UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended: January 30, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period................... from to....................
Commission File Number 0-5411
HERLEY INDUSTRIES, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE #23-2413500
- ------------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10 Industry Drive, Lancaster, Pennsylvania 17603
- ------------------------------------------ --------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (717) 397-2777
--------------
--------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
[ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of March 9, 2000 - 4,622,921 shares of Common Stock.
<PAGE>
HERLEY INDUSTRIES, INC
AND SUBSIDIARIES
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION PAGE
----
Item 1 - Financial Statements:
Consolidated Balance Sheets -
January 30, 2000 and August 1, 1999 2
Consolidated Statements of Income -
For the thirteen and twenty-six weeks ended
January 30, 2000 and January 31, 1999 3
Consolidated Statements of Cash Flows -
For the thirteen and twenty-six weeks ended
January 30, 2000 and January 31, 1999 4
Notes to Consolidated Financial Statements 5
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 10
PART II -OTHER INFORMATION 11
Signatures 13
<PAGE>
<TABLE>
<CAPTION>
HERLEY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 30, August 1,
2000 1999
------------- -------------
<S> <C> <C>
Unaudited Audited
ASSETS
Current Assets:
Cash and cash equivalents $ 3,486,190 $ 2,741,163
Accounts receivable 13,445,651 10,678,638
Other receivables 223,347 212,515
Inventories 23,662,103 19,880,370
Deferred taxes and other 3,009,197 2,703,179
----------- -----------
Total Current Assets 43,826,488 36,215,865
Property, Plant and Equipment, net 19,089,171 21,888,553
Intangibles, net of amortization of $2,555,739 at
January 30, 2000 and $2,137,459 at August 1, 1999 17,742,194 13,573,653
Available-for-sale Securities 147,576 148,105
Other Investments 983,199 947,983
Other Assets 1,340,516 1,282,078
----------- -----------
$83,129,144 $74,056,237
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 279,119 $ 258,383
Notes payable - other 1,535,468 --
Accounts payable and accrued expenses 9,262,920 8,035,211
Income taxes payable 916,761 276,160
Reserve for contract losses 1,340,344 1,505,048
Advance payments on contracts 1,431,087 438,538
----------- -----------
Total Current Liabilities 14,765,699 10,513,340
Long-term Debt 23,071,033 15,437,390
Deferred Income Taxes 5,572,880 5,143,837
Minority interest 62,062 62,062
----------- -----------
43,471,674 31,156,629
----------- -----------
Commitments and Contingencies
Shareholders' Equity:
Common stock, $.10 par value; authorized
20,000,000 shares; issued and outstanding
4,600,699 at January 30, 2000
and 5,030,283 at August 1, 1999 460,070 503,028
Additional paid-in capital 8,290,148 15,071,964
Retained earnings 30,907,252 27,324,616
----------- -----------
Total Shareholders' Equity 39,657,470 42,899,608
----------- -----------
$83,129,144 $74,056,237
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
2
<PAGE>
<TABLE>
<CAPTION>
HERLEY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Thirteen weeks ended Twenty-six weeks ended
January 30, January 31, January 30, January 31,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 16,217,470 $ 14,532,161 $ 32,356,747 $ 26,183,006
------------ ------------ ------------ ------------
Cost and expenses:
Cost of products sold 10,313,557 8,920,244 19,978,606 15,691,564
Selling and administrative expenses 3,141,823 2,528,057 6,387,824 4,651,830
------------ ------------ ------------ ------------
13,455,380 11,448,301 26,366,430 20,343,394
------------ ------------ ------------ ------------
Operating income 2,762,090 3,083,860 5,990,317 5,839,612
------------ ------------ ------------ ------------
Other income (expense):
Investment income 47,119 82,539 101,373 185,656
Interest expense (309,133) (163,272) (581,054) (265,188)
------------ ------------ ------------ ------------
(262,014) (80,733) (479,681) (79,532)
------------ ------------ ------------ ------------
Income before income taxes 2,500,076 3,003,127 5,510,636 5,760,080
Provision for income taxes 874,000 1,051,000 1,928,000 2,016,000
------------ ------------ ------------ ------------
Net income $ 1,626,076 $ 1,952,127 $ 3,582,636 $ 3,744,080
============ ============ ============ ============
Earnings per common share - Basic $.36 $.37 $.76 $.71
==== ==== ==== ====
Basic weighted average shares 4,563,286 5,290,225 4,684,214 5,281,957
========= ========= ========= =========
Earnings per common share -Diluted $.34 $.34 $.72 $.67
==== ==== ==== ====
Diluted weighted average shares 4,844,369 5,696,776 4,971,652 5,614,895
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
HERLEY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Twenty-six weeks ended
January 30, January 31,
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,582,636 $ 3,744,080
------------ ------------
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization 1,913,305 1,325,890
(Gain) loss on disposal of property and equipment (18,327) 7,841
Equity in income of limited partnership (35,216) (47,059)
(Increase) in deferred tax assets (90,580) (316,326)
Increase in deferred tax liabilities 429,043 952,425
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (648,754) 652,731
(Increase) in costs incurred and income recognized
in excess of billings on uncompleted contracts -- (2,395,591)
(Increase) decrease in other receivables (10,832) 30,883
Decrease in prepaid income taxes -- 377,448
(Increase) decrease in inventories (1,916,464) 1,431,491
(Increase) decrease in prepaid espenses and other (182,775) 5,418
Increase (decrease) in accounts payable
and accrued expenses 368,775 (1,477,930)
Increase (decrease) in income taxes payable 630,601 (109,858)
(Decrease) in reserve for contract losses (164,704) (59,080)
Increase (decrease) in advance payments on contracts 620,381 (878,729)
Other, net 730 64,565
------------ ------------
Total adjustments 895,183 (435,881)
------------ ------------
Net cash provided by operating activities 4,477,819 3,308,199
------------ ------------
Cash flows from investing activities:
Acquisition of business, net of cash acquired (6,020,000) (20,101,475)
Proceeds from sale of property and equipment 4,124,505 1,250
Capital expenditures (1,794,226) (990,869)
------------ ------------
Net cash used in investing activities (3,689,721) (21,091,094)
------------ ------------
Cash flows from financing activities:
Borrowings under bank line of credit 11,500,000 19,400,000
Proceeds from exercise of stock options and warrants 226,624 398,201
Payments under lines of credit (4,000,000) (8,900,000)
Payments of long-term debt (204,320) (309,370)
Purchase of treasury stock (7,565,375) (1,583,700)
------------ ------------
Net cash provided by (used in) financing activities (43,071) 9,005,131
------------ ------------
Net (decrease) increase in cash and cash equivalents 745,027 (8,777,764)
Cash and cash equivalents at beginning of period 2,741,163 10,689,193
------------ ------------
Cash and cash equivalents at end of period $ 3,486,190 $ 1,911,429
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
Herley Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - (Unaudited)
1. The consolidated financial statements include the accounts of Herley
Industries, Inc. and its subsidiaries, all of which are wholly-owned. All
significant inter-company accounts and transactions have been eliminated in
consolidation.
In the opinion of the Company, the accompanying consolidated financial
statements reflect all adjustments (which include only normal recurring
adjustments) necessary to present fairly the results of operations and cash
flows for the periods presented. These financial statements (except for the
balance sheet presented at August 1, 1999) are unaudited and have not been
reported on by independent public accountants.
Results of operations for interim periods are not necessarily indicative of
the results of operations for a full year due to external factors which are
beyond the control of the Company.
2. The Company entered into an agreement, as of January 3, 2000, to acquire
substantially all of the assets of Robinson Laboratories, Inc. ("Robinson"
or "Robinson Labs"), a New Hampshire corporation, which is being operated
as a division of Herley Industries, Inc. The transaction, which closed on
February 1, 2000, provided for the payment of $6,000,000 in cash, the
issuance of 33,841 shares of Common Stock of the Company valued at $15.188
per share, and the assumption of approximately $3,135,000 in liabilities.
In addition, the agreement provides for the issuance of additional shares
of Common Stock at a future date, aggregating 97,841shares, based on new
orders booked through January 31, 2001. The transaction has been accounted
for under the purchase method. Accordingly, the consolidated balance sheet
includes the assets and liabilities of Robinson at January 30, 2000, and
the consolidated statement of income includes the results of Robinson's
operations from January 3, 2000. Excess cost over the fair value of net
assets acquired of approximately $4,587,000 is being amortized over 20
years. The allocation of the aggregate estimated purchase price of
$6,534,000 will be revised when additional information concerning asset and
liability valuations is obtained. Adjustments, which could be significant,
will be made during the allocation period based on detailed reviews of the
fair values of assets acquired and liabilities assumed and could result in
a substantial change in the excess of cost over the fair value of net
assets acquired.
On the basis of a pro forma consolidation of the results of operations as
if the acquisition had taken place at the beginning of fiscal 1999,
unaudited consolidated net sales, net income, basic earnings per share, and
diluted earnings per share for the thirteen and twenty-six weeks ended
January 31, 1999 would have been approximately $16,888,000, $1,997,000,
$.38, and $0.35, and approximately $30,510,000, $3,582,000, $.68, and
$0.64, respectively, and for the twenty-six weeks ended January 30, 2000
would have been approximately $35,066,000, $3,246,000, $.69, and $.65,
respectively. The pro forma information includes adjustments for additional
depreciation based on the estimated fair market value of the property,
plant, and equipment acquired, the amortization of intangibles, and
additional interest on bank borrowings arising from the transaction. The
pro forma financial information is not necessarily indicative of the
results of operations as they would have been had the transaction been
affected at the beginning of fiscal 1999.
Notes payable - other at January 30, 2000 consists of bank debt of $946,849
and notes payable to a former shareholder of Robinson in the amount of
$588,619. The notes and bank debt were paid at the time of closing.
5
<PAGE>
3. Inventories at January 30, 2000 and August 1, 1999 are summarized as
follows:
January 30, 2000 August 1, 1999
---------------- --------------
Purchased parts and raw materials $ 11,022,075 $ 9,862,727
Work in process 11,976,276 8,780,767
Finished products 663,752 1,236,876
---------- ----------
$ 23,662,103 $ 19,880,370
========== ==========
4. In January 2000, the Company entered into an amendment to its revolving
loan agreement with a bank that provides for a revolving unsecured loan in
the aggregate principal amount of $30,000,000 which may be used for general
corporate purposes, including business acquisitions. The revolving credit
facility requires the payment of interest only on a monthly basis and
payment of the outstanding principal balance on January 31, 2002. Interest
is set at 1.65% over the FOMC Federal Funds Target Rate based on tangible
net worth in excess of $25,000,000, or at an increment of 1.80% if tangible
net worth is less than $25,000,001. The aggregate rate was 7.15% at January
30, 2000, including an increment of 1.80%. There is a fee of 15 basis
points per annum on the unused portion of the credit line in excess of
$20,000,000 payable quarterly. Borrowings under the line were $20,000,000
at January 30, 2000. The credit facility also provides for the issuance of
stand-by letters of credit with a fee of 1.0% per annum of the amounts
outstanding under the facility. At January 30, 2000, stand- by letters of
credit aggregating $1,135,122 were outstanding under this facility.
The agreement contains various financial covenants, including, among other
matters, minimum tangible net worth, debt to tangible net worth, debt
service coverage, and restrictions on other borrowings.
