SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT TO APPLICATION OR REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Exact name of Registrant
as specified in its charter: The Diana Corporation
Amendment No. 1
The undersigned Registrant hereby amends the following items, financial
statements, exhibits or other portions of its Form 8-K Report dated
November 20, 1995 as set forth in the pages attached hereto:
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired:
The audited financial statements of Valley
Communications, Inc. ("Valley") for the years ended
October 31, 1992, 1993, 1994 and for the ten months
ended August 31, 1995 are filed with this report.
(b) Pro Forma Financial Information:
The following unaudited pro forma condensed
consolidated financial information is filed with this
report:
Pro Forma Condensed Consolidated Balance Sheet at
October 14, 1995
Pro Forma Condensed Consolidated Statements of
Operations for the 52 Weeks Ended April 1, 1995
and the 28 Weeks Ended October 14, 1995
On November 20, 1995, C&L Acquisition
Corporation, a subsidiary of the Registrant's
subsidiary, C&L Communications, Inc. acquired 80% of
the common stock of Valley from Henry P. Mutz,
Christopher M. O'Connor and Kenneth R. Hurst for
approximately $4,320,000 including expenses
and future consideration contingent on Valley
attaining defined levels of pre tax earnings in
specified time periods through March 2001 (the
"Acquisition").
<PAGE>
The Pro Forma Condensed Consolidated Balance
Sheet of Registrant at October 14, 1995 reflects the
financial position of Registrant after giving effect
to the Acquisition and assumes the Acquisition took
place on November 30, 1995. The Pro Forma Condensed
Consolidated Statements of Operations for the 52
weeks ended April 1, 1995 and the 28 weeks ended
October 14, 1995 assume that the Acquisition occurred
at the beginning of the periods indicated and are
based on the operations of the Registrant for the 52
weeks ended April 1, 1995 and the 28 weeks ended
October 14, 1995.
The unaudited pro forma condensed consolidated
financial information has been prepared by the
Registrant based upon assumptions deemed proper by
it. The unaudited pro forma condensed consolidated
financial information presented herein is shown for
illustrative purposes only and is not necessarily
indicative of the future financial position or future
results of operations of the Registrant, or of the
financial position or results of operations of the
Registrant that would have actually occurred had the
transaction been in effect as of the date or for the
periods presented.
The unaudited pro forma condensed consolidated
financial information should be read in conjunction
with the historical financial statements and related
notes of the Registrant.
(c) Exhibits
2.1 Purchase Agreement ("PA") dated August 14, 1995
by and between C&L Acquisition Corporation and
Henry Mutz, Chris O'Connor and Ken Hurst.
2.2 First Amendment to PA dated November 20, 1995.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE DIANA CORPORATION
Date: January 31, 1996 /s/ R. Scott Miswald
Vice President and Treasurer
<PAGE>
VALLEY COMMUNICATIONS, INC.
Financial Statements for the Years Ended
October 31, 1992, 1993, 1994 and the
Ten Months Ended August 31, 1995
and Independent Auditors' Report
<PAGE>
VALLEY COMMUNICATIONS, INC.
TABLE OF CONTENTS
Page
FINANCIAL STATEMENTS:
Independent auditors' report 1
Balance sheets 2-3
Statements of operations 4
Statements of stockholders' equity 5
Statements of cash flow 6-7
Notes to financial statements 8-16
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Valley Communications, Inc.
Fremont, California
We have audited the accompanying balance sheets of Valley Communications, Inc.
(the Company) as of October 31, 1992, 1993, 1994 and August 31, 1995, and the
related statements of operations, stockholders' equity and cash flows for the
years and ten months then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Valley Communications, Inc.
as of October 31, 1992, 1993, 1994 and August 31, 1995, and the results of
its operations and its cash flows for the years and ten months then ended in
conformity with generally accepted accounting principles.
As discussed in Note 5 to the financial statements, the Company changed its
method of accounting for income taxes, effective November 1, 1992. Also, as
discussed in Note 1 to the financial statements, the Company changed its method
of accounting for marketable securities, effective November 1, 1994.
/s/Perisho, Tombor, Loomis & Ramirez
October 20, 1995
<PAGE>
VALLEY COMMUNICATIONS, INC.
BALANCE SHEETS
AS OF OCTOBER 31, 1992, 1993, 1994 AND AUGUST 31, 1995
<TABLE>
<CAPTION>
October 31,
---------------------------- August
31,
1992 1993 1994 1995
---- ---- ---- ------
ASSETS
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash $ 257,536 $ 343,066 $ 418,011 $ 408,593
Marketable securities 21,126 12,391 3,999 2,015
Receivables:
Trade, less allowance
for doubtful accounts
of $5,000 1,759,705 1,395,154 2,016,002 3,272,387
Retentions 1,208 - 90,178 43,888
Other receivables 35,640 1,304 5,849 16,500
Costs and estimated
earnings in excess of
billings on uncompleted
contracts 59,633 123,440 64,683 338,576
Inventory 124,759 114,849 516,057 770,492
Prepaid expenses 27,520 1,127 - 4,689
Deferred income taxes - - - 14,337
--------- --------- --------- ---------
Total current assets 2,287,127 1,991,331 3,114,779 4,871,477
PROPERTY AND EQUIPMENT:
Furniture and office
equipment 128,745 149,489 264,862 366,157
Tools and equipment 58,013 90,703 110,050 166,544
Vehicles 14,504 20,999 20,999 20,999
Leasehold improvements - 2,221 2,221 8,541
--------- --------- --------- ---------
201,262 263,412 398,132 562,241
Accumulated depreciation (66,819) (113,353) (178,095) (217,279)
--------- --------- --------- ---------
Net property and equipment 134,443 150,059 220,037 344,962
OTHER ASSETS:
Covenant not to compete
(net of accumulated
amortization of $21,434) - - 9,526 -
Deposits 9,511 14,417 30,031 32,354
--------- --------- --------- ---------
Total other assets 9,511 14,417 39,557 32,354
--------- --------- --------- ---------
Total assets $2,431,081 $2,155,807 $3,374,373 $5,248,793
========= ========= ========= =========
</TABLE>
See Independent Auditors' Report and Notes to Financial Statements.
