEYCOMB
Interest expense on $31 million at 6.25% in 1999
and at 6.75% in 1998 (969,000) (2,093,000)
----------- -----------
$ (969,000) $(3,359,000)
=========== ===========
8
<PAGE>
(10) Represents the elimination of investment income from cash used for the
acquisitions and the elimination of interest income on assets not
acquired as follows.
Six months Twelve months
ended ended
April 30, 1999 October 31, 1998
----------- -----------
MCCLAIN
Lost investment income on $10.8
million at a rate of 5.65% at October 31, 1998 $ -- $ (459,000)
Elimination of interest income on
assets not acquired -- (93,000)
----------- -----------
-- (552,000)
----------- -----------
THERMAL STRUCTURES AND QUALITY HONEYCOMB
Lost investment income on $2.4 million at a rate
of 5.30% at April 30, 1999 and 5.65%
at October 31, 1998 $ (64,000) $ (136,000)
----------- -----------
$ (64,000) $ (688,000)
=========== ===========
(11) To adjust for the effects of income taxes on (a) the historical earnings
of the acquisition of McClain, an S Corporation prior to acquisition, as
if it had been fully subject to federal and applicable state income taxes
and (b) the effect of the pro forma adjustments.
Six months Twelve months
ended ended
April 30, 1999 October 31, 1998
----------- -----------
McClain -- 741,000
Thermal Structures and Quality Honeycomb 205,000 163,000
----------- -----------
$ 205,000 $ 904,000
=========== ===========
(12) Represents the incremental minority interest of Lufttansa Technik in the
net income of McClain, Thermal Structures and Quality Honeycomb.
Six months Twelve months
ended ended
April 30, 1999 October 31, 1998
----------- -----------
McClain -- 444,000
Thermal Structures and Quality Honeycomb (5,000) 199,000
----------- -----------
$ (5,000) $ 643,000
=========== ===========
(13) As reported in the Company's Form 10-K for the fiscal year ended October
31, 1998.
(14) Represents Thermal Structures' statement of operations for the year ended
October 25, 1998.
(15) Represents Quality Honeycomb's statement of operations for the year ended
December 27, 1998.
(16) Represents McClain's statement of operations for the nine-month period
ended July 31, 1998, the period prior to acquisition.
9
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
2.1 Stock Purchase Agreement dated as of July 12, 1999 among HEICO
Corporation, Thermal Structures, Inc., Quality Honeycomb,
Inc., David A. Janes, Vaughn Barnes, Stephen T. Braunheim, DLD
Investments, LLC, and Acme Freight, LLC (without schedules and
exhibits).
99.1 Thermal Structures, Inc. Financial Statements for the Six Months
Ended April 30, 1999
99.2 Thermal Structures, Inc. Financial Statements for the Years Ended
October 25, 1998 and October 26, 1997.
EXHIBIT 2.1
----------------------------
STOCK PURCHASE AGREEMENT
----------------------------
AMONG
HEICO CORPORATION
THERMAL STRUCTURES, INC.
QUALITY HONEYCOMB, INC.
DAVID A. JANES
VAUGHN BARNES
STEPHEN T. BRAUNHEIM
DLD INVESTMENTS, LLC
AND
ACME FREIGHT, LLC
JULY 12, 1999
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I. - SALE AND PURCHASE OF SHARES......................................1
1.01 Sale and Purchase of Shares.................................1
1.02 Payment for Shares..........................................1
1.03 Earn-Out....................................................1
1.04 Purchase Price Adjustment...................................2
1.05 Effective Date Balance Sheet................................2
1.06 Disputes....................................................3
ARTICLE II. - CLOSING 3
2.01 Closing.....................................................3
2.02 Deliveries by Sellers.......................................3
2.03 Deliveries by Buyer.........................................4
ARTICLE III. - REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND THE COMPANY..4
3.01 Corporate Existence and Qualification.......................4
3.02 Authority, Approval and Enforceability......................4
3.03 Capitalization and Corporate Records........................4
3.04 No Seller Defaults or Consents..............................5
3.05 No Company Defaults or Consents.............................5
3.06 No Proceedings..............................................5
3.07 Employee Benefit Matters....................................6
3.08 Financial Statements; Liabilities; Accounts Receivable......8
3.09 Absence of Certain Changes..................................8
3.10 Compliance with Laws.......................................10
3.11 Litigation.................................................10
3.12 Ownership of Company Properties............................10
3.13 Commitments................................................12
3.14 Insurance..................................................12
3.15 Inventories................................................13
3.16 Equipment and Other Tangible Property......................13
3.17 Permits; Environmental Matters.............................13
3.18 Banks......................................................14
3.19 Suppliers and Customers....................................14
3.20 Absence of Certain Business Practices......................14
3.21 Products and Services......................................14
3.22 Transactions With Affiliates...............................15
3.23 Other Information..........................................15
ARTICLE IV. - REPRESENTATIONS AND WARRANTIES OF BUYER........................15
4.01 Corporate Existence and Qualification......................15
4.02 Authority, Approval and Enforceability.....................15
4.03 No Default or Consents.....................................16
4.04 No Proceedings.............................................16
ARTICLE V. - OBLIGATIONS PRIOR TO CLOSING....................................16
5.01 Buyer's Access to Information..............................16
5.02 Company's Conduct of Business and Operations...............16
5.03 General Restrictions.......................................17
5.04 Notice Regarding Changes...................................18
5.05 Preferential Purchase Rights...............................18
5.06 Ensure Conditions Met......................................18
-i-
<PAGE>
5.07 Name Change................................................19
5.08 Casualty Loss..............................................19
5.09 Employee Matters...........................................19
ARTICLE VI. - CONDITIONS TO SELLERS' AND BUYER'S OBLIGATIONS.................19
6.01 Conditions to Obligations of the Sellers...................19
6.02 Conditions to Obligations of Buyer.........................20
ARTICLE VII. - POST-CLOSING OBLIGATIONS.....................................21
7.01 Further Assurances.........................................21
7.02 Publicity..................................................21
7.03 Post-Closing Indemnity.....................................21
7.04 Non-Competition............................................22
7.05 Assignment of Contracts....................................23
7.06 Standstill.................................................23
ARTICLE VIII. - TAX MATTERS..................................................23
8.01 Representations and Obligations Regarding Taxes............23
8.02 Indemnification for Taxes..................................24
8.03 Tax Refunds................................................25
ARTICLE IX. - MISCELLANEOUS..................................................26
9.01 Limitation on Liability....................................26
9.02 Brokers....................................................27
9.03 Costs and Expenses.........................................27
9.04 Notices....................................................27
9.05 Governing Law..............................................28
9.06 Representations and Warranties.............................28
9.07 Entire Agreement; Amendments and Waivers...................28
9.08 Binding Effect and Assignment..............................29
9.09 Remedies...................................................29
9.10 Interest on Overdue Payments...............................29
9.11 Withholding of Payments....................................29
9.12 Exhibits and Schedules.....................................29
9.13 Multiple Counterparts......................................29
9.14 References and Construction................................29
9.15 Survival...................................................29
9.16 Attorneys'Fees.............................................30
9.17 Termination................................................30
9.18 Effect of Termination......................................30
ARTICLE X. - DEFINITIONS.....................................................30
10.01 Affiliate..................................................30
10.02 Collateral Agreements......................................30
10.03 Contracts..................................................31
10.04 Damages....................................................31
10.05 Financial Statements.......................................31
10.06 Governmental Authorities...................................31
10.07 Hazardous Material.........................................31
10.08 Inventory..................................................31
10.09 Knowledge of the Company...................................31
10.10 Legal Requirements.........................................31
10.11 Net Worth..................................................32
10.12 Permits....................................................32
10.13 Person.....................................................32
10.14 Proportionate Share........................................32
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10.15 Properties.................................................32
10.16 Real Property..............................................32
10.17 Regulations................................................32
10.18 Used.......................................................32
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LIST OF SCHEDULES
Schedule 1.02...........Purchase Price Payments
Schedule 3.01...........Qualifications as Foreign Corporation
Schedule 3.03(a)........Authorized and Outstanding Capital Stock
Schedule 3.03(b)........Investments
Schedule 3.04...........Shareholder Defaults or Consents
Schedule 3.05...........Company Defaults or Consents
Schedule 3.07(a)........Employee Arrangements
Schedule 3.07(c)........Benefit Plan Liabilities
Schedule 3.07(e)........Current Employees
Schedule 3.08(a)........Financial Statements
Schedule 3.08(b)........Scheduled Liabilities
Schedule 3.08(c)........Accounts Receivable
Schedule 3.09(a)........Certain Changes
Schedule 3.09(b)........Certain Actions
Schedule 3.10(1)........Compliance with Law
Schedule 3.10(2)........Citations
Schedule 3.11...........Litigation
Schedule 3.12(a)........Encumbrances
Schedule 3.12(b)(1).....Owned Premises
Schedule 3.12(b)(2).....Leased Premises Matters
Schedule 3.12(c)........Intangible Rights
Schedule 3.12(d)........Other Person Authorizations
Schedule 3.13...........Commitments
Schedule 3.13(c)........Non-Arm's Length Contracts
Schedule 3.14...........Insurance
Schedule 3.15(1)........Inventory Condition
Schedule 3.15(2)........Inventory Accounting
Schedule 3.16...........Tangible Company Assets Condition
Schedule 3.17(a)........Permits
Schedule 3.17(b)........Environmental Claims
Schedule 3.17(c)........Storage of Hazardous Materials
Schedule 3.17(d)........Noncompliance with Environmental Laws
Schedule 3.18...........Banks, Accounts and Authorized Signatories
Schedule 3.19...........Suppliers and Customers
Schedule 3.21(a)........Product Listing
Schedule 3.21(b)........Recalls
Schedule 3.22...........Affiliate Transactions
Schedule 7.04(a)........Non-Compete FAA/PMA Parts
Schedule 8.01(a)........Tax Returns
Schedule 8.01(b)........Tax Claims
Schedule 8.01(c)........Tax Extensions
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LIST OF EXHIBITS
Exhibit A - Vaughn Barnes Employment Agreement.....................A -1
Exhibit B - Opinion of Seller's Counsel............................B -1
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STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered
into as of the 12th day of July, 1999, by and among HEICO Corporation, a Florida
corporation (the "Buyer"), Thermal Structures, Inc., a California corporation
("Thermal Structures"), Quality Honeycomb, Inc., a California corporation
("Quality Honeycomb"; and, together with Thermal Structures, the "Company"), and
Vaughn Barnes, DLD Investments, LLC ("DLD"), Acme Freight, LLC ("Acme"), David
A. Janes, an owner of DLD, and Stephen T. Braunheim, an owner of Acme (each
individually, a "Seller," and collectively, the "Sellers").
RECITALS
A. The Sellers collectively own of record and beneficially all of the
outstanding capital stock of the Company (the "Shares").
B. Buyer desires to purchase the Shares, and Sellers desire to sell
such Shares, upon the terms and subject to the conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained herein, the parties agree as follows:
ARTICLE I. - SALE AND PURCHASE OF SHARES
1.01 SALE AND PURCHASE OF SHARES.
(a) On the terms and subject to the conditions of this Agreement,
at the Closing referred to in Section 2.01 hereof, Sellers shall sell, convey,
assign, transfer and deliver to Buyer, and Buyer shall purchase, acquire and
accept delivery of, the Shares, free and clear of any and all liens, mortgages,
adverse claims, charges, security interests, encumbrances or other restrictions
or limitations whatsoever.
(b) To effect the transfers contemplated by Section 1.01(a), at
the Closing, each Seller shall deliver or cause to be delivered to Buyer,
against payment therefor in accordance with Section 1.02 hereof, stock
certificates representing that portion of the Shares being sold by such Seller
hereunder, accompanied by stock powers duly executed in blank and otherwise in
form acceptable to Buyer for transfer on the books of the Company.
1.02 PAYMENT FOR SHARES. As payment for the Shares being acquired by
the Buyer hereunder, Buyer shall deliver to each Seller at Closing, by official
bank check or wire transfer (to an account specified by each Seller in writing
at least three business days prior to Closing) in same day funds, the amounts
set forth on Schedule 1.02, the total of all such amounts being Twenty Nine
Million One Hundred Fifty Thousand Dollars ($29,150,000) (the "Cash
Consideration"). As additional consideration for such sale of the Shares, Vaughn
Barnes will be entitled to receive contingent purchase price payments in
accordance with the provisions of Section 1.03 (the "Earnout"). The Cash
Consideration and the Earnout are referred to herein collectively as the
"Purchase Price." The Purchase Price will also be subject to adjustment as set
forth in Sections 1.04, 7.03 and 8.02.
1.03 EARN-OUT. The Earnout, if any, will be paid with respect to the
earnings of the Company over the next three years. The amount of the first
Earnout payment will equal $333,333.33 if, and only if, the Operating Profit
(defined below) for the Company during the twelve-month period ending October
31, 2000 (the "First Earnout Period") equals or exceeds $6,500,000. If the
Operating Profit for the Company during the First Earnout Period is equal to or
less than $5,000,000, no Earnout shall be paid for the First Earnout Period. If
the Operating Profit for the Company during the First Earnout Period is greater
than
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$5,000,000 but less than $6,500,000, the Earnout with respect to the First
Earnout Period shall equal the product of (x) $333,333.33 and (y) (a/c - b/c),
where "a" equals the amount of the Operating Profit with respect to the First
Earnout Period, "b" equals $5,000,000, and "c" equals $1,500,000. By way of
example, if the Operating Profit is $5,750,000, the Earnout would equal the
product of $333,333.33 and ($5,750,000/$1,500,000 - $5,000,000/$1,500,000), or
$166,667.67. The Earnout with respect to the First Earnout Period, if any, will
be paid no later than three months after the end of the First Earnout Period by
wire transfer of next day funds to an account or accounts designated by Vaughn
Barnes in writing.
The amount of the second Earnout payment will equal $333,333.33 if, and
only if, the Operating Profit for the Company during the twelve-month period
ending October 31, 2001 (the "Second Earnout Period") equals or exceeds
$7,500,000. If the Operating Profit for the Company during the Second Earnout
Period is equal to or less than $6,000,000, no Earnout shall be paid for the
Second Earnout Period. If the Operating Profit for the Company during the Second
Earnout Period is greater than $6,000,000 but less than $7,500,000, the Earnout
with respect to the Second Earnout Period shall equal the product of (x)
$333,333.33 and (y) (a/c - b/c), where "a" equals the amount of the Operating
Profit with respect to the Second Earnout Period, "b" equals $6,000,000, and "c"
equals $1,500,000. The Earnout with respect to the Second Earnout Period, if
any, will be paid no later than three months after the end of the Second Earnout
Period, by wire transfer of next day funds to an account designated by Vaughn
Barnes in writing.
The amount of the third Earnout payment will equal $333,333.34 if, any
only if, the Operating Profit for the Company during the twelve-month period
ending October 31, 2002 (the "Third Earnout Period") equals or exceeds
$8,500,000. If the Operating Profit for the Company during the Third Earnout
Period is equal to or less than $7,000,000, no Earnout shall be paid for the
Third Earnout Period. If the Operating Profit for the Company during the Third
Earnout Period is greater than $7,000,000 but less than $8,500,000, the Earnout
with respect to the Third Earnout Period shall equal the product of (x)
$333,333.34 and (y) (a/c - b/c), where "a" equals the amount of the Operating
Profit with respect to the Third Earnout Period, "b" equals $7,000,000, and "c"
equals $1,500,000. The Earnout with respect to the Third Earnout Period, if any,
will be paid no later than three months after the end of the Third Earnout
Period, by wire transfer of next day funds to an account designated by Vaughn
Barnes in writing.
For purposes of this Agreement, "Operating Profit" means the Net Income
of the Company for the First, Second and Third Earnout Periods, as applicable,
PLUS (a) income Taxes deducted in determining Net Income, (b) any interest on
indebtedness used to finance the acquisition of the Shares, (c) any general and
administrative "overhead" or similar allocation by Buyer, unless such costs
would have been incurred by the Company on a stand-alone basis, and (d) any
depreciation or amortization to the extent attributable to the purchase
accounting "write up" resulting from the transactions contemplated hereby and
deducted in determining Net Income. For purposes of this Agreement, "Net Income"
means, for the First, Second and Third Earnout Periods, as applicable, the net
income (or loss) of the Company, determined in accordance with generally
accepted accounting principles historically applied by the Company on a
consistent basis.
1.04 PURCHASE PRICE ADJUSTMENT. The Purchase Price shall be reduced or
increased (the "Purchase Price Adjustment") by EITHER adding (x) the excess, if
any, of the Company's Net Worth as of the Effective Date OVER $1,628,000, OR
subtracting (y) the excess, if any, of $1,628,000 OVER the Company's Net Worth
as of the Effective Date (defined below). The Purchase Price Adjustment, if any,
will be paid within 15 days of the final determination of such Purchase Price
Adjustment, by wire transfer (to an account specified by the party or parties to
which the Purchase Price Adjustment is to be paid). Any disputes with respect to
the calculation of the Purchase Price Adjustment shall be resolved in accordance
with the procedures contemplated by Section 1.06 hereof (with "Purchase Price
Adjustment" being substituted for "Operating Profit").
1.05 EFFECTIVE DATE BALANCE SHEET. As soon as practical (and in no
event later than 60 days after the Closing Date), Buyer shall cause to be
prepared and delivered to the Sellers (i) a balance sheet for the Company dated
as of the Effective Date (the "Effective Date Balance Sheet"), and (ii) a
calculation of the Purchase Price Adjustment, including such schedules and data
as may be appropriate to support
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such calculation. The Effective Date Balance Sheet shall be an audited statement
prepared by Buyer's accountants, Deloitte & Touche LLP. The Sellers and their
accountants shall be entitled to review the Effective Date Balance Sheet,
Buyer's calculations of the Purchase Price Adjustment, and any working papers,
trial balances and similar materials relating to the Effective Date Balance
Sheet prepared by Buyer or its accountants. Buyer shall also provide Sellers and
their accountants with timely access, during Buyer's normal business hours, to
Buyer's personnel, properties, books and records to the extent related to the
determination of the Purchase Price Adjustment.
1.06 DISPUTES. The following clauses (i) and (ii) set forth the
procedures for resolving disputes among the parties with respect to the
determination of the Operating Profit:
(i) Within thirty (30) days after delivery to the Sellers of
Buyer's calculation of the Operating Profit pursuant to this Article I, the
Sellers may deliver to Buyer a written report (a "Sellers' Report") prepared by
the Sellers' accountants (the "Sellers' Accountants") advising Buyer either that
the Sellers' Accountants (A) agree with the Buyer's calculations of the
Operating Profit, or (B) deem that one or more adjustments are required. The
costs and expenses of the services of the Sellers' Accountants shall be borne by
the Sellers. If Buyer's accountants ("Buyer's Accountants") shall concur with
the adjustments proposed by the Sellers' Accountants, or if Buyer shall not
object thereto in a writing delivered to the Sellers within thirty (30) days
after Buyer's receipt of the Sellers' Report, the calculations of the Operating
Profit set forth in such Sellers' Report shall become final and shall not be
subject to further review, challenge or adjustment absent fraud. If the Sellers
do not submit a Sellers' Report within the 30-day period provided herein, then
the Operating Profit as calculated by Buyer shall become final and shall not be
subject to further review, challenge or adjustment absent fraud.
(ii) In the event that the Sellers submit a Seller's Report
and Buyer's Accountants and the Sellers' Accountants are unable to resolve the
disagreements set forth in such report within (30) days after the date of the
Sellers' Report, then such disagreements shall be referred to a recognized firm
of independent certified public accountants experienced in auditing
manufacturing companies and selected by mutual agreement of the Sellers'
Accountants and Buyer's Accountants (the "Settlement Accountants"), and the
determination of the Settlement Accountants shall be final and shall not be
subject to further review, challenge or adjustment absent fraud. The Settlement
Accountants shall use their best efforts to reach a determination not more than
forty-five (45) days after such referral. The costs and expenses of the services
of the Settlement Accountants shall be paid by the Sellers if (A) the difference
between (i) the Operating Profit resulting from the determinations of the
Settlement Accountants, and (ii) the Operating Profit resulting from the
determinations set forth in the Sellers' Report, is greater than (B) the
difference between (i) the Operating Profit resulting from the determinations of
the Settlement Accountants, and (ii) the Operating Profit resulting from Buyer's
calculations as set forth in the deliveries pursuant to Section 1.03 hereof;
otherwise, such costs and expenses of the Settlement Accountants shall be paid
by Buyer.