5. The following table shows the calculation of basic earnings per share and
earnings per share assuming dilution:
Thirteen weeks ended
--------------------
January 30, January 31,
2000 1999
----------- -----------
Numerator:
Net Income $1,626,076 $1,952,127
========= =========
Denominator:
Basic weighted-average shares 4,563,286 5,290,225
Effect of dilutive securities:
Employee stock options and warrants 281,083 406,551
--------- ---------
Diluted weighted-average shares 4,844,369 5,696,776
========= =========
Earnings per common share - Basic $.36 $.37
=== ===
Earnings per common share - Diluted $.34 $.34
=== ===
Options and warrants to purchase 2,648,675 shares of common stock, with
exercise prices ranging from $13.88 to $16.46, were outstanding during the
second quarter of fiscal 2000, but were not included in the computation of
diluted EPS because the exercise prices are greater than the average market
price of the common shares. The options and warrants, which expire at
various dates through December 28, 2009, were still outstanding as of
January 30, 2000. Options and warrants to purchase 2,582,342 shares of
common stock, with exercise prices ranging from $12.19 to $16.46, were
outstanding during the second quarter of fiscal 1999 but were not included
in the computation of diluted EPS because the exercise prices are greater
than the average market price of the common shares.
6
<PAGE>
Twenty-six weeks ended
----------------------
January 30, January 31,
2000 1999
----------- -----------
Numerator:
Net Income $3,582,636 $3,744,080
========= =========
Denominator:
Basic weighted-average shares 4,684,214 5,281,957
Effect of dilutive securities:
Employee stock options and warrants 287,437 332,938
--------- ---------
Diluted weighted-average shares 4,971,652 5,614,895
========= =========
Earnings per common share - Basic $.76 $.71
=== ===
Earnings per common share - Diluted $.72 $.67
=== ===
Options and warrants to purchase 2,648,675 shares of common stock, with
exercise prices ranging from $13.88 to $16.46, were outstanding during the
first six months of fiscal 2000, but were not included in the computation
of diluted EPS because the exercise prices are greater than the average
market price of the common shares. The options and warrants, which expire
at various dates through December 28, 2009, were still outstanding as of
January 30, 2000. Options and warrants to purchase 2,630,175 shares of
common stock, with exercise prices ranging from $10.81 to $16.46, were
outstanding during the first six months of fiscal 1999 but were not
included in the computation of diluted EPS because the exercise prices are
greater than the average market price of the common shares.
6. Supplemental cash flow information is as follows:
January 30, January 31,
2000 1999
----------- -----------
Cash paid during the period for:
Interest $ 168,990 $ 198,100
Income Taxes 1,119,758 1,206,058
Cashless exercise of stock options 47,119 228,353
Warrants issued for business acquired - 1,450,000
Common stock issued for business acquired 513,977 -
Tax benefit related to stock options 161,000 210,000
7
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
The statements contained in this report which are not historical fact are
"forward-looking statements" that involve various important assumptions, risks,
uncertainties and other factors which could cause the Company's actual results
for fiscal 2000 and beyond to differ materially from those expressed in such
forward-looking statements. These important factors include, without limitation,
competitive factors and pricing pressures, changes in legal and regulatory
requirements, technological change or difficulties, product development risks,
commercialization and trade difficulties and general economic conditions, as
well as other risks previously disclosed in the Company's securities filings and
press releases.
Results of Operations
- ---------------------
Thirteen weeks ended January 30, 2000 and January 31, 1999
- ----------------------------------------------------------
Net sales for the thirteen weeks ended January 30, 2000 were $16,217,000
compared to $14,532,000 in the second quarter of fiscal 1999. The sales increase
of $1,685,000 (11.6%) is primarily attributable to revenue generated by General
Microwave, which was included in fiscal 1999 for one month, of $2,863,000, and
revenue of $816,000 from Robinson Labs which was acquired as of January 3, 2000.
In addition microwave products revenue increased $596,000 in the second quarter
fiscal 2000 as compared to fiscal 1999. These increases in revenue from the
microwave technology group were offset by reductions in revenues from flight
instrumentation products of $2,590,000.
The gross profit margin of 36.4%, in the thirteen weeks ended January 30, 2000,
was 2.2 percentage points lower than the margin of 38.6% in the second quarter
of the prior year. The decrease is due to lower margins on microwave components,
and certain foreign contracts, as well as lower margins than the Company's
historical margins from the General Microwave revenues.
Selling and administrative expenses for the thirteen weeks ended January 30,
2000 increased $614,000 as compared to the second quarter of fiscal 1999.
Selling and administrative expenses of General Microwave account for $658,000 of
the increase, and Robinson Labs accounts for $143,000. Synergies from the
consolidation of Metraplex and Steward Warner into the Lancaster facilities
reduced expenses by approximately $198,000.
Investment income declined $35,000 from the prior year due to the liquidation of
investments during the second quarter fiscal 1999, the proceeds of which were
used to partially fund the acquisition of General Microwave. In addition, bank
borrowings of $11,400,000 used to fund the acquisition contributed to an
increase in interest expense of approximately $146,000.
Twenty-six weeks ended January 30, 2000 and January 31, 1999
- ------------------------------------------------------------
Net sales for the twenty-six weeks ended January 30, 2000 were $32,357,000
compared to $26,183,000 in the comparable prior year period. The sales increase
of $6,174,000 (23.6%) is primarily attributable to revenue generated by General
Microwave, which was included in fiscal 1999 for one month, of $6,918,000, and
revenue of $816,000 from Robinson Labs which was acquired as of January 3, 2000.
In addition microwave products revenue increased $1,571,000 in the second
quarter fiscal 2000 as compared to fiscal 1999. These increases in revenue from
the microwave technology group were offset by reductions in revenues from flight
instrumentation products of $3,131,000.
Gross profit margin for the twenty-six weeks ended January 30, 2000 was 38.3% as
compared to 40.1% in fiscal 1999. The decline in margin of 1.8 percentage points
is due primarily to lower margins on microwave components
8
<PAGE>
and certain foreign contracts, as well as lower margins than the Company's
historical margins from the General Microwave revenues.
Selling and administrative expenses for the twenty-six weeks ended January 30,
2000 were $6,388,000 compared to $4,652,000 in the first six months of fiscal
1999, an increase of $1,736,000. The increase is primarily attributable to
expenses of General Microwave of $1,708,000 and Robinson Labs of $143,000.
Synergies from the consolidation of Metraplex and Steward Warner into the
Lancaster facilities reduced expenses by approximately $451,000. Other
significant changes include increases in performance incentives of $232,000,
corporate contributions of $101,000, personnel costs of $144,000, and outside
services of $121,000. Representative fees decreased $248,000.
Investment income declined $84,000 from the prior year due to the liquidation of
investments during the second quarter fiscal 1999, the proceeds of which were
used to partially fund the acquisition of General Microwave. In addition, bank
borrowings of $11,400,000 used to fund the acquisition contributed to an
increase in interest expense of approximately $316,000.
Business Acquisition
- --------------------
The Company entered into an agreement, as of January 3, 2000, to acquire
substantially all of the assets of Robinson Laboratories, Inc. ("Robinson" or
"Robinson Labs"), a New Hampshire corporation, which is being operated as a
division of Herley Industries, Inc. The transaction, which closed on February 1,
2000, provided for the payment of $6,000,000 in cash, the issuance of 33,841
shares of Common Stock of the Company valued at $15.188 per share, and the
assumption of approximately $3,135,000 in liabilities. In addition, the
agreement provides for the issuance of additional shares of Common Stock at a
future date, aggregating 97,841shares, based on new orders booked through
January 31, 2001. The cash portion of the purchase price was financed by
borrowing under the Company's existing line of credit with its bank. The
transaction has been accounted for under the purchase method. Accordingly, the
consolidated balance sheet includes the assets and liabilities of Robinson at
January 30, 2000, and the consolidated statement of income includes the results
of Robinson's operations from January 3, 2000. Excess cost over the fair value
of net assets acquired of approximately $4,587,000 is being amortized over 20
years. The allocation of the aggregate estimated purchase price of $6,534,000
will be revised when additional information concerning asset and liability
valuations is obtained. Adjustments, which could be significant, will be made
during the allocation period based on detailed reviews of the fair values of
assets acquired and liabilities assumed and could result in a substantial change
in the excess of cost over the fair value of net assets acquired.
On the basis of a pro forma consolidation of the results of operations as if the
acquisition had taken place at the beginning of fiscal 1999, unaudited
consolidated net sales, net income, basic earnings per share, and diluted
earnings per share for the thirteen and twenty-six weeks ended January 31, 1999
would have been approximately $16,888,000, $1,997,000, $.38, and $0.35, and
approximately $30,510,000, $3,582,000, $.68, and $0.64, respectively, and for
the twenty-six weeks ended January 30, 2000 would have been approximately
$35,066,000, $3,246,000, $.69, and $.65, respectively. The pro forma information
includes adjustments for additional depreciation based on the estimated fair
market value of the property, plant, and equipment acquired, the amortization of
intangibles, and additional interest on bank borrowings arising from the
transaction. The pro forma financial information is not necessarily indicative
of the results of operations as they would have been had the transaction been
affected at the beginning of fiscal 1999.
Liquidity and Capital Resources
- -------------------------------
As of January 30, 2000 and August 1, 1999, working capital was $29,061,000 and
$25,703,000, respectively, and the ratio of current assets to current
liabilities was 2.97 to 1 and 3.44 to 1, respectively. The reduction in the
current ratio is primarily attributable to the purchase of assets and assumption
of certain liabilities of Robinson Labs.
9
<PAGE>
As is customary in the defense industry, inventory is partially financed by
progress payments. The unliquidated balance of these advanced payments was
approximately $1,431,000 at January 30, 2000, and $439,000 at August 1, 1999.
Net progress payments of $862,000 received during the quarter relate to a new
contract.
Net cash provided by operations during the period was approximately $4,478,000,
up from $3,308,000 in the prior fiscal year.
Net cash used in investing activities consists of the acquisition of Robinson
Labs, in part for cash of approximately $6,000,000, as discussed above under
"Business Acquisition", and $1,794,000 for capital expenditures, including
building and leasehold improvements of $1,249,000 to accommodate the move of
General Microwave from Amityville, NY to a leased facility in Farmingdale, NY
and consolidation of the General Microwave leased facilities in Billerica, MA
with Herley-MDI in Woburn, MA. Net cash received from the sale of the facility
in Amityville was $4,125,000.
The Company maintains a revolving credit facility with a bank for an aggregate
of $30,000,000, as amended in January 2000, which expires January 31, 2002. As
of January 30, 2000 and August 1, 1999, the Company had borrowings outstanding
of $20,000,000 and $12,500,000, respectively.
During the period ended January 30, 2000, the Company received net proceeds of
approximately $227,000 from the exercise of common stock options and warrants by
employees and acquired 512,000 shares of treasury stock through open market
purchases at a cost of $7,565,000. The Company has acquired an aggregate of
858,050 shares under the 1,250,000 share buyback programs approved by the Board
of Directors. The Company also acquired 6,027 shares of common stock valued at
$86,766 in connection with certain "stock-for-stock" exercises of stock options
by which certain employees elected to surrender "mature" shares owned in
settlement of the option price, and related tax obligations of $39,647. Such
exercises are treated as an exercise of a stock option and the acquisition of
treasury shares by the Company. All such treasury shares have been retired.
At January 30, 2000, the Company had cash and cash equivalents of approximately
$3,486,000.