2
<PAGE>
VALLEY COMMUNICATIONS, INC.
BALANCE SHEETS (Continued)
AS OF OCTOBER 31, 1992, 1993, 1994 AND AUGUST 31, 1995
<TABLE>
<CAPTION>
October 31,
---------------------------- August
31,
1992 1993 1994 1995
---- ---- ---- ------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C>
CURRENT LIABILITIES:
Line of credit $ 350,000 $ - $ 155,000 $ 290,000
Accounts payable 1,090,017 844,970 1,188,370 2,162,034
Billings in excess of
costs and estimated
earnings on uncompleted
contracts 347,309 186,730 192,559 188,378
Accrued salaries 61,328 69,397 477,509 605,616
Accrued vacation pay 36,479 56,990 70,316 112,436
Accrued sales commissions 42,977 45,016 50,536 81,547
Sales tax payable 48,035 20,080 43,095 55,229
Accrued income taxes - 103,969 191,565 205,066
Deferred income taxes 13,715 - 27,232 -
Current portion of long-
term debt 12,688 11,041 - 38,429
--------- --------- --------- ---------
Total current liabilities 2,002,548 1,338,193 2,396,182 3,738,735
LONG-TERM LIABILITIES:
Long-term debt, less
current portion 14,838 3,852 - 99,460
Deferred income taxes 29,007 127,445 71,025 10,220
--------- --------- --------- ---------
Total liabilities 2,046,393 1,469,490 2,467,207 3,848,415
COMMITMENTS
STOCKHOLDERS' EQUITY:
Common stock, no par value;
authorized 500,000 shares;
issued and outstanding:
1992 and 1993 - 100,000
shares; 1994 and 1995 -
75,000 shares 10,000 10,000 7,500 7,500
Retained earnings 374,688 676,317 899,666 1,394,853
Unrealized loss on market-
able securities - - - (1,975)
--------- -------- --------- ---------
Total stockholders'
equity 384,688 686,317 907,166 1,400,378
--------- --------- --------- ---------
Total liabilities and
stockholders' equity $2,431,081 $2,155,807 $3,374,373 $5,248,793
========= ========= ========= =========
</TABLE>
See Independent Auditors' Report and Notes to Financial Statements.
3
<PAGE>
VALLEY COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED OCTOBER 31, 1992, 1993, 1994 AND THE TEN MONTHS ENDED
AUGUST 31, 1995
<TABLE>
<CAPTION>
October 31,
---------------------------- August 31,
1992 1993 1994 1995
---- ---- ---- ---------
<S> <C> <C> <C> <C>
CONTRACT REVENUES EARNED $8,605,645 $10,575,927 $12,636,839 $13,511,082
COST OF REVENUES EARNED 6,369,053 7,579,355 8,527,091 9,092,889
--------- ---------- ---------- ----------
Gross profit 2,236,592 2,996,572 4,109,748 4,418,193
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,251,880 2,457,155 3,342,275 3,509,950
--------- ---------- ---------- ----------
OPERATING INCOME (LOSS) (15,288) 539,417 767,473 908,243
OTHER INCOME (EXPENSE):
Interest expense (27,343) (21,086) (17,081) (55,117)
Loss on marketable securities (4,741) (230) (8,392) -
Miscellaneous income 42,819 3,379 12,225 121
--------- ---------- ---------- ----------
10,735 (17,937) (13,248) (54,996)
--------- ---------- ---------- ----------
Income (loss) before income
taxes and cumulative effect
of a change in accounting
principle (4,553) 521,480 754,225 853,247
PROVISION (BENEFIT) FOR
INCOME TAXES (2,227) 212,748 308,376 358,060
--------- ---------- ---------- ----------
Income (loss) before cumulative
effect of a change in
accounting principle (2,326) 308,732 445,849 495,187
CUMULATIVE EFFECT ON PRIOR
YEARS OF ACCOUNTING CHANGE - 7,103 - -
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ (2,326) $ 301,629 $ 445,849 $ 495,187
========= ========== ========== ==========
INCOME (LOSS) PER SHARE:
Before accounting change $ (.02) $ 3.09 $ 5.49 $ 6.60
Accounting change - (.07) - -
--------- ---------- ---------- ----------
Net income (loss) $ (.02) $ 3.02 $ 5.49 $ 6.60
========= ========== ========== ==========
</TABLE>
See Independent Auditors' Report and Notes to Financial Statements.
4
<PAGE>
VALLEY COMMUNICATIONS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 1992, 1993, 1994 AND THE TEN MONTHS ENDED
AUGUST 31, 1995
<TABLE>
<CAPTION>
Unrealized
Common Stock Loss on Total
--------------- Retained Marketable Stockholders'
Shares Amount Earnings Securities Equity
------ ------ -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Balances,
November 1, 1991 100,000 $10,000 $ 377,014 $ - $ 387,014
Net loss - - (2,326) - (2,326)
------- ------ --------- ------ ---------
Balances,
October 31, 1992 100,000 10,000 374,688 - 384,688
Net income - - 301,629 - 301,629
------- ------ --------- ------ ---------
Balances,
October 31, 1993 100,000 10,000 676,317 - 686,317
Stock redemption (25,000) (2,500) (222,500) - (225,000)
Net income - - 445,849 - 445,849
------- ------ --------- ------ ---------
Balances,
October 31, 1994 75,000 7,500 899,666 - 907,166
Unrealized loss on
investments - - - (1,975) (1,975)
Net income - - 495,187 - 495,187
------ ------ --------- ------ ---------
Balances,
August 31, 1995 75,000 $ 7,500 $1,394,853 $(1,975) $1,400,378
====== ====== ========= ====== =========
</TABLE>
See Independent Auditors' Report and Notes to Financial Statements.