ARTICLE II. - CLOSING
2.01 CLOSING. Subject to the conditions stated in Article VI of this
Agreement, the closing of the transactions contemplated hereby (the "Closing")
shall be held at 10:00 a.m., Miami time, on the date which is not more than four
(4) business days after all conditions set forth in Sections 6.01 and 6.02 have
been satisfied or waived. It is anticipated that the Closing shall be
consummated by mail. The date upon which the Closing occurs is hereinafter
referred to as the "Closing Date." The transactions contemplated hereby shall be
deemed effective as of 11:59 p.m. Miami time on June 30, 1999 (the "Effective
Date").
2.02 DELIVERIES BY SELLERS. At or prior to the Closing, the Sellers
shall deliver to Buyer:
(i) certificates representing all of the outstanding shares of
the Company's capital stock, duly endorsed in blank for transfer, or with
appropriate stock powers in blank attached;
(ii) the resignations of all the officers and directors of the
Company;
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(iii) the stock book, stock ledger, minute books and corporate
seal of the Company;
(iv) a certificate executed by each of the Sellers to the
effect that the conditions set forth in Section 6.02(a) have been satisfied;
(v) possession of all originals and copies of agreements,
instruments, documents, deeds, books, records, files and other data and
information within the possession of the Sellers or any Affiliate of any Seller
pertaining to the Company (collectively, the "Records"); provided, however, that
the Sellers may retain (1) copies of any tax returns and copies of Records
relating thereto; (2) copies of any Records that the Sellers are reasonably
likely to need for complying with requirements of law; and (3) copies of any
Records that in the reasonable opinion of the Sellers will be required in
connection with the performance of its obligations under Article VIII hereof;
and
(vi) evidence satisfactory to Buyer that Buyer's designees
shall be the only authorized signatories with respect to the Company's various
accounts, credit lines, safe deposit boxes or vaults set forth or required to be
set forth in Schedule 3.18.
2.03 DELIVERIES BY BUYER. At or prior to the Closing, Buyer shall
deliver to each Seller:
(vii) his share of the Cash Consideration as set forth on
Schedule 1.02; and
(viii) a certificate executed by an authorized officer of the
Buyer, on behalf of the Buyer, to the effect that the conditions set forth in
Section 6.01(b) have been satisfied.
ARTICLE III. - REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND THE COMPANY
Each of the Sellers and the Company hereby jointly and severally
represents and warrants to Buyer that:
3.01 CORPORATE EXISTENCE AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California; the Company has the corporate power to own, manage,
lease and hold its Properties and to carry on its business as and where such
Properties are presently located and such business is presently conducted; and
neither the character of the Company's Properties nor the nature of the
Company's business requires the Company to be duly qualified to do business as a
foreign corporation in any jurisdiction outside those identified in Schedule
3.01 attached hereto, and the Company is qualified as a foreign corporation and
in good standing in each listed jurisdiction.
3.02 AUTHORITY, APPROVAL AND ENFORCEABILITY. This Agreement has been
duly executed and delivered by the Company and each of the Sellers and each of
the Sellers and the Company has all requisite power and legal capacity to
execute and deliver this Agreement and all Collateral Agreements executed and
delivered or to be executed and delivered in connection with the transactions
provided for hereby, to consummate the transactions contemplated hereby and by
the Collateral Agreements, and to perform its obligations hereunder and under
the Collateral Agreements. This Agreement and each Collateral Agreement to which
any of the Sellers and/or the Company is a party constitutes, or upon execution
and delivery will constitute, the legal, valid and binding obligation of such
party, enforceable in accordance with its terms, except as such enforcement may
be limited by general equitable principles or by applicable bankruptcy,
insolvency, moratorium, or similar laws and judicial decisions from time to time
in effect which affect creditors' rights generally.
3.03 CAPITALIZATION AND CORPORATE RECORDS.
(a) Schedule 3.03(a) sets forth the authorized and outstanding
capital stock of the Company. The issued and outstanding shares of capital stock
are owned beneficially and of record by
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the persons shown on Schedule 3.03(a), free and clear of any and all liens,
mortgages, adverse claims, charges, security interests, encumbrances or other
restrictions or limitations whatsoever. All of the outstanding shares of the
Company are duly authorized, validly issued, fully paid and non-assessable and
were not issued in violation of any preemptive or other rights of any Person to
acquire securities of the Company. There are no outstanding subscriptions,
options, convertible securities, rights (preemptive or otherwise), warrants,
calls or agreements relating to any shares of capital stock of the Company. The
copies of the Articles or Certificate of Incorporation and Bylaws of the Company
provided to Buyer are true, accurate, and complete and reflect all amendments
made through the date of this Agreement. The Company's stock and minute books
made available to Buyer for review were correct and complete as of the date of
such review, no further entries have been made through the date of this
Agreement, and such minute books contain an accurate record of all shareholder
and corporate actions of the shareholders and directors (and any committees
thereof) of the Company taken by written consent or at a meeting since January
1, 1996. All corporate actions taken by the Company have been duly authorized or
ratified. All accounts, books, ledgers and official and other records of the
Company fairly and accurately reflect all of the Company's transactions,
properties, assets and liabilities.
(b) Except as shown on Schedule 3.03(b) hereto, the Company does
not own, directly or indirectly, any outstanding voting securities of or other
interests in, or controls, any other corporation, partnership, joint venture or
other business entity.
3.04 NO SELLER DEFAULTS OR CONSENTS. Except as otherwise set forth in
Schedule 3.04 hereto, the execution and delivery of this Agreement and the
Collateral Agreements by each Seller and the performance by each Seller who is a
party thereto of his obligations hereunder and thereunder will not violate any
provision of law or any judgment, award or decree or any indenture, agreement or
other instrument to which the Seller is a party, or by which the properties or
assets of any Seller is bound or affected, or conflict with, result in a breach
of or constitute (with due notice or lapse of time or both) a default under, any
such indenture, agreement or other instrument, in each case except to the extent
that such violation, default or breach could not reasonably be expected to delay
or otherwise significantly impair the ability of the parties to consummate the
transactions contemplated hereby.
3.05 NO COMPANY DEFAULTS OR CONSENTS. Except as otherwise set forth in
Schedule 3.05 attached hereto, neither the execution and delivery of this
Agreement nor the carrying out of any of the transactions contemplated hereby
will:
(i) violate or conflict with any of the terms, conditions or
provisions of the charter or bylaws of the Company;
(ii) violate any Legal Requirements applicable to the Company;
(iii) violate, conflict with, result in a breach of,
constitute a default under (whether with or without notice or the lapse of time
or both), or accelerate or permit the acceleration of the performance required
by, or give any other party the right to terminate, any Contract or Permit
binding upon or applicable to the Company;
(iv) result in the creation of any lien, charge or other
encumbrance on any Properties of the Company; or
(v) require any of the Sellers or the Company to obtain or
make any waiver, consent, action, approval or authorization of, or registration,
declaration, notice or filing with, any private non-governmental third party or
any Governmental Authority.
3.06 NO PROCEEDINGS. No suit, action or other proceeding is pending or,
to the Knowledge of the Company, threatened before any Governmental Authority
seeking to restrain the Company or any Seller or prohibit their entry into this
Agreement or prohibit the Closing, or seeking damages against the Company or its
Properties as a result of the consummation of this Agreement.
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3.07 EMPLOYEE BENEFIT MATTERS.
(a) Schedule 3.07(a) provides a description of each of the
following, if any, which is sponsored, maintained or contributed to by the
Company for the benefit of the employees or agents of the Company:
(i) each "employee benefit plan," as such term is defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974 ("ERISA")
(including, but not limited to, employee benefit plans, such as foreign plans,
which are not subject to the provisions of ERISA) ("Plan"); and
(ii) each personnel policy, employee manual or other written
statements of rules or policies concerning employment, stock option plan,
collective bargaining agreement, bonus plan or arrangement, incentive award plan
or arrangement, vacation and sick leave policy, severance pay policy or
agreement, deferred compensation agreement or arrangement, consulting agreement,
employment contract and each other employee benefit plan, agreement,
arrangement, program, practice or understanding which is not described in
Section 3.07(a)(i) ("Benefit Program or Agreement").
(b) True, correct and complete copies of each of the Plans (if
any), and related trusts, if applicable, including all amendments thereto, have
been furnished to Buyer. There has also been furnished to Buyer, with respect to
each Plan required to file such report and description, the three most recent
reports on Form 5500 and the summary plan description. True, correct and
complete copies or descriptions of all Benefit Programs or Agreements have also
been furnished to Buyer.
(c) Except as otherwise set forth in Schedule 3.07(c),
(i) The Company does not contribute to or, to the Knowledge of
the Company, have an obligation to contribute to, and the Company has not at any
time contributed to or, to the Knowledge of the Company, had an obligation to
contribute to, a multiemployer plan within the meaning of Section 3(37) of ERISA
("Multiemployer Plan") or a multiple employer plan within the meaning of Section
413(b) and (c) of the Code.
(ii) To the Knowledge of the Company, the Company has
substantially performed all obligations, whether arising by operation of law or
by contract, required to be performed by it in connection with the Plans and the
Benefit Programs and Agreements, and there have been no defaults or violations
by any other party to the Plans or Benefit Programs or Agreements;
(iii) To the Knowledge of the Company, all reports and
disclosures relating to the Plans required to be filed with or furnished to
governmental agencies, Plan participants or Plan beneficiaries have been filed
or furnished in accordance with applicable law in a timely manner, and each Plan
and each Benefit Program or Agreement has been administered in substantial
compliance with its governing documents;
(iv) To the Knowledge of the Company, each of the Plans
intended to be qualified under Section 401 of the Code satisfies the
requirements of such Section and has received a favorable determination letter
from the Internal Revenue Service regarding such qualified status and has not,
since receipt of the most recent favorable determination letter, been amended or
operated in a way which could adversely affect such qualified status;
(v) There are no actions, suits or claims pending (other than
routine claims for benefits) or, to the Knowledge of the Company, threatened
against, or with respect to, any of the Plans or Benefit Programs or Agreements
or their assets;
(vi) To the Knowledge of the Company, all contributions
required to be made to the Plans pursuant to their terms and provisions and
applicable law have been made timely;
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<PAGE>
(vii) As to any Plan subject to Title IV of ERISA, to the
Knowledge of the Company, there has been no event or condition which presents
the material risk of Plan termination, no accumulated funding deficiency,
whether or not waived, within the meaning of Section 302 of ERISA or Section 412
of the Code has been incurred, no reportable event within the meaning of Section
4043 of ERISA (for which the disclosure requirements of Regulation Section
2615.3 promulgated by the Pension Benefit Guaranty Corporation ("PBGC") have not
been waived) has occurred, no notice of intent to terminate the Plan has been
given under Section 4041 of ERISA, no proceeding has been instituted under
Section 4042 of ERISA to terminate the Plan, there has been no termination of
the Plan within the meaning of Section 411(d)(3) of the Code, no liability to
the PBGC has been incurred, and the assets of the Plan equal or exceed the
aggregate present value of the benefit liabilities (within the meaning of
Section 4001(a)(16) of ERISA) under the Plan, computed on a "plan termination
basis" based upon reasonable actuarial assumptions and the asset valuation
principles established by the PBGC;
(viii) To the Knowledge of the Company, none of the Plans nor
any trust created thereunder or with respect thereto has engaged in any
"prohibited transaction" or "party-in-interest transaction" as such terms are
defined in Section 4975 of the Code and Section 406 of ERISA which could subject
any Plan, the Seller or any officer, director or employee thereof to a tax or
penalty on prohibited transactions or party-in-interest transactions pursuant to
Section 4975 of the Code or Section 502(i) of ERISA;
(ix) To the Knowledge of the Company, there is no matter
pending (other than routine qualification determination filings) with respect to
any of the Plans or Benefit Programs or Agreements before the Internal Revenue
Service, the Department of Labor or the PBGC;
(x) Each trust funding a Plan, which trust is intended to be
exempt from federal income taxation pursuant to Section 501(c)(9) of the Code,
to the Knowledge of the Company, satisfies the requirements of such section and
has received a favorable determination letter from the Internal Revenue Service
regarding such exempt status and has not, since receipt of the most recent
favorable determination letter, been amended or operated in a way which would
adversely affect such exempt status.
(xi) The Company does not have any obligation to provide
health benefits to former employees, except as specifically required by law;
(xii) Neither the execution and delivery of this Agreement nor
the consummation of any or all of the transactions contemplated hereby will: (A)
entitle any current or former employee of the Company to severance pay,
unemployment compensation or any similar payment, (B) accelerate the time of
payment or vesting or increase the amount of any compensation due to any such
employee or former employee, or (C) directly or indirectly result in any payment
made to or on behalf of any person to constitute a "parachute payment" within
the meaning of Section 280G of the Code;
(xiii) To the Knowledge of the Company, the Company has not
incurred any liability or taken any action, and no action or event has occurred
that could cause the Company to incur any liability (A) under Section 412 of the
Code or Title IV of ERISA with respect to any "single-employer plan" within the
meaning of Section 4001(a)(15) of ERISA that is not a Plan, or (B) to any
Multiemployer Plan, including without limitation an account of a partial or
complete withdrawal within the meaning of Sections 4203 and 4205 of ERISA.
(xiv) Since January 1, 1996, there have not been any (i) work
stoppages, labor disputes or other significant controversies between the Company
and its employees, (ii) labor union grievances or organizational efforts, or
(iii) unfair labor practice or labor arbitration proceedings pending or
threatened.
(d) Except as set forth in Schedule 3.07(a), the Company is not a
party to any agreement, and has not established any policy or practice,
requiring the Company to make a payment or provide any other form or
compensation or benefit to any person performing services for the Company
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upon termination of such services which would not be payable or provided in the
absence of the consummation of the transactions contemplated by this Agreement.
(e) Schedule 3.07(e) sets forth by number and employment
classification the approximate numbers of employees employed by the Company as
of the date of this Agreement, and, except as set forth therein, none of said
employees are subject to union or collective bargaining agreements with the
Company.
3.08 FINANCIAL STATEMENTS; LIABILITIES; ACCOUNTS RECEIVABLE.
(a) The Company has delivered to Buyer true and complete copies of
financial statements with respect to the Company and its business as of and for
the years ended October 31, 1997 and 1998, as of and for the three months ended
January 31, 1999, and as of and for the seven months ended May 31, 1999 (the
"Financial Statements"), and said Financial Statements are attached hereto as
Schedule 3.08(a). All of such Financial Statements present fairly the financial
condition and results of operations of the Company for the dates or periods
indicated thereon. Except for the omission of certain notes and the absence of
year-end adjustments (consisting only of normal recurring adjustments) in the
interim Financial Statements, all of such Financial Statements have been
prepared in accordance with generally accepted accounting principles ("GAAP")
applied on a consistent basis throughout the periods indicated. The Financial
Statements as of and for the year ended October 31, 1998 have been audited by
Deloitte & Touche LLP, the Company's independent certified public accountants.
(b) Except for (i) the liabilities reflected on the Company's May
31, 1999 balance sheet included with the Financial Statements attached as
Schedule 3.08(a), (ii) trade payables and accrued expenses incurred since May
31, 1999 in the ordinary course of business, (iii) executory contract
obligations, and (iv) the liabilities set forth in Schedule 3.08(b) attached
hereto, the Company does not have any liabilities or obligations (whether
accrued, absolute, contingent, known, unknown or otherwise, and whether or not
of a nature required to be reflected or reserved against in a balance sheet in
accordance with GAAP).
(c) Except as otherwise set forth in Schedule 3.08(c), the
accounts receivable reflected on the May 31, 1999 balance sheet included in the
Financial Statements referenced in Section 3.08(a) and all of the Company's
accounts receivable arising since May 31, 1999 (the "Balance Sheet Date") arose
from bona fide transactions in the ordinary course of business, and the goods
and services involved have been sold, delivered and performed to the account
obligors, and no further filings (with governmental agencies, insurers or
others) are required to be made, no further goods are required to be provided
and no further services are required to be rendered in order to complete the
sales and fully render the services and to entitle the Company to collect the
accounts receivable in full. Except as set forth in Schedule 3.08(c), no such
account has been assigned or pledged to any other person, firm or corporation,
and, except only to the extent fully reserved against as set forth in the May
31, 1999 balance sheet included in such Financial Statements, no defense or
set-off to any such account has been asserted by the account obligor or exists.
3.09 ABSENCE OF CERTAIN CHANGES.
(a) Except as otherwise set forth in Schedule 3.09(a) attached
hereto, since May 31, 1999, there has not been:
(i) any event, circumstance or change that had or might have a
material adverse effect on the business, operations, Properties, financial
condition or working capital of the Company;
(ii) to the Knowledge of the Company, any damage, destruction
or loss (whether or not covered by insurance) that had or might have a material
adverse effect on the business, operations, Properties or financial condition of
the Company; or
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(iii) to the Knowledge of the Company, any material adverse
change in the Company's sales patterns, pricing policies, accounts receivable or
accounts payable.
(b) Except as otherwise set forth in Schedule 3.09(b) attached
hereto, since May 31, 1999, the Company has not done any of the following:
(i) merged into or with or consolidated with, any other
corporation or acquired the business or assets of any Person;
(ii) purchased any securities of any Person;
(iii) created, incurred, assumed, guaranteed or otherwise
become liable or obligated with respect to any indebtedness, or made any loan or
advance to, or any investment in, any person, except in each case in the
ordinary course of business;
(iv) made any change in any existing election, or made any new
election, with respect to any tax law in any jurisdiction which election could
have an effect on the tax treatment of the Company or the Company's business
operations;
(v) entered into, amended or terminated any material
agreement;
(vi) sold, transferred, leased, mortgaged, encumbered or
otherwise disposed of, or agreed to sell, transfer, lease, mortgage, encumber or
otherwise dispose of, any Properties except (i) in the ordinary course of
business, or (ii) pursuant to any agreement specified in Schedule 3.13;
(vii) settled any claim or litigation, or filed any motions,
orders, briefs or settlement agreements in any proceeding before any
Governmental Authority or any arbitrator;
(viii) incurred or approved, or entered into any agreement or
commitment to make, any expenditures in excess of $25,000 (other than those
required pursuant to any agreement specified in Schedule 3.13);
(ix) maintained its books of account other than in the usual,
regular and ordinary manner in accordance with generally accepted accounting
principles and on a basis consistent with prior periods or made any change in
any of its accounting methods or practices that would be required to be
disclosed under generally accepted accounting principles;
(x) adopted any Plan or Benefit Program or Agreement, or
granted any increase in the compensation payable or to become payable to
directors, officers or employees (including, without limitation, any such
increase pursuant to any bonus, profit-sharing or other plan or commitment),
other than merit increases to non-officer employees in the ordinary course of
business and consistent with past practice;
(xi) suffered any extraordinary losses or waived any rights of
material value;
(xii) made any payment (including any dividends or
distributions with respect to the Company's capital stock) to any Seller or
forgiven any indebtedness due or owing from any Seller to the Company;
(xiii) (A) except in the ordinary course of business,
liquidated Inventory or accepted product returns, (B) accelerated receivables,
(C) delayed payables, or (D) changed in any material respect the Company's
practices in connection with the payment of payables and/or the collection of
receivables;
(xiv) engaged in any one or more activities or transactions
with an Affiliate or outside the ordinary course of business;
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(xv) declared, set aside or paid any dividends, or made any
distributions or other payments in respect of its equity securities, or
repurchased, redeemed or otherwise acquired any such securities;
(xvi) amended its charter or bylaws;
(xvii) issued any capital stock or other securities, or
granted, or entered into any agreement to grant, any options, convertible
rights, other rights, warrants, calls or agreements relating to its capital
stock; or
(xviii) committed to do any of the foregoing.
3.10 COMPLIANCE WITH LAWS. To the Knowledge of the Company, except as
otherwise set forth in Schedule 3.10(1), the Company is and has been in
compliance in all respects with any and all Legal Requirements applicable to the
Company, other than failures to so comply that would not have an adverse effect
on the business, operations, Properties or financial condition of the Company.
To the Knowledge of the Company, except as otherwise set forth in Schedule
3.10(2), the Company (x) has not received or entered into any citations,
complaints, consent orders, compliance schedules, or other similar enforcement
orders or received any written notice from any Governmental Authority or any
other written notice that would indicate that there is not currently compliance
with all such Legal Requirements, except for failures to so comply that would
not have a material adverse effect on the business, operations, Properties or
financial condition of the Company, and (y) is not in default under, and no
condition exists (whether covered by insurance or not) that with or without
notice or lapse of time or both would constitute a default under, or breach or
violation of, any Legal Requirement or Permit applicable to the Company. Without
limiting the generality of the foregoing, the Company has not received notice of
and, to the Knowledge of the Company, there is no basis for, any claim, action,
suit, investigation or proceeding that might result in a finding that the
Company is not or has not been in compliance with Legal Requirements relating to
(a) the development, testing, manufacture, packaging, distribution and marketing
of products, (b) employment, safety and health, and (c) environmental
protection, building, zoning and land use.
