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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year Commission file
ended June 27, 1999 Number 1-5761
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LABARGE, INC.
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(exact name of registrants specified in its charter)
Delaware 73-0574586
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9900A Clayton Road, St. Louis, Missouri 63124
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 314-997-0800
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of Class: which registered:
Common Stock, $.01 par value American Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes |X| No |_|
As of August 20, 1999, 14,746,216 shares of common stock of the registrant
were outstanding; the aggregate market value of the shares of common stock of
the registrant held by non-affiliates was approximately $26 million, based upon
the closing price of the common stock on the American Stock Exchange on August
20, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Company's definitive proxy materials to be filed
within 120 days after the Company's fiscal year are incorporated in Part
III herein.
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PART I
GENERAL
Statements contained in this Report which are not historical facts are
forward-looking statements within the meaning of the federal securities laws.
Forward-looking statements involve risks and uncertainties. Future events and
the Company's actual results could differ materially from those contemplated by
those forward-looking statements. Important factors which could cause the
Company's actual results to differ materially from those projected in, or
inferred by, forward-looking statements are (but are not necessarily limited to)
the following: the impact of increasing competition or deterioration of economic
conditions in the Company's markets; cutbacks in defense spending by the U.S.
Government; lack of acceptance by the market for the BusCall(TM) product; lack
of acceptance by the market for the products of LaBarge's Network Technologies
Group; the outcome of certain legal actions between LaBarge and TransMedica
International, Inc. regarding a note receivable and LaBarge's investment in
TransMedica; the outcome of other litigation the Company is party to;
unexpected increases in the cost of raw materials, labor and other resources
necessary to operate the Company's business; the availability, amount, type and
cost of financing for the Company and any changes to that financing; and
unexpected Year 2000 issues.
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
LaBarge, Inc. ("LaBarge" or the "Company") is a Delaware Corporation. The
Company is engaged in the following primary business activities:
- - The MANUFACTURING SERVICES GROUP is the Company's core manufacturing
business, which has been its principal business since 1985. This group
designs, engineers and produces sophisticated electronic systems and
devices and complex interconnect systems on a contract basis for its
customers. In fiscal 1999, the Company derived approximately 88% of its
total revenues from this group.
- - LABARGE CLAYCO WIRELESS, L.L.C. ("LaBarge Clayco Wireless") provides
turnkey construction, engineering and equipment installation services for
the wireless telecommunications industry. In fiscal 1999, the Company
derived approximately 12% of its total revenue from this business.
- - The NETWORK TECHNOLOGIES GROUP is the Company's newest business activity.
This business became part of the Company in fiscal 1999 through the
acquisition of Open Cellular Systems, Inc. ("OCS"). The group designs and
markets proprietary cellular and network communication system products and
Internet services that provide monitoring and control of remote industrial
and municipal utility equipment. Results of the group are included in the
consolidated results of the Company since the date of the OCS acquisition,
March 2, 1999. In fiscal 1999, limited revenue was derived from this group.
- - NOTICOM L.L.C. JOINT VENTURE
In the first quarter of fiscal 1999, LaBarge and Global Research Systems,
Inc. of Rome, Georgia ("Global") formed NotiCom L.L.C. ("NotiCom"), a
Georgia limited liability company, to develop and market electronic systems
providing advance notice of the impending arrival of passenger motor
vehicles. The first product to be marketed by NotiCom is BusCall(TM) which
provides households with advance notice of the impending arrival of school
buses. In fiscal 1999, the NotiCom investment was accounted for using the
equity method. Throughout fiscal 1999, NotiCom was a development-stage
company.
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STRATEGY
The Company's business strategy is to continue to grow its core electronics
manufacturing services business while developing or acquiring proprietary
capabilities, technologies and products related to its core competencies in
electronics.
INFORMATION ABOUT EACH BUSINESS ACTIVITY
MANUFACTURING SERVICES GROUP
This group provides contract manufacturing and engineering services to customers
in diverse markets. The group markets its services to companies desiring an
engineering and manufacturing partner capable of developing and producing
high-reliability electronic equipment, including products capable of performing
in harsh environmental conditions, such as high and low temperature, severe
shock and vibration. The group serves customers in a variety of markets with
significant revenues from defense, aerospace and geophysical customers. The
group's manufacturing facilities are located in Arkansas, Missouri, Oklahoma and
Texas. The group employs approximately 620 people.
The backlog for this group at June 27, 1999 was approximately $42.7 million,
compared with $57.5 million at June 28, 1998. The backlog consisted of orders
from various defense customers equaling $26.6 million compared with $37.8
million at June 28, 1998, and orders from commercial customers equaling $16.1
million compared with $19.7 million at June 28, 1998. Generally, lead times for
commercial orders are much shorter and orders are placed on a just-in-time
delivery basis. Substantially, all of the defense backlog at June 27, 1999 is
pursuant to contracts containing cancellation and termination provisions.
Approximately $9.0 million of this backlog is not scheduled to ship within the
next 12 months pursuant to the shipment schedules contained in those contracts.
This compares to $19.9 million at fiscal 1998 year-end.
ORGANIZATION
The Company has organized the Manufacturing Services Group with a senior vice
president with overall responsibility for the group. He reports to the Chief
Executive Officer and President of LaBarge, Inc.
SALES AND MARKETING
In the Manufacturing Services Group there are currently 14 sales personnel, 52
engineers and 36 technicians who provide direct customer support as needed. The
group's engineering and plant management employees are involved in sales
activities. With few exceptions, the group's sales are made pursuant to
fixed-price contracts. Larger, long-term government contracts generally have
provisions for milestone or progress payments. This group typically carries
inventories only related to specific contracts, and title passes to the customer
when products are shipped.
The group seeks to develop strong, long-term relationships with its customers,
which will provide the basis for future sales. These close relationships allow
this group to better understand the customer's business needs and identify ways
to provide greater value to the customer.
DEFENSE CUSTOMERS
The Company designs and manufactures electronics products to Department of
Defense ("DOD") and prime contractor specifications. The makeup of such products
varies with customer needs. In the past, products have included military
communications systems, multiplexers, command receivers, automatic direction
finding systems, printed circuit board assemblies, flexible printed circuitry
and various interconnect assemblies and systems. These products are used in
numerous military programs, including, among many others, the AEGIS Shipboard
Weapon System, Abrams M-1 Tank and the Bradley Fighting Vehicle, and are also
utilized in various naval shipboard command, control and communications systems.
Approximately 47% of total Company sales in fiscal 1999 and 51% in fiscal 1998
were defense-related.
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COMMERCIAL AEROSPACE CUSTOMERS
The group designs and manufactures high temperature cable assemblies for jet
engines; complex wiring harnesses for space launch vehicles (including the
Atlas/Centaur Rocket and the Space Shuttle); and a variety of cable assemblies
and wiring harnesses for satellites. Approximately 14% of the Company's total
sales for fiscal 1999 were for aerospace applications compared to 10% in fiscal
1998.
GEOPHYSICAL CUSTOMERS
The group designs and manufactures a variety of electronic products for
customers engaged in oil and gas exploration, drilling and production. Products
include cabling, seismic analysis computers, down-hole instrumentation and
high-power drive controls. LaBarge also designs and produces hybrid circuits
used in similar applications. Approximately 17% of total Company sales in fiscal
1999 were to geophysical customers compared with 25% in fiscal 1998. This
decrease in volume is attributable to an industry-wide reduction in purchases of
capital equipment by oil field service companies.
COMPETITION
There is intense competition for all of the Manufacturing Services Group's
targeted customers. While the group is not aware of another entity that competes
in all of its capabilities, there are numerous companies, many larger than
LaBarge, which compete in one or more of these capabilities. Frequently, the
group's customers have the ability to produce internally the products contracted
to the Company, but because of cost, capacity, engineering capability or other
reasons, order such products from the Company. The principal methods of
competition are service, price, engineering expertise, technical and
manufacturing capability, quality and reliability, and overall project
management capability.
CONCENTRATION OF BUSINESS
Two customers of the Manufacturing Services Group in fiscal 1999, each with
multiple operating units, together accounted for in excess of 38% of the
Company's consolidated sales for the year: Lockheed Martin, which operates in
the aerospace/defense market, accounted for 25% of total sales; Schlumberger,
which operates in the geophysical market, accounted for 13% of total sales; no
other customer accounted for more than 7% of sales. Sales to the largest 10
customers represented approximately 68% of the Company's total sales. By
comparison, in fiscal 1998, sales to the largest 10 customers represented 67% of
the Company's total sales.
MANUFACTURING OPERATIONS
The Manufacturing Services Group has organized its engineering and production to
provide flexible independent plant locations with specific design and
manufacturing capabilities. This approach allows local management at each
facility to concentrate the necessary attention on specific customer needs and,
at the same time, control all key aspects of the engineering and manufacturing
processes.
LABARGE CLAYCO WIRELESS
This business provides turnkey construction, engineering and equipment
installation services for the wireless telecommunications industry. It was
started in fiscal 1996 as a 50%/50% joint venture with Clayco Construction
Company in St. Louis, Missouri. The operating results of LaBarge Clayco Wireless
were accounted for on the equity method in fiscal 1997. In the second quarter of
fiscal 1998, LaBarge increased its ownership interest in LaBarge Clayco Wireless
to 51% and began consolidating the total operations of this joint venture. In
the second quarter of fiscal 1999, the Company purchased from Clayco
Construction Company an additional 39% of LaBarge Clayco Wireless for $300,000
to increase its ownership to 90%. It was split out as a separate segment in
fiscal 1999 due to the changes in ownership and its growth in revenues.
LaBarge Clayco Wireless' sales for the year ending June 27, 1999 were $10.6
million, or 12% of
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consolidated sales, versus $3.7 million, or 4% of consolidated sales, for the
fiscal year ending June 28, 1998. The backlog at June 27, 1999 was approximately
$1.5 million compared with $2.6 million for June 28, 1998. Generally, lead times
on the commercial projects serviced by this group are short and orders are
placed on an immediate delivery basis.
ORGANIZATION
LaBarge Clayco Wireless is led by a president who reports to the Chief Executive
Officer and President of LaBarge, Inc. The president of LaBarge Clayco Wireless
has overall responsibility for the performance of this business. Reporting to
him are one sales person, 10 project managers and support personnel along with
23 field personnel. The main office is in St. Louis, Missouri.
SALES AND MARKETING
This segment's primary focus is on the rapidly growing telecommunications
wireless market, with special emphasis on Personal Communication Systems
("PCS"). The primary sales are in wireless network construction, commonly
referred to as infrastructure. Customers include wireless telephone service
providers and wireless tower companies who lease space on their towers to
wireless telephone service providers.
COMPETITION
This group competes against contractors and subcontractors who are capable of
doing all or some of the work LaBarge Clayco Wireless performs as well as the
wireless telephone providers who do some or all of the work themselves.
SIGNIFICANT CUSTOMERS
Two customers, each with multiple operations, accounted for 74% of this group's
sales in fiscal 1999.
NETWORK TECHNOLOGIES GROUP
In fiscal 1999, the Company formed its Network Technologies Group by acquiring
privately held Open Cellular Systems, Inc. ("OCS"). The group designs and
markets cellular and network communication system products and internet services
that provide monitoring and control of remote industrial and municipal utility
equipment. The systems designed by the Network Technologies Group use existing
cellular telephone infrastructure and Internet technologies to provide companies
with low-cost, two-way data communication. The group has identified broad
applications for its network communication system services, including systems
designed to monitor and control railroad crossing equipment, oil and gas
pipelines, industrial process equipment and power distribution networks. A
description of the acquisition follows:
In March 1999, the Company acquired the remaining 90% of the stock of privately
held OCS for approximately $5.6 million. Prior to the acquisition, LaBarge held
a 10% equity stake in OCS, which it acquired in October 1997 for $500,000. The
purchase price was paid by issuing Subordinated Convertible Notes ("Notes") due
in June 2003 and bearing interest of 7.5% per annum payable quarterly beginning
June 29, 1999. Each share of OCS stock was valued at $4.25 in the transaction.
Under the terms of the Notes, each holder has the right to convert the Notes
into LaBarge, Inc. Common Stock at a conversion price of $8.00 per share at any
time after the first anniversary of the Notes up to their maturity date.
Further, the note holders are entitled to receive participation payments from
the Company for each fiscal year through 2003 equal to the amount by which 35%
of the net income of OCS exceeds the 7.5% interest paid on the Notes for the
fiscal year.
On March 2, 1999, 1,008,622 shares of OCS common stock were exchanged for $4.3
million of Subordinated Convertible Notes. Options to acquire 310,000 shares of
OCS common stock were converted to 310,000 shares of common stock of
LaBarge-OCS, Inc., the acquiring subsidiary, and represent shares acquired by
the holders through exercise of employee stock options. These shares
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are callable by LaBarge, Inc. in accord with a call agreement whereby the
Company, at its discretion, may exchange the shares for Subordinated Convertible
Notes at $4.25 per share or $1.3 million after the first anniversary of the
acquisition (March 2, 2000) and prior to June 15, 2000. This dollar amount is
included in other current liabilities. The Company recorded goodwill of $6.8
million in this transaction, which is being amortized over seven years.
The Company used the purchase method of accounting to record this acquisition.
The results of operations of LaBarge-OCS, Inc. have been included in the
consolidated results of operations of LaBarge since the date of acquisition.
ORGANIZATION
The Network Technologies Group is led by two vice presidents who report to the
Chief Executive Officer and President of LaBarge, Inc. One is responsible for
marketing and business development for the group. The other oversees engineering
and operations.
SALES AND MARKETING
This group's initial market focus is on the railroad industry, which uses the
group's proprietary product, devices and services to monitor railroad crossing
equipment, and the oil and gas pipeline industry which uses the products,
devices and services to monitor cathodic protection devices throughout their
systems.
The group has two full-time sales personnel and utilizes the services of
independent sales representatives to market its products.
Sales in fiscal 1999 were minimal.
COMPETITION
The group has various competitors who market devices to report failures of
remote industrial equipment via hard-wired or radio telephone devices. None of
the competitors are known to market products which provide this service as cost
effectively as the Network Technologies Group.
OPERATIONS
The Network Technologies Group does no manufacturing. The Manufacturing Services
Group is the manufacturer of the Network Technologies Group's products.
The group has an Internet monitoring and notification operation in the
metropolitan Kansas City area to report a variety of events, including alarm
conditions, to its customers.
NOTICOM L.L.C. JOINT VENTURE
In the first quarter of fiscal 1999, LaBarge and Global Research Systems, Inc.
of Rome, Georgia ("Global"), formed NotiCom L.L.C. ("NotiCom"), a Georgia
limited liability company, to develop and market electronic systems providing
advance notice of the impending arrival of passenger motor vehicles. The first
product to be marketed by NotiCom is BusCall. BusCall uses a combination of
technologies, including Global Positioning System satellite location data,
wireless communications techniques and telephony, to notify parents by phone
when their children's school bus is approaching the bus stop. It is being
marketed to telephone companies and other potential service providers, which can
offer BusCall as a value-added service. LaBarge's Manufacturing Services Group
is the exclusive manufacturer of all products sold by NotiCom.
LaBarge and Global each initially had a 50% interest in NotiCom, except that
after an aggregate of $1.0 million has been distributed by NotiCom, Global will
be entitled to 75% of subsequent distributions until it has received preferred
distributions aggregating $1.3 million. LaBarge has invested $1.8 million
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in cash in NotiCom along with $500,000 of development services. In addition,
LaBarge has paid Global $1.7 million for a 50% interest in intellectual
properties and has licensed the technology to NotiCom.
The Company is obligated to pay Global up to an aggregate of $23.3 million of
additional purchase price for its 50% interest in the technology if NotiCom
meets or exceeds cumulative earnings before income tax ("EBT") targets through
December 31, 2001. In order to generate the maximum purchase price, NotiCom must
generate $211.8 million of EBT between July 1, 1998 and December 31, 2001. It
appears unlikely at this time that such targets will be met; therefore, the
Company has not recorded the contingent purchase price.
Because NotiCom is a start-up venture, it is too early to predict if or to what
extent NotiCom may contribute to the Company's revenues or earnings. Given the
risks inherent in a start-up operation, the Company elected, during the fourth
quarter of fiscal 1999, to amortize the technology over three years. For the
fourth quarter, the amortization of this investment was approximately $310,000
and for the next two years, non-cash amortization is expected to be $1.75
million per year. In fiscal 1999, this investment was accounted for using the
equity method.
In July and August 1999, NotiCom needed additional cash infusions totaling
approximately $400,000 to continue its development and marketing efforts.
LaBarge has made such contributions, which has increased LaBarge's equity
interest in NotiCom.
ORGANIZATION
The joint venture is headed by a president who reports to a board of managers,
consisting of representatives from LaBarge and Global.
SALES AND MARKETING
The BusCall product is being marketed to various telephone-operating companies
as a value-added service. Two such companies used the system successfully in the
1998-1999 school year and one will be increasing the service for the 1999-2000
school year. In addition, new opportunities representing significantly larger
system utilization are being planned for fiscal 2000.
SIGNIFICANT EVENT
TRANSMEDICA INTERNATIONAL, INC.
On June 2, 1999, TransMedica International, Inc., ("TransMedica") defaulted on
the payment of a $2.0 million note due the Company. As a result, the Company
reevaluated the value of its assets related to TransMedica and decides to
reserve the full amount ($4.6 million). The Company is continuing its effort to
recover the amounts it believes are owed it by TransMedica.
HISTORY
In fiscal 1993, LaBarge, Inc. entered into an agreement with TransMedica
(formerly known as Venisect, Inc.) to design, develop and manufacture a patented
medical laser device, the Laser Lancet(R).
Since August 1995, the Company has acquired approximately 9.5% of TransMedica's
common stock for $2.3 million. The Company made an initial $250,000 cash
investment in fiscal 1996, and converted approximately $1.2 million of accounts
receivable and provided an additional $800,000 in operating capital in fiscal
1997. In June 1998, TransMedica issued the Company an interest-bearing
promissory note in the amount of $2.0 million and warrants to purchase an
additional 4% of TransMedica stock for $25 per share in exchange for $900,000 of
accounts receivable and additional credit of $1.1 million for new production of
Laser Lancet devices. The note is secured by substantially all of TransMedica's
assets.
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On October 16, 1998, the Company filed a Petition for Specific Performance and
Declaratory Judgment in the Circuit Court for St. Louis County, Missouri,
seeking resolution of LaBarge's right to develop and manufacture new laser
products and determination of the number of Laser Lancet devices TransMedica is
presently obligated to purchase from LaBarge under an exclusive manufacturing
agreement between the two companies.
On June 3, 1999, the Company amended its suit to include payment of the $2.0
million note receivable that was due June 2, 1999, and which remains unpaid as
of August 20, 1999.
CAPITAL STRUCTURE
On June 25, 1999, the Company amended its senior loan agreement with Bank of
America. The Company entered into a loan agreement on June 25, 1996, with
NationsBank, N.A. which subsequently merged with Bank of America. The original
agreement included a term loan and revolving credit facility totaling $20.0
million.
The current amendment reestablished the bank's secured position, reinstated a
borrowing base limitation on the revolver and established new covenants and
performance measures to reflect the effect of LaBarge's new investments (NotiCom
and OCS), as well as the reserve for loss on the TransMedica assets in fiscal
1999.
The following is a summary of the current senior loan agreement:
- - An $11.0 million term loan requiring repayments of principal quarterly.
This loan matures in September 2005.
- - A revolving credit facility up to $15.0 million based on a borrowing base
formula equal to 85% of eligible receivables and 30% of eligible
inventories. As of June 27, 1999, the maximum allowable was approximately
$9.0 million. The revolver borrowing at fiscal 1999 year-end was $130,000.
- - Covenants and performance criteria which involve Earnings Before Interest,
Taxes, Depreciation and Amortization ("EBITDA") in relation to debt.
- - Interest on the loans at prime or a stated rate over LIBOR based on certain
ratios. As of year-end, the average rate was approximately 7.0%.
In addition to the senior lending agreement, borrowings consist of the
following:
Mortgage Loan:
In fiscal 1998, the Company purchased its headquarters building in St.
Louis, Missouri, and financed the purchase with a $6.2 million mortgage
loan. The loan has a 25-year amortization, a 7.5% interest rate and is due
in January 2008.
Secondary Line of Credit:
LaBarge Clayco Wireless L.L.C has a revolving line of credit with
Mercantile Bank N.A. This line is in the amount of $1.0 million and matures
November 1999. The interest rate on this note is 1/4% over the bank's prime
rate. At fiscal 1999 year-end, the outstanding amount was $800,000 at an
interest rate of 8.25%. The Company anticipates renegotiating the revolving
line of credit prior to expiration on terms generally consistent with those
currently in place.
Subordinated Convertible Notes:
On March 2, 1999, the Company, through its subsidiary LaBarge-OCS, Inc.,
purchased the remaining 90% of OCS for $5.6 million by (1) exchanging its
Subordinated Convertible Notes ("Notes") due June 2003 in the principal
amount of $4.3 million for the outstanding shares of OCS, and (2)
exchanging 310,000 shares of LaBarge-OCS, Inc. common stock for outstanding
options to purchase OCS common shares. The Notes bear interest at 7.5%
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per annum payable quarterly beginning June 29, 1999, and noteholders are
entitled to participation payments if LaBarge-OCS, Inc. achieves certain
levels of earnings before taxes. The Notes are convertible by the holders
into LaBarge, Inc. Common Stock at $8.00 per share at any time after the
first anniversary of the Notes up to their maturity date. The 310,000
shares of LaBarge-OCS, Inc. common stock may be exchanged for $1.3 million
of Notes, at the option of the Company, after March 2, 2000, but before
June 15, 2000.
Industrial Revenue Bonds:
In July 1998, the Company acquired a tax-exempt Industrial Revenue Bond
through GE Capital Public Finance, Inc. in the amount of $1.3 million. The
debt is payable over 10 years with an interest rate of 5.28%. This funding
was used to expand the Berryville, Arkansas, facility.
The ratio of debt-to-equity as of June 27, 1999 was .95 to 1, compared with .55
to 1 at June 28, 1998.
ENVIRONMENTAL COMPLIANCE
Compliance with federal, state and local environmental laws is not expected to
materially affect the capital expenditures, earnings or competitive position of
any segment of the Company.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
No information has been included hereunder because the Company's foreign sales
in each of fiscal 1999, fiscal 1998 and fiscal 1997 were less than 10% of total
Company revenue.
ITEM 2. PROPERTIES
The Company's principal facilities, which are deemed adequate and suitable for
the Company's business, are as follows:
<TABLE>
<CAPTION>
YEAR OF
PRINCIPAL LAND BUILDINGS TERMINATION
LOCATION USE (ACRES) (SQUARE FEET) OF LEASE
- -------------------------- -------------------------- --------------------- -------------------- -------------------
<S> <C> <C> <C> <C>
Berryville, AR Manufacturing &
Offices 7 33,000 Owned
Houston, TX Manufacturing &
Offices 2 35,500 2002
Huntsville, AR Manufacturing &
Offices 6 45,000 2000
Joplin, MO Manufacturing &
Offices 5 50,400 Owned
Joplin, MO Manufacturing 4 33,000 2002
Lenexa, KS Offices - 4,137 2001
St. Louis, MO Offices 8 65,176 Owned
St. Louis, MO Offices &
Warehousing - 7,437 2002
Tulsa, OK Manufacturing &
Offices 3 62,599 2002
- -------------------------- -------------------------- --------------------- -------------------- -------------------
</TABLE>
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ITEM 3. LEGAL PROCEEDINGS
On October 16, 1998, the Company filed a Petition for Specific Performance and
Declaratory Judgment in the Circuit Court for St. Louis County, Missouri,
seeking a resolution of LaBarge's right to develop and manufacture a new laser
product and determination of the number of Laser Lancet devices TransMedica
International, Inc. is obligated to purchase from LaBarge under an exclusive
manufacturing agreement between the two companies. On June 3, 1999, the Company
amended its suit to include payment of TransMedica's delinquent $2.0 million
note receivable that was due June 2, 1999.
In May 1999, TransMedica filed a counterclaim against LaBarge seeking dismissal
of LaBarge's petition, damages in an indeterminate amount, punitive damages,
costs and attorney's fees relating to several counts alleging breach of
contract, warranty and fiduciary duty by LaBarge and a declaration that a small
laser device developed by a third party is not subject to TransMedica's
agreement with LaBarge. TransMedica also filed a separate action against LaBarge
in the Circuit Court in Little Rock, Arkansas, containing the same counts and
seeking the same relief as in its counterclaim. The Arkansas proceeding has been
stayed pending resolution of the St. Louis County proceeding. LaBarge intends to
vigorously pursue its petition against TransMedica and to defend against
TransMedica's claims and counterclaims.
At this time, it is too early to determine what, if any, recovery or liability
LaBarge might have as a result of this suit. The Company has reserved 100% of
the value of its TransMedica assets and recorded a loss of $4.6 million in
fiscal 1999 as a result.
In August 1999, Jerome S. Stein filed a Petition in the Circuit Court for the
City of St. Louis against the Company and its former chairman, Pierre L.
LaBarge, Jr., seeking damages in an indeterminate amount in excess of $25,000,
plus interest and court costs. Mr. Stein alleges in his claim against the
Company that the Company agreed to pay him 1% of any increase in value of
LaBarge's outstanding common stock in exchange for certain promotional services.
The Company denies any such arrangement with Mr. Stein, believes the suit to be
totally without merit, and intends to defend it vigorously.
The Company does not believe that either case, individually or in the aggregate,
will have a material adverse effect on the financial condition or results of
operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no items submitted to a vote of the security holders in the quarter
ended June 27, 1999.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Reference is made to the information contained in the section entitled "Stock
Price and Cash Dividends" on page 18 filed herewith.
ITEM 6. SELECTED FINANCIAL DATA
Reference is made to the information contained in the section entitled "Selected
Financial Data" on page 18 filed herewith.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Reference is made to the information contained in the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 44 through 52 filed herewith.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Risk
No information has been included hereunder because the Company's foreign sales
in each of fiscal 1999, fiscal 1998 and fiscal 1997 were less than 10% of total
Company revenue. All foreign contracts are paid in U.S. dollars and the Company
is not significantly exposed to foreign currency translation. However, if the
significance of foreign sales grows, management will continue to monitor whether
it would be appropriate to use foreign currency risk management instruments to
mitigate any exposures.
Interest Rate Risk
As of June 27, 1999, the Company had $23.0 million in total debt. $11.8 million
is made up of a mortgage loan, subordinated debt, and industrial revenue bonds.
This debt has a fixed rate and is not subject to interest rate risk. The
interest rate on the remaining $11.2 million is subject to fluctuation. The
additional interest cost to the company if interest rates went up 1% would be
$112,000 for one year.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the "Index to Consolidated Financial Statements and
Schedule" contained on page 17 filed herewith.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
This information will be included in the Company's definitive proxy materials to
be filed within 120 days after the end of the Company's fiscal year covered by
this report and is incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
This information will be included in the Company's definitive proxy materials to
be filed within 120 days after the end of the Company's fiscal year covered by
this report and is incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information will be included in the Company's definitive proxy materials to
be filed within 120 days after the end of the Company's fiscal year covered by
this report and is incorporated by reference.
11
<PAGE> 12
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information will be included in the Company's definitive proxy materials to
be filed within 120 days after the end of the Company's fiscal year covered by
this report and is incorporated by reference.
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
a. Consolidated Financial Statements.
See "Index to Consolidated Financial Statements and Schedule"
contained on page 17.
b. Reports on Form 8-K.
No reports on Form 8-K were filed by the Company in the fourth
quarter of fiscal 1999.
c. Exhibits.
d. Consolidated Financial Statement Schedule.
See "Index to Consolidated Financial Statements and Schedule"
contained on page 17.
e. Exhibits.
Exhibit
Number Description
3.1 Restated Certificate of Incorporation, dated October 26, 1995,
previously filed as Exhibit 3.1(i) to the Company's Quarterly Report
on Form 10-Q for the quarter ended October 1, 1995 and incorporated
herein by reference.
3.1(a) Certificate of Amendment to Restated Certificate of Incorporation,
dated November 7, 1997, previously filed as Exhibit 3.1(a) to the
Company's Quarterly Report on Form 10-Q for the quarter ended December
28, 1997 and incorporated herein by reference.
3.2 By-Laws, as amended, previously filed as Exhibit 3.2(a) to the
Company's Quarterly Report on Form 10-Q for the quarter ended October
1, 1995 and incorporated herein by reference.
10. First Amendment and Restatement to the LaBarge Employees Savings Plan
executed on May 3, 1990 and First Amendment to the First Amendment and
Restatement of the LaBarge, Inc. Employees Savings Plan executed on
June 5, 1990, previously filed as Exhibits (i) and (ii), respectively,
to the LaBarge, Inc. Employees Savings Plan's Annual Report on Form
11-K for the year ended December 31, 1990 and incorporated herein by
reference.
10.1(a) Second Amendment to the First Amendment and Restatement of the
LaBarge, Inc.
12
<PAGE> 13
Employees Savings Plan executed on November 30, 1993. Previously
filed with the Securities and Exchange Commission with the Company's
Registration Statement on Form S-3 on July 23, 1996 and incorporated
herein by reference.
10.1(b) Third Amendment to the First Amendment and Restatement of the LaBarge,
Inc. Employees Savings Plan executed on March 24, 1994. Previously
filed with the Securities and Exchange Commission with the Company's
Registration Statement on Form S-3 on July 23, 1996 and incorporated
herein by reference.
10.1(c) Fourth Amendment to the First Amendment and Restatement of the
LaBarge, Inc. Employees Savings Plan executed on January 3, 1995.
Previously filed with the Securities and Exchange Commission with the
Company's Registration Statement on Form S-3 on July 23, 1996 and
incorporated herein by reference.
10.1(d) Fifth Amendment to the First Amendment and Restatement of the LaBarge,
Inc. Employees Savings Plan executed on October 26, 1995. Previously
filed with the Securities and Exchange Commission with the Company's
Registration Statement on Form S-3 on July 23, 1996 and incorporated
herein by reference.
10.1(e) Sixth Amendment to the First Amendment and Restatement of the LaBarge,
Inc. Employees Savings Plan executed on January 9, 1998. Previously
filed as Exhibit II, respectively, to the LaBarge, Inc. Employees
Savings Plan's Annual Report on Form 11-K for the year ended December
31, 1997 and incorporated herein by reference.
10.1(f)* Seventh Amendment to the First Amendment and Restatement of the
LaBarge, Inc. Employees Savings Plan executed on August 11, 1999.
10.2 LaBarge, Inc. 1987 Incentive Stock Option Plan. Previously filed with
the Securities and Exchange Commission with the Company's Registration
Statement on Form S-3 on July 23, 1996 and incorporated herein by
reference.
10.2(a) First Amendment to the LaBarge, Inc. 1987 Incentive Stock Option Plan.
Previously filed with the Securities and Exchange Commission with the
Company's Registration Statement on Form S-3 on July 23, 1996 and
incorporated herein by reference.
10.3 LaBarge, Inc. 1993 Incentive Stock Option Plan. Previously filed with
the Securities and Exchange Commission with the Company's Registration
Statement on Form S-3 on July 23, 1996 and incorporated herein by
reference.
10.3(a) First Amendment to the LaBarge, Inc. 1993 Incentive Stock Option Plan.
Previously filed with the Securities and Exchange Commission with the
Company's Registration Statement on Form S-3 on July 23, 1996 and
incorporated herein by reference.
10.4 Management Retirement Savings Plan of LaBarge, Inc. Previously filed
with the Securities and Exchange Commission with the Company's
Registration Statement on Form S-3 on July 23, 1996 and incorporated
herein by reference.
10.5 Loan Agreement dated June 25, 1996 among NationsBank, N.A.,
registrant, LaBarge Wireless, Inc. and LaBarge/STC, Inc. Previously
filed with the Securities and Exchange Commission with the Company's
Registration Statement on Form S-3 on July 23, 1996 and incorporated
herein by reference.
13
<PAGE> 14
10.6 LaBarge, Inc. 1995 Incentive Stock Option Plan. Previously filed with
the Securities and Exchange Commission with the Company's Annual
Report on Form 10-K on September 19, 1996 and incorporated herein by
reference.
10.7 Operating Agreement for LaBarge Clayco Wireless L.L.C. Previously
filed with the Securities and Exchange Commission with the Company's
Annual Report on Form 10-K on September 19, 1996 and incorporated
herein by reference.
10.8 First Amendment to Loan Agreement between NationsBank, N.A. and
LaBarge, Inc., LaBarge/STC, Inc. and LaBarge Wireless, Inc. Previously
filed with the Securities and Exchange Commission with the Company's
Quarterly Report on Form 10-Q on May 14, 1997 and incorporated herein
by reference.
10.8(a)* Third Amendment to Loan Agreement between Bank of America, formerly
NationsBank, N.A. and LaBarge, Inc., LaBarge/STC, Inc., LaBarge
Wireless, Inc. and LaBarge-OCS, Inc. dated June 25, 1999 and attached
hereto as reference.
10.9 First Amendment to the LaBarge, Inc. Employee Stock Purchase Plan.
Previously filed with the Securities and Exchange Commission with the
Company's Quarterly Report on Form 10-Q on May 12, 1999 and
incorporated here in by reference.
10.10 Second Amendment to the Loan Agreement between NationsBank, N.A. and
LaBarge, Inc., LaBarge/STC, Inc. and LaBarge Wireless, Inc. Previously
filed with the Securities and Exchange Commission with the Company
Quarterly Report on Form 10-Q on November 9, 1998 and incorporated
herein by reference.
10.11* Settlement Agreement dated June 2, 1998, between TransMedica
International, Inc. and LaBarge, Inc., with an Index of omitted
exhibits and schedules and agreement by LaBarge to furnish such
omitted exhibits and schedules upon request.
10.12* Purchase Agreement dated July 22, 1998 between Global Research
Systems, Inc. and LaBarge, Inc.
10.13* Operating Agreement of NotiCom, L.L.C.
10.14* Agreement and Plan of Merger dated February 9, 1999, among LaBarge,
Inc., LaBarge-OCS, Inc. and Open Cellular Systems, Inc., with an Index
of omitted exhibits and schedules and agreement by LaBarge to furnish
such omitted exhibits and schedules upon request.
23(a)* Independent Auditors' Consents.
27* Article 5 Financial Data Schedule.
* Document filed herewith.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: September 24, 1999
------------------
LaBarge, Inc.
By /s/ William J. Maender
-------------------------------
William J. Maender
Vice President - Finance
(Chief Financial and
Accounting Officer)
15
<PAGE> 16
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Craig E. LaBarge and William J. Maender and each
of them, and substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign this Report, any and all amendments to
this Report, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or either of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereto.
Pursuant to the requirements of the Securities Act of 1934, this Report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Pierre L. LaBarge, Jr. Chairman Emeritus and Director 8/11/99
------------------------------------------ --------------
Pierre L. LaBarge, Jr.
/s/ Craig E. LaBarge President (Chief Executive Officer) 8/11/99
------------------------------------------ --------------
Craig E. LaBarge and Director
/s/ William J. Maender Vice President-Finance (Chief 8/11/99
------------------------------------------ --------------
William J. Maender Financial Officer), Secretary and
Treasurer
/s/ Robert H. Chapman Director 8/11/99
------------------------------------------ --------------
Robert H. Chapman
/s/ Richard P. Conerly Director 8/11/99
------------------------------------------ --------------
Richard P. Conerly
/s/ John G. Helmkamp, Jr. Director 8/11/99
------------------------------------------ --------------
John G. Helmkamp, Jr.
/s/ J. C. Kuhn, Jr. Director 8/11/99
------------------------------------------ --------------
J. C. Kuhn, Jr.
/s/ Lawrence J. LeGrand Director 8/11/99
------------------------------------------ --------------
Lawrence J. LeGrand
/s/ James P. Shanahan, Jr. Director 8/11/99
------------------------------------------ --------------
James P. Shanahan, Jr.
/s/ Jack E. Thomas, Jr. Director 8/11/99
------------------------------------------ --------------
Jack E. Thomas, Jr.
</TABLE>
16
<PAGE> 17
LABARGE, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
AND SCHEDULES
PAGE
------
Consolidated Financial Statements
Independent Auditors' Report 19
Consolidated Statements of Operations, 20
Years Ended June 27, 1999
June 28, 1998 and June 29, 1997
Consolidated Balance Sheets
June 27, 1999, and June 28, 1998 21
Consolidated Statements of Cash Flows, 22
Years Ended June 27, 1999,
June 28, 1998 and June 29, 1997
Consolidated Statements of Stockholders' Equity, 23
Years Ended June 27, 1999,
June 28, 1998 and June 29, 1997
Notes to Consolidated Financial Statements, 24-43
Years Ended June 27, 1999,
June 28, 1998 and June 29, 1997
Management's Discussion and Analysis of 44-52
Financial Condition and
Results of Operations
Schedule II - Valuation and Qualifying Accounts 53
All other schedules have been omitted as they are not applicable, not
significant, or the required information is given in the consolidated financial
statements or notes thereto.
Financial Statement of Investee Subsidiary
------------------------------------------
Independent Auditors' Report 54
Balance Sheet June 27, 1999 55
Statement of Operations, Period July 22, 1998 - June 27, 1999 56
Statement of Members' Equity, Period July 22, 1998 - June 27, 1999 57
Statement of Cash Flows, Period July 22, 1998 - June 27, 1999 58
Notes to Financial Statements, Period July 22, 1998 - June 27, 1999 59-61
17
<PAGE> 18
LaBarge, Inc.
SELECTED FINANCIAL DATA
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------------------------------
JUNE 27, June 28, June 29, June 30, July 2,
1999 1998 1997 1996 1995
----------------------------------------- ---------------- --------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Net sales $ 89,143 $ 99,292 $ 96,666 $ 75,060 $ 61,646
Pretax (loss) earnings $ (3,591) $ 7,550 $ 7,001 $ 3,771 $ 1,002
Net (loss) earnings $ (3,080) $ 4,764 $ 7,735 $ 3,540 $ 1,321
----------------------------------------- ---------------- --------------- -------------- --------------- --------------
Basic net (loss) earnings per
common share $ (.20) $ .31 $ .50 $ .23 $ .09
Diluted net (loss) earnings per common
share $ (.20) $ .30 $ .49 $ .23 $ .09
----------------------------------------- ---------------- --------------- -------------- --------------- --------------
Total assets $ 59,654 $ 58,992 $ 43,459 $ 41,550 $ 31,608
Long-term obligations $ 20,290 $ 10,163 $ 5,101 $ 10,419 $ 6,467
----------------------------------------- ---------------- --------------- -------------- --------------- --------------
</TABLE>
Certain events occurring during the above reporting periods involving
acquisitions, divestitures, joint ventures, refinancings, and deferred tax
valuation adjustments affect the comparability of financial data presented on a
year-to-year basis. No cash dividends have been paid during the aforementioned
periods.
STOCK PRICE AND CASH DIVIDENDS: LaBarge, Inc.'s Common Stock is listed on the
American Stock Exchange, under the trading symbol of LB. As of August 20, 1999,
there were approximately 3,233 holders of record of LaBarge, Inc.'s Common
Stock. The following table indicates the quarterly high and low closing prices
for the stock for the fiscal years 1999 and 1998, as reported by the American
Stock Exchange.
<TABLE>
<CAPTION>
1998-99 HIGH LOW
---- ---
<S> <C> <C>
July - September 5 3/8 3 3/16
October - December 3 15/16 3
January - March 3 3/8 2 1/4
April - June 2 3/4 2 1/16
</TABLE>
<TABLE>
<CAPTION>
1997-98 HIGH LOW
---- ---
<S> <C> <C>
July - September 6 1/8 5 7/16
October - December 6 13/16 3 3/4
January - March 4 11/16 3 7/8
April - June 4 1/8 3 3/8
</TABLE>
18
<PAGE> 19
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
LaBarge, Inc.:
We have audited the consolidated financial statements of LaBarge, Inc. and
subsidiaries as listed in the accompanying index. In connection with our audits
of the consolidated financial statements, we also have audited the financial
statement schedule as listed in the accompanying index. These consolidated
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above, present
fairly, in all material respects, the financial position of LaBarge, Inc. and
subsidiaries as of June 27, 1999 and June 28, 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 27, 1999, in conformity with generally accepted accounting
principles. Also in our opinion the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
/s/ KPMG L.L.P.
August 9, 1999
19
<PAGE> 20
LaBarge, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------------------------
JUNE 27, June 28, June 29,
1999 1998 1997
- ----------------------------------------------------------- --------------------- ---------------------- -------------------
<S> <C> <C> <C>
NET SALES $ 89,143 $ 99,292 $ 96,666
- ----------------------------------------------------------- --------------------- ---------------------- -------------------
COSTS AND EXPENSES:
Cost of sales 71,416 76,420 77,442
Selling and administrative expense 14,269 14,407 11,380
Loss due to revaluation of impaired assets 4,573 - -
Interest expense 1,451 997 942
Equity in loss (income) of joint venture - 120 (4)
Loss from NotiCom 1,221 - -
Minority interest income (loss) 165 (89) -
Other income, net (361) (113) (95)
- ----------------------------------------------------------- --------------------- ---------------------- -------------------
92,734 91,742 89,665
- ----------------------------------------------------------- --------------------- ---------------------- -------------------
NET (LOSS) EARNINGS BEFORE INCOME TAXES (3,591) 7,550 7,001
INCOME TAX (BENEFIT) EXPENSE (511) 2,786 (734)
- ----------------------------------------------------------- --------------------- ---------------------- -------------------
NET (LOSS) EARNINGS $ (3,080) $ 4,764 $ 7,735
=========================================================== ===================== ====================== ===================
BASIC NET (LOSS) EARNINGS
PER COMMON SHARE $ (.20) $ .31 $ .50
AVERAGE COMMON SHARES OUTSTANDING 15,157 15,604 15,626
=========================================================== ===================== ====================== ===================
DILUTED NET (LOSS) EARNINGS
PER COMMON SHARE $ (.20) $ .30 $ .49
AVERAGE COMMON SHARES OUTSTANDING 15,157 15,723 15,790
=========================================================== ===================== ====================== ===================
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE> 21
LaBarge, Inc.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
JUNE 27, June 28,
1999 1998
- --------------------------------------------------------------------------------- ---------------------- -------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 495 $ 540
Accounts and notes receivable, net 12,492 18,332
Inventories 16,093 18,968
Prepaid expenses 727 772
Deferred tax assets, net 664 2,087
- --------------------------------------------------------------------------------- ---------------------- -------------------
TOTAL CURRENT ASSETS 30,471 40,699
- --------------------------------------------------------------------------------- ---------------------- -------------------
PROPERTY, PLANT AND EQUIPMENT, NET 13,188 11,254
DEFERRED TAX ASSETS, NET 1,818 -
INVESTMENT IN NOTICOM 2,780 -
INTANGIBLE ASSETS, NET 6,941 471
OTHER ASSETS, NET 4,456 6,568
- --------------------------------------------------------------------------------- ---------------------- -------------------
$ 59,654 $ 58,992
================================================================================= ====================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 930 $ 5,020
Current maturities of long-term debt 1,771 1,102
Trade accounts payable 5,847 6,034
Accrued employee compensation 3,873 4,710
Other accrued liabilities 2,863 2,321
- --------------------------------------------------------------------------------- ---------------------- -------------------
TOTAL CURRENT LIABILITIES 15,284 19,187
- --------------------------------------------------------------------------------- ---------------------- -------------------
LONG-TERM SENIOR DEBT 15,866 10,163
SUBORDINATED DEBT 4,424 -
- --------------------------------------------------------------------------------- ---------------------- -------------------
TOTAL LIABILITIES 35,574 29,350
- --------------------------------------------------------------------------------- ---------------------- -------------------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value. Authorized 40,000,000 shares; issued
15,711,395 shares at June 27, 1999 and 15,658,280 at June 28, 1998,
including shares in treasury 157 156
Additional paid-in capital 13,615 13,468
Retained earnings 13,403 16,683
Less cost of common stock in treasury, 955,853 shares at
June 27, 1999 and 163,649 shares at June 28, 1998 (3,095) (665)
- --------------------------------------------------------------------------------- ---------------------- -------------------
TOTAL STOCKHOLDERS' EQUITY 24,080 29,642
- --------------------------------------------------------------------------------- ---------------------- -------------------
$ 59,654 $ 58,992
================================================================================= ====================== ===================
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE> 22
LaBarge, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------------
JUNE 27, June 28, June 29,
1999 1998 1997
- ------------------------------------------------------------------------------- ----------------- ------------------ --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) earnings $ (3,080) $ 4,764 $ 7,735
Adjustments to reconcile net cash provided (used) by Operating activities:
Loss due to revaluation of impaired assets 4,573 - -
Undistributed loss from NotiCom 984 - -
Undistributed loss (earnings) in equity of joint venture - 120 (4)
Loss on disposal of property and equipment 16 - -
Minority interest income (loss) 165 (89) -
Depreciation and amortization 2,236 1,393 1,012
Deferred taxes (395) 2,339 (1,176)
Changes in assets and liabilities, net of acquisitions:
Accounts and notes receivable, net 3,763 (4,422) (529)
Inventories 2,777 (4,672) 3,313
Prepaid expenses 48 29 (449)
Other assets - - (1,175)
Trade accounts payable (917) 182 (2,082)
Accrued liabilities (174) 517 1,522
- ------------------------------------------------------------------------------- ----------------- ------------------ --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 9,996 161 8,167
- ------------------------------------------------------------------------------- ----------------- ------------------ --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (3,452) (8,243) (1,711)
Additions to other assets (753) (2,299) (658)
Investment in other companies (2,585) 165 -
Investment in technology (1,686) - -
- ------------------------------------------------------------------------------- ----------------- ------------------ --------------
NET CASH USED BY INVESTING ACTIVITIES (8,476) (10,377) (2,369)
- ------------------------------------------------------------------------------- ----------------- ------------------ --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additional investment by minority interest - 300 -
Additions to long-term debt 5,960 6,200 -
Repayments of long-term debt (953) (1,066) (4,919)
(Purchase) sale of common stock (2,482) (665) 53
Net change in short-term borrowings, net of acquisitions (4,090) 4,520 (400)
- ------------------------------------------------------------------------------- ----------------- ------------------ --------------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (1,565) 9,289 (5,266)
- ------------------------------------------------------------------------------- ----------------- ------------------ --------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (45) (927) 532
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 540 1,467 935
=============================================================================== ================= ================== ==============
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 495 $ 540 $ 1,467
=============================================================================== ================= ================== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE> 23
LaBarge, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(dollars in thousands except share data)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN RETAINED TREASURY STOCK
SHARES PAR VALUE CAPITAL EARNINGS SHARES COST
- ----------------------------------------- --------------- --------------- ------------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1996 15,601,891 $ 156 $ 13,416 $ 4,184 (187) $ (1)
Net earnings - - - 7,735 - -
Exercise of stock options 56,389 - 52 - 137 1
- ----------------------------------------- --------------- --------------- ------------- ------------- --------------- -------------
BALANCE AT JUNE 29, 1997 15,658,280 $ 156 $ 13,468 $ 11,919 (50) $ -
Net earnings - - - 4,764 - -
Purchase of common to
treasury - - - - (163,599) (665)
- ----------------------------------------- --------------- --------------- ------------- ------------- --------------- -------------
BALANCE AT JUNE 28, 1998 15,658,280 $ 156 $ 13,468 $ 16,683 (163,649) $ (665)
NET LOSS - - - (3,080) - -
ISSUED FOR THE EMPLOYEE
STOCK PURCHASE PLAN 53,115 1 147 - - -
EXERCISE OF STOCK OPTIONS - - - (200) 65,000 272
PURCHASE OF COMMON
TO TREASURY - - - - (857,204) (2,702)
========================================= =============== =============== ============= ============= =============== =============
BALANCE AT JUNE 27, 1999 15,711,395 $ 157 $ 13,615 $ 13,403 (955,853) $(3,095)
========================================= =============== =============== ============= ============= =============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE> 24
LaBarge, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 27, 1999, June 28, 1998 and June 29, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Company is engaged in the following primary business activities:
The Manufacturing Services Group is the Company's core manufacturing business,
which has been its principal business since 1985. This group designs, engineers
and produces sophisticated electronic systems and devices and complex
interconnect systems on a contract basis for its customers in diverse markets.