5
<PAGE>
VALLEY COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 1992, 1993, 1994 AND THE TEN MONTHS ENDED
AUGUST 31, 1995
<TABLE>
<CAPTION>
Ten Months
Years Ended October 31, Ended
---------------------------- August 31,
1992 1993 1994 1995
---- ---- ---- ---------
CASH FLOWS FROM OPERATING
ACTIVITIES:
<S> <C> <C> <C> <C>
NET INCOME (LOSS) $ (2,326) $ 301,629 $ 445,849 $ 495,187
ADJUSTMENTS TO RECONCILE
NET INCOME (LOSS) TO
NET CASH (USED) PROVIDED
BY OPERATING ACTIVITIES:
Depreciation and
amortization 31,157 46,534 86,175 85,752
Losses on marketable
securities 4,741 230 8,392 -
Loss on disposal of
equipment - - - 14,018
Deferred income taxes (43,682) 84,723 (29,188) (102,374)
DECREASE (INCREASE)IN
ASSETS:
Accounts receivable (803,491) 365,759 (711,026) (1,210,095)
Other receivables (26,224) 34,336 (4,545) (10,651)
Costs and estimated
earnings in excess
of billings on
uncompleted contracts (24,685) (63,807) 58,757 (273,893)
Inventory (79,071) 9,910 (401,208) (254,435)
Prepaid expenses (22,896) 26,393 1,127 (4,689)
Deposits (295) (4,906) (15,614) (2,323)
INCREASE (DECREASE)IN
LIABILITIES:
Accounts payable 626,196 (245,047) 343,400 973,664
Billings in excess of
costs and estimated
earnings on
uncompleted contracts 262,292 (160,579) 5,829 (4,181)
Accrued expenses 129,357 2,664 449,973 213,381
Accrued income taxes (89,496) 103,969 87,596 13,501
-------- -------- -------- ----------
NET CASH (USED) PROVIDED BY
OPERATING ACTIVITIES -
carried forward $ (38,423) $ 501,808 $ 325,517 $ (67,138)
======== ======== ======== ==========
</TABLE>
See Independent Auditors' Report and Notes to Financial Statements.
6
<PAGE>
VALLEY COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS (Continued)
FOR THE YEARS ENDED OCTOBER 31, 1992, 1993, 1994 AND THE TEN MONTHS ENDED
AUGUST 31, 1995
<TABLE>
<CAPTION>
Ten Months
Years Ended October 31, Ended
---------------------------- August 31,
1992 1993 1994 1995
---- ---- ---- ---------
<S> <C> <C> <C> <C>
NET CASH (USED) PROVIDED
BY OPERATING ACTIVITIES
(brought forward) $ (38,423) $ 501,808 $ 325,517 $ (67,138)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of property
and equipment (79,760) (62,150) (134,719) (70,011)
Purchases of marketable
securities (24,132) (9,779) - -
Proceeds from sale of
marketable securities 3,310 18,284 - -
Covenant not to compete - - (30,960) -
Stock redemption - - (225,000) -
-------- -------- -------- --------
Net cash used by
investing activities (100,582) (53,645) (390,679) (70,011)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net proceeds from (repayment
of) line of credit 270,000 (350,000) 155,000 135,000
Repayment of long-term debt (9,791) (12,633) (14,893) (7,269)
Proceeds from long-term debt 5,000 - - -
-------- -------- -------- --------
Net cash (used) provided
by financing activities 265,209 (362,633) 140,107 127,731
-------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH 126,204 85,530 74,945 (9,418)
CASH, beginning of period 131,332 257,536 343,066 418,011
-------- -------- -------- --------
CASH, end of period $ 257,536 $ 343,066 $ 418,011 $ 408,593
======== ======== ======== ========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOWS INFORMATION:
Cash paid during the period for:
Interest $ 27,343 $ 21,086 $ 17,081 $ 55,117
======== ======== ======== ========
Income taxes $ 97,900 $ 41,600 $ 249,968 $ 446,933
======== ======== ======== ========
Purchase of equipment
through incurrence of
long-term debt $ - $ - $ - $ 145,158
======== ======== ======== ========
</TABLE>
See Independent Auditors' Report and Notes to Financial Statements.
7
<PAGE>
VALLEY COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (See Independent Auditors' Report)
FOR THE YEARS ENDED OCTOBER 31, 1992, 1993, 1994 AND THE TEN MONTHS
ENDED AUGUST 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business - Valley Communications, Inc. (the Company) designs and
installs telephone and data cabling networks and related equipment.
Basis for Reporting - The Company maintains its records on the accrual
basis of accounting.
Revenue and Cost Recognition - Revenues from construction contracts are
recognized on the percentage-of-completion method, measured by the
percentage of total costs incurred to date to the estimated total costs
for each contract.
Contract costs include all direct material and labor costs and indirect
costs related to contract performance, such as indirect labor, supplies,
tools, payroll taxes, workmen's compensation insurance and travel.
Selling, general and administrative costs are charged to expense as
incurred. Provisions for estimated losses on uncompleted contracts are
made in the period in which such losses are determined. Changes in job
performance, job conditions, estimated profitability, and final contract
settlements may result in revisions to costs and income and are
recognized in the period in which the revisions are determined.
The asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed. The liability, "Billings in excess of costs and estimated earnings
on uncompleted contracts," represents billings in excess of revenues
recognized.
Marketable Securities - Effective November 1, 1994, the Company adopted
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities (FAS 115). In accordance with
FAS 115, prior years' financial statements have not been restated to
reflect the change in accounting method. There was no cumulative effect
as a result of adopting FAS 115 in 1995.
FAS 115 addresses the accounting and classification of investments. Prior
to the adoption of FAS 115, the Company carried marketable securities at
the lower of cost or market. At August 31, 1995, marketable securities
were classified as available for sale and are presented at their fair
market value. Gains or losses on the sale of securities are recognized on
a specific identification basis. Changes in net unrealized losses are
included in the determination of net income until October 31, 1994 when
unrealized losses are reported as a separate component of stockholders'
equity.
8
<PAGE>
VALLEY COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (See Independent Auditors' Report)
FOR THE YEARS ENDED OCTOBER 31, 1992, 1993, 1994 AND THE TEN MONTHS
ENDED AUGUST 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Inventory - Inventory consists of cable and related hardware not allocated
to a specific contract and is valued at the lower of cost, determined on a
first-in, first-out basis, or market value.
Property and Equipment - Property and equipment are stated at cost.
Depreciation of property and equipment is provided using the straight-line
method for financial reporting purposes over a five year estimated useful
life. For Federal income tax purposes, depreciation is computed using the
accelerated cost recovery method and the modified accelerated cost recovery
method.