The Company believes that presently anticipated future cash requirements will be
provided by internally generated funds and existing credit facilities.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
The Company is subject to market risk associated with changes in interest rates
and stock prices. The Company has not entered into any derivative financial
instruments to manage the above risks and the Company has not entered into any
market risk sensitive instruments for trading purposes. There have been no
material changes in market risk to the Company since its fiscal year end as
disclosed in the Company's Annual Report Form 10K as of August 1, 1999.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS:
The Company is not involved in any material legal proceedings.
ITEM 2 - CHANGES IN SECURITIES:
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES:
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
(a) The Registrant held its Annual Meeting of Stockholders on February 1, 2000.
(b) Two directors were elected at the Annual Meeting of Stockholders as
follows:
Class III - To serve until the Annual Meeting of Stockholders in 2002
or until their successors are chosen and qualified:
Name Votes For Votes Withheld
-------------------------- --------- --------------
Adm. Thomas J. Allshouse 3,930,420 222,891
David H. Lieberman 3,930,420 222,891
(c) The adoption of a 1997 Stock Option Plan was ratified as follows:
Votes For Votes Against Abstained
--------- ------------- ---------
1,540,464 1,341,070 92,495
(d) The adoption of a 1998 Stock Option Plan was ratified as follows:
Votes For Votes Against Abstained
--------- ------------- ---------
2,106,897 772,821 94,311
ITEM 5 - OTHER INFORMATION:
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits
10.1 Amendment to Loan Agreement dated January 11, 2000 between
Registrant and Allfirst Bank, successor to The First National
Bank of Maryland.
11
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10.2 Asset Purchase Agreement dated as of February 1, 2000 between
Registrant and Robinson Laboratories, Inc.
27. Financial Data Schedule (for electronic submission only).
` (b) Reports on Form 8-K
No reports on Form 8-K were filed during the second quarter of fiscal
2000.
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FORM 10-Q
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 thereunto duly authorized.
HERLEY INDUSTRIES, INC.
-----------------------
Registrant
BY: /S/ Myron Levy
---------------------------
Myron Levy, President
BY: /S/ Anello C. Garefino
---------------------------
Anello C. Garefino
Principal Financial Officer
DATE: March 13, 2000
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Exhibit 10.1
AMENDMENT TO
LOAN AGREEMENT
THIS AMENDMENT TO LOAN AGREEMENT (the "Amendment") is made and entered
into this 11th day of January, 2000, by and between HERLEY INDUSTRIES, INC., a
Delaware corporation, having offices at 10 Industry Drive, Lancaster,
Pennsylvania 17603 (the "Borrower") and ALLFIRST BANK, a Maryland
state-chartered commercial bank, successor to The First National Bank of
Maryland, a division of FMB Bank, having offices at 1703 Oregon Pike, Lancaster,
Pennsylvania 17601 (the "Lender").
B A C K G R O U N D :
A. Borrower has borrowed from Lender and desires to continue to borrow from
Lender in connection with the operation of its business(es). On February 16,
1999, the parties entered into a Loan Agreement relative to a Revolving Loan and
a Mortgage Loan (the "Agreement"). The Agreement is incorporated herein by
reference and made a part hereof. All capitalized terms used herein without
definition which are defined in the Agreement shall have the meanings set forth
therein.
B. The parties desire to amend the Agreement.
C. Borrower has no defense, charge, defalcation, claim, plea, demand or
set-off against the Agreement or any of the Loan Documents.
NOW, THEREFORE, for valuable consideration, receipt of which is hereby
acknowledged, and intending to be legally bound hereby, the parties hereto
covenant and agree as follows:
1. That the above Background is incorporated herein by reference.
2. That Section 1.1 of the Agreement is amended to extend the current
Revolving Loan Maturity Date from January 31, 2001, to January 31, 2002 and to
increase the stated principal amount of the Revolving Loan Note from Twenty
Million Dollars ($20,000,000) to Thirty Million Dollars ($30,000,000).
3. That Section 2.2 of the Agreement is amended to increase the maximum
Outstanding Revolving Loan Amount from Twenty Million Dollars ($20,000,000) to
Thirty Million Dollars ($30,000,000).
4. That Section 2.2.3 of the Agreement is amended to provide that
Borrower shall now have the option, exercisable at any time prior to the
Revolving Loan Maturity Date, to convert all or any part of the Revolving Loan
to a term loan(s) payable in not more than sixty (60) consecutive equal monthly
principal payments plus accrued interest. Any such term loan(s) shall be
evidenced by a promissory note of the Borrower in form and content satisfactory
to Lender, which will supplement but not supersede or replace the Revolving Loan
Note.
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5. That Section 2.5 of the Agreement is amended to provide that
interest will accrue on the outstanding principal balance of the Revolving Loan
at a rate per annum equal to the Federal Funds Target Rate as established by the
Federal Open Market Committee of the Federal Reserve Board, as in effect from
time to time plus the following increments based on the Borrower's Tangible Net
Worth as reported (GAAP defined) quarterly on its 10Q or 10K financial
statements. The interest rate shall change effective with the Bank's
implementation or changes in the Federal Funds Target Rate as publicly
announced.
Tangible Net Worth Increment
Greater than $25,000,000 1.65%
Less than or equal to $25,000,000 1.80%
The interest rate will revert (prospectively) automatically to the appropriate
rate should Borrower's Tangible Net Worth subsequently change from the level
which prompted the adjustment.
6. That Section 2.7 of the Agreement is amended to add a subsection (d)
to read in its entirety as follows:
(d) The Borrower agrees to pay to the Lender
quarterly in arrears, on the last day of each quarter, an
availability fee calculated at 15 basis points per annum on
the average daily unused portion of the Revolving Loan between
$20,000,000 and $30,000,000 during that quarter.
7. That Section 5.9 of the Credit Agreement is amended to provide that
the Revolving Loan will be subject to review and, at Bank's option, modification
by Bank in the event of any change(s) in executive management or a sale(s) of
Borrower.
8. That Section 6.11 of the Agreement is amended to provide that
Borrower will not permit the Tangible Net Worth of Borrower, on a consolidated
basis, to be less than $18,000,000 at any time until FYE 2000 or less than
$22,000,000 at any time from FYE 2000 until FYE 2001 or less than $25,000,000 at
any time from FYE 2001 and thereafter while any Loan remains outstanding and
unpaid or any other amount is owing under any Loan Document to Lender.
9. That Section 6.12 of the Agreement is amended to provide that
Borrower shall maintain a maximum Debt-to-Tangible Net Worth Ratio of 2.50-to-1
until FYE 2000 and 2.25-to-1 from FYE 2000 until FYE 2001 and 1.70-to-1 from FYE
2001 and thereafter while any Loan remains outstanding and unpaid or any other
amount is owing under any Loan Document to Lender.
10. That the Agreement is amended to add a Section 6.14 to read in
its entirety as follows:
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6.14 Treasury Stock Repurchases.
--------------------------
Execute treasury stock repurchases, except that
Borrower may execute treasury stock repurchases in annual
amounts not in excess of 50% of net income provided that such
repurchase(s) does not trigger any financial covenant
default(s).
11. That the Borrower reaffirms and restates the representations and
warranties set forth in Article VII of the Agreement, as amended by this
Amendment, and all such representations and warranties shall be true and correct
on the date hereof with the same force and effect as if made on such date,
except as they may specifically refer to an earlier date(s). The Borrower
represents and warrants (which representations and warranties shall survive the
execution and delivery hereof) to the Lender that (i) this Amendment has been
duly authorized, executed and delivered and constitute a legal, valid and
binding obligation of the Borrower, and is enforceable in accordance with its
terms; (ii) the Borrower is not in default under the Agreement or any of the
other Loan Documents, and the Borrower is in full compliance with all of the
terms and conditions thereof; (iii) no event exists, or is likely to exist in
the future, which with the passage of time, notice, or both, will constitute a
default under the Agreement or any of the other Loan Documents; and (iv) there
have been no material adverse changes in the Borrower's finances or operations
which would cause the Borrower to be in default under any of the financial
covenants contained in the Loan Documents.
12. That the terms and conditions, paragraph sections, collateral and
guaranty requirements, representations and warranties of the Agreement and Loan
Documents, together with all understandings by and between the parties to this
Amendment evidenced by writings of the same or subsequent date not in conflict
with the above modifications under this Amendment shall remain in full force and
effect as the agreement of the parties relative to the Loans, and are hereby
ratified, reaffirmed and confirmed.
13. That all references to the Agreement, the Loan Documents, and the
other documents and instruments delivered pursuant to or in connection
therewith, as well as in writings of the same or subsequent date, shall mean the
Agreement as amended hereby and as each may in the future be amended, restated,
supplemented or modified from time to time. Similarly, all references to The
First National Bank of Maryland, a division of FMB Bank, shall be deemed to have
been made and to refer to Allfirst Bank, successor to The First National Bank of
Maryland, a division of FMB Bank.
14. That the parties hereto shall, at any time, and from time to time
following the execution of this Amendment, execute and deliver all such further
instruments and take all such further action as may be reasonably necessary or
appropriate in order to carry out the provisions of this Amendment.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective duly authorized officers all as of the day and year
first above written.
ATTEST: HERLEY INDUSTRIES, INC., a Delaware
corporation
______________________________ By:________________________________
Title:________________________ Title:_____________________________
______________________________ By:________________________________
Title:________________________ Title:_____________________________
ALLFIRST BANK, successor to The First
National Bank of Maryland, a Division
of FMB Bank
By:________________________________
Title:_____________________________
-4-
Exhibit 10.2
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT made as of the 1st day of February 2000, by
and between ROBINSON LABORATORIES, INC., a New Hampshire corporation
(hereinafter the "Seller") and HERLEY INDUSTRIES, INC., a Delaware corporation
(hereinafter the "Buyer").
W I T N E S S E T H:
WHEREAS, Seller is engaged in the business of manufacturing and selling
microwave components and desires to sell to Buyer its business (the "Business")
and substantially all of its assets, as herein provided (the "Assets"), and
Buyer desires to purchase the Business and Assets, at the price and on the terms
and conditions hereinafter set forth.
NOW, THEREFORE, for and in consideration of the mutual representations,
covenants and warranties herein contained, and intending to be legally bound
hereby, the parties hereto agree as follows:
ARTICLE I
Purchase and Sale of Assets
Subject to the terms and conditions hereof and based upon the
representations, warranties, covenants and agreements of the parties hereafter
set forth, Buyer hereby agrees to purchase and accept from Seller, and Seller
agrees to sell, assign, transfer and convey to Buyer on the Closing Date (as
hereinafter defined) all of the Assets, including without limitation, all of the
tangible and intangible assets, rights, interests and properties of every kind
and nature, wherever located and by whomever possessed, owned by Seller as of
the date hereof (together with any proceeds thereof or any payment thereon which
may be received by Seller subsequent to the date hereof), free and clear of all
security interests, liens and encumbrances, except as otherwise set forth in the
Disclosure Schedule attached hereto, including, without limitation, the
following:
1.1. All machinery and other equipment, telephone systems, vehicles,
furniture, fixtures, leasehold interests and improvements and fixed assets of
Seller of any kind whatsoever, including without limitation those assets
reflected on the Balance Sheet of Seller at September 30, 1999 and the fixed
assets described on Schedule 1.1 attached hereto.