In fiscal 1999, the Company derived approximately 88% of its total revenue from
this business activity.
The group markets its services to companies desiring an engineering and
manufacturing partner capable of developing and providing high-reliability
electronic equipment, including products capable of performing in harsh
environmental conditions, such as high and low temperature, severe shock and
vibration. The group serves customers in a variety of markets with significant
revenues from customers in the defense, aerospace and geophysical markets. The
group's manufacturing facilities are located in Arkansas, Missouri, Oklahoma and
Texas.
LaBarge Clayco Wireless, L.L.C. ("LaBarge Clayco Wireless") provides turnkey
construction, engineering and equipment installation services for the wireless
telecommunications industry. This group markets its services to wireless
telephone service providers and wireless tower companies who lease space on
their towers to wireless telephone service providers throughout the United
States.
In fiscal 1999, this group provided approximately 12% of the Company's total
sales.
The Network Technologies Group is the Company's newest business activity. This
group was started in fiscal 1999 with the acquisition of Open Cellular Systems,
Inc. ("OCS"). The group designs and markets proprietary cellular and network
communication system products and Internet services that provide monitoring and
control of remote industrial and municipal utility equipment. The group's
initial target markets are the railroad and oil and gas pipeline industries. In
fiscal 1999, limited revenue was derived from this group.
NOTICOM L.L.C. JOINT VENTURE
In the first quarter of fiscal 1999, LaBarge and Global Research Systems, Inc.
of Rome, Georgia ("Global") formed NotiCom L.L.C. ("NotiCom"), a Georgia limited
liability company, to develop and market electronic systems providing advance
notice of the impending arrival of passenger motor vehicles. The first product
to be marketed by NotiCom is BusCall(TM) which provides households with advance
notice of the impending arrival of school buses. In fiscal 1999, the NotiCom
investment was accounted for using the equity method. Throughout fiscal 1999,
NotiCom was a development-stage company.
See Note 2 "Acquisitions and Investments."
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the
24
<PAGE> 25
consolidated financial statements, and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from these
estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of LaBarge, Inc. and
its wholly-owned subsidiaries, and joint ventures in which LaBarge has an
interest greater than 50%. Significant intercompany accounts and transactions
have been eliminated. Investments in 20% - 50% owned companies are accounted for
on the equity method. Investments in less than 20%-owned companies are accounted
for at cost.
ACCOUNTING PERIOD
The Company uses a fiscal year ending the Sunday closest to June 30. Fiscal
years 1999, 1998 and 1997 consisted of 52 weeks.
INCOME RECOGNITION
Sales and related cost of sales are recognized as specific contract terms are
fulfilled under the percentage-of-completion method (usually when units are
shipped, the units-of-delivery method). The percentage-of-completion method
gives effect to the most recent contract value and estimates of costs at
completion. When appropriate, contract prices are adjusted for increased scope
and other changes ordered or caused by the customer.
Since some contracts extend over a long period of time, revisions in cost and
contract price during the progress of work have the effect of adjusting current
period earnings applicable to performance in prior periods. When the current
contract estimate indicates a loss, provision is made for the total anticipated
loss.
INVENTORIES
The Company procures materials and manufactures products to customer
requirements.
Raw materials are stated at the lower of cost or market as determined by the
weighted average cost method.
In accordance with industry practice, the Company's work in process consists of
actual production costs, including factory overhead and tooling costs, reduced
by costs attributable to units for which sales have been recognized. Such costs
under contracts are determined by the average cost method based on the estimated
average cost of all units expected to be produced under the contract. Consistent
with industry practice, amounts relating to long-term contracts are classified
as current assets although a portion of these amounts is not expected to be
realized within one year.
Revenues to be realized on delivery of products against existing unfilled
orders, contract modifications and estimated additional orders will be
sufficient to absorb inventoried costs.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is carried at cost and includes additions and
improvements which extend the remaining useful life of the assets. Depreciation
is computed on the straight-line method.
INCOME TAXES
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the year in which those temporary differences are expected to be
recovered or settled.
25
<PAGE> 26
CASH EQUIVALENTS
The Company considers cash equivalents to be temporary investments which are
readily convertible to cash, such as certificates of deposit, commercial paper
and treasury bills with original maturities of less than three months.
EMPLOYEE BENEFIT PLANS
The Company has a contributory savings and profit-sharing plan covering certain
employees. The Company's policy is to expense and fund savings plan and
profit-sharing costs as incurred.
The Company offers a non-qualified deferred compensation program to certain key
employees whereby they may defer a portion of annual compensation for payment
upon retirement plus a guaranteed return. The program is unfunded; however, the
Company purchases Company-owned life insurance contracts through which the
Company will recover a portion of its cost upon the death of the employee.
On July 1, 1998, the Company started an employee stock purchase plan that allows
any eligible employee to purchase common stock at 15% below the market price as
of the first or last day of the quarter, whichever is lower at the end of each
quarter.
GOODWILL AND OTHER LONG-LIVED ASSETS
Goodwill, representing the excess of the cost over the net tangible and
identifiable intangible assets of acquired businesses, and investments in
technologies, are stated at cost and are amortized on a straight-line basis,
over the estimated future periods to be benefited. Impairment losses are
recorded on goodwill and other long-lived assets when indicators of impairment
are present. The Company amortizes these assets over a three to 10-year life.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation using the intrinsic value
method prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations. The Company provides the financial
statement disclosures required by SFAS No. 123, "Accounting for Stock-Based
Compensation."
RECLASSIFICATIONS OF PRIOR YEAR AMOUNTS
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
NEW ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." Issued in June 1998, this Statement
establishes standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. This
Statement was to be effective for the Company for this year ending June 2000.
However, in June 1999, SFAS 137, "Accounting for Derivative Financial
Instruments and Hedging Activities: Deferral of Effective Date of FASB Statement
No. 133", was issued which delays the implementation of SFAS 133, which is now
effective for the Company for the year ending June 2001.
Historically, the Company has not utilized such instruments or engaged in such
activities; therefore, the adoption of SFAS No. 133 will not impact the
Company's consolidated financial statements, the results of operations or the
notes thereto.
26
<PAGE> 27
2. ACQUISITIONS AND INVESTMENTS
ACQUISITIONS
Open Cellular Systems, Inc.
In March 1999, the Company acquired the remaining 90% of the stock of privately
held Open Cellular Systems, Inc. ("OCS") for approximately $5.6 million. Prior
to the acquisition, LaBarge held a 10% equity stake in OCS, which it acquired in
October 1997 for $500,000. The purchase price was paid by issuing Subordinated
Convertible Notes (the "Notes") due in June 2003 and bearing interest of 7.5%
per annum payable quarterly beginning June 29, 1999. Each share of OCS stock was
valued at $4.25 in the transaction. Under the terms of the Notes, each holder
has the right to convert the Notes into LaBarge, Inc. Common Stock at a
conversion price of $8.00 per share at any time after the first anniversary of
the Notes up to their maturity date. Further, the noteholders are entitled to
receive for each fiscal year through 2003 participation payments from the
Company equal to the amount by which 35% of the net income of OCS exceeds the
7.5% interest paid on the Notes for the fiscal year.
On March 2, 1999, 1,008,622 shares of OCS common stock were exchanged for $4.3
million of Subordinated Convertible Notes. Options to acquire 310,000 shares of
OCS common stock were converted to 310,000 shares of common stock of
LaBarge-OCS, Inc., the acquiring subsidiary, and represent shares acquired by
the holders through exercise of employee stock options. These shares are
callable by LaBarge, Inc. in accord with a call agreement whereby the Company,
at its discretion, may exchange the shares for Subordinated Convertible Notes at
$4.25 per share or $1.3 million after the first anniversary of the acquisition
(March 2, 2000) and prior to June 15, 2000. This dollar amount is included in
other current liabilities. The Company recorded goodwill of $6.8 million in this
transaction. This intangible asset is being amortized over seven years.
The Company used the purchase method of accounting to record this acquisition.
The results of operations of LaBarge-OCS, Inc. have been included in the
consolidated results of operations of LaBarge since the date of acquisition.
NotiCom L.L.C.
In the first quarter of fiscal 1999, LaBarge and Global Research Systems, Inc.
of Rome, Georgia ("Global"), formed NotiCom L.L.C. ("NotiCom"), a Georgia
limited liability company, to develop and market electronic systems providing
advance notice of the impending arrival of passenger motor vehicles. The first
product to be marketed by NotiCom is BusCall. BusCall uses a combination
of technologies, including Global Positioning System satellite location data,
wireless communications techniques and telephony, to notify parents by phone
when their children's school bus is approaching the bus stop. It is being
marketed to telephone companies and other potential service providers, which can
offer BusCall as a value-added service. LaBarge's Manufacturing Services Group
is the exclusive manufacturer of all products sold by NotiCom.
LaBarge and Global each initially had a 50% interest in NotiCom, except that
after an aggregate of $1.0 million has been distributed by NotiCom, Global will
be entitled to 75% of subsequent distributions until it has received preferred
distributions aggregating $1.3 million. LaBarge has invested $1.8 million in
cash in NotiCom along with $500,000 of development services. In addition,
LaBarge has paid Global $1.7 million for a 50% interest in intellectual
properties and has licensed the technology to NotiCom.
The Company is obligated to pay Global up to an aggregate of $23.3 million of
additional purchase price for its 50% interest in the technology if NotiCom
meets or exceeds cumulative earnings before income tax ("EBT") targets through
December 31, 2001. In order to generate the maximum purchase price, NotiCom must
generate $211.8 million of EBT between July 1, 1998 and December 31, 2001. It
appears unlikely at this time that such targets will be met; therefore, the
Company has not recorded the contingent purchase price.
27
<PAGE> 28
Because NotiCom is a start-up venture, it is too early to predict if or to what
extent NotiCom may contribute to the Company's revenues or earnings. Given the
risks inherent in a start-up operation, the Company elected, during the fourth
quarter of fiscal 1999, to amortize its investment over three years. For the
fourth quarter, the amortization of this investment was approximately $310,000
and for the next two years, non-cash amortization is expected to be $1.75
million per year. In fiscal 1999, this investment is accounted for using the
equity method.
In July and August 1999, NotiCom needed additional cash infusions totaling
approximately $400,000 to continue its development and marketing efforts.
LaBarge has made such contributions.
LaBarge Clayco Wireless, L.L.C.
In fiscal 1996, LaBarge Clayco Wireless L.L.C. ("LaBarge Clayco Wireless"), a
50%/50% joint venture with Clayco Construction Company of St. Louis, Missouri,
was formed. In the second quarter of fiscal 1998, the Company increased its
ownership of LaBarge Clayco Wireless to 51%. In the second quarter of fiscal
1999, the Company purchased from Clayco Construction Company an additional 39%
of LaBarge Clayco Wireless for $300,000 to increase its ownership to 90%.
Beginning with the second quarter of fiscal 1998, LaBarge began consolidating
100% of the results of this unit into its financial statements and deducting the
minority interest share to arrive at earnings before income taxes. The
investment was previously recorded using the equity method.
INVESTMENTS
On June 2, 1999, TransMedica International, Inc. ("TransMedica") defaulted on
the payment of a $2.0 million note due the Company. As a result, the Company
reevaluated the value of its assets related to TransMedica and elected to
reserve the full amount ($4.6 million). The Company is continuing its effort to
recover the amounts it believes are owed it by TransMedica.
History of TransMedica
In fiscal 1993, LaBarge, Inc. entered into an agreement with TransMedica
(formerly known as Venisect, Inc.) to design, develop and manufacture a patented
medical laser device, the Laser Lancet(R).
Since August 1995, the Company has acquired approximately 9.5% of TransMedica's
common stock for $2.3 million. The Company made an initial $250,000 cash
investment in fiscal 1996, and converted approximately $1.2 million of accounts
receivable and provided an additional $800,000 in operating capital in fiscal
1997. In June 1998, TransMedica issued the Company an interest-bearing
promissory note in the amount of $2.0 million and warrants to purchase an
additional 4% of TransMedica stock for $25 per share in exchange for $900,000 of
accounts receivable and additional credit of $1.1 million for new production of
Laser Lancet devices. The note is secured by substantially all of TransMedica's
assets.
On October 16, 1998, the Company filed a Petition for Specific Performance and
Declaratory Judgment in the Circuit Court for St. Louis County, Missouri,
seeking resolution of LaBarge's right to develop and manufacture new laser
products and determination of the number of Laser Lancet devices. TransMedica is
presently obligated to purchase from LaBarge under an exclusive manufacturing
agreement between the two companies.
On June 3, 1999, the Company amended its suit to include payment of the $2.0
million note receivable plus interest due thereon, that was due June 2, 1999,
but as of August 20, 1999, which remains unpaid by TransMedica.
28
<PAGE> 29
3. ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable consist of the following:
(dollars in thousands)
<TABLE>
<CAPTION>
JUNE 27, June 28,
1999 1998
- ------------------------------------------------------------------ ------------------------- ------------------------
<S> <C> <C>
Billed shipments, net of progress payments $ 11,819 $ 17,556
Less allowance for doubtful accounts 347 150
- ------------------------------------------------------------------ ------------------------- ------------------------
Trade receivables, net 11,472 17,406
Notes receivable 2,000 903
Less allowance for doubtful notes 2,000 -
- ------------------------------------------------------------------ ------------------------- ------------------------
Notes receivable, net - 903
Income tax receivable 863 -
Other current receivables 157 23
================================================================== ========================= ========================
$ 12,492 $ 18,332
================================================================== ========================= ========================
</TABLE>
Progress payments are payments from customers in accordance with contractual
terms for contract costs incurred to date. Such payments are credited to the
customer at the time of shipment.
On June 2, 1999, the Company should have received payment of a $2.0 million note
receivable plus interest due thereon from TransMedica. TransMedica defaulted on
its obligation. Based on a review of all facts available at this time, the
Company has written down to zero the carrying value of its receivable, inventory
and investment in TransMedica at year-end.
4. INVENTORIES
Inventories consist of the following:
(dollars in thousands)
<TABLE>
<CAPTION>
JUNE 27, June 28,
1999 1998
- ---------------------------------------------------------- ------------------------------ ------------------------------
<S> <C> <C>
Raw materials $ 9,472 $ 10,353
Work in progress 7,755 9,070
- ---------------------------------------------------------- ------------------------------ ------------------------------
17,227 19,423
Less progress payments 1,134 455
- ---------------------------------------------------------- ------------------------------ ------------------------------
$ 16,093 $ 18,968
========================================================== ============================== ==============================
</TABLE>
In accordance with contractual agreements, the U.S. Government has a security
interest in the inventories identified with related contracts for which progress
payments have been received.
29
<PAGE> 30
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized as follows:
(dollars in thousands)
<TABLE>
<CAPTION>
Estimated
JUNE 27, June 28, useful life
1999 1998 in years
- ------------------------------------------------ ----------------------- ----------------------- ----------------------
<S> <C> <C> <C>
Land $ 2,457 $ 2,457 -
Building and improvements 6,353 5,902 5-33
Leasehold improvements 1,825 1,634 2-10
Machinery and equipment 9,355 8,622 5-20
Furniture and fixtures 1,733 1,730 5-20
Computer equipment 1,711 1,388 3
Construction in progress 1,423 228 -
- ------------------------------------------------ ----------------------- ----------------------- ----------------------
24,857 21,961
Less accumulated depreciation 11,669 10,707
- ------------------------------------------------ ----------------------- -----------------------
$ 13,188 $ 11,254
================================================ ======================= =======================
</TABLE>
Depreciation expense was $1.6 million and $1.2 million, for the fiscal years
ended June 27, 1999 and June 28, 1998, respectively.
6. INTANGIBLE ASSETS, NET
Intangible assets, net, is summarized as follows:
(dollars in thousands)
<TABLE>
<CAPTION>
JUNE 27, June 28,
1999 1998
- ------------------------------------------ ---------------------------------------- ----------------------------------------
<S> <C> <C>
Software $ 1,124 $ 1,047
Patents 73 40
Goodwill 7,214 412
- ------------------------------------------ ---------------------------------------- ----------------------------------------
8,411 1,499
Less amortization 1,470 1,028
- ------------------------------------------ ---------------------------------------- ----------------------------------------
$ 6,941 $ 471
========================================== ======================================== ========================================
</TABLE>
Amortization expense was $448,000 and $203,000 for the fiscal years ended June
27, 1999 and June 28, 1998, respectively.
7. INVESTMENT IN NOTICOM
Investment in NotiCom is summarized as follows:
(dollars in thousands)
<TABLE>
<CAPTION>
JUNE 27, June 28,
1999 1998
- ------------------------------------------ ---------------------------------------- ----------------------------------------
<S> <C> <C>
Investment in joint venture $ 1,331 $ -
Investment in technology 1,449 -
- ------------------------------------------ ---------------------------------------- ----------------------------------------
$ 2,780 $ -
========================================== ======================================== ========================================
</TABLE>
The investments in joint venture and technology pertain to NotiCom and its
related advance notification technology. NotiCom statements are presented in
"Financial Statements of Investee Subsidiary." At
30
<PAGE> 31
fiscal year-end, NotiCom's total assets were $3.0 million; total liabilities
were $311,000; and results of operations for its first year of operations was a
loss of $2.0 million.
The loss from NotiCom includes 50% of the losses from operations of the joint
venture and $237,000 of amortization of the technology.
For additional information about investment in joint ventures please see Note 2
in "Notes to Consolidated Financial Statements."
8. OTHER ASSETS
Other assets is summarized as follows:
(dollars in thousands)
<TABLE>
<CAPTION>
JUNE 27, June 28,
1999 1998
- ----------------------------------------------------------------- --------------------------- ------------------------------
<S> <C> <C>
Cash value of life insurance $ 2,903 $ 2,229
Deposits, licenses and other 1,560 1,839
Investments in businesses 2,250 2,750
- ----------------------------------------------------------------- --------------------------- ------------------------------
6,713 6,818
Less allowance for revaluation of impaired assets 2,250 -
- ----------------------------------------------------------------- --------------------------- ------------------------------
4,463 6,818
Less amortization 7 250
- ----------------------------------------------------------------- --------------------------- ------------------------------
$ 4,456 $ 6,568
================================================================= =========================== ==============================
</TABLE>
The investments in businesses and allowance for revaluation of impaired assets
pertain to the Company's equity interest in TransMedica's stock. Please see Note
2 to "Notes to Consolidated Financial Statements" for additional information.
31
<PAGE> 32
9. SHORT- AND LONG-TERM OBLIGATIONS
Short-term borrowings, long-term debt and the current maturities of long-term
debt consist of the following:
(dollars in thousands)
<TABLE>
<CAPTION>
JUNE 27, June 28,
1999 1998
- ------------------------------------------------------------------------ ------------------------- ------------------------
<S> <C> <C>
Short-term borrowings:
Revolving credit agreements:
Balance at period end $ 930 $ 5,020
Interest rate at period end 7.79% 6.80%
Average amount of short-term borrowings
outstanding during period $ 1,681 $ 4,751
Average interest rate for period 6.69% 6.94%
Maximum short-term borrowings at any month end $ 6,390 $ 9,250
======================================================================== ========================= ========================
Long-term debt:
Senior lender:
Revolving credit agreement $ - $ 2,000
Term loan 10,214 3,000
Mortgage loan 6,082 6,164
Subordinated debt 4,424 -
Other 1,341 101
- ------------------------------------------------------------------------ ------------------------- ------------------------
22,061 11,265
Less current maturities 1,771 1,102
======================================================================== ========================= ========================
Subordinated debt 4,424 -
Long-term debt, less current maturities $ 15,866 $ 10,163
======================================================================== ========================= ========================
</TABLE>
The average interest rate was computed by dividing the sum of daily interest
costs by the sum of the daily borrowings for the respective periods.
Total cash payments for interest in fiscal years 1999, 1998 and 1997 were $1.5
million, $773,000 and $900,000, respectively.
SENIOR LENDER
On June 25, 1999, the Company amended its senior loan agreement with Bank of
America. The Company entered into a loan agreement on June 25, 1996, with
NationsBank, N.A. which subsequently merged with Bank of America. The original
agreement included a term loan and revolving credit facility totaling $20.0
million.
The current amendment reestablished the bank's secured position, reinstated a
borrowing base limitation on the revolver and established new covenants and
performance measures to reflect the effect of LaBarge's new investments (NotiCom
and OCS), as well as the reserve for loss on the TransMedica assets in fiscal
1999.
The following is a summary of the current senior loan agreement:
- - An $11.0 million term loan requiring repayments of principal quarterly.
This loan matures in September 2005.
- - A revolving credit facility up to $15.0 million based on a borrowing base
formula equal to 85% of eligible receivables and 30% of eligible
inventories. As of June 27, 1999, the maximum allowable was approximately
$9.0 million. The revolver borrowing at fiscal 1999 year-end was $130,000.
32
<PAGE> 33
- - Covenants and performance criteria which involve Earnings Before Interest,
Taxes, Depreciation and Amortization ("EBITDA") in relation to debt.
- - Interest on the loans at prime or a stated rate over LIBOR based on certain
ratios. As of year-end the average rate was approximately 7.0%.
In addition to the senior lending agreement, borrowings consist of the
following:
Mortgage Loan:
In fiscal 1998, the Company purchased its headquarters building in St.
Louis, Missouri, and financed the purchase with a $6.2 million mortgage
loan. The loan has a 25-year amortization, a 7.5% interest rate and is due
in January 2008.
Secondary Line of Credit:
LaBarge Clayco Wireless has a revolving line of credit with Mercantile Bank
N.A. This line is in the amount of $1.0 million and matures November 1999.
The interest rate on this note is a 1/4% over the bank's prime rate. At
fiscal 1999 year-end, the outstanding amount was $800,000 at an interest
rate of 8.25%. The Company anticipates renegotiating the revolving line of
credit prior to expiration on terms generally consistent with those
currently in place.
Subordinated Convertible Notes:
On March 2, 1999, the Company, through its subsidiary, LaBarge-OCS, Inc.,
purchased the remaining 90% of OCS for $5.6 million by (1) exchanging its
Subordinated Convertible Notes ("Notes") due June 2003 in the principal
amount of $4.3 million for the outstanding shares of OCS; and (2)
exchanging 310,000 shares of LaBarge-OCS, Inc. common stock for outstanding
options to purchase OCS common shares. The Notes bear interest at 7.5% per
annum payable quarterly beginning June 29, 1999, and noteholders are
entitled to participation payments if LaBarge-OCS, Inc. achieves certain
levels of earnings before taxes. The Notes are convertible by the holders
into LaBarge, Inc. Common Stock at $8.00 per share at any time after the
first anniversary of the Notes up to their maturity date. The 310,000
shares of LaBarge-OCS, Inc. common stock may be exchanged for $1.3 million
of Notes, at the option of the Company, after March 2, 2000, but before
June 15, 2000.
Industrial Revenue Bonds:
In July 1998, the Company acquired a tax-exempt Industrial Revenue Bond
through GE Capital Public Finance, Inc. in the amount of $1.3 million. The
debt is payable over 10 years with an interest rate of 5.28%. This funding
was used to expand the Berryville, Arkansas, facility.
The aggregate maturities of long-term obligations are as follows:
(dollars in thousands)
<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------------------------------------------------------
<S> <C>
2000......................................................... $ 1,771
2001......................................................... 1,883
2002......................................................... 1,805
2003......................................................... 6,114
2004......................................................... 1,955
---------------------------------------------------------------------------
</TABLE>
33
<PAGE> 34
10. OPERATING LEASES
The Company operates certain of its manufacturing facilities in leased premises
and with leased equipment under noncancellable operating lease agreements having
an initial term of more than one year and expiring at various dates through
2007. The real property leases require the Company to pay maintenance, insurance
and real estate taxes.
Rental expense under operating leases is as follows:
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------------------
JUNE 27, June 28, June 29,
1999 1998 1997
- ---------------------------------------------------- ---------------------- ---------------------- --------------------
<S> <C> <C> <C>
Initial term of more than one year $ 1,243 $ 1,226 $ 1,150
Short-term rentals 370 363 341
- ---------------------------------------------------- ---------------------- ---------------------- --------------------
$ 1,613 $ 1,589 $ 1,491
==================================================== ====================== ====================== ====================
</TABLE>
At June 27, 1999, the future minimum lease payments under operating leases with
initial noncancellable terms in excess of one year are as follows: (dollars in
thousands)
<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------------------------------------------------------
<S> <C>
2000.......................................................... $ 1,097
2001........................................................ 930
2002........................................................ 678
2003........................................................ 220
2004....................................................... 29
---------------------------------------------------------------------------
</TABLE>
11. EMPLOYEE BENEFIT PLANS
The Company has a contributory profit-sharing plan which qualifies under Section
401(k) of the Internal Revenue Code for employees meeting certain service
requirements. The plan allows eligible employees to contribute up to 15% of
their compensation, with the Company matching 50% of the first $25 per month and
25% of the excess of the first 8% of this contribution. During 1999, 1998 and
1997, Company matching contributions were $274,000, $236,000 and $187,000,
respectively.
At the discretion of the Board of Directors, the Company may also make
contributions dependent on profits each year for the benefit of all eligible
employees under the amended plan. There were no such contributions for the
fiscal years ended June 29, 1999, June 28, 1998 and June 29, 1997.
The Company has a deferred compensation plan for selected employees who, due to
Internal Revenue Service guidelines, cannot take full advantage of the
contributory profit-sharing plan. This plan, which is not required to be funded,
allows eligible employees to defer portions of their current compensation and
the Company guarantees a return of 2% over the prime interest rate on the
deferral (compounded daily from the date of deferral). To support the deferred
compensation plan, the Company has elected to purchase Company-owned life
insurance. The costs associated with the plan were $91,000, $119,000 and $63,000
for the guaranteed return and $32,000, $13,000 and $20,000 of income for the
Company-owned insurance in fiscal years 1999, 1998 and 1997, respectively. The
cash surrender value of the Company-owned life insurance related to deferred
compensation is included in other assets along with other policies owned by the
Company, and was $1.0 million at June
34
<PAGE> 35
27, 1999 compared with $835,000 at June 28, 1998. The liability for the deferred
compensation and interest thereon is in accrued employee compensation and was
$1.6 million at June 27, 1999 versus $1.3 million at June 28, 1998.
On July 1, 1998, the Company started an employee stock purchase plan that allows
any eligible employee to purchase common stock at 15% below the market price as
of the first or last day of the quarter, whichever is lower at the end of each
quarter. In fiscal 1999, 53,115 shares were issued to employees at a cost to the
Company of approximately $35,000.
12. OTHER INCOME, NET
The components of other income, net, are as follows:
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------
JUNE 27, June 28, June 29,
1999 1998 1997
- -------------------------------------------------------- -------------------- --------------------- -------------------
<S> <C> <C> <C>
Interest income $ 75 $ 43 $ 96
Property rental income 766 314 -
Property rental expense (473) (275) -
Other, net (7) 31 (1)
- -------------------------------------------------------- -------------------- --------------------- -------------------
$ 361 $ 113 $ 95
======================================================== ==================== ===================== ===================
</TABLE>
In fiscal 1998, the Company purchased its headquarters building in St. Louis,
Missouri, and leases a significant portion of the facilities to third parties.
Rental income represents rent receipts from these third parties.
At June 27, 1999, the future minimum rental income under leases with tenants in
excess of one year is as follows:
(dollars in thousands)
<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------------------------------------------------------
<S> <C>
2000........................................................... $713
2001........................................................... 716
2002........................................................... 691
2003........................................................... 665
2004........................................................... 665
---------------------------------------------------------------------------
</TABLE>
35
<PAGE> 36
13. INCOME TAXES
Income tax (benefit) expense consists of:
(dollars in thousands)
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
---------------------- ---------------------- ---------------------
<S> <C> <C> <C>
YEAR ENDED JUNE 27, 1999:
U.S. FEDERAL $ (107) $ (247) $ (354)
STATE AND LOCAL (9) (148) (157)
- --------------------------------------------------- ---------------------- ---------------------- ---------------------
$ (116) $ (395) $ (511)
=================================================== ====================== ====================== =====================
Year ended June 28, 1998:
U.S. Federal $ 102 $ 2,404 $ 2,506
State and Local 345 (65) 280
- --------------------------------------------------- ---------------------- ---------------------- ---------------------
$ 447 $ 2,339 $ 2,786
=================================================== ====================== ====================== =====================
Year ended June 29, 1997:
U.S. Federal $ 134 $ (1,176) $ (1,042)
State and Local 308 - 308
- --------------------------------------------------- ---------------------- ---------------------- ---------------------
$ 442 $ (1,176) $ (734)
=================================================== ====================== ====================== =====================
</TABLE>
Income tax (benefit) expense differed from the amounts computed by applying the
U.S. Federal income tax rate of 34% as a result of the following:
(dollars in thousands)
<TABLE>
<CAPTION>
JUNE 27, June 28, June 29,
1999 1998 1997
- ------------------------------------------------------------------- --------------- --------------- ----------------
<S> <C> <C> <C>
Computed "expected" tax (benefit) expense $ (1,221) $ 2,567 $ 2,380
Increase (reduction) in income taxes resulting from:
Change in valuation allowance 851 - (3,616)
State and local tax (155) 215 183
Other 14 4 319
- ------------------------------------------------------------------- --------------- --------------- ----------------
$ (511) $ 2,786 $ (734)
=================================================================== =============== =============== ================
</TABLE>
36
<PAGE> 37
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are presented below:
(dollars in thousands)
<TABLE>
<CAPTION>
JUNE 27, June 28,
1999 1998
- -------------------------------------------------------------- --------------------------- --------------------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Inventories due to additional costs inventoried
for tax purposes pursuant to the Tax Reform
Act of 1986 and inventory reserves $ 500 $ 396
Deferred compensation 486 581
Other 773 631
Capital loss carryforwards 851 -
Net operating loss carryforwards 606 -
Tax credit carryforwards 821 712
- -------------------------------------------------------------- --------------------------- --------------------------
TOTAL GROSS DEFERRED TAX ASSETS 4,037 2,320
LESS VALUATION ALLOWANCE 1,368 -
- -------------------------------------------------------------- --------------------------- --------------------------
NET DEFERRED TAX ASSETS 2,669 2,320
- -------------------------------------------------------------- --------------------------- --------------------------
DEFERRED TAX LIABILITIES:
Property, plant and equipment, principally
due to differences in depreciation and
capitalized interest (187) (230)
Other - (3)
- -------------------------------------------------------------- --------------------------- --------------------------
TOTAL GROSS DEFERRED TAX LIABILITIES (187) (233)
- -------------------------------------------------------------- --------------------------- --------------------------
NET DEFERRED TAX ASSETS $ 2,482 $2,087
============================================================== =========================== ==========================
</TABLE>
A valuation allowance is provided, if necessary, to reduce the deferred tax
assets to a level which, more likely than not, will be realized. The net
deferred assets reflect management's belief that it is more likely than not that
the results of future operations will generate sufficient taxable income to
realize the deferred tax assets. The net change in the total valuation allowance
for the years ended June 27, 1999 and June 28, 1998 was an increase of $1.4
million and $-0-, respectively. For the year ended June 27, 1999, $851,000 of
the increase in valuation reserve is attributable to capital loss carryforwards
which the Company may not be able to use in the future. The remaining balance,
$517,000, relates to limitations of the use of net operating loss carryforwards
generated by LaBarge-OCS prior to being acquired by the Company. Net operating
loss carryforwards are available to offset future tax income through fiscal year
2019. Capital loss carryforwards are available to offset capital gains through
fiscal year 2004.
The Company has alternative minimum and investment tax credit carryforwards of
approximately $821,000 that are available to reduce future regular federal
income taxes. Investment tax credits of $59,000 and $4,000 will expire in fiscal
years 2000 and 2001, respectively.
Total cash payments for federal and state income taxes in all years presented
were $617,000 for fiscal 1999, $270,000 for fiscal 1998 and $432,000 for fiscal
1997.
<PAGE> 38
14. EARNINGS PER COMMON SHARE
Basic and diluted (loss) earnings per share are computed as follows:
<TABLE>
<CAPTION>
JUNE 27, June 28, June 29,
1999 1998 1997
- ------------------------------------------------------------ ------------------- --------------------- ---------------------
<S> <C> <C> <C>
NUMERATOR:
Net (loss) earnings $ (3,080) $ 4,764 $ 7,735
- ------------------------------------------------------------ ------------------- --------------------- ---------------------
DENOMINATOR:
Denominator for basic net (loss) earnings per share
weighted-average share 15,157 15,604 15,626
Effect of dilutive securities-employee
stock options - 119 164
- ------------------------------------------------------------ ------------------- --------------------- ---------------------
POTENTIAL COMMON SHARES:
Denominator for diluted net (loss) earnings per share
adjusted weighted-average shares
and assumed conversions 15,157 15,723 15,790
- ------------------------------------------------------------ ------------------- --------------------- ---------------------
BASIC NET (LOSS) EARNINGS PER
COMMON SHARE $ (.20) $ .31 $ .50
============================================================ =================== ===================== =====================
DILUTED NET (LOSS) EARNINGS PER
COMMON SHARE $ (.20) $ .30 $ .49
============================================================ =================== ===================== =====================
</TABLE>
The effect of 53,000 shares exercisable through various employee stock options
is not considered in the calculations of diluted net loss per common shares for
fiscal 1999 because it would have an anti-dilutive effect on net loss per share.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company considers the carrying amounts of cash and cash equivalents,
accounts receivable and accounts payable to approximate fair value because of
the short maturity of these financial instruments.
Amounts outstanding under the secured senior lending agreement and the mortgage
loan and the subordinated notes are also considered to be carried on the
financial statements at their estimated fair values because they were entered
into recently and accrue interest at rates which generally fluctuate with
interest rate trends.
38
<PAGE> 39
16. BUSINESS SEGMENT INFORMATION
BUSINESS SEGMENTS:
(dollars in thousands)
NET SALES TO CUSTOMERS:
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------------------
1999 1998 1997
------------------- ---------------------- ------------------------
<S> <C> <C> <C>
Manufacturing Services Group $ 78,518 $ 95,629 $ 96,666
LaBarge Clayco Wireless 10,566 3,663 -
Network Technologies Group 59 - -
- -------------------------------------------------------- ------------------- ---------------------- ------------------------
$ 89,143 $ 99,292 $ 96,666
======================================================== =================== ====================== ========================
</TABLE>
INCOME BEFORE INCOME TAXES:
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------------------
1999 1998 1997
------------------- ---------------------- ------------------------
<S> <C> <C> <C>
Manufacturing Services Group before
non-recurring losses $ 4,152 $ 8,493 $ 8,779
Loss due to revaluation of impaired assets (4,573) - -
- -------------------------------------------------------- ------------------- ---------------------- ------------------------
Net Manufacturing Services Group (421) 8,493 8,779
LaBarge Clayco Wireless 551 (259) 4
Network Technologies Group (637) - -
Loss from NotiCom (1,221) - -
Corporate and other items (412) 313 (840)
Interest expense (1,451) (997) (942)
- -------------------------------------------------------- ------------------- ---------------------- ------------------------
$ (3,591) $ 7,550 $ 7,001
======================================================== =================== ====================== ========================
</TABLE>
<TABLE>
<CAPTION>
DEPRECIATION & AMORTIZATION EXPENSE INVESTMENTS &
CAPITAL EXPENDITURES
YEAR ENDED YEAR ENDED
-------------- ------------ ------------- ------------- --------------- --------------
1999 1998 1997 1999 1998 1997
-------------- ------------ ------------- ------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Manufacturing Services Group $ 1,168 $ 923 $ 795 $ 2,789 $ 2,861 $ 846
LaBarge Clayco Wireless 34 37 - 468 215 -
Network Technologies Group 344 - - 23 - -
Investment in NotiCom 237 - - 4,001 - -
Corporate and other items 453 433 217 1,195 7,301 1,523
- ---------------------------------------- -------------- ------------ ------------- ------------- --------------- --------------
$ 2,236 $ 1,393 $ 1,012 $ 8,476 $ 10,377 $ 2,369
======================================== ============== ============ ============= ============= =============== ==============
</TABLE>
39
<PAGE> 40
<TABLE>
<CAPTION>
TOTAL ASSETS
YEAR ENDED
--------------------- ------------------ ---------------------
1999 1998 1997
--------------------- ------------------ ---------------------
<S> <C> <C> <C>
Manufacturing Services Group $ 30,752 $ 45,594 $ 36,337
LaBarge Clayco Wireless 3,537 2,469 161
Network Technologies Group 6,691 - -
Investment in NotiCom 2,780 - -
Corporate and other items 15,894 10,929 6,961
------------------------------------------------ --------------------- ------------------ ---------------------
$ 59,654 $ 58,992 $ 43,459
================================================ ===================== ================== =====================
</TABLE>
GEOGRAPHIC INFORMATION
The Company has no sales offices or facilities outside of the United States.
Sales for exports did not exceed 10% of total sales in any fiscal year.
Customers accounting for more than 10% of net sales for the years ended June 27,
1999,
June 28, 1998 and June 29, 1997 follow:
<TABLE>
<CAPTION>
Customer 1999 1998 1997
------------------------------------------ -------------------- ------------------ -----------------
<S> <C> <C> <C>
1........................................... 25% 27% 24%
2........................................... 13 17 14
3........................................... - 1 11
------------------------------------------ -------------------- ------------------ -----------------
</TABLE>
17. LITIGATION AND CONTINGENCIES
On October 16, 1998, the Company filed a Petition for Specific Performance and
Declaratory Judgment in the Circuit Court for St. Louis County, Missouri,
seeking a resolution of LaBarge's right to develop and manufacture a new laser
product and determination of the number of Laser Lancet devices TransMedica
International, Inc. is obligated to purchase from LaBarge under an exclusive
manufacturing agreement between the two companies. On June 3, 1999, the Company
amended its suit to include payment of TransMedica's delinquent $2.0 million
note receivable that was due June 2, 1999.
In May 1999, TransMedica filed a counterclaim against LaBarge seeking dismissal
of LaBarge's petition, damages in an indeterminate amount, punitive damages,
costs and attorney's fees relating to several counts alleging breach of
contract, warranty and fiduciary duty by LaBarge and a declaration that a small
laser device developed by a third party is not subject to TransMedica's
agreement with LaBarge. TransMedica also filed a separate action against LaBarge
in the Circuit Court in Little Rock, Arkansas, containing the same counts and
seeking the same relief as in its counterclaim. The Arkansas proceeding has been
stayed pending resolution of the St. Louis County proceeding. LaBarge intends to
vigorously pursue its petition against TransMedica and to defend against
TransMedica's claims and counterclaims.
At this time, it is too early to determine what, if any, recovery or liability
LaBarge might have as a result of this suit. The Company has reserved 100% of
the value of its TransMedica assets and recorded a loss of $4.6 million in
fiscal 1999 as a result.
In August 1999, Jerome S. Stein filed a Petition in the Circuit Court for the
City of St. Louis against the
40
<PAGE> 41
Company and its former chairman, Pierre L. LaBarge, Jr., seeking damages in an
indeterminate amount in excess of $25,000, plus interest and court costs. Mr.
Stein alleges in his claim against the Company that the Company agreed to pay
him 1% of any increase in value of LaBarge's outstanding common stock in
exchange for certain promotional services. The Company denies any such
arrangement with Mr. Stein, believes the suit to be totally without merit, and
intends to defend it vigorously.
The Company does not believe that either case, individually or in the aggregate,
will have a material adverse effect on the financial condition or results of
operations of the Company.
18. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data is set forth below:
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
1999 FIRST SECOND THIRD FOURTH
- --------------------------------------------------------- --------------- ---------------- --------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 24,667 $ 23,779 $ 21,558 $ 19,139
- --------------------------------------------------------- --------------- ---------------- --------------- --------------
Cost of sales 19,289 18,983 17,318 15,826
Selling and administrative expense 3,411 3,594 3,493 3,771
Loss due to revaluation of impaired assets - - - 4,573
Interest expense 309 370 370 402
Equity in loss (income) of joint venture 28 244 243 706
Minority interest profit (loss) 147 (5) 31 (8)
Other (income)expense, net (152) (59) (92) (58)
- --------------------------------------------------------- --------------- ---------------- --------------- --------------
Net earnings (loss) before income taxes 1,635 652 195 (6,073)
Income tax expense (benefit) 603 241 72 (1,427)
- --------------------------------------------------------- --------------- ---------------- --------------- --------------
Net earnings (loss) $ 1,032 $ 411 $ 123 $ (4,646)
Basic net earnings (loss) per common share $ .07 $ .03 $ .01 $ (.31)
Diluted net earnings (loss) per common share $ .07 $ .03 $ .01 $ (.31)
========================================================= =============== ================ =============== ==============
</TABLE>
<TABLE>
<CAPTION>
1998 First Second Third Fourth
- --------------------------------------------------------- --------------- ---------------- --------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 21,492 $ 22,203 $ 26,996 $ 28,601
- --------------------------------------------------------- --------------- ---------------- --------------- --------------
Cost of sales 16,805 17,002 21,000 21,613
Selling and administrative expense 2,981 3,418 3,636 4,372
Interest expense 130 196 298 373
Equity in loss (income) of joint venture 94 - - 26
Minority interest profit (loss) - (60) (61) 32
Other (income)expense, net (24) 3 119 (211)
- --------------------------------------------------------- --------------- ---------------- --------------- --------------
Net earnings before income taxes $ 1,506 $ 1,644 $ 2,004 $ 2,396
Income tax expense (benefit) 556 612 734 884
- --------------------------------------------------------- --------------- ---------------- --------------- --------------
Net earnings $ 950 $ 1,032 $ 1,270 $ 1,512
- --------------------------------------------------------- --------------- ---------------- --------------- --------------
Basic net earnings per common share $ .06 $ .07 $ .08 $ .10
Diluted net earnings per common share $ .06 $ .07 $ .08 $ .10
========================================================= =============== ================ =============== ==============
</TABLE>
41
<PAGE> 42
During the fiscal 1999 fourth quarter, the estimated life for amortization of
the NotiCom technology was changed from 15 to three years.
19. STOCK OPTION PLANS
The Company has three incentive stock option plans for key management personnel.
Under the 1987 Plan, the Company was authorized to grant options for up to
200,000 shares of common stock. The 1993 Plan authorized 300,000 shares to be
granted. The 1995 Plan authorized 400,000 shares to be granted. Under all plans,
the term of the granted options are 10 years and the vesting period is two
years.
Information regarding these option plans for fiscal years 1999, 1998 and 1997:
<TABLE>
<CAPTION>
WEIGHTED-
WEIGHTED- NUMBER OF WEIGHTED- AVERAGE
NUMBER OF AVERAGE SHARES AVERAGE FAIR VALUE
SHARES EXERCISE PRICE EXERCISABLE EXERCISE PRICE GRANTED OPTION
- -------------------------------------- -------------- ------------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C>
Outstanding at June 30, 1996 265,000 $ 1.82 187,000 $ 1.13
Granted 91,775 6.65 - - $ 3.08
Exercised (60,000) 1.29 - -
- -------------------------------------- -------------- ------------------- ----------------- ----------------- ------------------
Outstanding at June 29, 1997 296,775 $ 3.42 155,000 $ 1.26
Granted 75,513 5.98 - - $ 2.86
- -------------------------------------- -------------- ------------------- ----------------- ----------------- ------------------
Outstanding at June 28, 1998 372,288 3.94 205,000 $ 1.97
GRANTED 123,000 3.49 - - $ .38
EXERCISED (65,000) 1.24 - -
- -------------------------------------- -------------- ------------------- ----------------- ----------------- ------------------
OUTSTANDING AT JUNE 27, 1999 430,288 $ 4.22 231,775 $ 4.03
- -------------------------------------- -------------- ------------------- ----------------- ----------------- ------------------
</TABLE>
The following table summarizes information about stock options outstanding:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
NUMBER REMAINING AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES AT JUNE 27, 1999 LIFE (YEARS) PRICE AT JUNE 27, 1999 PRICE
- ---------------------- ------------------- -------------------- ------------------- -------------------- -------------------
<S> <C> <C> <C> <C> <C>
$ .66 - 1.44 90,000 2.25 $ 1.28 90,000 $ 1.28
3.43 - 4.38 173,000 6.89 4.32 50,000 4.18
5.86 - 7.24 167,288 6.90 6.35 91,775 6.65
- ---------------------- ------------------- -------------------- ------------------- -------------------- -------------------
$ .66 - 7.24 430,288 231,775
====================== =================== ==================== =================== ==================== ===================
</TABLE>
All stock options are granted at fair market value of the common stock at the
grant date. The Company has adopted the disclosure-only provisions of SFAS No.
123, "Accounting for Stock-Based Compensation." Accordingly, no compensation
cost has been recognized for the stock option plans.
Had compensation cost for the Company's three stock option plans been determined
based on the fair value at the grant date consistent with the provision of SFAS
No. 123, the Company's pro forma net (loss) income and diluted (loss) earnings
per share for fiscal 1999 would have been $(3.2 million) and $(.21) per share,
respectively, and $4.6 million and $.29 per share, respectively in fiscal 1998.
42
<PAGE> 43
The fair market value of stock options granted is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions: risk-free interest rate of 6.5%; expected dividend yield of 0%;
expected life of three years; and, expected volatility of 41%.