Covenant Not to Compete - The covenant not to compete was amortized on a
straight-line basis over its effective term of thirteen months which ended
February 28, 1995. For income tax purposes, it is being amortized over 15
years.
Income Taxes - Effective November 1, 1992, the Company adopted Statement
of Financial Accounting Standards, No. 109, Accounting for Income Taxes
(FAS 109).
Also effective with the fiscal year beginning November 1, 1992, for income
tax purposes, the Company changed from the cash basis method of accounting
for construction contracts to the percentage-of-completion method.
Deferred income taxes are provided for temporary differences in reporting
income and expenses for financial reporting and income tax purposes. The
temporary differences relate to depreciation, California franchise taxes,
bad debts, unrealized losses on marketable securities, accrued vacation
benefits and the difference between the cash basis and the percentage-of
-completion basis of accounting for construction contracts.
Income (Loss) Per Share - Income (loss) per share is determined by
dividing income (loss) by the weighted average number of shares of common
stock outstanding.
9
<PAGE>
VALLEY COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (See Independent Auditors' Report)
FOR THE YEARS ENDED OCTOBER 31, 1992, 1993, 1994 AND THE TEN MONTHS
ENDED AUGUST 31, 1995
2. MARKETABLE SECURITIES
<TABLE>
<CAPTION>
October 31,
------------------------------- August 31,
1992 1993 1994 1995
---- ---- ---- ----------
Marketable securities consist of equity securities as follows:
<S> <C> <C> <C> <C>
Aggregate cost $ 27,267 $ 21,384 $ 21,384 $ 21,375
Unrealized losses (6,141) (8,993) (17,385) (19,360)
--------- --------- --------- ---------
Aggregate market value $ 21,126 $ 12,391 $ 3,999 $ 2,015
========= ========= ========= =========
Investment income (loss) for the periods ended consists of:
Net realized gain on
the sale of market-
able securities $ 1,400 $ 5,909 $ - $ -
Provision for net
unrealized losses:
Unrealized holding
gains - 593 - -
Unrealized holding
losses (6,141) (6,732) (8,392) -
--------- --------- --------- ---------
Loss on marketable
securities $ (4,741) $ (230) $ (8,392) $ -
========= ========= ========= =========
3. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Costs incurred on
uncompleted contracts $1,658,485 $1,338,860 $1,317,949 $2,416,773
Estimated earnings 290,520 622,068 526,242 922,147
--------- --------- --------- ---------
1,949,005 1,960,928 1,844,191 3,338,920
Billings to date 2,236,681 2,024,218 1,972,067 3,188,722
--------- --------- --------- ---------
$ (287,676) $ (63,290) $ (127,876) $ 150,198
========= ========= ========= =========
Included in the accompanying balance sheets under the following captions:
Costs and estimated
earnings in excess of
billings on
uncompleted contracts $ 59,633 $ 123,440 $ 64,683 $ 338,576
Billings in excess of
costs and estimated
earnings on
uncompleted contracts (347,309) (186,730) (192,559) (188,378)
--------- --------- --------- ---------
$ (287,676) $ (63,290) $ (127,876) $ 150,198
========= ========= ========= =========
</TABLE>
10
<PAGE>
VALLEY COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (See Independent Auditors' Report)
FOR THE YEARS ENDED OCTOBER 31, 1992, 1993, 1994 AND THE TEN MONTHS ENDED
AUGUST 31, 1995
4. LINE OF CREDIT
The Company has a revolving line of credit from a bank with a maximum
borrowing limit of $1 million which expires February 28, 1996. The credit
line bears interest at prime plus 1.0% (9.75% at August 31, 1995), is
secured by accounts receivable, contract rights and intangibles of the
Company, and is personally guaranteed by the stockholders. The line of
credit agreement also contains certain restrictive covenants including
maintenance of working capital in excess of $500,000 and a ratio of total
liabilities to tangible net worth of less than 3.5 to 1.0. At August 31,
1995, the balance outstanding on this line of credit was $290,000.
5. PROVISION (BENEFIT) FOR INCOME TAXES
<TABLE>
<CAPTION>
The income tax provision (benefit) consists of:
October 31,
------------------------------- August 31,
1992 1993 1994 1995
---- ---- ---- ----------
<S> <C> <C> <C> <C>
Current income taxes:
Federal $ 26,797 $ 107,072 $ 270,211 $ 356,879
State 14,658 38,497 67,353 103,555
--------- --------- --------- ---------
41,455 145,569 337,564 460,434
Deferred income taxes:
Federal (30,791) 61,046 (33,343) (81,696)
State (12,891) 6,133 4,155 (20,678)
--------- --------- --------- ---------
(43,682) 67,179 (29,188) (102,374)
--------- --------- --------- ---------
$ (2,227) $ 212,748 $ 308,376 $ 358,060
========= ========= ========= =========
</TABLE>
The provision (benefit) for income taxes at the Company's effective rate
differed from the provision (benefit) for income taxes at the statutory rate
as follows:
<TABLE>
<CAPTION>
October 31,
------------------------------- August 31,
1992 1993 1994 1995
---- ---- ---- ----------
<S> <C> <C> <C> <C>
Computed tax expense
(benefit) at the
expected statutory rate
(34%) $ (1,548) $ 177,303 $ 256,436 $ 290,103
State income taxes, net 1,413 33,918 47,195 54,698
Change in deferred tax
rates (2,092) - - -
Other, net - 1,527 4,745 13,259
--------- --------- --------- ---------
Income tax provision
(benefit) $ (2,227) $ 212,748 $ 308,376 $ 358,060
========= ========= ========= =========
</TABLE>
11
<PAGE>
VALLEY COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (See Independent Auditors' Report)
FOR THE YEARS ENDED OCTOBER 31, 1992, 1993, 1994 AND THE TEN MONTHS ENDED
AUGUST 31, 1995
5. PROVISION (BENEFIT) FOR INCOME TAXES (continued)
<TABLE>
<CAPTION>
The significant components of deferred income tax expense (benefit)
attributable to income from operations are as follows:
October 31,
------------------------------- August 31,
1992 1993 1994 1995
---- ---- ---- ----------
<S> <C> <C> <C> <C>
Cash to percentage-of-
completion accounting
change $ (120,894) $ 123,019 $ (39,406) $ (76,638)
Utilization of alterna-
tive minimum tax credits 82,343 (28,780) - -
Accrued liabilities - (15,788) - -
State income taxes - (13,088) 14,995 -
Other, net (5,131) 1,825 (4,777) (25,736)
--------- --------- --------- ---------
Deferred tax expense
(benefit) $ (43,682) $ 67,188 $ (29,188) $ (102,374)
========= ========= ========= =========
</TABLE>
Significant components of deferred income taxes at October 31, 1994 and August
31, 1995 were as follows:
<TABLE>
<CAPTION>
October 31, August 31,
1994 1995
---------- ---------
Deferred tax assets
Current:
<S> <C> <C>
State income taxes $ 24,272 $ 36,276
Accrued liabilities 15,224 31,347
Other 7,526 8,046
--------- ---------
47,022 75,669
Long-term:
Covenant not to compete 8,649 11,990
--------- ---------
Total deferred tax assets $ 55,671 $ 87,659
========= =========
Deferred tax liabilities
Current:
Cash to percentage of com-
pletion accounting charge $ 74,254 $ 61,332
Long-term:
Cash to percentage of com-
pletion accounting change 59,905
Depreciation 19,769 22,210
--------- ---------
79,674 22,210
--------- ---------
Total deferred tax
liabilities $ 153,928 $ 83,542
========= =========
</TABLE>
Effective November 1, 1992, the Company adopted FAS 109. Under the provisions
of FAS 109, the Company elected not to restate prior years. The cumulative
effect, as of November 1, 1992, of the adoption of FAS 109 resulted in a 1993
charge of $7,103.