1.2. All catalogues, shipping and office supplies, books of account and
other financial records necessary to or useful in the continued operation of
Seller's Business, customer lists and vendor lists, customer backlogs, telephone
numbers and telephone directory listings, the name ROBINSON LABS and any
variation thereof, all rights under any contracts subject to consents required
for assignment of government contracts, licenses and permits, the Business of
Seller as a going concern, and all intangible assets of Seller of any kind
whatsoever, including without limitation, all trade secrets, and all patents,
trademarks, tradenames, and applications therefor and the goodwill associated
therewith, all licenses, sublicenses granted or obtained with respect thereto,
and all rights thereunder, all
<PAGE>
remedies against infringement thereof, all rights to protection of interests
therein under the law of all applicable jurisdictions, and the patents,
copyrights, licenses and rights listed in Schedule 1.2 attached hereto; and
1.3. All other assets, property and rights of Seller of any kind
whatsoever, including but not limited to, cash, tax refunds, accounts receivable
and prepaid expenses.
1.4. Notwithstanding the foregoing, the Assets shall not include the
following assets of the Seller: (i) the corporate charter, qualifications to
conduct business as a foreign corporation, arrangements with registered agents
relating to foreign qualifications, taxpayer, and other identification numbers,
seals, minute books, stock transfer books, blank stock certificates, and other
documents relating to the organization, maintenance, and existence of the Seller
as a corporation, or (ii) the rights of the Seller under this Asset Purchase
Agreement (hereinafter the "Excluded Assets").
ARTICLE II
Payment of Purchase Price ans Assumption of Liabilities
Subject to the terms and conditions set forth in this Agreement, Buyer
shall, in full consideration of the Assets to be sold and assigned to Buyer:
2.1 (a) Pay to Seller the sum of Six Million ($6,000,000) Dollars by wire
transfer on the Closing date.
Pay to Seller, 33,841 shares of Herley Industries, Inc. common stock (the
"Common Stock") on the Closing Date.
Pay to Seller, on January 31, 2001, as an earnout, 32,000 shares of Herley
Industries, Inc. Common Stock under the following conditions:
If the business conducted by the Buyer as the successor and continuation of
the Business conveyed hereunder (the "Successor Business") books new orders, at
prices reasonably satisfactory to the Buyer, totaling $9,000,000 in the twelve
month period beginning February 1, 2000 and ending January 31, 2001;
(d) Pay to Seller, on January 31, 2001, 65,841 shares of Herley Industries,
Inc. Common Stock under the following conditions:
If the business conducted by the Buyer as the successor and continuation of
the Business conveyed hereunder (the "Successor Business") books new orders, at
prices reasonably satisfactory to the Buyer, totaling $10,000,000 in the twelve
month period beginning February 1, 2000 and ending January 31, 2001;
(e) If the Successor Business fails to meet the $9,000,000 threshold of new
orders by January 31, 2001, the shares described in (C) and (d) above, will not
be issued to the Seller and the $6,000,000 cash payment described in Paragraph
2.1 (1) and
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<PAGE>
the 33,841 shares described in 2.1 (b) above shall constitute the full and final
payment for all of the Assets of the Seller. If the Successor Business meets the
threshold by January 31, 2001, the Seller will receive the shares described in
(c) above.
(f) If the Successor Business meets the $9,000,000 threshold of new orders
by January 31, 2001, but fails to meet the $10,000,000 threshold of new orders
by January 31, 2001, the shares described in (d) above, will not be issued to
the Seller and the $6,000,000 cash payment described in Paragraph 2.1 (a) and
the 33,8941 shares described in 2.1 (b) and the 32.000 shres described in 2.1
(c) above shall constitute the full and final payment for all of the Assets of
the Seller. If the Successor Business meets the threshold by January 31, 2001,
the Seller will receive the shares described in (d) above.
2.2. On the Closing Date, assume the following liabilities of Seller (the
"Assumed Liabilities") and no others:
(a). Accounts payable as listed in the attached Schedule 2.2(a), provided
accounts receivable exceeds the sum of the accounts payable, and bank borrowing,
by $800,000 on the closing date.
(b). Accrued payroll, and related payroll taxes and income taxes, as
identified in the attached Schedule 2.2(b).
(c). The obligations of Seller under the capital leases listed in the
attached Schedule 2.2(c).
(d), Other accrued expenses to the extent set forth in the attached
Schedule 2.2(d). Such accruals to include, but are not limited to employees
benefits (vacation, holidays, insurance, sick pay, etc.) sales representative
commissions, and other normal and ordinary business obligations.
(e). Bank indebtedness and other long-term indebtedness as listed in the
attached Schedule 2.2(e).
Except as expressly set forth in this Agreement, no other liabilities
or obligations of Seller shall be assumed by Buyer.
2.3. Any provision of this Agreement to the contrary notwithstanding,
Buyer will not and does not assume the following liabilities and obligations of
the Seller (the "Retained Liabilities") even if, to any extent, they were
reflected in the Financial Statements and arose in connection with, were
incurred by or were related to the operation of the Business:
(a). liabilities or obligations of Seller to any officer,
director or stockholder of the Seller, whether or not owed to such person in his
capacity as such, any person affiliated with any of the foregoing or any person
related to or sharing a household with any of the foregoing EXCEPT for
liabilities for accrued wages and salaries reflected
3
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in the Financial Statements and approximately $593,000 owed to Benjamin Robinson
and Frank Holt which sum shall be paid at the Closing by wire transfer;
(b). expenses incurred by the Seller in connection with the transactions
4
<PAGE>
contemplated herein, including, without limitation, fees and expenses of
Seller's counsel, advisors, and accountants;
(c). any obligation or liability of the Seller to the Buyer;
(d). any foreign, federal, state or local tax based on income or revenues
or interest or penalties relating thereto, whether arising by reason of the sale
of the Assets as herein provided or by reason of the existence or operations of
the Seller prior to or after the date hereof and any sales or use taxes incurred
by Seller on or prior to the Closing;
(e). to the extent not paid for under existing insurance policies assigned
to Buyer hereunder, workman's compensation claims against Seller based on
occurrences prior to the Closing Date;
(f). to the extent not paid for under existing insurance policies assigned
to the Buyer hereunder, liabilities to third parties for tort and product
liability claims made against Seller prior to the Closing Date based upon
occurrences prior to the Closing Date;
(g). all obligations of Seller incurred after the date hereof other than
those incurred in the ordinary course of business;
(h). all other liabilities or obligations of Seller to the extent any of
such liabilities or obligations constitute a breach of the representations or
warranties of Seller set forth in Article III hereof;
(i). obligations or liabilities of Seller with respect to any employee
option or benefit plan including, without limitation, any underfunding or
termination liability;
(j). liabilities or obligations of Seller in connection with its failure to
obtain, its failure to maintain in full force and effect or its default under
any approval, authorization, consent, certificate of occupancy (or local
equivalent), license, franchise, order or other permit of any governmental or
regulatory agency, whether federal, state, local or foreign necessary to the
operation of Seller's business as presently conducted including, without
limitation, the construction, alteration, operation, use or occupancy of the
premises occupied by Seller, or any improvements thereon;
(k). except to the extent expressly provided herein in Paragraphs 2.2(b)
and (d) of Article II or in any other document executed contemporaneously
herewith, any liabilities to employees or former employees of the Seller, and
their beneficiaries, whether pursuant to agreement or otherwise, including those
for salaries, bonus and employment benefits, fringe benefits, insurance,
welfare, post retirement medical, medical reimbursement, deferred compensation,
sick pay, termination, severance, stock option, stock purchase, accident,
disability, vacation, health, medical and workers compensation insurance or
benefits;
(l). any and all environmental liabilities arising out of or resulting from
any or all of the following conditions, which hereinafter are collectively
referred to as the
5
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"pre-closing liability conditions:" (i) the existence prior to the Closing Date
of hazardous materials upon, within or beneath any of the real property, or
migrating from such real property; (ii) any violations of environmental
requirements premised upon, or arising out of any of the conditions described in
(i) above; (iii) any violations of environmental requirements pertaining to the
use or operation of the real property or any other of the Assets prior to the
Closing Date, or the conduct of operation of the business of the Seller prior to
the Closing Date; and (iv) the existence of any underground storage tank (USTs)
at the real property; and
(m). any other liabilities or obligations of Seller which are not expressly
assumed hereunder.
ARTICLE III
Representations and Warranties of Seller.
The Seller represents and warrants that the statements contained in
this Article III are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Article III), except as set forth in the disclosure schedules
accompanying this Agreement (the "Disclosure Schedules"). The Disclosure
Schedules will be arranged in paragraphs corresponding to the lettered and
numbered paragraphs contained in this Agreement.
3.1. (a). Seller is a corporation duly organized, validly existing and
in good standing under the laws of the state of New Hampshire. The Seller has
been qualified as a foreign corporation for the transaction of business and is
in good standing under the laws of each jurisdiction in which it is required to
be so qualified as set forth in Schedule 3.1(a) hereto.
(b). Seller does not have any subsidiaries.
(c). Schedule 3.1(c) accurately sets forth the authorized and
outstanding capital stock of the Seller and the name, address, and number of
shares of capital stock held by each stockholder. There are no outstanding or
authorized options, warrants, purchase rights, subscription rights, exchange
rights, calls, or other contracts or commitments that require the Seller to
issue, sell, or otherwise cause to become outstanding any of its capital stock.
There are no outstanding securities or other instruments convertible into or
exchangeable for shares of common stock or capital stock or other securities of
the Seller and no person or entity has any right of first refusal, preemptive
right, subscription right or similar right with respect to any common stock or
other securities of the Seller.
3.2. Seller has corporate power to enter into and carry out this
Agreement and related documents, has no contractual or other restriction upon
its so doing and has properly secured the approval of this Agreement of its
stockholders and Board of Directors; and Seller's executing officers are
authorized thereby to execute this Agreement, and such other documents as may be
necessary to consummate the transaction contemplated herein, subject to
stockholder approval. The Agreement and related documents will be a valid and
binding agreement of Seller, enforceable against Seller in accordance with their
terms.
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3.3. Attached hereto as Schedule 3.3 are copies of the audited
financial statements of Seller for the fiscal years ended December 31, 1996,
1997 and 1998 and unaudited financial statements for the nine months ended
September 30, 1999, including the Balance Sheet of the Seller as of September
30, 1999, and Statement of Operations and Retained Earnings, and Changes of Cash
Flows of the Seller, with appended notes to all such financial statements, which
are an integral part of such statements (collectively the "Financials.")
(a). The Financials have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis and
present fairly the financial position and results of operations of Seller at the
dates and for the periods specified.
(b). There has been no material change in the financial
condition, assets or liabilities of Seller from September 30, 1999, to the date
hereof, except for changes which have occurred in the ordinary course of
business, none of which have been materially adverse.
3.4. The only real property owned by Seller are real estate leases
under which Seller is a lessee are described in Schedule 3.4 attached hereto.
Aside from said leases, the Seller neither owns nor has interest in or rights to
any real estate.
3.5. Schedule 3.5, attached hereto, includes a true and correct list of
all fixed assets owned by Seller and a schedule of all leases of fixed assets
and personal property under which Seller is lessee, all of which leases are
valid and binding and not in default, by either lessor or lessee thereunder.