20. SUBSEQUENT EVENT
In July and August 1999, NotiCom L.L.C., the Company's joint venture with Global
Research Systems, Inc., needed additional cash infusions of approximately
$400,000 to continue its development and marketing efforts. LaBarge has made
these contributions, which has increased LaBarge's equity interest in NotiCom.
43
<PAGE> 44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Statements contained in this Report which are not historical facts are
forward-looking statements within the meaning of the federal securities laws.
Forward-looking statements involve risks and uncertainties. Future events and
the Company's actual results could differ materially from those contemplated by
those forward-looking statements. Important factors which could cause the
Company's actual results to differ materially from those projected in, or
inferred by, forward-looking statements are (but are not necessarily limited to)
the following: the impact of increasing competition or deterioration of economic
conditions in the Company's markets; cutbacks in defense spending by the U.S.
Government; lack of acceptance by the market for the BusCall(TM) product; lack
of acceptance by the market for the products of LaBarge's Network Technologies
Group; the outcome of certain legal actions between LaBarge and TransMedica
International, Inc. regarding a note receivable and LaBarge's investment in
TransMedica; the outcome of other litigation the Company is party to; unexpected
increases in the cost of raw materials, labor and other resources necessary to
operate the Company's business; the availability, amount, type and cost of
financing for the Company and any changes to that financing; and unexpected Year
2000 issues.
OVERVIEW
LaBarge, Inc. ("LaBarge" or the "Company") is a Delaware Corporation. The
Company is engaged in the following primary business activities:
- - The MANUFACTURING SERVICES GROUP is the Company's core manufacturing
business, which has been its principal business since 1985. This group
designs, engineers and produces sophisticated electronic systems and
devices and complex interconnect systems on a contract basis for its
customers. In fiscal 1999, the Company derived approximately 88% of its
total revenues from this group.
The group markets its services to companies desiring an engineering and
manufacturing partner capable of developing and providing high-reliability
electronic equipment, including products capable of performing in harsh
environmental conditions, such as high and low temperature, severe shock
and vibration. The group serves customers in a variety of markets with
significant revenues from customers in the defense, aerospace and
geophysical markets. The group's manufacturing facilities are located in
Arkansas, Missouri, Oklahoma and Texas.
- - LABARGE CLAYCO WIRELESS L.L.C. ("LaBarge Clayco Wireless") provides turnkey
construction, engineering and equipment installation services for the
wireless telecommunications industry. It was started in fiscal 1996 as a
50%/50% joint venture with Clayco Construction Company in St. Louis,
Missouri. The operating results of LaBarge Clayco Wireless were accounted
for on the equity method through fiscal 1997. In the second quarter of
fiscal 1998, LaBarge increased its ownership interest in LaBarge Clayco
Wireless to 51% and began consolidating the total operations of this joint
venture. In the second quarter of fiscal 1999, the Company purchased from
Clayco Construction Company an additional 39% of LaBarge Clayco Wireless
for $300,000 to increase its ownership to 90%. LaBarge Clayco Wireless
became a reportable segment in fiscal 1999, due to the changes in ownership
and its growth in revenues. In fiscal 1999, the Company derived
approximately 12% of its total revenues from this group.
- - The NETWORK TECHNOLOGIES GROUP is the Company's newest business activity.
This group was started in fiscal 1999 through the acquisition of privately
held Open Cellular Systems, Inc. ("OCS"). The group designs and markets
proprietary cellular and network communication system products and Internet
services that provide monitoring and control of remote industrial and
municipal utility equipment. Results of the group are included in the
consolidated results of the Company since the
44
<PAGE> 45
date of the OCS acquisition, March 2, 1999. This group is focusing its
marketing efforts initially toward the railroad industry to monitor
railroad crossing equipment and its performance, and toward the oil and gas
pipeline industry to monitor cathodic protection devices. In fiscal 1999,
limited revenue was derived from this group.
- - NOTICOM L.L.C. JOINT VENTURE In the first quarter of fiscal 1999, LaBarge
and Global Research Systems, Inc. of Rome, Georgia ("Global") formed
NotiCom L.L.C. ("NotiCom"), a Georgia limited liability company, to develop
and market electronic systems providing advance notice of the impending
arrival of passenger motor vehicles. The first product to be marketed by
NotiCom is BusCall(TM) which provides households with advance notice of the
impending arrival of school buses. In fiscal 1999, the NotiCom investment
was accounted for using the equity method. Throughout fiscal 1999, NotiCom
was a development-stage company.
During fiscal 1999, the BusCall system was used by two phone companies to
provide notification services to families in their service area. In fiscal
2000, one of these providers is expanding the service to additional
subscribers. NotiCom expects to install another major system in fiscal 2000
which it is hoped will provide the basis for a larger scale deployment
beginning in fiscal 2001.
SIGNIFICANT EVENTS
Recent significant events include:
- - On June 2, 1999, TransMedica International, Inc. ("TransMedica") defaulted
on the payment of a $2.0 million note receivable due the Company. As a
result, the Company reevaluated the value of its assets related to
TransMedica and decided to reserve the full amount ($4.6 million). The
Company is continuing its effort to recover the amounts it believes are
owed it by TransMedica.
The history of this investment in TransMedica is as follows: In fiscal
1993, LaBarge, Inc. entered into an agreement with TransMedica (formerly
known as Venisect, Inc.) to design, develop and manufacture a patented
medical laser device, the Laser Lancet(R).
Since August 1995, the Company has acquired approximately 9.5% of
TransMedica's common stock for $2.3 million. The Company made an initial
$250,000 cash investment in fiscal 1996, and converted approximately $1.2
million of accounts receivable and provided an additional $800,000 in
operating capital in fiscal 1997. In June 1998, TransMedica issued the
Company an interest-bearing promissory note in the amount of $2.0 million
and warrants to purchase an additional 4% of TransMedica stock for $25 per
share in exchange for $900,000 of accounts receivable and additional credit
of $1.1 million for new production of Laser Lancet devices. The note is
secured by substantially all of TransMedica's assets.
On October 16, 1998, the Company filed a Petition for Specific Performance
and Declaratory Judgment in the Circuit Court for St. Louis County,
Missouri, seeking resolution of LaBarge's right to develop and manufacture
new laser products and determination of the number of Laser Lancet devices
TransMedica was obligated to purchase from LaBarge under an exclusive
manufacturing agreement between the two companies.
On June 3, 1999, the Company amended its suit to include payment of the
$2.0 million note receivable plus interest due thereon. As of August 20,
1999, the amount remains unpaid.
- - In March 1999, the Company acquired the remaining 90% of the stock of
privately held Open Cellular Systems, Inc. ("OCS") for approximately $5.6
million. Prior to the acquisition, LaBarge held a 10% equity stake in OCS,
which it acquired in October 1997 for $500,000. The March 1999 purchase
price was paid by issuing Subordinated Convertible Notes (the "Notes") due
in June
45
<PAGE> 46
2003 and bearing interest of 7.5% per annum payable quarterly beginning
June 29, 1999. Each share of OCS stock was valued at $4.25 in the
transaction. Under the terms of the Notes, each holder has the right to
convert the Notes into LaBarge, Inc. Common Stock at a conversion price of
$8.00 per share at any time after the first anniversary of the Notes up to
their maturity date. Further, the noteholders are entitled to receive
participation payments from the Company for each fiscal year through 2003
equal to the amount by which 35% of the net income of OCS (as defined in
the agreements) exceeds the 7.5% interest paid on the Notes for the fiscal
year.
On March 2, 1999, 1,008,622 shares of OCS common stock were exchanged for
$4.3 million of the Notes. Options to acquire 310,000 shares of OCS common
stock were converted to 310,000 shares of common stock of LaBarge-OCS,
Inc., the acquiring subsidiary, and represent shares acquired by the
holders through exercise of employee stock options. These shares are
callable by LaBarge, Inc. in accord with a call agreement whereby the
Company, at its discretion, may exchange the shares for the Notes at $4.25
per share or $1.3 million after the first anniversary of the acquisition
(March 2, 2000) and prior to June 15, 2000. This dollar amount is included
in other current liabilities. The Company recorded goodwill of $6.8 million
in this transaction. This goodwill is being amortized over seven years.
The Company used the purchase method of accounting to record this
acquisition. The results of operations of LaBarge-OCS, Inc. have been
included in the consolidated results of operations of LaBarge since the
date of acquisition.
- - In the first quarter of fiscal 1999, LaBarge and Global Research Systems,
Inc. of Rome, Georgia ("Global"), formed NotiCom L.L.C. ("NotiCom"), a
Georgia limited liability company, to develop and market electronic systems
providing advance notice of the impending arrival of passenger motor
vehicles. The first product to be marketed by NotiCom is BusCall. BusCall
uses a combination of technologies, including Global Positioning System
satellite location data, wireless communications techniques and telephony,
to notify parents by phone when their children's school bus is approaching
the bus stop. It is being marketed to telephone companies and other
potential service providers, which can offer BusCall as a value-added
service. LaBarge's Manufacturing Services Group is the exclusive
manufacturer of all products sold by NotiCom.
LaBarge and Global each initially had a 50% interest in NotiCom, except
that after an aggregate of $1.0 million has been distributed by NotiCom,
Global will be entitled to 75% of subsequent distributions until it has
received preferred distributions aggregating $1.3 million. LaBarge invested
$1.8 million cash in NotiCom along with $500,000 of development services.
In addition, LaBarge paid Global $1.7 million for a 50% interest in
intellectual properties and has licensed the technology to NotiCom.
The Company is obligated to pay Global up to an aggregate of $23.3 million
of additional purchase price for its 50% interest in the technology if
NotiCom meets or exceeds cumulative earnings before taxes ("EBT") through
December 31, 2001. In order to generate the maximum purchase price, NotiCom
must generate $211.8 million of EBT between July 1, 1998 and December 31,
2001. It appears unlikely at this time that such targets will be met;
therefore, the Company has not recorded the contingent purchase price.
Because NotiCom is a start-up venture, it is too early to predict if or to
what extent NotiCom may contribute to the Company's revenues or earnings.
Given the risks inherent in a start-up operation, the Company elected,
during the fourth quarter of fiscal 1999, to amortize its investment over
three years. For the fourth quarter, the amortization of this investment
was approximately $310,000 and, for the next two years, non-cash
amortization is expected to be $1.75 million per year. In fiscal 1999, this
investment was accounted for using the equity method.
46
<PAGE> 47
In July and August 1999, NotiCom needed additional cash infusions totaling
approximately $400,000 to continue its development and marketing efforts.
LaBarge has made such contributions.
- - In fiscal 1996, LaBarge Clayco Wireless, L.L.C. ("LaBarge Clayco Wireless")
a 50%/50% joint venture with Clayco Construction Company of St. Louis,
Missouri, was formed. In the second quarter of fiscal 1998, the Company
increased its ownership of LaBarge Clayco Wireless to 51%. In the second
quarter of fiscal 1999, the Company purchased from Clayco Construction
Company an additional 39% of LaBarge Clayco Wireless for $300,000 to
increase its ownership to 90%. Beginning with the second quarter of fiscal
1998, LaBarge began consolidating 100% of the results of this unit into its
financial statements and deducting the minority interest share to arrive at
earnings before income taxes. The investment was previously recorded using
the equity method.
RESULTS OF OPERATIONS - FISCAL 1999 - 1998 - 1997
SALES
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------
Change
1999 versus 1998 1999 1998 1997
- ------------------------- ----------------------- ------------------------ ------------------------ ------------------------
<S> <C> <C> <C> <C>
Net sales -10.2 % $89,143 $99,292 $96,666
========================= ======================= ======================== ======================== ========================
</TABLE>
During fiscal 1999, sales were $89.1 million compared with $99.3 million in
fiscal 1998 and $96.7 million in fiscal 1997.
MANUFACTURING SERVICES GROUP. The 10.2% decline in fiscal 1999 revenues is due
to lower sales in the manufacturing services segment of the business which
accounted for 88% of total sales in fiscal 1999 and is the direct result of
lower sales to customers in the defense and geophysical markets.
Sales to defense customers were down $8.5 million to $42.1 million, principally
due to lower shipments on the AEGIS program in fiscal 1999 versus fiscal 1998.
This program is winding down and future orders for this program will be limited
to foreign military sales and repair or replacement equipment. The Company was
not successful replacing this business in fiscal 1999.
Sales to geophysical customers were down $10.1 million to $15.3 million in
fiscal 1999 compared with fiscal 1998. The slump in the oil and gas industry,
which has affected the entire market for equipment for the exploration and
production of oil, is the cause. In spite of this, we have been gaining new
customers and expanding our relationships with existing customers. We are
encouraged by the increase in oil and gas prices and are confident that when the
industry rebounds, LaBarge will benefit significantly from our new and expanded
relationships. However, we cannot predict when that will occur.
LABARGE CLAYCO WIRELESS. Sales by LaBarge Clayco Wireless were $10.6 million and
represented 12% of total Company sales in fiscal 1999. This is an increase of
$6.9 million over 1998 and is due to two factors: (1) increased success from our
marketing efforts supported by excellent performance on prior projects; and (2)
in fiscal 1998 we did not begin consolidating LaBarge Clayco Wireless' sales
until the second quarter when we acquired controlling interest in LaBarge Clayco
Wireless.
NETWORK TECHNOLOGIES GROUP. Sales by the third business segment of the Company,
the Network Technologies Group, were insignificant in fiscal 1999. The Network
Technologies Group is comprised of the former OCS, which was acquired on March
2, 1999.
Sales to our top 10 customers represented 68% of total revenue in fiscal 1999
versus 67% in fiscal
47
<PAGE> 48
1998 and 75.9% in fiscal 1997. Sales to our top two customers and the percent of
total sales they represent were: Lockheed Martin, 25% in fiscal 1999, 27% in
fiscal 1998 and 24% in fiscal 1997; and Schlumberger, 13% in fiscal 1999, 17% in
fiscal 1998 and 14% in fiscal 1997. No other customer in the last two years has
represented more than 7% of total sales.
GROSS PROFIT
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------
Change
1999 vs. 1998 1999 1998 1997
- ------------------------- ----------------------- ------------------------ ------------------------ ------------------------
<S> <C> <C> <C> <C>
Gross profit -22.5% $17,727 $22,872 $19,224
Gross margin - 3.1 pts. 19.9% 23.0% 19.9%
========================= ======================= ======================== ======================== ========================
</TABLE>
A breakdown of margins by group shows the following:
MANUFACTURING SERVICES GROUP. This group's gross margin was 20.3% in fiscal 1999
compared with 23.2% in fiscal 1998 and 19.9% in 1997. In fiscal 1999, excess
capacity as a result of lower sales led to higher fixed costs per sales dollar
at several of our manufacturing facilities, negatively impacting gross margins.
LABARGE CLAYCO WIRELESS. This group's gross margin was 17.4% in fiscal 1999
versus 18.8% in fiscal 1998. The gross margin change was due to the mix of
business in 1999 compared with 1998. There is no comparable value for fiscal
1997 since we did not consolidate LaBarge Clayco Wireless' operations until the
second quarter of fiscal 1998.
NETWORK TECHNOLOGIES GROUP. This group negatively affected the gross profit for
the fiscal year by $105,000. Sales were only $59,000 for the four months of
fiscal 1999 we owned OCS and cost of sales was $164,000.
SELLING AND ADMINISTRATIVE EXPENSES
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------------
Change
1999 vs. 1998 1999 1998 1997
- ------------------------------------------------ ----------------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Selling and administrative expenses -1.0% $ 14,269 $ 14,407 $ 11,380
Percent of sales +1.5 pts. 16.0% 14.5% 11.8%
================================================ ======================= ================= ================ ================
</TABLE>
Selling and administrative expenses were down slightly in fiscal 1999 versus
fiscal 1998, but up significantly from 1997 due to the consolidation of LaBarge
Clayco Wireless in fiscal 1999 and fiscal 1998 and the Network Technologies
Group in fiscal 1999.
MANUFACTURING SERVICES GROUP. Selling and administrative expenses for this group
were $11.8 million (14.8% of sales) in fiscal 1999, $13.7 million (14.3% of
sales) in fiscal 1998 and $11.4 million in fiscal 1997. The decrease of $1.9
million in fiscal 1999 versus fiscal 1998 is directly attributable to reductions
in expenses due to lower volume.
LABARGE CLAYCO WIRELESS. Selling and administrative expenses for this group were
$1.3 million (12.2% of sales) in fiscal 1999 versus $828,000 (22.6% of sales) in
fiscal 1998. The dollar increase year-to-year was primarily attributable to the
fact that fiscal 1999 included 12 months of expense while fiscal 1998 only
included the nine months from the time we began consolidating the results of
this operation. Since most of these costs represent salaries and fringes for
management, building rental,
48
<PAGE> 49
insurance and other fixed costs, the higher volume in fiscal 1999 caused the
percent of sales to decrease.
NETWORK TECHNOLOGIES GROUP. This group accounted for $516,000 of operating
expenses in fiscal 1999. This included $338,000 in amortization of goodwill
since the date of acquisition.
INTEREST EXPENSE
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------------------------------------------
1999 1998 1997
- -------------------------------- ------------------------------ ----------------------------- ------------------------------
<S> <C> <C> <C>
Interest expense $1,451 $997 $942
================================ ============================== ============================= ==============================
</TABLE>
Interest expense increased in fiscal 1999 due to higher borrowings attributable
to: $1.3 million in additional borrowing for the expansion of one manufacturing
plant; $4.4 million of new Subordinated Convertible Notes related to the
purchase of OCS on March 2, 1999; and approximately $1.0 million in higher
senior borrowings during the year. For further discussion of our capital
structure, see "Financial Condition and Liquidity" below.
Additionally, LaBarge repurchased approximately 857,000 shares of its common
stock during fiscal 1999, at a total price of $2.4 million.
LOSS DUE TO REVALUATION OF IMPAIRED ASSETS
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------ --------------------- ----------------------- -----------------------
<S> <C> <C> <C>
Loss due to revaluation of impaired assets $4,573 $ - $ -
====================================================== ===================== ======================= =======================
</TABLE>
In fiscal 1999, the Company reserved the total amount of its assets in
TransMedica International, Inc.
LOSS FROM NOTICOM
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------------------------
1999 1998 1997
- ---------------------------------------------------- -------------------- -------------------------- -----------------------
<S> <C> <C> <C>
Loss from NotiCom $1,221 $ - $ -
==================================================== ==================== ========================== =======================
</TABLE>
The loss in fiscal 1999 represents LaBarge's 50% interest in NotiCom L.L.C.
Included in the loss is $237,000 of amortization of the technology acquired in
the acquisition. In the fourth quarter, after reevaluating the amortization
schedule for the NotiCom technology, the Company elected to amortize the
technology over a three-year period rather than a longer period.
49
<PAGE> 50
PRETAX (LOSS) EARNINGS
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------- ---------------------- ---------------------------- ---------------------------
<S> <C> <C> <C>
Pretax (loss) earnings $(3,591) $7,550 $7,001
=========================================== ====================== ============================ ===========================
</TABLE>
The change in earnings in fiscal year 1999 as compared to 1998 is attributable
to: (1) the $4.6 million reserve for loss on TransMedica; (2) $1.9 million
in losses (including non-cash amortization of $724,000) in new business
activities started in fiscal 1999; $454,000 in higher interest costs due to
increased borrowings in fiscal 1999; (4) $4.3 million in lower profits from our
Manufacturing Services Group caused by lower sales volume from defense and
geophysical customers; and, (5) $810,000 increase in earnings from LaBarge
Clayco Wireless.
TAX (BENEFIT) EXPENSE
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------------------------------------------
1999 1998 1997
- -------------------------------- ------------------------------ ----------------------------- ------------------------------
<S> <C> <C> <C>
Tax expense (benefit) $(511) $2,786 $(734)
================================ ============================== ============================= ==============================
</TABLE>
NET (LOSS) EARNINGS AND (LOSS) EARNINGS PER SHARE (dollars in thousands except
per share data)
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------ -------------------- -------------------------- --------------------------
<S> <C> <C> <C>
Net (loss) earnings $ (3,080) $ 4,764 $ 7,735
Basic net (loss) earnings per share $ (.20) $ .31 $ .50
Diluted net (loss) earnings per share $ (.20) $ .30 $ .49
================================================ ==================== ========================== ==========================
</TABLE>
FINANCIAL CONDITION AND LIQUIDITY
The following shows LaBarge's equity and debt positions:
STOCKHOLDERS' EQUITY AND DEBT
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------------------------------
1999 1998
- ------------------------------------------- -------------------------------------- ----------------------------------------
<S> <C> <C>
Stockholders' equity $ 24,080 $ 29,642
Debt $ 22,991 $ 16,285
=========================================== ====================================== ========================================
</TABLE>
The Company has generated $10.0 million, $161,000 and $8.2 million in cash from
operations for the fiscal years 1999, 1998 and 1997, respectively. In fiscal
1999, the reserve for the loss on TransMedica, the higher amortization expense
related to the OCS goodwill and certain acquired technology associated
with our investment in NotiCom were non-cash items included in the loss for the
year. These, in addition to $6.5 million of reduced accounts receivable and
inventories, account for the $10.0 million in cash generated for the year.
Comparatively, in fiscal 1998, limited cash was generated in spite of excellent
profits due to increases in accounts receivable and inventories. In fiscal 1997,
profits were the main contributor to the positive cash flow.
The cash generated in the last three years, along with additional borrowings,
has been used to
50
<PAGE> 51
purchase a total of $13.4 million in new property, plant and equipment including
the fiscal 1998 purchase of the St. Louis headquarters facility for $6.2 million
and the fiscal 1999 expansion of one of our manufacturing facilities totaling
$1.3 million.
Cash from operations has also been used to acquire a controlling interest in
LaBarge Clayco Wireless for $300,000, our 50% interest in NotiCom for $4.0
million and OCS for $6.8 million. In addition, we have repurchased approximately
1.0 million shares of our common stock at a cost of approximately $3.1 million
under our stock repurchase plan.
Currently, our debt-to-equity ratio is .95 to 1 versus .55 to 1 at the end of
fiscal 1998.
As of June 25, 1999, we have amended our senior lending agreement (see Note 9 in
"Notes to Consolidated Financial Statements") with Bank of America to reflect
the changes in the make up of our Company going forward. This included revising
covenants and performance measures to reflect the reserve for loss of the
TransMedica assets and the additions of OCS and NotiCom as new businesses of
the Company.
RISK FACTORS
The NotiCom joint venture, as a start-up company, has a higher risk factor than
our manufacturing services business. Further, development and testing of the
BusCall product has required additional cash investment of approximately
$400,000 thus far in fiscal 2000, and it is expected that additional cash will
be needed to fully bring the product to market. Given the risks inherent in a
start-up operation, it is too early to predict if or to what extent NotiCom may
contribute to the Company's revenues or earnings.
The Network Technologies Group, although beyond the start-up stage, has used
cash during its first four months of operation and has had limited sales. It is
too early to predict to what extent this group will contribute to the Company's
revenues, earnings and cash flow.
Overall, we believe our availability of funds going forward from cash generated
from operations and available credit with the bank should be sufficient to
support the planned operations of the four segments of our business for the next
two years.
YEAR 2000
We rely on computer technology for much of our operations. We have been
analyzing all of our information and data systems for possible Year 2000 ("Y2K")
problems.
We have completed testing of our basic manufacturing system, which covers our
accounting, billing, accounts payable and manufacturing operations, and have
concluded that this system, which uses a four-digit date field, is Y2K
compliant. We do not anticipate any significant Y2K problems with our basic
system.
In addition to our internal systems, we are dependent on the systems of
third-party vendors for certain of our operations. For instance, our payroll is
dependent upon a system operated by a third-party vendor. We have received
certification from this vendor that the system is Y2K compliant. We are
communicating with our other outside trading partners in order to assess their
Y2K readiness. These include, among others, our customers and suppliers. We have
received assurances of Y2K compliance from the substantial majority of the major
outside trading partners upon whom we rely and, while there can be no assurance
that they will be Y2K compliant, we believe that the significant third parties
upon whom we are dependent are or expect to be Y2K compliant before the end of
calendar 1999. Based upon information already gathered from these parties, we do
not presently have reason to believe that there will be Y2K problems with these
third parties that would impair our normal
51
<PAGE> 52
operations. We intend to complete our communications with our outside trading
partners prior to December 31, 1999.
We believe that the most likely worst-case scenario due to a Y2K failure of our
internal and third-party external systems would be the inability to manufacture
and ship products in a timely manner. This could have a negative impact on our
relationships with our customers and an adverse effect on our financial
condition and results of operations.
Currently, we have a contingency plan which involves manual protection of data
and an operating plan in the event of a Y2K failure.
Costs incurred to date for Y2K remediation activity have been immaterial and
have been included in operating expenses. We do not anticipate any material
costs for remaining Y2K compliance efforts, and we have not included any
expenditures for Y2K compliance in our budget. However, there can be no
assurance that additional expenses will not be significant.
52
<PAGE> 53
Schedule II
LABARGE, INC.
VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
YEARS ENDED JUNE 27, 1999
JUNE 28, 1998 AND JUNE 29, 1997
ALLOWANCE FOR DOUBTFUL ACCOUNTS
This account represents amounts that may become uncollectible in future periods.
<TABLE>
<CAPTION>
Balance Additions Balance
Beginning Charged to End of
Year of Period Expense Deductions Period
---- --------- ------- ---------- ------
<S> <C> <C> <C> <C> <C>
1997 $ 187 $ - $ 39 $ 148
1998 148 31 29 150
1999 $ 150 $ 2,186 $ (11) $ 2,347
</TABLE>
INVENTORY RESERVE
This account represents amounts in inventory that may become valueless in future
periods, but as of the balance sheet date, are included at cost.
<TABLE>
<CAPTION>
Balance Additions Acquisition Deductions Balance
Beginning Charged to Charged to From Reserve End of
Year of Period Expense Goodwill For Write-offs Period
---- --------- ------- -------- -------------- ------
<S> <C> <C> <C> <C> <C> <C>
1997 $ 197 $ 750 $ - $ 494 $ 453
1998 453 695 - 646 502
1999 $ 502 $ 602 $ 5 $ 240 $ 869
</TABLE>
DEFERRED TAX ASSET VALUATION ALLOWANCE
This account represents the value of the Company's deferred tax asset as a
result of net loss carryforwards from prior periods that might not be realized
in future periods.
<TABLE>
<CAPTION>
Balance Increase Balance
Beginning Due to End of
Year of Period Increase Acquisition Decrease Period
---- --------- -------- ----------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
1997 $ 3,616 $ - $ - $ 3,616 $ -
1998 - - - - -
1999 $ - $ 851 $ 517 $ - $ 1,368
</TABLE>
53
<PAGE> 54
INDEPENDENT AUDITORS' REPORT
The Board of Managers
NotiCom L.L.C.:
We have audited the accompanying balance sheet of NotiCom L.L.C. (a
development stage enterprise) as of June 27, 1999, and the related
statements of operations, members' equity, and cash flows for the
period from July 22, 1998 (inception) through June 27, 1999. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of NotiCom
L.L.C. (a development stage enterprise) as of June 27, 1999, and the
results of its operations and its cash flows for the period from July
22, 1998 (inception) through June 27, 1999, in conformity with
generally accepted accounting principles.
/s/ KPMG LLP
-------------------------
July 23, 1999
54
<PAGE> 55
NOTICOM L.L.C.
(A Development Stage Enterprise)
Balance Sheet
June 27, 1999
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash and cash equivalent $ 55,550
Trade accounts receivable 96,637
Inventories 60,486
Prepaid expenses and other current assets 9,476
-----------
Total current assets 222,149
Property and equipment, net 692,672
Intangible assets, net 2,055,647
-----------
$ 2,970,468
===========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities - trade accounts payable
and accrued expenses $ 310,793
Members' equity 2,659,675
$ 2,970,468
===========
</TABLE>
See accompanying notes to financial statements.
55
<PAGE> 56
NOTICOM L.L.C.
(A Development Stage Enterprise)
Statement of Operations
Period July 22, 1998 (inception) through June 27, 1999
<TABLE>
<S> <C>
Revenue $ 169,708
Cost of sales 108,470
Gross profit 61,238
Selling, general, and administrative 1,184,384
Research and development expense 620,233
Amortization of intellectual property 257,353
Operating loss (2,000,732)
Interest income 32,407
-----------
Net loss $ (1,968,325)
===========
</TABLE>
See accompanying notes to financial statements.
56
<PAGE> 57
NOTICOM L.L.C.
(A Development Stage Enterprise)
Statement of Members' Equity
Period July 22, 1998 (inception) through June 27, 1999
<TABLE>
<CAPTION>
DEFICIT TOTAL
ACCUMULATED DURING MEMBERS'
CAPITAL DEVELOPMENT STAGE EQUITY
------- ----------------- ------
<S> <C> <C> <C>
Balance at July 22, 1998 $ -- -- --
Capital contribution 4,628,000 -- 4,628,000
Net loss -- (1,968,325) (1,968,325)
----------- ------------------- -----------
Balance at June 27, 1999 $ 4,628,000 (1,968,325) 2,659,675
=========== =================== ==========
</TABLE>
See accompanying notes to financial statements.
57
<PAGE> 58
NOTICOM L.L.C.
(A Development Stage Enterprise)
Statement of Cash Flows
Period July 22, 1998 (inception) through June 27, 1999
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss $ (1,968,325)
Adjustments to reconcile net loss
to net cash used in operating activities:
Amortization 257,353
Depreciation 58,388
Changes in assets and liabilities:
Trade accounts receivable (96,637)
Inventories (60,486)
Prepaid expenses and other current assets (9,476)
Trade accounts payable and accrued expenses 310,793
--------------
Net cash used in operating activities (1,508,390)
Cash flows from investing activities -
purchases of property and equipment (251,060)
Cash flows from financing activities -
proceeds from capital contributions from members 1,815,000
Net increase in cash 55,550
Cash and cash equivalent at beginning of period --
--------------
Cash and cash equivalent at end of period $ 55,550
==============
</TABLE>
See accompanying notes to financial statements.
58
<PAGE> 59
(1) Organization
NotiCom L.L.C. (the Company) is a Georgia limited liability corporation
which was formed on July 22, 1998. The Company started as a 50/50% joint
venture between LaBarge, Inc. (LaBarge) and Global Research Systems
(Global). The Company is involved in the research, development, and
marketing of wireless communication technology and related products. The
Company has certain international ownership, marketing, and distribution
rights to certain wireless communication technology which was conceived
by Global and developed and refined by Global, LaBarge, and the Company.
This technology has several applications; however, NotiCom is currently
focusing the majority of their attention on the BusCall(TM) product
line. BusCall(TM) is a wireless communication system installed in buses
carrying students for education purposes. When the bus approaches, an
automated communication is made to the households of bus-riding
individuals to alert them of the status of the bus and to decrease the
amount of time spent waiting at the bus stop.
The Company is governed by a four member Board of Managers. The
Operating Agreement of NotiCom L.L.C. provides for losses to be
allocated in proportion to the members' interest. Earnings of the
Company are to be divided as follows: (i) in proportion to the members'
interest up to $1 million; (ii) the next $2,628,000 will be allocated
75% to Global and 25% to LaBarge subject to change based on ownership
percentage and subject to a $1,314,000 preference payment to Global; and
(iii) thereafter, the earnings are divided in proportion to the members'
interest. The Company also has an agreement with Buscall Properties
L.L.C. (Buscall) under which Buscall agrees to license certain
intellectual property to the Company in exchange for a royalty fee equal
to 2.5% of the Company's revenue. Buscall is a 50/50 joint venture
between LaBarge and Global.
The Company is a Development Stage Enterprise with a limited operating
history and limited revenues from product sales to date. Since
inception, the Company has devoted its efforts principally to product
design and development, developing a business plan and marketing
strategy, commencing the recruitment of management and sales personnel,
filing patent applications covering certain aspects of the wireless
communication technology, and in sales efforts in an attempt to generate
revenue.
(2) Summary of Significant Accounting Policies
Accounting Period
The Company uses a fiscal year ending on the Sunday closest to
June 30.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets and
liabilities and disclosures of contingent liabilities at the date of
the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
Revenue Recognition
The Company earns revenue primarily from the sale and installation
of equipment, licensing fees, and royalties. The Company recognizes
revenue from the sale of equipment when the equipment is shipped.
The Company recognizes revenue from licensing fees and royalties
when the fees are earned based on the licensing agreement.
59
<PAGE> 60
Cash and Cash Equivalents
For purposes of the statement of cash flows, cash includes amounts
on deposit with financial institutions, including short-term
investments with original maturities of three months or less.
Inventory
Inventories are stated at the lower of cost or market using the
average cost method.
Intangibles
Intangible assets primarily consist of intellectual property which
is amortized over three years. The Company periodically evaluates
the carrying value of intangible assets for impairment based on the
expected undiscounted cash flows over the remaining life of the
asset.
Property and Equipment
Property and equipment is carried at cost. Depreciation is
calculated over the estimated useful lives of the related assets
(three to five years).
Income Taxes
No provision for income taxes is made because the liability for
income taxes is that of the individual members and not that of the
Company.
(3) Related Party Transactions
The Company was formed with initial capital contributions consisting of
(i) $1,814,000 in cash and $500,000 in services from LaBarge and (ii)
intellectual property valued at $2,313,000 and $1,000 in cash from
Global. The $500,000 in services from LaBarge and the $2,313,000 in
intellectual property from Global are considered non-cash transactions
and therefore are not reflected in the statement of cash flows.
The Company has a manufacturing agreement with LaBarge which gives
LaBarge exclusive rights to manufacture the products to be sold by the
Company within a specified territory. In addition, LaBarge provides
research and development services to the Company. The Company purchased
$819,691 of products and services from LaBarge during fiscal year 1999.
This amount is in addition to the $500,000 of services provided by
LaBarge as part of the initial capital contribution.
60
<PAGE> 61
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<S> <C>
Equipment $ 44,507
Leasehold improvements 2,274
Computers and equipment 109,754
Capitalized software costs 594,526
-----------
751,061
Less accumulated depreciation 58,388
-----------
$ 692,673
===========
</TABLE>
During the period from July 22, 1998 (inception) through June 27, 1999,
the Company recorded $39,346 of depreciation relating to computer
software costs.
(5) INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<S> <C>
Intellectual property $ 2,313,000
Less accumulated amortization 257,353
-----------
$ 2,055,647
===========
</TABLE>
(6) LEASES
The Company leases office space under a month-to-month lease. Rental
expense totaled $43,577 for fiscal year 1999.
(7) BUSINESS AND CREDIT CONCENTRATION
All of the Company's revenue for fiscal year 1999 was from one customer.
The balance of trade accounts receivable as of June 27, 1999 is from
this customer.
(8) SUBSEQUENT EVENT
On June 25, 1999, LaBarge initiated a cash call pursuant to the
Operating Agreement of NotiCom L.L.C. Under the Operating Agreement,
members have fifteen days to comply with the cash call. In the event the
cash is not remitted by the non-calling member, the other member may
contribute all of the cash which results in a change in the ownership
interest of the members. Global did not remit the cash pursuant to the
cash call.
LaBarge has made additional cash infusions totaling approximately
$400,000 to continue NotiCom's development and marketing efforts.
61
<PAGE> 1
EXHIBIT 10.1(f)
SEVENTH AMENDMENT
TO THE
FIRST AMENDMENT AND RESTATEMENT
OF THE
LABARGE, INC. EMPLOYEES SAVINGS PLAN
This Seventh Amendment to the First Amendment and Restatement of the
LaBarge, Inc. Employees Savings Plan ("Plan") executed on August 11, 1999 by
LaBarge, Inc. ("Company"), a Delaware corporation.
WITNESSETH
WHEREAS, the Company amended and restated the Plan on May 3, 1990
effective January 1, 1987; and
WHEREAS, the amendment and restatement of the Plan was amended on June
28, 1990 effective July 1, 1990; November 30, 1993 effective October 1, 1993;
March 24, 1994 effective January 1, 1994; January 3, 1995 effective January 1,
1995; and October 26, 1995 effective January 1, 1995, and January 1, 1996 and
January 9, 1998 effective January 1, 1998; and
WHEREAS, the Company wants to further amend the Plan;
NOW, THEREFORE, the Company amends the Plan effective January 1, 1999 as
follows:
Delete Section 10.4 of Article 10 and insert the following new Section
10.4 of Article 10 in lieu thereof:
10.4 If the value of the vested portion, determined under Section 10.5,
of a severed Participant's Accounts is $5,000 or less on the Valuation Date
immediately following the date the Participant severs under Section 10.1, the
Administrator shall cause the Trustee to distribute severance Benefits to him in
accordance with Article 11 as of such Valuation Date. If the value of the vested
portion, determined under Section 10.5, of a severed Participant's Accounts is
more than $5,000 on the Valuation Date immediately following the date the
Participant severs under Section 10.1, the Administrator shall cause the Trustee
to distribute severance Benefits to him in accordance with Article 11 following
the earliest of the Valuation Date immediately following the day the Participant
dies or consents in writing to distribution. Provided, however, that
distribution must commence on or before the Participant's Required Beginning
Date. Notwithstanding the immediately preceding sentence, distribution of
retirement Benefits of a Participant who made a written election, prior to
January 1, 1984, to have his Benefits Code ss.401(a), as in effect prior to the
enactment of the Tax Equity and Fiscal Responsibility Act of 1982, shall be paid
in accordance with such election.
IN WITNESS WHEREOF, the undersigned has caused this amendment to be
adopted this 11th day of August 1999.
LaBarge, Inc.
By: /s/ Craig E. LaBarge
----------------------------
Craig E. LaBarge, President
<PAGE> 1
EXHIBIT 10.8(a)
THIRD AMENDMENT
TO
LOAN AGREEMENT
AMONG
BANK OF AMERICA, N.A.
AND
LABARGE, INC.,
LABARGE/STC, INC.,
LABARGE WIRELESS, INC.
AND (WITH THIS AMENDMENT)
LABARGE OCS, INC.
This AMENDMENT to LOAN AGREEMENT (the "Amendment") is entered
into as of June 25, 1999, by LABARGE, INC., LABARGE/STC, INC., LABARGE
WIRELESS, INC., AND LABARGE OCS, INC. (collectively and separately,
"Borrower") and BANK OF AMERICA. N.A. (formerly known as NationsBank, N.A.,
which was successor by merger to The Boatmen's National Bank of St. Louis)
("Bank").
RECITALS:
A. Borrower (excluding LaBarge OCS, Inc.) and Bank are parties to that
certain Loan Agreement dated as of June 25, 1996, as amended by the amendment
thereto dated March 20, 1997 (as it may be amended, restated, extended, renewed,
replaced, or otherwise modified from time to time, the "Loan Agreement").
B. Borrower anticipates that it will violate certain of its financial
covenants in the Loan Agreement and has requested to amend the Loan Agreement to
avoid such violation, which Bank is willing to do upon the terms and conditions
contained herein and if LaBarge OCS, Inc. becomes a Borrower under the Loan
Agreement.
Therefore, in consideration of the mutual agreements herein and other
sufficient consideration, the receipt of which is hereby acknowledged, Borrower
(including LaBarge OCS, Inc.) and Bank hereby amend the Loan Agreement as
follows:
1. DEFINITIONS. Capitalized terms used and not otherwise defined herein
have the meanings given them in the Loan Agreement as amended hereby.
2. EFFECTIVE DATE OF AMENDMENT. This Amendment shall become effective as
of June 25, 1999.
3. AMENDMENTS TO LOAN AGREEMENT.
3.1 LABARGE OCS, INC. By its execution of this Amendment, LaBarge
OCS, Inc. has become a Borrower under the Loan Agreement as amended hereby and
all references to "Borrower" in the Loan Agreement as amended hereby shall be
deemed and treated as including LaBarge OCS, Inc. LaBarge OCS, Inc. hereby
assumes and agrees to pay and perform all of the Loan Obligations as provided in
the Loan Agreement and the other Loan Documents to the same extent as if it had
been a Borrower as of the original date of the Loan Agreement.
1
<PAGE> 2
3.2 ACCOUNTING TERMS. Section 2.5 of the Loan Agreement is hereby
amended by replacing the body thereof with the following:
"Unless the context otherwise requires, accounting terms
herein that are not defined herein shall be calculated under GAAP. All
financial measurements contemplated hereunder respecting "Borrower"
shall be made and calculated for Borrower and all of its Subsidiaries
(including LaBarge Properties, Inc.), unless otherwise expressly
provided otherwise herein, on a consolidated basis in accordance with
GAAP."
3.3. REVISED LIMITATION ON REVOLVING ADVANCES. Section 3.1.2 of the
Loan Agreement is hereby amended by deleting the final two sentences added by
the Amendment thereto effective March 20, 1997, and replacing them with the
following sentence:
"The "Maximum Available Amount" for any Revolving Advance shall be a
Dollar amount equal to (i) the lesser of the Revolving Commitment or
the Borrowing Base on such date, minus (ii) the sum of (x) the Letter
of Credit Exposure (except to the extent that such Revolving Advance
will be used immediately to reimburse Lender for unreimbursed draws on
a Letter of Credit) plus (y) the Term Loan."
3.4. REVISED BORROWING BASE. Section 3.1.2 of the Loan Agreement is
hereby amended to read in its entirety as follows:
"3.1.4. BORROWING BASE. The "Borrowing Base" on any date for any
Revolving Advance shall be the sum of:
3.1.4.1. 85% of the total outstanding principal balance of
Eligible Accounts as of the close of business on such date, or
as certified in the Borrowing Base Certificate most recently
furnished to Lender as required in Section 14.14, whichever is
less; plus
3.1.4.2. An amount equal to the sum of (i) 50% of the value of
all Eligible Inventory that is finished goods, (ii) 30% of the
value of all Eligible Inventory that is raw materials or
work-in-process at the close of business on such date, or as
certified in the Borrowing Base Certificate most recently
furnished to Lender as required in Section 14.14, whichever is
less; plus
3.1.4.3 50% of the net book value of Borrower's equipment in
which Lender has a first priority Security Interest; plus
3.1.4.4 75% of the net book value of Borrower's owned real
property.
For purposes of calculating the Borrowing Base: (i) all Inventory of
Borrower shall be valued at the lower of cost or market on a
first-in-first-out basis; (ii) raw materials and work-in-process shall
be deemed to be equal to total Eligible Inventory less unapplied
progress payments and inventory reserves as regularly maintained by
Borrower; and (iii) finished goods shall be deemed to be equal to the
estimated cost of Borrower's unbilled jobs."
2
<PAGE> 3
3.5. LIBOR INCREMENTS AND CBR DECREMENTS. The table in Section 4.3
of the Loan Agreement is hereby replaced with the following table, in which the
symbol ">" means "greater than", the symbol "<" means "equal to or less than",
and the symbol "=" means "equal to":
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
If the ratio of Senior Debt The LIBOR Increment the CBR
(excluding Real Estate Debt) to shall be: Increment
EBITDA is: shall be:
-----------------------------------------------------------------------------------------
<S> <C> <C>
> 2.50 to 1.00 2.75% 0%
-----------------------------------------------------------------------------------------
< 2.50 to 1.00 and > 2.00 to 1.00 2.25% 0%
-
-----------------------------------------------------------------------------------------
< 2.00 to 1.00 and > 1.50 to 1.00 1.75% 0%
-
-----------------------------------------------------------------------------------------
< 1.50 to 1.00 and > 1.25 to 1.00 1.25% 0%
-
-----------------------------------------------------------------------------------------
< 1.25 to 1.00 0.75% 0%
-
-----------------------------------------------------------------------------------------
</TABLE>
3.6. COMMITMENT FEE. Section 5.2 of the Loan Agreement is hereby
amended by deleting the table and replacing it with the following table, in
which the symbol ">" means "greater than", the symbol "<" means "equal to or
less than", and the symbol "=" means "equal to":
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
If the ratio of Senior Debt (excluding Real Estate Debt) to The Commitment Fee
EBITDA is: Percentage shall be:
-------------------------------------------------------------------------------------------
<S> <C>
> 2.00 to 1.00 0.375%
-------------------------------------------------------------------------------------------
< 2.00 to 1.00 and > 1.25 to 1.00 0.250%
-
--------------------------------------------------------------------------------------------
< 1.25 to 1.00 0.200%
-
--------------------------------------------------------------------------------------------
</TABLE>
3.7. MANDATORY PREPAYMENTS. The following additional sentence is
added at the end of Section 7.2 of the Loan Agreement:
"Immediately upon every receipt thereof, Borrower shall pay over to
Lender, as a prepayment of the Term Loan, all TransMedica Proceeds.
Such application of TransMedica Proceeds shall be applied to the amount
of the Term Loan otherwise due and payable on the Maturity Date and the
principal installments on the Term Loan required under Section 6.3 in
the inverse order of their due dates."
3.8. DEFINITION OF SENIOR DEBT AND EBITDA. The last sentence of
Section 4.3 of the Loan Agreement is hereby deleted and the following definition
is added to Section 16.1:
"`Senior Debt'" means the amount of all Funded Debt (excluding all
Subordinated Indebtedness)."
The definition of EBITDA in Section 16.1 of the Loan Agreement is changed to
read in its entirety as follows:
"`EBITDA'" means, for any period of calculation, an amount equal to the
sum of the following, calculated without duplication and after
exclusion of any amount that has been allocated to Borrower from
NotiCom L.L.C.: (i) net income, (ii) federal, state and local income
tax expense, (iii) interest expense, (iv) depreciation and amortization
expense, (v) losses on the sale or other disposition of assets, (vi)
extraordinary losses, and (vii) the one-time write-off, in the fiscal
year ended in 1999 only, of the investment in TransMedica
International, Inc., minus (a) gains on
3
<PAGE> 4
the sale or other disposition of assets, and (b) extraordinary gains,
all calculated for such period.
A following new definition is added in the appropriate alphabetical order in
Section 16.1:
"`Real Estate Debt' means the Indebtedness of LaBarge Properties, Inc.
which is payable to Lender."
3.9. BORROWING BASE CERTIFICATE. Section 14.14 of the Loan
Agreement is hereby amended by deleting the words "while the ratio of Borrower's
Funded Debt to EBITDA calculated as of the end of any fiscal quarter in
accordance with Section 16.6 of this Agreement, exceeds 1.5 to 1.0".