3.11 LITIGATION. Except as otherwise set forth in Schedule 3.11, there
are no claims, actions, suits, investigations or proceedings against the Company
pending or, to the Knowledge of the Company, threatened in any court or before
or by any Governmental Authority, or before any arbitrator, that might have an
adverse effect (whether covered by insurance or not) on the business,
operations, Properties or financial condition of the Company and there is no
basis for any such claim, action, suit, investigation or proceeding. Schedule
3.11 also includes a true and correct listing of all material actions, suits,
investigations, claims or proceedings that were pending, settled or adjudicated
since January 1, 1996.
3.12 OWNERSHIP OF COMPANY PROPERTIES.
(a) Except as provided under the provisions of the agreements
described in Schedule 3.12(a), the Company has and will have as of the Closing
Date legal and beneficial ownership of its Properties, free and clear of any and
all liens, mortgages, pledges, adverse claims, encumbrances or other
restrictions or limitations whatsoever ("Liens").
(b) Schedule 3.12(b)(1) sets forth a list of all real property or
any interest therein (including without limitation any option or other right or
obligation to purchase any real property or any interest therein) currently
owned, or ever owned, by the Company, in each case setting forth the street
address or legal description of each property covered thereby (the "Owned
Premises"). Schedule 3.12(b)(2) sets forth a list of all leases, licenses or
similar agreements relating to the Company's use or occupancy of real estate
owned by a third party ("Leases"), true and correct copies of which have
previously been furnished to Buyer, in each case setting forth (i) the lessor
and lessee thereof and the commencement date, term and renewal rights under each
of the Leases, and (ii) the street address or legal description of each property
covered thereby (the "Leased Premises"). The Leases are in full force and effect
and have not been amended, and the Company is not in default and to the
Knowledge of the Company, no other party thereto is in default or breach under
any such Lease. No event has occurred
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which, with the passage of time or the giving of notice or both, would cause a
material breach of or default under any of such Leases by the Company. With
respect to each such Owned Premises and Leased Premises, as applicable: (i) the
Company has a valid ownership interest in the Owned Premises and a valid
leasehold interest in the Leased Premises, free and clear of any Liens,
covenants and easements or title defects that have had or could have an adverse
effect on the Company's use and occupancy of the Owned Premises and the Leased
Premises; (ii) the portions of the buildings located on the Owned Premises and
the Leased Premises that are used in the business of the Company are each in
good repair and condition, normal wear and tear excepted, and are in the
aggregate sufficient to satisfy the Company's current and reasonably anticipated
normal business activities as conducted thereat; (iii) each of the Owned
Premises and the Leased Premises (a) has direct access to public roads or access
to public roads by means of a perpetual access easement, such access being
sufficient to satisfy the current transportation requirements of the business
presently conducted at such parcel; and (b) is served by all utilities in such
quantity and quality as are sufficient to satisfy the current normal business
activities conducted at such parcel; and (iv) the Company has not received
notice of (a) any condemnation, eminent domain or similar proceeding affecting
any portion of the Owned Premises or the Leased Premises or any access thereto,
and, to the Knowledge of the Company, no such proceedings are contemplated, or
(b) any special assessment which may affect any of the Owned Premises or the
Leased Premises.
(c) Set forth on Schedule 3.12(c) is a list and description of all
material foreign and domestic patents, patent rights, registered trademarks,
service marks, trade names, brands and copyrights (whether or not registered
and, if applicable, including pending applications for registration) owned,
Used, licensed or controlled by the Company and all goodwill associated
therewith. The Company owns or has the right to use and shall as of the Closing
Date own or have the right to use any and all information, know-how, trade
secrets, patents, copyrights, trademarks, tradenames, software, formulae,
methods, processes and other intangible properties that are necessary or
customarily Used by the Company for the ownership, management or operation of
its Properties ("Intangible Rights") including, but not limited to, the
Intangible Rights listed on Schedule 3.12(c). Except as set forth on Schedule
3.12(c): (i) the Company is either the sole and exclusive owner of all right,
title and interest in and to all of the Intangible Rights or otherwise has the
legal right to use all of the Intangible Rights, and further has the exclusive
right to use and license the same, free and clear of any claim or conflict with
the Intangible Rights of others; (ii) no royalties, honorariums or fees are
payable by the Company to any person by reason of the ownership or use of any of
the Intangible Rights; (iii) there have been no claims made against the Company
asserting the invalidity, abuse, misuse, or unenforceability of any of the
Intangible Rights and no grounds for any such claims exist; (iv) the Company has
not made any claim of any violation or infringement by others of any of its
Intangible Rights or interests therein and, to the Knowledge of the Company, no
grounds for any such claims exist; (v) the Company has not received any notice
that it is in conflict with or infringing upon the asserted intellectual
property rights of others in connection with the Intangible Rights, and neither
the use of the Intangible Rights nor the operation of the Company's businesses
is infringing or has infringed upon any intellectual property rights of others;
(vi) the Intangible Rights are sufficient and include all intellectual property
rights necessary for the Company to lawfully conduct its business as presently
being conducted; (vii) no interest in any of the Company's Intangible Rights has
been assigned, transferred, licensed or sublicensed by the Company to any person
other than the Buyer pursuant to this Agreement; (viii) to the extent that any
item constituting part of the Intangible Rights has been registered with, filed
in or issued by, any Governmental Authority, such registrations, filings or
issuances are listed on Schedule 3.12(c) and were duly made and remain in full
force and effect; and (ix) to the Knowledge of the Company, there has not been
any act or failure to act by the Company or any of its directors, officers,
employees, attorneys or agents during the prosecution or registration of, or any
other proceeding relating to, any of the Intangible Rights or of any other fact
which could render invalid or unenforceable, or negate the right to issuance of
any of the Intangible Rights. To the extent any of the Intangible Rights
constitutes proprietary or confidential information, the Company has
safeguarded, in a commercially reasonable manner, such information from
disclosure. All of the Intangible Rights are assignable to the Buyer without
alteration or impairment.
(d) Set forth on SCHEDULE 3.12(D) is a list of all authorizations,
consents, approvals, franchises, licenses and permits required by any Person
(other than a Governmental Authority) for the
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operation of the business of the Company as presently operated (the "Other
Person Authorizations"). All of the Other Person Authorizations have been duly
issued or obtained and are in full force and effect, and the Company is in
compliance with the terms of all the Other Person Authorizations. Neither the
Company nor any Seller has any knowledge of any facts which could be expected to
cause them to believe that the Other Person Authorizations will not be renewed
by the appropriate Person in the ordinary course.
3.13 COMMITMENTS.
(a) Except as otherwise set forth in Schedule 3.13, the Company is
not a party to or bound by any of the following, whether written or oral:
(i) any Contract that cannot by its terms be terminated by the
Company with 30 days' or less notice without penalty or whose term continues
beyond one year after the date of this Agreement;
(ii) contract or commitment for capital expenditures by the
Company in excess of $20,000 per calendar quarter in the aggregate;
(iii) lease or license with respect to any Properties, real or
personal, whether as landlord, tenant, licensor or licensee;
(iv) agreement, contract, indenture or other instrument
relating to the borrowing of money or the guarantee of any obligation or the
deferred payment of the purchase price of any Properties;
(v) partnership agreement;
(vi) contract with any Affiliate of the Company (including the
Sellers) relating to the provision of goods or services by or to the Company;
(vii) agreement for the sale of any assets (other than
products sold in the ordinary course of business) that in the aggregate have a
net book value on the Company's books of greater than $20,000;
(viii) agreement that purports to limit the Company's freedom
to compete freely in any line of business or in any geographic area;
(ix) preferential purchase right, right of first refusal, or
similar agreement; or
(x) other Contract that is material to the business of the
Company.
(b) All of the Contracts listed or required to be listed in
Schedule 3.13 are valid, binding and in full force and effect, and the Company
has not been notified or advised by any party thereto of such party's intention
or desire to terminate or modify any such Contract in any respect, except as
disclosed in Schedule 3.13. Neither the Company nor, to the Knowledge of the
Company, any other party is in breach of any of the terms or covenants of any
Contract listed or required to be listed in Schedule 3.13.
(c) Except as otherwise set forth in Schedule 3.13(c), the Company
is not a party to or bound by any Contract or Contracts the terms of which were
arrived at by or otherwise reflect less-than-arm's-length negotiations or
bargaining.
3.14 INSURANCE. Schedule 3.14 hereto is a complete and correct list of
all insurance policies presently in effect that relate to the Company or its
Properties, all of which have been in full force and effect from and after the
date(s) set forth on Schedule 3.14. Such policies are sufficient for compliance
by
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the Company with all applicable Legal Requirements and all material Contracts.
None of the insurance carriers has indicated to the Company an intention to
cancel any such policy. The Company has no claim pending or anticipated against
any of the insurance carriers under any of such policies and, to the Knowledge
of the Company, there has been no actual or alleged occurrence of any kind which
could reasonably be expected to give rise to any such claim.
3.15 INVENTORIES. Except as otherwise set forth in Schedule 3.15(1),
the Inventory of the Company as of the Closing Date shall consist of items of a
quality, condition and quantity consistent with normal seasonally-adjusted
Inventory levels of the Company and be usable and saleable in the ordinary and
usual course of business for the purposes for which intended. Except as
otherwise set forth in Schedule 3.15(2), such Inventory is valued on the
Company's books of account in accordance with GAAP.
3.16 EQUIPMENT AND OTHER TANGIBLE PROPERTY. Except as otherwise set
forth on Schedule 3.16, the Company's equipment, furniture, machinery, vehicles,
structures, fixtures and other tangible property included in the Properties (the
"Tangible Company Properties"), other than Inventory, is suitable for the
purposes for which intended and, to the Knowledge of the Company, is in good
operating condition and repair consistent with normal industry standards, except
for ordinary wear and tear, and except for such Tangible Company Properties as
shall have been taken out of service on a temporary basis for repairs or
replacement consistent with the Company's prior practices and normal industry
standards.
3.17 PERMITS; ENVIRONMENTAL MATTERS.
(a) To the Knowledge of the Company, except as otherwise set forth
in Schedule 3.17(a), the Company has all Permits necessary for the Company to
construct, own, operate, use and/or maintain its Properties and to conduct its
business and operations as presently conducted and as expected to be conducted
in the future. Except as otherwise set forth in Schedule 3.17(a), all such
Permits are in effect, no proceeding is pending or, to the Knowledge of the
Company, threatened to modify, suspend or revoke, withdraw, terminate, or
otherwise limit any such Permits, and no administrative or governmental actions
have been taken or, to the Knowledge of the Company, threatened in connection
with the expiration or renewal of such Permits which could adversely affect the
ability of the Company to own, operate, use or maintain any of its Properties or
to conduct its business and operations as presently conducted and as expected to
be conducted in the future. To the Knowledge of the Company, except as otherwise
set forth in Schedule 3.17(a), (i) no violations have occurred that remain
uncured, unwaived, or otherwise unresolved, or are occurring in respect of any
such Permits, other than inconsequential violations, and (ii) no circumstances
exist that would prevent or delay the obtaining of any requisite consent,
approval, waiver or other authorization of the transactions contemplated hereby
with respect to such Permits that by their terms or under applicable law may be
obtained only after Closing.
(b) To the Knowledge of the Company, except as set forth on
Schedule 3.17(b), there are no claims, liabilities, investigations, litigation,
administrative proceedings, whether pending or threatened, or judgments or
orders relating to any Hazardous Materials (collectively called "Environmental
Claims") asserted or threatened against the Company or relating to any real
property currently or formerly owned, leased or otherwise Used by the Company.
To the Knowledge of the Company, neither the Company nor any prior owner, lessee
or operator of said real property, has caused or permitted any Hazardous
Material to be used, generated, reclaimed, transported, released, treated,
stored or disposed of in a manner which could form the basis for an
Environmental Claim against the Company or the Buyer. Except as set forth on
Schedule 3.17(b), the Company has not assumed any liability of any Person for
cleanup, compliance or required capital expenditures in connection with any
Environmental Claim.
(c) To the Knowledge of the Company, except as set forth on
Schedule 3.17(c), no Hazardous Materials are or were stored or otherwise
located, and no underground storage tanks or surface impoundments are or were
located, on real property currently or formerly owned, leased or Used by the
Company or on adjacent parcels of real property, and no part of such real
property or any part of such adjacent parcels of real property, including the
groundwater located thereon, is presently contaminated by Hazardous Materials.
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(d) To the Knowledge of the Company, except as set forth on
Schedule 3.17(d), the Company has been and is currently in compliance with all
applicable Environmental Laws, including obtaining and maintaining in effect all
Permits required by applicable Environmental Laws.
3.18 BANKS. Schedule 3.18 sets forth (i) the name of each bank, trust
company or other financial institution and stock or other broker with which the
Company has an account, credit line or safe deposit box or vault, (ii) the names
of all persons authorized to draw thereon or to have access to any safe deposit
box or vault, (iii) the purpose of each such account, safe deposit box or vault,
and (iv) the names of all persons authorized by proxies, powers of attorney or
other like instrument to act on behalf of the Company in matters concerning any
of its business or affairs. Except as otherwise set forth in Schedule 3.18, no
such proxies, powers of attorney or other like instruments are irrevocable.
3.19 SUPPLIERS AND CUSTOMERS. Schedule 3.19 sets forth (i) the ten
principal suppliers of the Company during each of calendar years 1997 and 1998,
together with the dollar amount of goods purchased by the Company from each such
supplier during each such period, and (ii) the ten principal customers of the
Company during each of calendar years 1997 and 1998, together with the dollar
amount of goods and/or services sold by the Company to each such customer during
each such period. Except as otherwise set forth in Schedule 3.19, to the
Knowledge of the Company, the Company maintains good relations with all
suppliers and customers listed or required to be listed in Schedule 3.19 as well
as with governments, partners, financing sources and other parties with whom the
Company has significant relations, and no such party has canceled, terminated or
made any threat to the Company to cancel or otherwise terminate its relationship
with the Company or to materially decrease its services or supplies to the
Company or its direct or indirect purchase or usage of the products or services
of the Company.
3.20 ABSENCE OF CERTAIN BUSINESS PRACTICES. To the Knowledge of the
Company, neither the Company, any Seller nor any other Affiliate or agent of the
Company, or any other person acting on behalf of or associated with the Company,
acting alone or together, has: (a) received, directly or indirectly, any
rebates, payments, commissions, promotional allowances or any other economic
benefits, regardless of their nature or type, from any customer, supplier,
employee or agent of any customer or supplier, official or employee of any
government (domestic or foreign), or any political party or candidate for office
(domestic or foreign) or other person; or (b) directly or indirectly, given or
agreed to give any money, gift or similar benefit to any customer, supplier,
employee or agent of any customer or supplier, official or employee of any
government (domestic or foreign), or any political party or candidate for office
(domestic or foreign), or other person who was, is or may be in a position to
help or hinder the business of the Company (or assist the Company in connection
with any actual or proposed transaction) which (i) may subject the Company to
any damage or penalty in any civil, criminal or governmental litigation or
proceeding, (ii) if not given in the past, may have had an adverse effect on the
assets, business or operations of the Company, or (iii) if not continued in the
future, may adversely affect the assets, business or operations of the Company.
3.21 PRODUCTS AND SERVICES.
(a) Schedule 3.21(a) lists each product, repair process or service
under development, developed, manufactured, licensed, distributed or sold by the
Company and any other products in which the Company has any proprietary rights
or beneficial interest (collectively, the "Products"). Each Product designed,
manufactured, repaired or serviced by the Company has been designed,
manufactured, repaired or serviced in accordance with (i) the specifications
under which the Product is normally and has normally been manufactured, and (ii)
the provisions of all applicable laws, policies, guidelines and any other
governmental requirements.
(b) Schedule 3.21(b) sets forth (i) a list of all Products which
at any time have been recalled, withdrawn or suspended by the Company, whether
voluntarily or otherwise, including the date recalled, withdrawn or suspended
and a brief description of all completed or pending proceedings seeking the
recall, withdrawal, suspension or seizure of any Product, (ii) a brief
description of all completed or pending proceedings seeking the recall,
withdrawal, suspension or seizure of any Product, and (iii) a list
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of all regulatory letters received by the Company or the Seller or any of its
agents relating to the Company or any of the Products or the Company's
establishments.
(c) To the Knowledge of the Company, there exists no set of facts
which could reasonably be expected to furnish a basis for the recall, withdrawal
or suspension of any product registration, product license, repair or overhaul
license, manufacturing license, wholesale dealers license, export license or
other license, approval or consent of any governmental or regulatory authority
with respect to the Company or any of the Products.
(d) There are no claims existing or, to the Knowledge of the
Company, threatened under or pursuant to any warranty, whether express or
implied, on products or services sold by the Company. There are no claims
existing and, to the Knowledge of the Company, there is no basis for any claim
against the Company for injury to persons, animals or property as a result of
the sale, distribution or manufacture of any product or performance of any
service by the Company, including, but not limited to, claims arising out of the
defective or unsafe nature of its products or services.
3.22 TRANSACTIONS WITH AFFILIATES. Except as set forth on Schedule 3.22
and except for normal advances to employees consistent with past practices,
payment of compensation for employment to employees consistent with past
practices, and participation in scheduled Plans or Benefit Programs and
Agreements by employees, the Company has not purchased, acquired or leased any
property or services from, or sold, transferred or leased any property or
services to, or loaned or advanced any money to, or borrowed any money from, or
entered into or been subject to any management, consulting or similar agreement
with, or engaged in any other significant transaction with any Seller or any
other officer, director or shareholder of the Company or any of their respective
Affiliates. Except as set forth on Schedule 3.22, no Seller or other Affiliate
of the Company is indebted to the Company for money borrowed or other loans or
advances, and the Company is not indebted to any such Affiliate.
3.23 OTHER INFORMATION. The information furnished by the Sellers and
the Company to Buyer pursuant to this Agreement (including, without limitation,
information contained in the exhibits hereto, the Schedules identified herein,
the instruments referred to in such Schedules and the certificates and other
documents to be executed or delivered pursuant hereto by the Sellers and/or the
Company at or prior to the Closing) is not, nor at the Closing will be, false or
misleading in any material respect, or contains, or at the Closing will contain,
any misstatement of material fact, or omits, or at the Closing will omit, to
state any material fact required to be stated in order to make the statements
therein not misleading.
ARTICLE IV. - REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to the Sellers that:
4.01 CORPORATE EXISTENCE AND QUALIFICATION. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Florida; has the corporate power to own, manage, lease and hold its properties
and to carry on its business as and where such properties are presently located
and such business is presently conducted; and is duly qualified to do business
and is in good standing as a foreign corporation in each of the jurisdictions
where the character of its properties or the nature of its business requires it
to be so qualified.
4.02 AUTHORITY, APPROVAL AND ENFORCEABILITY. This Agreement has been
duly executed and delivered by Buyer and Buyer has all requisite corporate power
and legal capacity to execute and deliver this Agreement and all Collateral
Agreements executed and delivered or to be executed and delivered by Buyer in
connection with the transactions provided for hereby, to consummate the
transactions contemplated hereby and by the Collateral Agreements, and to
perform its obligations hereunder and under the Collateral Agreements. The
execution and delivery of this Agreement and the Collateral Agreements and the
performance of the transactions contemplated hereby and thereby have been duly
and validly authorized and approved by all corporate action necessary on behalf
of Buyer. This Agreement and each Collateral Agreement to which Buyer is a party
constitutes, or upon execution and
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delivery will constitute, the legal, valid and binding obligation of Buyer,
enforceable in accordance with its terms, except as such enforcement may be
limited by general equitable principles or by applicable bankruptcy, insolvency,
moratorium, or similar laws and judicial decisions from time to time in effect
which affect creditors' rights generally.
4.03 NO DEFAULT OR CONSENTS. The execution and delivery of this
Agreement and the carrying out of the transactions contemplated hereby will not:
(i) violate or conflict with any of the terms, conditions or
provisions of Buyer's Articles of Incorporation or bylaws;
(ii) violate any Legal Requirements applicable to Buyer;
(iii) violate, conflict with, result in a breach of,
constitute a default under (whether with or without notice or the lapse of time
or both), or accelerate or permit the acceleration of the performance required
by, or give any other party the right to terminate, any contract or Permit
applicable to Buyer;
(iv) result in the creation of any lien, charge or other
encumbrance on any property of Buyer; or
(v) require Buyer to obtain or make any waiver, consent,
action, approval or authorization of, or registration, declaration, notice or
filing with, any private non-governmental third party or any Governmental
Authority.