12
<PAGE>
VALLEY COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (See Independent Auditors' Report)
FOR THE YEARS ENDED OCTOBER 31, 1992, 1993, 1994 AND THE TEN MONTHS ENDED
AUGUST 31, 1995
6. COMMITMENTS
The Company conducts its operations from leased offices in Fremont,
Sacramento and Irvine, California. The lease agreements require the
Company to pay base rents plus common area maintenance costs. The leases
expire as follows:
Fremont January, 1996 (3 year option available)
Sacramento June, 1996
Irvine Month-to-month lease
The Company also leases vehicles and office furniture and equipment under
operating leases.
The following is a schedule by years at August 31, 1995 of future minimum
rental payments required under operating leases having initial or remaining
noncancellable terms in excess of one year:
<TABLE>
<CAPTION>
Years Ending Furniture &
October 31, Offices Equipment Vehicles Total
------------ ------- ----------- -------- -----
<S> <C> <C> <C> <C>
1995 (two months) $21,310 $ 3,602 $ 4,574 $ 29,486
1996 60,532 21,630 21,552 103,714
1997 - 11,082 7,265 18,347
1998 - 1,716 - 1,716
------ ------ ------ -------
$81,842 $38,030 $33,391 $153,263
====== ====== ====== =======
</TABLE>
Rental expense under operating leases was:
<TABLE>
<CAPTION>
October 31,
----------------------------- August 31,
1992 1993 1994 1995
---- ---- ---- ----------
<S> <C> <C> <C> <C>
Offices (including
common area charges) $ 72,117 $ 126,032 $ 150,353 $ 115,120
Furniture and equipment 31,149 48,889 32,448 84,105
Vehicles 24,976 31,322 27,995 23,763
--------- --------- --------- ---------
$ 128,242 $ 206,243 $ 210,796 $ 222,988
========= ========= ========= =========
</TABLE>
13
<PAGE>
VALLEY COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (See Independent Auditors' Report)
FOR THE YEARS ENDED OCTOBER 31, 1992, 1993, 1994 AND THE TEN MONTHS ENDED
AUGUST 31, 1995
7. EMPLOYEE RETIREMENT PLAN
Effective April 1, 1992, the Company established a defined contribution
retirement plan. Under the plan, all full-time employees can elect to have
a certain percentage of their compensation deferred into the retirement
plan. The plan also provides for employer matching contributions in an
amount equal to such percentage of the participant's elective deferrals as
determined by the Company at its discretion for each plan year. Company
contributions for the years ended October 31, 1992, 1993, 1994 and the ten
months ended August 31, 1995 were $21,718, $35,298, $40,015 and $49,438,
respectively.
8. LONG-TERM DEBT
Long term debt at August 31, 1995 consists of the following:
Note payable to bank, collateralized by equipment, interest
at prime plus 1.0% (9.75% at August 31, 1995), payable in
monthly principal installments of $2,489 plus interest through
July, 1999 $116,994
Note payable to bank, collateralized by equipment, interest
at prime plus 1.0% (9.75% at August 31, 1995), payable in
monthly principal installments of $713 plus interest through
March, 1998. 20,895
-------
137,889
Less current portion 38,429
-------
$ 99,460
=======
Future maturities of long-term debt are as follows:
Years Ending
October 31,
------------
1995 (two months) $ 6,404
1996 38,429
1997 38,429
1998 32,225
1999 22,402
-------
$137,889
=======
14
<PAGE>
VALLEY COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (See Independent Auditors' Report)
FOR THE YEARS ENDED OCTOBER 31, 1992, 1993, 1994 AND THE TEN MONTHS ENDED
AUGUST 31, 1995
9. RELATED PARTY TRANSACTIONS
Stock Redemption - In January, 1994, the Company redeemed 25,000 shares of
its common stock from an officer-stockholder for $225,000.
As part of the redemption agreement, the Company purchased a leased vehicle
which had been provided to the officer-stockholder and transferred it to
him in payment for his agreement not to compete against the Company in the
State of California until after February 28, 1995.
Stockholders' Agreement - The Company has entered into an agreement with
its stockholders that obligates the Company, upon the death or total dis-
ability of any of the stockholders, to purchase that stockholder's shares
in the Company. The purchase price is determined by a formula established
in the agreement and is partially insured. Any portion of the purchase
price which is not funded by insurance proceeds is payable in monthly
installments over 180 months with interest on the unpaid balance at the
rate of 7% per year.