3.10 SECURITY. A new Section 14.19 is added to the Loan Agreement,
as follows:
"14.19. SECURITY. As security for the payment and performance of the
Loan Obligations, Borrower shall execute and deliver to Lender, or
cause to be executed and delivered to Lender, before November 1, 1999,
all of the following documents, with each being satisfactory to Lender
(the "Security Documents"):
14.19.1. MORTGAGES. Deeds of trust satisfactory to
Lender and (i) granting to Lender a Security Interest in all
of the real property and fixtures owned by Borrower or on the
leasehold interest of Borrower in all real property leased by
Borrower(other than the real property on which Lender has a
lien to secure the Real Estate Debt defined herein) and all
improvements thereon and any appurtenant easements and rights
and all income and proceeds thereof, and (ii) assigning to
Lender all of Borrower's rights, title, and interest in, to,
and under all leases affecting any part of the Real Property
Collateral and all income and proceeds thereof, which Security
Interests shall be subject only to Permitted Security
Interests affecting the property covered thereby and existing
on the Execution Date. If Borrower acquires or leases any real
property after the June 25, 1999, Borrower shall notify Lender
thereof and shall deliver to Lender a deed of trust or
mortgage, or leasehold deed of trust or mortgage, as
appropriate, on each parcel of such real property or
Borrower's leasehold interest therein promptly upon request by
Lender.
14.19.2. SECURITY AGREEMENTS. Security agreements
from Borrower satisfactory to Lender and granting to Lender,
as security for payment and performance of the Loan
Obligations, a Security Interest under the UCC in all of the
Goods, Equipment, Accounts, Inventory, Instruments, Documents,
Chattel Paper, General Intangibles and other personal property
and Fixtures of Borrower, whether now owned or hereafter
acquired, and all proceeds thereof, subject only to Permitted
Security Interests.
14.19.3. COLLATERAL ASSIGNMENTS. Collateral
assignments and pledges satisfactory to Lender and assigning
or pledging to Lender, as security for payment and performance
of the Loan Obligations, (i) all rights, title and interest of
Borrower under all leases of real property in which Borrower
is the tenant or lessee, (ii) the economic rights of LaBarge
Wireless, Inc. as a member of LaBarge Clayco Wireless, L.L.C.,
a Missouri limited liability company, and the economic rights
of Borrower as a member of Noticom, L.L.C., a Georgia
4
<PAGE> 5
limited liability company, (iii) all of LaBarge, Inc.'s stock
in its Subsidiaries, (iv) all of Borrower's patents, (v) all
Transmedica Proceeds, (vi) all rights, title and interest of
Borrower in, to and under the note, security agreement, and
patent security agreement executed and delivered to Borrower
by Transmedica International, Inc., and (vii) all of
Borrower's trademarks, trade names, and service marks, each
subject to no other Security Interests except Permitted
Security Interests. If Borrower or any Subsidiary of Borrower
leases any real property after June 25, 1999, Borrower shall
execute and deliver to Lender, or cause to be executed and
delivered to Lender, as further security for payment and
performance of the Loan Obligations, a collateral assignment
of all rights, title and interest of Borrower under such
lease.
14.19.4. FINANCING STATEMENTS. UCC financing
statements in legally sufficient form for filing in every
office where such filing is necessary to perfect the Security
Interests granted pursuant to the Security Documents."
3.10. CAPITAL EXPENDITURES. Section 16.2 of the Loan Agreement is
hereby amended by adding the following proviso after the first sentence thereof:
"provided, however, that for purposes of the foregoing, Capital
Expenditures shall not be deemed to include any expenditures from
proceeds of the Permitted Indebtedness described in Section 15.2.6."
3.11. MAXIMUM SENIOR DEBT TO EBITDA RATIO. Section 16.6 of the
Loan Agreement is hereby amended to read in its entirety as follows:
"16.6 MAXIMUM SENIOR DEBT TO EBITDA RATIO. The ratio of Borrower's
Senior Debt to Borrower's EBITDA calculated at the end of each fiscal
quarter of Borrower on the basis of the twelve consecutive calendar
months then ended shall not be greater than the ratio specified in the
table below:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
For each fiscal quarter ended: The Senior Debt to EBIDTA ratio
shall not be greater than:
-----------------------------------------------------------------------------------------
<S> <C>
On June 30, 2000 4.00 to 1.00
-----------------------------------------------------------------------------------------
On or after September 30, 2000, and 3.50 to 1.00
before December 31, 2001
-----------------------------------------------------------------------------------------
On or after December 31, 2001 3.00 to 1.00
-----------------------------------------------------------------------------------------
</TABLE>
3.12. MINIMUM FIXED CHARGE COVERAGE. Section 16.3 of the Loan
Agreement is replaced entirely by the following:
"16.3 MINIMUM FIXED CHARGED COVERAGE. The ratio of Borrower's EBITDA
to Fixed Charges, calculated at the end of each fiscal quarter of
Borrower ended on or after September 30, 2000, on the basis of the four
consecutive fiscal quarters then ended, shall not be less than 1.20 to
1.00."
3.13. MINIMUM EBITDA. Section 16.5 of the Loan Agreement regarding
Borrower's minimum current ratio is entirely replaced with the following:
"16.7 MINIMUM EBITDA. Borrower's EBITDA for the period beginning on
July 1, 1999, and ended as of the end of each fiscal quarter of
Borrower ended
5
<PAGE> 6
after June 30, 1999, shall not be less than the amount listed for each
such period in the following table:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
As of the fiscal quarter ended Cumulative EBITDA for the period July 1, 1999,
through such fiscal quarter end shall not be
less than
-----------------------------------------------------------------------------------------
<S> <C>
September 30, 1999 ($750,000)
-----------------------------------------------------------------------------------------
December 31, 1999 $1,200,000
-----------------------------------------------------------------------------------------
March 31, 2000 $4,000,000
-----------------------------------------------------------------------------------------
June 30, 2000 $7,700,000
-----------------------------------------------------------------------------------------
</TABLE>
3.14. RESTORATION OF PREVIOUSLY DELETED PROVISIONS OF LOAN AGREEMENT
Except as expressly provided below, all of the deletions, replacements, and
changes made in the following sections of the Loan Agreement, including deletion
of certain of the following sections, by the amendment thereto dated March 20,
1997, are hereby rescinded as of the effective date of this Amendment, and the
Loan Agreement shall be read from the date of this Amendment to include all of
such sections as they appeared before such amendment dated March 20, 1997,
became effective: (i) Section 9, except that Section 9.1 thereof shall remain
deleted; (ii) Section 10.1.4; (iii) Section 12.27; (iv) Section 12.27.1; (v)
Section 12.27.2; (vi) 12.27.3; (vi) Section 12.27.4; Section 12.27.5; (vii)
Section 12.28.3; (viii) Section 12.29; (ix) Section 12.30, except Section
12.30.2 thereof shall remain deleted; (x) Section 14.3; (xi) Section 14.5; (xii)
Section 14.11; (xiii) Section 17.1.16; (xiv) Section 17.2.4; (xv) Section
17.2.5; (xvi) Section 17.2.6; (xvii) Section 17.2.7; (xviii) Section 18.1;
(xvix) Section 18.4.4; and (xx) Section 18.6.
3.15. DEFINITIONS. All of the deletions, replacements, and changes
made in Exhibit 2.1 to the Loan Agreement (Glossary and Index of Defined Terms)
by the amendment thereto dated March 20, 1997, are hereby rescinded as of the
effective date of this Amendment, and the Loan Agreement shall be read from the
date of this Amendment to include all of such definitions as they appeared
before such amendment dated March 20, 1997, became effective. In addition, the
following definitions are added in appropriate alphabetical order in Exhibit 2.1
to the Loan Agreement (Glossary and Index of Defined Terms):
"`Real Estate Debt' is defined in Section 16.1.
`Senior Debt' is defined in Section 16.1.
`TransMedica Proceeds': proceeds from any judgment in favor of
Borrower against TransMedica International, Inc. or any other party
in cause number 98CC-003559 pending in the Circuit Court of St.
Louis County, Missouri, or from any settlement thereof, or otherwise
arising from a claim by Borrower against TransMedica International,
Inc. or any other party arising from the facts alleged in the petition
or any amendment thereof filed by Borrower against TransMedica
International, Inc. in such legal proceedings."
3.16. OTHER REFERENCES TO COLLATERAL. In all places in the Loan
Agreement where the words "the assets of Borrower" or "the personal property
assets of Borrower" remain, such words shall be deemed to mean "Collateral" and
"Personal Property Collateral", respectively, as of the date of this Amendment
6
<PAGE> 7
4. FIELD AUDIT; ADVANCE RATES AND ELIGIBILITY. Borrower agrees that Lender
may conduct a field audit of Borrower's Inventory and Accounts. Borrower further
agrees that Lender may change the advance rate percentages in Sections 3.1.4.1
and 3.1.4.2 of the Loan Agreement and/or the definitions of Eligible Accounts
and/or Eligible Inventory in Section 3.1.5 and 3.1.6 effective immediately upon
notice to Borrower after the field audit is concluded so that such revised
advance rates and/or definitions accurately reflect the actual quality and value
of Borrower's Inventory and Accounts as collateral for repayment of the
Revolving Loan in light of the risk to Lender that any of the Accounts might not
be paid timely in full and that any Inventory may not be readily saleable, as
determined by Lender based upon its current criteria for determining such
quality, value and risk.
5. REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower hereby represents
and warrants to Bank as of the date hereof that (i) this Amendment has been duly
authorized by Borrower's Board of Directors, (ii) no consents are necessary from
any third parties for Borrower's execution, delivery or performance of this
Amendment, (iii) this Amendment constitutes the legal, valid and binding
obligation of Borrower enforceable against Borrower in accordance with its terms
except as the enforcement thereof may be limited by bankruptcy, insolvency or
other laws related to creditors rights generally or by the application of equity
principles, (iv) the representations and warranties in the Loan Agreement are
true and correct and have been true and correct at all times since the Effective
Date, except as described in Exhibit A hereto, and (v) there exists no Default
or Event of Default under the Loan Agreement, as amended by this Amendment.
6. EFFECT OF AMENDMENT. The execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any right, power or remedy of Bank
under the Loan Agreement or any of the other Loan Documents, nor constitute a
waiver of any provision of the Loan Agreement, any of the other Loan Documents
or any existing Default or Event of Default, nor act as a release or
subordination of the security interests of Bank under the Security Documents.
Each reference in the Loan Agreement to "the Agreement", "hereunder", "hereof",
"herein", or words of like import, shall be read as referring to the Loan
Agreement as amended by this Amendment.
7. REAFFIRMATION. Borrower hereby acknowledges and confirms that (i)
except as expressly amended hereby the Loan Agreement remains in full force and
effect, (ii) the Loan Agreement, as amended hereby, is in full force and effect,
(iii) Borrower has no defenses to its obligations under the Loan Agreement and
the other Loan Documents, and (iv) Borrower has no claim against Bank arising
from or in connection with the Loan Agreement or the other Loan Documents.
8. GOVERNING LAW. This Amendment has been executed and delivered in St.
Louis,Missouri, and shall be governed by and construed under the laws of the
State of Missouri without giving effect to choice or conflicts of law principles
thereunder.
9. SECTION TITLES. The section titles in this Amendment are for
convenience of reference only and shall not be construed so as to modify any
provisions of this Amendment.
10. COUNTERPARTS; FACSIMILE TRANSMISSIONS. This Amendment may be executed
in one or more counterparts and on separate counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument. Signatures to this Amendment may be given by facsimile or other
electronic transmission, and such signatures shall be fully binding on the party
sending the same.
7
<PAGE> 8
11. INCORPORATION BY REFERENCE. Bank and Borrower hereby agree that all of
the terms of the Loan Documents are incorporated in and made a part of this
Amendment by this reference.
12. STATUTORY NOTICE. The following notice is given pursuant to Section
432.045 of the Missouri Revised Statutes; nothing contained in such notice will
be deemed to limit or modify the terms of the Loan Documents or this Amendment:
ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING PROMISES TO EXTEND OR RENEW
SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT YOU (BORROWER) AND US (CREDITOR) FROM
MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS WE REACH COVERING SUCH
MATTERS ARE CONTAINED IN THIS WRITING, WHICH IS THE COMPLETE AND EXCLUSIVE
STATEMENT OF THE AGREEMENT BETWEEN US, EXCEPT AS WE MAY LATER AGREE IN WRITING
TO MODIFY IT.
BORROWER AND BANK HEREBY AFFIRM THAT THERE IS NO UNWRITTEN ORAL CREDIT AGREEMENT
BETWEEN BORROWER AND BANK WITH RESPECT TO THE SUBJECT MATTER OF THIS AMENDMENT.
[SIGNATURE PAGE FOLLOWS]
8
<PAGE> 9
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by appropriate duly authorized officers as of the date first above
written.
LABARGE/STC, INC. LABARGE WIRELESS, INC.
by its President By its President
- ------------------------------ ------------------------------
Craig E. LaBarge Craig E. LaBarge
Notice Address: Notice Address:
C/O LaBarge, Inc. C/O LaBarge, Inc.
9900A Clayton Road 9900A Clayton Road
St. Louis, MO 63124 St. Louis, MO 63124
Attn: William J. Maender Attn: William J. Maender
FAX # 812-9438 FAX # 812-9438
TEL # 997-0800 TEL # 997-0800
LABARGE, INC. LABARGE OCS, INC.
by its President by its President
- ------------------------------ ------------------------------
Craig E. LaBarge Craig E. LaBarge
Notice Address: Notice Address:
LaBarge, Inc. C/O LaBarge, Inc.
9900A Clayton Road 9900A Clayton Road
St. Louis, MO 63124 St. Louis, MO 63124
Attn: William J. Maender Attn: William J. Maender
FAX # 812-9438 FAX # 812-9438
TEL # 997-0800 TEL # 997-0800
BANK OF AMERICA, N.A.
By its Assistant Vice President
- ------------------------------
Peter J. Adams II
Notice Address:
800 Market Street, LBP 3501
St. Louis, MO 63101
Attn: Peter J. Adams II
FAX # 466-7783
TEL # 466-6061
9
<PAGE> 10
EXHIBIT A
Additions to the Disclosure Schedule in the Loan Agreement
None if nothing listed.
<PAGE> 1
EXHIBIT 10.11
SETTLEMENT AGREEMENT
AGREEMENT entered into this 2nd day of June, 1998, by and between
LaBarge, Inc., a Delaware corporation ("LaBarge"), and Transmedica
International, Inc. (formerly Venisect, Inc.), a Delaware corporation
("Transmedica").
WITNESSETH:
WHEREAS, the parties have entered into an Agreement dated August 1,
1993, relating to certain technology of Transmedica (the "Original Agreement");
WHEREAS, certain disputes and differences have arisen between the
parties; and
WHEREAS, the parties have settled their differences and desire to set
forth their agreements and understandings;
NOW, THEREFORE, in consideration of the premises, the parties agree as
follows:
1. The Original Agreement is superseded and replaced by the Amended
and Restated Agreement dated June 2, 1998 herewith in the form attached hereto
as Exhibit A (the "New Agreement").
2. The parties acknowledge that Transmedica is currently indebted to
LaBarge in the amount of $900,000 as a result of transactions under the Original
Agreement.
3. LaBarge will extend credit to Transmedica for services performed
and charges incurred under the New Agreement for the account of Transmedica up
to a maximum of $1,100,000. LaBarge's obligation to extend such credit will
terminate one year after the date of this agreement or at such earlier time as
total credits reach $1,100,000.
4. The $900,000 currently owed by Transmedica to LaBarge and
additional extensions of credit up to $1,100,000 extended by LaBarge to
Transmedica shall be evidenced
<PAGE> 2
by the Secured Promissory Note executed by Transmedica in the form attached
hereto as Exhibit B and shall be secured by the Security Agreement and Patent
Security Agreement of even date herewith executed by Transmedica in the form of
Exhibits C and D, respectively. Such Security Agreement and Patent Security
Agreement grant LaBarge a first lien position provided, however, that such lien
on accounts and inventory may be subject only to a prior lien in favor of Bank
of Little Rock securing indebtedness not exceeding $300,000 in principal amount
plus interest, costs and expenses relating to such principal amount.
5. In order to induce LaBarge to enter into this Agreement, without
which LaBarge would not enter into this Agreement, Transmedica is
contemporaneously delivering to LaBarge a warrant to purchase four percent of
Transmedica's outstanding common stock on a fully diluted basis at a price of
$25.00 per share, which warrant is in the form attached hereto as Exhibit E.
6. In the event Transmedica is in need of services under the New
Agreement which would require an extension of credit above the $1,100,000, the
parties will use reasonable efforts to agree on an amount of additional credit
which LaBarge may extend and the terms under which such additional credit would
be extended; provided, however, that the inability of the parties to so agree
shall not invalidate or effect any of their other obligations or rights under
this Settlement Agreement, the New Agreement or any of the other agreements
provided for herein or entered into in connection therewith.
7. LaBarge and Transmedica each hereby represent and warrant to the
other as follows:
(a) Each has full power and authority to enter into and carry out the
terms of this agreement and the transactions contemplated hereby.
-2-
<PAGE> 3
(b) The execution, delivery and performance of this agreement and the
documents to be executed and delivered pursuant hereto do not
contravene such party's certificate of incorporation, by-laws, or
any agreement, instrument, decree or judgment by which such party
is bound or to which it is subject.
8. In consideration for entering into this agreement and the
agreements and instruments specifically contemplated hereby, LaBarge and
Transmedica do each hereby forever remise, release and forever discharge the
other and their respective officers, directors, agents and employees from any
and all claims, suits and proceedings the other has or may have against the
other except as provided in this agreement or in the agreements and instruments
specifically contemplated hereby. Nothing herein shall affect: (i) the
confidentiality provisions of the Original Agreement with respect to any
information exchanged between the parties prior to the date hereof; (ii) the
quality provisions of the Original Agreement with respect to all devices
produced prior to the date hereof; or (iii) the warranty and indemnity
provisions of the Original Agreement to the extent of any unknown or unasserted
claims or potential claims under those provisions, it being specifically
represented by Transmedica as an inducement to LaBarge to enter into this
Agreement that Transmedica has no information or knowledge of any such claims.
9. This agreement shall be governed by and interpreted in accordance
with the laws of the State of Arkansas. Any suit or proceeding to enforce this
agreement or the agreements and instruments contemplated hereby may be brought
and maintained only in state court in St. Louis County, Missouri or Little Rock,
Arkansas, or the United States District Court in St. Louis, Missouri or Little
Rock, Arkansas.
10. This agreement and the agreements and instruments specifically
contemplated hereby constitute the entire agreement and understanding of the
parties with respect to the subject matter hereof and may not be amended without
a subsequent written agreement signed by the parties.
-3-
<PAGE> 4
IN WITNESS WHEREOF, the undersigned caused this agreement to be
executed by their respective officers, thereunto duly authorized, on the date
first above written.
LaBARGE, INC.
By: /s/ Craig E. LaBarge
-----------------------------------
Name: Craig E. LaBarge
---------------------------------
Title: CEO and President
--------------------------------
TRANSMEDICA INTERNATIONAL, INC.
By: /s/ Charles H. Vestal
-----------------------------------
Name: Charles H. Vestal
---------------------------------
Title: President
--------------------------------
-4-
<PAGE> 5
EXHIBITS
A - Amended and Restated Agreement
B - Promissory Note
C - Security Agreement
D - Patent Security Agreement
E - Warrant
-5-
<PAGE> 6
PROMISSORY NOTE
$2,000,000 June 2, 1998
FOR VALUE RECEIVED, the undersigned TRANSMEDICA INTERNATIONAL, INC., a
Delaware corporation (the "Maker"), promises to pay to the order of LaBARGE,
INC., a Delaware corporation (the "Holder"), the principal sum of Two Million
Dollars ($2,000,000) with interest thereon as provided herein. The principal
amount of this Note consists of $900,000.00 for which Debtor is currently
indebted to Maker and such additional amounts up to a maximum of $1,100,000.00
as Holder may advance by extending credits to Maker under the Amended and
Restated Agreement between Maker and Holder dated June 2, 1998 (the "New
Agreement"). Each advance by Holder to Maker shall be noted at the end of this
Note. All amounts payable hereunder shall be payable at 9900 A Clayton Road, St.
Louis, Missouri 63178-4499, or to such other payee or at such other place as the
Holder hereof shall designate in writing.
Interest on the unpaid principal balance due hereunder shall accrue,
commencing on the date hereof, at the rate of Seven and One-Half Percent (7.5%)
per annum based on a year consisting of 360 days. After maturity, whether by
acceleration or otherwise, this Note shall bear interest at the rate of Nine and
One-Half Percent (9.5%) per annum.
The principal amount due hereunder and the interest due thereon shall
be payable on June 2, 1999.
Any amounts paid by the Maker of this Note shall be applied first to
any fees and expenses due hereunder, second, in payment of interest then due,
and the remainder to the reduction of the principal balance hereof.
This Note may be prepaid without penalty by the Maker, or any of their
successors and assigns, at any time in whole or part.
This Note is secured by a Security Agreement and a Patent Security
Agreement of even date herewith executed by the undersigned in favor of the
Holder.
In the event of any breach under any of the agreements securing this
Note, the Holder may, at its option, accelerate the scheduled payment of the
Note, all outstanding principal and/or interest shall become immediately due and
payable and Holder shall be under no further obligation to extend credit to
Maker under the New Agreement. Failure at any time or from time to time to
exercise such option shall not constitute a waiver of the right to exercise it
at any later time.
In the event of a default hereunder, the Maker hereof shall pay all
costs and expenses, including reasonable attorneys' fees, incurred in the
collection or enforcement of this Note.
<PAGE> 7
This Note is hereby deemed made in the State of Arkansas and delivered
in the State of Missouri. It shall be governed by and construed in accordance
with the laws of the State of Arkansas without regard to conflict of laws.
TRANSMEDICA INTERNATIONAL, INC.
By: /s/ Charles H. Vestal
----------------------------------------
Name: Charles H. Vestal
--------------------------------------
Title: President
-------------------------------------
SUBSEQUENT ADVANCES
Date Amount
-2-
<PAGE> 8
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement") is made and entered into as
of the 2nd day of June, 1998, by and between TRANSMEDICA INTERNATIONAL, INC.
(formerly Venisect, Inc.), a Delaware corporation with its principal place of
business located at 323 Center Street, Suite 1100, Little Rock, Arkansas 72201
("Debtor"), and LaBARGE, INC., a Delaware corporation, with is principal place
of business located at 9900A Clayton Road, St. Louis, Missouri 63178-4499
("Secured Party").
WHEREAS, Secured Party has made certain financial accommodations and
has advanced funds to Debtor (collectively, the "Loan"), as evidenced by and
repayable pursuant to the terms of that certain Promissory Note of even date
herewith (as may be amended, modified or renewed, the "Note") and may make
further advances to Debtor; and
WHEREAS, in order to induce Secured Party to extend the Loan and make
further advances under the Note and in order to further secure the repayment of
all sums due pursuant to the Note and this Agreement, Debtor has agreed to
execute this Agreement granting Secured Party a security interest in the
Collateral hereinafter defined;
NOW, THEREFORE, the parties hereby agree as follows:
1. Grant of Security Interest in Collateral. In consideration of the
premises and other valuable consideration, the receipt and sufficiency whereof
is hereby acknowledged, and in order to secure the repayment to Secured Party of
all sums due pursuant to the Note and this Agreement, Debtor hereby grants to
Secured Party a security interest in all of Debtor's right, title and interest
in and to each of the following, wherever located and whether now owned or
hereafter existing or now owned or hereafter acquired or arising (hereinafter
described as the "Collateral"):
(a) All equipment, furniture, fixtures and machinery, accessions,
furnishings, motor vehicles, tools, tooling, spare parts, manufacturing
implements, trailers, other tangible personal property, leasehold
improvements and other improvements to real property;
(b) All inventory, including raw materials, parts and supplies, goods
and merchandise, work in process and finished products;
(c) All accounts, including accounts receivable, contract rights,
notes, drafts, cash, acceptances, instruments, chattel paper, warehouse
receipts, letters of credit and repurchase agreements, and any and all
other rights to the payment of money or other forms of consideration of
any kind; all guaranties, security and liens (including mechanics and
materialmen's liens); goods, merchandise or other personal property,
whether sold, delivered, undelivered, in transit, returned or
repossessed, which may be represented by, or the sale or lease of which
may have given rise to, any such right to payment or other debt,
obligation or liability;
<PAGE> 9
(d) All general intangibles, including good will, patent
rights, patents, intellectual property, licenses, trademarks, service
marks, trade names and copyrights, and all income including
infringement damages with respect thereto; all Federal, state and local
tax refunds; all customer lists and files, drawings, blueprints,
promotional brochures and mailing lists; all insurance policies
covering any Collateral; all franchises, licenses, leases, life
insurance policies, documents, books and records relating to the
Collateral; and
(e) All cash and non-cash proceeds (including insurance
proceeds), substitutes, replacements, accretions, accessions and
products of any of the Collateral.
2. Debtor's Warranties, Representations and Covenants. Until the
Note and all other obligations of Debtor under this Agreement have been fully
satisfied and discharged, and except as hereinafter expressly set forth, Debtor
warrants, represents and agrees as follows:
(a) Debtor is the sole owner of the Collateral free from any
liens, security interests or encumbrances, other than the security
interest granted in Debtor's accounts and inventory in favor of Bank of
Little Rock ("Bank"), not exceeding $300,000 in principal amount
(exclusive of interest, costs and expenses relating to such principal
amount), has the right to grant Secured Party a security interest
therein, and will defend and keep the Collateral free from all claims
and demands other than those of Bank and Secured Party;
(b) Debtor will not sell or lease the Collateral, part with
possession of the Collateral, permit the Collateral to be used for
hire, or grant any other liens or security interests in the Collateral,
except in the ordinary course of Debtor's business, without the prior
written consent of Secured Party;
(c) Debtor will not use or permit the Collateral to be used in
violation of any law or ordinance, and will comply with the
requirements of all state, local and Federal laws;
(d) Debtor will maintain the Collateral in good condition and
repair at Debtor's sole expense and will pay all taxes levied on the
Collateral;
(e) Debtor will do all acts and things, and will execute and
file all instruments requested by Secured Party to establish, maintain
and continue perfected the security interests of Secured Party in the
Collateral, and will pay all costs and expenses of filing and
recording, including the costs of any searches deemed necessary by
Secured Party to establish and determine the validity and priority of
the security interest of Secured Party, and also to pay all other
claims and charges which in the opinion of Secured Party might
prejudice, imperil or other affect the Collateral or Secured Party's
security interest;
(f) Debtor will keep and maintain in force insurance covering
loss or damage to the Collateral, with (if requested by Secured Party)
a lender's loss payable clause in
-2-
<PAGE> 10
favor of Secured Party, as is required and acceptable to Secured Party
as to form of policy, amount and insurer;
(g) The Collateral as well as all books and records concerning
same shall at all times be located at the address set forth above and
this is Debtor's only place of business; and
(h) Debtor's name is as provided in the first paragraph hereof
and it has no other names or trade names nor has it used any other
names or trade names in the past five years.
3. Default. Debtor shall be in default under this Agreement upon:
(a) Default in the payments of any sums due pursuant to the
Note or this Agreement or failure to perform or discharge any other
covenant or liability contained in this Agreement;
(b) Reasonable determination by Secured Party that any
material warranty or material representation herein made was false when
made;
(c) Sale or encumbrance of any of the Collateral other than in
the ordinary course of business or as permitted by this Agreement, or
the making of any levy, seizure or attachment thereof, except as herein
expressly permitted;
(d) Any event of default under any loan agreement, guaranty or
secured agreement between Debtor and any other lender, including Bank,
to which Debtor is now or may hereafter become obligated, whether now
existing or hereafter incurred; or
(e) Dissolution, termination of existence, insolvency or
business failure of Debtor, or appointment of a receiver for any part
of the Collateral, or any assignment for the benefit of creditors of
Debtor or the commencement of any proceeding under any bankruptcy or
insolvency law by or against Debtor.
Upon any and each and every such event of default and at any time thereafter,
Secured Party may declare all obligations secured hereby immediately due and
payable and may proceed to enforce payment of the same and exercise any and all
rights and remedies provided by the Uniform Commercial Code as enacted in
Arkansas, as well as other rights and remedies possessed by Secured Party.
Expense for preparing for sale or selling or exercising any other remedies as
provided herein with respect to the Collateral shall include Secured Party's
reasonable attorneys fees and legal expenses. Any notification of sale or other
disposition of the Collateral required to be given by Secured Party will be
sufficient if given personally, or mailed by certified mail, not less than five
days prior to the date on which such sale or other disposition will be made, to
the address of Debtor stated above, and such notification shall be deemed
reasonable notice. In the event the proceeds from the sale of the Collateral
shall be insufficient to satisfy Debtor's obligations pursuant to the Note or
this Agreement in full, Debtor shall remain fully liable for the deficiency.
-3-
<PAGE> 11
4. Term of Agreement. This Agreement shall commence as of the day
and year first above written and shall continue in full force and effect until
all sums of principal and interest outstanding under the Note and all sums due
under this Agreement have been paid in full.
5. Assignment of Security Interest. Secured Party shall have the
right to negotiate or assign the security interest evidenced by this Agreement,
and Debtor understands and agrees that Secured Party may do so without any
notice to or approval of Debtor. Debtor specifically agrees that if there is any
such assignment, the assignee or transferee shall have all of Secured Party's
rights and remedies under this Agreement.
6. Miscellaneous. No amendment, modification, termination or
waiver of any provision of this Agreement shall be effective unless the same
shall be in writing and signed by each of the parties, and any such amendment,
modification, termination or waiver shall be effective only in the specific
instance and for the specific purpose for which given. This Agreement shall be
binding upon and inure to the benefit of each of the parties hereto and their
respective successors and assigns.
IN WITNESS WHEREOF, the parties have caused this Security Agreement to
be executed as of the day and year first above written.
TRANSMEDICA INTERNATIONAL, INC.
By: /s/ Charles H. Vestal
----------------------------
Name: Charles H. Vestal
--------------------------
Title: President
-------------------------
LABARGE, INC.
By: /s/ Craig E. LaBarge
----------------------------
Name: Craig E. LaBarge
--------------------------
Title: CEO and President
-------------------------
-4-
<PAGE> 12
EXHIBIT INDEX
Settlement Agreement dated June 2, 1998, between
TransMedica International, Inc. and LaBarge, Inc.
Exhibit Number
- --------------
A Amended and Restated Agreement - Omitted
B Promissory Note
C Security Agreement
D Patent Security Agreement - Omitted
E Warrant - Omitted
** LABARGE AGREES TO FURNISH, SUPPLEMENTALLY, A COPY OF ANY OMITTED SCHEDULE
OR EXHIBIT TO THE SECURITIES AND EXCHANGE COMMISSION UPON REQUEST.
59
<PAGE> 1
EXHIBIT 10.12
PURCHASE AGREEMENT
BETWEEN GLOBAL AND LABARGE
This Purchase Agreement dated July 22, 1998, is entered into by and
between GLOBAL RESEARCH SYSTEMS, INC., a Georgia corporation, 886 Horseleg Creek
Road, SW, Rome, Georgia 30165 (hereinafter "GLOBAL") and LABARGE, INC., a
Delaware corporation, 9900A Clayton Road, St. Louis, Missouri 63124 (hereinafter
"LABARGE").
WHEREAS, GLOBAL desires to sell to LABARGE and LABARGE desires to
purchase from GLOBAL certain capital assets, properties, and rights related to
an advance notification system for notifying users in advance of the impending
arrival of a transportation vehicle at a particular location subject to the
terms and conditions hereinafter set forth.
NOW, THEREFORE in consideration of the mutual promises and covenants
herein contained, the parties agree as follows:
1. DEFINITIONS: The following terms, whether in all caps or not,
shall have the following meanings as used herein:
a. ADVANCE NOTIFICATION SYSTEM: System having both vehicle tracking and
messaging in the form of notifying users in advance of the impending arrival of
vehicles being tracked at particular locations but shall exclude any system
involving only one of the subsystems of vehicle tracking or messaging used other
than in conjunction with one another.
b. AFFILIATE: With respect to any party, any company, persons or
entities who control, directly or indirectly, more than fifty percent (50%) of
the voting capital or share participation of such party (a party's "parent
company") and any company, firm or other entity more than fifty percent (50%) of
whose issued and voting capital or share participation is owned or controlled,
directly or indirectly, by said party or its parent company, but only for so
long as said ownership or control shall continue.
c. AFTER ACQUIRED INTELLECTUAL PROPERTY: All Patents, Trademark and
Copyrights limited to the Field and the Territory relating to After Acquired
Technology.
d. AFTER ACQUIRED TECHNOLOGY: All improvements, enhancements,
modifications, extensions and other developments to the Technology limited to
the Field and the Territory hereafter owned, licensed, developed, or acquired
during the term of the Technology Agreement.
e. ASSIGNMENT AGREEMENTS: Those certain Assignments of even date
herewith (as same may be amended or supplemented from time to time) made by
LABARGE and by GLOBAL as assignors and transferors to the HOLDING VENTURE as
assignee and transferee.
f. COPYRIGHTS: All registered and unregistered copyrights, including
but not limited to all copyrights in and to computer software source code and
object code, relating to the ADVANCE NOTIFICATION SYSTEM limited to the Field
and the Territory now or hereafter owned, licensed, developed or acquired during
the term of the Technology Agreement.
g. DEFERRAL PERCENTAGE: That percentage determined as one (1) minus the
then current highest combined marginal federal and State of Georgia income tax
rate imposed upon a taxpayer (whether corporate or an individual).
<PAGE> 2
h. FIELD: The tracking through the use of an Advance Notification
System of the transportation of humans via motor vehicle roadways, including,
for example but not limited to, transportation of humans via bus, automobile,
van, taxi, etc., and excluding, for example but not limited to, transportation
of humans via train, plane, boat, etc. Furthermore, FIELD shall not include the
tracking of the transportation of goods, products, freight, objects, or other
nonhuman things by any vehicle or transportation means whatsoever.
i. FORCE MAJEURE: The inability to accomplish an action when
attributable to fires, strikes, riots, explosions, power blackouts, wars, labor
disputes, government requirements, civil or military authorities, acts of God or
the public enemy, outside vendors or transportation facilities, acts or
omissions of carriers or other causes beyond the control of the parties, whether
or not similar to the foregoing conditions. Upon the occurrence of a FORCE
MAJEURE circumstance, the party to the occurrence will immediately notify and
advise the other party in writing.
j. HIGHWAYMASTER PATENTS: U.S. Patent Nos. 5771455, 5539810, 5544225,
5519621, 5579376, 5652707, 5694322, and 5699275.
k. HOLDING VENTURE: Buscall Properties, LLC, a Georgia limited
liability company, the operations of which are governed by the HOLDING VENTURE
OPERATING AGREEMENT.
l. HOLDING VENTURE OPERATING AGREEMENT: That certain Operating
Agreement of even date herewith as may be amended from time to time between
GLOBAL and LABARGE, governing HOLDING VENTURE.
m. INTELLECTUAL PROPERTY: All rights and interests in the PATENTS,
COPYRIGHTS and TRADEMARKS, limited to the FIELD and the TERRITORY, including
AFTER ACQUIRED INTELLECTUAL PROPERTY.
n. LICENSE OR LICENSE AGREEMENT: That certain Exclusive License
agreement of even date herewith between HOLDING VENTURE and OPERATING VENTURE as
may be amended from time to time granting OPERATING VENTURE a license in the
INTELLECTUAL PROPERTY and other TECHNOLOGY pursuant to the terms and conditions
set forth therein. Such license is limited to the FIELD and to the TERRITORY.
o. MANUFACTURING AGREEMENT: That certain Manufacturing Agreement of
even date herewith between LABARGE and the OPERATING VENTURE (as the same may be
amended from time to time).
p. MIDWEST WIRELESS AGREEMENT: That certain Midwest Wireless Agreement
of even date herewith between GLOBAL and Midwest Wireless Communications, LLC,
dated April 6, 1998.
q. OPERATING VENTURE: NotiCom International, LLC, a Georgia limited
liability company.
r. OPERATING VENTURE OPERATING AGREEMENT: That certain Operating
Agreement of even date herewith between GLOBAL and LABARGE governing the
OPERATING VENTURE, as the same may be amended from time to time.
-2-
<PAGE> 3
s. PATENTS: All rights and interests in patents and patent applications
relating to the ADVANCE NOTIFICATION SYSTEM limited to the Field and the
Territory now or hereafter owned, licensed, developed or acquired during the
term of the TECHNOLOGY AGREEMENT. "Patents" shall include all issued patents and
applications, including but not limited to, provisionals, divisions,
continuations, and continuations-in-part, in any country of the world or filed
with a multi-country regional patent office, for example but not limited to, the
European Patent Office (EPO) or a designated office of the Patent Cooperation
Treaty (PCT). "Patents" shall specifically include the patents and patent
applications set forth as follows:
<TABLE>
<CAPTION>
Title of Invention Patent Number/Serial Number and Filing Date
<S> <C> <C>
A. Advance Notification System And Method Utilizing A U.S. Serial No. 08/852,119
Distinctive Telephone Ring Filed: May 9, 1995 (Abandoned)
B. Advance Notification System And Method Utilizing a U.S. Serial No. 08/762,052
Distinctive Telephone Ring Filed: December 9, 1996
C. Advance Notification Systems and Methods Utilizing A U.S. Serial No. 08/852,119
Computer Network Filed: May 6, 1997
D. System and Method For Enciphering And Communicating To Be Finalized and Filed In U.S. Patent and
Vehicle Tracking Information Trademark Office
E. System and Method For Activation Of An Advance To Be Finalized and Filed In U.S. Patent and
Notification System For Monitoring And Reporting Trademark Office
Status Of Vehicle Travel
F. System And Method For An Advance Notification System To Be Finalized and Filed In U.S. Patent and
For Monitoring And Reporting Status Of Vehicle Travel Trademark Office
G. Advance Notification System And Method Patent No. 5,400,020
Issued: March 21, 1995
H. Advance Notification System And Method Utilizing Patent No. 5,657,010
Vehicle Progress Report Generator Issued: August 12, 1997
I. Advance Notification System And Method Utilizing Patent No. 5,668,543
Passenger Calling Report Generator Issued: September 15, 1997
J. Advance Notification System And Method Utilizing Patent No. 5,623,543
Passenger-Definable Notification Time Period Issued: April 22, 1997
K. Advance Notification System For Use With Vehicular PCT Application No.: PCT/US96/15983
Transportation Filed: October 3, 1996
L. Advance Notification Systems And Methods Utilizing A PCT Application No.: PCT/US98/04540
Computer Network Filed: March 9, 1998
</TABLE>
-3-
<PAGE> 4
t. PRODUCTS: Those devices, systems, or apparatus to implement or
practice the TECHNOLOGY in the FIELD in the TERRITORY, for example but not
limited to, a vehicle control unit as defined in any of said issued patents.
u. PURCHASE AGREEMENT: This Agreement as the same may be amended from
time to time.
v. SUCCESSOR IN INTEREST: Any other person or entity succeeding to the
possession or ownership of any material portion of the HOLDING VENTURE'S assets
or business operations.
w. TECHNICAL INFORMATION: All know-how, trade secrets, data,
manufacturing techniques, proprietary information, business data and plans
relating to the ADVANCE NOTIFICATION SYSTEM limited to the Field and the
Territory now or hereafter owned, licensed, developed or acquired during the
term of the TECHNOLOGY AGREEMENT.
x. TECHNOLOGY: Collectively, the COPYRIGHTS, PATENTS, TECHNICAL
INFORMATION, TRADEMARKS and all other tangible and intangible rights and
property relating to the ADVANCE NOTIFICATION SYSTEM limited to the Field and
the Territory now or hereafter owned, licensed, developed or acquired during the
term of the TECHNOLOGY AGREEMENT, including AFTER ACQUIRED TECHNOLOGY.
y. TECHNOLOGY AGREEMENT: That certain Technology Agreement of even date
herewith as the same may be amended from time to time between LABARGE, GLOBAL,
the OPERATING VENTURE and the HOLDING VENTURE.
z. TERRITORY: United States and Canada.
aa.TRADEMARKS: (i) The trademark BUS-CALL, which trademark has been
registered in the United States Patent and Trademark Office as registration
number 1,870,806; (ii) the trademark BUSCALL for which an application has been
filed February 24, 1998, having serial number 75\442993; (iii) all variations
and designs encompassing such trademarks limited to the Field and the Territory;
(iv) all related trade names limited to the Field and the Territory; and (v) all
other trademarks and trade names relating to the ADVANCE NOTIFICATION SYSTEM
limited to the Field and the Territory now or hereafter owned, licensed,
developed or acquired during the term of the TECHNOLOGY AGREEMENT.
2. SALE OF ASSETS: Subject to the terms and conditions hereunder
and the TECHNOLOGY AGREEMENT, GLOBAL does hereby assign, sell, transfer, grant
and convey unto LABARGE, and LABARGE's successors and assigns, a fifty percent
(50 %) undivided interest in and to all rights, title and interest owned and
held by GLOBAL in and to the INTELLECTUAL PROPERTY, existing at present and
agrees to assign unto LABARGE and LABARGE's successors and assigns, a fifty
percent (50%) undivided interest in and to all rights, title and interest owned
and held by Global in the AFTER ACQUIRED INTELLECTUAL PROPERTY. Subject to the
terms and conditions hereunder and the TECHNOLOGY AGREEMENT, for and in
consideration of GLOBAL'S transfer and conveyance of such rights to LABARGE
hereunder, LABARGE hereby agrees, subject to the terms and conditions contained
herein, to assign, sell, transfer, grant and convey unto GLOBAL and GLOBAL's
successors and assigns, a fifty percent (50 %) undivided interest in and to all
rights, title and interest owned and held by LABARGE in the AFTER ACQUIRED
INTELLECTUAL PROPERTY of LABARGE. Each party agrees to execute all such
instruments, agreements, conveyance documents or other items as the any other
party hereto
-4-
<PAGE> 5
reasonably requests in order to fulfill the purposes hereof including the
transfer and conveyance of any future rights acquired, obtained or developed in
the INTELLECTUAL PROPERTY, including AFTER ACQUIRED INTELLECTUAL PROPERTY. All
parties acknowledge and agree that the provisions of this Section 2 shall not
apply to any party's receipt of any INTELLECTUAL PROPERTY or AFTER ACQUIRED
INTELLECTUAL PROPERTY by reason of the dissolution of or the distribution
thereof by the HOLDING VENTURE or the OPERATING VENTURE.
3. CONSIDERATION FOR ACQUIRED ASSETS: As consideration for GLOBAL'S
transfer and assignment to LABARGE of those rights in and to the INTELLECTUAL
PROPERTY of GLOBAL as specified hereunder, LABARGE shall pay to GLOBAL the
following amounts upon the following terms and conditions:
a. Simultaneously with the execution of this Agreement by LABARGE,
LABARGE shall pay to GLOBAL cash in the amount of One Million Six Hundred
Eighty-Six Thousand Dollars ($1,686,000) in immediately available funds by wire
transfer to such account as GLOBAL shall designate.
b. In addition to that payment required under Section 3.a. above and as
additional consideration and purchase price paid by LABARGE for GLOBAL'S
transfer and conveyance of the aforesaid interest in and to the INTELLECTUAL
PROPERTY of GLOBAL to the extent specified herein, LABARGE shall pay the
following amounts to GLOBAL upon the following terms and conditions:
(i) Attached hereto as Exhibit "A" and made a part hereof are
GLOBAL'S projections relating to the combined results of operations of the
HOLDING VENTURE and the OPERATING VENTURE.
(ii) For purposes of the following calculations, the following
terms shall have the following meanings:
A. "EBT" means the combined earnings before taxes of both the
HOLDING VENTURE and the OPERATING VENTURE calculated in accordance with U.S.
generally acceptable accounting principles using normal industry practices by
the independent accountants then performing services for the HOLDING VENTURE and
the OPERATING VENTURE; provided that in the event of the dissolution of either
the HOLDING VENTURE or the OPERATING VENTURE or the distribution by either the
HOLDING VENTURE or the OPERATING VENTURE of any of its respective assets
consisting of or relating to the INTELLECTUAL PROPERTY or the AFTER ACQUIRED
INTELLECTUAL PROPERTY, EBT shall mean all such earnings before taxes of the
recipient of such assets (as well as such recipient's SUCCESSOR IN INTEREST) as
derived from or attributable to such assets.
B. "Cumulative EBT" means the aggregate EBT from July 1, 1998
through the date as of which such calculation is being made.
C. "Projected EBT" means GLOBAL'S projected EBT as set forth
on Exhibit "A".
(iii) If the Cumulative EBT as of any Payment Calculation Date
(the middle column below) is 75% or greater of Projected EBT as of such Payment
Calculation Date, LABARGE will pay GLOBAL as additional purchase price hereunder
cash in the amount set forth in the corresponding "Amount" column below on the
corresponding "Due Date" set forth below:
-5-
<PAGE> 6
<TABLE>
<CAPTION>
Amount Payment Calculation Date Due Date
<S> <C> <C>
$2,790,000 12/31/99 03/30/00
2,790,000 06/30/00 08/14/00
2,790,000 12/31/00 03/31/01
2,790,000 06/30/01 08/14/01
2,790,000 12/31/01 03/31/02
1,395,000 06/30/02 08/14/02
1,395,000 12/31/02 03/31/03
</TABLE>
(iv) If the Cumulative EBT through a Payment Calculation Date
set forth below is 50% or greater but less than 75% of the Projected EBT for
such period, LABARGE will pay GLOBAL cash in the amount set forth in the
corresponding "Amount" column below on the corresponding "Due Date" set forth
below:
<TABLE>
<CAPTION>
Amount Payment Calculation Date Due Date
<S> <C> <C>
$1,395,000 12/31/99 03/30/00
1,395,000 06/30/00 08/14/00
1,395,000 12/31/00 03/31/01
1,395,000 06/30/01 08/14/01
1,395,000 12/31/01 03/31/02
697,500 06/30/02 08/14/02
697,500 12/31/02 03/31/03
</TABLE>
(v) If the Cumulative EBT through a Payment Calculation Date
(middle column below) exceeds the Projected EBT through such Payment Calculation
Date by 25% or more, LABARGE shall pay to GLOBAL, as additional purchase price
and in addition to amounts payable by LABARGE pursuant to Sections 3.b.(iii) or
3.b.(iv) above, cash in the amount set forth in the corresponding "Amount"
column below on the corresponding "Due Date" set forth below:
<TABLE>
<CAPTION>
Amount Payment Calculation Date Due Date
<S> <C> <C>
$ 930,000 12/31/99 03/30/00
1,860,000 12/31/00 03/31/01
1,860,000 12/31/01 03/31/02
1,860,000 12/31/02 03/31/03
</TABLE>
(vi) If on any Payment Calculation Date, Cumulative EBT is
less than the required percentage of Projected EBT, the Amount with respect to
such Payment Calculation Date shall not be paid, even if in subsequent periods
the deficit is made up.