(a). Schedule 3.5(a) contains a list of all real property
leases, licenses and personal property leases under which the Seller is the
lessee or licensee, together with (i) the location and nature of each of the
leased or licensed properties (including a legal description of all Leased Real
Property), (ii) the termination date of each such lease or license, (iii) the
name of the lessor or licensor and (iv) all rental and other payments made or
required to be made for the year ending December 31, 1999. All leases and
licenses pursuant to which the Seller leases or licenses from others real or
personal property are valid, subsisting in full force and effect in accordance
with their respective terms, and there is not, under any real property lease,
personal property lease or license, any existing default or event of default (or
event that, with notice or passage of time, or both, would constitute a default,
or would constitute a basis of force majeure or other claim of excusable delay
or nonperformance). True and complete copies of all real property leases,
licenses and personal property leases listed on Schedule 3.5(a) have been
delivered to Buyer heretofore, as well as copies of any title reports, surveys
or environmental reports or audits relating to any Leased Real Property. Except
as set forth in Schedule 3.5(a), no such lease or license will require the
consent of the lessor or licensor to or as a result of the consummation of the
transactions contemplated by this Agreement. For the purposes of this Section
3.5(a), a "lease" shall include a sublease.
(b). Seller has not received any notice from any governmental
authority that its real estate or personal property violate the provisions of
any building or similar code, nor does Seller have knowledge of any basis for
such a claim.
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(c). Except with respect to government contracts and
governmental licenses and permits, no consents (except those which have already
been obtained) are necessary to transfer to the Buyer any of the Assets,
property or rights of the Business, including any leases or licenses of real or
personal property or other rights.
3.6. (a). The Seller has good and marketable title to all of the Assets
to be acquired by Buyer hereunder and all such Assets are and will be on the
Closing Date owned by Seller free and clear of any liens, encumbrances or
restrictions, except as specifically reflected in Schedule 3.6 attached hereto.
(b). The personal property described in Schedule 3.5 and the
Real Property and personal property held by the Company pursuant to the leases
and licenses described in Schedule 3.5(a) comprise all of the real property and
personal property used in the conduct of business of the Company.
3.7. From and after the date of this Agreement and until the Closing
Date, the Business has been and will be operated in the ordinary course
consistent with past practices and there has not or will not have been:
(a). any damage, destruction or loss, whether or not covered by insurance,
which has had, or will have, a material adverse effect on the Business;
(b). any strike, picketing or similar labor trouble which has had, or will
have, a material adverse effect on the Business;
(c). any license, sale, transfer, mortgage or other disposition of any
Assets except in the ordinary course of business, or any license, sale,
assignment, transfer or other disposition of any patent, copyright, trademark,
license, franchise, know-how, proprietary process, formula or other intangible
asset used in the Business;
(d). any change in the benefits or compensation payable or to become
payable to officers or employees in any form, including bonuses, pension,
severance, etc.
(e). any loans, advances or capital contribution to or investment in any
person or entity;
(f). any issuances or sale of any stock, bond or other corporate security;
(g). any material adverse change in Seller's condition (financial or
otherwise).
3.8. Seller has not received any request for information, notice of
claim, demand or notification that it is (or which indicates that it may be) a
"potentially responsible party" with respect to the threatened or actual release
of any hazardous materials; nor has it received any notice from any governmental
agency with respect to any "alleged material violation" (i.e., a violation which
if Seller were found liable would have a material adverse effect on Seller's
Business) by it of any applicable federal, state or local environmental or
health and safety statutes and regulations in connection with the Business, nor
does Seller know of any basis for any investigation or proceeding against it by
any federal, state or local
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environmental or health and safety enforcement agency regarding such a violation
in connection with the operation of the Business. To the best knowledge of
Seller, neither Seller nor any predecessor of Seller has been alleged to be in
material violation of, or has been subject to any administrative or judicial
proceeding pursuant to such environmental laws and regulations with respect to
the Business, either now or at any time during the past ten years, and so far as
Seller is aware, there are no such threatened or proposed violations with
respect to the Business.
3.9 The equipment and other personal property taken as a whole, is in
good operating condition in all material respects, subject to normal wear and
tear, has been operated, serviced and maintained properly within the
recommendations and requirements of the manufacturers thereof (if any) and is
suitable and appropriate for the use thereof made and proposed to be made by the
Seller in its business and operations.
3.10. (a). Schedule 3.10 lists all of the following contracts:
(i). any agreement (or group of related agreements) for
the purchase or sale of raw materials, commodities,
supplies, products, or other personal property, or for the
furnishing or receipt of goods or services, the performance
of which will extend over a period of more than one year,
that would result in a material loss to the Seller if
terminated, or that involves consideration in excess of
$50,000.00;
(ii). any agreement concerning a partnership or joint
venture;
(iii). any agreement (or group of related agreements)
under which it has created, incurred, assumed, or guaranteed
any indebtedness for borrowed money, or any capitalized
lease obligation, in excess of $50,000.00 or under which it
has imposed a security interest on any of its assets,
tangible or intangible;
(iv). any agreement concerning confidentiality or non-
competition;
(v). any agreement involving any of the Stockholders
and their affiliates ;
(vi). any profit sharing, stock option, stock purchase,
stock appreciation, deferred compensation, severance, or
other plan or arrangement for the benefit of its current or
former directors, officers, and employees;
(vii). any collective bargaining agreement;
(viii). any agreement for the employment of any
individual on a full-time, part-time, consulting, or other
basis providing annual compensation in excess of $30,000.00
or providing
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severance benefits;
(ix). any agreement under which it has advanced or
loaned any amount to any of its directors, officers, and
employees outside the ordinary course of business;
(x). any agreement under which the consequences of a
default or termination could have an adverse effect on the
business, financial condition, operations, results of
operations, or future prospects of the Seller; or
(xi). any other agreement (or group of related
agreements) the performance of which involves consideration
in excess of $30,000.00.
(b). The Seller has delivered to the Buyer a correct and complete
copy of each written agreement listed in Schedule ss.3.10 (as amended
to date) and a written summary setting forth the terms and conditions
of each oral agreement listed. With respect to each such agreement:
(A) the agreement is legal, valid, binding, enforceable, and in full
force and effect; (B) the agreement will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms
following the consummation of the transactions contemplated hereby
(including the assignments and assumptions referred to in Article 2
above), (C) no party is in breach or default, and no event has
occurred which with notice or lapse of time would constitute a breach
or default, or permit termination, modification, or acceleration,
under the agreement; and (D) no party has repudiated any provision of
the agreement.
(c). Except as set forth in Schedule 3.10, there are no other
material agreements or contracts to which Seller is a party or by
which it is bound.
3.11. With respect to government contracts or OEM subcontracts, there
are (i) no outstanding written cure notices or show causes, (ii) any written
notices of contract termination or stop work orders, (iii) any written final
decision assessing a penalty or damages, (iv) any written assertion of a formal
claim based on violation of government cost accounting standards or government
pricing, or (v) any formal notice of proposed disallowance of indirect cost
claims, any subpoena or written notice signifying government investigation.
3.12. All inventory reflected on the Balance Sheet at September 30,
1999 is, and on the Closing Date will be, of usable quality.
3.13. (a). To the knowledge of Seller, no executive, key employee
or group of employees has any plans to terminate employment with the Seller.
(b). Payment in full has been made to all of its employees of
all wages, salaries, commissions, bonuses, benefits, and other compensation due
to such employees or otherwise arising under any policy, practice, agreement,
plan, program, statute, or other law has been made;
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(c). No facility of the Seller has been closed, there have not
been any layoffs of any of their employees or implementations of any early
retirement, separation, or window program within the past three years with
respect to any of the Seller and its Subsidiaries, nor, are there any plans or
announcements of any such action or program for the future;
(d). The Seller is in compliance with its obligations pursuant
to the Workers Adjustment and Retraining Notification Act of 1988, as amended
(WARN), and all other notification and bargaining obligations arising under any
collective bargaining agreement or statute; and
(e). Seller has never had any labor trouble, by which is meant
employee strikes, work stoppages, slow downs or lock outs, or any threats
thereof. None of Seller's employees has ever been covered by a collective
bargaining agreement between Seller and any labor union.
3.14. Schedule 3.14, attached hereto, contains a complete listing of
all patents, licenses, trademarks, trade names, brand names, copyrights, logos,
inventions, trade secrets, and other proprietary information used or required by
Seller in connection with the carrying on and conduct of its Business, none of
which, to the best knowledge of Seller, infringes the rights of others. Seller
is the sole owner of or has the exclusive right to use, for the life of the
proprietary rights, all patents, trademarks, service marks, trade names,
copyrights, inventions, logos, trade secrets, etc. used in the Business.
3.15. (a). The Seller has, to the date hereof, properly accrued,
and will pay when due, all federal, state and other tax liabilities of Seller.
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(b). The Seller has filed all tax returns that it was required
to file. All such tax returns were correct and complete in all respects. All
taxes owed by the Seller (whether or not shown on any tax return) have been
paid. The Seller is not the beneficiary of any extension of time within which to
file any tax return. No claim has ever been made by an authority in a
jurisdiction where the Seller does not file tax returns that it is or may be
subject to taxation by that jurisdiction.
(c). The Seller has withheld and paid all taxes required to
have been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other third party.
(d). The Seller does not expect any authority to assess any
additional taxes for any period for which tax returns have been filed. There is
no dispute or claim concerning any tax liability of the Seller either (A)
claimed or raised by any authority in writing or (B) as to which the Seller has
knowledge. Schedule 3.15 lists all federal, state, local, and foreign income tax
returns filed with respect to the Seller for taxable periods ended on or after
December 31, 1989, indicates those tax returns that have been audited, and
indicates those tax returns that currently are the subject of audit. The Seller
has delivered to the Buyer correct and complete copies of all federal income tax
returns, examination reports, and statements of deficiencies assessed against or
agreed to by the Seller since December 31, 1989.
(e). The Seller has not waived any statute of limitations in
respect of taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(f). The Seller has not made any payments, is not obligated to
make any payments, and is not a party to any agreement that under certain
circumstances could obligate it to make any payments that will not be deductible
under Code Sec. 280G. The Seller is not a party to any tax allocation or sharing
agreement. The Seller has not been a member of an Affiliated Group filing a
consolidated federal income tax return or (B) has any liability for the taxes of
any third person under Treas. Reg. ss.1.1502-6 (or any similar provision of
state, local, or foreign law), as a transferee or successor, by contract, or
otherwise.
(g). The Seller's election to be treated as an S corporation
pursuant to ss.1362(a) of the Code is currently valid and, with respect to tax
returns for taxable periods ended on or after December 31, 1989, the Seller is
not aware of any facts which could form a basis for the termination of such
election.
3.16. Seller has complied in all material respects with all laws, rules
regulations, ordinances, judgments, decrees and orders of federal, state and
local authorities and agencies applicable to its Business, the violation of
which could result in liability to Seller of $2,000 or more. Seller has
substantially complied with all requirements under necessary permits,
authorizations, or licenses and has, as of the date hereof, secured such
permits, authorizations and licenses.
3.17. Except as set forth on Schedule 3.17, there are no actions at law
or in equity pending or, to the best knowledge of Seller, threatened against or
adversely affecting Seller or any of its assets, and there are no proceedings
pending or, to the best knowledge of Seller,
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threatened against Seller by or before any governmental board, department,
commission or agency. Schedule 3.17 sets forth each instance in which the Seller
(i) is subject to any outstanding injunction, judgment, order, decree, ruling,
or charge or (ii) is a party or is threatened to be made a party to any action,
suit, proceeding, hearing, or investigation of, in, or before any court or
quasi-judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator. None of the actions, suits, proceedings,
hearings, and investigations set forth in Schedule 3.17 could result in any
material adverse change in the business, financial condition, operations,
results of operations, or future prospects of the Seller. The Seller does not
have any reason to believe that any such action, suit, proceeding, hearing, or
investigation may be brought or threatened against it.