4.04 NO PROCEEDINGS. No suit, action or other proceeding is pending or,
to Buyer's knowledge, threatened before any Governmental Authority seeking to
restrain Buyer or prohibit its entry into this Agreement or prohibit the
Closing, or seeking Damages against Buyer or its properties as a result of the
consummation of this Agreement.
ARTICLE V. - OBLIGATIONS PRIOR TO CLOSING
From the date of this Agreement through the Closing:
5.01 BUYER'S ACCESS TO INFORMATION. The Company shall permit Buyer and
its authorized employees, agents, accountants, legal counsel and other
representatives to have access to the books, records, employees, counsel,
accountants, engineers and other representatives of the Company at all times
reasonably requested by Buyer for the purpose of conducting an investigation of
the Company's financial condition, corporate status, operations, prospects and
business. The Sellers shall make available to Buyer for examination and
reproduction all documents and data of every kind and character relating to the
Company in possession or control of, or subject to reasonable access by, the
Sellers, including, without limitation, all files, records, data and information
relating to the Company (whether stored in paper, magnetic or other storage
media) and all agreements, instruments, contracts, assignments, certificates,
orders, and amendments thereto.
5.02 COMPANY'S CONDUCT OF BUSINESS AND OPERATIONS. The Sellers shall
keep Buyer advised as to all material operations and proposed material
operations relating to the Company. The Company shall (a) conduct its business
in the ordinary course, (b) use its reasonable commercial efforts to keep
available the services of present employees, (c) maintain and operate its assets
in a good and workmanlike manner, (d) pay or cause to be paid all costs and
expenses (including but not limited to insurance premiums) incurred in
connection therewith in a timely manner, (e) use reasonable commercial efforts
to keep all Contracts listed or required to be listed on Schedule 3.13 in full
force and effect, (f) comply with all of the covenants contained in all such
Contracts, (g) maintain in force until the Closing Date insurance policies
equivalent to those in effect on the date hereof, and (h) comply in all material
respects with all applicable Legal Requirements. Except as otherwise
contemplated in this Agreement,
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the Sellers will use their best efforts to preserve the present relationships of
the Company with persons having significant business relations therewith.
5.03 GENERAL RESTRICTIONS. Except as otherwise expressly permitted in
this Agreement, without the prior written consent of Buyer, which consent shall
not be unreasonably withheld or delayed, the Company shall not:
(i) merge into or with or consolidate with, any other
corporation or acquire the business or assets of any person;
(ii) purchase any securities of any person;
(iii) create, incur, assume, guarantee or otherwise become
liable or obligated with respect to any indebtedness, or make any loan or
advance to, or any investment in, any person, except in each case in the
ordinary course of business;
(iv) make any change in any existing election, or make any new
election, with respect to any tax law in any jurisdiction which election could
have an effect on the tax treatment of the Company or the Company's business
operations;
(v) enter into, amend or terminate any material agreement
(which shall include any of the arrangements described in Section 3.13(a),
whether written or oral);
(vi) sell, transfer, lease, mortgage, encumber or otherwise
dispose of, or agree to sell, transfer, lease, mortgage, encumber or otherwise
dispose of, any of its assets except (i) in the ordinary course of business, or
(ii) pursuant to any agreement specified in Schedule 3.13;
(vii) settle any material claim or litigation, or file any
material motions, orders, briefs or settlement agreements in any proceeding
before any Governmental Authority or any arbitrator;
(viii) incur or approve, or enter into any agreement or
commitment to make, any expenditures in excess of $25,000 (other than those
required pursuant to any agreement specified in Schedule 3.13 or purchase orders
for materials and supplies in the ordinary course of business);
(ix) maintain its books of account other than in the usual,
regular and ordinary manner in accordance with generally accepted accounting
principles and on a basis consistent with prior periods or make any change in
any of its accounting methods or practices;
(x) adopt any Plan or Benefit Program or Agreement, or grant
any increase in the compensation payable or to become payable to directors,
officers or employees (including, without limitation, any such increase pursuant
to any bonus, profit-sharing or other plan or commitment), other than merit
increases to non-officer employees in the ordinary course of business and
consistent with past practice;
(xi) accelerate or delay collection of any notes or accounts
receivable in advance of or beyond their regular due dates or the dates when the
same would have been collected in the ordinary course of business consistent
with past practices;
(xii) delay or accelerate payment of any account payable or
other liability beyond or in advance of its due date or the date when such
liability would have been paid in the ordinary course of business consistent
with past practices;
(xiii) allow its levels of inventory to vary in any material
respect from the levels customarily maintained;
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(xiv) except to the extent that such distributions could not
reasonably be expected to result in a Purchase Price Adjustment that would
require a payment by Sellers to Buyer hereunder, declare or pay any dividend or
other distribution (whether in cash, stock or other property) with respect to
its capital stock;
(xv) apply any of its assets to the direct or indirect
payment, prepayment, discharge, satisfaction or reduction of any amount payable,
directly or indirectly, to or for the benefit of any Seller or any other
Affiliate of the Company (except for salary and benefits as currently in effect
and except in accordance with existing agreements and arrangements which have
been disclosed to the other parties hereto in writing);
(xvi) engage in any one or more activities or transactions
with an Affiliate or outside the ordinary course of business;
(xvii) enter into any transaction or make any commitment which
could result in any of the representations, warranties or covenants of the
Company and/or the Sellers contained in this Agreement not being true and
correct after the occurrence of such transaction or event; or
(xviii) commit to do any of the foregoing.
5.04 NOTICE REGARDING CHANGES. The Sellers shall promptly inform Buyer
in writing of any change in facts and circumstances that could render any of the
representations and warranties made herein by the Sellers inaccurate or
misleading if such representations and warranties had been made upon the
occurrence of the fact or circumstance in question. The Buyer shall promptly
inform the Sellers in writing of any change in facts and circumstances that
could render any of the representations and warranties made herein by it
inaccurate or misleading in any material respect if such representations and
warranties had been made upon the occurrence of the fact or circumstance in
question.
5.05 PREFERENTIAL PURCHASE RIGHTS. To the extent there are any parties
entitled or who may become entitled to exercise preferential purchase or consent
rights with respect to the transactions contemplated hereby, the Sellers shall
promptly use commercially reasonable efforts to obtain the agreement in writing
of such parties to waive or not exercise such rights, which request shall be in
form reasonably satisfactory to and approved by Buyer.
5.06 ENSURE CONDITIONS MET. Subject to the terms and conditions of this
Agreement, each party hereto shall use all reasonable commercial efforts to take
or cause to be taken all actions and do or cause to be done all things required
under applicable Legal Requirements in order to consummate the transactions
contemplated hereby, including, without limitation, (i) obtaining all Permits,
authorizations, consents and approvals of any Governmental Authority or other
person which are required for or in connection with the consummation of the
transactions contemplated hereby and by the Collateral Agreements, (ii) taking
any and all reasonable actions necessary to satisfy all of the conditions to
such party's obligations hereunder as set forth in Article VI, and (iii)
executing and delivering all agreements and documents required by the terms
hereof to be executed and delivered by such party on or prior to the Closing.
The parties hereto specifically agree to promptly prepare and file their
respective Notification and Report Forms under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended ("HSR Act"), in accordance with applicable
law. Each of the parties hereto shall furnish to the others such information and
assistance as any other party may reasonably request in connection with the
preparation of any such HSR Act filings or submissions and provide the others
with copies of all correspondence, filings or communications (or memoranda
setting forth the substance thereof) between such party or any of its
representatives, on the one hand, and any Governmental Authority or members of
their respective staffs, on the other hand, with respect to this Agreement and
the transactions contemplated hereby. Buyer shall pay any required HSR Act
filing fee in connection with its filing; provided, however, that if the Closing
does not occur as a result of the non-satisfaction of a condition set forth in
Section 6.02 below, the Sellers shall promptly reimburse the Buyer for one-half
of the HSR Act filing fee upon notification from the Buyer of its intention not
to consummate the Closing. Buyer and Sellers shall each request early
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termination of the waiting period under the HSR Act, and shall use diligent
efforts to ensure that HSR Act approval is obtained as quickly as possible.
5.07 NAME CHANGE. Intentionally omitted.
5.08 CASUALTY LOSS. If, between the date of this Agreement and the
Closing, any of the assets of the Company shall be destroyed or damaged in whole
or in part by fire, earthquake, flood, other casualty or any other cause, then
the Seller shall, at Buyer's election, (i) cause such assets to be repaired or
replaced prior to the Closing with assets of substantially the same condition
and function, (ii) deposit in a separate account an amount sufficient to cause
such assets to be so repaired or replaced, or (iii) enter into contractual
arrangements satisfactory to Buyer so that the Company will have at the Closing
the same economic value as if such casualty had not occurred.
5.09 EMPLOYEE MATTERS.
(a) Except as specifically set forth in this Agreement: (i) the
Buyer shall not be obligated to continue or maintain any of the Plans or Benefit
Programs or Agreements; and (ii) the Company shall be solely responsible for
funding and/or paying any benefits under any of the Plans or Benefit Programs or
Agreements, including any termination benefits and other employee entitlements,
accrued under such plans by or attributable to employees of the Company prior to
the Closing Date.
(b) Nothing in this Agreement, express or implied, shall confer
upon any employee of the Company, or any representative of any such employee,
any rights or remedies, including any right to employment or continued
employment for any period, of any nature whatsoever.
ARTICLE VI. - CONDITIONS TO SELLERS' AND BUYER'S OBLIGATIONS
6.01 CONDITIONS TO OBLIGATIONS OF THE SELLERS. The obligations of each
Seller to carry out the transactions contemplated by this Agreement are subject,
at the option of Sellers, to the satisfaction or waiver of the following
conditions:
(a) Buyer shall have furnished Sellers with a certified copy of
all necessary corporate action on its behalf approving its execution, delivery
and performance of this Agreement.
(b) All representations and warranties of Buyer contained in this
Agreement shall be true and correct in all material respects at and as of the
Closing, Buyer shall have performed and satisfied in all material respects all
covenants and agreements required by this Agreement to be performed and
satisfied by Buyer at or prior to the Closing, and Buyer shall have delivered a
certificate signed by an authorized officer to the effect of the foregoing.
(c) As of the Closing Date, no suit, action or other proceeding
(excluding any such matter initiated by or on behalf of the Company or any
Seller) shall be pending or threatened before any Governmental Authority seeking
to restrain the Company or prohibit the Closing or seeking Damages against the
Company as a result of the consummation of this Agreement.
(d) Seller shall have received the opinion of Greenberg Traurig,
P.A., counsel to Buyer, dated as of the Closing Date, in form and substance
reasonably satisfactory to the Company, to the effect of Sections 4.01, 4.02 and
4.03(i). In rendering such opinion, Greenberg Traurig, P.A. may rely as to
factual matters on certificates of officers and directors of Buyer and on
certificates of governmental officials.
(e) Buyer shall have furnished Sellers with a certified copy of
all necessary corporate action on its behalf approving the Buyer's execution,
delivery and performance of this Agreement.
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(f) All proceedings to be taken by the Buyer in connection with
the transactions contemplated hereby and all documents incident thereto shall be
satisfactory in form and substance to Sellers and their counsel, and Sellers and
said counsel shall have received all such counterpart originals or certified or
other copies of such documents as it or they may reasonably request.
(g) Sellers shall have received written evidence, in form and
substance satisfactory to Sellers, of the consent to the transactions
contemplated by this Agreement of all governmental, quasi-governmental and
private third parties (including, without limitation, persons or other entities
leasing real or personal property to the Buyer) where the absence of any such
consent would result in a violation of law or a breach or default under any
agreement to which the Buyer is subject.
(h) Buyer shall have paid City National Bank (the "Bank") for
amounts due to the Bank by the Company as reflected on the May 31, 1999 balance
sheet included in the Financial Statements, which payment shall not exceed
$4,000,000 (it being understood that (i) if the actual amount owed on the
Closing Date exceeds $4,000,000, such excess amount shall be paid by Sellers,
with the net effect being that the debt to the Bank is repaid in full at
Closing, and (ii) if the actual amount owed on the Closing Date is less than
$4,000,000, the difference between $4,000,000 and the actual amount owed on the
Closing Date shall be added to the Company's Net Worth as of the Closing for
purposes of calculating the Purchase Price Adjustment).
(i) Buyer shall have executed and delivered to Vaughn Barnes the
Employment Agreement in the form attached hereto as Exhibit A (the "Barnes
Employment Agreement").
6.02 CONDITIONS TO OBLIGATIONS OF BUYER. The obligations of Buyer to
carry out the transactions contemplated by this Agreement are subject, at the
option of Buyer, to the satisfaction, or waiver by Buyer, of the following
conditions:
(a) All representations and warranties of the Company and the
Sellers contained in this Agreement shall be true and correct in all material
respects at and as of the Closing, the Company and the Sellers shall have
performed and satisfied in all material respects all agreements and covenants
required by this Agreement to be performed and satisfied by it at or prior to
the Closing, and the Company and the Sellers shall have delivered a certificate
signed by the President of the Company and by each of the Sellers to the effect
of the foregoing.
(b) As of the Closing Date, no suit, action or other proceeding
(excluding any such matter initiated by or on behalf of Buyer) shall be pending
or threatened before any court or governmental agency seeking to restrain Buyer
or prohibit the Closing or seeking Damages against Buyer or the Company or its
Properties as a result of the consummation of this Agreement.
(c) Except for matters disclosed in Schedule 3.09(a) or 3.09(b)
attached hereto, since January 1, 1999 and up to and including the Closing,
there shall not have been any event, circumstance, change or effect that,
individually or in the aggregate, had or might have a material adverse effect on
the Company's business, operations, Properties or financial condition.
(d) The Buyer shall have received the opinion of Mitchell
Silberberg & Knupp LLP, counsel to the Company, dated as of the Closing Date,
addressed to the Buyer and in form and substance reasonably satisfactory to the
Buyer, substantially to the effect set forth on EXHIBIT A hereto. In rendering
such opinion, Mitchell Silberberg & Knupp LLP may rely as to factual matters on
certificates of officers, directors and shareholders of the Company and on
certificates of governmental officials.
(e) The Company shall have furnished Buyer with a certified copy
of all necessary corporate action on its behalf approving the Company's
execution, delivery and performance of this Agreement.
(f) All agreements, commitments and understandings between the
Company and any Seller (or any Affiliate thereof) shall have been terminated in
all respects on terms satisfactory to
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Buyer, and all obligations, claims or entitlements thereunder shall be
unconditionally waived and released by the Sellers and/or such Affiliates, as
applicable, and written evidence thereof satisfactory in form and substance to
Buyer shall have been delivered to Buyer.
(g) All proceedings to be taken by the Company in connection with
the transactions contemplated hereby and all documents incident thereto shall be
satisfactory in form and substance to Buyer and its counsel, and Buyer and said
counsel shall have received all such counterpart originals or certified or other
copies of such documents as it or they may reasonably request.
(h) Buyer shall have received written evidence, in form and
substance satisfactory to Buyer, of the consent to the transactions contemplated
by this Agreement of all governmental, quasi-governmental and private third
parties (including, without limitation, persons or other entities leasing real
or personal property to the Company) where the absence of any such consent would
result in a violation of law or a breach or default under any agreement to which
the Company is subject.
(i) No proceeding in which the Sellers or the Company shall be a
debtor, defendant or party seeking an order for its own relief or reorganization
shall have been brought or be pending by or against such person under any United
States or state bankruptcy or insolvency law.
(j) Vaughn Barnes shall have executed and delivered the Barnes
Employment Agreement.
(k) The Company shall have furnished the Buyer with a "comfort
letter" with respect to the Financial Statements, dated not more than two days
prior to the Closing Date, from Deloitte & Touche LLP, the Company's independent
public accountants, in form and substance reasonably acceptable to the Buyer.
ARTICLE VII. - POST-CLOSING OBLIGATIONS
7.01 FURTHER ASSURANCES. Following the Closing, the Company, the
Sellers and the Buyer shall execute and deliver such documents, and take such
other action, as shall be reasonably requested by any other party hereto to
carry out the transactions contemplated by this Agreement.
7.02 PUBLICITY. None of the parties hereto shall issue or make, or
cause to have issued or made, any public release or announcement concerning this
Agreement or the transactions contemplated hereby, without the advance approval
in writing of the form and substance thereof by each of the other parties,
except as required by law or by the rules of the New York Stock Exchange, the
National Association of Securities Dealers or the United States Securities and
Exchange Commission (in which case, so far as possible, there shall be
consultation among the parties prior to such announcement), and the parties
shall endeavor jointly to agree on the text of any announcement or circular so
approved or required.
7.03 POST-CLOSING INDEMNITY.
(a) Subject to the provisions of Section 7.04, Article VIII and
Section 9.01, from and after the Closing, each of the Sellers shall jointly and
severally indemnify and hold harmless Buyer and its Affiliates, directors,
officers and employees from and against any and all Damages arising out of,
resulting from or in any way related to (i) a breach of, or the failure to
perform or satisfy any of, the representations, warranties, covenants and
agreements made by the Sellers and/or the Company in this Agreement or in any
document or certificate delivered by the Sellers and/or the Company at the
Closing pursuant hereto, (ii) the occurrence of any event on or prior to the
date of Closing that is (or would be, but for any deductible thereunder) covered
by individual policies of insurance, blanket insurance policies or self
insurance programs maintained by the Company, to the extent that Buyer is not
fully reimbursed (including reimbursement for any applicable deductibles and/or
premiums paid by the Buyer) under such insurance policies or programs for the
losses sustained in such event, (iii) the existence of any liabilities
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or obligations of the Company relating to pre-Closing periods (whether accrued,
absolute, contingent, known or unknown, or otherwise, and whether or not of a
nature appropriate for inclusion in a balance sheet in accordance with GAAP)
other than those contemplated by Section 3.08(b) hereof, (iv) any claim that the
Company's securities were issued or acquired in violation of any applicable
federal or state securities laws and the rules and regulations promulgated
thereunder, and/or (v) fraudulent conduct on the part of any of the Sellers in
connection with the entering into of this Agreement. Any payment made to Buyer
by Sellers pursuant to the indemnification obligations under this Section
7.03(a) shall constitute a reduction in the Purchase Price hereunder.
(b) Subject to the provisions of Section 9.01, from and after the
Closing, the Buyer shall indemnify and hold harmless the Sellers and their
Affiliates from and against any and all Damages arising out of, resulting from
or in any way related to (i) a breach of, or the failure to perform or satisfy
any of, the representations, warranties, covenants and agreements made by the
Buyer in this Agreement or in any document or certificate delivered by the Buyer
at the Closing pursuant hereto, (ii) the occurrence of any event after the
Closing that is (or would be, but for any deductible thereunder) covered by
individual policies of insurance, blanket insurance policies or self insurance
programs maintained by the Company, and/or (iii) the existence of any
liabilities or obligations of the Company relating to the business of the
Company subsequent to the Closing Date (whether accrued, absolute, contingent,
known or unknown, or otherwise, and whether or not of a nature appropriate for
inclusion in a balance sheet in accordance with GAAP). Any payment made to
Seller by Buyer pursuant to the indemnification obligations under this Section
7.03(b) shall constitute an increase in the Purchase Price hereunder.
(c) Other than with respect to fraud, the indemnification
obligations contained in this Section 7.03 and in Article VIII hereof shall
preclude any other claims, rights or remedies which exist at law with respect to
the matters covered hereby, but shall not preclude any other claims, rights or
remedies which may exist in equity.
7.04 NON-COMPETITION.
(a) GENERAL. In consideration of the payment of the Purchase
Price, and in order to induce the Buyer to enter into this Agreement and to
consummate the transactions contemplated hereby, each of the Sellers,
individually but not joint and severally, hereby covenants and agrees as
follows:
(i) Such Seller, without the prior written consent of Buyer,
shall not for a period of seven (7) years from and after the Closing Date,
directly or indirectly, for itself or for any other person, firm, corporation,
partnership, association or other entity, employ or attempt to employ any
employee of the Company or Buyer or any of Buyer's Affiliates until at least
twenty four (24) months after the date such employee was not employed by the
Buyer or any of its Affiliates; provided, however, that David A. Janes may
employ his son Tim Janes prior to the end of the aforementioned seven (7) year
period, so long as Tim Janes is not then an employee of the Company and the
activities to be performed by Tim Janes are not within the scope of the Business
of the Company or the Buyer.