(vii) The parties agree that in the event LABARGE takes any
income tax reporting position (whether with any federal, state, local or any
other taxing authority) that any payments made by LABARGE to GLOBAL hereunder
are other than capital expenditures being required to be capitalized and
depreciated over the useful life of the INTELLECTUAL PROPERTY conveyed
-6-
<PAGE> 7
hereunder, then all payments set forth in any of the foregoing Amount columns
shall be increased by 7.527% of the amount otherwise set forth in such column.
(viii) All parties hereto agree that the Projected EBT is not a
guarantee or warranty of GLOBAL of actual EBT or profitability and GLOBAL shall
have no liability to LABARGE, the HOLDING VENTURE, the OPERATING VENTURE, or any
other person or entity if Projected EBT is not achieved.
(ix) In the event Projected EBT is not achieved on account or as
a result of either (a) LABARGE's default under the terms of the MANUFACTURING
AGREEMENT, as determined thereunder, or (b) the delay of LABARGE'S performance
of its obligations under the MANUFACTURING AGREEMENT by reason of the occurrence
of any event constituting "Force Majeure" (as defined and determined under the
MANUFACTURING AGREEMENT), then, in such event, the periods or dates provided for
any calculations and payments required pursuant to this Section 3.b. shall be
tolled until either such default is cured by LABARGE or the expiration of any
tolling period provided under the MANUFACTURING AGREEMENT with respect to any
Force Majeure, whichever is applicable.
(x) In the event any Projected EBT as of any date or for any
period not be achieved by reason of the occurrence of any event of FORCE MAJEURE
(as defined under this Agreement) affecting any one or more of the HOLDING
VENTURE, the OPERATING VENTURE, then, in such event, the periods or dates
provided for any calculations and payments pursuant to this paragraph 3.b shall
be tolled until such event of FORCE MAJEURE no longer exists; provided (i) any
tolling shall only apply if the HOLDING VENTURE or the OPERATING VENTURE
reasonably substantiates that the FORCE MAJEURE was the substantiating cause of
nonachievement of any Projected EBT; (ii) no single tolling shall exist for more
than three months; (iii) the HOLDING VENTURE or the OPERATING VENTURE must
notify LABARGE of any claim of tolling within thirty (30) days of the beginning
occurrence claimed to be a FORCE MAJEURE; (iv) no tolling shall occur on a claim
of FORCE MAJEURE relating to a potential or prospective customer but shall only
apply (if to a customer) in relation to actual purchase orders; and (v) all
tolling shall not exceed in the aggregate more than six (6) months.
(xi) Any dispute between GLOBAL and LABARGE with respect to the
determination of EBT which cannot be resolved by them within thirty (30) days
after the receipt by them of EBT from the independent accountants (the "Venture
Accountants") performing services for the HOLDING VENTURE and the OPERATING
VENTURE, such dispute will be submitted by the Venture Accountants to a
nationally recognized independent accounting firm for determination which
determination shall be final, binding and conclusive upon all parties.
(xii) As of any Due Date set forth above, in the event LABARGE does
not received cumulative cash distributions (determined on a combined basis) from
the OPERATING VENTURE and the HOLDING VENTURE equal or greater than the
cumulative payments due from LABARGE to GLOBAL under Section 3.b. as of such Due
Date, then LABARGE may, at its option, elect to further defer a portion not
greater than the DEFERRAL PERCENTAGE of the payment then due and owing from
LABARGE to GLOBAL on such Due Date hereunder provided that in no event shall the
payment so deferred be deferred for longer than two (2) years from and after the
Due Date thereof and all payments so deferred shall bear interest at the rate of
two percent (2%) above the base rate (prime rate) then charged by the primary
financial institution utilized by the OPERATING VENTURE from the original Due
Date thereof until the date such amount is actually paid with all such interest
being paid by LABARGE to GLOBAL not less frequently than quarterly.
-7-
<PAGE> 8
4. ASSIGNMENT TO HOLDING VENTURE. GLOBAL AND LABARGE each agrees to
transfer and assign to the HOLDING VENTURE its respective fifty percent (50%)
interest in the INTELLECTUAL PROPERTY pursuant to valid assignments
substantially in the form of the Assignment Agreement. Except as otherwise
mutually agreed to, during the term of this Agreement, GLOBAL and LABARGE each
agree to promptly transfer and assign to the HOLDING VENTURE all AFTER ACQUIRED
INTELLECTUAL PROPERTY owned or held by such party pursuant to a valid assignment
substantially in the form of the Assignment Agreements.
5. TERM. The term of this Agreement shall commence upon the date hereof
and shall continue indefinitely until terminated upon the earlier of (i) the
termination of the TECHNOLOGY AGREEMENT or (ii) such time as GLOBAL or LABARGE
ceases to be a party to the TECHNOLOGY AGREEMENT. All obligations of LABARGE to
make any payments to GLOBAL under Section 3.b. of this Agreement shall survive
the Termination of this Agreement only in the event LABARGE acquires or
otherwise succeeds to the interest of GLOBAL in the HOLDING VENTURE or OPERATING
VENTURE or acquires or otherwise succeeds to the operations of the HOLDING
VENTURE or the OPERATING VENTURE.
6. WARRANTIES:
a. WARRANTIES BY GLOBAL: GLOBAL expressly warrants and represents to
LABARGE that:
(i) GLOBAL is a corporation duly organized, validly existing and in
good standing under the laws of the State of Georgia and is qualified to do
business under the laws of any jurisdiction in which it has any activities
related to the INTELLECTUAL PROPERTY of GLOBAL and under the laws of which it is
required to obtain qualification under the laws of such states; and has the
power, right and authority to enter into and perform its obligations under this
Agreement;
(ii) GLOBAL has taken all necessary corporate action to authorize
its execution, delivery and performance of this Agreement;
(iii) this Agreement when duly signed by GLOBAL and LABARGE will be
a binding obligation of GLOBAL, enforceable in all respects as against GLOBAL;
(iv) GLOBAL is the owner of the INTELLECTUAL PROPERTY of GLOBAL,
including all common law, statutory and other rights therein, free and clear of
any rights, claims or licenses of others (other than trademark rights, if any,
of unrecorded trademark owners; provided, however, that GLOBAL is not aware of
any such rights) and except for the MIDWEST WIRELESS AGREEMENT);
(v) GLOBAL has not entered into any agreements or contracts
authorizing others to use the INTELLECTUAL PROPERTY of GLOBAL except for the
MIDWEST WIRELESS AGREEMENT;
(vi) to the best of GLOBAL's knowledge, no person or entity is
infringing or has threatened to infringe any of the INTELLECTUAL PROPERTY of
GLOBAL;
(vii) GLOBAL has not requested any person or entity to cease or
modify any activity or product or to take out a license for such activity or
product by reason of past, present or prospective infringement of any
INTELLECTUAL PROPERTY of GLOBAL;
-8-
<PAGE> 9
(viii) to the best of GLOBAL's knowledge, the existing patents
included in the Patents are valid and enforceable;
(ix) to the best of GLOBAL's knowledge, the manufacture, use, and
sale of PRODUCTS bearing the TRADEMARKS of GLOBAL in the FIELD in the TERRITORY
by the OPERATING VENTURE as contemplated by the parties will not constitute
infringement of any third party's marks, patent rights or copyrights or
otherwise constitute unfair competition or trade secret infringement; provided
however no representations and warranties are made herein with respect to the
HIGHWAYMASTER PATENTS.
(x) there is no pending or threatened litigation related in any
way to the validity, use or enforceability of any of the INTELLECTUAL PROPERTY
of GLOBAL;
(xi) all of the right, title and interest in and to the
INTELLECTUAL PROPERTY of GLOBAL acquired by LABARGE under this Agreement are
free and clear of all liens, encumbrances or other claims of creditors of
GLOBAL; and
(xii) no AFFILIATE of GLOBAL owns or possesses any TECHNOLOGY of
GLOBAL or rights with respect thereto or any tangible or intangible property or
rights which would be TECHNOLOGY if owned or possessed by GLOBAL.
b. WARRANTIES BY LABARGE: LABARGE represents and warrants to GLOBAL as
follows:
(i) LABARGE is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has the power, right
and authority to enter into and perform its obligations under this Agreement;
(ii) LABARGE has taken all necessary corporate action to authorize
its execution, delivery and performance of this Agreement; and
(iii) this Agreement when duly signed by GLOBAL and LABARGE will be
a binding obligation of LABARGE, enforceable in all respects as against LABARGE.
7. GENERAL TERMS AND CONDITIONS.
7.1 Entire Agreement. This Agreement together with the HOLDING VENTURE
OPERATING AGREEMENT, OPERATING VENTURE OPERATING AGREEMENT, ASSIGNMENT
AGREEMENTS, MANUFACTURING AGREEMENT, LICENSE, and TECHNOLOGY AGREEMENT
constitutes the entire agreement between the parties and supersedes any prior
understanding or agreement among them respecting the subject matter hereof or
thereof.
7.2 Application of Georgia Law. This Agreement, and the application of
interpretation hereof, shall be governed exclusively by its terms and by the
laws of the State of Georgia.
7.3 Construction. Whenever the singular number is used in this
Agreement and when required by the context, the same shall include the plural
and vice versa, and the masculine gender shall include the feminine and the
neuter genders and vice versa.
-9-
<PAGE> 10
7.4 Headings. The headings in this Agreement are inserted for
convenience only and are in no way intended to describe, interpret, define, or
limit the scope, extent or intent of this Agreement or any provision hereof.
7.5 Waivers. The failure of any party to seek redress for violation of
or to insist upon the strict performance of any covenant or condition of this
Agreement shall not prevent a subsequent act, which would have originally
constituted a violation, from having the effect of an original violation.
7.6 Rights and Remedies Cumulative. The rights and remedies provided
by this Agreement are cumulative and the use of any one right or remedy by any
party shall not preclude or waive the right not to use any or all other
remedies. Such rights and remedies are given in addition to any other rights the
parties may have by law, statute, ordinance or otherwise.
7.7 Severability. If any provision of this Agreement or the
application thereof to any person or circumstance shall be invalid, illegal or
unenforceable to any extent, the remainder of this Agreement and the application
thereof shall not be affected and shall be enforceable to the fullest extent
permitted by law.
7.8 Assignment. GLOBAL and LABARGE may each assign their respective
interests under this Agreement to any permitted assignee of its respective
interest under the OPERATING VENTURE OPERATING AGREEMENT.
7.9 Heirs, Successors and Assigns. Each and all of the covenants,
terms, provisions and agreements herein contained shall be binding upon and
inure to the benefit of the parties hereto and, to the extent permitted by this
Agreement, their respective heirs, legal representatives, successors and
assigns.
7.10 Creditors. None of the provisions of this Agreement shall be for
the benefit of or enforceable by any creditors of any party hereto. This
Agreement is entered into among the parties for the exclusive benefit of the
parties and their successors and assignees. Except and only to the extent
provided by applicable statute, no such creditor or third party shall have any
rights under this Agreement.
7.11 Counterparts; Copies. This Agreement may be executed in
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument. One or more copies of this Agreement may
be executed but it shall not be necessary, in making proof of the existence of
this Agreement, to provide more than one original copy.
7.12 Amendments. Any amendment to this Agreement shall be made in
writing and signed by all parties.
7.13 Notices. Whenever this Agreement requires notice to be given to
any party, the notice may be given by mail, in person by courier delivery, or by
overnight delivery. All notices required hereunder shall be addressed and sent
to the party at the address set forth on page one of this Agreement. Any such
written notice shall for all purposes of this Agreement be deemed as being
delivered hereunder (i) if mailed, three (3) days after being deposited with the
United States Postal Service, postage prepaid and designated as certified with
return receipt requested, and properly addressed to the addressee, (ii) if sent
via overnight delivery, one (1) day after being deposited with a nationally
recognized next day delivery service with all delivery fees prepaid or (iii) if
personally delivered, when so delivered. Any party may change the address
located within
-10-
<PAGE> 11
the United States at which such party is to receive notice hereunder by
delivery of notice of such change of address to the other parties in accordance
with this Section 7.13. Any party's failure or refusal to accept any notice or
the inability to deliver notice to any address last reflected on the books and
records of the Company shall constitute delivery of such notice to the party to
whom addressed.
7.14 Affiliates. The covenants, agreements, and licenses of and granted
to each party hereunder shall also be covenants, agreements, and licenses of and
to such party's Affiliates. Each party hereunder shall be responsible for
compliance of its Affiliates with the covenants and agreements under this
Agreement.
7.15 Further Assurances. The parties agree to fully cooperate and
execute any documents to effectuate or perfect the transactions and matters set
forth herein.
7.16 Time of the Essence. Time is of the essence with respect to the
performance of each party's obligations hereunder.
IN WITNESS WHEREOF, the parties have entered into this Agreement as of
the date first written above.
GLOBAL RESEARCH SYSTEMS, INC. LABARGE, INC.
By:/s/ M. Kelly Jones By:/s/ Craig E. LaBarge
----------------------------- ------------------------
M. Kelly Jones, President Craig E. LaBarge, President
Attest:/s/ Gena Payne
-------------------------
Gena Payne, Secretary
(CORPORATE SEAL)
-11-
<PAGE> 12
EXHIBIT "A"
GLOBAL'S PROJECTIONS
<TABLE>
<CAPTION>
DATE PERIOD EBT CUMULATIVE EBT
<S> <C> <C>
12/31/99 $12,878,275 $12,878,275
06/30/00 12,745,420 25,623,695
12/31/00 19,118,130 44,741,825
06/30/01 22,158,730 66,900,555
12/31/01 33,238,095 100,138,650
06/30/02 27,716,230 127,854,880
12/31/02 41,574,345 169,429,225
</TABLE>
<PAGE> 1
EXHIBIT 10.13
OPERATING AGREEMENT
OF
NOTICOM INTERNATIONAL, LLC
Effective as of July 22, 1998
LIMITED LIABILITY COMPANY INTERESTS IN NOTICOM INTERNATIONAL, LLC HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS ("THE STATE ACTS") AND HAVE BEEN
SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND THE STATE ACTS, INCLUDING PARAGRAPH (13) OF CODE SECTION
10-5-9 OF THE GEORGIA SECURITIES ACT OF 1973, AS AMENDED, SECTIONS 409.402(B)(9)
AND (10) OF THE MISSOURI UNIFORM SECURITIES ACT, AND SECTION 4(2) OF THE
SECURITIES ACT. THE LIMITED LIABILITY COMPANY INTERESTS HAVE BEEN ACQUIRED FOR
INVESTMENT PURPOSES ONLY AND MAY NOT BE OFFERED FOR SALE, PLEDGED, HYPOTHECATED,
SOLD OR TRANSFERRED EXCEPT IN COMPLIANCE WITH THE TERMS AND CONDITION OF THIS
AGREEMENT AND IN A TRANSACTION WHICH IS EITHER EXEMPT FROM REGISTRATION UNDER
THE SECURITIES ACT AND THE STATE ACTS OR PURSUANT TO AN EFFECTIVE REGISTRATION
UNDER THE SECURITIES ACT AND THE STATE ACTS.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I
FORMATION................................................................................................1
1.1 Organization....................................................................................1
1.2 Agreement.......................................................................................1
1.3 Name............................................................................................1
1.4 Articles of Organization........................................................................1
1.5 Term............................................................................................1
1.6 Registered Agent and Office.....................................................................1
1.7 Principal Office................................................................................1
1.8 Persons Considered to be Members................................................................2
1.9 Units...........................................................................................2
1.9.1 Class A Membership Units...............................................................2
1.9.2 Class B Membership Units...............................................................2
1.9.3 Initial Ownership. ...................................................................2
ARTICLE II
NATURE OF BUSINESS.......................................................................................3
ARTICLE III
ACCOUNTING AND RECORDS...................................................................................3
ARTICLE IV
RIGHTS AND DUTIES OF MANAGERS AND MEMBERS................................................................3
4.1 Board of Managers...............................................................................3
4.2 Authority of Managers to Bind the Company.......................................................3
4.3 When Majority Consent of Voting Members Required...............................................4
4.4 When Supermajority Consent of Voting Members Required...........................................4
4.5 Meetings. .....................................................................................5
4.6 Minutes.........................................................................................6
4.7 Managers and Members Shall Have No Exclusive Duty To Company....................................6
4.8 Officers........................................................................................6
4.9 Delegation......................................................................................6
4.10 Accounts........................................................................................6
4.11 Duties; Liability for Certain Acts..............................................................6
4.12 General Authority...............................................................................6
ARTICLE V
LIABILITY OF MEMBERS.....................................................................................7
5.1 Limitation of Liability.........................................................................7
5.2 Representations and Warranties..................................................................7
ARTICLE VI
CAPITAL CONTRIBUTIONS....................................................................................7
6.1 Initial Capital Contributions...................................................................7
6.2 Required Capital Contributions..................................................................8
6.3 Additional Capital Contributions................................................................8
6.4 Right to Raise Additional Capital...............................................................9
6.4.1 Issuance of Units......................................................................9
6.4.2 Additional Members.....................................................................9
6.5 Loans to the Company............................................................................9
6.6 Limits on Additional Capital Contributions and Loans............................................9
6.7. Maintenance of Capital Accounts.................................................................9
6.7.1 Distributions of Property.............................................................10
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
6.7.2 Adjustments...........................................................................10
6.7.3 Compliance with Treasury Regulations..................................................10
ARTICLE VII
ALLOCATIONS AND DISTRIBUTIONS...........................................................................10
7.1 Allocations of Tax Profits and Tax Losses......................................................10
7.2. Built-in Gains and Built-in Losses.............................................................11
7.3. Regulatory Allocations.........................................................................11
7.4 Mechanics of Allocations.......................................................................12
7.5 Cash Distributions.............................................................................13
7.5.1 Quarterly Tax Distributions...........................................................13
7.5.2 Other Distributions...................................................................13
7.5.3 Timing................................................................................14
7.5.4 Fees; Reimbursements..................................................................14
7.5.5 Distributions Upon Dissolution........................................................14
7.5.6 Distributions After the Fiscal Year End...............................................14
7.5.7 Withholding...........................................................................14
7.5.8 Consent to Distributions..............................................................14
7.6 Survival of Certain Distribution Rights........................................................14
ARTICLE VIII
TAXES...................................................................................................15
8.1 Elections......................................................................................15
8.2 Taxes of Taxing Jurisdictions..................................................................15
ARTICLE IX
TRANSFER OF MEMBERSHIP INTERESTS........................................................................15
9.1 Restrictions on Transfer.......................................................................15
9.2 Call Option....................................................................................15
9.3 Successors in Interest.........................................................................16
9.4 Assignment of Economic Rights..................................................................16
9.5 Conditions for Transfer........................................................................17
9.6 Retroactive Allocations........................................................................17
9.7 Redemption of Class B Units....................................................................18
ARTICLE X
DISPUTES................................................................................................18
10.1 Dispute Resolution.............................................................................18
10.2 Major Disputes.................................................................................18
ARTICLE XI
DISSOCIATION OF A MEMBER................................................................................18
11.1 Dissociation...................................................................................18
11.2 Rights of Dissociated Member...................................................................19
ARTICLE XII
DISSOLUTION AND WINDING UP..............................................................................19
12.1 Dissolution....................................................................................19
12.2 Effect of Dissolution..........................................................................19
12.3 Distribution of Assets on Dissolution..........................................................19
12.4 Completion of Winding Up; Certificate of Dissolution...........................................21
12.5 Further Assurances.............................................................................21
ARTICLE XIII
INDEMNIFICATION.........................................................................................21
13.1 Indemnification of Members, Managers and Officers..............................................21
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
13.2 Discretionary Indemnification of Employees.....................................................21
13.3 Determination of Indemnitee's Compliance with Standard of Conduct..............................21
13.4 Advance Payment of Expenses....................................................................21
13.5 Non-Exclusivity; Survival of Indemnification...................................................21
13.6 Insurance on Indemnitees.......................................................................22
13.7 Interpretation.................................................................................22
ARTICLE XIV
SPECIAL COVENANTS.......................................................................................22
14.1 Conflicting Interest Transactions..............................................................22
14.2 Managers and Members Shall Have No Exclusive Duty To Company...................................22
ARTICLE XV
MISCELLANEOUS PROVISIONS................................................................................22
15.1 No Partnership Intended, Except for Tax Purposes...............................................22
15.2 Rights of Creditors and Third Parties under Agreement..........................................23
15.3 Miscellaneous Provisions. .....................................................................23
15.3.1 Entire Agreement....................................................................23
15.3.2 Application of Georgia Law..........................................................23
15.3.3 Construction........................................................................23
15.3.4 Headings............................................................................23
15.3.5 Waivers.............................................................................23
15.3.6 Rights and Remedies Cumulative......................................................23
15.3.7 Severability........................................................................23
15.3.8 Heirs, Successors and Assigns.......................................................23
15.3.9 Counterparts; Copies................................................................23
15.3.10 Amendments..........................................................................23
15.3.11 Notices.............................................................................24
15.3.12 No Engagement of Services...........................................................24
15.3.13 Representations and Warranties......................................................24
15.3.14 Force Majeure.......................................................................24
15.4 Definitions....................................................................................24
15.4.1 "Advance Notification System".......................................................24
15.4.2 "Affiliate".........................................................................24
15.4.3 "Appraised Value" ..................................................................24
15.4.4 "Assignment Agreements".............................................................25
15.4.5 "Built-in Gains"....................................................................25
15.4.6 "Built-in Losses"...................................................................25
15.4.7 "BusCall"...........................................................................25
15.4.8 "BusCall Agreement".................................................................25
15.4.9 "Cash and Cash Equivalents".........................................................25
15.4.10 "Class A Membership Units"..........................................................25
15.4.11 "Class B Membership Units"..........................................................25
15.4.12 "Code" and "Regulations"............................................................25
15.4.13 "Company"...........................................................................25
15.4.14 "Deadlock Event"....................................................................25
15.4.15 "Development Services"..............................................................26
15.4.16 "Distributable Cash"................................................................26
15.4.17 "Fair Value"........................................................................26
15.4.18 "Field".............................................................................27
15.4.19 "Fiscal Year".......................................................................27
15.4.20 "Global Preference Percentage"......................................................27
15.4.21 "Intellectual Property".............................................................27
15.4.22 "License Agreement".................................................................27
15.4.23 "Majority in Interest"..............................................................27
15.4.24 "Managers"..........................................................................27
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
15.4.25 "Manufacturing Agreement"...........................................................27
15.4.26 "Market Value"......................................................................27
15.4.27 "Member"............................................................................28
15.4.28 "Membership Interest"...............................................................28
15.4.29 "Membership Units"..................................................................28
15.4.30 "Preferred Global Return"...........................................................28
15.4.31 "Preferred Global Allocation Balance"...............................................28
15.4.32 "Preferred Global Distribution Balance".............................................28
15.4.33 "Property"..........................................................................28
15.4.34 "Purchase Agreement"................................................................28
15.4.35 "Reserves"..........................................................................29
15.4.36 "Successor in Interest".............................................................29
15.4.37 "Supermajority in Interest of the Voting Members"...................................29
15.4.38 "Tax Profits" and "Tax Losses"......................................................29
15.4.39 "Technology"........................................................................29
15.4.40 "Technology Agreement"..............................................................29
15.4.41 "Transfer"..........................................................................29
15.4.42 "Voting Members"....................................................................29
</TABLE>
iv
<PAGE> 6
OPERATING AGREEMENT
OF
NOTICOM INTERNATIONAL, LLC
THIS OPERATING AGREEMENT FOR NOTICOM INTERNATIONAL, LLC (the "Agreement")
is made and entered into this 22nd day of July, 1998, by and among NOTICOM
INTERNATIONAL, LLC, a Georgia limited liability company (the "Company"), GLOBAL
RESEARCH SYSTEMS, INC., a Georgia corporation ("Global"), and LABARGE, INC., a
Missouri corporation ("LaBarge") (with each of Global, LaBarge and each other
individual or entity executing this Agreement together with each and every other
member hereafter admitted to the Company as such being hereinafter individually
referred to as a "Member" and collectively referred to as the "Members").
ARTICLE I
FORMATION
1.1 Organization. The Members hereby organize the Company as a Georgia
limited liability company pursuant to the provisions of the Georgia Limited
Liability Company Act set forth under O.C.G.A. Sections 14-11-100, et. seq. (the
"Act").
1.2 Agreement. For and in consideration of the mutual covenants herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Members hereby agree to the
terms and conditions of the Agreement, as it may from time to time be amended
according to its terms.
1.3 Name. The name of the Company is NOTICOM INTERNATIONAL, LLC. All
business of the Company shall be conducted under its legal name or under such
fictitious or assumed business names as may be determined by the Members.
1.4 Articles of Organization. Articles of Organization (as so filed and as
hereafter duly amended, the "Articles"), for the Company were filed on July 2,
1998 with the Secretary of State of Georgia. The Members agree to execute such
further documents (including amendments to the Articles of Organization) and
take such further action as is appropriate to comply with the requirements of
law for the formation or operation of a limited liability company in all states,
countries and other jurisdictions where the Company may conduct its business.
1.5 Term. The Company shall be dissolved and its affairs wound up in
accordance with the Act and the Agreement upon either (i) the termination of the
License Agreement (in which event the Company shall be dissolved in accordance
with the applicable provisions of Article Twelve of this Agreement) or (ii) the
dissolution of BusCall, unless the term shall be extended by amendment to this
Agreement and the Articles, or unless the Company shall be sooner dissolved and
its affairs wound up in accordance with the Act or this Agreement.
1.6 Registered Agent and Office. The Company's initial registered office
shall be at the office of its registered agent at 100 East Second Avenue, Fourth
Floor, Rome Georgia 30161
1
<PAGE> 7
the name of its initial registered agent at such address is John M. Graham III.
The registered office and registered agent may be changed from time to time by
filing the address of the new registered office and/or the name of the new
registered agent with the Secretary of State of Georgia pursuant to the Act and
the applicable rules promulgated thereunder.
1.7 Principal Office. The principal office of the Company shall be located
in Destin, Florida.
1.8 Persons Considered to be Members. "Member" means a person who has
agreed to be bound by this Agreement and who has been admitted as a member of
the Company pursuant to the Act and this Agreement, but excludes a Dissociated
Member. The names and addresses of the initial Members are set forth below each
such Member's signature to this Agreement.
1.9 Units. The Company shall be authorized to issue two (2) separate
classes of Membership Units representing ownership interests in the Company
namely the Class A Membership Units and the Class B Membership Units each which
class of Membership Units shall have those relative rights set forth below.
1.9.1 Class A Membership Units. All of the voting rights and authority
with respect to the Company and its operations including all rights to vote,
control and participate in the management of the Company and its capital,
operations and profits, appoint, elect and remove any Managers who may be
responsible for managing the affairs and operations of the Company, and
otherwise decide upon any matter or thing whatsoever affecting the Company and
its operations shall be vested in the Members owning the Class A Membership
Units. No individual or entity holding or having claim to any Class A Membership
Units shall be entitled to exercise any voting rights attributable thereto
unless and until such individual or entity is admitted as a Member of the
Company in accordance with the provisions of this Agreement. Each Class A
Membership Unit shall be entitled to cast one vote and, unless otherwise
specifically provided herein, a majority by number of the votes entitled to be
cast shall control and determine the matter at issue. The Company shall not
issue fractional shares of any Class A Membership Unit. No other Membership
Units issued by the Company (including without limitation Class B Membership
Units) shall be entitled to exercise any voting rights with respect to the
Company or its operations. The owners of the Class A Membership Units shall be
entitled to all notices of all meetings of the Members and shall be entitled to
vote on all questions or issues that may be presented to and decided upon by the
Members of the Company. Except as to voting rights or any other differentiation
or restriction expressly made applicable to the Class A Membership Units
hereunder, the rights of the owners of the Class A Membership Units shall be the
same in all respects to the rights of the owners of all other Membership Units
(including without limitation Class B Membership Units) hereunder such rights to
include the right to receive distributions and allocations hereunder.
1.9.2 Class B Membership Units. The Company shall not issue fractional
shares of any Class B Membership Unit. The Class B Membership Units shall not be
entitled to exercise any voting rights with respect to the Company or its
operations or the election or removal of the Company's Managers it being
expressly intended and understood that such voting rights shall be exclusively
vested in the Class A Membership Units. The owners of the Class B Membership
Units shall not be entitled to any notices of any meetings of the Members and
shall not be entitled to participate in such meetings or to vote on any
questions or issues that may be presented to and decided upon by the Members of
the Company. Except as to voting rights or any other differentiation or
restriction expressly made applicable to the Class B Membership
2
<PAGE> 8
Units hereunder, the rights of the owners of the Class B Membership Units shall
be the same in all respects to the rights of the owners of all other Membership
Units (including without limitation Class A Membership Units) hereunder such
rights to include the rights to receive distributions and allocations hereunder.
No individual or entity holding or having claim to any Class B Membership Units
shall be entitled to exercise or receive any rights attributable thereto unless
and until such individual or entity is admitted as a Member of the Company in
accordance with the provisions of this Agreement.
1.9.3 Initial Ownership. Initially, the following Members shall own
the following number of Membership Units in the Company:
<TABLE>
<CAPTION>
Class A Class B
Member Membership Units Membership Units
------ ---------------- ----------------
<S> <C> <C>
LaBarge 1,000 -0-
Global 1,000 -0-
</TABLE>
ARTICLE II
NATURE OF BUSINESS
The Company may engage in any lawful business permitted by the Act or the
laws of any jurisdiction in which the Company may do business. The Company shall
have the authority to do all things necessary or convenient to accomplish its
purpose and operate its business.
ARTICLE III
ACCOUNTING AND RECORDS
The Company shall maintain at its principal office such records as may be
required by the Act or other applicable laws.
ARTICLE IV
RIGHTS AND DUTIES OF MANAGERS AND MEMBERS
4.1 Board of Managers. Management of the operations of the Company shall
be conducted by a Board of Managers which Board of Managers shall act through or
with the affirmative approval or consent of a Majority in Interest of the Board
of Managers. The Voting Members shall appoint a Board of Managers comprised of
six (6) individuals, or such greater or lesser number unanimously agreed to by
all Voting Members which shall in all events be an even number. One-half (1/2)
of the total number of members of the Board of Managers shall be appointed by
Global and one-half (1/2) of the total number of members of the Board of
Managers shall be appointed by LaBarge. Any Manager of the Company may resign at
any time by giving thirty (30) days' written notice to the Voting Members of the
Company. The resignation of any Manager shall take effect upon receipt of notice
thereof or at such later time as shall be specified in such notice; and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective. In the event of the withdrawal, resignation or
removal of any member of the Board of Managers, the Member initially selecting
and nominating such Manager shall select and nominate the successor to such
Manager. All Voting Members agree to vote their Class A Membership Units in the
Company so as to cause the Board of Managers to
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consist of those individuals nominated by Global and LaBarge in conformity with
the foregoing sentence. The initial Board of Managers shall be:
<TABLE>
<CAPTION>
MANAGER APPOINTED BY:
------- -------------
<S> <C>
Craig E. LaBarge LaBarge
William J. Maender LaBarge
Thomas Hubbard LaBarge
M. Kelly Jones Global
Gena B. Payne Global
David Hall Global
</TABLE>
4.1.1 The provisions of Section 4.1 notwithstanding, if either Global
or LaBarge (a "party") should own more than 50% of all the issued and
outstanding Class A Membership Units of the Company then the Board of Managers
shall be comprised of seven (7) members. The party with the controlling interest
shall appoint such seventh member of the Board of Managers. This seventh
position shall exist only at such time as the ownership is not equal and one of
the parties has the controlling interest.
4.2 Authority of Managers to Bind the Company. Except as otherwise set
forth in the Agreement, the Board of Managers shall have the authority to bind
the Company, and exercise such authority through officers, agents or committees
of the Company designated by the Board of Managers and approved by a Majority in
Interest of the Voting Members (but with respect to agents or committees, only
to the extent of the authority granted). In particular and without limitation,
the Board of Managers has the authority to do any of the following:
4.2.1 Institute, prosecute and defend any proceeding in the Company's
name.
4.2.2 Purchase, receive, lease or otherwise acquire, and sell, convey,
mortgage, pledge, lease, exchange, and otherwise dispose of Company Property
provided that the dollar amount of such transaction or the value of Company
Property involved in such transactions does not exceed limits set by a Majority
in Interest of the Voting Members from time to time.
4.2.3 Enter into contracts and guaranties, incur liabilities, borrow
money, issue notes, bonds and other obligations, and secure any of its
obligations by mortgage or pledge of any of the Company's Property or income
provided that the dollar amount of such transaction or the value of property
involved in such transactions does not exceed limits set by a Majority in
Interest of the Voting Members from time to time.
4.2.4 Manage and operate any Company Property.
4.2.5 Establish Company offices and exercise the powers of the Company
within or without the State of Georgia or any other jurisdiction in which the
Company conducts business.
4.2.6 Purchase insurance for the benefit of the Company.
4.2.7 Make donations to the public welfare or for religious,
charitable,
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scientific, literary or educational purposes provided that the amount of such
donations does not exceed limits set by a Majority in Interest of the Voting
Members from time to time.
4.2.8 Generally do any other act that furthers the business and
affairs of the Company that is not expressly required by the Agreement or
applicable law to be approved by all or a Majority in Interest of the Voting
Members.
4.3 When Majority Consent of Voting Members Required. Notwithstanding any
other provision of the Agreement other than a provision requiring the approval
of any act by a larger number of the Voting Members, the affirmative vote or
written consent of a Majority in Interest of the Voting Members shall be
required to approve any of the following actions:
4.3.1 The authorization of any indemnification pursuant to Article
XIII, other than the mandatory indemnification provided in Section 13.1.
4.3.2 Lending the Company's money, investing and reinvesting the
Company's funds, and receiving and holding property as security for repayment of
indebtedness owed to the Company, provided that no money shall be loaned to
Members other than as advances for business expenses to be incurred in the
ordinary course of business of the Company.
4.3.3 Causing the Company to invest in corporations, partnerships,
joint ventures, limited liability companies or other associations of any kind
with any person or persons.
4.3.4 Causing the Company to establish capital and operating budgets.
4.4 When Supermajority Consent of Voting Members Required. Notwithstanding
any other provision of the Agreement, the affirmative vote or written consent of
a Supermajority in Interest of the Voting Members shall be required to approve
any of the following actions:
4.4.1 Except as otherwise specifically provided under Section 6.2 of
this Agreement, the call for additional capital contributions, or the issuance
of additional Membership Units to any one or more Members.
4.4.2 Other than as required under this Agreement or the Technology
Agreement, granting to any third party or parties any rights or interest in or
disclosing any information concerning any patents, trade secrets, know-how,
trademarks, trade names or copyrights in which the Company holds any interest,
other than the marketing of Products and Technology to customers or the
development of Products or Technology in the ordinary course of business.
4.4.3 The continuation of the Company after a Dissolution Event (as
defined herein).
4.4.4 The amendment of this Agreement.
4.4.5 The merger or consolidation of the Company with another entity.
4.4.6 The dissolution and liquidation of the Company other than as the
result of a Dissolution Event.
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4.4.7 The sale of substantially all the Property of the Company.
4.4.8 Causing the Company to enter into any agreement, modify, amend
or terminate any agreement with any Member or Affiliate of any Member including
without limitation the Assignment Agreements, the License Agreement, the
Manufacturing Agreement or Technology Agreement.
4.4.9 The addition of additional Members.
4.4.10 Making distributions of cash or other Property to the Members
except pursuant to the provisions of Section 7.5.1.
4.5 Meetings. Meetings of the Board of Managers for such business as may
properly come before the Board of Managers may be called by any Manager.
Meetings of the Members for any purpose may be called by any Voting Member. The
times, dates, places and purposes of the Board of Managers' or Members' meetings
shall be designated in a written notice given in person or mailed by the person
or persons calling the meeting to each other Manager or Voting Member, not less
than two nor more than thirty days before the date of the meeting; if mailed,
the notice shall be addressed to such Manager or Voting Member at the Manager's
or Voting Member's address on the records of the Company. If a meeting is
adjourned to a different date, time or place, notice need not be given of the
new date, time or place if the new date, time or place is announced at the
meeting before an adjournment is taken. Any Voting Member or Manager may waive
notice of a meeting before or after the meeting. All waivers of notice must be
in writing, be signed by the Voting Member or Manager entitled to the notice and
be delivered to the Company for inclusion in the appropriate records. Neither
the business to be transacted at, nor the purpose of, a meeting must be
specified in a written waiver of notice. Attendance at a meeting shall
constitute a waiver of notice of the meeting, unless at the beginning of the
meeting the Manager or Voting Member gives written notice of objection to
holding the meeting or transacting business at the meeting. A Manager or Voting
Member may vote in person or by proxy. No proxy shall be valid for more than
eleven months after the date of its execution unless a longer period is
expressly provided in the appointment form. Any action required or permitted to
be taken at a Managers' or Members' meeting may be taken without a meeting,
without prior notice and without a vote if one or more written consents
describing the action to be taken are signed and dated by a sufficient number of
Managers or Voting Members authorized hereunder to take such action. Unless
otherwise provided for herein, the affirmative vote or consent by a Majority in
Interest of the Managers or Voting Members shall be required to approve any
matter presented to the Board of Managers or the Voting Members for vote,
provided that any such matter acted upon by the Board of Manager must receive
the affirmative vote of at least one Manager appointed by each of the Members
unless the provisions of Section 4.1.1 are in effect.
4.6 Minutes. The Managers, the Members and each committee shall keep
minutes of its proceedings, which shall be open for inspection by any Voting
Member upon reasonable prior notice to the Company.
4.7 Managers and Members Shall Have No Exclusive Duty To Company. A
Manager or a Member may have other business interests and may engage in other
activities in addition to those relating to the Company. Neither the Company nor
any Member shall have any right, by virtue of this Agreement, to share or
participate in such other activities or investments of a Member or the income or
proceeds derived therefrom. Neither a Member nor a Manager shall incur any
liability to the Company or to any of the Members as a result of engaging in any
other business.
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4.8 Officers. The number and titles of officers of the Company and other
persons who may act as authorized agents of the Company shall be fixed from time
to time by a Majority in Interest of the Board of Managers. The officers shall
have such titles, duties, authorities and responsibilities as may be delegated
to them from time to time by a Majority in Interest of the Board of Managers.
The officers shall be elected from time to time by, and serve at the pleasure
of, a Majority in Interest of the Board of Managers, provided that each officer,
to be elected, must receive the affirmative vote of at least one Manager
appointed by each Member unless the provisions of Section 4.1.1 are in effect. A
Majority in Interest of the Board of Managers may remove an officer, with or
without cause, at any time, subject to any contractual rights of such officer.
In the event of the death, resignation or removal of an officer, a Majority in
Interest of the Board of Managers shall elect a successor who shall serve the
remainder of the term of his or her predecessor.
4.9 Delegation. A Majority in Interest of the Board of Managers may
delegate in writing any and all authority which such Majority in Interest is
empowered to exercise hereunder to any one or more of the members of the Board
of Managers or any officer or officers of the Company whereupon such delegee
shall thereafter be entitled to exercise such authority so delegated hereunder.
4.10 Accounts. All funds of the Company shall be deposited in its name in
an account or accounts as shall be designated from time to time by a Majority in
Interest of the Managers. All funds of the Company shall be used solely for the
business of the Company. If any bank requires a prescribed form or forms of
resolutions relating to such accounts of the Company or to any application,
statement, instrument, or other documents connected with the accounts, the
resolutions contained in any such prescribed form will be deemed to have been
adopted by the Members, and a Majority in Interest of the Managers of the
Company are authorized to certify the adoption of any such resolution as though
it were unanimously adopted by the Members, and to insert all such resolutions
in the records of the Company.
4.11 Duties; Liability for Certain Acts. In managing the business or
affairs of the Company, each Member, Manager, and officer of the Company shall
act in the manner provided by Section 14-11-305 of the Act. Except for acts or
omissions undertaken in contravention of this Agreement, no Member, Manager or
officer shall be deemed to have guaranteed nor shall have any obligation with
respect to the return of a Member's capital contributions in the Company or
profits from the operation of the Company. Except for acts or omissions
undertaken in contravention of this Agreement, each Member's, Manager's, and
officer's liability to the Company, the Members, and the other Managers and
officers shall be limited and the Members, Managers, and officer's shall be
indemnified as set forth in Article XII of this Agreement. No Member, Manager,
or officer shall be liable, solely by reason of being a Member, Manager,
officer, agent, or employee of the Company, under a judgment, decree, or order
of a court, or in any other manner, for a debt, obligation, or liability of the
Company, whether arising in contract, tort, or otherwise, or for the acts or
omissions of any other Member, Manager, officer, agent, or employee of the
Company, whether arising in contract, tort, or otherwise, except as provided in
Section 14-11-408 of the Act (liability for wrongful distributions).
4.12 General Authority. Unless expressly authorized to do so by this
Agreement, no one or more of the Members, Managers, officers, employees or other
agents of the Company shall have any power or authority to bind the Company in
any way, to pledge its credit or to render it liable for any purpose.
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ARTICLE V
LIABILITY OF MEMBERS
5.1 Limitation of Liability. No Member shall be liable as such for the
liabilities of the Company.
5.2 Representations and Warranties. Each Member hereby represents and
warrants to the Company and each other Member that such Member is acquiring such
Member's Membership Units for the Member's own account as an investment and
without an intent to distribute the Membership Units; and such Member
acknowledges that the Membership Units have not been registered under the
Securities Act of 1933 or any state securities laws, and that in addition to the
other restrictions provided herein the Membership Units may not be resold or
transferred by the Member without appropriate registration or the availability
of an exemption from such requirements. Each Member agrees to hold harmless and
indemnify the Company, its officers, directors, agents and other Members, from
and against any loss or damages incurred as a result of any breach of such
representation and warranty.
ARTICLE VI
CAPITAL CONTRIBUTIONS
6.1 Initial Capital Contributions. Each of the initial Members shall pay
in to the capital of the Company One Thousand Dollars ($1,000) in exchange for
their respective Membership Units in the Company and shall make the following
additional capital contributions in cash, property and services:
MEMBER CONTRIBUTION
GLOBAL RESEARCH The assignment and delivery of (i) all Technical Information,
SYSTEMS, INC. currently owned by Global; (ii) all Technology currently owned
by Global, which is not otherwise sold to LaBarge or assigned
to Holding Venture by Global pursuant to the Purchase
Agreement; and (iii) Global's rights and obligations under the
Exclusive Territory License Agreement dated April 6, 1998 by
and between Global and Midwest Wireless Communications, LLC;
the collective value of all such additional contributions is
agreed by all Members to be $2,313,000, all of which
contributions shall be made within three days of the execution
of this Agreement.
LABARGE, INC. (i) Cash in the amount of $1,813,000, which contribution
shall be made within three days of the execution of the
Agreement.
(ii) The performance of and payment for Development
Services having a value of not less than $500,000,
which performance or payment shall be completed
within one year from the date of this Agreement;
provided, that should LaBarge fail to provide
Development Services in such amount within such
time frame, then within ten (10) days from and
after the first anniversary of the date of this
Agreement, LaBarge shall make an additional cash
contribution equal to the difference between
$500,000 less the amount of such Development
Services so provided to the Company. If such value
of the Development Services provided by LaBarge
through the first anniversary of this Agreement is
greater than $500,000, the Company shall reimburse
LaBarge for the amount of such
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<PAGE> 14
excess shall be promptly reimbursed to LaBarge within 30 days
of the submission by LaBarge of an invoice to the Company with
respect thereto, subject to the Company's reasonable
verification of such invoice. Attached hereto as Exhibit "A"
is further classification of Development Services.
No interest shall accrue on any capital contribution and no Member shall have
the right to withdraw or be repaid any capital contribution except as provided
in this Agreement.
6.2 Required Capital Contributions. If either (i) during the first twelve
(12) month period during which this Agreement remains in effect, the Cash and
Cash Equivalents of the Company (including Reserves) should be less than One
Hundred Thousand Dollars ($100,000) or (ii) at any time after the first
anniversary of the date of this Agreement, the Cash and Cash Equivalents of the
Company (including Reserves) should be less than Five Hundred Thousand Dollars
($500,000), then either Global or LaBarge (the "Calling Member") may, by means
of written notice to the Company and each other Member (a "Call Notice"),
require each Member to contribute an amount to the capital of the Company
consisting of the product of such Member's Membership Interest multiplied by the
amount of such deficiency. In the event either LaBarge or Global requires any
such capital contributions hereunder, each Member shall make such capital
contributions within fifteen (15) days after such Member delivers or receives
such Call Notice (whichever is applicable). If any Member defaults in its
obligations to make any capital contribution required hereunder, then the
Calling Member may, at its option, contribute the defaulting Member's required
amount to the Company or the Company may, at the Calling Member's option, retain
all distributions which such defaulting Member is entitled to receive hereunder
up to the amount of such defaulting Member's obligations hereunder which amounts
shall be deemed to have been distributed to such defaulting Member hereunder and
re-contributed to the Company. If a Member defaults in its obligation to make a
capital contribution required hereunder, the nondefaulting Member with respect
to such required capital contribution hereunder shall be entitled to receive
additional Class A Membership Units in exchange for its capital contribution.
The number of additional Class A Membership Units a nondefaulting Member
shall be entitled to shall equal the following:
6.2.1 If such a default occurs before the earlier of (i) the first
anniversary of this Agreement or (ii) the default in such obligation to make an
aggregate of $375,000 of capital contributions by such Member (a "$375,000
Capital Call"), then such number of Class A Membership Units shall be the
amount of additional capital contributed by the nondefaulting Member in excess
of that capital contribution by the defaulting Member, divided by the book value
of a Membership Unit immediately before the Member made the additional capital
contribution. For purposes of the preceding sentence, the book value of a
Membership Unit shall equal the quotient of (1) an amount equal to the sum of
all contributions to the capital of the Company increased by Tax Profits,
excluding Built-in Gains, Built-in Losses, and two-thirds (subject to any
adjustment in the Global Preference Percentage pursuant to Section 15.4.20) the
cumulative Tax Profits allocable to Global under Section 7.1.3, and decreased by
(i) Tax Losses, excluding Built-in Gains and Built-in Losses, and (ii)
distributions under Section 7.5 and 7.6 other than distributions to Global of
the Preferred Global Distribution Balance divided by (2) the aggregate number of
Membership Units outstanding immediately before the capital contribution was
made by the nondefaulting Member.
6.2.2 If such a default occurs after the earlier of (i) the first
anniversary of this
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Agreement or (ii) a $375,000 Capital Call, then such number of Class A
Membership Units shall be the amount of additional capital contributed by the
nondefaulting Member in excess of that capital contribution by the defaulting
Member, divided by the Fair Value of a Membership Unit immediately before the
Member made the additional capital contribution.