10. CONCENTRATIONS AND CREDIT RISK
The Company grants credit to its customers, primarily commercial businesses
and general contractors, located in California with the majority located
in Northern California. Concentrations of revenue, material purchases and
accounts receivable balances with customers or suppliers in excess of 10%
of the totals are as follows:
Years Ended October 31, Ten Months
----------------------- Ended
Largest Customers 1992 1993 1994 August 31, 1995
- ----------------- ---- ---- ---- ---------------
Percentage of
total revenue
A * 14% 18% 16%
B * * 18% *
C * * * 15%
* Less than 10%.
15
<PAGE>
VALLEY COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (See Independent Auditors' Report)
FOR THE YEARS ENDED OCTOBER 31, 1992, 1993, 1994 AND THE TEN MONTHS ENDED
AUGUST 31, 1995
10. CONCENTRATIONS AND CREDIT RISK (Continued)
Years Ended October 31, Ten Months
---------------------- Ended
Largest Customers 1992 1993 1994 August 31, 1995
- ----------------- ---- ---- ---- ---------------
Percentage of accounts receivable
A * 12% 10% 18%
B * * 10% *
C * * * *
D 17% * * *
E * * 20% *
F * * * 20%
* Less than 10%
Ten Months
Years Ended Ended
Largest Suppliers October 31, 1994 August 31, 1995
- ----------------- ---------------- ---------------
Percentage of total material purchases
A 37% 26%
B 25% 14%
C 21% 27%
Percentage of accounts payable
A 48% 34%
B 24% *
C * 23%
* Less than 10%
11. CAPITAL STOCK TRANSACTION
On August 14, 1995, the stockholders of the Company signed a purchase
agreement to sell 80% of the issued capital stock of the Company to C&L
Acquisition Corporation, a subsidiary of The Diana Corporation. The sale
is subject to corporate approval and other customary conditions.
16
<PAGE>
PRO FORMA FINANCIAL INFORMATION
THE DIANA CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AT OCTOBER 14, 1995
UNAUDITED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Pro Forma Adjustments
---------------------------
Valley Purchase Pro
Diana (1) Acctg(2) Other Forma
----- ------ -------- ----- -----
ASSETS
<S> <C> <C> <C> <C> <C>
Current assets
Cash $ 5,792 $ 321 $ $(1,200)(3) $ 4,913
Restricted short-term
investment 81 --- 81
Marketable securities 2,582 --- 2,582
Receivables 13,242 3,811 17,053
Inventories 9,157 768 9,925
Other current assets 612 447 1,059
------ ------ ------ ------ ------
Total current assets 31,466 5,347 (1,200) 35,613
Property and equipment, net 3,631 365 93 4,089
Intangible assets 3,882 --- 3,009 6,891
Other assets 1,166 24 (4,320) 4,385 (4) 1,255
------ ------ ------ ------ ------
$40,145 $ 5,736 $(1,218) $ 3,185 $47,848
====== ====== ====== ====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $10,426 $ 1,612 $12,038
Accrued liabilities and
other current liabilities 1,334 1,598 2,932
Current portion of
long-term debt 753 898 200 (5) 1,851
------ ------ ------ ------ ------
Total current
liabilities 12,513 4,108 200 16,821
Long-term debt 6,860 90 2,985 (6) 9,935
Other liabilities 1,184 15 305 1,504
Commitments and contingencies
Shareholders' equity 19,588 1,523 (1,523) 19,588
------ ------ ------ ------ ------
$40,145 $ 5,736 $(1,218) $ 3,185 $47,848
====== ====== ====== ====== ======
</TABLE>
See accompanying notes to pro forma condensed consolidated financial
information.
<PAGE>
PRO FORMA FINANCIAL INFORMATION
THE DIANA CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE 52 WEEKS ENDED APRIL 1, 1995
UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Pro Forma Adjustments
---------------------
Valley
Diana (7) Other Pro Forma
----- ------ ----- ---------
<S> <C> <C> <C> <C>
Net sales $250,386 $13,701 $ $264,087
Other income (loss) (417) 17 (400)
------- ------ ---- -------
249,969 13,718 263,687
Cost of sales 239,198 9,215 248,413
Selling and administrative
expenses 10,314 3,524 (337) (8) 13,501
------- ------ ---- -------
Operating earnings 457 979 337 1,773
Interest expense (1,098) (38) (286) (9) (1,422)
Non-operating income 34 --- 34
Provision for income taxes --- (389) 300 (10) (89)
Equity in earnings (loss) of
unconsolidated subsidiaries (69) --- (69)
Minority interest (44) --- (163) (11) (207)
------- ------ ---- -------
Net earnings (loss) $ (720) $ 552 $ 188 $ 20
======= ====== ==== =======
Earnings (loss) per
common share $ (.18) $ .00
======= =======
Weighted average number of
common shares outstanding 4,024 4,024
======= =======
</TABLE>
See accompanying notes to pro forma condensed consolidated financial
information.
<PAGE>
PRO FORMA FINANCIAL INFORMATION
THE DIANA CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE 28 WEEKS ENDED OCTOBER 14, 1995
UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Pro Forma Adjustments
---------------------
Valley
Diana (7) Other Pro Forma
----- ------ ----- ---------
<S> <C> <C> <C> <C>
Net sales $142,382 $ 9,955 $ $152,337
Other income 333 (13) 320
------- ------ ---- -------
142,715 9,942 152,657
Cost of sales 137,429 6,836 144,265
Selling and administrative
expenses 4,932 2,459 (390) (8) 7,001
------- ------ ---- -------
Operating earnings 354 647 390 1,391
Interest expense (542) (38) (143) (9) (723)
Provision for income taxes --- (257) 197 (10) (60)
Equity in earnings (loss) of
unconsolidated subsidiaries (67) --- (67)
Minority interest --- --- (122) (11) (122)
------- ------ ---- -------
Net earnings (loss) $ (255) $ 352 $ 322 $ 419
======= ====== ==== =======
Earnings (loss) per
common share $ (.06) $ .10
======= =======
Weighted average number of
common shares outstanding 4,113 4,113
======= =======
</TABLE>
See accompanying notes to pro forma condensed consolidated financial
information.
<PAGE>
THE DIANA CORPORATION AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
(Unaudited)
Pro Forma Condensed Consolidated Balance Sheet:
NOTE 1 - To include Valley's Balance Sheet as of November 30, 1995.