(ii) Such Seller, without the prior written consent of the
Buyer, shall not for a period of seven (7) years from and after the Closing Date
(A) directly or indirectly acquire or own in any manner any interest in or lend
any money or provide financial assistance to any person, firm, partnership,
corporation, association or other entity which engages or plans to engage in the
Business of the Company or the Buyer anywhere in the world (the "Territory"),
(B) be employed by or serve as an employee, agent, officer, director of, or as a
consultant to, any person, firm, partnership, corporation, association or other
entity which engages or plans to engage in the Business of the Company or the
Buyer within the Territory, or (C) utilize their special knowledge of the
Business of the Company or the Buyer and their relationships with customers,
suppliers and others to compete with Buyer and/or any of its Affiliates in any
business which engages or plans to engage in any aspect of the Business of the
Company or the Buyer. "Business of the Company or the Buyer" means, for purposes
of this provision, the manufacture, design, sale, provision of or servicing of
all forms of thermal insulating materials or related products of whatever
nature, including the manufacture and repair of high temperature insulation
components, heat shields and fire barriers for all industrial purposes, and the
design, manufacture and/or sale of FAA/PMA jet engine or
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similar aircraft parts which the Buyer currently makes, sells, has in
development or has actual plans to develop (which complete list of FAA/PMA parts
is attached hereto as Schedule 7.04(a)). The foregoing includes (i) the
manufacture or repair of products which are encapsulated in foil, screen,
fabric, silicone and other composites, (ii) the repair and refurbishment of
composite air foils including replacement of metal leading edges and erosion
coatings, (iii) the manufacture of aircraft engine gas path honeycomb seals
including the manufacture of raw honeycomb and the manufacture and repair of
honeycomb seals, and (iv) to the extent not covered by the immediately preceding
clauses (i), (ii) and (iii), any other business activities of the Company for
pre-Closing periods. The ownership or control of up to five percent of the
outstanding voting securities or securities of any class of a company (the
business of which would otherwise constitute a breach of this Section 7.04) with
a class of securities registered under the Securities Exchange Act of 1934, as
amended, shall not be deemed a violation of this Section 7.04. The parties
hereto agree that Schedule 7.04(a) and the information contained thereon shall
be kept confidential, and shall not be disclosed to any third party other than
legal counsel for the parties hereto with respect to the negotiation and
execution of this Agreement.
(b) NONDISCLOSURE. Such Seller shall not at any time, disclose,
directly or indirectly, to any person, firm, corporation, partnership,
association or other entity, any confidential information relating to the
Company or to Buyer, its subsidiaries or Affiliates, or any information
concerning their respective financial condition, customers, sources of leads and
methods of obtaining new business or the methods generally of doing and
operating their respective businesses, except to the extent that such
information is a matter of public knowledge or is required to be disclosed by
law of judicial or administrative process.
(c) INJUNCTION. It is recognized and hereby acknowledged by the
parties hereto that a breach or violation by any Seller of any or all of the
covenants and agreements contained in this Agreement may cause irreparable harm
and damage to Buyer in a monetary amount which may be virtually impossible to
ascertain. As a result, each Seller recognizes and hereby acknowledges that
Buyer shall be entitled to an injunction from any court of competent
jurisdiction enjoining and restraining any breach or violation of any or all of
the covenants and agreements contained in this Agreement by such Seller and/or
his associates, Affiliates, partners or agents, either directly or indirectly,
and that such right to injunction shall be cumulative and in addition to
whatever other rights or remedies the Buyer may possess hereunder, at law or in
equity. Nothing contained in this Section 7.04 shall be construed to prevent
Buyer from seeking and recovering from a Seller damages sustained by it as a
result of any breach or violation by such Seller of any of the covenants or
agreements contained herein.
7.05 ASSIGNMENT OF CONTRACTS. Intentionally omitted.
7.06 STANDSTILL. Each Seller agrees, regardless of whether state or
federal securities laws would prohibit a transaction, that for a period of ten
years from the Closing Date neither such Seller nor any Affiliate of such Seller
will (and such Seller and its Affiliates will not assist or encourage any other
Person to), directly or indirectly, (a) acquire or offer, seek, propose (either
publicly or otherwise) or agree to acquire, ownership (including, but not
limited to, beneficial ownership as defined in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended) of any securities issued by the Buyer, or any
rights or options to acquire such ownership, (b) acquire or offer, seek, propose
(either publicly or otherwise) or agree to acquire, the assets of the Buyer, or
any rights or options to acquire such ownership, (c) seek or propose to
influence control of the Buyer's board of directors, management or policies, or
(d) make any public disclosure with respect to any of the foregoing; provided,
however, that the Sellers and their Affiliates may in the aggregate acquire no
more than four percent of the lesser of the Buyer's outstanding common stock or
voting power.
ARTICLE VIII. - TAX MATTERS
8.01 REPRESENTATIONS AND OBLIGATIONS REGARDING TAXES. The Company and
each Seller jointly and severally represent and warrant to and agree with the
Buyer as follows:
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(a) Except as set forth in Schedule 8.01(a), (i) all returns and
reports, including without limitation, information and withholding returns and
reports ("Tax Returns") of or relating to any foreign, federal, state or local
tax assessment or other governmental charge (all herein referred to collectively
as "Taxes" or singularly as a "Tax") that are required to be filed on or before
the Closing Date by or with respect to the income, business, operations or
property of the Company have been duly and timely filed, (ii) all items of
income, gain, loss, deduction and credit or other items required to be included
in such Tax Returns have been so included, (iii) all information provided in
such Tax Returns is true, correct and complete, (iv) all Taxes that have become
due with respect to the taxable years covered by such Tax Returns have been
timely paid in full, (v) no penalty, interest or other charge is or will become
due with respect to the late filing of any such Tax Return or late payment of
any such Tax, and (vi) all withholding Tax requirements imposed on the Seller
for all taxable periods through the close of business on the Closing Date have
been satisfied in full in all respects.
(b) There is no claim against the Company with respect to any
Taxes and no assessment, deficiency or adjustment has been asserted or proposed
with respect to any Tax Return of or with respect to the Company, other than
those disclosed (and to which are attached true and complete copies of all audit
or similar reports) in Schedule 8.01(b).
(c) Except as set forth in Schedule 8.01(c), there is not in force
any extension of time with respect to the date on which any Tax Return of or
with respect to the Company is due to be or have been filed, or any waivers or
agreements by or with respect to the Company of or for any extension of time for
the assessment or payment of any Tax.
(d) The total amounts set up as liabilities for Taxes in the
Financial Statements are sufficient to cover the payment of all Taxes, including
any penalties or interest thereon and whether or not assessed or disputed, which
are, or are hereafter found to be, or to have been, due with respect to the
conduct of the business of the Company for the taxable periods covered thereby.
(e) The Company and each Seller shall grant to Buyer or its
designees access at all reasonable times to all of its books and records
(including tax workpapers and returns and correspondence with tax authorities),
including the right to take extracts therefrom and make copies thereof, to the
extent such books and records relate to taxable periods ending on or prior to or
that include the Closing Date. Buyer shall (i) grant to each Seller access at
all reasonable times to all of its books and records (including tax workpapers
and returns and correspondence with tax authorities) insofar as they relate to
the operations of the Company, including the right to take extracts therefrom
and make copies thereof, to the extent that such books and records relate to
taxable periods ending on or prior to or that include the Closing Date, and (ii)
otherwise cooperate with Sellers in connection with any audit of Taxes that
relate to the business of the Company prior to Closing.
8.02 INDEMNIFICATION FOR TAXES.
(a) Each Seller hereby jointly and severally agrees to indemnify
Buyer and its Affiliates (each herein sometimes referred to as an "Indemnified
Taxpayer") against, and agree to protect, save and hold harmless each
Indemnified Taxpayer from, any and all claims, damages, deficiencies, losses
(including Taxes, interest and penalties) and all expenses, including attorneys'
and accountants' fees and disbursements (all herein referred to as "Losses")
resulting from:
(i) A claim by any taxing authority for (A) any Taxes of the
Company allocable to any period ending on or prior to the Effective Date (other
than Taxes which arise as a result of post-Closing changes in accounting or
reporting done by the Buyer, unless such changes are necessitated under
generally accepted accounting principles or by applicable Legal Requirements),
and (B) any Taxes of Company or any corporation that is or was a member of an
affiliated group of corporations of which the Company was or is a member;
(ii) A claim by any taxing authority for any Taxes arising
from or occasioned by the sale of the Company's capital stock pursuant to this
Agreement; or
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(iii) Any misrepresentation or breach of any representation,
warranty or obligation set forth in this Article VIII.
(b) Subject to the resolution of any Tax contest pursuant to
Section 8.02(c), upon notice from Buyer to the Sellers that an Indemnified
Taxpayer is entitled to an indemnification payment for a Loss pursuant to
Section 8.02(a), the Sellers shall thereupon pay to the Indemnified Taxpayer an
amount that, net of any Taxes imposed on the Indemnified Taxpayer with respect
to such payment, will indemnify and hold the Indemnified Taxpayer harmless from
such Loss.
(c) (i) If a claim shall be made by any taxing authority that, if
successful, would result in the indemnification of an Indemnified Taxpayer, the
Indemnified Taxpayer shall promptly notify the Sellers in writing of such fact;
provided, however, that any failure to give such notice will not waive any
rights of the Indemnified Taxpayer except to the extent the rights of the
indemnifying party are actually prejudiced.
(ii) The Indemnified Taxpayer shall take such action in
connection with contesting such claim as the Sellers shall reasonably request in
writing from time to time; provided that (A) within 30 days (or such earlier
date that any payment of Taxes is due by the Indemnified Taxpayer) after the
notice described in (i) above has been delivered, the Sellers request that such
claim be contested, (B) the Sellers shall have agreed to pay to the Indemnified
Taxpayer on demand all costs and expenses that the Indemnified Taxpayer may
incur in connection with contesting such claim, including, without limitation,
reasonable attorneys' and accountants' fees and disbursements, and (C) if the
Indemnified Taxpayer is requested to pay the Tax claimed and sue for a refund,
the Sellers shall have advanced to the Indemnified Taxpayer, on an interest free
basis, the amount of such claim. In the case of any such claim referred to
above, the Indemnified Taxpayer shall not make payment of such claim for at
least 30 days (or such shorter period as may be required by applicable law)
after the giving of the notice required by (i) above, shall give to the Sellers
any information reasonably requested relating to such claim and otherwise shall
cooperate with the Sellers in good faith in order to contest effectively any
such claim.
(iii) Subject to the provisions of paragraph (ii) above, the
Indemnified Taxpayer shall prosecute such contest to a determination in a court
of initial jurisdiction, and if the Sellers shall reasonably request, the
Indemnified Taxpayer shall prosecute such contest to a determination in an
appellate court.
(iv) If, after actual receipt by the Indemnified Taxpayer of
an amount advanced by Sellers pursuant to paragraph (ii)(C) above, the extent of
the liability of the Indemnified Taxpayer with respect to the indemnified matter
shall be established by the final judgment or decree of a court or a final or
binding settlement with an administrative agency having jurisdiction thereof,
the Indemnified Taxpayer shall promptly pay to Sellers any refund received by or
credited to the Indemnified Taxpayer with respect to the indemnified matter
(together with any interest paid or credited thereon by the taxing authority and
any recovery of legal fees from such taxing authority). Notwithstanding the
foregoing, the Indemnified Taxpayer shall not be required to make any payment
hereunder before such time as the Sellers shall have made all payments or
indemnities then due with respect to Indemnified Taxpayer pursuant to this
Article VIII.
(d) Anything to the contrary in this Agreement notwithstanding,
the indemnification obligations of the Sellers under this Article VIII shall
survive the Closing until the end of the applicable statutes of limitations.
8.03 TAX REFUNDS. In the event that the Company receives a refund of
Taxes paid for any period ending on or prior to the Effective Date, such refund
shall inure to the benefit of the Sellers and the Buyer shall promptly forward
such refund to the Sellers.
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ARTICLE IX. - MISCELLANEOUS
9.01 LIMITATION ON LIABILITY.
(a) The representations, warranties, agreements, and indemnities
of the Company and the Sellers set forth in this Agreement or in connection with
the transactions contemplated hereby shall survive the Closing except as
expressly provided in Section 9.01(b).
(b) (i) The Sellers shall have no liability under this Agreement
to indemnify under either (A) clause (iii) of Section 7.03(a), or (B) clause (i)
of Section 7.03(a) against breaches of the provisions of Sections 3.04, 3.05
(clauses (ii), (iii), (iv) and (v)), 3.06, and 3.08 through 3.23, in each case
unless the indemnifying party receives notice in writing from Buyer of Buyer's
claim under said indemnity on or before the two-year anniversary of the Closing
Date. Said limitations shall not apply to any breaches of or obligations to
comply with any of the other provisions of this Agreement, regardless of whether
such breach or obligation also constitutes a breach or obligation under any of
the provisions specifically listed in this Section 9.01(b)(i).
(ii) The Buyer shall have no liability under this Agreement to
indemnify against breaches of the provisions of Article IV or under Section
7.03(b) unless the indemnifying party receives notice in writing from Sellers of
Sellers' claim under said indemnity on or before the two-year anniversary of the
Closing Date. Said limitations shall not apply to any breaches of or obligations
to comply with any of the other provisions of this Agreement, regardless of
whether such breach or obligation also constitutes a breach or obligation under
any of the provisions specifically listed in this Section 9.01(b)(ii).
(c) Subject to the last sentence of this Section 9.01(c), the
Sellers and the Buyer shall be obligated to indemnify as and to the extent set
forth in Sections 7.03(a) and 7.03(b), respectively, only if the aggregate of
all of such party's liability under such indemnity obligations exceeds $250,000,
it being understood that said $250,000 figure is to serve as a "deductible" for
the indemnification and not as a "trigger" (for example, if the indemnity claims
for which the indemnifying party would, but for the provisions of this paragraph
(c), be liable aggregate $251,000, such party would then be liable for just
$1,000, and not the full $251,000). Notwithstanding anything to the contrary set
forth herein, the $250,000 basket for indemnification set forth in this Section
9.01(c) shall not apply to the indemnification obligations with respect to
employee benefit matters (set forth in Section 3.07 above), or under Section
8.02, or with respect to fraudulent conduct on the part of any of the Sellers in
connection with the entering into of this Agreement; the indemnification
obligations with respect to matters set forth in the foregoing clause will apply
from the first dollar of the Sellers' liability hereunder. Notwithstanding
anything to the contrary set forth herein, other than with respect to fraudulent
conduct and the indemnification obligations set forth in Section 8.02 (in which
case neither a "cap" nor "basket" on indemnification shall apply), neither the
Sellers nor the Buyer shall be required to indemnify as and to the extent set
forth in Sections 7.03(a) and 7.03(b), respectively, for aggregate amounts in
excess of $16,575,000 (i.e., the Buyer's, on the one hand, and collectively, the
Sellers', on the other hand, liability hereunder shall be "capped" at
$16,575,000).
(d) For purposes of this Section 9.01(d), a party making a claim
for indemnity under Section 7.03 is hereinafter referred to as an "Indemnified
Party" and the party against whom such claim is asserted is hereinafter referred
to as the "Indemnifying Party." All claims by any Indemnified Party under
Section 7.03 hereof shall be asserted and resolved in accordance with the
following provisions. If any claim or demand for which an Indemnifying Party
would be liable to an Indemnified Party is asserted against or sought to be
collected from such Indemnified Party by such third party, said Indemnified
Party shall with reasonable promptness notify in writing the Indemnifying Party
of such claim or demand stating with reasonable specificity the circumstances of
the Indemnified Party's claim for indemnification; provided, however, that any
failure to give such notice will not waive any rights of the Indemnified Party
except to the extent the rights of the Indemnifying Party are actually
prejudiced or to the extent that any applicable period set forth in Section
9.01(b) or Section 9.01(c) has expired without such notice being given. After
receipt by the Indemnifying Party of such notice, then upon reasonable notice
from the Indemnifying Party to the Indemnified Party, or upon the request of the
Indemnified Party, the
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Indemnifying Party shall defend, manage and conduct any proceedings,
negotiations or communications involving any claimant whose claim is the subject
of the Indemnified Party's notice to the Indemnifying Party as set forth above,
and shall take all actions necessary, including but not limited to the posting
of such bond or other security as may be required by any Governmental Authority,
so as to enable the claim to be defended against or resolved without expense or
other action by the Indemnified Party. Upon request of the Indemnifying Party,
the Indemnified Party shall, to the extent it may legally do so and to the
extent that it is compensated in advance by the Indemnifying Party for any costs
and expenses thereby incurred,
(i) take such action as the Indemnifying Party may reasonably
request in connection with such action,
(ii) allow the Indemnifying Party to dispute such action in
the name of the Indemnified Party and to conduct a defense to such action on
behalf of the Indemnified Party, and
(iii) render to the Indemnifying Party all such assistance as
the Indemnifying Party may reasonably request in connection with such dispute
and defense.
9.02 BROKERS. Regardless of whether the Closing shall occur, (i) the
Company and each Seller, jointly and severally, shall indemnify and hold
harmless Buyer from and against any and all liability for any brokers or
finders' fees arising with respect to brokers or finders retained or engaged by
the Company or any Seller in respect of the transactions contemplated by this
Agreement, and (ii) Buyer shall indemnify and hold harmless the Company from and
against any and all liability for any brokers' or finders' fees arising with
respect to brokers or finders retained or engaged by Buyer in respect of the
transactions contemplated by this Agreement.
9.03 COSTS AND EXPENSES. Each of the parties to this Agreement shall
bear his or its own expenses incurred in connection with the negotiation,
preparation, execution and closing of this Agreement and the transactions
contemplated hereby. Sellers shall bear all costs and expenses incurred in
connection with the preparation of the Effective Date Balance Sheet. Buyer shall
bear all costs and expenses incurred in connection with the preparation of the
"comfort letter" contemplated by Section 6.02(k) hereof.
9.04 NOTICES. Any notice, request, instruction, correspondence or other
document to be given hereunder by any party hereto to another (herein
collectively called "Notice") shall be in writing and delivered personally or
mailed by registered or certified mail, postage prepaid and return receipt
requested, or by telecopier, as follows:
BUYER: HEICO Corporation
825 Brickell Bay Drive
Suite 1644
Miami, Florida 33131
Attention: Mr. Victor Mendelson
Vice President and
General Counsel
Telecopy No. (305) 374-6742
WITH A COPY TO:
Greenberg Traurig, P.A.
1221 Brickell Avenue
Miami, Florida 33131
Attention: Bruce E. Macdonough
Telecopy No. (305) 579-0717
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COMPANY OR THE SELLERS: Thermal Structures, Inc.
19200 Von Karman Avenue
Suite 600
Irvine, California 92612
Attention: David A. Janes
Telecopy No. (949) 477-8061
WITH A COPY TO:
Mitchell Silberberg & Knupp LLP
11377 West Olympic Boulevard
Los Angeles, California 90064
Attention: Ron R. Goldie, Esq.
Telecopy No. (310) 312-3798
Each of the above addresses for notice purposes may be changed by providing
appropriate notice hereunder. Notice given by personal delivery or registered
mail shall be effective upon actual receipt. Notice given by telecopier shall be
effective upon actual receipt if received during the recipient's normal business
hours, or at the beginning of the recipient's next normal business day after
receipt if not received during the recipient's normal business hours. All
Notices by telecopier shall be confirmed by the sender thereof promptly after
transmission in writing by registered mail or personal delivery. Anything to the
contrary contained herein notwithstanding, notices to any party hereto shall not
be deemed effective with respect to such party until such Notice would, but for
this sentence, be effective both as to such party and as to all other persons to
whom copies are provided above to be given.
9.05 GOVERNING LAW. The provisions of this agreement and the documents
delivered pursuant hereto shall be governed by and construed in accordance with
the laws of the State of Florida (excluding any conflict of law rule or
principle that would refer to the laws of another jurisdiction). Each party
hereto irrevocably submits to the jurisdiction of the Circuit Court of the State
of Florida, Miami-Dade County, in any action or proceeding arising out of or
relating to this Agreement or any of the Collateral Agreements, and each party
hereby irrevocably agrees that all claims in respect of any such action or
proceeding must be brought and/or defended in such court; provided, however,
that matters which are under the exclusive jurisdiction of the Federal courts
shall be brought in the Federal District Court for the Southern District of
Florida. Each party hereto consents to service of process by any means
authorized by the applicable law of the forum in any action brought under or
arising out of this Agreement or any of the Collateral Agreements, and each
party irrevocably waives, to the fullest extent each may effectively do so, the
defense of an inconvenient forum to the maintenance of such action or proceeding
in any such court. EACH PARTY HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES, TO THE FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, TRIAL BY
JURY IN ANY SUIT, ACTION OR PROCEEDING ARISING HEREUNDER.