3.18. (a). To the best of the knowledge of Seller, none of the real
property owned or leased by Seller and none of the real property previously
owned or leased by Seller or any of its predecessors has been used at any time:
(i). as a site for the storage or disposal of waste
(including, without limitation, as that term is used in the
Resource Conservation Recovery Act ( "RCRA") (42 U.S.C. 901
et seq);
(ii). so as to cause a violation of or to give rise to
a removal or restoration obligation or liability for the
costs of removal or restoration by others, or liability for
damages to others, under any statute, ordinance, order,
decree, or under the common law of any state, federal,
municipal or other governmental entity, body or agency
having jurisdiction over any of the real property or any
such previously owned or leased property, including, without
limitation, the Comprehensive Environmental Response,
Compensation and Liability Act, as amended ("CERCLA") (42
U.S.C. 9601 et seq.), or any similar Environmental
Requirement;
nor has any such violation, obligation or liability been created by the removal
by or at the request of the Seller or, to the best knowledge of the Seller, any
of its predecessors of any waste from the real property or such leased or
previously owned or leased properties, the disposition of such removed waste or
by reason of the discontinuance of operations of any business conducted at the
real property or the previously owned or leased properties.
(b). To the best knowledge of the Seller, none of the real property
owned or leased by Seller and none of the real property previously owned or
leased by Seller or any of its predecessors has been used at any time for the
storage of hazardous materials in USTs.
(c). Seller has delivered to Buyer true, complete and correct copies or
results of any reports, studies or tests in the possession of or initiated by
Sellers pertaining to the existence of hazardous materials and other
environmental concerns at any part of the real property or any properties
previously owned or leased by Seller or any of its predecessors or concerning
compliance with or liability under laws relating to toxic waste and other
environmental matters in the operation of the business and properties of the
Seller or any of its predecessors.
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3.19. (a). All notes and accounts receivable of the Seller are set
forth on Schedule 3.19 and are reflected properly on its books and records, are
valid receivables subject to no setoff or counterclaims, are current and
collectible, and will be collected in accordance with their terms at their
recorded amounts, subject only to the reserve for bad debts set forth on the
Most Recent Balance Sheet as adjusted for the passage of time through the
Closing Date in accordance with the past custom and practice of the Seller.
(b). Seller has no reason to believe that the accounts receivable being
conveyed to Buyer hereunder are uncollectible, except as set forth in attached
Schedule 3.19.
3.20. Seller is not in default, or alleged to be in default, under any
agreement, instrument or obligation, which singly or in the aggregate might have
an adverse effect on the Seller's Business or condition. There is no default by
any party with whom the Seller has an agreement, which is of material importance
to the Seller's Business or condition.
3.21. Except with respect to government contracts and customer
contracts, licenses and permits for which consent is required, there is no
material asset, property or right used or required by the Buyer in the conduct
of the Business which is not being conveyed, transferred, or assigned to Buyer
under this Agreement.
3.22. (a). Except as set forth on Schedule 3.22 (a), neither the execution
and delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, violates any provision of the certificate of incorporation
or by-laws of Seller
(b) Except as set forth on Schedule 3.22(b). neither the
execution and delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, violates or is in conflict with or constitutes
a default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, or results in the termination of, or accelerates
the performance required by, or excuses performance by any person of any of its
or their obligations under, or causes the acceleration of the maturity of any
debt or obligation pursuant to, or results in, the creation or imposition of any
lien or encumbrance upon any property or assets of Seller under any agreement or
commitment to which Seller is a party or by which any of its property or assets
is bound, or to which any of the property or assets of the Seller is subject; or
violates any statute, law, regulation, rule, judgment or order of any court or
other governmental body.
3.23. The insurance coverage of Seller is adequate for the Assets, Business
and operations of Seller and is as set forth in Schedule 3.23.
3.24. Seller has not employed any broker, finder, investment banker or
financial advisor as to whom the Seller may have an obligation to pay monies, or
incurred any liability for any brokerage fees or commissions or for any finders'
investment banking or financial advisory fees for which the Seller may be
responsible in connection with the transactions contemplated hereby.
3.25. (a). Seller's products do not contain any computer programs. Seller's
key financial and operational computer programs have been reviewed and, where
required, detailed plans have been developed and have been and are being
implemented on a schedule
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intended to permit the Seller's computer programs to be Year 2000 Compliant.
(b). To the best of its knowledge, Seller has not received any
communications from any of its suppliers or customers relating to the
possibility that any of their computer programs (including those contained in
any of their products) are not or will not be Year 2000 Compliant.
(c). Seller has not given any warranties or undertakings to
any of its customers to the effect that Seller or any of its computer programs
are Year 2000 Compliant except test software and operating systems.
(d). For purposes of this Agreement, "Year 2000 Compliant"
shall mean that: (i) the occurrence in or use by computer programs of dates
before, on or after January 1, 2000 will not adversely affect the performance of
such programs with respect to date- dependent data, computations, output, or
other functions (including, without limitation, calculating, comparing and
sequencing); (ii) such programs will not abnormally end or provide invalid or
incorrect results as a result of date-dependent data; and (iii) such programs
can accurately recognize, manage, accommodate and manipulate date-dependent
data, including, without limitation, single and multi-century formulas and leap
years.
3.26 Each product manufactured, sold, leased, or delivered by the
Seller has been in conformity with all applicable contractual commitments and
all express and implied warranties, and the Seller has no liability (and there
is no basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of them giving
rise to any liability) for replacement or repair thereof or other damages in
connection therewith, subject only to the reserve for product warranty claims
set forth on the most recent balance sheet as adjusted for the passage of time
through the Closing Date in accordance with the past custom and practice of the
Seller. No product manufactured, sold, leased, or delivered by the Seller is
subject to any guaranty, warranty, or other indemnity beyond the applicable
standard terms and conditions of sale or lease.
3.27 Schedule 3.27 includes copies of the standard terms and conditions of
sale or lease for the Seller (containing applicable guaranty, warranty, and
indemnity provisions).
3.28 The Seller does not have any liability (and there is no basis for any
present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand against any of them giving rise to any liability)
arising out of any injury to individuals or property as a result of the
ownership, possession, or use of any product manufactured, sold, leased, or
delivered by the Seller.
3.29 (a). Schedule 3.29 lists each Employee Benefit Plan that the Seller
maintains or to which the Seller contributes.
(b). Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) complies in form and in operation in all respects
with the applicable requirements of ERISA, the Code, and other applicable laws.
(c). All required reports and descriptions (including Form
5500 Annual Reports, Summary Annual Reports, PBGC-1s, and Summary Plan
Descriptions) have been
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filed or distributed appropriately with respect to each such Employee Benefit
Plan. The requirements of Part 6 of Subtitle B of Title I of ERISA and of Code
Sec. 4980B have been met with respect to each such Employee Benefit Plan which
is an Employee Welfare Benefit Plan.
(d). Except as set forth on Schedule 3.29, the Seller does
notmaintain or contribute to, nor has it ever has maintained or contributed to,
or has it ever been required to contribute to any Employee Welfare Benefit Plan
providing medical, health, or life insurance or other welfare-type benefits for
current or future retired or terminated employees, their spouses, or their
dependents (other than in accordance with Code Sec. 4980B).
(e). The Seller has delivered to the Buyer correct and
complete copies of the plan documents and Summary Plan Descriptions, the most
recent determination letter received from the Internal Revenue Service, the most
recent Form 5500 Annual Report, and all related trust agreements, insurance
contracts, and other funding agreements which implement each such Employee
Benefit Plan.
(f). No action, suit, proceeding, hearing, or investigation
with respect to the administration or the investment of the assets of any
Employee Benefit Plan (other than routine claims for benefits) is pending or
threatened. The Seller does not have any knowledge of any basis for any such
action, suit, proceeding, hearing, or investigation.
(g). All premiums or other payments for all periods ending on
or before the Closing Date have been paid with respect to each such Employee
Benefit Plan which is an Employee Welfare Benefit Plan.
3.30. No representation or warranty made in this Agreement by the
Seller, and no statement, schedule or certificate furnished or to be furnished
to the Buyer pursuant hereto, or in connection with the transactions
contemplated hereby, contains or will contain any untrue statement of a material
fact, or omits or will omit to state a material fact necessary to make the
statements contained herein or therein not misleading.
ARTICLE IV
Representations and Warranties of Buyer
Buyer represents and warrants to Seller that:
4.1. Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware with corporate power to carry
on its business as now conducted and will continue to be so on the Closing Date.
Buyer has corporate power to enter into and carry out this Agreement, has no
contractual or other restriction upon its so doing, and has properly secured the
approval of its Board of Directors to do so, no other approval being required.
Buyer's executing officers are authorized thereby to execute this Agreement, and
such other documents as may be necessary to consummate the transactions
contemplated herein.
4.2. Neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, violates any provision of
the certificate of
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incorporation or by-laws of Buyer; violates or is in conflict with or
constitutes a default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, or results in the termination of, or
accelerates the performance required by, or excuses performance by any person of
any of its or their obligations under, or causes the acceleration of the
maturity of any debt or obligation pursuant to, or results in the creation or
imposition of any lien or encumbrance upon any property or assets of Buyer under
any agreement or commitment to which Buyer is a party or by which any of its
property or assets is bound, or to which any of the property or assets of the
Buyer is subject; or violates any statute, law, regulation, rule, judgment or
order of any court or other governmental body.
4.3. Buyer will use all reasonable efforts to release Seller and
Benjamin Robinson as guarantor of corporate debt from those liabilities which
Buyer has expressly agreed to assume under this Agreement.
4.4. No representation or warranty made in this Agreement by the Buyer,
and no statement, schedule or certificate furnished or to be furnished to the
Seller pursuant hereto, or in connection with the transactions contemplated
hereby, contains or will contain any untrue statement of a material fact, or
omits or will omit to a state a material fact necessary to make the statements
contained herein or therein not misleading.
ARTICLE V
Operations of Business Since September 30, 1999
Since September 30, 1999, the Seller has adhered to the following
restrictions:
5.1. Seller has conducted the Business in the ordinary and usual course
and has used its best efforts to maintain the Business and the goodwill thereof
in accordance with its prior practice.
5.2. Seller has maintained the Assets owned or leased by Seller in the
same condition as the same were on September 30, 1999, reasonable wear and tear
excepted and dispositions in the ordinary course of business, which dispositions
have not been material in the aggregate.
5.3. Seller has not mortgaged, pledged or subjected to any lien or
encumbrance any of the Assets or suffered or permitted, any of the Assets to
become encumbered or subject to any lien.
5.4. Seller has not made or declared any distribution, transfer or
dividend to its shareholders, or sold or disposed of, or made any offer,
agreement or contract relating to the sale or disposition of, any of the Assets
or any assets of a similar nature acquired by Seller since September 30, 1999
(with the further exception of those which have been disposed of in the ordinary
course of business consistent with historical practice.)
5.5. Seller has not incurred or become liable for any obligation or
liability except current liabilities incurred in the ordinary course of business
consistent with historical business practices.
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5.6. Seller has not made increases in employees' salaries or benefits
subsequent to September 30, 1999, except as set forth in the attached Schedule
5.6.
5.7. Seller has paid or accrued all operating costs since September 30,
1999, including but not limited to all wages and salaries as the same shall have
become due and payable, any premiums due on employee health insurance and other
insurance policies, utility bills, rents, all payments required for merchandise
and services received during such period, and all other expenses of the type
ordinarily and reasonably incurred by Seller's business since December 31, 1999.