6.3 Additional Capital Contributions. Solely to the extent approved by a
Supermajority in Interest of the Voting Members from time to time, the Members
may be permitted (but not required) to make additional capital contributions if
and to the extent they so desire, and if a Supermajority in Interest of the
Voting Members so determine that such additional capital contributions are
necessary or appropriate in connection with the conduct of the Company's
business (including without limitation, expansion or diversification). In such
event, all Members shall have the opportunity (but not the obligation) to
participate in such additional capital contributions on a pro rata basis in
accordance with their relative Membership Interests determined as of the date
such additional capital contributions are so approved by a Supermajority in
Interest of the Voting Members. Except as otherwise agreed by a Supermajority in
Interest of the Voting Members, no Member making any additional capital
contributions hereunder shall be entitled to receive additional Membership Units
in exchange therefore. Each Member acknowledges and agrees that should
additional capital contributions be authorized hereunder in which capital
contributions a Member does not participate and should a Supermajority in
Interest of the Voting Members agree that any Member or Members making any such
capital contributions should be entitled to receive additional Membership Units
in exchange therefore, the Membership Interest of each Member who declines to
participate in such capital contributions will be diluted as a result of such
circumstances.
6.4 Right to Raise Additional Capital.
6.4.1 Issuance of Units. If at any time and from time to time a
Supermajority in Interest of the Voting Members determines that additional funds
are required by the Company for or in respect to its business for any of its
obligations, expenses, costs, liabilities or expenditures, the Managers, upon
receiving the written consent of a Supermajority in Interest of the Voting
Members, may cause the Company to sell additional Membership Units and admit
additional Members upon the terms and conditions and, for such prices as are
agreed to by a Supermajority in Interest of the Voting Members. Any Person who
acquires any Membership Units which have been offered in accordance with the
provisions of this Section 6.4.1 may be admitted to the Company as a new Member
(or if such Person is already a Member, his Membership Interest may be
increased), and no further consent of such admission (or increase in an existing
Member's Membership Interest) by the existing Members shall be required. By
virtue of this provision, an existing Member's Membership Interest may be
diluted upon the sale of such additional Membership Units, and each Member
hereby consents to such dilution provided the conditions of this Section 6.4
have been satisfied.
6.4.2 Additional Members. Except as provided under Section 6.4.1, no
additional person or entity shall be entitled to acquire or obtain any
Membership Units or otherwise be admitted as a Member of the Company except as
otherwise specifically permitted under this Agreement.
6.5 Loans to the Company. If at any time and from time to time additional
funds are required by the Company for or in respect to its business or any of
its obligations, expenses, costs, liabilities or expenditures, in lieu of
raising such additional funds from any bank, savings and loan, or other
financial institution or third party, the Company may obtain such loans in such
amounts, upon such terms and conditions and from such Members as a Supermajority
in Interest
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<PAGE> 16
of the Members shall deem appropriate. No Member shall be required to make any
loan to the Company hereunder unless otherwise agreed to in writing by such
Member. Any loan to the Company by a Member shall not be a capital contribution
to the Company, but shall be a debt due such Member in its capacity as a
creditor of the Company. Such loan(s) may have such preference, priority or
security position as may be permissible under law and as may be determined by a
Supermajority in Interest of the Voting Members and as is acceptable to the
Member advancing the same.
6.6 Limits on Additional Capital Contributions and Loans.. Except as to
(i) the initial capital contributions required to be made by any Member to the
Company as set forth in Section 6.1 of this Agreement, (ii) the required capital
contributions required to be made by any Member to the Company as set forth in
Section 6.2 of this Agreement, (iii) any Member's obligation to pay the purchase
price for any additional Membership Units purchased by such Member pursuant to
Section 6.3 or 6.4 hereunder, or (iv) any obligation to make any loan to the
Company which has been agreed to in writing by any Member in accordance with
Section 6.5 hereof, no Member shall be required by any person or entity
(including in the name or on behalf of the Company) to make any capital
contributions or loan to the Company. This Section 6.6 shall inure to the
benefit of each Member it being the parties intention that no other third party
shall constitute a third party beneficiary of any provisions of this Agreement
and that neither the Company, nor any Member or Members nor any other creditor,
person or entity be entitled or empowered to require any Member to make
additional capital contributions or loans to the Company for any purpose
whatsoever.
6.7. Maintenance of Capital Accounts. The Company shall establish and
maintain a capital account for each Member according to Code Section 704(b) and
the Regulations under such Code Section. A Member's capital account shall
initially be the agreed value of the initial capital contributed by such Member
and the Members agree that the value shall initially and pursuant to Section 6.1
be as follows:
LaBarge $2,314,000
Global $2,314,000
Each Member's capital account shall thereafter be credited with (i) the amount
of the Member's additional cash contributions (if any), other than those
required under Section 6.1, (ii) the agreed value of the Member's additional
contributions of property or services (if any), other than those required under
Section 6.1, and (iii) the Member's share of Tax Profits excluding Built-in
Gains and Built-in Losses, and shall be debited with (a) the amount of cash
withdrawals and distributions, (b) the agreed value of property distributions
and (c) the Member's share of Tax Losses excluding Built-in Gains and Built-in
Losses. The provisions of this Section and the other applicable sections of this
Agreement shall be construed in a manner consistent with Regulations Section
1.704(b)(2)(iv).
6.7.1 Distributions of Property. On the distribution of Property to a
Member, prior to reducing such Member's capital account by the fair market value
of the Property hereunder, the capital accounts shall first be adjusted to
reflect the allocation of the Built-in Gain or Built-in Losses inherent in such
Property (that has not previously been reflected in the capital accounts) as
though the Property were sold on the distribution date at its fair market value.
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6.7.2 Adjustments. Adjustments to the capital accounts hereunder shall
be made with reference to the Federal tax treatment of the item giving rise to
the adjustment at the Company level without regard to any elective tax treatment
of such items at the Member level.
6.7.3 Compliance with Treasury Regulations. The foregoing provisions
and the other provisions of this Agreement relating to the maintenance of
capital accounts are intended to comply with Regulations Section 1.704-l(b), and
shall be interpreted and applied in a manner consistent with such Regulations.
In the event the Members shall determine that it is prudent to modify the manner
in which the capital accounts, or any debits or credits thereto (including,
without limitation, debits or credits relating to liabilities that are secured
by contributed or distributed property or that are assumed by the Company or
Members), are computed in order to comply with such Regulations, the Members may
make such modifications as they deem reasonably necessary, provided that such
modifications are not likely to have a material effect on the amounts
distributable to any Member pursuant to this Agreement. The Members shall also
make any appropriate modifications in the event unanticipated events might
otherwise cause this Agreement not to comply with Treasury Regulations Section
1.704-l(b).
ARTICLE VII
ALLOCATIONS AND DISTRIBUTIONS
7.1 Allocations of Tax Profits and Tax Losses. Except as may be required
by Section 704(c) of the Code and exclusive of any allocations required under
Section 704(c), the allocations, Tax Profits and Tax Losses shall be allocated
among the Members as follows:
7.1.1 All Tax Losses shall be allocated among the Members in
proportion to the "Members" respective Membership Interests.
7.1.2 The first cumulative One Million Dollars ($1,000,000) of Tax
Profits generated by the Company shall be allocated among the Members in
proportion to the "Members" respective Membership Interests.
7.1.3 All cumulative Tax Profits of the Company in excess of One
Million Dollars ($1,000,000) shall be allocated, until such time as Global has
been allocated the full Preferred Global Allocation Balance, as follows: (i) to
Global: the portion of the cumulative Tax Profits in excess of One Million
Dollars ($1,000,000) equal to the Global Preference Percentage; and (ii) to
LaBarge: the remaining portion.
7.1.4 From and after Global has been allocated the entire Preferred
Global Allocation Balance in the manner provided under Section 7.1.3, all Tax
Profits of the Company shall be allocated among the Members in proportion to the
"Members" respective Membership Interests.
7.2. Built-in Gains and Built-in Losses. Built-in Gains and Built-in Losses
shall be allocated to the Members according to the principles of Code Section
704(c) and the regulations thereunder.
7.3. Regulatory Allocations. At the end of each Fiscal Year and
notwithstanding any other provision of this Article VII, the following special
allocations shall be made for both capital account and for federal income tax
purposes:
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7.3.1 Notwithstanding any other provision of this Agreement (except as
provided in Section 7.3.2, if there is a net decrease in Minimum Gain (as
defined below) for any Fiscal Year of the Company, each Member shall be
allocated, on an equal basis, before any other allocation of Company items for
such taxable year, a share of items of gross income and gain for such year (and,
if necessary, for subsequent years) equal to such decrease. The income allocated
pursuant to this Section 7.3.1 in any taxable year shall consist first of gains
recognized from the disposition of property subject to one or more nonrecourse
liabilities of the Company, and any remainder shall consist of an equal portion
of other items of income or gain of the Company.
7.3.2 The allocation otherwise required pursuant to Section 7.3.1
shall not apply to any Member to the extent that: (i) such Member's share of the
net decrease in Minimum Gain is caused by a guarantee, refinancing or other
change in any instrument evidencing a nonrecourse debt of the Company which
causes such debt to become partially or wholly recourse debt or a Member
nonrecourse debt (as defined below), and the Member owning such Membership
Interest bears the economic risk of loss (within the meaning of Treasury
Regulations Section 1.752-2) for such changed debt; (ii) such Member's share of
the net decrease in Minimum Gain results from the repayment of a nonrecourse
liability of the Company, which repayment is made using funds contributed by the
Member owning such Ownership Interest to the capital of the Company; (iii) the
Internal Revenue Service ("IRS"), pursuant to Regulations Section 1.704-2(f)(4),
waives the requirement of such allocation in response to a request for such
waiver made by the Company (which request the Company may make if approved by a
Supermajority in Interest of the Voting Members); or (iv) additional exceptions
to the requirement of such allocation are established by revenue rulings issued
by the IRS pursuant to Regulations Section 1.704-2(f)(5), which exceptions apply
to such Membership Interest of the Member owning the same, as determined by
counsel to the Company.
7.3.3 Notwithstanding any other provision of this Agreement, if a
Member unexpectedly receives an adjustment, allocation or distribution described
in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6) that causes or
increases an excess deficit capital account balance with respect to such Member,
items of the Company's gross income and gain shall be specially allocated to
such Member in an amount and manner sufficient to eliminate such excess deficit
capital account balance as quickly as possible.
7.3.4 If at the end of any Fiscal Year, a Member has an excess deficit
capital account balance, items of Company income or gain shall be allocated to
such Member in an amount and manner sufficient to eliminate such excess deficit
capital account balance as quickly as possible.
7.3.5 For purposes of this Section 7.3, the following terms shall have
the following meanings:
"Minimum Gain" shall have the meaning given such term in
Regulations Section 1.704-2, and shall generally mean the amount by which
the nonrecourse liabilities secured by any Property of the Company exceed
the adjusted tax basis of such Property as of the date of determination. A
Member's share of Minimum Gain (and any net decrease thereof) at any time
shall be determined in accordance with Regulations Section 1.704-2.
"excess deficit capital account balance" of any Member shall be
the capital account balance of such Member, adjusted as provided in the
immediately following sentence, to the extent, if any, that such balance is
a deficit (after adjustment).
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For purposes of determining the existence and amount of an excess deficit
capital account balance, the capital account balance of a Member shall be
adjusted by: (A) crediting thereto (1) that portion of any deficit capital
account balance that such Member is required to restore under the terms of
this Agreement, if any, and (2) the amount of such Member's share of
Minimum Gain, including any "partner nonrecourse debt minimum gain" (as
defined in Regulations Section 1.704-2(i)(2); and (B) charging thereto the
items described in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6)
that apply to such Member. The existence and amount of any excess deficit
capital account balance at the end of any year shall be determined before
any other allocations provided for in this Article VII for such year have
been made.
7.3.6 Notwithstanding any other provision of this Agreement, any
expenditure described in Code Section 705(a)(2)(B), loss or deduction that is
attributable to partner nonrecourse debt (as defined in Regulations Section
1.704-2(b)(4)) shall be allocated to those Members that bear the economic risk
of loss for such partner nonrecourse debt, and among such Members as provided in
Regulations Section 1.704-2(i). If there is a net decrease for a Fiscal Year in
any partner nonrecourse debt minimum gain (as defined in Regulations Section
1.704-2(i)(2)), each Member with a share of such partner nonrecourse debt
minimum gain as of the beginning of such year shall be allocated items of gross
income and gain in the manner and to the extent provided in Regulations Section
1.704-2(i).
7.3.7 The foregoing provisions of this Section 7.3 are intended to
comply with Regulations Sections 1.704-1(b) and 1.704-2 and shall be interpreted
consistently with this intention. Any terms used in such provisions that are not
specifically defined in this Agreement shall have the meaning, if any, given
such terms in the Regulations cited above.
7.3.8 If any allocation of gain, income, loss, expense or any other
item is made pursuant to Section 7.3.1, 7.3.3, 7.3.4 or 7.3.6 of this Agreement
(the "Regulatory Allocations") with respect to one or more Members (such Members
being herein referred to as the "Deficit Members"), then the balance of such
items for the current and all subsequent fiscal years shall be allocated among
the Members other than the Deficit Members as if such items were allocated among
all the Members (including the Deficit Members) without regard to the Regulatory
Allocations, until the amount of such items that would have been allocated to
the Deficit Members but for the Regulatory Allocations, equals the amount
actually allocated to the Deficit Members pursuant to the Regulatory
Allocations.
7.3.9 Any depreciation recapture recognized pursuant to Code Sections
1245 and 1250 shall be allocated to the Members in the same proportions that the
depreciation or cost recovery deductions giving rise to such recapture were
allocated among such Members or their respective predecessors-in-interest.
7.3.10 In the event that there is a determination that Code Section
483 or Code Section 1274 (both relating to imputed interest with respect to
deferred payment sales of property) is applicable to any loans between the
Company and a Member, or that any loan between a Member and the Company is
subject to Code Section 7872 (relating to imputed interest with respect to
below-market interest rate loans), any income or deduction attributable to
interest on such a loan (whether stated or unstated) shall be allocated solely
to such Member.
7.4 Mechanics of Allocations. The Members have the authority to vary the
allocations provided hereunder to the extent necessary to comply with federal
income tax laws, so long as there is no material adverse effect on the amounts
distributable to any holder of any
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Membership Units. When the Company is dissolved and wound-up pursuant to this
Agreement, all items of income, gain, loss and deduction not previously
allocated shall be allocated to the Members pursuant to this Article. Whenever a
share of the Company's Tax Profits, Tax Losses, or other tax items is credited
or charged to the capital account of a Member, every item of income, gain, loss
or deduction entering into the computation of such Tax Profits, Tax Losses or
other item (or other relevant period) shall be considered either credited or
charged as the case may be, and every item of credit or tax preference relating
to Tax Profits, Tax Losses, or other tax item and applicable to the period
during which such Tax Profits, Tax Losses or other item as realized shall be
allocated to the applicable capital account in the same proportion. The methods
set forth in this Article for allocations are hereby expressly consented to by
each Member as an express condition to becoming a Member. Allocations made in
this Article shall be made to each person or entity holding any Membership Units
who or which has not been admitted as a Member hereunder to the same extent as
such allocations would be made to a Member owning such Membership Units.
7.5 Cash Distributions. The following shall apply to cash distributions:
7.5.1 Quarterly Tax Distributions. On or before the last day of each
of March, May, August, and December of each calendar year, the Company shall
distribute and each Member shall be entitled to receive an amount of
Distributable Cash equal to the product of (i) the highest combined effective
Federal and State of Georgia income tax rate imposed on the ordinary income of
an individual or a corporation (whichever is higher) multiplied by (ii) either
(a) with respect to the March and December payments, the Tax Profits, if any,
allocable to such Member hereunder for the calendar quarter then ended or (b)
with respect to the May and August payments, the estimated Tax Profits (based on
actual results to date and anticipated future results), if any, anticipated as
being allocable to such Member hereunder for the then current calendar quarter
in which such date occurs. Notwithstanding the immediate preceding sentence, the
Company shall not be required, except with the consent of a Supermajority in
Interest in the Voting Members, to make such a distribution to the extent such
distribution would require the that the Company borrow money or would result in
either (i) during the first twelve (12) month period during which this Agreement
remains in effect, the Cash and Cash Equivalents of the Company (including
Reserves) being less than One Hundred Thousand Dollars ($100,000) or (ii) at any
time after the first anniversary of the date of this Agreement, the Cash and
Cash Equivalents of the Company (including Reserves) being less than Five
Hundred Thousand Dollars ($500,000).
7.5.2 Other Distributions. From time to time, but no less frequently
than semi-annually, the Members shall determine to what extent, if any, the
Company's Distributable Cash exceeds the current and anticipated needs,
including, without limitation, needs for operating expenses, debt service,
acquisitions, and Reserves, if any, plus amounts required to be distributed
pursuant to Section 7.5.1. To the extent such excess exists, the Company shall
make cash distributions to the Members in the manner hereinafter provided.
(a) An aggregate amount equal to the difference between One
Million Dollars ($1,000,000) less the aggregate distributions required
under Section 7.5.1 above as made by the Company to all Members as of the
date of the anticipated distribution hereunder shall be distributed to the
Members in proportion to each Member's respective Membership Interest.
(b) From and after the date on which the Company has made
aggregate distributions to the Members under Section 7.5.2(a) of
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this Agreement of $1,000,000, the Company shall thereafter, until such time
as Global has been allocated the full Preferred Global Distribution
Balance, distribute all Distributable Cash available therefor as follows:
(i) to Global: the portion of the Distributable Cash equal to the Global
Preference Percentage; and (ii) to LaBarge: the remaining portion.
(c) From and after the date on which the Company has made
sufficient distributions to the Members under Section 7.5.2(b) of this
Agreement such that Global has received its entire Preferred Global
Distribution Balance, the Company shall thereafter distribute all
Distributable Cash available therefor to the Members in proportion to each
Member's respective Membership Interest in the Company.
7.5.3 Timing. All distributions which shall be made in accordance with
Section 7.5.2 of this Article shall be distributed to the Members at such times
as the Members determine pursuant to Section 4.4.10 to be advantageous and
practical for the Company. That portion of any distribution of Distributable
Cash which is allocable to any Membership Interest shall be made to the Member
who owns the Membership Units giving rise to such Membership Interest on the day
of the distribution.
7.5.4 Fees; Reimbursements. Each Member shall be entitled to receive
such compensation and such other fees in payment for all services rendered by
such Member, in his, her or its capacity other than that of a Member, for and on
behalf of the Company in such amount and at such time or times as a
Supermajority in Interest of the Voting Members shall determine.
7.5.5 Distributions Upon Dissolution. Notwithstanding anything herein
to the contrary, upon the occurrence of an event of dissolution as provided in
Article XII hereof, cash distributions occurring in connection with such event
of dissolution and thereafter shall be made in accordance with Article XII
hereof.
7.5.6 Distributions After the Fiscal Year End. The Members may, to the
extent consistent with this Article, elect to have distributions made after the
end of a Fiscal Year relate back to such Fiscal Year, provided, however, that
any such distribution must be made within forty-five (45) days after the end of
such Fiscal Year.
7.5.7 Withholding. The Company shall be authorized to withhold from
amounts to be distributed to any Member hereunder any withholding required by
the Code or any provision of any statute or state or local tax law, and to pay
such amounts to the Internal Revenue Service or other appropriate taxing
authority. Any such amounts withheld shall be treated as having been distributed
to such Member pursuant to this Article for all purposes of this Agreement.
7.5.8 Consent to Distributions. The methods set forth in this Article
for distributions are hereby expressly consented to by each Member as an express
condition to becoming a Member. Distributions required to be made under this
Article shall be made to each holder of any one or more Membership Units who has
not been admitted as a Member of the Company under this Agreement to the same
extent as such distributions would be made to a Member owning such Membership
Units.
7.6 Survival of Certain Distribution Rights. In the event Global shall
withdraw from the Company for any reason prior to its receipt of the entire
Preferred Global Distribution Balance and either (i) the Company is not
dissolved as a result of such withdrawal or (ii) the
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Company is thereafter or thereupon dissolved without Global participating in
such dissolution as a Member of the Company, then Global shall remain entitled
to receive payments from the Company and the Company shall remain obligated to
make payments to Global totaling the unpaid Preferred Global Distribution
Balance as of the date of Global's withdrawal (the "Withdrawal Date") all in the
manner hereinafter provided. From and after the date on which the Company has
made aggregate distributions to its Members totaling One Million Dollars
($1,000,000) and until such time as Global has received payments from the
Company totaling the Preferred Global Distribution Balance, the Company shall
make no distributions to its members unless any such distribution is accompanied
by a payment to Global of an amount equal to "X" times the amount so distributed
by the Company to its members. "X" shall equal the Global Preference Percentage
as of the Withdrawal Date divided by (100% less such Global Preference
Percentage). All payments made to Global hereunder shall be made to Global in
its capacity other than that as a Member and as such, shall be deductible to the
Company and included in the income of Global. It is all parties intention that
the obligations of the Company to cause Global to receive the Preferred Global
Distribution Balance survive Global's withdrawal from the Company.
ARTICLE VIII
TAXES
8.1 Elections. A Supermajority in Interest of the Voting Members may make
any tax elections for the Company allowed under the Code or the tax laws of any
state or other jurisdiction having taxing jurisdiction over the Company;
provided, however, that a Majority in Interest of the Voting Members shall make
any required elections and take any other steps required to cause the Company to
be taxed as a partnership for Federal income tax purposes.
8.2 Taxes of Taxing Jurisdictions. To the extent that the laws of any
taxing jurisdiction require, each Member will submit an agreement indicating
that the Member will make timely income tax payments to the taxing jurisdiction
and that the Member accepts personal jurisdiction of the taxing jurisdiction
with regard to the collection of income taxes attributable to the Member's
income, and interest, and penalties assessed on such income. The Company may,
where permitted by the rules of any taxing jurisdiction, file a composite,
combined or aggregate tax return reflecting the income of the Company and pay
the tax, interest and penalties of the Members on such income to the taxing
jurisdiction, in which case the Company shall inform the Members of the amount
of such tax interest and penalties so paid.
ARTICLE IX
TRANSFER OF MEMBERSHIP INTERESTS
9.1 Restrictions on Transfer. Except as otherwise specifically provided
under this Article, no Member shall have the right to sell, dispose of, pledge,
hypothecate, encumber or in any other manner transfer all or any part of his,
her or its respective Membership Units (including Class A Membership Units and
Class B Membership Units) or the Membership Interest represented thereby without
the prior written consent of a Supermajority in Interest of the Voting Members.
Any attempted disposition of all or any part of a Member's respective Membership
Units (including Class A Membership Units or Class B Membership Units) or the
Membership Interest represented thereby other than as specifically and expressly
permitted in this Article or approved in writing by a Supermajority in Interest
of the Voting Members shall be null and void ab initio and be of no effect
whatsoever. Any disposition of any Membership Units for which the consent of a
Supermajority in Interest of the Voting Members is obtained shall be effectuated
only after compliance with all conditions contained in Section 9.5 hereof.
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9.2 Call Option.
9.2.1 At any time from and after January 1, 2004 (but in no event
prior thereto), should either Global or LaBarge (the "Initiating Member") desire
to purchase all, but not less than all, of the Membership Units owned by the
other of the aforenamed Members (the "Target Member"), the Initiating Member
shall make a written offer (the "Offer") to the Target Member to purchase the
Membership Units owned by the Target Member for the Market Value thereof. If at
any time during the term of this Agreement, should either Global or LaBarge
cease to be a Member of the Company upon the happening of any event set forth in
Section 11.1, and if LaBarge or Global, respectively, (also the "Initiating
Member") then desires to purchase all, but not less than all, of the Membership
Units owned by the other of the aforenamed Members (also the "Target Member"),
the Initiating Member shall make a written offer (also an "Offer") to the Target
Member to purchase the Membership Units owned by the Target Member for the
Market Value thereof. Such Offer shall be irrevocable except as otherwise
provided herein. During the thirty (30) day period from and after the date of
the Target Member's receipt of such Offer, the Target Member and the Initiating
Member shall discuss the determination of the Market Value of the Target
Member's Membership Units in the Company. If during such thirty day period, the
Target Member and the Initiating Member agree in writing upon the Market Value
of the Target Member's Membership Units in the Company, then the Initiating
Member shall purchase and the Target Member shall sell all Membership Units in
the Company owned by the Target Member for the Market Value so determined all as
provided hereunder. If during such thirty day period, the Target Member and the
Initiating Member are unable to agree as to the Market Value of the Target
Member's Membership Units, then the Market Value of each Membership Unit in the
Company shall be determined in the manner and under the process provided under
Section 15.4.26 of this Agreement. Within ten (10) days from and after the final
determination of the Market Value by means of any appraisal process provided
under Section 15.4.26, the Target Member shall notify the Initiating Member of
the Target Member's acceptance of the Initiating Member's Offer (in which event
the Initiating Member shall purchase and the Target Member shall sell all
Membership Units in the Company owned by the Target Member for the Market Value
so determined under such appraisal process) or rejection of the Initiating
Member's Offer. If the Target Member accepts the Initiating Member's Offer and
the Market Value finally determined hereunder exceeds the Initial Proposed Value
by more than ten percent (10%) of such Initial Proposed Value, then the
Initiating Member shall be entitled to revoke the Offer whereupon such Offer and
the process initiated under this Section 9.2 shall cease to continue or apply.
If the Target Member rejects the Initiating Member's Offer, then within thirty
(30) days from and after the Initiating Member's receipt of such rejection, the
Initiating Member and the Target Member shall meet at the principal office of
the Company at which meeting each of them shall bid on the price such Member is
willing to pay for the Membership Units owned by the other of them; provided,
that in support of any bid made by any Member, such Member shall certify and
provide reasonable evidence to the other that such Member has a sufficient
source of funds to fulfill any bid so submitted. As a result of such bidding
process, the Member bidding the highest price shall be entitled to purchase from
the other, all Membership Units in the Company owned by such other Member for
the price so bid all in the manner hereinafter provided.
9.2.2 On the date which is thirty (30) days from and after the date on
which it is finally determined as to which of the Initiating Member or the
Target Member shall purchase the Membership Units owned by the other of them and
the purchase price (the "Applicable Price") to be paid therefor all in
accordance with Section 9.2.1 above (or such earlier date mutually agreed to
between the Initiating Member and the Target Member), the Initiating Member and
the Target Member shall meet (the "Closing") at the principal office of the
Company at which
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Closing (i) the purchasing Member shall deliver the Applicable Price to the
selling Member in immediately available and good funds and (ii) the selling
Member shall deliver all such instruments and documents as the purchasing Member
reasonably requests so as to transfer and convey good right, title and interest
in and to all Membership Units in the Company owned by the selling Member and
the Membership Interest represented thereby to the purchasing Member free and
clear of all liens and encumbrances of any nature whatsoever.
9.2.3 No Initiating Member shall be entitled to exercise the right and
entitlements provided under this Section 9.2 of this Agreement unless such
Initiating Member also exercise those rights and entitlements provided under
Section 9.2 of the BusCall Agreement; it being the Members, intention that any
disposition of all Membership Units in the Company by a Member under this
Section 9.2 be accompanied by a similar disposition of all of such Member's
membership units in BusCall pursuant to Section 9.2 of the BusCall Agreement.
9.2.4 In the event any Member invokes the application of the
provisions contained under this Section 9.2 on three (3) separate occasions with
the result being such Member's revocation of the Offer made by such Member as
permitted hereunder on each of said three occasions, such Member shall
thereafter have no right or entitlement to invoke any further application of
this Section 9.2.
9.3 Successors in Interest. Each Member shall be entitled to cause its
Membership Units in the Company to be transferred and assigned to such Member's
Successor in Interest or to any wholly owned subsidiary of such Member without
obtaining the consent of the Company or any other Voting Members provided, that
as a condition to such transfer and assignment, (i) all conditions imposed under
Section 9.5 shall be satisfied, (ii) there shall be no increase in the liability
and or responsibility of the Company or any other Member as a result of such
transfer and assignment, and (iii) either (y) the transferring or assigning
Member shall remain jointly and severally liable with the transferee or assignee
for the performance of all obligations and responsibilities of the transferee or
assignee under this Agreement, or (x) the transferee or assignee shall have
shareholders' or owners' equity at least equal to that of the transferring or
assigning Member after giving effect to such transfer or assignment.
9.4 Assignment of Economic Rights. Each Member shall be entitled to
voluntarily assign solely such Member's right to receive any distributions under
this Agreement to such persons or entities selected by such Member provided,
that as a condition to such transfer and assignment, there shall be no increase
in the liability and or responsibility of the Company or any other Member as a
result of such assignment or any other requirements or conditions imposed upon
the Company to make any distributions hereunder. In the event of any Member's
assignment of such Member's right to receive distributions hereunder, no
assignee of any such rights shall thereafter be entitled to exercise any
applicable voting rights, if any, or participate in any management decisions
with respect to the Company or its operations
9.5 Conditions for Transfer. Notwithstanding anything contained herein to
the contrary, no transferee, purchaser or recipient of any Membership Units in
the Company will become a Member of the Company unless and until all of the
following conditions are satisfied; provided, that all or any number of the
following conditions may be waived in writing by a Supermajority in Interest of
the Voting Members:
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(i) the transferring Member (or such Member's legal
representative) must have executed a written instrument of transfer of such
Member's Membership Units in form and substance reasonably satisfactory to
a Supermajority in Interest of the Voting Members;
(ii) the transferee must have executed a written agreement, in
form and substance reasonably satisfactory to a Supermajority in Interest
of the Voting Members including the transferring Member (or such
transferring Member's legal representative), to assume all of the duties
and obligations of the transferring Member under this Agreement, as well as
the BusCall Agreement, Purchase Agreement, Manufacturing Agreement,
Technology Agreement and Assignment Agreements, and to be bound by and
subject to all of the terms and conditions of such agreements as applicable
to the transferring Member or the transferring Member's Membership Units so
transferred;
(iii) the transferring Member (or such transferring Member's
legal representative) and the transferee must have executed a written
agreement, in form and substance reasonably satisfactory to a Supermajority
in Interest of the Voting Members, to indemnify and hold the Company and
all Members harmless from and against any loss or liability attributable to
any change in the tax status of the Company resulting from the transfer;
(iv) upon request by any of the Voting Members, the transferring
Member (or such transferring Member's legal representative) and the
transferee must have delivered to the Company a written opinion of counsel
for the Company or of other counsel reasonably satisfactory to a
Supermajority in Interest of the Voting Members (which opinion shall be
obtained at the expense of the transferring Member and the transferee) that
such transfer will not result in (i) a violation of applicable law
(including applicable securities laws) or this Agreement, (ii) the Company
being classified as an association or other entity taxable as a corporation
for any federal, state, local or other income tax purpose, or (iii) the
Company being deemed terminated pursuant to Code Section 708 or any
comparable future section of the Code.
A transferee who does not become a substituted Member will be entitled
to receive only that portion of the distributions or allocations to which the
transferring Member would otherwise be entitled with respect to the Membership
Units which are the subject of such transfer. If the requirements set forth in
Section 9.5(i) through (iv) are not satisfied, then the proposed transferee
shall have no right to vote any Class A Membership Units, if any, so transferred
on any question relating to the Company, to otherwise participate in the
management of the business and affairs of the Company, to otherwise exercise any
right, power, privilege, or other incident of ownership regarding any proposed
transferred Membership Units, or to become a Member but rather, the transferee
shall merely be the holder of said Membership Units.
9.6 Retroactive Allocations. No new Member of the Company shall be
entitled to any retroactive allocation of losses, income or expense deductions
incurred by the Company. The Managers may, at their option, at the time a new
member is admitted, close the Company books (as though the Company's tax year
had ended) or make pro rata allocations of loss, income and expense deductions
to a new Member for that portion of the Company's tax year in which such new
Member was admitted in accordance with the provisions of 706(d) of the Code and
the Treasury Regulations promulgated thereunder. No person or entity shall be
admitted as a transferee until all of the requirements set forth in Section
9.5(i) through (iv) are satisfied.
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9.7 Redemption of Class B Units. [RESERVED]
ARTICLE X
DISPUTES
10.1 Dispute Resolution. Upon the occurrence of the initial Deadlock Event,
resolution of such Deadlock Event including all undertakings of the Company in
connection therewith shall be decided by Global whereupon the Company shall
undertake all actions required by Global in connection therewith. Resolution of
the second Deadlock Event occurring hereunder including all undertakings of the
Company in connection therewith shall be decided by LaBarge whereupon the
Company shall undertake all actions required by LaBarge in connection therewith.
Thereafter, resolution of each subsequent Deadlock Event shall be decided on a
rotating basis by whichever of Global or LaBarge did not decide the last
previously occurring Deadlock Event.
10.2 Major Disputes. All parties acknowledge and agree that the provisions
contained under Section 10.1 shall apply only as to the resolution of Deadlock
Events and that any disputes arising between the parties with regard to any
matter or thing which does not constitute a Deadlock Event shall not be subject
to resolution under Section 10.1 but rather, may only be resolved by the
agreement of the requisite number of Voting Members required under this
Agreement or by means of the disputing parties resort to all available legal or
equitable remedies.
ARTICLE XI
DISSOCIATION OF A MEMBER
11.1 Dissociation. A Member shall cease to be a Member of the Company upon
the happening of any of the following events (a "Dissociation"):
11.1.1 The attempted transfer (other than as permitted under this
Agreement) of any portion of a Member's Membership Units or the Membership
Interest represented thereby; or
11.1.2 The withdrawal of the Member in the exercise of such Member's
statutory withdrawal right; or
11.1.3 The bankruptcy of the Member; or
11.1.4 In the case of a Member that is a limited liability company or
other separate organization other than a corporation, the dissolution and
commencement of winding up of the Member; or
11.1.5 In the case of a Member that is a corporation, the filing of
articles of dissolution for the corporation or the revocation of its charter
(except an involuntary administrative dissolution if the corporation is promptly
reinstated after notice thereof, provided that applicable state law treats the
reinstatement as relating back to and effective as of the effective date of the
administrative dissolution); or
11.1.6 A successful claim by any person of a right to all or any
portion of the Member's Membership Units or the Membership Interest represented
thereby on the basis that such interest has been transferred to such claimant by
operation of law or otherwise, except pursuant to a transfer permitted under
this Agreement.
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11.2 Rights of Dissociated Member. In the event of the Dissociation of any
Member (a "Dissociated Member"):
11.2.1 If the Dissociation is followed by the winding up of the
Company, the Dissociated Member shall be entitled to participate financially in
the winding up of the Company to the same extent as any other Member except
that, if the Dissociation is in violation of this Agreement, any distributions
to which the Dissociated Member would have been entitled shall be reduced by the
damages sustained by the Company as a result of the dissolution and winding up;
or
11.2.2 If the Dissociation is not followed by the winding up of the
Company, the Dissociated Member shall have only the right to receive the
allocations of profits or losses and the distributions payable with respect to
the Dissociated Member's interest.
ARTICLE XII
DISSOLUTION AND WINDING UP
12.1 Dissolution. The Company shall be dissolved and its affairs wound up,
upon the first to occur of the following events (which, unless the Members agree
to continue the business as provided below, shall constitute "Dissolution
Events"):
12.1.1 The expiration of the term set forth in Section 1.5, unless the
business of the Company is continued with the consent of a Majority in Interest
of the Voting Members;
12.1.2 The written consent of a Supermajority in Interest of the
Voting Members; and
12.1.3 The Dissociation of any Member, unless within 90 days after the
Dissociation the remaining Members elect to continue the business of the
Company.
12.2 Effect of Dissolution. Upon dissolution, the Company shall cease all
business except that incident to the winding up of its affairs, but the Company
shall not be terminated, but shall continue in existence until the winding up of
its affairs is completed and a Certificate of Dissolution has been issued by the
Secretary of State of Georgia. A Majority in Interest of the Board of Managers
as of the date of the Dissolution Event shall have full authority over all
matters related to the winding up of the Company.
12.3 Distribution of Assets on Dissolution. Upon dissolution of the Company
for any reason, the Company shall promptly commence to wind-up its affairs. A
reasonable period of time will be allowed for the orderly termination of the
Company's business, the discharge of its liabilities and the distribution or
liquidation of its remaining Property so as to enable the Company to minimize
the normal losses attendant to the liquidation process. The Managers will cause
a full accounting of the assets and liabilities of the Company as of the date of
dissolution to be taken and a written statement thereof will be furnished to
each Member within sixty (60) days after such date. Such accounting and
statement will be prepared under the direction of the Managers or, if the
Managers so determine, by a liquidating trustee selected by a Majority in
Interest of the Managers. In winding up the affairs of the Company, a Majority
in Interest of the Managers shall undertake the following:
12.3.1 Sell or otherwise liquidate all of the Company's Property as
promptly as practicable (except to the extent a Majority in Interest of the
Managers may determine or be
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required hereunder to distribute any Property in kind to the Members); provided,
that except in the case of a liquidation of the Company by reason of the
bankruptcy or insolvency of Global, the Managers shall not be authorized to sell
or otherwise liquidate the Company's interest, if any, in or to the License
Agreement, the Technology or the Intellectual Property;
12.3.2 Subject to Section 12.3.5 below, allocate any profit or loss
resulting from such sales to the Members in accordance with Article IX hereof;
12.3.3 Discharge all liabilities of the Company, including liabilities
to Members who are creditors, in the order of priority and to the extent
otherwise permitted by law, other than liabilities to Members for distributions;
12.3.4 Establish such Reserves as the Managers deem to be reasonably
necessary;
12.3.5 Distribute the remaining Property in the following order:
(i) First, distribute to the Members an aggregate amount
equal to the difference between One Million Dollars ($1,000,000) less
the aggregate distributions made under Sections 7.5.1 and 7.5.2(a) as
made by the Company in proportion to each Member's respective
Membership Interest.
(ii) Then, to Global in an amount equal to Global's Preferred
Global Distribution Balance immediately prior to the distribution; and
(iii) If any Property of the Company (including the License
Agreement, the Technology or the Intellectual Property) is to be
distributed in kind, the Appraised Value (net of any liability secured
by such Property that the Member receiving the Property is considered
to assume or take subject to under Code Section 752) of such Property
as of the date of dissolution shall be determined in the manner
provided under Section 15.4.3 of this Agreement. Such Property shall
be deemed to have been sold as of the date of dissolution for its
Appraised Value and the capital accounts of the Members shall be
adjusted pursuant to the provisions of this Agreement to reflect such
deemed sale.
(iv) In the event of a liquidation of the Company by reason
other than the bankruptcy or insolvency of Global and except as
otherwise agreed to by Global (with Global having the right to
unilaterally decline to receive the Company's interest, if any, in the
License Agreement, the Technology, and the Intellectual Property
hereunder), the Managers shall distribute all of the Company's right,
title and interest in and to the Intellectual Property, the
Technology, and the License Agreement (if any) to Global; provided,
that in making such in kind distribution, the Appraised Value of such
Intellectual Property, the Technology, and the License Agreement so
distributed shall be deemed to have been distributed to Global and
charged against any amounts which Global is entitled to receive (after
giving affect to the provisions contained in Sections 12.3.5 above) as
a result of the liquidation of the Company hereunder; provided,
further, that should the amount charged to Global in connection with
the distribution by the Company of its interest in the Intellectual
Property, the Technology or the License Agreement to Global hereunder
exceed the amount to which Global is entitled to receive as a result
of the dissolution of the Company,
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then (a) Global shall receive the Company's interest in the License
Agreement, the Intellectual Property and the Technology in complete
satisfaction of all dissolution distributions due it hereunder and
(ii) Global shall make a cash payment equal to such excess to the
Company with the Company thereafter distributing such cash payment to
all other Members hereunder other than Global in proportion to their
respective and relative rights to participate in such liquidation
distribution hereunder.
(v) The positive balance (if any) of each Member's remaining
capital account (as determined after taking into account all capital
account adjustments for the Company's taxable year during which the
liquidation occurs) shall be distributed to the Members, either in
cash or in kind, as determined by the Managers, with any Property
distributed in kind being valued for this purpose at its Appraised
Value. Any such distributions to the Members in respect of their
capital accounts shall be made in accordance with the time
requirements set forth in Section 1.704-1(b)(2)(ii)(b)(2) of the
Treasury Regulations.
(vi) All remaining Property shall go and be distributed to all
Members in proportion to their respective Membership Interests as
determined on the date of such liquidation and distribution.
12.4 Completion of Winding Up; Certificate of Dissolution. The winding up
of the Company shall be completed when all debts, liabilities, and obligations
of the Company have been paid and discharged or reasonably adequate provision
therefor has been made, and all of the remaining property and assets of the
Company have been distributed to the Members. Upon the completion of winding up
of the Company, a Certificate of Dissolution shall be delivered to the Secretary
of State of Georgia for filing. The Certificate of Dissolution shall set forth
the information required by the Act.
12.5 Further Assurances. The Members shall comply with any applicable
requirements of applicable law pertaining to the winding up of the affairs of
the Company and the final distribution of its Property.
ARTICLE XIII
INDEMNIFICATION
13.1 Indemnification of Members, Managers and Officers. The Company shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, including but not limited to
an action by or in the right of the Company, by reason of the fact that such
person is or was a Member, Manager or officer of the Company, or is or was
serving at the request of the Company as a manager, director, officer, employee
or agent of another company, corporation, partnership, joint venture, trust or
other enterprise, against expenses, including attorneys' fees, judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding if such person acted in good
faith and in a manner he or she reasonably believed to be in or not opposed to
the best interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he or she reasonably believed to be in or
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not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his or her
conduct was unlawful.
13.2 Discretionary Indemnification of Employees. A Majority in Interest of
the Voting Members may extend, on a case-by-case basis, the indemnification
provided in this Article to any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding by reason of the fact that such person is or was an employee or agent
of the Company other than a Member, Manager or officer of the Company.
13.3 Determination of Indemnitee's Compliance with Standard of Conduct. Any
indemnification under this Article, unless ordered by a court, shall be made by
the Company only as authorized in the specific case upon a determination that
indemnification of the Member, Manager, officer, employee or agent is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in this Article. The determination shall be made by a Majority in
Interest of the Voting Members.
13.4 Advance Payment of Expenses. Expenses incurred in defending a civil or
criminal action, suit or proceeding may be paid by the Company in advance of the
final disposition of the action, suit or proceeding as authorized by a Majority
in Interest of the Voting Members in the specific case upon receipt of an
undertaking by or on behalf of the Member, Manager, officer, employee or agent
to repay such amount unless it shall ultimately be determined that he or she is
entitled to be indemnified by the Company as authorized in this Article.
13.5 Non-Exclusivity; Survival of Indemnification. The indemnification
provided by this Article shall not be deemed exclusive of any other rights to
which those seeking indemnification may be entitled under any other provision of
law, the Agreement, or any other agreement, vote of Voting Members or otherwise,
both as to action in his or her official capacity and as to action in another
capacity while holding such office, and shall continue as to a person who has
ceased to be a Member, officer, employee or agent and shall inure to the benefit
of the heirs, executors and administrators of such a person; provided that no
such indemnity shall indemnify any person from or on account of such person's
conduct which was finally adjudged to have been knowingly fraudulent,
deliberately dishonest or willful misconduct.
13.6 Insurance on Indemnitees. In order to satisfy its obligations
hereunder, the Company may purchase and maintain insurance on behalf of any
person who is or was a Member, Manager, officer, employee or agent of the
Company and who is indemnified against liabilities under the provisions of this
Article.
13.7 Interpretation. For the purpose of this Article, references to "the
Company" include all constituent entities absorbed in a consolidation or merger
as well as the Company, so that any person who is or was a manager, director,
officer, employee or agent of such a constituent entity or is or was serving at
the request of such constituent entity as a manager, director, officer, employee
or agent of another company, corporation, partnership, joint venture, trust or
other enterprise shall stand in the same position under the provisions of this
Article with respect to the Company as such person would if he or she had served
the Company in the same capacity. For purposes of this Article, the term "other
enterprise" shall include employee benefit plans; the term "fines" shall include
any excise taxes assessed on a person with respect to an employee benefit plan;
and the term "serving at the request of the Company" shall include any service
as a Member, Manager, officer, employee or agent of the Company which imposes
duties
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on, or involves services by, such Member, Manager, officer, employee or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he or she
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Company" as referred to in this Article.
ARTICLE XIV
SPECIAL COVENANTS
14.1 Conflicting Interest Transactions. A Supermajority in Interest of the
Voting Members are hereby authorized to approve any "conflicting interest
transaction" in the manner and to the extent provided for in Section 14-11-307
of the Act, as the same may be amended from time to time, and any successor
provisions thereto. In particular, all Members hereby acknowledge and approve of
the Company's execution and performance of each of the Assignment Agreements,
the License Agreement, the Manufacturing Agreement and the Technology Agreement.
14.2 Managers and Members Shall Have No Exclusive Duty To Company. A
Manager or a Member may have other business interests and may engage in other
activities in addition to those relating to the Company. Neither the Company nor
any Member shall have any right, by virtue of this Agreement, to share or
participate in such other activities or investments of a Member or Manager or
the income or proceeds derived therefrom. Neither a Member nor a Manager shall
incur any liability to the Company or to any of the Members as a result of
engaging in any other business.
ARTICLE XV
MISCELLANEOUS PROVISIONS
15.1 No Partnership Intended, Except for Tax Purposes. The Members have
formed the Company under the Act, and expressly do not intend hereby to form a
partnership under any applicable laws of any applicable jurisdictions. The
Members do not intend to be partners one to another, or partners as to any third
party. To the extent any Member, by work or action, represents to another person
that any other Member is a partner or that the Company is a partnership, the
Member making such wrongful representation shall be liable to any other Member
who incurs personal liability by reason of such wrongful representation. The
Members, however, expressly intend to have the Company treated as a partnership
under the Code.
15.2 Rights of Creditors and Third Parties under Agreement. The Agreement
is entered into among the Company and the Members for the exclusive benefit of
the Company, its Members, and their successors and assignees. The Agreement is
expressly not intended for the benefit of any creditor of the Company or any
other person. Except and only to the extent provided by applicable statute, no
such creditor or third party shall have any rights under the Agreement or any
agreement between the Company and any Member with respect to any capital
contribution or otherwise.
15.3 Miscellaneous Provisions.
15.3.1 Entire Agreement. This Agreement together with the BusCall
Agreement, the Assignment Agreements, the Manufacturing Agreement, the License
Agreement, the Technology Agreement and the Purchase Agreement constitutes the
entire agreement between the parties and supersedes any prior understanding or
agreement among them respecting the subject matter hereof or thereof.
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15.3.2 Application of Georgia Law. This Agreement, and the application
of interpretation hereof, shall be governed exclusively by its terms and by the
laws of the State of Georgia, and specifically the Act.
15.3.3 Construction. Whenever the singular number is used in this
Agreement and when required by the context, the same shall include the plural
and vice versa, and the masculine gender shall include the feminine and the
neuter genders and vice versa.