9.06 REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of each of the parties to this Agreement shall be deemed to have been
made, and the certificates delivered pursuant to clause (iv) of Section 2.02 and
clause (ii) of Section 2.03 by a party are agreed to and shall be deemed to
constitute the making of such representations and warranties, again at and as of
the Closing by and on behalf of the party on behalf of whom such certificates
are delivered.
9.07 ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This Agreement, together
with all exhibits and schedules attached hereto and the Confidentiality
Agreement, dated May 27, 1998, between the Company and Buyer, constitutes the
entire agreement between and among the parties hereto pertaining to the subject
matter hereof and supersedes all prior agreements, understandings, negotiations
and discussions, whether oral or written, of the parties, and there are no
warranties, representations or other agreements between the parties in
connection with the subject matter hereof except as set forth specifically
herein. No supplement, modification or waiver of this Agreement shall be binding
unless
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executed in writing by the party to be bound thereby. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of any
other provision hereof (regardless of whether similar), nor shall any such
waiver constitute a continuing waiver unless otherwise expressly provided.
9.08 BINDING EFFECT AND ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
permitted successors and assigns; but neither this Agreement nor any of the
rights, benefits or obligations hereunder shall be assigned, by operation of law
or otherwise, by any party hereto without the prior written consent of the other
party, provided, however, that nothing herein shall prohibit the assignment of
Buyer's rights and obligations to any direct or indirect subsidiary or prohibit
the assignment of Buyer's rights (but not obligations) to any lender. Nothing in
this Agreement, express or implied, is intended to confer upon any person or
entity other than the parties hereto and their respective permitted successors
and assigns, any rights, benefits or obligations hereunder.
9.09 REMEDIES. The rights and remedies provided by this Agreement are
cumulative, and the use of any one right or remedy by any party hereto shall not
preclude or constitute a waiver of its right to use any or all other remedies.
Such rights and remedies are given in addition to any other rights and remedies
a party may have by law, statute or otherwise.
9.10 INTEREST ON OVERDUE PAYMENTS. Except if held pursuant to a right
to withhold such payment provided in Section 9.11, if any amount payable under
this Agreement is not paid when due, the amount unpaid shall bear interest from
the due date to the actual date of payment calculated and compounded at a rate
equal to the lesser of (i) the prime rate established from time to time by
Citibank, N.A., or (ii) the maximum lawful interest rate permitted under
applicable law.
9.11 WITHHOLDING OF PAYMENTS. Intentionally omitted.
9.12 EXHIBITS AND SCHEDULES. The exhibits and Schedules referred to
herein are attached hereto and incorporated herein by this reference. Disclosure
of a specific item in any one Schedule shall be deemed restricted only to the
Section to which such disclosure specifically relates except where (i) there is
an explicit cross-reference to another Schedule, and (ii) Buyer could reasonably
be expected to ascertain the scope of the modification to a representation
intended by such cross-reference.
9.13 MULTIPLE COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.14 REFERENCES AND CONSTRUCTION.
(a) Whenever required by the context, and is used in this
Agreement, the singular number shall include the plural and pronouns and any
variations thereof shall be deemed to refer to the masculine, feminine, neuter,
singular or plural, as the identification the person may require. References to
monetary amounts, specific named statutes and generally accepted accounting
principles are intended to be and shall be construed as references to United
States dollars, statutes of the United States of the stated name and United
States generally accepted accounting principles, respectively, unless the
context otherwise requires.
(b) The provisions of this Agreement shall be construed according
to their fair meaning and neither for nor against any party hereto irrespective
of which party caused such provisions to be drafted. Each of the parties
acknowledge that it has been represented by an attorney in connection with the
preparation and execution of this Agreement.
9.15 SURVIVAL. Any provision of this Agreement which contemplates
performance or the existence of obligations after the Closing Date, and any and
all representations and warranties set forth in this Agreement, shall not be
deemed to be merged into or waived by the execution and delivery of the
instruments executed at the Closing, but shall expressly survive Closing and
shall be binding upon the
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party or parties obligated thereby in accordance with the terms of this
Agreement, subject to any limitations expressly set forth in this Agreement.
9.16 ATTORNEYS' FEES. In the event any suit or other legal proceeding
is brought for the enforcement of any of the provisions of this Agreement, the
parties hereto agree that the prevailing party or parties shall be entitled to
recover from the other party or parties upon final judgment on the merits
reasonable attorneys' fees (and sales taxes thereon, if any), including
attorneys' fees for any appeal, and costs incurred in bringing such suit or
proceeding.
9.17 TERMINATION. Except as provided in Section 9.18 below, this
Agreement may be terminated and the transaction contemplated hereby abandoned at
any time prior to the Closing Date:
(a) by mutual consent of Sellers and Buyer;
(b) by Buyer or Sellers if: (i) the Closing has not occurred by
July 30, 1999; provided, however, that if approval of this transaction under the
HSR Act is not obtained by July 30, 1999, such "drop dead" date automatically
shall be extended to the date which is seven days after approval under the HSR
Act is obtained by Buyer and Sellers, but not longer than an additional 60 days;
(ii) there shall be a final non-appealable order of a federal or state court in
effect preventing consummation of the transaction contemplated hereby; or (iii)
there shall be any statute, rule, regulation or order enacted, promulgated or
issued or deemed applicable to the transaction contemplated hereby by any
Governmental Authority that would make consummation of the transaction
contemplated hereby illegal;
(c) by Buyer if it is not in material breach of this Agreement and
there has been a material breach of any representation, warranty, covenant or
agreement contained in this Agreement on the part of Sellers and such breach has
not been cured within three (3) business days after written notice to Sellers
(provided that no cure period shall be required for a breach which by its nature
cannot be cured); or
(d) by Sellers if they are not in material breach of this
Agreement and there has been a material breach of any representation, warranty,
covenant or agreement contained in this Agreement on the part of Buyer and such
breach has not been cured within three (3) business days after written notice to
Buyer (provided that no cure period shall be required for a breach which by its
nature cannot be cured).
9.18 EFFECT OF TERMINATION. In the event of termination of this
Agreement as provided in Section 9.17, this Agreement shall forthwith become
void and there shall be no liability or obligation on the part of Buyer, the
Company or Sellers, or their respective officers, directors or shareholders,
provided that each party shall remain liable for any breaches of this Agreement
prior to its termination; and, provided further, that the provision set forth in
the penultimate sentence of Section 5.06 of this Agreement shall remain in full
force and effect and survive any termination of this Agreement.
ARTICLE X. - DEFINITIONS
Capitalized terms used in this Agreement are used as defined in this
Article X or elsewhere in this Agreement.
10.01 AFFILIATE. The term "Affiliate" shall mean, with respect to any
person, any other person controlling, controlled by or under common control with
such person. The term "Control" as used in the preceding sentence means, with
respect to a corporation, the right to exercise, directly or indirectly, more
than 50% of the voting rights attributable to the shares of the controlled
corporation and, with respect to any person other than a corporation, the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such person.
10.02 COLLATERAL AGREEMENTS. The term "Collateral Agreements" shall
mean any or all of the exhibits to this Agreement and any and all other
agreements, instruments or documents required or
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expressly provided under this Agreement to be executed and delivered in
connection with the transactions contemplated by this Agreement.
10.03 CONTRACTS. The term "Contracts," when described as being those of
or applicable to any person, shall mean any and all contracts, agreements,
franchises, understandings, arrangements, leases, licenses, registrations,
authorizations, easements, servitudes, rights of way, mortgages, bonds, notes,
guaranties, liens, indebtedness, approvals or other instruments or undertakings
to which such person is a party or to which or by which such person or the
property of such person is subject or bound, excluding any Permits.
10.04 DAMAGES. The term "Damages" shall mean any and all damages,
liabilities, obligations, penalties, fines, judgments, claims, deficiencies,
losses, costs, expenses and assessments (including without limitation income and
other taxes, interest, penalties and attorneys' and accountants' fees and
disbursements).
10.05 FINANCIAL STATEMENTS. The term "Financial Statements" shall mean
any or all of the financial statements, including balance sheets and related
statements of income and statements of changes in financial position and the
accompanying notes thereto, of the Company's business prepared in accordance
with generally accepted accounting principles consistently applied, except as
may be otherwise provided herein.
10.06 GOVERNMENTAL AUTHORITIES. The term "Governmental Authorities"
shall mean any nation or country (including but not limited to the United
States) and any commonwealth, territory or possession thereof and any political
subdivision of any of the foregoing, including but not limited to courts,
departments, commissions, boards, bureaus, agencies, ministries or other
instrumentalities.
10.07 HAZARDOUS MATERIAL. The term "Hazardous Material" means all or
any of the following: (a) substances that are defined or listed in, or otherwise
classified pursuant to, any applicable laws or regulations as "hazardous
substances," "hazardous materials," "Hazardous wastes," "toxic substances" or
any other formulation intended to define, list or classify substances by reason
of deleterious properties such as ignitability, corrosivity, reactivity,
carcinogenicity, reproductive toxicity or "EP toxicity"; (b) oil, petroleum or
petroleum derived substances, natural gas, natural gas liquids or synthetic gas
and drilling fluids, produced waters and other wastes associated with the
exploration, development or production of crude oil, natural gas or geothermal
resources; (c) any flammable substances or explosives or any radioactive
materials; and (d) asbestos in any form or electrical equipment which contains
any oil or dielectric fluid containing levels of polychlorinated biphenyls in
excess of fifty parts per million.
10.08 INVENTORY. The term "Inventory" shall mean all goods, merchandise
and other personal property owned and held for sale, and all raw materials,
works-in-process, materials and supplies of every nature which contribute to the
finished products of the Company in the ordinary course of its business,
specifically excluding, however, damaged, defective or otherwise unsaleable
items.
10.09 KNOWLEDGE OF THE COMPANY. The term "Knowledge of the Company"
shall mean the actual knowledge, with respect to the matter in question, of any
of the Sellers or any of the other directors or officers of the Company,
including, without limitation, any vice president, any general manager, the
chief financial officer, Stephen R. Perry, the director of marketing, the
director of engineering and the director of operations, and such knowledge as
any of the Sellers or any of the other directors or officers of the Company
reasonably should have obtained upon diligent investigation and inquiry into the
matter in question.
10.10 LEGAL REQUIREMENTS. The term "Legal Requirements," when described
as being applicable to any person, shall mean any and all laws (statutory,
judicial or otherwise), ordinances, regulations, judgments, orders, directives,
injunctions, writs, decrees or awards of, and any Contracts with, any
Governmental Authority, in each case as and to the extent applicable to such
person or such person's business, operations or properties.
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10.11 NET WORTH. The term "Net Worth" shall mean the Company's
"shareholders' equity" computed in accordance with GAAP consistently applied
with the Company's prior practices except that no effect shall be given to any
purchase accounting or other similar adjustments resulting from the consummation
of the transactions contemplated herein.
10.12 PERMITS. The term "Permits" shall mean any and all permits,
rights, approvals, licenses, authorizations, legal status, orders or Contracts
under any Legal Requirement or otherwise granted by any Governmental Authority.
10.13 PERSON. The term "Person" shall mean any individual, partnership,
joint venture, firm, corporation, association, limited liability company, trust
or other enterprise or any governmental or political subdivision or any agency,
department or instrumentality thereof.
10.14 PROPORTIONATE SHARE. Intentionally omitted.
10.15 PROPERTIES. The term "Properties" shall mean any and all
properties and assets (real, personal or mixed, tangible or intangible) owned or
used by the Company.
10.16 REAL PROPERTY. The term "Real Property" shall mean the real
property Used by the Company in the conduct of its business.
10.17 REGULATIONS. The term "Regulations" shall mean any and all
regulations promulgated by the Department of the Treasury pursuant to the
Internal Revenue Code.
10.18 USED. The term "Used" shall mean, with respect to the Properties,
Contracts or Permits of the Company, those owned, leased, licensed or otherwise
held by the Company which were acquired for use or held for use by the Company
in connection with the Company's business and operations, whether or not
reflected on the Company's books of account.
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EXECUTED as of the date first written above.
BUYER:
HEICO Corporation
By:
-----------------------------------------
Victor H. Mendelson,
Vice President and
General Counsel
COMPANY:
Thermal Structures, Inc.
By:
-----------------------------------------
Stephen T. Braunheim, President
Quality Honeycomb, Inc.
By:
-----------------------------------------
Stephen T. Braunheim, President
SELLERS:
--------------------------------------------
David A. Janes
--------------------------------------------
Vaughn Barnes
--------------------------------------------
Stephen T. Braunheim
DLD Investments, LLC
By:
-----------------------------------------
David A. Janes, Managing Member
Acme Freight, LLC
By:
-----------------------------------------
Stephen T. Braunheim, Managing Member
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EXHIBIT A
VAUGHN BARNES EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered into as of
the ___ day of July, 1999 by and between Thermal Structures, Inc., a California
corporation (the "Company"), and VAUGHN BARNES (the "Executive").
RECITALS
A. The Executive is currently employed as the Vice President of the
Company.
B. The Executive possesses intimate knowledge of the business and
affairs of the Company, its policies, methods and personnel.
C. The Company, Quality Honeycomb, Inc., a California corporation,
HEICO Corporation, a Florida corporation (the "Buyer"), David A. Janes, Stephen
T. Braunheim, DLD Investments, LLC, Acme Freight, LLC, and the Executive have
entered into a Stock Purchase Agreement, dated as of July ___, 1999 (the
"Purchase Agreement"), pursuant to which the Buyer will acquire all of the
capital stock of the Company.
D. The Company and the Buyer desire to assure the Executive's continued
employment and to compensate him therefor.
E. The Company and the Buyer have determined that this Agreement will
reinforce and encourage the Executive's continued attention and dedication to
the Company.
F. The Executive is willing to make his services available to the
Company on the terms and conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, the parties agree as follows:
1. EMPLOYMENT.
1.1 GENERAL. The Company hereby agrees to employ the Executive, and
the Executive hereby agrees to serve the Company on the terms and conditions set
forth herein.
1.2 DUTIES OF EXECUTIVE. During the term of this Agreement, the
Executive shall serve as the President of the Company, shall diligently perform
all services as may be assigned to him by the Company's Chairman of the Board,
and shall exercise such power and authority as may from time to time be
delegated to him by the Company's Board of Directors (the "Board") or its
Chairman. The Executive shall devote his full time and attention to the business
and affairs of the Company, render such services to the best of his ability, and
use his best efforts to promote the interests of the Company.
2. TERM.
2.1 INITIAL TERM. The initial term of this Agreement, and the
employment of the Executive hereunder, shall be for the three-year period
commencing the date hereof (the "Initial Term"), unless sooner terminated in
accordance with the terms and conditions hereof.
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2.2 RENEWAL TERMS. The Initial Term of this Agreement, and the
employment of the Executive hereunder, may be renewed and extended for such
period or periods as may be mutually agreed to by the Company and the Executive
in a written supplement to this Agreement signed by the Executive and the
Company ("Written Supplement"). If this Agreement is not so renewed and extended
prior to the expiration of the Initial Term, this Agreement, and the employment
of the Executive hereunder, shall automatically terminate upon the expiration of
the Initial Term.
3. COMPENSATION. The Executive shall receive a base salary at the
annual rate of Two Hundred Forty Thousand Dollars ($240,000) (the "Base Salary")
during the Initial Term of this Agreement, with such Base Salary payable in
installments consistent with the Company's normal payroll schedule, subject to
applicable withholding and other taxes. If the term of this Agreement shall be
renewed and extended as provided in Section 2.2 hereof, then during such renewal
term of his employment hereunder, the Executive shall be paid a base salary as
set forth in the Written Supplement.
4. EXPENSE REIMBURSEMENT AND OTHER BENEFITS.
4.1 REIMBURSABLE EXPENSES. During the term of the Executive's
employment hereunder, the Company, upon the submission of proper substantiation
by the Executive, shall reimburse the Executive for all other reasonable
expenses actually and necessarily paid or incurred by the Executive in the
course of and pursuant to the business of the Company.
4.2 OTHER BENEFITS. The Executive shall be entitled to participate
in all medical and hospitalization, group life insurance, and any and all other
plans as are presently and hereinafter provided by the Company to its
executives. The Executive shall be entitled to vacations in accordance with the
Company's prevailing policy for its executives, provided that the number of
vacation days shall be no fewer than that to which the Executive was entitled in
his capacity of Vice President of the Company prior to the date hereof;
provided, however, that in no event may a vacation be taken at a time when to do
so could reasonably be expected to materially and adversely affect the Company's
business. In addition, for so long as the Executive is employed by the Company,
the Company shall pay up to $4,400 per month for the premiums on the life
insurance policy maintained for the benefit of the Executive which was paid for
by the Company prior to the date hereof, which policy currently has monthly
premiums in the amount of $4,400.
4.3 WORKING FACILITIES. The Company shall furnish the Executive with
an office, secretarial help and such other facilities and services suitable to
his position and adequate for the performance of his duties hereunder.
5. TERMINATION.
5.1 TERMINATION FOR CAUSE. The Company shall at all times have the
right, upon written notice to the Executive, to terminate the Executive's
employment hereunder for "Cause" (as hereinafter defined). For purpose of this
Agreement, the term "Cause" shall mean (i) the willful failure or refusal of the
Executive to perform the duties or render the services assigned to him from time
to time by the Company's Chairman and/or Board (except during reasonable
vacation periods or sick leave), (ii) the Executive's unsatisfactory performance
of his duties as an employee of the Company, (iii) the charging or indictment of
the Executive in connection with a felony, (iv) the association, directly or
indirectly, of the Executive, for his profit or financial benefit, with any
person, firm, partnership, association, entity or corporation that competes in
any material way with the Company, (v) the disclosing or using of any material
trade secret or confidential information of the Company at any time by the
Executive, except as required in connection with his duties to the Company, (vi)
the breach by the Executive of his fiduciary duty or duty of trust to the
Company, or (vii) any other breach by the Executive of any of the terms or
provisions of this Agreement, which other breach is not cured within ten (10)
business days of notice by the Company. Upon any termination pursuant to this
Section 5.1, the Executive shall be entitled to be paid his Base Salary to the
date of termination and the Company shall have no further liability hereunder
(other than for reimbursement for reasonable
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business expenses incurred prior to the date of termination, subject, however
to the provisions of Section 4.1).
5.2 DISABILITY. The Company shall at all times have the right, upon
written notice to the Executive, to terminate the Executive's employment
hereunder if the Executive shall, as the result of mental or physical
incapacity, illness or disability, become unable to perform his duties hereunder
for in excess of ninety (90) days in any 12-month period. Upon any termination
pursuant to this Section 5.2, the Company shall pay to the Executive any unpaid
amounts of his Base Salary accrued through the effective date of termination and
the Company shall have no further liability hereunder (other than for
reimbursement for reasonable business expenses incurred prior to the date of
termination, subject, however to the provisions of Section 4.1).
5.3 DEATH. In the event of the death of the Executive during the term
of his employment hereunder, the Company shall pay to the estate of the deceased
Executive any unpaid amounts of his Base Salary accrued through the effective
date of his death and the Company shall have no further liability hereunder
(other than for reimbursement for reasonable business expenses incurred prior to
the date of the Executive's death, subject, however to the provisions of Section
4.1).
5.4 TERMINATION WITHOUT CAUSE. At any time the Company shall have the
right to terminate the Executive's employment hereunder by written notice to the
Executive; provided, however, that, the Company shall (i) pay to the Executive
any unpaid Base Salary accrued through the effective date of termination
specified in such notice, and (ii) pay Executive's Base Salary and benefits, if
any, in the manner set forth in Section 3 hereof, for a period of 12 months
following the effective date of termination specified in such notice. The
Company shall have no further liability hereunder (other than for reimbursement
for reasonable business expenses incurred prior to the date of termination,
subject, however, to the provisions of Section 4.1).
5.5 RESIGNATION BY EMPLOYEE. The Employee shall at all times have the
right, upon 60 days' written notice to the Company, to terminate the Employee's
employment hereunder. Upon any termination pursuant to this Section 5.5, the
Employee shall be entitled to be paid his Base Salary to the date of termination
and the Company shall have no further liability hereunder (other than for
reimbursement for reasonable business expenses incurred prior to the date of
termination, subject, however, to the provisions of Section 4.1).