NOTE 2 - To reflect purchase accounting adjustments. The total cost of the
acquisition including expenses was $4,320,000. The minority shareholders 20%
ownership interest amounts to $305,000. The excess of the cost of the
acquisition over the book value was allocated as follows. The amounts and
amortization period were determined pursuant to an appraisal.
Amortization
Period
------------
Equipment $ 93,000 5 years
Non-Competition Agreements 108,000 7 years
Goodwill 2,901,000 40 years
---------
$3,102,000
=========
NOTE 3 - To reflect cash payments made toward the acquisition.
NOTE 4 - To reflect the cost of the acquisition including expenses of
$4,320,000 and deferred debt costs of $65,000.
NOTE 5 - To reflect the current portion of borrowings incurred to make the
acquisition. Borrowings of $1,000,000 were made from the minority
shareholders of Valley and are payable over a 5 year period at 10% per year.
NOTE 6 - To reflect the non-current portion of borrowings incurred to make
the acquisition.
Pro Forma Condensed Consolidated Statement of Operations:
NOTE 7 - To include Valley's Statement of Operations for the year ended
April 30, 1995 and the 6 months ended October 31, 1995, respectively.
NOTE 8 - To reflect the reduction of officers payroll expense due to new
employment agreements executed by Valley's officers. In addition, to
reflect the current period amortization of the write up of equipment,
non-competition agreements and goodwill (see Note 2).
<PAGE>
NOTE 9 - To reflect interest expense on borrowings incurred to make the
acquisition.
NOTE 10 - To eliminate Valley's provision for federal income taxes due to
existing federal income tax net operating loss carry forwards of the
consolidated group.
NOTE 11 - To reflect the minority shareholders 20% proportionate share of
Valley's results of operations as adjusted for certain of the pro forma
adjustments.
PURCHASE AGREEMENT
THIS AGREEMENT is made this 14th day of August, 1995,
by and between C&L Acquisitions Corporation, a Nevada corporation
("Acquisition"), Henry Mutz, Chris O'Connor and Ken Hurst
(together collectively referred to as the "Shareholders") who
together are all of the Shareholders of Valley Communications,
Incorporated, a California corporation ("VCI").
W I T N E S S E T H
WHEREAS, VCI's principal business includes, but is not
necessarily limited to, the design, engineering, installation and
testing of all major structural wiring system for both voice and
data networking and design services; and
WHEREAS, Shareholders own 100% of the issued capital
stock of VCI; and
WHEREAS, VCI and the Shareholders desire to transfer
80% of the issued capital stock of VCI owned by the Shareholders;
and
WHEREAS, Acquisition desires to acquire 80% of the
issued capital stock of VCI on the terms and subject to the
conditions herein contained,
NOW, THEREFORE, it is agreed as follows:
ARTICLE I
Transfer of VCI Shares
1.1. Transfer. At the Closing (as defined below), and
subject to the terms and conditions herein set forth, each of the
1
<PAGE>
Shareholders shall sell to Acquisition, and Acquisition shall buy
from each of the Shareholders, twenty thousand (20,000) shares of
the common stock of VCI, which represents 80% of all of the
issued outstanding capital stock of VCI.
1.2. Purchase Price. In consideration for the pur-
chase of sixty thousand (60,000) shares (representing 80%) of the
capital stock of VCI owned by Shareholders, Acquisition shall pay
to the Shareholders:
(a) at Closing, the sum of Three Million-Nine
Hundred-Ten Thousand Dollars ($3,910,000) by delivery of a
Promissory Note (the "Note") payable in six (6)
installments, commencing on January 1, 1996 with simple
interest at ten percent (10%) per annum as more specifically
set forth in Exhibit 1.2(b).
(b) (i) fifteen (15) days after receipt of the
August 31, 1996 VCI audit, a sum, if any, equal to
VCI's Pretax Operating Profits for the fiscal year
ending August 31, 1996 less $1,300,000;
(ii) fifteen (15) days after receipt of the
September 1, 1996 through March 31, 1997 VCI audit,
a sum, if any, equal to (A) VCI's Pretax Operating
Profit for said seven (7) month period less $758,000
(B) divided by two.
(iii) fifteen (15) days after receipt of the
March 31, 1998 through March 31, 2001 VCI audit, a sum,
2
<PAGE>
if any, equal to (A) VCI's Pretax Operating Profit for
each of said years less $1,300,000 for each of said
years (B) divided by two;
(iv) Pretax Operating Profits. Pretax
Operating Profits are earnings before interest and
taxes, and before extraordinary gains or losses for the
year or period involved, prepared in accordance with
generally accepted accounting principles ("GAAP") con-
sistently applied and consistent with those accounting
methods used in the preparation of the Closing Finan-
cial Statement under section 6.7 hereof. Management
fees charged to VCI by Acquisition or its affiliates in
any fiscal year shall be $100,000 which shall include,
but is not limited to, tax preparation, internal
audits, year-end audit, participation as necessary in
union negotiations, financial assistance in negotiation
with lenders for an appropriate line of credit, board
meetings and acquisition assistance for VCI. Items of
expense incurred by VCI as a direct result of this
acquisition shall not be included. Interest on Sub-
Debt (as defined herein) shall be a charge in
determining Pretax Operating Profits.
(v) As long as Shareholders are or may become
entitled to any payment under this paragraph, Acquisition
will not permit VCI to be merged or consolidated with any
3
<PAGE>
other entity or to be dissolved, without the prior written
consent of Shareholders.
1.3. Security. The Note shall be secured by a
pledge of the interest of Acquisition in VCI, which shall be
documented substantially in the form of the Security Agreement
("Acquisition's Security Agreement") attached hereto as Exhibit
1.3, and which Security Agreement shall be effective for only so
long as any balance is owing on the Note.