15.3.4 Headings. The headings in this Agreement are inserted for
convenience only and are in no way intended to describe, interpret, define, or
limit the scope, extent or intent of this Agreement or any provision hereof.
15.3.5 Waivers. The failure of any party to seek redress for violation
of or to insist upon the strict performance of any covenant or condition of this
Agreement shall not prevent a subsequent act, which would have originally
constituted a violation, from having the effect of an original violation.
15.3.6. Rights and Remedies Cumulative. The rights and remedies
provided by this Agreement are cumulative and the use of any one right or remedy
by any party shall not preclude or waive the right not to use any or all other
remedies. Such rights and remedies are given in addition to any other rights the
parties may have by law, statute, ordinance or otherwise.
15.3.7 Severability. If any provision of this Agreement or the
application thereof to any person or circumstance shall be invalid, illegal or
unenforceable to any extent, the remainder of this Agreement and the application
thereof shall not be affected and shall be enforceable to the fullest extent
permitted by law.
15.3.8 Heirs, Successors and Assigns. Each and all of the covenants,
terms, provisions and agreements herein contained shall be binding upon and
inure to the benefit of the parties hereto and, to the extent permitted by this
Agreement, their respective heirs, legal representatives, successors and
assigns. Except as permitted under Article IX no party shall assign its rights,
entitlements, duties or obligations hereunder.
15.3.9 Counterparts; Copies. This Agreement may be executed in
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument. One or more copies of this Agreement may
be executed but it shall not be necessary, in making proof of the existence of
this Agreement, to provide more than one original copy.
15.3.10 Amendments. Any amendment to this Agreement shall be made in
writing and signed by all Members or their respective attorneys-in-fact.
15.3.11 Notices. Whenever this Agreement requires notice to be given
to any Member or Manager, the notice may be given by mail, in person by courier
delivery, or by overnight delivery. All notices required hereunder shall be
addressed and sent to the Member or Manager at his or her last known mailing
address as it appears on the books of the Company. Any such written notice shall
for all purposes of this Agreement be deemed as being delivered hereunder (i) if
mailed, three (3) days after being deposited with the United States Postal
Service, postage prepaid and designated as certified with return receipt
requested, and properly addressed to the addressee, (ii) if sent via overnight
delivery, one (1) day after being deposited with a nationally recognized next
day delivery service with all delivery fees prepaid or (iii) if personally
delivered, when so delivered. Any party may change the address located within
the United States at which such party is to receive
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notice hereunder by delivery of notice of such change of address to the Company
in accordance with this Section 15.3.11. Any party's failure or refusal to
accept any notice or the inability to deliver notice to any address last
reflected on the books and records of the Company shall constitute delivery of
such notice to the party to whom addressed.
15.3.12 No Engagement of Services. Nothing contained in this Agreement
shall be construed to constitute or be evidence of an implied agreement or
understanding on the part of the Company, to employ, engage or retain any Member
or Member's services for any specific period of time, except as expressly agreed
to in writing.
15.3.13 Representations and Warranties. Each party hereto hereby
represents and warrants to the other parties that (i) the entering into by him,
her or it of this Agreement, and the consummation by him, her or it of the
transactions contemplated hereby, does not and shall not violate any agreement
(whether express, implied or by operation of law) with any other person to which
he, she or it is a party or subject, and, (ii) this Agreement is binding upon
him, her or it pursuant to the laws of its domicile.
15.3.14 Force Majeure. Performance by any party under this Agreement
shall be excused for a period of three (3) months if such non-performance is
attributable to fires, strikes, riots, explosions, power blackouts, wars, labor
disputes, government requirements, civil or military authorities, acts of God or
the public enemy, outside vendors or transportation facilities, acts or
omissions of carriers or other causes beyond the control of the parties, whether
or not similar to the foregoing conditions. Upon the occurrence of a force
majeure circumstance, the party to the occurrence will immediately notify and
advise the other parties in writing.
15.4 Definitions. For purposes of this Agreement, unless the context
clearly indicates otherwise, capitalized words or phrases are (unless otherwise
defined in this Agreement) defined as follows:
15.4.1 "Advance Notification System" shall have the meaning provided
under the Purchase Agreement.
15.4.2 "Affiliate" shall have the meaning provided under the Purchase
Agreement. For purposes of this Agreement, the Company, BusCall, Global and
LaBarge shall not be deemed "Affiliates" of each other.
15.4.3 "Appraised Value" means with respect to any particular Company
asset as of any particular date the fair market value of such asset as mutually
agreed to in writing by a Majority in Interest of the Voting Members. If no such
agreement is reached within fifteen (15) days from and after the request of any
Voting Member that the Appraised Value of any asset be so agreed, then the
Appraised Value of such asset shall be the fair market value thereof as
determined by a duly qualified appraiser having a minimum of five (5) years
experience in making similar appraisals (a "Qualified Appraiser") as selected by
a Majority in Interest of the Voting Members; provided that if a Majority in
Interest of the Voting Members are unable to agree as to one Qualified
Appraiser, then Global shall select one Qualified Appraiser, LaBarge shall
select one Qualified Appraiser, and the two Qualified Appraisers so selected
shall appoint one additional Qualified Appraiser whereupon each Qualified
Appraiser so appointed hereunder shall prepare and deliver to each party seeking
such determination a written appraisal of the fair market value of the
particular Company Asset for which such Appraised Value is being determined and
such Appraised Value shall thereafter be conclusively determined as the average
of the two (2) written appraisals closest in value. Global shall be responsible
for all costs incurred in connection with any Qualified Appraiser selected by
Global, LaBarge shall be responsible for all costs incurred in connection with
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any Qualified Appraiser selected by LaBarge, and the Company shall be
responsible for all costs incurred in connection with any Qualified Appraiser
selected by either a Majority in Interest of the Voting Members or any third
Qualified Appraiser selected by the two Qualified Appraisers selected by each of
Global and LaBarge. Any determinations as to the value of any particular Company
asset made pursuant to this Agreement by any Qualified Appraiser(s) shall be
absolute, final and binding upon all of the parties hereto and shall not be
subject to arbitration, appeal or change.
15.4.4 "Assignment Agreements" shall have the meaning provided under
the Purchase Agreement.
15.4.5 "Built-in Gains" means allocations, pursuant to Code Section
704(c), taken into account in determining Tax Profits or Tax Losses, to the
extent such allocations are attributable to the excess of the agreed value over
the tax basis of property contributed to the Company.
15.4.6 "Built-in Losses" means allocations pursuant to Code Section
704(c), taken into account in determining Tax Profits and Tax Losses, to the
extent such allocations are attributable to the excess of the tax basis over the
agreed value of property contributed to the Company.
15.4.7 "BusCall" shall mean BusCall Properties, LLC, a Georgia limited
liability company.
15.4.8 "BusCall Agreement" means that certain Operating Agreement for
BusCall of even date herewith among BusCall, Global and LaBarge, as the same may
be amended or restated from time to time.
15.4.9 "Cash and Cash Equivalents" means all cash available to the
Company from all sources whatsoever including without limitation, any capital
contributions made to the Company from its Members, all Reserves and all
available borrowings or undrawn lines of credit available to the Company which
borrowings or lines of credit have been approved by a Majority in Interest of
the Voting Members in their respective sole discretions.
15.4.10 "Class A Membership Units" means those Membership Units issued
by the Company being designated as such under this Agreement and having those
respective rights and entitlements provided and being subject to those
respective restrictions imposed under this Agreement.
15.4.11 "Class B Membership Units" means those Membership Units issued
by the Company being designated as such under this Agreement and having those
respective rights and entitlements provided and being subject to those
respective restrictions imposed under this Agreement.
15.4.12 "Code" and "Regulations" mean, respectively, the Internal
Revenue Code of 1986, and the regulations promulgated thereunder, in either case
as amended from time to time. A reference to a Section of the Code shall refer
to the corresponding provision of any successor law. the Internal Revenue Code
of 1986, as amended, including effective date and transition rules (whether or
not codified), and any successor thereto. Any reference to a specific section or
sections of the Code shall be deemed to include a reference to any corresponding
provision of succeeding law.
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15.4.13 "Company" means NotiCom International, LLC, a Georgia limited
liability company.
15.4.14 "Deadlock Event" means the inability of a sufficient number of
the Voting Members to reach agreement with respect to any of the matters
concerning the operations of the Company, involving an amount of more than
$10,000, and which requires the consent of such number of the Voting Members
which inability continues for a period of 45 calendar days following the date on
which a written proposal for any such action is given by one Member to the other
Members. If at the end of such 45 day period no agreement is reached, then any
Member may give notice to the other of the occurrence of such Deadlock Event
which notice shall be deemed to have been given when personally delivered or on
the date such notice is mailed by registered or certified mail, return receipt
requested, addressed to the recipient Member's address of record as reflected on
the books of the Company.
15.4.15 "Development Services" means software and hardware development
services rendered, obtained, paid for or provided by LaBarge for, in the name,
and on behalf of the Company all of which Development Services shall inure to
the sole and exclusive benefit of the Company and all of which shall be valued
in the manner and methodology described in Exhibit A which is made a part of
this Agreement.
15.4.16 "Distributable Cash" means for any Fiscal Year means all cash,
revenues. proceeds and other funds received by the Company from its operations
including without limitation those received from the sale or disposition of all
or any part of the Company's Property (as hereinafter defined) and all debt
proceeds received under financing secured by all or any part of the Company's
Property, but excluding any and all capital contributions made to the Company by
its members less the sum of the following to the extent paid or set aside by the
Company: (i) all principal and interest payments on indebtedness of the Company
and all other sums due or paid to lenders of the Company; (ii) all cash
expenditures (including expenditures for taxes, fees [including those fees paid
to the Members other than in their capacities as Members of the Company
hereunder], maintenance, capital improvements and other similar operating costs)
incurred incident to the normal organization and operation of the Company's
business; (iii) such reserves as the Managers deem reasonably necessary for the
proper operation of the Company's business. Depreciation and other non-cash
charges and distributions to Members shall not be considered in determining
Distributable Cash. Any available cash in reduction of any capital reserve not
considered a return of capital shall be considered Distributable Cash.
15.4.17 "Fair Value" with respect to any particular Membership Units
as of any particular date shall mean the fair market value (the "Fair Value") of
such Membership Units as of such date as mutually agreed to in writing by the
Members who are making a mandatory capital call pursuant to Section 6.2,
("Non-Defaulting Members"), and the Members who are defaulting in the making of
such capital call ("Defaulting Members"). In the event the Non-Defaulting
Members and the Defaulting Members are unable to agree as to the Fair Value of
such Membership Interests, then the Non-Defaulting Members shall select and
engage an appraiser having a minimum of five (5) years experience in making
similar appraisals (a "Qualified Appraiser") which Qualified Appraiser shall
determine the Fair Value of each Membership Unit in the Company and shall
simultaneously provide a written appraisal report to both the Non-Defaulting
Members and the Defaulting Members disclosing and supporting the Fair Value so
determined. The Fair Value of any Membership Units as determined hereunder shall
be conclusive as to all parties hereto. In determining the Fair Value of any
Membership Units in the Company, the Qualified Appraisers shall not take into
consideration either (i) any amounts owed by any Member to any other Member or
the Company hereunder in connection with such Member's acquisition of any
Membership Units or any assets acquired or
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utilized by the Company in conducting its business operations hereunder or (ii)
any unpaid distributions owed or thereafter becoming owed by the Company to any
Member. The Company shall pay all costs associated with the engagement of the
Qualified Appraiser determining the Fair Value. Any determinations as to the
value of any Membership Units made pursuant to this Agreement by any Qualified
Appraiser(s) shall be absolute, final and binding upon all of the parties hereto
and shall not be subject to arbitration, appeal or change.
Notwithstanding the above, in the event that Fair Value has been determined
as set forth above within one year prior to the default of a Member in its
obligation to make a capital contribution pursuant to Section 6.2, then Fair
Value shall be the value determined pursuant to such appraisal adjusted as
follows: With respect to the period between the effective date of the appraisal
and the date immediately before the capital contribution of the Nondefaulting
Member, the quotient of (i) the sum of all contributions to the capital of the
Company increased by Tax Profits, excluding Built-in Gains, Built-in Losses, and
two-thirds the cumulative Tax Profits allocable to Global under Section 7.1.3,
and decreased by (i) Tax Losses, excluding Built-in Gains and Built-in Losses,
and (ii) distributions under Section 7.5 and 7.6 other than distributions to
Global of the Preferred Global Distribution Balance divided by (2) the aggregate
number of Membership Units outstanding immediately before the capital
contribution was made by the Nondefaulting Member.
15.4.18 "Field" shall have the meaning provided such term under the
Purchase Agreement.
15.4.19 "Fiscal Year" means the Company's fiscal year, which shall be
the year ending December 31; provided, however, that the parties shall apply to
the U.S. Department of Treasury for a fiscal year which is the same as the
fiscal year of LaBarge which, if approved, shall be the fiscal year of the
Company.
15.4.20 "Global Preference Percentage" shall be the sum of the
following: (i) 50%; and (ii) the percentage determined by dividing Global's
capital account by twice the total of all Members' capital accounts. Pursuant to
such formula, the initial Global Preference Percentage is 75%.
15.4.21 "Intellectual Property" shall have the meaning provided such
term under the Purchase Agreement.
15.4.22 "License Agreement" shall have the meaning provided such term
under the Purchase Agreement.
15.4.23 "Majority in Interest" means (i) as it applies to Members,
those Members owning more than fifty (50%) percent of all issued and outstanding
Class A Membership Units of the Company and (ii) as it applies to Managers,
those Managers constituting a majority of all persons then serving as Managers
or those members of the Board of Managers constituting a majority of all persons
then serving on the Board of Managers hereunder.
15.4.24 "Managers" means any entities or persons who shall be
appointed or become a manager or a member of the board of managers of the
Company pursuant to the applicable provisions of this Agreement.
15.4.25 "Manufacturing Agreement" shall have the meaning provided such
term under the Purchase Agreement.
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15.4.26 "Market Value" with respect to any particular Membership Units
as of any particular date shall mean the fair market value of such Membership
Units as of such date as mutually agreed to in writing by the Members who are
potentially disposing of such Membership Units (the "Selling Members") and the
Members who are potentially acquiring such Membership Units (the "Acquiring
Members"). In the event the Selling Members and the Acquiring Members are unable
to agree as to the Market Value of such Membership Interests, then the Acquiring
Members shall select and engage an appraiser having a minimum of five (5) years
experience in making similar appraisals (a "Qualified Appraiser") which
Qualified Appraiser shall determine the fair market value (the "Initial Proposed
Value") of each Membership Unit in the Company and shall simultaneously provide
a written appraisal report to both the Selling Members and the Acquiring Members
disclosing and supporting the Initial Proposed Value so determined hereunder. If
within ten (10) days after the Selling Members receive such appraisal report the
Selling Members fail to notify the Acquiring Members as to the Selling Members'
disagreement with the Initial Proposed Value, then the Market Value of each
Membership Unit shall be the Initial Proposed Value. If within ten (10) days
after the Selling Members' receipt of such written appraisal report, the Selling
Members notify the Acquiring Members that they disagree with the Initial
Proposed Value, then the Selling Members shall select and engage a Qualified
Appraiser which Qualified Appraiser shall determine the fair market value (the
"Second Proposed Value") of each Membership Unit in the Company and shall
simultaneously provide a written appraisal report to both the Selling Members
and the Acquiring Members disclosing and supporting the Second Proposed Value so
determined hereunder. If the Second Proposed Value does not exceed the Initial
Proposed Value by more than ten percent (10%) of the Initial Proposed Value,
then the Market Value of each Membership Unit shall equal the average of the
Initial Proposed Value and the Second Proposed Value. If the Second Proposed
Value exceeds the Initial Proposed Value by more than ten percent (10%) of the
Initial Proposed Value, then the two Qualified Appraisers previously selected
shall select a third Qualified Appraiser who shall determine the fair market
value (the "Third Proposed Value") of each Membership Unit in the Company and
shall simultaneously provide a written appraisal report to both the Selling
Members and the Acquiring Members disclosing and supporting the Third Proposed
Value so determined hereunder. In the event a third Qualified Appraiser is
selected hereunder, then the Market Value of each Membership Unit in the Company
shall equal the average of the two of the Initial Proposed Value, the Second
Proposed Value, and the Third Proposed Value which are closest in amount. The
Market Value of any Membership Units as determined hereunder shall be conclusive
as to all parties hereto. In determining the fair market value of any Membership
Units in the Company, the Qualified Appraisers shall not take into consideration
either (i) any amounts owed by any Member to any other Member or the Company
hereunder in connection with such Member's acquisition of any Membership Units
or any assets acquired or utilized by the Company in conducting its business
operations hereunder or (ii) any unpaid distributions owed or thereafter
becoming owed by the Company to any Member. The Acquiring Members shall pay all
costs associated with the engagement of the Qualified Appraiser determining the
Initial Proposed Value, the Selling Members shall pay all costs associated with
the engagement of the Qualified Appraiser determining the Second Proposed Value,
and each of the Selling Members and the Acquiring Members shall pay one-half
(1/2) of all costs associated with the engagement of the Qualified Appraiser
determining the Third Proposed Value; provided, that should the Acquiring
Members fail to acquire the Membership Units subject to appraisal hereunder by
reason of the Acquiring Member's withdrawal from the acquisition process
initiated by the Acquiring Members under this Agreement, then all costs
associated with the engagement of all Qualified Appraisers hereunder shall be
paid by the Acquiring Members. Any determinations as to the value of any
Membership Units made pursuant to this Agreement by any Qualified Appraiser(s)
shall be absolute, final and binding upon all of the parties hereto and shall
not be subject to arbitration, appeal or change.
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<PAGE> 38
15.4.27 "Member" means each of Global, LaBarge and each other person
or entity who both hereafter owns any Membership Units in the Company and is
admitted to the Company as a Member all as provided in this Agreement.
15.4.28 "Membership Interest" means with respect to one or more
Members as of any particular date the total number of Membership Units
(including Class A Membership Units and Class B Membership) owned by such Member
or Members expressed as a percentage or fraction of the total number of
Membership Units (including Class A Membership Units and Class B Membership
Units) then issued and outstanding in the Company all determined as of such
date.
15.4.29 "Membership Units" means all ownership interests in the
Company issued by the Company (including without limitation all Class A
Membership Units and Class B Membership Units) and all incidental rights
attendant to such ownership interests bestowed upon the owner thereof hereunder.
15.4.30 "Preferred Global Return" means the sum of One Million Three
Hundred Fourteen Thousand Dollars ($1,314,000).
15.4.31 "Preferred Global Allocation Balance" means as of any
particular date, the difference between (i) the Preferred Global Return less
(ii) the difference between (a) the aggregate allocation of Tax Profits made by
the Company to Global under this Agreement less (b) the aggregate allocation of
Tax Profits made by the Company to LaBarge under this Agreement.
15.4.32 "Preferred Global Distribution Balance" means as of any
particular date, the difference between (i) the Preferred Global Return less
(ii) the difference between (a) the aggregate distributions made by the Company
to Global under this Agreement less (b) the aggregate distributions made by the
Company to LaBarge under this Agreement.
15.4.33 "Property" at any particular time, shall mean the interest in
all real and personal property of the Company and any other assets or property
(tangible or intangible, choate, inchoate, fixed or contingent, including cash
and cash equivalents) of the Company including without limitation the
Technology. It is specifically contemplated that the Company may own assets
either directly in its own name or indirectly through its acquisition of an
ownership interest in other third party entities with the express intention that
the Company's interest in any and all third party entities shall constitute
Property hereunder.
15.4.34 "Purchase Agreement" that certain Purchase Agreement of even
date herewith between Global and LaBarge, as the same may be amended or restated
from time to time.
15.4.35 "Reserves" shall mean with respect to any fiscal period, funds
set aside or amounts allocated during such period to reserves which shall be
maintained in amounts deemed sufficient or necessary by the Managers to meet the
needs of the business of the Company, including: for (i) working capital to pay
taxes, insurance, debt service or other costs or expenses incident to the
ownership or operation of the Company's business and (ii) contingent and
unforeseen liabilities incurred in the ownership or operation of the Company's
business, in each case which may become due and payable within any period and
for which the cash to make such payments may not be generated by operations
during the period.
15.4.36 "Successor in Interest" shall mean with respect to any Member,
any entity succeeding to all or substantially all of the assets or properties
owned by such Member by reason of any merger, stock sale, recapitalization,
voluntary corporate reorganization (other than pursuant
33
<PAGE> 39
to any federal bankruptcy statutes or any other laws affecting creditor's rights
or constituting an assignment for the benefit of creditors), consolidation or
sale of all or substantially all of the assets of or involving such Member.
15.4.37 "Supermajority in Interest of the Voting Members" means (i) as
it applies to Members, those Members owning more than seventy-five percent (75%)
of all issued and outstanding Class A Membership Units of the Company and (ii)
as it applies to Managers, those Managers constituting seventy-five percent
(75%) of all persons then serving as Managers or those members of the Board of
Managers constituting seventy-five percent (75%) of all persons then serving on
the Board of Managers hereunder.
15.4.38 "Tax Profits" and "Tax Losses" for any taxable year mean the
net income or loss of the Company as reported for federal income tax purposes as
to such taxable year, calculated by (i) including all amounts allocated to all
Members under Code Sections 702(a)(1) through 702(a)(8), (ii) increased by
tax-exempt income and (iii) decreased by expenditures described in Code Section
705(a)(2)(B).
15.4.39 "Technology" shall have the meaning provided such term under
the Purchase Agreement.
15.4.40 "Technology Agreement" shall have the meaning provided such
term under the Purchase Agreement.
15.4.41 "Transfer" means any disposition, directly or indirectly, by
operation of law or otherwise, voluntarily or involuntarily, by intestacy, will,
trust or estate distribution, or inter vivos action, including any sale,
assignment, gift, exchange, pledge, encumbrance or other creation of a security
interest, attachment, creation of any interest in the Company or distribution
from the Company for the benefit of creditors, or (without limitation) other
transfer or disposition of a Member's interest in the Company or any right,
title or interest therein, whether absolute or as security, whether voluntary or
involuntary, including any Transfer by operation of law; "Transfer" when used as
a verb means to effect or attempt to effect a Transfer.
15.4.42 "Voting Members" means all Members owning any Class A
Membership Units in the Company.
IN WITNESS WHEREOF, the parties have entered into this Agreement to be
effective as of the date first written above.
By: GLOBAL RESEARCH SYSTEMS, INC. GLOBAL RESEARCH SYSTEMS, INC.
MEMBER
By: /s/ M. Kelly Jones By: /s/ M. Kelly Jones
----------------------------- --------------------------------
Its President Its President
Attest: /s/ Gena Payne Attest: /s/ Gena Payne
------------------------- -----------------------------
Its Secretary Its Secretary
(CORPORATE SEAL) (CORPORATE SEAL)
Address: 100 East Second Avenue, Fourth Floor
Rome, Georgia 30161
34
<PAGE> 40
By: LABARGE, INC., LABARGE, INC.
MEMBER
By: /s/ Craig E. LaBarge By: /s/ Craig E. LaBarge
--------------------------- ------------------------------
Its President Its President
Address: 9900A Clayton Road
St. Louis, M 63124
35
<PAGE> 41
EXHIBIT "A"
Development Services
1. All software development services shall be performed through subcontractors
who shall assign all rights, title and interest in and to the work product
produced in the or through the performance of such services to the Company.
All such software development services shall be valued at the amount set
forth in the relative agreements under which the same are performed which
agreement is mutually satisfactory to both Global and LaBarge.
2. All hardware development services shall be performed as mutually determined
by Global and LaBarge. All such services shall be valued at LaBarge's cost
if performed by a third party contractor and shall be valued at LaBarge's
direct and indirect cost if performed by LaBarge. All such costs shall be
subject to reasonable verification by Global.
36
<PAGE> 1
EXHIBIT INDEX
Agreement and Plan of Merger
Among LaBarge, Inc, LaBarge-OCS, Inc.
And Open Cellular Systems, Inc.
Dated February 9, 1999
Exhibit No.
- -----------
A Form of Convertible Note - Omitted
B Certificate of Merger - Omitted
C Exceptions to Representations and Warranties - Omitted
D Financial Statements - Omitted
E Form of Opinion of Counsel to OCS - Omitted
F Voting Agreement - Omitted
G Thomas Hilleary Employment and Non-Competition Agreement - Omitted
H Robert Fulton Employment and Non-Competition Agreement - Omitted
I Form of Agreement of Holders of Excluded Shares - Omitted
J Form of Opinion of Counsel to LaBarge and Acquisition Subsidiary -
Omitted
Schedule I Formula for calculation of net income - Omitted
Disclosure Schedule - Exceptions to Representations and Warranties - Omitted
** LABARGE AGREES TO FURNISH, SUPPLEMENTALLY, A COPY OF ANY OMITTED SCHEDULE
OR EXHIBIT TO THE SECURITIES AND EXCHANGE COMMISSION UPON REQUEST.
<PAGE> 2
EXHIBIT 10.14
AGREEMENT AND PLAN OF MERGER
Agreement entered into as of February 9, 1999, by and among LaBarge,
Inc., a Delaware corporation ("LaBarge"); LaBarge-OCS, Inc., a Delaware
corporation ("Acquisition Sub") and Open Cellular Systems, Inc., a Delaware
corporation ("OCS"). LaBarge, Acquisition Sub and OCS are referred to
collectively herein as the "Parties".
This Agreement contemplates a merger of OCS with and into Acquisition
Sub.
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
1. Definitions.
"Acquisition Sub" has the meaning set forth in the preface above.
"Acquisition Sub Common Share" means any share of the Acquisition Sub
Common Stock, $0.001 par value.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs and reasonable attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group within the meaning of
Code ss. 1504(a).
"Basis" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms or could form the basis for
any specified consequence.
"Certificate of Merger" has the meaning set forth in ss. 2(b)(i)
below.
"Closing" has the meaning set forth in ss. 2(b)(ii) below.
"Closing Date" has the meaning set forth in ss. 2(b)(ii) below.
"COBRA" means the requirements of Part 6 of Subtitle B of Title I of
ERISA and Code ss. 4980B.
"Code" means the Internal Revenue Code of 1986, as amended.
<PAGE> 3
"Confidential Information" means any information concerning the
businesses and affairs of OCS that is not already generally available to the
public.
"Controlled Group" has the meaning set forth in Code ss. 1563.
"Convertible Notes" means the promissory notes of LaBarge in the form
of Exhibit A hereto, which shall bear interest at the rate of 7.5% per annum
payable annually; if earned, the holder of each Convertible Note will be
entitled to receive a pro rata portion of the Participation Payments; the
Convertible Notes will be subordinated to all senior indebtedness of LaBarge.
"Debentures" means the subordinated debentures of OCS bearing interest
at the rate of 8% per annum.
"Delaware General Corporation Law" means the General Corporation Law of
the State of Delaware, as amended.
"Disclosure Schedule" has the meaning set forth in ss. 4 below.
"Effective Time" has the meaning set forth in ss. 2(b)(i) below.
"Employee Benefit Plan" means any (a) nonqualified deferred
compensation or retirement plan or arrangement, (b) qualified defined
contribution retirement plan or arrangement which is an Employee Pension Benefit
Plan, (c) qualified defined benefit retirement plan or arrangement which is an
Employee Pension Benefit Plan (including any Multiemployer Plan), or (d)
Employee Welfare Benefit Plan or material fringe benefit or other retirement,
bonus, or incentive plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
ss. 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in
ERISA ss. 3(1).
"Environmental, Health, and Safety Requirements" shall mean all
federal, state, local and foreign statutes, regulations, ordinances and other
provisions having the force or effect of law, all judicial and administrative
orders and determinations, all contractual obligations and all common law
concerning public health and safety, worker health and safety, and pollution or
protection of the environment, including without limitation all those relating
to the presence, use, production, generation, handling, transportation,
treatment, storage, disposal, distribution, labeling, testing, processing,
discharge, release, threatened release, control, or cleanup of any hazardous
materials, substances or wastes, chemical substances or mixtures, pesticides,
pollutants, contaminants, toxic chemicals, petroleum products or byproducts,
asbestos, polychlorinated biphenyls, noise or radiation, each as amended and as
now or hereafter in effect.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
2
<PAGE> 4
"ERISA Affiliate" means each entity which is treated as a single
employer with OCS for purposes of Code ss. 414.
"Excess Loss Account" has the meaning set forth in Reg. ss. 1.1502-19
adopted pursuant to the Code.
"Excluded Shares" has the meaning set forth in ss. 2(d) below.
"External System" means all services which are provided to OCS by third
parties and which are dependent on information technology, including, but not
limited to, any external payroll, accounting, or tax filing services, or any
checking, savings or other financial services.
"Fiduciary" has the meaning set forth in ERISA ss. 3(21).
"Financial Statement" has the meaning set forth in ss. 4(h) below.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Indemnified Party" has the meaning set forth in ss. 8(d)(i) below.
"Indemnifying Party" has the meaning set forth in ss. 8(d)(i) below.
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in connection therewith, (e) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals), (f) all computer software (including data and
related documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"Internal System" means all technology products and systems generally
operated or controlled in-house by OCS, or its employees, agents or independent
contractors including, but not limited to, computers, computer networks,
telephone systems, voicemail systems, intercom systems, pager systems, and
software applications.
3
<PAGE> 5
"IRS" means the Internal Revenue Service.
"Knowledge" means actual knowledge after reasonable investigation.
"LaBarge" has the meaning set forth in the preface above.
"LaBarge Common Stock" means any share of the Common Stock, $.01 par
value per share, of LaBarge.
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Licensed System" means all products and systems developed by or for
OCS which are licensed, sold, distributed or otherwise transferred by OCS to
third parties.
"Merger" has the meaning set forth in ss. 2(a) below.
"Most Recent Balance Sheet" means the balance sheet contained within
the Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth in
ss. 4(h) below.
"Most Recent Fiscal Month End" has the meaning set forth in ss. 4(h)
below.
"Most Recent Fiscal Year End" has the meaning set forth in ss. 4(h)
below.
"OCS" has the meaning set forth in the preface above.
"OCS Common Share" means any share of the Common Stock, $0.001 par
value per share, of OCS.
"OCS Investor" means any person who, immediately prior to the Effective
Time, (i) is an OCS Stockholder or (ii) the holder of OCS Options or Warrants.
"OCS Options" means options to purchase OCS Common Shares held by
employees of OCS.
"OCS Preferred Share" means any share of the Convertible Preferred
Stock, $0.001 per share, of OCS.
"OCS Stockholder" means any Person who or which holds any OCS Common or
Preferred Shares.
4
<PAGE> 6
"OCS Warrants" means warrants to purchase OCS Common Shares.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Participation Payments" means with respect to each of the fiscal years
of LaBarge ending in June, 1999 through 2003 the amount (if any) which the
product of (i) 35% of the net income of Acquisition Sub for such year
(calculated as provided on Schedule I hereto) as determined by the independent
accountants then auditing LaBarge's financial statements times (ii) a fraction,
the numerator of which is the aggregate principal amount of Convertible Notes
outstanding at the end of such fiscal year, and the denominator of which is $5.8
million (the "Fraction") exceeds the product of $435,000 times the Fraction.
"Party" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
"Prohibited Transaction" has the meaning set forth in ERISA ss. 406 and
Code ss. 4975.
"Reportable Event" has the meaning set forth in ERISA ss. 4043.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's, materialmen's,
and similar liens, (b) liens for taxes not yet due and payable or for taxes that
the taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"Surviving Corporation" has the meaning set forth in ss. 2(a) below.
5
<PAGE> 7
"System" means any, all or any combination of any Internal System,
External System or Licensed System.
"Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code ss. 59A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in ss. 8(d)(ii) below.
"Year 2000 Compliant" means, with respect to each System, that each
System is designed to be used before, during, and after January 1, 2000, and
will accurately accept date input and process, store and output date data and
date-related data, including, without limitation, calculating, comparing,
sorting and sequencing such data and calculating leap years before, during and
after January 1, 2000 without any manual intervention.
2. Basic Transaction.
(a) The Merger. Subject to the terms and conditions set
forth in this Agreement, on the Closing Date (as hereinafter defined), OCS will
merge with and into Acquisition Sub (the "Merger") pursuant to the provisions of
the Delaware General Corporation Law whereupon the separate corporate existence
of OCS shall cease. Acquisition Sub shall be the surviving corporation of the
Merger (sometimes referred to herein as the "Surviving Corporation") and shall
continue to be governed by the laws of the State of Delaware.
(b) Method of Effecting Merger and Closing. The Merger
shall be effected as follows:
(i) Subject to the satisfaction or waiver of all
other conditions to the Closing (as hereinafter defined), a
Certificate of Merger, in substantially the form attached
hereto as Exhibit B ( the "Certificate of Merger"), duly
executed by the proper officers of OCS and Acquisition Sub,
shall be filed with the Secretary of State of Delaware on the
Closing Date. The Merger shall become effective and be
consummated immediately upon the filing of the Certificate of
Merger. The date and time of such filing is herein referred to
as the "Effective Time."
6
<PAGE> 8
(ii) The closing of the transactions contemplated
by this Agreement (the "Closing") shall take place at the
offices of Armstrong Teasdale LLP in St. Louis, Missouri,
commencing at 9:00 a.m. local time on the business day
following the satisfaction or waiver of all conditions to the
obligations of the Parties to consummate the transactions
contemplated hereby (other than conditions with respect to
actions the respective Parties will take at the Closing
itself) or such other date as the Parties may mutually
determine (the "Closing Date").
(c) Actions at the Closing. At the Closing, (i) OCS will
deliver to LaBarge the various certificates, instruments, and documents referred
to in ss. 6(a) below, and (ii) LaBarge will deliver to OCS the various
certificates, instruments, and documents referred to in ss. 6(b) below.
(d) Conversion of OCS Common Shares. At the Effective
Time, by virtue of the Merger and without any action on the part of the holder
thereof, (i) each OCS Common Share that is issued and outstanding immediately
prior to the Effective Time (other than (A) OCS Common Shares ("Excluded
Shares") issued to OCS employees prior to the Effective Time upon their exercise
of OCS Options and (B) OCS Common Shares owned by LaBarge or an affiliate of
LaBarge) shall be converted into the right to receive Convertible Notes in a
principal amount of $4.25 and each such OCS Common Share shall be canceled, (ii)
each Excluded Share shall be converted into one share of common stock of the
Surviving Corporation, (iii) each Warrant outstanding immediately prior to the
Effective Time shall become a warrant to purchase Convertible Notes in an
aggregate principal amount equal to the principal amount of Convertible Notes
into which OCS Common Shares issuable upon exercise of such Warrant would have
been converted at the Effective Time had such Warrant been exercised prior
thereto, (iv) each Option held by an employee of OCS immediately prior to the
Effective Time shall remain outstanding and exercisable according to its terms,
except that each Option will become an option to purchase a number of shares of
common stock of the Surviving Corporation equal to the number of OCS Common
Shares subject to such Option immediately prior to the Effective Time; (v) each
share of common stock of Acquisition Sub issued and outstanding immediately
prior to the Effective Time shall remain outstanding; and (vi) each OCS Common
Share owned by LaBarge shall be canceled. No OCS Common Share outstanding prior
to the Effective Time shall be deemed to be outstanding or to have any rights
after the Effective Time. Immediately after the Effective Time and upon
presentation to LaBarge of certificates for such OCS Common Shares accompanied
by duly executed letters of transmittal, LaBarge will furnish to the former
holders of OCS Common Shares the Convertible Notes in the principal amounts (or,
in the case of Excluded Shares, certificates for the number of shares of common
stock of the Surviving Corporation) that they have the right to receive upon the
conversion of OCS Shares described above.
(e) Effect of Merger.
(i) Upon consummation of the Merger and pursuant to
this Agreement, the Surviving Corporation shall possess all
the rights, privileges, immunities and franchises, as well as
of a public as of a private nature, of Acquisition Sub and
7
<PAGE> 9
OCS; and all property, whether real, personal or mixed, and
all debts due on whatever account, including subscriptions to
shares and all other choses in action, and all and every other
interest, of or belonging or due to each of the merging
corporations, shall be taken and deemed to be transferred to
and vested in the Surviving Corporation without further act or
deed; and the title to any real estate, or any interest
therein, vested in either of such corporations shall not
revert or be in any way impaired by reason of the Merger. The
Merger shall have all further effects as specified in all
applicable corporate laws of the State of Delaware.
(ii) The Certificate of Incorporation and By-Laws of
Acquisition Sub in effect immediately prior to the Effective
Time shall be the Certificate of Incorporation and By-Laws of
the Surviving Corporation, except to the extent amended in the
Certificate of Merger in accordance with their respective
provisions and applicable law.
(iii) The officers and members of the Board of
Directors of Acquisition Sub immediately prior to Effective
Time shall be the officers and members of the Board of
Directors of the Surviving Corporation, and such persons will
serve until their respective successors are duly elected and
qualified.
(f) Notice to Holders. As soon as practicable after the
Effective Time, the Surviving Corporation shall provide written notice that the
Merger has been consummated to each former holder of OCS Common Shares, and each
holder of an OCS Warrant and each holder of an OCS Option (collectively,
"Holders"). Such notice shall be accompanied by the following:
(i) Written instructions to each Holder as to how
to deliver their certificates for OCS Common Shares, Warrants and Options to the
Surviving Corporation for exchange;
(ii) A form of letter of transmittal to be executed
by Holders and delivered to the Surviving Corporation with
certificates for OCS Common Shares, Warrants and Options.
(g) Exchange Procedures. On or after the Closing Date,
holders of OCS Common Shares shall deliver to the Surviving Corporation stock
certificates representing such Shares, together with the Letter of Transmittal
and such other transfer documents as the Surviving Corporation may deem
necessary or appropriate. In exchange therefor, holders of OCS Common Shares
shall be entitled to receive the Convertible Notes (or, in the case of Excluded
Shares, certificates for common stock of the Surviving Corporation) described in
ss. 2(d). After the Effective Time, there shall be no further transfer on the
records of OCS of certificates representing shares of OCS Common Shares and
after certificates are presented to OCS for transfer, they shall be canceled
against delivery of the Convertible Notes provided therefor in this Agreement.
On or after the Closing Date, holders of Warrants and Options shall deliver to
the
8
<PAGE> 10
Surviving Corporation their Warrant and Option Agreements, together with the
Letter of Transmittal. In exchange therefor, holders of Warrants shall be
entitled to receive warrants to purchase the Convertible Notes described in
ss. 2(d) and holders of Options shall receive the Options to purchase shares of
common stock of the Surviving Corporation described in ss. 2(d).
(h) Transfer Restrictions; Closing of Stock Transfer
Books. The stock transfer books of OCS shall be closed at the close of business
on the date hereof (except with respect to OCS Common Shares issued upon
exercise of Options and Warrants). In the event of a transfer of ownership of
OCS Common or Preferred Shares which is not registered in the transfer records
prior to the closing of such records, the Convertible Notes issuable in
conversion of such stock pursuant to this Agreement may be delivered to a
transferee, if the certificate representing such OCS Common is presented to the
Surviving Corporation, accompanied by all documents required to evidence and
effect such transfer and all applicable stock transfer taxes are paid. The
Surviving Corporation shall be entitled to rely upon the stock transfer books of
OCS to establish the identity of OCS Stockholders, which books shall be
conclusive with respect to the ownership of such shares.
3. Representations and Warranties of LaBarge. LaBarge represents
and warrants to OCS that the statements contained in this ss. 3 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 ss. 3, except as set
forth in Exhibit C attached hereto.
(a) Organization of LaBarge. LaBarge is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
(b) Authorization of Transaction. LaBarge has full power
and authority (including full corporate power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder. This Agreement
constitutes the valid and legally binding obligation of LaBarge, enforceable in
accordance with its terms and conditions. LaBarge need not give any notice to,
make any filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order to consummate the transactions
contemplated by this Agreement.
(c) Noncontravention. Neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (A) violate any constitution, statute, regulation,
rule, injunction, judgment, order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court to which LaBarge is subject or
any provision of its charter or by-laws or (B) conflict with, result in a breach
of, constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which LaBarge is a party or by which it is bound or to which any
of its assets is subject.
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(d) Brokers' Fees. LaBarge has no Liability or obligation
to pay any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement for which OCS or its
stockholders could become liable or obligated.
(e) Litigation. Neither LaBarge nor Acquisition Sub is a
defendant in 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.
(f) Filings with the SEC. LaBarge has made all filings with
the SEC that it has been required to make within the past three years under the
Securities Act and the Securities Exchange Act (collectively the "Public
Reports"). Each of the Public Reports has complied with the Securities Act and
the Securities Exchange Act in all material respects. None of the Public
Reports, as of their respective dates, contained any untrue statement of a
material fact or omitted to state a material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. LaBarge has delivered to OCS a correct and complete copy
of each Public Report.
(g) Organization of Acquisition Sub. Acquisition Sub is a
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation.
(h) Authorization of Transaction. Acquisition Sub has full
power and authority (including full corporate power and authority) to execute
and deliver this Agreement and to perform its obligations hereunder. This
Agreement constitutes the valid and legally binding obligation of Acquisition
Sub, enforceable in accordance with its terms and conditions. Acquisition Sub
need not give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order to
consummate the transactions contemplated by this Agreement.
(i) Noncontravention. Neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (A) violate any constitution, statute, regulation,
rule, injunction, judgment, order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court to which Acquisition Sub is
subject or any provision of its charter or by-laws or (B) conflict with, result
in a breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any agreement, contract, lease, license, instrument, or
other arrangement to which Acquisition Sub is a party or by which it is bound or
to which any of its assets is subject.
(j) Capitalization. The entire authorized capital stock of
Acquisition Sub consists of 1,600,000 Acquisition Sub Common Shares, of which
1,190,000 are issued and outstanding. All of the issued and outstanding
Acquisition Sub Common Shares have been duly authorized, are validly issued,
fully paid, and nonassessable. Except as contemplated by this
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Agreement, there are no outstanding or authorized options, warrants, purchase
rights, subscription rights, conversion rights, exchange rights, or other
contracts or commitments that could require Acquisition Sub to issue, sell, or
otherwise cause to become outstanding any of its capital stock. There are no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to Acquisition Sub. There are no
voting trusts, proxies, or other agreements or understandings with respect to
the voting of the capital stock of Acquisition Sub.
(k) Brokers' Fees. Acquisition Sub has no Liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement for which OCS or its
stockholders could become liable or obligated.
(l) Convertible Notes and LaBarge Common Stock. The
Convertible Notes to be delivered in the Merger will be, as of the Effective
Time, valid and binding obligations of LaBarge enforceable according to their
terms and the LaBarge Common Stock issuable upon conversion of the Convertible
Notes will, when so issued, be duly and validly issued, fully paid and
nonassessable.
(m) Disclosure. The representations and warranties contained
in this ss. 3 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this ss. 3 not misleading.
4. Representations and Warranties Concerning OCS. OCS represents
and warrants to LaBarge that the statements contained in this ss. 4 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 ss. 4), except as set
forth in the disclosure schedule delivered by OCS to LaBarge on the date hereof
and initialed by the Parties (the "Disclosure Schedule"). Nothing in the
Disclosure Schedule shall be deemed adequate to disclose an exception to a
representation or warranty made herein, however, unless the Disclosure Schedule
identifies the exception with reasonable particularity and describes the
relevant facts in reasonable detail. Notwithstanding the foregoing, any
exception to any representation or warranty as to which LaBarge has Knowledge
prior to Closing shall be deemed to have been disclosed adequately regardless of
the form of disclosure in the Disclosure Schedule. Without limiting the
generality of the foregoing, the mere listing (or inclusion of a copy) of a
document or other item shall not be deemed adequate to disclose an exception to
a representation or warranty made herein (unless the representation or warranty
has to do with the existence of the document or other item itself). The
Disclosure Schedule will be arranged in paragraphs corresponding to the lettered
and numbered paragraphs contained in this ss. 4.
(a) Organization, Qualification, and Corporate Power. OCS is
a corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation. OCS is duly authorized to conduct
business and is in good standing under the laws of each jurisdiction where such
qualification is required. OCS has full corporate power and authority and all
material licenses, permits, and authorizations necessary to carry on the
businesses
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in which it is engaged and to own and use the properties owned and used by it.
ss. 4(a) of the Disclosure Schedule lists the directors and officers of OCS. OCS
has delivered to LaBarge correct and complete copies of the charter and by-laws
of OCS (as amended to date). The minute books (containing the records of
meetings of the stockholders, the board of directors, and any committees of the
board of directors), the stock certificate books, and the stock record books of
OCS are correct and complete. OCS is not in default under or in violation of any
provision of its charter or by-laws.
(b) Capitalization. The entire authorized capital stock of
OCS consists of (i) 1,600,000 OCS Common Shares, of which 940,000 OCS Common
Shares are issued and outstanding; (ii) 250,000 OCS Preferred Shares, of which
250,000 OCS Preferred Shares are issued and outstanding; (iii) employee stock
options to purchase an aggregate of 310,000 OCS Common Shares as set forth on
the Disclosure Schedule; and (iv) warrants to purchase an aggregate of 10,000
OCS Common Shares at a purchase price of $3.00 per OCS Common Shares. All of the
issued and outstanding OCS Common and Preferred Shares have been duly
authorized, are validly issued, fully paid, and nonassessable, and are held of
record by the persons set forth in ss. 4(b) of the Disclosure Schedule. All of
the OCS Common Shares subject to employee options and warrants will, upon
exercise of such options and warrants, be validly issued, fully paid, and
nonassessable; all such employee options and warrants are held by the persons
set forth in ss. 4(b) of the Disclosure Schedule. Except as set forth in ss.
4(b) of the Disclosure Schedule, there are no outstanding or authorized options,
warrants, purchase rights, subscription rights, conversion rights, exchange
rights, or other contracts or commitments that could require OCS to issue, sell,
or otherwise cause to become outstanding any of its capital stock. There are no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to OCS. There are no voting
trusts, proxies, or other agreements or understandings with respect to the
voting of the capital stock of OCS.
(c) Authorization of Transaction. OCS has full power and
authority (including full corporate power and authority) to execute and deliver
the Agreement and, subject to shareholder approval, to perform its obligations
thereunder. The Agreement constitutes the valid and legally binding obligation
of OCS, enforceable in accordance with its terms and conditions.
(d) Noncontravention. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated hereby,
will (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which OCS is subject or any provision of the
charter or by-laws of OCS or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require any notice
under any agreement, contract, lease, license, instrument, or other arrangement
to which OCS is a party or by which it is bound or to which any of its assets is
subject (or result in the imposition of any Security Interest upon any of its
assets). OCS need not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of
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<PAGE> 14
any government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement.
(e) Brokers' Fees. OCS has no Liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement.