6. RESTRICTIVE COVENANTS.
6.1 NON-COMPETITION. While employed by the Company and for a period
of four years following the date his employment is terminated hereunder, the
Executive shall not, directly or indirectly, (A) acquire or own in any manner
any interest in or lend any money or provide financial assistance to any person,
firm, partnership, corporation, association or other entity which engages or
plans to engage in the Business of the Company anywhere in the world (the
"Territory"), (B) be employed by or serve as an employee, agent, officer,
director of, or as a consultant to, any person, firm, partnership, corporation,
association or other entity which engages or plans to engage in the Business of
the Company within the Territory, or (C) utilize their special knowledge of the
Business of the Company and their relationships with customers, suppliers and
others to compete with Buyer and/or any of its Affiliates in any business which
engages or plans to engage in any aspect of the Business of the Company.
"Business of the Company" means, for purposes of this provision, the
manufacture, design, sale, provision of or servicing of all forms of thermal
insulating materials or related products of whatever nature, including the
manufacture and repair of high temperature insulation components, heat shields
and fire barriers for all industrial purposes, and the design, manufacture
and/or sale of FAA/PMA jet engine or similar aircraft parts. The foregoing
includes (i) the manufacture or repair of products which are encapsulated in
foil, screen, fabric, silicone and other composites, (ii) the repair and
refurbishment of composite air foils including replacement of metal leading
edges and erosion coatings, (iii) the manufacture of aircraft engine gas path
honeycomb seals including the manufacture of raw honeycomb and the manufacture
and repair of honeycomb seals, and (iv) to the extent not covered by the
immediately preceding clauses (i), (ii) and (iii), any other
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business activities of the Company for pre-Closing periods. The ownership or
control of up to five percent of the outstanding voting securities or securities
of any class of a company with a class of securities registered under the
Securities Exchange Act of 1934, as amended, shall not be deemed a violation of
this Section 6.1.
6.2 NONDISCLOSURE. Executive shall not divulge, communicate, use to
the detriment of the Company or for the benefit of any other person or persons,
or misuse in any way, any confidential information pertaining to the business of
the Company. Any confidential information or data now known or hereafter
acquired by the Executive with respect to the business of the Company (which
shall include, but not be limited to, information concerning the Company's
financial condition, prospects, customers, sources of leads, methods of doing
business, and the manner of design, manufacture, financing, marketing and
distribution of the Company's products) shall be deemed a valuable, special and
unique asset of the Company that is received by the Executive in confidence and
as a fiduciary, and Executive shall remain a fiduciary to the Company with
respect to all of such information.
6.3 NONSOLICITATION OF EMPLOYEES AND CUSTOMERS. While employed by
the Company and for a period of four years following the date his employment is
terminated hereunder, the Executive shall not, directly or indirectly, for
himself or for any other person, firm, corporation, partnership, association or
other entity, (i) attempt to employ or enter into any contractual arrangement
with any employee or former employee of the Company or Buyer or any of Buyer's
Affiliates (as defined in the Purchase Agreement) until at least twenty four
(24) months after the date such employee was not employed by the Buyer or any of
its Affiliates, and/or (ii) call on or solicit any of the actual or targeted
prospective customers or clients of the Buyer or the Company, nor shall the
Executive make known the names and addresses of such customers or any
information relating in any manner to the Buyer and/or the Company's trade or
business relationships with such customers.
6.4 BOOKS AND RECORDS. All books, records, and accounts relating in
any manner to the customers or clients of the Company, whether prepared by the
Executive or otherwise coming into the Executive's possession, shall be the
exclusive property of the Company and shall be returned immediately to the
Company on termination of the Executive's employment hereunder or on the
Company's request at any time.
7. INJUNCTION. It is recognized and hereby acknowledged by the parties
hereto that a breach by the Executive of any of the covenants contained in
Section 6 of this Agreement will cause irreparable harm and damage to the
Company, the monetary amount of which may be virtually impossible to ascertain.
As a result, the Executive recognizes and hereby acknowledges that the Company
shall be entitled to an injunction from any court of competent jurisdiction
enjoining and restraining any violation of any or all of the covenants contained
in Section 6 of this Agreement by the Executive or any of his affiliates,
associates, partners or agents, either directly or indirectly, and that such
right to injunction shall be cumulative and in addition to whatever other
remedies the Company may possess.
8. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida, without regard to the conflict
of laws provisions of such state.
9. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and, upon
its effectiveness, shall supersede all prior agreements, understandings and
arrangements, both oral and written, between the Executive and the Company (or
any of its affiliates) with respect to such subject matter. Except for the
obligation to pay all accrued but unpaid salary due the Executive, all such
prior agreements, understandings and arrangements for the provision of services
by the Executive to the Company and/or any of its affiliates and the
compensation of the Executive in any form shall automatically terminate upon the
closing of the Purchase Agreement, and each party shall thereupon and thereby,
without any further action, release and forever discharge the other (and the
other's affiliates) from any and all liabilities and obligations of any nature
arising out of or in connection with any and all such prior agreements,
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understandings or arrangements. This Agreement may not be modified in any way
unless by a written instrument signed by both the Company and the Executive.
10. NOTICES. Any notice required or permitted to be given hereunder
shall be deemed given when delivered by hand or when deposited in the United
States mail, by registered or certified mail, return receipt requested, postage
prepaid, (i) if to the Company, to HEICO Corporation at the address set forth in
the Purchase Agreement, and (ii) if to the Executive, to his address as
reflected on the payroll records of the Company, or to such other address as
either party hereto may from time to time give notice of to the other.
11. BENEFITS; BINDING EFFECT. This Agreement shall be for the benefit
of and binding upon the parties hereto and their respective heirs, personal
representative, legal representatives, successors and, where applicable,
assigns, including, without limitation, any successor to the Company, whether by
merger, consolidation, sale of stock, sale of assets or otherwise; provided,
however that the Executive shall not delegate his employment obligations
hereunder, or any portion thereof, to any other person.
12. SEVERABILITY. The invalidity of any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall not
affect the enforceability of the remaining portions of this Agreement or any
part thereof, all of which are inserted conditionally on their being valid in
law, and, in the event that any one or more of the words, phrases, sentences,
clauses or sections contained in this Agreement shall be declared invalid, this
Agreement shall be construed as if such invalid word or words, phrase or
phrases, sentence or sentences, clause or clauses, or section or sections had
not been inserted. If such invalidity is caused by length of time or size of
area, or both, the otherwise invalid provision will be considered to be reduced
to a period or area which would cure such invalidity.
13. WAIVERS. The waiver by either party hereto of a breach or violation
of any term or provision of this Agreement shall not operate nor be construed as
a waiver of any subsequent breach or violation.
14. DAMAGES. Nothing contained herein shall be construed to prevent the
Company or the Executive from seeking and recovering from the other damages
sustained by either or both of them as a result of its or his breach of any term
or provision of this Agreement. In the event that either party hereto brings
suit for the collection of any damages resulting from, or for the injunction of
any action constituting, a breach of any of the terms or provisions of this
Agreement, then the party found to be at fault shall pay all reasonable court
costs and attorneys' fees of the other.
15. SECTION HEADINGS. The section headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
16. NO THIRD PARTY BENEFICIARY. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person
other than the Company, the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and assigns, any rights or
remedies under or by reason of this Agreement.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
THERMAL STRUCTURES, INC.
By:
-----------------------------------------
Victor Mendelson
By:
-----------------------------------------
VAUGHN BARNES
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EXHIBIT B
OPINION OF SELLER'S COUNSEL
______________, 1999
HEICO Corporation
825 Brickell Bay Drive
Suite 1644
Miami, Florida 33131
Gentlemen:
We have acted as counsel to Thermal Structures, Inc., a California
corporation, and Quality Honeycomb, Inc., a California corporation
(collectively, the "Company"), in connection with that certain Stock Purchase
Agreement, dated as of _______, 1999 (the "Agreement"), among HEICO Corporation
("Buyer"), the Company, David A. Janes, Vaughn Barnes and Stephen T. Braunheim,
providing for the sale to Buyer of all of the outstanding capital stock of the
Company.
This opinion is being rendered pursuant to Section 6.02(d) of the
Agreement. Unless otherwise defined herein, the definitions of capitalized terms
used in this opinion shall be the same as those set forth in the Agreement.
In arriving at this opinion, we have examined originals or copies,
certified to our satisfaction, of the following:
1. The Agreement;
2. The charter and bylaws of the Company;
3. The corporate records of the Company;
4. Such other records, documents and papers as we deemed necessary to
examine for purposes of this opinion.
Based on the above, and subject to the qualifications set forth below,
it is our opinion that:
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of California.
2. The Company has full corporate power and authority to enter into the
Agreement and perform its obligations thereunder, and the execution, delivery
and performance of the Agreement by the Company have been duly and validly
authorized by all requisite corporate action and the Agreement has been duly
executed and delivered by the Company.
3. Each of the Agreement and the Collateral Agreements is valid and
binding upon the Company and is enforceable against the Company in accordance
with its terms except as limited by bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors' rights in general. The enforceability of
the obligations of the Company under the Agreement and the Collateral Agreements
is, with respect to the availability of equitable remedies, also subject to
general principles of equity and the discretion of the court having jurisdiction
thereof.
4. The authorized capital stock of the Company consists of _______
shares of common stock, par value $________ per share, [all] of which are issued
and outstanding. The outstanding shares of capital stock of the Company have
been duly authorized and are validly issued, fully paid and non-assessable, and
were not issued in violation of the preemptive rights of any Person or any
applicable
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Securities Laws. To our knowledge, there are no outstanding subscriptions,
convertible securities, rights (preemptive or other), warrants, call or
agreements relating to any shares of capital stock of the Company.
5. Neither the execution nor delivery of the Agreement by the Company
nor the consummation of the transactions contemplated thereby will constitute a
default or an event which would with notice or lapse of time or both constitute
a default under or violation or breach of (i) the Company's charter or bylaws,
(ii) any material Legal Requirement applicable to the Company, or (iii) to the
best of our knowledge, any material indenture, license, lease, agreement or
other instrument or any writ, judgment, or decree to which the Company is a
party or by which the Company or its properties may be bound nor would such
execution, delivery or consummation constitute an event which would permit any
party to any such material agreement or instrument to terminate it or to
accelerate the maturity of any indebtedness or obligation of the Company.
6. No action of or filing with any governmental or public body or
authority is required to authorize or is otherwise required for the validity of
execution, delivery and performance by the Company of the Agreement.
7. To the best of our knowledge following reasonable inquiry, the
Company is not party to any pending suit, action, investigation or inquiry by
any governmental body, or arbitration proceedings or any material labor dispute
relating to or affecting the Company, its assets or its business.
8. To the best of our knowledge, there is no governmental permit,
license, certificate of inspection, authorization, filing or registration which
is material to the Company's business and which has not been secured or made.
None of the transactions contemplated by the Agreement will terminate or
violate, either by virtue of the terms thereof or because of the
non-assignability thereof, any governmental permit, license, certificate of
inspection, other authorization, filing or registration necessary to the conduct
of the Company's business.
9. No fact or circumstance has come to our attention which gives us
cause to believe that any representation or warranty by the Company set forth in
the Agreement is untrue in any material respect.
We have assumed that documents we have reviewed in connection with this
opinion which purport to have been executed by Buyer have been duly executed by
Buyer and that Buyer had all requisite power to enter into and perform all
obligations thereunder, that execution and delivery thereof has been duly
authorized by all requisite action and that the subject instruments are valid
and binding upon Buyer.
We have assumed the authenticity of all documents submitted to us as
originals, and the conformity to originals of all documents submitted to us as
copies.
Very truly yours,
[--------------------]
----------------------
Name
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EXHIBIT 99.1
THERMAL STRUCTURES, INC.
Financial Statements for the Six Months Ended April 30, 1999
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TABLE OF CONTENTS
PAGE
FINANCIAL STATEMENTS:
Balance sheet as of April 30, 1999 (unaudited) 2
Statement of income and retained earnings for the
six months ended April 30, 1999 (unaudited) 3
Statement of cash flows for the six months ended
April 30, 1999 (unaudited) 4
Notes to financial statements (unaudited) 5-8
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THERMAL STRUCTURES, INC.
BALANCE SHEET
AS OF APRIL 30, 1999 (UNAUDITED)
ASSETS
Cash $ 412,000
Accounts receivable, net of allowance for doubtful accounts
of $45,000 3,296,000
Current portion of note receivable (Note 4) 145,000
Inventories (Note 2) 1,718,000
Prepaid expenses and other current assets 485,000
Deferred tax asset 149,000
------------
Total current assets 6,205,000
MACHINERY, EQUIPMENT, AND IMPROVEMENTS (Note 3) 780,000
OTHER ASSETS 104,000
NOTES RECEIVABLE, less current portion (Note 4) 418,000
------------
$ 7,507,000
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,308,000
Other 26,000
------------
Total current liabilities 1,334,000
STOCKHOLDERS' EQUITY:
Common stock, no par value; 1,000,000 shares authorized;
2,460 shares issued and outstanding 221,000
Retained earnings 12,667,000
Due from affiliates (Note 5) (6,715,000)
------------
Total stockholders' equity 6,173,000
------------
$ 7,507,000
============
See accompanying notes to financial statements. 2
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THERMAL STRUCTURES, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE SIX MONTHS ENDED APRIL 30, 1999 (UNAUDITED)
NET SALES $ 8,393,000
COST OF SALES 4,719,000
------------
GROSS PROFIT 3,674,000
OPERATING EXPENSES:
Selling, general, and administrative
expenses 1,524,000
Management fees (Note 6) 1,646,000
------------
Total operating expenses 3,170,000
------------
OPERATING INCOME 504,000
INTEREST EXPENSE, net (11,000)
------------
INCOME BEFORE PROVISION FOR
INCOME TAXES 493,000
PROVISION FOR INCOME TAXES 201,000
------------
NET INCOME 292,000
RETAINED EARNINGS, beginning of year 12,375,000
------------
RETAINED EARNINGS, end of year $ 12,667,000
============
See accompanying notes to financial statements. 3
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THERMAL STRUCTURES, INC.
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED APRIL 30, 1999 (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 292,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 95,000
Changes in operating assets and liabilities:
Accounts receivable 618,000
Inventories (143,000)
Prepaid expenses and other current assets (411,000)
Other assets 16,000
Accounts payable and accrued expenses (403,000)
Other liabilities (2,000)
---------
Net cash provided by operating activities 62,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of machinery, equipment, and improvements (70,000)
Disposal of machinery, equipment, and improvements 125,000
Collection on notes receivable 71,000
---------
Net cash provided by investing activities 126,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Due from affiliates (379,000)
---------
NET DECREASE IN CASH (191,000)
CASH, beginning of year 603,000
---------
CASH, end of year $ 412,000
=========
See accompanying notes to financial statements. 4
<PAGE>
THERMAL STRUCTURES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED APRIL 30, 1999 (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS - Thermal Structures, Inc. (TSI or the Company) is a
majority-owned subsidiary of Thermal Holding, Inc., which is a wholly owned
subsidiary of California Manufacturing Enterprises, Inc. (CME or the
Parent). The Company manufactures thermal insulation devices primarily for
the aerospace industry, as well as the mass transit, automotive, and
construction industries.
FISCAL YEAR - The Company's fiscal year for financial reporting and income
tax purposes ends on the last Sunday in October.
CREDIT RISK - The Company performs ongoing credit evaluations of its
customers and generally does not require collateral. The Company maintains
reserves for potential credit losses.
INVENTORIES - Inventories are stated at the lower of cost or market; cost
is determined using the first-in, first-out method.
MACHINERY, EQUIPMENT, AND IMPROVEMENTS - Machinery, equipment, and
improvements are stated at cost less accumulated depreciation and
amortization. Property is depreciated or amortized over the estimated
useful lives of the assets. Leasehold improvements are amortized over the
shorter of the estimated useful lives of improvements or the term of the
related lease. Assets are depreciated on a straight-line basis. The
estimated useful lives of the related assets range from five to ten years.
LONG-LIVED ASSETS - The Company accounts for impairment and disposition of
long-lived assets in accordance with Statement of Financial Accounting
Standards (SFAS) No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED
ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. In accordance with SFAS
No. 121, long-lived assets to be held are reviewed for events or changes in
circumstances which indicate that their carrying value may not be
recoverable.
INCOME TAXES - The results of the operations of the Company are included in
the tax return of CME. The Company's provision in lieu of income taxes is
based on a tax-sharing agreement with CME, which, in general, allocates a
provision in lieu of income taxes to the Company as if it were calculated
on a stand-alone basis. Income taxes are accounted for in accordance with
SFAS No. 109, ACCOUNTING FOR INCOME TAXES. A valuation allowance related to
any net deferred tax assets is recorded when it is more likely than not
that some portion or all of the deferred tax asset will not be realized.
REVENUE RECOGNITION - Revenues are recognized upon shipment of products to
the customer.
RESEARCH AND DEVELOPMENT - Research and development costs consist of
expenditures incurred during the course of planned search and investigation
aimed at discovery of new knowledge which will be useful in developing new
products or processes, or significantly enhancing existing products or
production processes, and the implementation of such through design,
testing of product alternatives, or construction of prototypes. The Company
expenses all research and development costs as they are incurred.
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THERMAL STRUCTURES, INC.
2. INVENTORIES
Inventories consist of the following at April 30, 1999:
Raw materials and supplies $ 882,000
Work-in-process 437,000
Finished goods 399,000
----------
$1,718,000
==========
3. MACHINERY, EQUIPMENT, AND IMPROVEMENTS
Machinery, equipment, and improvements consist of the following at April
30, 1999:
Computer equipment $ 129,000
Machinery and equipment 1,697,000
Leasehold improvements 621,000
Office furniture and fixtures 182,000
Auto and truck 49,000
Construction-in-process 165,000
-----------
2,843,000
Less accumulated depreciation and amortization (2,063,000)
-----------
$ 780,000
===========
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THERMAL STRUCTURES, INC.
4. NOTES RECEIVABLE
Notes receivable consists of the following at April 30, 1999:
8% note receivable from an individual, collateralized by
certain business assets and two deeds of trust on personal
residences, payable in monthly installments of $15,620
including interest through September 14, 2002 $ 563,000
Less current portion (145,000)
---------
$ 418,000
=========
5. DUE FROM AFFILIATES
A summary of significant balances with affiliated companies at April 30,
1999, is as follows:
Receivable from affiliates:
California Manufacturing Enterprises, Inc. $6,361,000
Quality Honeycomb, Inc. 293,000
R&R Stamping & Fourslide (dba CME Metalforming) 61,000
----------
$6,715,000
==========
The Company's parent, CME, receives substantially all cash flows resulting
from the operations of the Company. As such, the financial statements
include amounts due from affiliate within stockholders' equity representing
cash flows transferred from the Company to CME. The receivable from Quality
Honeycomb, Inc. resulted from charges for certain general management,
accounting, and administrative support provided by the Company to its
affiliate, Quality Honeycomb.
6. RELATED-PARTY TRANSACTIONS
Commencing on November 1, 1997, the Company entered into a professional
consulting agreement with a professional corporation whose shareholders are
related parties through ownership of CME. Terms of the agreement provide
for employment of the professional corporation whose duties include
management, litigation management, consulting, and marketing advice in
connection with the market position of the Company.
7
<PAGE>
THERMAL STRUCTURES, INC.
Commencing on November 1, 1997, the Company entered into a second
professional consulting agreement with a professional corporation whose
shareholder is a key member of management. Terms of the agreement provide
for employment of the professional corporation whose duties include
management, consulting, and marketing advice in connection with the market
position and sales activities of the Company.
Amounts incurred from the consulting agreements are recorded as management
fees in the Company's statement of income and retained earnings.
7. SUBSEQUENT EVENT
Effective June 30,1999, the Company consummated an agreement and plan of
merger whereby the Company's parent, Thermal Holdings, Inc., formerly a
subsidiary of California Manufacturing Enterprises, Inc. (CME), was merged
with the Company and CME. The Company continues as the surviving entity.
The Company has accounted for the merger as an exchange of common stock
between companies under common control, accordingly, assets and liabilities
transferred were accounted for at historical costs in a manner similar to
that in pooling-of-interests accounting. The accompanying financial
statements for the six months ended April 30, 1999 were not retroactively
restated to reflect this transaction due to immateriality.
8
EXHIBIT 99.2
THERMAL STRUCTURES, INC.
Financial Statements for the Years Ended
October 25, 1998 and October 26, 1997,
Supplemental Schedules, and Independent
Auditors' Report
<PAGE>
THERMAL STRUCTURES, INC.