ARTICLE VI
Conditions to Obligation of Buyer to Close
The obligation of Buyer to purchase the Assets and otherwise to
consummate the transactions that are to be consummated at the Closing is subject
to the satisfaction, on or before the Closing Date, of the following conditions
(any of which may be waived by Buyer in whole or in part):
6.1. Buyer has completed its due diligence review and has determined in its
reasonable and good faith judgment to complete the transaction.
6.2. There shall have occurred no material adverse change to the
Business since the date of this Agreement (whether or not covered by insurance)
, in each case taken as a whole, except for changes contemplated by this
Agreement or by any of the contracts and changes otherwise occurring in
connection with the transactions contemplated hereby.
6.3. All required consents, including the consent of each of its
stockholders in the form of Exhibit "A" hereto, but excepting customer novation
or consent agreements, shall have been duly obtained or obviated, except where
(i) the failure to obtain any such required consents would not reasonably be
expected to subject Buyer to any material penalty or loss, including loss of
partial revenue, or (ii) such required consent relates to an assigned contract
or a related assumed liability, as to which the parties will proceed pursuant to
Article VIII.
6.4. The representations and warranties of Seller set forth in Article
III shall be true and correct in all material respects on the Closing Date as
though such representations and warranties were made as of such date.
6.5. Seller shall have complied with and performed, in all material
respects, all obligations required by this Agreement to be complied with or
performed by Seller on or before the Closing Date.
6.6. Seller shall have delivered to Buyer a certificate, dated as of
the Closing Date, to the effect that the conditions set forth in Paragraphs 6.3
and 6.4 have been satisfied.
6.7. Buyer shall have entered into an Employment Agreement with
Benjamin Robinson, in conformity with the form of agreement annexed hereto as
Exhibit "B".
6.8. Seller's accounts receivable shall exceed its accounts payable and
bank debt
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by at least $800,000.
6.9. Benjamin Robinson shall have entered into an Indemnification Agreement
in the form annexed hereto as Exhibit "C".
6.10 Seller shall have complied with the conditions of Paragraphs 9.3,
9.4, 9.5, and 9.6 of Article IX.
6.11. The Closing shall have taken place no later than February 1,
2000, with the effective date of the transaction to be January 3, 2000, unless
otherwise agreed to by the parties.
ARTICLE VII
Conditions to Obligation of Seller to Close
The obligation of Seller to sell the Assets to Buyer and otherwise to
consummate the transactions that are to be consummated at the Closing is subject
to the satisfaction, on or before the Closing Date, of the following conditions
(any of which may be waived by Seller in whole or in part);
7.1. Reserved.
7.2. The representations and warranties of Buyer set forth in Article
IV and the representations and warranties of Buyer set forth in the other
instruments shall be true and correct in all material respects on the Closing
Date as though such representations and warranties were made as of such date.
7.3. Buyer shall have complied with and performed, in all material
respects, all obligations required by this Agreement to be complied with or
performed by Buyer on or before the Closing Date.
7.4. Buyer shall have delivered to Seller a certificate dated as of the
Closing Date, to the effect that the conditions set forth in Paragraphs 7.2 and
7.3 of this Article VII above have been satisfied.
7.5. Buyer shall have entered into an Employment Agreement with
Benjamin Robinson, in conformity with the form of agreement annexed hereto as
Exhibit "B".
7.6. Buyer shall have complied with the conditions of Paragraphs 9.7
and 9.8 of Article IX.
7.7. The Closing shall take place no later than February 1, 2000.
ARTICLE VIII
Best Efforts to Obtain Consents
8.1. Where required, Seller and Buyer shall notify Seller's customers
and suppliers
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that Seller's obligations under its contracts, including government contracts,
will, after the closing, be performed by Buyer. After the Closing, Seller will
use its best efforts to obtain the consents of any parties to the contracts.
Seller and Buyer will cooperate and use their best reasonable efforts to obtain
(i) novation agreements to the extent required by law to each government
contract ("Novation Contracts") as soon as reasonably possible, (ii) any
security clearances, licenses or similar permits required to operate any
facility or conduct any portion of the Business and (iii) all other consents,
approvals, novations, and waivers necessary to convey to Buyer any of the Assets
which are not required by law or by contact to be obtained prior to the Closing
Date, (All Novation Contracts and other consents, security clearances, permits,
approvals and waivers described in (i), (ii) and (iii) above are hereinafter
referred to as "Post-closing Consents".)
8.2. To the extent that the assignment by Seller and the assumption by
Buyer of any contracts included within the Assets shall require the consent or
approval of any third party, this Agreement shall not constitute an assignment
and/or assumption thereof if such attempted assignments or assumption would
constitute a breach thereof.
8.3. Until (i) any Novation Contract legally required with respect to
any government contract has been executed and delivered and (ii) Seller and
Buyer have obtained any Post-closing Consents necessary to convey to Buyer any
contract not requiring a Novation Contract pursuant to Section 1 of this Article
VIII above, Buyer on behalf of Seller, from and after the Closing Date shall
assume and perform (as a subcontractor to Seller in the case of government
contracts) and Buyer shall assume and perform, for the benefit of the issuer
thereof or other party or parties thereto, the liabilities, responsibilities and
obligations of Seller thereunder (other than the liabilities, responsibilities
and obligations of Seller under Section 4 of this Article VIII.)
8.4. Until Seller and Buyer have obtained any Novation Contracts or
Post-closing Consents necessary to convey to Buyer any contracts, including
government contracts pursuant to Section 1, Seller from and after the closing
will (i) promptly transmit to Seller's government contract customers, Seller's
invoices based upon the invoices submitted by Buyer to Seller pursuant to
Section 5 of this Article VIII, (ii) receive payments tendered to Seller by such
government contract customers and promptly remit such payments to Buyer, (iii)
enforce for the benefit of Buyer all rights of Seller under any government
contract, and (iv) take any other reasonable actions necessary to allow Buyer to
perform its obligations and derive its benefits as a subcontractor under the
government contracts.
8.5. From and after the Closing Date and until the applicable
Post-closing Consents are obtained, Buyer shall take all reasonable action
necessary to allow Seller to perform its obligations under the government
contracts, including but not limited to promptly submitting invoices to Seller
for such payments or reimbursements as are appropriate in accordance with the
respective terms of such government contracts.
ARTICLE IX
The Closing
9.1. The Closing hereunder shall take place at the offices of Herley-MDI on
February 1, 2000 at 10:00 a.m., (the "Closing Date".)
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9.2. On the Closing Date, (a) Seller shall transfer the Assets to Buyer
by good and sufficient assignment and bill of sale in the form of Exhibit "D"
hereto and such other documents and instruments of conveyance as are reasonably
satisfactory to counsel for Buyer; and (b) Buyer shall deliver to Seller the
cash payment payable on the Closing Date (by cashier's check or wire transfer)
and duly executed instrument evidencing the assumption by Buyer of the Assumed
Liabilities in the form of Exhibit "E" hereto.
9.3. Seller shall furnish to Buyer, on the Closing Date, a certificate
of Seller dated the Closing Date and executed by its President stating that all
of Seller's representations, warranties and covenants contained herein are true
and correct as of the Closing Date.
9.4. Except as otherwise provided in Article VII, Seller shall have
received on or prior on or prior to the Closing Date, all required consents of
third parties to the consummation of the transactions provided for herein,
including consents to the assignment of the Leases, or a new building lease,
material contracts, leases and agreements, and delivered its certificate of its
President to such effect to buyer, except for U.S. Government contracts and
sub-contracts from prime contractors.
9.5. Seller shall furnish to Buyer on the Closing Date resolutions duly
adopted and carried by its directors and stockholders authorizing the execution,
deliver and performance of this Agreement, certified by its secretary.
9.6. Seller shall furnish to Buyer, on the Closing Date, an opinion of
counsel for Seller in form and substance reasonably satisfactory to counsel for
Buyer to the effect that:
(a). Seller is a corporation duly organized, existing and in
good standing under the laws of the State of New Hampshire, with corporate power
to enter into and perform this Agreement and transfer the Assets as provided for
herein;
(b). This Agreement has been duly authorized, executed and
delivered by Seller and constitutes a legal, valid and enforceable obligation of
Seller in accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally;
(c). To the best of counsel's knowledge, this Agreement and
the carrying out of the transactions provided for herein will not violate any
charter, bylaw, or other corporate restriction, agreement or arrangement to
which Seller is a party or to which it is subject; and
(d). The bills of sale and other documents of conveyance and
transfer delivered to Buyer by Seller on the Closing Date have been duly
authorized, executed and delivered by Seller and are adequate under the laws of
New Hampshire and any other applicable law to effect such conveyance and
transfer.
9.7. Buyer shall furnish to Seller, on the Closing Date, a certificate
of Buyer dated the Closing Date and executed by its President or one of its Vice
Presidents stating that all of Buyer's representations, warranties and covenants
contained herein are true and correct as of the Closing Date.
21
<PAGE>
9.8 Buyer shall furnish to Seller, on the Closing Date, an opinion of
counsel for Buyer in form and substance reasonably satisfactory to counsel for
Seller to the effect that:
(a). Buyer is a corporation duly organized, existing and in
good standing under the laws of the State of Delaware with
corporate power to enter into and perform this Agreement.
(b). This Agreement has been duly authorized, executed and
delivered by Buyer and constitutes a legal, valid and enforceable
obligation of Buyer in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting
the enforcement of creditors' rights generally.
(c). To the best of counsel's knowledge, this Agreement and
the carrying out of the transactions herein provided for will not
violate any charter or other corporate restriction, agreement or
arrangement to which Buyer is subject; and
Concurrent with the closing of this transaction, the Buyer
undertakes to notify the American Stock Transfer and
Trust to issue Herley Stock certificates as follows:
Benjamin Robinson 31,841 shares
Frank Holt 2,050 shares
Total shares 33,841 shares
These certificates will be endorsed or stamped with the following
legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE
ISSUED WITHOUT REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, IN RELIANCE UPON THE EXEMPTIONS
CONTAINED IN THE SECURITIES ACT OF 1933, AS AMENDED.
NO TRANSFER OF THESE SECURITIES, OR ANY INTEREST
THEREIN, MAY BE MADE EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT, UNLESS THE
COMPANY HAS RECEIVED AN OPINION OF COUNSEL
SATISFACTORY TO IT THAT SUCH TRANSFER DOES NOT
REQUIRE REGISTRATION UNDER SUCH ACT."
ARTICLE X.
Survival of Representations and Warranties and Indemnification
10.1. Survival of Representations and Warranties of Seller and
Indemnification.
(a). The representations, covenants and warranties of Seller
contained in the Agreement or any Exhibit attached hereto or any
certificate delivered pursuant hereto (the
22
<PAGE>
"Representations and Warranties") shall survive the Closing Date.
(b). Notwithstanding any investigation or Seller on the
Assets or Business which is made by or on behalf of Buyer prior
to the Closing Date, Seller shall indemnify, defend, and hold
harmless Buyer against any loss, expense (including reasonable
cost of investigation and legal fees), or other damage resulting
from (i) any material breach by Seller of any of their
warranties, representations or agreements contained herein, (ii)
any action or claim which is brought or asserted by third parties
against Buyer or any successor arising out of the conduct of
Seller (except by assumed Liabilities expressly assumed by Buyer
pursuant to Article II hereof) or on account of the
non-compliance by Seller or Buyer with the provisions of any
so-called Bulk Sales Law applicable to the conveyance to Buyer of
the Assets, or (iii) any failure by Seller to perform any
covenant, undertaking or obligation hereunder.