(f) Title to Assets. OCS has good and marketable title to,
or a valid leasehold interest in, the properties and assets used by it, located
on its premises, or shown on the Most Recent Balance Sheet or acquired after the
date thereof, free and clear of all Security Interests, except for properties
and assets disposed of in the Ordinary Course of Business since the date of the
Most Recent Balance Sheet.
(g) Subsidiaries. OCS has no Subsidiaries.
(h) Financial Statements. Attached hereto as Exhibit D are
the following financial statements (collectively the "Financial Statements"):
(i) audited balance sheets and statements of income, changes in stockholders'
equity, and cash flow as of and for the fiscal years ended December 31, 1997
(the "Most Recent Fiscal Year End") for OCS; and (ii) unaudited balance sheets
and statements of income, changes in stockholders' equity, and cash flow (the
"Most Recent Financial Statements") as of and for the year ended December 31,
1998 (the "Most Recent Fiscal Month End") for OCS. The Financial Statements
(including the notes thereto) have been prepared in accordance with GAAP applied
on a consistent basis throughout the periods covered thereby, present fairly the
financial condition of OCS as of such dates and the results of operations of OCS
for such periods, are correct and complete, and are consistent with the books
and records of OCS (which books and records are correct and complete); provided,
however, that the Most Recent Financial Statements are subject to normal
year-end adjustments (which will not be material individually or in the
aggregate) and lack footnotes and other presentation items.
(i) Events Subsequent to Most Recent Financial Statements.
Since the Most Recent Financial Statements, there has not been any material
adverse change in the business, financial condition, operations, results of
operations, or future prospects of OCS. Without limiting the generality of the
foregoing, since that date:
(i) OCS has not sold, leased, transferred, or
assigned any of its assets, tangible or intangible, other than
for a fair consideration in the Ordinary Course of Business;
(ii) OCS has not entered into any agreement, contract,
lease, or license (or series of related agreements, contracts,
leases, and licenses) either involving more than $10,000 or
outside the Ordinary Course of Business;
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(iii) no party (including OCS) has accelerated,
terminated, modified, or canceled any agreement, contract,
lease, or license (or series of related agreements, contracts,
leases, and licenses) involving more than $10,000 to which OCS
is a party or by which any of them is bound;
(iv) OCS has not imposed any Security Interest upon
any of its assets, tangible or intangible;
(v) OCS has not made any capital expenditure (or
series of related capital expenditures) either involving more
than $10,000 or outside the Ordinary Course of Business;
(vi) OCS has not made any capital investment in, any
loan to, or any acquisition of the securities or assets of,
any other Person (or series of related capital investments,
loans, and acquisitions) either involving more than $10,000 or
outside the Ordinary Course of Business;
(vii) OCS has not issued any note, bond, or other debt
security or created, incurred, assumed, or guaranteed any
indebtedness for borrowed money or capitalized lease
obligation either involving more than $10,000 singly or in the
aggregate;
(viii) OCS has not delayed or postponed the payment
of accounts payable and other Liabilities outside the Ordinary
Course of Business;
(ix) OCS has not canceled, compromised, waived, or
released any right or claim (or series of related rights and
claims) either involving more than $10,000 or outside the
Ordinary Course of Business;
(x) OCS has not granted any license or sublicense of
any rights under or with respect to any Intellectual Property;
(xi) there has been no change made or authorized in
the charter or by-laws of OCS;
(xii) OCS has not declared, set aside, or paid any
dividend or made any distribution with respect to its capital
stock (whether in cash or in kind) or redeemed, purchased, or
otherwise acquired any of its capital stock;
(xiii) OCS has not experienced any damage, destruction,
or loss (whether or not covered by insurance) to its property;
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(xiv) OCS has not made any loan to, or entered into
any other transaction with, any of its directors, officers,
and employee;
(xv) OCS has not entered into any employment contract
or collective bargaining agreement, written or oral, or
modified the terms of any existing such contract or agreement;
(xvi) OCS has not granted any increase in the base
compensation of any of its directors, officers, and employees;
(xvii) OCS has not adopted, amended, modified, or
terminated any bonus, profit-sharing, incentive, severance, or
other plan, contract, or commitment for the benefit of any of
its directors, officers, and employees (or taken any such
action with respect to any other Employee Benefit Plan);
(xviii) OCS has not made any other change in employment
terms for any of its directors, officers, or employees;
(xix) OCS has not made or pledged to make any
charitable or other capital contribution outside the Ordinary
Course of Business;
(xx) there has not been any other material occurrence,
event, incident, action, failure to act, or transaction
involving OCS; and
(xxi) OCS has not committed to any of the foregoing.
(j) Undisclosed Liabilities. OCS 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), except for (i) Liabilities set forth on the face of the
Most Recent Balance Sheet (rather than in any notes thereto) and (ii)
Liabilities which have arisen after the Most Recent Fiscal Month End in the
Ordinary Course of Business (none of which results from, arises out of, relates
to, is in the nature of, or was caused by any breach of contract, breach of
warranty, tort, infringement, or violation of law).
(k) Legal Compliance. OCS has complied with all applicable
laws (including rules, regulations, codes, plans, injunctions, judgments,
orders, decrees, rulings, and charges thereunder) of federal, state, local, and
foreign governments (and all agencies thereof) the failure to comply with which
would have a material adverse effect on the condition or operations of OCS, and
no action, suit, proceeding, hearing, investigation, charge, complaint, claim,
demand, or notice has been filed, commenced or, to the Knowledge of OCS,
threatened against it alleging any failure so to comply.
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(l) Tax Matters.
(i) OCS 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 OCS (whether or
not shown on any Tax Return) have been paid. OCS currently 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 OCS does not file Tax
Returns that it is or may be subject to taxation by that
jurisdiction. There are no Security Interests on any of the
assets of OCS that arose in connection with any failure (or
alleged failure) to pay any Tax.
(ii) OCS 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.
(iii) OCS 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 OCS either (A) claimed or raised by any authority
in writing or (B) as to which OCS has Knowledge based upon
personal contact with any agent of such authority. ss. 4(k) of
the Disclosure Schedule lists all federal, state, local, and
foreign income Tax Returns filed with respect to OCS,
indicates those Tax Returns that have been audited, and
indicates those Tax Returns that currently are the subject of
audit. OCS has delivered to LaBarge correct and complete
copies of all federal income Tax Returns, examination reports,
and statements of deficiencies assessed against or agreed to
by OCS.
(iv) OCS 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.
(v) OCS has not filed a consent under Code ss. 341
(f) concerning collapsible corporations. OCS 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 ss. 280G. OCS has not been a United States real
property holding corporation within the meaning of Code
ss. 897(c)(2) during the applicable period specified in Code
ss. 897(c)(1)(A)(ii). OCS has disclosed on its federal income
Tax Returns all positions taken therein that could give rise
to a substantial understatement of federal income Tax within
the meaning of Code ss. 6662. OCS is not a party to any Tax
allocation or sharing agreement. OCS (A) has not been a member
of an Affiliated Group filing a consolidated federal income
Tax Return (other than a group the common parent of which was
OCS) or (B) has any Liability for the Taxes of any Person
(other than OCS) under Reg. ss. 1.1502-6 (or any
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similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise.
(vi) ss. 4(l) of the Disclosure Schedule sets forth
the following information with respect to OCS as of the most
recent practicable date (as well as on an estimated pro forma
basis as of the Closing giving effect to the consummation of
the transactions contemplated hereby): (A) the basis of OCS in
its assets; and (B) the amount of any net operating loss, net
capital loss, unused investment or other credit, unused
foreign tax, or excess charitable contribution allocable to
OCS.
(vii) The unpaid Taxes of OCS (A) did not, as of the
Most Recent Fiscal Month End, exceed the reserve for Tax
Liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax
income) set forth on the face of the Most Recent Balance Sheet
(rather than in any notes thereto) and (B) do not exceed that
reserve as adjusted for the passage of time through the
Closing Date in accordance with the past custom and practice
of OCS in filing their Tax Returns.
(m) Real Property. OCS neither owns nor leases any real
property.
(n) Intellectual Property.
(i) OCS owns or has the right to use pursuant to
license, sublicense, agreement, or permission all Intellectual
Property necessary or desirable for the operation of its
business as presently conducted. Each item of Intellectual
Property owned or used by OCS immediately prior to the Closing
hereunder will be owned or available for use by OCS on
identical terms and conditions immediately subsequent to the
Closing hereunder. OCS has made strategic decisions regarding
maintaining and protecting each item of Intellectual Property
that it owns, including filing provisional patent applications
in the U.S. Patent and Trademark Office and maintaining trade
secrets. OCS has obtained reasonable assurances from the
owners of the Intellectual Property that it uses that each
owner maintains and protects its respective Intellectual
Property.
(ii) OCS has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any
Intellectual Property rights of third parties, and OCS has
never received any charge, complaint, claim, demand, or notice
alleging any such interference, infringement,
misappropriation, or violation (including any claim that OCS
must license or refrain from using any Intellectual Property
rights of any third party). To the Knowledge of OCS, no third
party has interfered with, infringed upon, misappropriated, or
otherwise come into conflict with any Intellectual Property
rights of OCS.
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(iii) ss. 4(n)(iii) of the Disclosure Schedule
identifies each patent or registration which has been issued
to OCS with respect to any of its Intellectual Property,
identifies each pending patent application or application for
registration which OCS has made with respect to any of its
Intellectual Property, and identifies each license, agreement,
or other permission which OCS has granted to any third party
with respect to any of its Intellectual Property (together
with any exceptions). OCS has delivered to LaBarge correct and
complete copies of all such patents, registrations,
applications, licenses, agreements, and permissions (as
amended to date) and has made available to LaBarge correct and
complete copies of all other written documentation evidencing
ownership and prosecution (if applicable) of each such item.
ss. 4(n)(iii) of the Disclosure Schedule also identifies each
trade name or unregistered trademark used by OCS in connection
with its business. With respect to each item of Intellectual
Property required to be identified in ss. 4(n)(iii) of the
Disclosure Schedule:
(A) OCS possesses all right, title, and
interest in and to the item, free and clear of any
Security Interest, license, or other restriction;
(B) the item is not subject to any
outstanding injunction, judgment, order, decree,
ruling, or charge;
(C) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is
pending or, to the Knowledge of OCS is threatened
which challenges the legality, validity,
enforceability, use, or ownership of the item; and
(D) OCS has never agreed to indemnify any
Person for or against any interference, infringement,
misappropriation, or other conflict with respect to
the item.
(E) It is still too early to determine the
scope of the patent protection which may ultimately
be obtained, particularly since OCS contemplated
additional filings as an ongoing process to improve
and expand its Intellectual Property position.
(iv) ss. 4(n)(iv) of the Disclosure Schedule
identifies each item of Intellectual Property that any third
party owns and that OCS uses pursuant to license, sublicense,
agreement, or permission. OCS has delivered to LaBarge correct
and complete copies of all such licenses, sublicenses,
agreements, and permissions (as amended to date). With respect
to each item of Intellectual Property required to be
identified in ss. 4(n)(iv) of the Disclosure Schedule, OCS has
no knowledge that:
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(A) the license, sublicense, agreement, or
permission covering the item is not legal, valid,
binding, enforceable, and in full force and effect;
(B) the license, sublicense, agreement, or
permission will not continue to be legal, valid,
binding, enforceable, and in full force and effect on
identical terms following the consummation of the
transactions contemplated hereby;
(C) any party to the license, sublicense,
agreement, or permission is in breach or default, or
that any event has occurred which with notice or
lapse of time would constitute a breach or default or
permit termination, modification, or acceleration
thereunder;
(D) any party to the license, sublicense,
agreement, or permission has repudiated any provision
thereof;
(E) with respect to each sublicense, the
representations and warranties set forth in
subsections (A) through (D) above are not true and
correct with respect to the underlying license;
(F) the underlying item of Intellectual
Property is subject to any outstanding injunction,
judgment, order, decree, ruling, or charge; and
(G) any action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is
pending or, to the Knowledge of OCS, is threatened
which challenges the legality, validity, or
enforceability of the underlying item of Intellectual
Property.
OCS has not granted any sublicense or similar right
with respect to the license, sublicense, agreement, or
permission.
(v) To the Knowledge of OCS, OCS will not
interfere with, infringe upon, misappropriate, or otherwise
come into conflict with, any Intellectual Property rights of
third parties as a result of the continued operation of its
businesses as presently conducted.
(vi) OCS has no Knowledge of any new products,
inventions, procedures, or methods of manufacturing or
processing that any competitors or other third parties have
developed which reasonably could be expected to supersede or
make obsolete any product or process of OCS.
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(o) Tangible Assets. OCS owns or leases all machinery,
equipment, and other tangible assets necessary for the conduct of its business
as presently conducted. Each such tangible asset is free from defects (patent
and latent), has been maintained in accordance with normal industry practice, is
in good operating condition and repair (subject to normal wear and tear), and is
suitable for the purposes for which it presently is used.
(p) Inventory. The inventory of OCS consists of raw materials
and supplies, manufactured and purchased parts, goods in process, and finished
goods, all of which is merchantable and fit for the purpose for which it was
procured or manufactured, and none of which is slow-moving, obsolete, damaged,
or defective, subject only to the reserve for inventory writedown set forth on
the face of the Most Recent Balance Sheet (rather than in any notes thereto) as
adjusted for the passage of time through the Closing Date in accordance with the
past custom and practice of OCS.
(q) Contracts. ss.4(q) of the Disclosure Schedule lists the
following contracts and other agreements to which OCS is a party:
(i) any agreement (or group of related agreements)
for the lease of personal property to or from any Person
providing for lease payments in excess of $10,000 per annum;
(ii) 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 services, the performance of which
will extend over a period of more than one year, result in a
material loss to OCS, or involve consideration in excess of
$10,000;
(iii) any agreement concerning a partnership or joint
venture;
(iv) 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 $10,000 or under which it has imposed
a Security Interest on any of its assets, tangible or
intangible;
(v) any agreement concerning confidentiality or
noncompetition;
(vi) any agreement with Affiliates of OCS;
(vii) any profit-sharing, stock option, stock purchase,
stock appreciation, deferred compensation, severance, or other
material plan or arrangement for the benefit of its current or
former directors, officers, and employees;
(viii) any collective bargaining agreement;
<PAGE> 22
(ix) any agreement for the employment of any individual
on a full-time, part-time, consulting, or other basis
providing annual compensation in excess of $50,000 or
providing severance benefits;
(x) any agreement under which it has advanced or loaned
any amount to any of its directors, officers, and employees;
(xi) any agreement under which the consequences of a
default or termination could have a material adverse effect on
the business, financial condition, operations, results of
operations, or future prospects of OCS; or
(xii) any other agreement (or group of related
agreements) the performance of which involves consideration in
excess of $10,000.
OCS has delivered to LaBarge a correct and complete copy of each written
agreement listed in ss.4(q) of the Disclosure Schedule (as amended to date) and
a written summary setting forth the terms and conditions of each oral agreement
referred to in ss.4(q) of the Disclosure Schedule. 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; (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.
(r) Notes and Accounts Receivable. All notes and accounts
receivable of OCS are reflected properly on their books and records, are valid
receivables subject to no setoffs 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 face of the Most
Recent Balance Sheet (rather than in any notes thereto) as adjusted for the
passage of time through the Closing Date in accordance with the past custom and
practice of OCS.
(s) Powers of Attorney. There are no outstanding powers of
attorney executed on behalf of OCS.
(t) Insurance. ss.4(t) of the Disclosure Schedule sets forth
the following information with respect to each insurance policy (including
policies providing property, casualty, liability, and workers' compensation
coverage and bond and surety arrangements) to which OCS has been a party, a
named insured, or otherwise the beneficiary of coverage at any time:
(i) the name, address, and telephone number of the
agent;
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(ii) the name of the insurer, the name of the policyholder,
and the name of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the
coverage was on a claims made, occurrence, or other basis) and
amount (including a description of how deductibles and ceilings
are calculated and operate) of coverage; and
(v) a description of any retroactive premium adjustments or
other loss-sharing arrangements.
With respect to each such insurance policy: (A) the policy is legal, valid,
binding, enforceable, and in full force and effect; (B) the policy 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; (C) neither OCS nor any other party to the policy is in breach or
default (including with respect to the payment of premiums or the giving of
notices), and no event has occurred which, with notice or the lapse of time,
would constitute such a breach or default, or permit termination, modification,
or acceleration, under the policy; and (D) no party to the policy has repudiated
any provision thereof. OCS has been covered during the term of its existence by
insurance in scope and amount customary and reasonable for the businesses in
which it has engaged during the aforementioned period. ss.4(t) of the Disclosure
Schedule describes any self-insurance arrangements affecting OCS.
(u) Litigation. ss.4(u) of the Disclosure Schedule sets forth each
instance in which OCS (i) is subject to any outstanding injunction, judgment,
order, decree, ruling, or charge or (ii) is a party or, to the Knowledge of OCS,
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 ss.4(u) of the Disclosure Schedule could result in
any material adverse change in the business, financial condition, operations,
results of operations, or future prospects of OCS. OCS has no reason to believe
that any such action, suit, proceeding, hearing, or investigation may be brought
or threatened against OCS.
(v) Product Warranty. Each product manufactured, sold, leased, or
delivered by OCS has been in conformity with all applicable contractual
commitments and all express and implied warranties, and OCS 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 face of the Most Recent Balance Sheet (rather than in any notes
thereto) as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of OCS. No
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product manufactured, sold, leased, or delivered by OCS is subject to any
guaranty, warranty, or other indemnity beyond the applicable standard terms and
conditions of sale or lease. ss.4(v) of the Disclosure Schedule includes copies
of the standard terms and conditions of sale or lease for each of OCS
(containing applicable guaranty, warranty, and indemnity provisions).
(w) Product Liability. OCS 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) 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 OCS.
(x) Employees. Except as contemplated by this Agreement, to the
Knowledge of OCS, no executive, key employee, or group of employees has any
plans to terminate employment with OCS. OCS is not a party to or bound by any
collective bargaining agreement, nor has it experienced any strikes, grievances,
claims of unfair labor practices, or other collective bargaining disputes. OCS
has not committed any unfair labor practice. OCS has no Knowledge of any
organizational effort presently being made or threatened by or on behalf of any
labor union with respect to employees of OCS.
(y) Employee Benefits.
(i) ss.4(y) of the Disclosure Schedule lists each
Employee Benefit Plan that OCS maintains or to which OCS
contributes or has any obligation to contribute.
(A) 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.
(B) All required reports and descriptions (including Form
5500 Annual Reports, summary annual reports, PBGC-1's, and summary
plan descriptions) have been timely filed and distributed
appropriately with respect to each such Employee Benefit Plan. The
requirements of COBRA have been met with respect to each such
Employee Benefit Plan which is an Employee Welfare Benefit Plan.
(C) All contributions (including all employer contributions
and employee salary reduction contributions) which are due have
been paid to each such Employee Benefit Plan which is an Employee
Pension Benefit Plan and all contributions for any period ending
on or before the Closing Date which are not yet due have been paid
to each such Employee Pension Benefit Plan or accrued in
accordance with the past custom and practice of
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OCS. 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.
(D) Each such Employee Benefit Plan which is an Employee
Pension Benefit Plan meets the requirements of a "qualified plan"
under Code ss.401(a), has received, within the last two years, a
favorable determination letter from the Internal Revenue Service
that it is a "qualified plan," is not aware of any facts or
circumstances that could result in the revocation of such
determination letter.
(E) The market value of assets under each such Employee
Benefit Plan which is an Employee Pension Benefit Plan (other than
any Multiemployer Plan) equals or exceeds the present value of all
vested and nonvested Liabilities thereunder determined in
accordance with PBGC methods, factors, and assumptions applicable
to an Employee Pension Benefit Plan terminating on the date for
determination.
(F) OCS has delivered to LaBarge 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.
(ii) With respect to each Employee Benefit Plan that OCS and any
ERISA Affiliate maintains or ever has maintained or to which any of them
contributes, ever has contributed, or ever has been required to
contribute:
(A) No such Employee Benefit Plan which is an Employee
Pension Benefit Plan (other than any Multiemployer Plan) has been
completely or partially terminated or been the subject of a
Reportable Event as to which notices would be required to be filed
with the PBGC. No proceeding by the PBGC to terminate any such
Employee Pension Benefit Plan (other than any Multiemployer Plan)
has been instituted or, to the Knowledge of OCS, threatened.
(B) There have been no Prohibited Transactions with respect
to any such Employee Benefit Plan. No Fiduciary has any Liability
for breach of fiduciary duty or any other failure to act or comply
in connection with the administration or investment of the assets
of any such Employee Benefit Plan. No action, suit, proceeding,
hearing, or investigation with respect to the administration or
the investment of the assets of any such Employee
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Benefit Plan (other than routine claims for benefits) is pending
or, to the Knowledge of OCS, threatened. has no Knowledge of any
Basis for any such action, suit, proceeding, hearing, or
investigation.
(C) OCS has not incurred, and OCS has no reason to expect
that OCS will incur, any Liability to the PBGC (other than PBGC
premium payments) or otherwise under Title IV of ERISA (including
any withdrawal liability as defined in ERISA ss. 4201) or under
the Code with respect to any such Employee Benefit Plan which is
an Employee Pension Benefit Plan.
(iii) OCS does not contribute to, never has contributed to, and
never has been required to contribute to any Multiemployer Plan or has
any Liability (including withdrawal liability as defined in ERISA ss.
4201) under any Multiemployer Plan.
(iv) OCS does not maintain and never has maintained or contribute,
never has contributed, and never has 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 COBRA).
(z) Guaranties. OCS is not a guarantor or otherwise is liable for
any Liability or obligation (including indebtedness) of any other Person.
(aa) Environmental, Health, and Safety Matters.
(i) OCS, and its predecessors and Affiliates have complied
and are in compliance with all Environmental, Health, and Safety
Requirements.
(ii) Without limiting the generality of the foregoing, OCS and its
Affiliates have obtained and complied with, and are in compliance with,
all permits, licenses and other authorizations that are required
pursuant to Environmental, Health, and Safety Requirements for the
occupation of its facilities and the operation of its business; a list
of all such permits, licenses and other authorizations is set forth on
the attached "Environmental and Safety Permits Schedule."
(iii) Neither OCS nor its predecessors or Affiliates have received
any written or oral notice, report or other information regarding any
actual or alleged violation of Environmental, Health, and Safety
Requirements, or any liabilities or potential liabilities (whether
accrued, absolute, contingent, unliquidated or otherwise), including any
investigatory, remedial or corrective obligations, relating
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to any of them or their facilities arising under Environmental,
Health, and Safety Requirements.
(iv) None of the following exists at any property or
facility owned or operated by OCS: (1) underground storage tanks,
(2) asbestos-containing material in any form or condition, (3)
materials or equipment containing polychlorinated biphenyls, or
(4) landfills, surface impoundments, or disposal areas.
(v) Neither OCS nor its predecessors or Affiliates has
treated, stored, disposed of, arranged for or permitted the
disposal of, transported, handled, or released any substance,
including without limitation any hazardous substance, or owned or
operated any property or facility (and no such property or
facility is contaminated by any such substance) in a manner that
has given or would give rise to liabilities, including any
liability for response costs, corrective action costs, personal
injury, property damage, natural resources damages or attorney
fees, pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), the
Solid Waste Disposal Act, as amended ("SWDA") or any other
Environmental, Health, and Safety Requirements.
(vi) Neither this Agreement nor the consummation of the
transaction that is the subject of this Agreement will result in
any obligations for site investigation or cleanup, or notification
to or consent of government agencies or third parties, pursuant to
any of the so-called "transaction-triggered" or "responsible
property transfer" Environmental, Health, and Safety Requirements.
(vii) Neither OCS nor any of its predecessors or Affiliates
has, either expressly or by operation of law, assumed or
undertaken any liability, including without limitation any
obligation for corrective or remedial action, of any other Person
relating to Environmental, Health, and Safety Requirements.
(viii) No facts, events or conditions relating to the past
or present facilities, properties or operations of OCS, or any of
its predecessors or Affiliates will prevent, hinder or limit
continued compliance with Environmental, Health, and Safety
Requirements, give rise to any investigatory, remedial or
corrective obligations pursuant to Environmental, Health, and
Safety Requirements, or give rise to any other liabilities
(whether accrued, absolute, contingent, unliquidated or otherwise)
pursuant to Environmental, Health, and Safety Requirements,
including without limitation any relating to onsite or offsite
releases or threatened releases of hazardous materials, substances
or wastes, personal injury, property damage or natural resources
damage.
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(bb) Certain Business Relationships with OCS. No officer,
director, holder of 10% or more of the Common or Preferred Shares of OCS
or their respective Affiliates have been involved in any business
arrangement or relationship with OCS within the past 12 months, and no
such person owns any asset, tangible or intangible, which is used in the
business of OCS.
(cc) Year 2000 Compliance. Each System is Year 2000
Compliant.
(dd) Certain HSR Matters. OCS represents and warrants that
neither it nor any ultimate parent entity of OCS has net sales or assets
of $100 million, within the meaning of the HSR Act.
(ee) Disclosure. The representations and warranties
contained in this ss.4 do not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements and information contained in this ss.4 not misleading.
5. Covenants. The Parties agree as follows with respect to
the period from and after the execution of this Agreement:
(a) General. Each of the Parties will use its reasonable
best efforts to take all action and to do all things necessary, proper, or
advisable in order to consummate and make effective the transactions
contemplated by this Agreement (including satisfaction, but not waiver, of
the closing conditions set forth in ss.6 below).
(b) Notices and Consents. OCS will give any notices to third
parties, and will use its reasonable best efforts to obtain any third
party consents, that LaBarge reasonably may request in connection with the
matters referred to in ss.4(d) above.
(c) Regulatory Matters and Approvals. Each of the Parties
will give any notices to, make any filings with, and use its reasonable
best efforts to obtain any authorizations, consents, and approvals of
governments and governmental agencies in connection with the matters
referred to in ss.3(a)(ii), ss.3(b)(ii) and ss.4(d) above.
(d) Operation of Business. OCS will not engage in any
practice, take any action, or enter into any transaction outside the
Ordinary Course of Business. Without limiting the generality of the
foregoing:
(i) OCS will not authorize or effect any change in
its charter or by-laws;
(ii) OCS will not grant any options, warrants, or
other rights to purchase or obtain any of its capital stock or
issue, sell, or otherwise dispose of any of its capital stock
(except upon the conversion or exercise of options, warrants, and
other rights currently outstanding);
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(iii) OCS will not declare, set aside, or pay any dividend
or distribution with respect to its capital stock (whether in cash
or in kind), or redeem, repurchase, or otherwise acquire any of
its capital stock, in either case outside the Ordinary Course of
Business;
(iv) OCS will not issue any note, bond, or other debt
security or create, incur, assume, or guarantee any indebtedness
for borrowed money or capitalized lease obligation outside the
Ordinary Course of Business;
(v) OCS will not impose any Security Interest upon any of
its assets outside the Ordinary Course of Business;
(vi) OCS will not make any capital investment in, make any
loan to, or acquire the securities or assets of any other Person;
(vii) OCS will not make any change in employment terms for
any of its directors, officers, and employees; and
(viii) OCS will not commit to any of the foregoing.
(e) Full Access. OCS will permit representatives of LaBarge to
have full access to all premises, properties, personnel, books, records
(including tax records), contracts, and documents of or pertaining to each of
OCS. LaBarge will treat and hold as such any Confidential Information it
receives from OCS in the course of the reviews contemplated by this ss.5(e),
will not use any of the Confidential Information except in connection with this
Agreement, and, if this Agreement is terminated for any reason whatsoever,
agrees to return to OCS all tangible embodiments (and all copies) thereof which
are in its possession. LaBarge acknowledges that such Confidential Information
shall be subject to the Confidentiality Agreement.
(f) Notice of Developments. Each Party will give prompt written
notice to the other of any material adverse development causing a breach of any
of its own representations and warranties in ss.3 and ss.4 above. No disclosure
by any Party pursuant to this ss. 5(f), however, shall be deemed to amend or
supplement the Disclosure Schedule or to prevent or cure any misrepresentation,
breach of warranty, or breach of covenant.
(g) Exclusivity. OCS will not solicit, initiate, or encourage the
submission of any proposal or offer from any Person relating to the acquisition
of all or substantially all of the capital stock or assets of OCS (including any
acquisition structured as a merger, consolidation, or share exchange). OCS shall
notify LaBarge immediately if any Person makes any proposal, offer, inquiry, or
contact with respect to any of the foregoing.
(h) Appraisal Rights. LaBarge will provide the Surviving
Corporation with sufficient funds to satisfy the obligations (if any) of the
Surviving Corporation to holders of OCS
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Common Shares who properly exercise and perfect their appraisal rights pursuant
to 262 of the Delaware General Corporation Law.
(i) Purchase of Debentures. LaBarge will purchase from holders of
Debentures who tender Debentures to LaBarge within sixty (60) days after the
Closing Date, accompanied by documents of transfer reasonably acceptable to
LaBarge, the Debentures so tendered for cash in an amount equal to the principal
amount thereof plus interest accrued thereon.
6. Conditions to Obligation to Close.
(a) Conditions to Obligation of LaBarge and Acquisition Sub.
The obligation of LaBarge and Acquisition Sub to consummate the transactions to
be performed by them in connection with the Closing is subject to satisfaction
of the following conditions:
(i) this Agreement and the Merger shall have received the
approval of OCS' s. board of directors and stockholders;
(ii) OCS shall have procured all of the third party consents
specified in ss.5(b) above;
(iii) the representations and warranties set forth in ss.3 and
ss.4 above shall be true and correct in all material respects at and as
of the Closing Date;
(iv) OCS shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(v) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, or (C) affect adversely the right of the Surviving
Corporation to own the assets and to operate the businesses of OCS (and
no such injunction, judgment, order, decree, ruling, or charge shall be
in effect);
(vi) OCS and Christopher Powers shall have entered into a
binding Separation Agreement and General Release in form reasonably
satisfactory to LaBarge.
(vii) OCS shall have delivered to LaBarge a certificate to the
effect that each of the conditions specified above in ss.6(a)(i)-(vi)
is satisfied in all respects;
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(viii) this Agreement and the Merger shall have received the
approval of LaBarge board of directors;
(ix) LaBarge shall have received from counsel to OCS an
opinion in form and substance as set forth in Exhibit E attached
hereto, addressed to LaBarge, and Dated as of the Closing Date;
(x) holders of not less than 80% of the OCS Common Shares on
a fully-diluted basis (not including shares owned by LaBarge),
including Thomas N. Hilleary, Robert D. Fulton, Steven D. Wall and
Christopher L. Powers shall have entered into the Voting Agreement in
the form and substance as set forth in Exhibit F attached hereto and
the same shall be in full force and effect;
(xi) Messrs. Thomas N. Hilleary and Robert D. Fulton will have
executed the Employment and Non-Competition Agreements attached hereto
as Exhibits G and H;
(xii) each holder of Excluded Shares shall have executed an
agreement substantially in the form of Exhibit I hereto providing that
such Excluded Shares may be exchanged at any time by the holder thereof
for Convertible Notes in aggregate principal amount equal to the
principal amount into which such Excluded Shares would have been
converted at the Effective Time had they not been Excluded Shares, and
agreeing that LaBarge may call such Excluded Shares for exchange on the
foregoing basis at any time after the first anniversary of the
Effective Time;
(xiii) there shall have been no material adverse change in the
business or condition, financial or otherwise, assets or liabilities of
OCS;
(xiv) LaBarge shall have completed its due diligence
investigation of OCS, its business, condition, properties, financial
results, prospects and other matters to the satisfaction of LaBarge;
and
(xv) all actions to be taken by OCS in connection with
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to LaBarge.
LaBarge and Acquisition Sub may waive any condition specified in this ss.6(a)
if they execute a writing so stating at or prior to the Closing.
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(b) Conditions to Obligation of OCS. The obligation of OCS to
consummate the transactions to be performed by them in connection with the
Closing is subject to satisfaction of the following conditions:
(i) this Agreement and the Merger shall have received the
approval of LaBarge board of directors;
(ii) the representations and warranties set forth in ss.3
above shall be true and correct in all material respects at and as of
the Closing Date;
(iii) LaBarge shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iv) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, or (C) affect adversely the right of the Surviving
Corporation to own the former assets, to operate the former businesses
(and no such injunction, judgment, order, decree, ruling, or charge
shall be in effect);
(v) LaBarge shall have delivered to OCS a certificate to the
effect that each of the conditions specified above in ss.6(b)(i)-(iv)
is satisfied in all respects;
(vi) OCS shall have received from counsel to LaBarge an
opinion in form and substance as set forth in Exhibit J attached
hereto, addressed to OCS, and dated as of the Closing Date;
(vii) there shall have been no material adverse change in the
business or condition, financial or otherwise, assets or liabilities of
LaBarge;
(viii) OCS shall have completed its due diligence investigation
of LaBarge, its business, condition, properties, financial results and
other matters to the satisfaction of OCS; and
(ix) all actions to be taken by LaBarge in connection with
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to OCS.
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OCS may waive any condition specified in this ss.6(b) if it executes a
writing so stating at or prior to the Closing.
7. Termination.
(a) Termination of Agreement. Either of the Parties may
terminate this Agreement with the prior authorization of its board of
directors (whether before or after stockholder approval) as provided
below:
(i) the Parties may terminate this Agreement by mutual
written consent at any time prior to the Effective Time;
(ii) LaBarge may terminate this Agreement by giving
written notice to OCS at any time prior to the Effective Time (A) in
the event OCS has breached any material representation, warranty, or
covenant contained in this Agreement in any material respect, LaBarge
has notified OCS of the breach, and the breach has continued without
cure for a period of fifteen (15) days after the notice of breach or
(B) if the Closing shall not have occurred on or before March 15, 1999,
by reason of the failure of any condition precedent under ss.6(a)
hereof (unless the failure results primarily from LaBarge breaching any
representation, warranty, or covenant contained in this Agreement); and
(iii) OCS may terminate this Agreement by giving written
notice to LaBarge at any time prior to the Effective Time (A) in the
event LaBarge has breached any material representation, warranty, or
covenant contained in this Agreement in any material respect, OCS has
notified LaBarge of the breach, and the breach has continued without
cure for a period of fifteen (15) days after the notice of breach or
(B) if the Closing shall not have occurred on or before February 28,
1999, by reason of the failure of any condition precedent under ss.6(b)
hereof (unless the failure results primarily from OCS breaching any
representation, warranty, or covenant contained in this Agreement).
If this Agreement is terminated for any reason other than pursuant to
ss.7(a)(ii)(A) above, LaBarge shall not require payment from OCS on the demand
notes of OCS held by LaBarge prior to the 45th day after such termination.
(b) Effect of Termination. If any Party terminates this
Agreement pursuant to ss.7(a) above, all rights and obligations of the Parties
hereunder shall terminate without any liability of any Party to any other Party
(except for any liability of any Party then in breach).
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8. Remedies for Breach of This Agreement.
(a) Survival of Representations and Warranties. All of the
representations and warranties of OCS contained in of this Agreement shall
survive the Closing and continue in full force and effect for a period of twelve
(12) months thereafter. All of the other representations and warranties of
LaBarge contained in ss.3 of this Agreement shall survive the Closing and be for
the benefit of the OCS Investors (even if OCS knew or had reason to know of any
misrepresentation or breach of warranty at the time of Closing) and continue in
full force and effect for a period of twelve (12) months thereafter.
(b) Indemnification Provisions for Benefit of LaBarge.
(i) In the event OCS breaches (or in the event any
third party alleges facts that, if true, would mean OCS has
breached) any of its representations, warranties, and covenants
contained in this Agreement, provided that LaBarge makes a
written claim for indemnification against the OCS Investors
pursuant to ss.9(h) below within such survival period, then
LaBarge shall be entitled to indemnification from and against
the entirety of any Adverse Consequences LaBarge may suffer
through and after the date of the claim for indemnification
(including any Adverse Consequences LaBarge may suffer after the
end of any applicable survival period) resulting from, arising
out of, relating to, in the nature of, or caused by the breach
(or the alleged breach); provided, however, that LaBarge shall
not be entitled to indemnification from and against any Adverse
Consequences resulting from, arising out of, relating to, in the
nature of, or caused by the breach (or alleged breach) of any
representation or warranty contained in ss.4 until LaBarge has
suffered Adverse Consequences by reason of all such breaches (or
alleged breaches) in excess of a $50,000 aggregate threshold (at
which point LaBarge will be entitled to indemnity from and
against all such Adverse Consequences in excess of $50,000).
(ii) Any indemnification of LaBarge under this
ss.8(b) shall be limited to and withheld from the amount of
unpaid interest (but not Participation Payments) on the
Convertible Notes. LaBarge may offset the full amount of any
Adverse Consequences as to which it is entitled to
indemnification hereunder against its obligation to pay interest
on the Convertible Notes on a pro rata basis. LaBarge may
withhold payment of such interest in an aggregate amount not to
exceed the aggregate amount of claims for indemnification
properly and timely asserted by LaBarge pursuant to this ss.8
until such claims are resolved.
(c) Indemnification Provisions for Benefit of the OCS Investors.
(i) In the event LaBarge breaches (or in the event
any third party alleges facts that, if true, would mean LaBarge
has breached) any of its
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representations, warranties, and covenants contained in this
Agreement, and, if there is an applicable survival period
pursuant to ss.8(a) above, provided that holders of 20% or more
in principal amount of the Convertible Notes make a written
claim for indemnification against LaBarge pursuant to ss.9(h)
below within such survival period, then LaBarge agrees to
indemnify the OCS Investors from and against the entirety of any
Adverse Consequences they may suffer through and after the date
of the claim for indemnification (including any Adverse
Consequences they may suffer after the end of any applicable
survival period) resulting from, arising out of, relating to, in
the nature of, or caused by the breach (or the alleged breach).
(ii) Any indemnification by LaBarge under this ss.8
(c) shall not exceed the aggregate indemnification amount to
which LaBarge would be entitled under ss.8(a) at the time a
claim for indemnification is asserted against LaBarge hereunder.
(d) Matters Involving Third Parties.
(i) If any third party shall notify any Party (the
"Indemnified Party") with respect to any matter (a "Third Party
Claim") which may give rise to a claim for indemnification
against any other Party (the "Indemnifying Party") under this
ss.8, then the Indemnified Party shall promptly notify each
Indemnifying Party thereof in writing; provided, however, that
no delay on the part of the Indemnified Party in notifying any
Indemnifying Party shall relieve the Indemnifying Party from any
obligation hereunder unless (and then solely to the extent) the
Indemnifying Party thereby is prejudiced. Any such notice given
by LaBarge shall be given to the OCS Investors.
(ii) Any Indemnifying Party will have the right to
defend the Indemnified Party against the Third Party Claim
with counsel of its choice reasonably satisfactory to the
Indemnified Party so long as (A) the Indemnifying Party
notifies the Indemnified Party in writing within fifteen (15)
days after the Indemnified Party has given notice of the Third
Party Claim that the Indemnifying Party will indemnify the
Indemnified Party from and against the entirety of any Adverse
Consequences the Indemnified Party may suffer resulting from,
arising out of, relating to, in the nature of, or caused by
the Third Party Claim, (B) the Indemnifying Party provides the
Indemnified Party with evidence reasonably acceptable to the
Indemnified Party that the Indemnifying Party will have the
financial resources to defend against the Third Party Claim
and fulfill its indemnification obligations hereunder, (C) the
Third Party Claim involves only money damages and does not
seek an injunction or other equitable relief, (D) settlement
of, or an adverse judgment with respect to, the Third Party
Claim is not, in the good faith judgment of the Indemnified
Party, likely to establish a precedential custom or practice
adverse to the continuing business interests of the
34
<PAGE> 36
Indemnified Party, and (E) the Indemnifying Party conducts the
defense of the Third Party Claim actively and diligently.
(iii) So long as the Indemnifying Party is conducting
the defense of the Third Party Claim in accordance with
ss.8(d)(ii) above, (A) the Indemnified Party may retain separate
co-counsel at its sole cost and expense and participate in the
defense of the Third Party Claim, (B) the Indemnified Party will
not consent to the entry of any judgment or enter into any
settlement with respect to the Third Party Claim without the
prior written consent of the Indemnifying Party (not to be
withheld unreasonably), and (C) the Indemnifying Party will not
consent to the entry of any judgment or enter into any
settlement with respect to the Third Party Claim without the
prior written consent of the Indemnified Party (not to be
withheld unreasonably).
(iv) In the event any of the conditions in ss.8(d)
(ii) above is or becomes unsatisfied, however, (A) the
Indemnified Party may defend against, and consent to the entry
of any judgment or enter into any settlement with respect to,
the Third Party Claim in any manner it may deem appropriate (and
the Indemnified Party need not consult with, or obtain any
consent from, any Indemnifying Party in connection therewith),
(B) the Indemnifying Parties will reimburse the Indemnified
Party promptly and periodically for the costs of defending
against the Third Party Claim (including attorneys' fees and
expenses), and(C) the Indemnifying Parties will remain
responsible for any Adverse Consequences the Indemnified Party
may suffer resulting from, arising out of, relating to, in the
nature of, or caused by the Third Party Claim to the fullest
extent provided in this ss.8.
(e) Exclusive Indemnification Provisions. The foregoing
indemnification provisions are the exclusive indemnification rights of the
Parties and are in lieu of all statutory, equitable, or common law remedy any
Party may have for breach of representation, warranty, or covenant.
9. Miscellaneous.
(a) Press Releases and Public Announcements. No Party shall
issue any press release or make any public announcement relating to the subject
matter of this Agreement without the prior written approval of the other Party;
provided, however, that any Party may make any public disclosure it believes in
good faith is required by applicable law or any listing or trading agreement
concerning its publicly-traded securities (in which case the disclosing Party
will use its reasonable best efforts to advise the other Party prior to making
the disclosure).
(b) Entire Agreement. This Agreement (including the documents
referred to herein) constitutes the entire agreement between the Parties and
supersedes any prior understandings, agreements, or representations by or
between the Parties, written or oral, to the
35
<PAGE> 37
extent they related in any way to the subject matter hereof; provided, however,
the Confidentiality Agreement shall survive termination of this Agreement.
(c) Succession and Assignment. This Agreement shall be binding
upon and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of its rights, interests, or obligations hereunder without the prior written
approval of the other Parties.
(d) Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(e) Headings. The section headings contained in this Agreement
are inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to OCS:
c/o Suelthaus & Walsh, P.C.
7733 Forsyth Boulevard, Twelfth Floor
St. Louis, Missouri 63105
Attn: Thomas N. Hilleary
Copy to:
Suelthaus & Walsh, P.C.
7733 Forsyth Boulevard, Twelfth Floor
St. Louis, Missouri 63105
Attn: Thomas M. Walsh, Esq.
If to LaBarge or Acquisition Sub:
LaBarge, Inc.
9900A Clayton Road
St. Louis, Missouri 63124
Attn: Craig E. LaBarge, President & CEO
36
<PAGE> 38
Copy to:
Armstrong Teasdale LLP
One Metropolitan Square
St. Louis, Missouri 63102
Attn: John L. Gillis, Jr., Esq.
If to OCS Investors:
At their addresses reflected on the
books of OCS or (after Closing) LaBarge
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
(g) Governing Law. Except to the extent the Merger is governed
by the General Corporation Law of Delaware, this Agreement shall be governed by
and construed in accordance with the domestic laws of the State of Missouri
without giving effect to any choice or conflict of law provision or rule
(whether of the State of Missouri or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
Missouri.
(h) Amendments and Waivers. The Parties may mutually amend any
provision of this Agreement at any time prior to the Effective Time with the
prior authorization of their respective boards of directors. No amendment of any
provision of this Agreement shall be valid unless the same shall be in writing
and signed by both of the Parties. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(i) Severability. Any term or provision of this Agreement that
is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
(j) Expenses. Each of the Parties will bear its own costs and
expenses (including legal fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby.
37
<PAGE> 39
(k) Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires. The
word ?including? shall mean including without limitation.
(l) Incorporation of Exhibits and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
38
<PAGE> 40
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on
as of the date first above written.
LABARGE, INC.
By: /s/ Craig E. LaBarge
--------------------------------------
Title: CEO President
--------------------------------------
LABARGE-OCS, INC.
By: /s/ Craig E. LaBarge
--------------------------------------
Title: President
--------------------------------------
OPEN CELLULAR SYSTEMS, INC.
By: /s/ Tom Hilleary
--------------------------------------
Title: President
--------------------------------------
39
<PAGE> 1
EXHIBIT 23(a)
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
LaBarge, Inc.:
We consent to incorporation by reference in the Registration Statements No.
33-53583 and No. 33-31330 on Form S-8 of LaBarge, Inc. of our report dated
August 9, 1999, relating to the consolidated balance sheets of LaBarge, Inc. and
subsidiaries as of June 27, 1999 and June 28, 1998, and the related consolidated
statements of operations, stockholders' equity and cash flows, and related
schedule for each of the years in the three-year period ended June 27, 1999,
which report appears in the June 27, 1999 Annual Report on Form 10-K of LaBarge,
Inc.
KPMG LLP
St. Louis, Missouri
September 23, 1999
<PAGE> 2
EXHIBIT 23(a)
INDEPENDENT AUDITORS' CONSENT
The Board of Managers
NotiCom L.L.C.:
We consent to incorporation by reference in the registration statements (Nos.
33-53583 and 33-31330) on Form S-8 of LaBarge, Inc. of our report dated July 23,
1999 relating to the balance sheet of NotiCom L.L.C. as of June 27, 1999, and
the related statements of operations, members' equity, and cash flows for the
period from July 22, 1998 (inception) through June 27, 1999, which report
appears in the June 27, 1999 annual report on Form 10-K of LaBarge, Inc.
/s/ KPMG LLP
St. Louis, Missouri
September 23, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-27-1999
<PERIOD-END> JUN-27-1999
<CASH> 495
<SECURITIES> 0
<RECEIVABLES> 12,492
<ALLOWANCES> 2,347
<INVENTORY> 16,093
<CURRENT-ASSETS> 30,471
<PP&E> 13,188
<DEPRECIATION> 11,669
<TOTAL-ASSETS> 59,654
<CURRENT-LIABILITIES> 15,284
<BONDS> 0
0
0
<COMMON> 157
<OTHER-SE> 24,080
<TOTAL-LIABILITY-AND-EQUITY> 59,654
<SALES> 89,143
<TOTAL-REVENUES> 89,143
<CGS> 71,416
<TOTAL-COSTS> 90,258
<OTHER-EXPENSES> 1,025
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,451
<INCOME-PRETAX> (3,591)
<INCOME-TAX> (511)
<INCOME-CONTINUING> (3,080)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,080)
<EPS-BASIC> (.20)
<EPS-DILUTED> (.20)
</TABLE>