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Balance sheets as of October 25, 1998 and October 26, 1997 2
Statements of income and retained earnings
for the years ended October 25, 1998 and October 26, 1997 3
Statements of cash flows
for the years ended October 25, 1998 and October 26, 1997 4
Notes to financial statements
for the years ended October 25, 1998 and October 26, 1997 5
SUPPLEMENTARY INFORMATION -
Schedules of cost of sales
for the years ended October 25, 1998 and October 26, 1997 12
Schedules of selling, general and administrative expenses
for the years ended October 25, 1998 and October 26, 1997 13
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Thermal Structures, Inc.
We have audited the accompanying balance sheets of Thermal Structures, Inc. (the
Company) as of October 25, 1998 and October 26, 1997, and the related statements
of income and retained earnings and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements 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, such financial statements present fairly, in all material
respects, the financial position of Thermal Structures, Inc. as of October 25,
1998 and October 26, 1997, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary information in the
schedules of cost of sales and the schedules of selling, general, and
administrative expenses (pages 12 and 13) are presented for the purpose of
additional analysis and are not a required part of the basic financial
statements. These schedules are the responsibility of the Company's management.
Such schedules have been subjected to the auditing procedures applied in our
audit of the basic financial statements and, in our opinion, are fairly stated
in all material respects when considered in relation to the basic financial
statements taken as a whole.
/s/ Deloitte & Touche LLP
January 28, 1999
<PAGE>
THERMAL STRUCTURES, INC.
BALANCE SHEETS
AS OF OCTOBER 25, 1998 AND OCTOBER 26, 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Cash $ 602,839 $ 102,436
Accounts receivable, net of allowance for doubtful accounts
of $38,550 in 1998 and 1997 3,913,953 2,528,792
Current portion of note receivable (Note 4) 145,305 133,969
Inventories (Note 2) 1,574,984 1,033,295
Prepaid expenses and other current assets 73,615 66,500
Deferred tax asset (Note 8) 149,000 66,000
Asset held for sale 125,000
------------ ------------
Total current assets 6,584,696 3,930,992
MACHINERY, EQUIPMENT, AND IMPROVEMENTS (Note 3) 805,330 565,502
OTHER ASSETS 120,133 81,089
NOTES RECEIVABLE, less current portion (Note 4) 488,937 644,031
------------ ------------
$ 7,999,096 $ 5,221,614
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,711,164 $ 963,434
Current portion of capital lease obligation (Note 5) 5,097
------------ ------------
Total current liabilities 1,716,261 963,434
CAPITAL LEASE OBLIGATION, less current portion (Note 5) 22,528
LEASE COMMITMENTS (Note 5)
STOCKHOLDERS' EQUITY:
Common stock, no par value; 1,000,000 shares authorized;
2,460 shares issued and outstanding 221,223 221,223
Retained earnings 12,375,016 10,282,513
Due from affiliates (Note 6) (6,335,932) (6,245,556)
------------ ------------
Total stockholders' equity 6,260,307 4,258,180
------------ ------------
$ 7,999,096 $ 5,221,614
============ ============
</TABLE>
See accompanying notes to financial statements. 2
<PAGE>
THERMAL STRUCTURES, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED OCTOBER 25, 1998 AND OCTOBER 26, 1997
<TABLE>
<CAPTION>
% of % of
1998 net sales 1997 net sales
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
NET SALES $19,021,788 100.0% $15,474,975 100.0%
COST OF SALES 10,065,566 52.9 8,203,505 53.0
----------- ------------- ----------- -------------
GROSS PROFIT 8,956,222 47.1 7,271,470 47.0
OPERATING EXPENSES:
Selling, general, and administrative
expenses (Notes 7 and 9) 3,173,653 16.7 2,302,316 14.9
Research and development expense -- -- 98,934 0.6
Management fees (Note 9) 2,445,942 12.9 -- 12.9
----------- ------------- ----------- -------------
Total operating expenses 5,619,595 29.6 2,401,250 15.5
----------- ------------- ----------- -------------
OPERATING INCOME 3,336,627 17.5 4,870,220 31.5
INTEREST INCOME, net 51,876 0.3 53,778 0.3
----------- ------------- ----------- -------------
INCOME BEFORE PROVISION FOR
INCOME TAXES 3,388,503 17.8 4,923,998 31.8
PROVISION FOR INCOME TAXES
(Note 8) 1,296,000 6.8 1,939,000 12.5
----------- ------------- ----------- -------------
NET INCOME 2,092,503 11.0% 2,984,998 19.3%
============= =============
RETAINED EARNINGS, beginning of year 10,282,513 7,297,515
----------- -----------
RETAINED EARNINGS, end of year $12,375,016 $10,282,513
=========== ===========
</TABLE>
See accompanying notes to financial statements. 3
<PAGE>
THERMAL STRUCTURES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 25, 1998 AND OCTOBER 26, 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,092,503 $ 2,984,998
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 173,717 56,326
Deferred taxes (83,000) 139,000
Changes in operating assets and liabilities:
Accounts receivable (1,385,161) (45,497)
Inventories (541,689) (417,472)
Prepaid expenses and other current assets (7,115) 2,639
Other assets (40,779) 138,328
Accounts payable and accrued expenses 747,730 78,747
Other liabilities -- 12,980
----------- -----------
Net cash provided by operating activities 956,206 2,950,049
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of machinery, equipment, and improvements (386,430) (244,233)
Collection on notes receivable 143,758
----------- -----------
Net cash used in investing activities (242,672) (244,233)
CASH FLOWS FROM FINANCING ACTIVITIES -
Advances to Parent (213,131) (2,633,678)
----------- -----------
NET INCREASE IN CASH 500,403 72,138
CASH, beginning of year 102,436 30,298
----------- -----------
CASH, end of year $ 602,839 $ 102,436
=========== ===========
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NONCASH TRANSACTIONS -
During the year ended October 25, 1998, the Company transferred machinery of
$125,000 to a current asset held for sale, $122,755 to its parent, CME, and
purchased fixed assets and executed a capital lease for $27,625.
See accompanying notes to financial statements. 4
<PAGE>
THERMAL STRUCTURES, INC.
NOTES TO FINANCIAL STATEMENTS
- ----------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 25, 1998 AND OCTOBER 26, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS - Thermal Structures, Inc. (TSI or the Company) is a
majority-owned subsidiary of Thermal Holding, Inc., which is a wholly owned
subsidiary of California Manufacturing Enterprises, Inc. (CME or the
Parent). The Company manufactures thermal insulation devices primarily for
the aerospace industry, as well as the mass transit, automotive, and
construction industries.
FISCAL YEAR - The Company's fiscal year for financial reporting and income
tax purposes ends on the last Sunday in October.
CREDIT RISK - The Company performs ongoing credit evaluations of its
customers and generally does not require collateral. The Company maintains
reserves for potential credit losses.
INVENTORIES - Inventories are stated at the lower of cost or market; cost
is determined using the first-in, first-out method.
MACHINERY, EQUIPMENT, AND IMPROVEMENTS - Machinery, equipment, and
improvements are stated at cost less accumulated depreciation and
amortization. Property is depreciated or amortized over the estimated
useful lives of the assets. Leasehold improvements are amortized over the
shorter of the estimated useful lives of improvements or the term of the
related lease. Assets are depreciated on a straight-line basis. The
estimated useful lives of the related assets range from five to ten years.
LONG-LIVED ASSETS - The Company accounts for impairment and disposition of
long-lived assets in accordance with Statement of Financial Accounting
Standards (SFAS) No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED
ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. In accordance with SFAS
No. 121, long-lived assets to be held are reviewed for events or changes in
circumstances which indicate that their carrying value may not be
recoverable. At October 25, 1998, the Company evaluated its long-lived
assets and determined that all amounts as stated were recoverable.
INCOME TAXES - The results of the operations of the Company are included in
the tax return of CME. The Company's provision in lieu of income taxes is
based on a tax-sharing agreement with CME, which, in general, allocates a
provision in lieu of income taxes to the Company as if it were calculated
on a stand-alone basis. Income taxes are accounted for in accordance with
SFAS No. 109, ACCOUNTING FOR INCOME TAXES. A valuation allowance related to
any net deferred tax assets is recorded when it is more likely than not
that some portion or all of the deferred tax asset will not be realized.
REVENUE RECOGNITION - Revenues are recognized upon shipment of products to
the customer.
RESEARCH AND DEVELOPMENT - Research and development costs consist of
expenditures incurred during the course of planned search and investigation
aimed at discovery of new knowledge which will be useful in developing new
products or processes, or significantly enhancing existing products or
5
<PAGE>
THERMAL STRUCTURES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 25, 1998 AND OCTOBER 26, 1997 (CONTINUED)
production processes, and the implementation of such through design,
testing of product alternatives, or construction of prototypes. The Company
expenses all research and development costs as they are incurred.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting year. Actual results could differ from those
estimates.
SIGNIFICANT CUSTOMERS - For the years ended October 25, 1998 and October
26, 1997, four and three customers, respectively, accounted for
approximately 53% and 35%, respectively, of the Company's sales. The loss
of, or a reduction in sales to, any such customers could have a material
adverse effect on the Company's business, operating results, and financial
condition.
RECLASSIFICATIONS - Certain reclassifications have been made to the October
26, 1997, financial statements to conform them to the October 25, 1998,
presentation.
2. INVENTORIES
Inventories consist of the following at October 25, 1998 and October 26,
1997:
1998 1997
---------- ----------
Raw materials and supplies $ 921,146 $ 587,898
Work-in-process 347,077 238,747
Finished goods 306,761 206,650
---------- ----------
$1,574,984 $1,033,295
========== ==========
6
<PAGE>
THERMAL STRUCTURES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 25, 1998 AND OCTOBER 26, 1997 (CONTINUED)
3. MACHINERY, EQUIPMENT, AND IMPROVEMENTS
Machinery, equipment, and improvements consist of the following at October
25, 1998 and October 26, 1997:
1998 1997
----------- -----------
Computer equipment $ 75,263 $ 36,407
Machinery and equipment 1,697,120 1,650,835
Leasehold improvements 618,293 327,255
Office furniture and fixtures 84,614 38,757
Auto and truck 11,363 39,134
Construction-in-process 151,436 167,033
----------- -----------
2,638,089 2,259,421
Less accumulated depreciation
and amortization (1,832,759) (1,693,919)
----------- -----------
$ 805,330 $ 565,502
=========== ===========
4. NOTES RECEIVABLE
Notes receivable consists of the following at October 25, 1998 and October
26, 1997:
1998 1997
--------- ---------
8% note receivable from an individual,
collateralized by certain business assets
and two deeds of trust on personal
residences, payable in monthly installments
of $15,620 including interest through
September 14, 2002 $ 634,242 $ 778,000
Less current portion (145,305) (133,969)
--------- ---------
$ 488,937 $ 644,031
========= =========
7
<PAGE>
THERMAL STRUCTURES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 25, 1998 AND OCTOBER 26, 1997 (CONTINUED)
5. LEASE COMMITMENTS
The Company entered into a five-year capital lease for its phone system
during the year ended October 25, 1998. Future minimum commitments under
the lease as of October 25, 1998, consist of the following:
Year ending:
1999 $ 7,152
2000 7,152
2001 7,152
2002 7,152
2003 4,172
--------
Total future minimum lease payments 32,780
Less amount representing interest (5,155)
--------
Present value of net future minimum lease payments 27,625
Less current portion (5,097)
--------
Noncurrent portion $ 22,528
========
The Company has a noncancelable operating lease for its facility, which
expires on July 1, 2003, and operating equipment leases expiring through
1999. Future minimum rental commitments under the leases consist of the
following at October 25, 1998:
FACILITY EQUIPMENT TOTAL
Year ending:
1999 $ 427,555 $15,471 $ 443,026
2000 404,304 404,304
2001 351,312 351,312
2002 167,400 167,400
2003 109,812 109,812
---------- ------- ----------
$1,460,383 $15,471 $1,475,854
========== ======= ==========
Total facility and equipment rent expense was $509,651 and $330,864,
respectively, for the years ended October 25, 1998 and October 26, 1997.
8
<PAGE>
THERMAL STRUCTURES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 25, 1998 AND OCTOBER 26, 1997 (CONTINUED)
6. DUE FROM AFFILIATES
A summary of significant balances with affiliated companies at October 25,
1998 and October 26, 1997, is as follows:
1998 1997
---------- ----------
Receivable from affiliates:
California Manufacturing Enterprises, Inc. $6,180,666 $6,217,126
Quality Honeycomb, Inc. 122,353 28,430
R&R Stamping & Fourslide (dba CME Metalforming) 31,468
Intriplex Technologies, Inc. 1,445
---------- ----------
$6,335,932 $6,245,556
========== ==========
The Company's parent, CME, receives substantially all cash flows resulting
from the operations of the Company. As such, the financial statements
include amounts due from affiliate within stockholders' equity representing
cash flows transferred from the Company to CME. The receivable from Quality
Honeycomb, Inc. resulted from charges for certain general management,
accounting, and administrative support provided by the Company to its
affiliate, Quality Honeycomb.
7. EMPLOYEE BENEFIT PLAN
The Company sponsors a defined contribution retirement plan (the Plan) that
meets the requirements of Section 401(k) of the Internal Revenue Code and
covers substantially all employees. During the years ended October 25, 1998
and October 26, 1997, the Company contributed $70,678 and $57,579,
respectively, to the Plan.
8. INCOME TAXES
The provision for income taxes for the years ended October 25, 1998 and
October 26, 1997, is based on the following components:
1998 1997
---------- ----------
Current income taxes:
Federal $1,073,000 $1,405,000
State 306,000 395,000
---------- ----------
1,379,000 1,800,000
========== ==========
9
<PAGE>
THERMAL STRUCTURES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 25, 1998 AND OCTOBER 26, 1997 (CONTINUED)
1998 1997
---------- ----------
Deferred income taxes:
Federal $ (70,000) $ 104,000
State (13,000) 35,000
---------- ----------
(83,000) 139,000
---------- ----------
$1,296,000 $1,939,000
========== ==========
The primary difference between income tax expense and the amount of income
tax that would result from applying the federal statutory rate to income
resulted primarily from state income taxes, nondeductible officers' life
insurance premiums, and meal and entertainment expenses.
Components of the Company's net deferred taxes at October 25, 1998 and
October 26, 1997, are accelerated depreciation, capitalized overhead costs,
an allowance for doubtful accounts, state enterprise zone tax credits, and
certain accrued liabilities.
9. RELATED-PARTY TRANSACTIONS
The Company recorded $48,600 of general management, accounting, and
administrative support costs in selling, general, and administrative
expense allocated from its parent, CME, for the year ended October 26,
1997.
Commencing on November 1, 1997, the Company entered into a professional
consulting agreement with a professional corporation whose shareholders are
related parties through ownership of CME. Terms of the agreement provide
for employment of the professional corporation whose duties include
management, litigation management, consulting, and marketing advice in
connection with the market position of the Company. Management fees of
$2,027,200 were paid to this entity for the year ended October 25, 1998.
Commencing on November 1, 1997, the Company entered into a second
professional consulting agreement with a professional corporation whose
shareholder is a key member of management. Terms of the agreement provide
for employment of the professional corporation whose duties include
management, consulting, and marketing advice in connection with the market
position and sales activities of the Company. Management fees of $418,742
were paid to this entity for the year ended October 25, 1998.
10
<PAGE>
THERMAL STRUCTURES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 25, 1998 AND OCTOBER 26, 1997 (CONTINUED)
The Company's professional consulting agreements described above represent
significant related-party transactions. The financial statements may not be
indicative of the financial position and results of operations which would
exist if the Company did not have the relationship and transactions
described in the professional consulting agreements described in the
previous two paragraphs.
10. SUBSEQUENT EVENT (UNAUDITED)
Effective June 30,1999, the Company consummated an agreement and plan of
merger whereby the Company's parent, Thermal Holdings, Inc., formerly a
subsidiary of California Manufacturing Enterprises, Inc. (CME), was merged
with the Company and CME. The Company continues as the surviving entity.
The Company has accounted for the merger as an exchange of common stock
between companies under common control, accordingly, assets and liabilities
transferred were accounted for at historical costs in a manner similar to
that in pooling-of-interests accounting. The accompanying financial
statements for the years ended October 25, 1998 and October 26, 1997 were
not retroactively restated to reflect this transaction due to
immateriality.
* * * * * *
11
<PAGE>
SUPPLEMENTARY INFORMATION
<PAGE>
THERMAL STRUCTURES, INC.
SCHEDULES OF COST OF SALES
FOR THE YEARS ENDED OCTOBER 25, 1998 AND OCTOBER 26, 1997
<TABLE>
<CAPTION>
% of % of
1998 net sales 1997 net sales
------------ --------- ------------ ----------
<S> <C> <C> <C> <C>
BEGINNING INVENTORIES $ 1,033,295 5.4% $ 615,823 4.1%
MANUFACTURING COSTS:
Purchases 3,526,407 18.5 2,557,314 16.5
Shop labor 3,737,187 19.6 3,222,110 20.8
Overhead:
Employee benefits 217,131 1.1 224,763 1.5
Bonus expense 202,570 1.1 138,421 0.9
Outside labor 717,539 3.8 749,739 4.8
Group insurance 186,963 1.0 153,410 1.0
401(k) matching contribution 47,747 0.3 36,639 0.2
Workers' compensation insurance 64,716 0.3 128,906 0.8
Payroll taxes 282,441 1.5 238,202 1.5
Depreciation and amortization 173,717 0.9 51,792 0.3
Equipment rental 10,598 0.1 10,660 0.1
Facility lease 426,588 2.2 261,829 1.7
Repairs and maintenance 151,648 0.8 162,370 1.0
Shipping and delivery 336,503 1.8 211,554 1.4
Shop supplies and tools 415,454 2.2 384,758 2.5
Utilities 110,046 0.6 88,510 0.6
------------ ---- ------------ ----
Total overhead costs 3,343,661 17.7 2,841,553 18.3
------------ ---- ------------ ----
Total manufacturing costs 11,640,550 61.2 9,236,800 59.7
Less ending inventories (1,574,984) (8.3) (1,033,295) (6.7)
------------ ---- ------------ ----
Total cost of sales $ 10,065,566 52.9% $ 8,203,505 53.0%
============ ==== ============ ====
</TABLE>
12
<PAGE>
THERMAL STRUCTURES, INC.
SCHEDULES OF SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
FOR THE YEARS ENDED OCTOBER 25, 1998 AND OCTOBER 26, 1997
<TABLE>
<CAPTION>
% of % of
1998 net sales 1997 net sales
------------ --------- ------------ ----------
<S> <C> <C> <C> <C>
SALARIES AND EMPLOYEE BENEFITS:
Salaries $ 992,482 5.2% $ 650,370 4.3%
Consulting fees 352,895 1.9 320,467 2.1
Payroll taxes 75,131 0.4 52,071 0.3
Employee benefits 110,068 0.6 109,103 0.7
Training 4,953 0.1 18,351 0.1
Group insurance 135,708 0.6 49,544 0.3
Workers' compensation 10,653 0.1 6,909
401(k) matching contributions 22,931 0.1 20,940 0.1
Bonus expense 330,943 1.7 215,850 1.4
------------ ---- ------------ ----
Total salaries and employee benefits 2,035,764 10.7 1,443,605 9.3
SELLING EXPENSES:
Advertising and trade shows 82,835 0.4 31,660 0.2
Automobile lease expense 57,355 0.3 31,424 0.2
Automobile costs 17,651 0.1 23,654 0.2
Travel and entertainment 258,903 1.4 222,864 1.4
Miscellaneous selling expenses 38,533 10.2 30,222 10.2
------------ ---- ------------ ----
Total selling expenses 455,277 2.4 339,824 2.2
OCCUPANCY COSTS:
Other insurance 74,109 0.4 61,974 0.4
Other office costs 203,005 1.1 113,257 0.8
Telephone 69,867 0.3 52,172 0.3
Office and computer lease expense 31,744 10.2 26,951 0.2
------------ ---- ------------ ----
Total occupancy costs 378,725 2.0 254,354 1.7
OTHER EXPENSES:
Bad debts -- -- 7,706 0.1
Professional fees 180,455 0.9 115,416 0.7
Taxes and licenses 81,429 0.4 46,071 0.3
Corporate allocation -- -- 48,600 0.3
ISO 9000 certification 31,023 0.2 34,740 0.2
Miscellaneous expense 10,980 0.1 12,000 10.1
------------ ---- ------------ ----
Total other expenses 303,887 11.6 264,533 1.7
------------ ---- ------------ ----
Total selling, general, and administrative
expenses $ 3,173,653 16.7% $ 2,302,316 14.9%
============ ==== ============ ====
</TABLE>
13