(c). If any action or claim shall be brought or asserted
against Buyer or any successor in respect of which indemnity may
be sought from Seller pursuant to paragraph 10.1(b) of this
Article X, Buyer shall timely notify Seller and Seller shall
assume the defense thereof, including the employment of counsel
reasonably satisfactory to Buyer, and the payment of all
expenses. Buyer shall have the right to employ separate counsel
in any such action and participate in the defense thereof, but
the fee and expenses of such counsel shall be at the expense of
Buyer unless (i) the employment thereof shall have been
specifically directed by Seller, or (ii) Seller shall have
elected not to assume the defense and employ counsel. For the
purpose of this section, notice given within thirty (30) days
after the occurrence giving rise to the right of indemnification
shall be "timely" but notice given later than such thirty (30)
days shall not terminate a party's right to indemnification
unless the party receiving such notice can demonstrate that its
rights have been adversely affected in a material fashion by such
allegedly untimely notice.
(d). Except obligations and liabilities arising because of
fraud or arising under Paragraphs 3.1 (1), 3.1(C), 3.2 or 3.22(a)
of this Agreement, the indemnity liability of the Seller herein
shall not exceed the amount of $500,000, and such liability shall
lapse after two years.
10.2. Survival of Representations and Warranties of Buyer and
Indemnification.
(a). The representations and warranties of Buyer contained in
this Agreement or any Exhibit attached hereto or any certificate delivered
pursuant hereto (the "Representations and Warranties") shall survive the Closing
Date.
(b). Notwithstanding any investigation of Buyer which is made
by or on behalf of Seller prior to the Closing Date, Buyer shall indemnify,
defend, and hold harmless Seller against any loss, expense (including reasonable
cost of investigation and legal fees), or other damage resulting from (i) any
breach by Buyer of any of its warranties, representations or agreements
contained herein (ii) any failure by Buyer to perform any covenant, undertaking
or obligation hereunder, or (iii) any action or claim brought or asserted, by
third parties against Seller which relates to the conduct of the Business by
Buyer after the Closing Date.
(c). If any action or claim shall be brought or asserted
against Seller or any
23
<PAGE>
successor in respect of which indemnity may be sought from Buyer pursuant to
Paragraph 10.2(b) of this Article X. Seller shall timely notify Buyer and Buyer
shall assume the defense thereof, including the employment if counsel reasonably
satisfactory to Seller, and the payment of all expenses. Seller shall have the
right to employ separated counsel in any such action and participate in the
defense thereof, but the fee and expenses of such counsel shall be at the
expense of Seller unless (i) the employment thereof shall have been specifically
directed by Buyer, or (ii) buyer shall have elected not to assume the defense
and employ counsel. For the purpose of this section, notice given within thirty
(30) days after the occurrence giving rise to the right of indemnification shall
be "timely" but notice given later than such thirty (30) days shall not
terminate a party's right to indemnification unless the party receiving such
notice can demonstrate that its rights have been adversely affected in a
material fashion by such allegedly untimely notice.
(d). The indemnity liability of the Buyer herein shall not exceed the
amount of $ 300,000.00, and such liability shall lapse after one (1) year.
ARTICLE XI
Covenants and Agreements Pertaining to the Period Subsequent to Closing
11.1. (a). Promptly after the Closing the Seller shall satisfy all of
its obligations and Liabilities not included within the Assumed Liabilities
before paying any dividend or making any distribution with respect to its
capital stock, or redeeming, purchasing, or otherwise acquiring any of its
capital stock. Seller shall indemnify Buyer from, and promptly discharge or
cause to be discharged as they become due, all debts, obligations and
liabilities of Seller other that the Assumed Liabilities.
(b). Buyer shall indemnify Seller and Benjamin Robinson from,
and promptly discharge or cause to be discharged as they become due, the Assumed
Liabilities and those liabilities arising out of the conduct of the Business by
Buyer after the Closing Date.
11.2. Upon the request of either Buyer or Seller, the other party will
execute and deliver to the requesting party all such instruments and documents
of further assurance or otherwise, and will do any and all such acts and things
as may reasonably be required to carry out the obligations of such party
hereunder and to consummate the transactions contemplated hereby.
11.3. Seller and its representatives shall, upon reasonable notice and
at reasonable times, have access to Seller's records which have been left in the
possession of Buyer for the purpose of winding up its affairs and filing and
paying its tax obligations.
11.4. From and after the date hereof, the Seller and its officers and
directors will, and Seller will cause its officers and director to, hold in a
fiduciary capacity for the benefit of Buyer all confidential information,
knowledge, and data relating to or concerned with the Business and shall not
divulge, and shall cause such officers and directors not to divulge, any such
confidential information, knowledge, or data to any person, firm, or corporation
other than the Buyer,
24
<PAGE>
11.5. Buyer will not assign, transfer or convey the Business to any
third party without requiring such third party to assume the obligations of
Buyer hereunder. Such assignment, transfer or conveyance will not release or
modify any of the obligations of Buyer under this Agreement.
11.6. Buyer shall offer to hire on the Closing Date the current active
employees of the Seller as employees-at-will . Buyer shall provide to the
Transferred Employees (as hereinafter defined) on the day following the Closing
the wage and salary levels in effect immediately prior to the Closing Date (the
Compensation Program); provided, however, that the foregoing shall not preclude
or interfere in any way, in the right of the Buyer to modify all or any portion
of the Compensation Program to comply with applicable law or for any other
reason which the Buyer, in its sole discretion, determines at any time after the
Closing. Those employees who accept the Buyer's offer of employment shall be
referred to as Transferred Employees, effective as of the Closing Date (or with
respect to those employees on an authorized leave or disability, the date of
such acceptance).
11.7 With respect to any unused vacation time to which a Transferred
Employee is entitled immediately prior to the Closing Date, the Buyer shall be
liable after the Closing Date for, and shall permit Transferred Employees to
take, such vacation time to the extent such vacation time is accrued on the Most
Recent Balance Sheet as adjusted for the passage of time to the Closing Date in
the Seller's ordinary course of business.
11.8 The Seller shall not, at any time within the 60-day period prior
to the Closing Date effectuate a plant closing or mass layoff, as those terms
are defined in WARN, affecting in whole or in part any of its sites of
employment facility, operating units, or employees.
11.9 In the event the Buyer decides to engage in conduct that might
trigger an obligation to provide notice under WARN, the Seller agrees to
cooperate with the Buyer and take any action required to permit timely notice
under WARN to any person, entity, or party entitled to notice pursuant to WARN
and to take such other reasonable action as may be helpful to the Buyer in that
regard.
11.10 Transferred Employees will be eligible to participate in the
Buyer's employee benefit plans and programs extended to similarly situated
employees of the Buyer in accordance with the terms of such plans, and will
receive service credit under the Buyer's plans for eligibility and vesting for
service with the Seller.
ARTICLE XII
Miscellaneous
12.1. Any notices, approvals or other communications provided for
herein to be given hereunder by any party to another shall be deemed validly and
properly given or made if in writing and delivered personally or sent by
overnight or certified mail, return receipt requested, postage prepaid, as
follows:
If to Seller: Robinson Laboratories, Inc.
1 Tanguay Avenue
Nashua, NH 03063-1741
25
<PAGE>
With a copy to: Hamblett & Kerrigan, P.A.
146 Main Street
Nashua, NH 03060
Attention: Chester H. Lopez, Inc., Esq.
If to Buyer: Herley Industries, Inc.
10 Industry Drive
Lancaster, Pennsylvania 17603
Attention: Mr. Lee N. Blatt, Chairman of the
Board
With a copy to: Blau, Kramer, Walter & Lieberman, P.C.
100 Jericho Quadrangle
Jericho, New York 11753
Attention: David H. Lieberman, Esq.
Either of the parties hereto may give notice to the other at any time
by the methods specified above of a change in the address at which, or the
persons to whom, notices addressed to it are to be delivered in the future, and
such notice shall be deemed to amend this paragraph until superseded by a later
notice of the same type. Any notice given by mail as aforesaid shall be
conclusively deemed to have been received by a party hereto and be effective on
the third business day after the day on which mailed to the address set forth
above.
12.2. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns.
12.3. This Agreement may be executed in one or more counterparts, each
of which shall constitute an original hereof.
12.4. This Agreement may be modified, amended, or supplemented only by
mutual written agreement of the Seller and the Buyer. Each amendment,
modification or supplement shall be in writing signed by the party or parties to
be charged.
12.5. This Agreement, the Exhibits hereto and the other documents
delivered hereto constitute the entire agreement of the parties in respect of
the subject matter hereof and supersedes all prior statements or agreements
among the parties in respect of such subject matter.
12.6. Article headings used in this Agreement are for convenience only
and shall not affect the construction of this Agreement.
12.7. Whenever in this Agreement it is provided that a party hereto
shall deliver an agreement or other instrument to the other of them, such
agreement or instrument shall be in form reasonably satisfactory to counsel for
the party to which the same is to be delivered.
12.8. In the event of litigation to enforce this Agreement, the
prevailing party shall receive and award of reasonable attorney's fees.
12.9. This Agreement shall be construed and interpreted according to
the laws of
26
<PAGE>
the State of Delaware without regard to its conflicts of laws provisions. Any
suit, action or proceeding arising out of this Agreement shall be instituted in
the state or federal courts in the State of New York.
12.10 Neither party shall issue any press release or make any public
announcement relating to the subject matter of this Agreement without the prior
approval of the other Party; provided, however, that the Buyer may disclose the
subject matter of this Agreement to its lenders and may make any public
disclosure it believes in good faith is required by applicable law concerning
its securities registered under the Securities Exchange Act of 1934, as amended
(in which case the Buyer will use its best efforts to advise the Seller prior to
making such disclosure).
12.11 Simultaneously with the execution and delivery of this Agreement,
each of the Stockholders of the Seller has executed the CONSENT OF STOCKHOLDERS
attached hereto as Exhibit " A".
IN WITNESS WHEREOF, Seller and Buyer have caused this Agreement to be
executed by their duly authorized officers and their corporate seals to be
affixed and attested by their respective Secretaries as of the day, month and
year first above written.
ROBINSON LABORATORIES, INC.
(Corporate Seal)
By: ______________________
Attest: Name:
_________________________ Title:
Secretary
HERLEY INDUSTRIES, INC.
(Corporate Seal)
By: ______________________
Attest: Name:
_________________________ Title:
Secretary
27
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS FOR THE 26 WEEKS ENDED JANUARY 30, 2000 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-30-2000
<PERIOD-START> AUG-2-1999
<PERIOD-END> JAN-30-2000
<CASH> 3,486,190
<SECURITIES> 0
<RECEIVABLES> 13,445,651
<ALLOWANCES> 0
<INVENTORY> 23,662,103
<CURRENT-ASSETS> 43,826,488
<PP&E> 37,924,238
<DEPRECIATION> 18,835,067
<TOTAL-ASSETS> 83,129,144
<CURRENT-LIABILITIES> 14,765,699
<BONDS> 0
0
0
<COMMON> 460,070
<OTHER-SE> 39,197,400
<TOTAL-LIABILITY-AND-EQUITY> 83,129,144
<SALES> 32,356,747
<TOTAL-REVENUES> 32,356,747
<CGS> 19,978,606
<TOTAL-COSTS> 26,366,430
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 581,054
<INCOME-PRETAX> 5,510,636
<INCOME-TAX> 1,928,000
<INCOME-CONTINUING> 3,582,636
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,582,636
<EPS-BASIC> 0.76
<EPS-DILUTED> 0.72
</TABLE>