1.4. Shareholders Agreement. Immediately after the
Closing, Acquisition, VCI and the Shareholders will enter into a
shareholders agreement (the "Shareholders Agreement") attached
hereto as Exhibit 1.4 which will incorporate the following terms:
(a) Any shareholder or combination of
shareholders of VCI owning 10% or more of the common stock
of VCI shall have the right to require VCI to pay quarterly
dividends, provided that such dividend payment (i) does not
reduce the net worth of VCI below One Million-Four Hundred
Thousand Dollars ($1,400,000), (ii) does not render VCI
insolvent or otherwise impair its capital, (iii) does not
violate any agreement with creditors of VCI, and (iv) is not
in contravention of otherwise applicable laws. VCI may sell
subordinated notes (Sub-Debt) due in five years and bearing
interest at 25% per annum with interest payments due
quarterly not to exceed the amount of dividends paid by VCI
after the date of closing. Such Sub-Debt shall be offered
4
<PAGE>
to all shareholders in proportion to their percentage
ownership of the common stock of VCI, provided that if any
shareholder declines to purchase any such note, the note
shall be offered to all shareholders who did purchase notes
in proportion to their relative holdings of common stock of
VCI.
(b) No shareholder shall be permitted to sell,
transfer, hypothecate, pledge or assign any interest in
shares of VCI without the consent of Acquisition, except as
set forth in Article II of Exhibit 1.4.
(c) In the event that during the term of the
Employment Contract attached hereto as Exhibit 4.22, a
Shareholder voluntarily terminates his employment with VCI,
or if he is terminated by VCI pursuant to Sub-paragraphs
6(c), 6(d) and 6(e) of the Employment Contract, such
Shareholder will be required to sell at VCI's option, such
Shareholder's interest in VCI. If such Shareholder is
terminated by VCI, pursuant to Sub-paragraphs 6(a) or 6(b)
of this Employment Contract, such Shareholder will be
required to sell at VCI's option fifty percent (50%) of such
shareholder's interest in VCI on the date of termination,
and the remaining 50% of such shareholders interest at the
end of the five-year period beginning on the date of the
Closing.
5
<PAGE>
In addition, by written notice given during a period commencing
15 days after receipt by the Shareholders of the VCI audit and
financial statements for the fiscal year ended March 31, 2000,
and expiring 30 days after receipt by the Shareholders of the VCI
audit and financial statements for the fiscal period ended March
31, 2004, any of the Shareholders will have the right to require
VCI to purchase such Shareholder's interest in VCI. For this
purpose, VCI will be valued at a multiple of four times average
Pre-Tax Operating Profits (as defined in Section 1.2) before
interest and taxes for the two fiscal years immediately preceding
the date of termination of employment or the date the notice is
given, as the case may be, less the aggregate amount of any Sub-
Debt and related accrued and unpaid interest thereon, and other
interest bearing debt not related to the acquisition of VCI by
Acquisition.
(d) In the event of a sale by Acquisition of its
interest in VCI, the Shareholders agree to tender their
interest for sale to the same buyer at the same price and
terms on a proportionate basis, but not less than the price
as determined using the formula set forth in Paragraph
1.4(c) above, as received by Acquisition, and pay a prorated
amount of any costs of sale.
(e) With respect to each fiscal year (or portion
of fiscal year) described in Section 1.2(b), VCI shall pay a
special dividend in the amount of the lesser of (i)
6
<PAGE>
$1,300,000 (prorated for any period less than one fiscal
year, or (ii) the Pre-Tax Operating Profit of VCI for such
period.
(f) The Board of Directors of VCI shall consist
of five (5) members. The Shareholders, as a group shall be
entitled to appoint two (2) of the members of the Board of
Directors.
1.5. Time and Place of Closing. The closing of the
transactions contemplated under Article I, above (the "Closing"),
shall take place at 10:00 a.m., local time, on the day which is
fifteen (15) business days after final resolution of the Closing
Financial Statement as set forth in paragraph 6.7 hereof, at 8200
West Brown Deer Road, Suite 200, Milwaukee, Wisconsin 53223, or
at such other time and place as is mutually agreed. The effec-
tive date of Closing shall be as of August 31, 1995. As of such
date and providing the Closing is completed, all profits and
losses of VCI shall inure to the benefit of or become the
liability of Acquisition.
ARTICLE II
Representations and Warranties
2.1. Representations and Warranties of the Share-
holders. Each of the Shareholders hereby jointly and severally
represent and warrant to Acquisition that the following state-
ments are true and correct, except as otherwise set forth in the
7
<PAGE>
Disclosure Schedule to be delivered in accordance with section
4.1 below.
(a) Authority of Shareholders. Each of the
Shareholders has the power and authority to enter into this
Agreement and to perform his or her obligations hereunder.
This Agreement has been duly executed and delivered by each
of the Shareholders and constitutes a legal, valid and
binding obligation of each of them enforceable in accordance
with its terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally or by the application
of general principles of equity.
(b) No Conflicts. Neither the execution and
delivery of this Agreement, nor compliance with the terms
and provisions of this Agreement, by the Shareholders, will
(i) conflict with, result in any breach or violation of, or
require any consent, approval, registration or filing under
any provision of the charter documents of VCI or any
judgment, order or decree, or statute, law, ordinance, rule
or regulation applicable to the Shareholders, or (ii)
violate or conflict with, result in a breach under, or
require any consent or approval under, any agreement,
instrument or document to which the Shareholders or VCI are
subject, or (iii) result in the creation or imposition of
any lien, claim or incumbrance upon any of the assets of
8
<PAGE>
VCI. No consent, approval, order or authorization of, or
registration, declaration or filing with, any court,
governmental authority or instrumentality or other third
party is required to be obtained or made in connection with
the execution and delivery of this Agreement or compliance
with the terms and provisions of this Agreement.
(c) Ownership of Stock. Each of the Shareholders
is the record and beneficial owner of the shares of common
stock of VCI set forth after their names on Exhibit
2.1(c)(i) and will continue to own such shares until the
Closing. Such shares are fully paid and nonassessable and
are owned free and clear of all liens, encumbrances, charges
and assessments of every nature and subject to no
restrictions with respect to transferability and represent
all of the outstanding capital stock of VCI.
(d) Subsidiaries. VCI has no subsidiaries as
that term is defined in the following sentence. A sub-
sidiary is defined as a corporation which is directly or
indirectly controlled by VCI.
(e) Due Organization. VCI is duly organized,
validly existing and in good standing under the laws of the
State of California. VCI has the corporate power and
authority to conduct its business as heretofore conducted
and to own or hold under lease its properties and assets.
VCI is not a party or subject to any agreement or commitment
9
<PAGE>
restricting the conduct of its business as heretofore
conducted at any location. There are no jurisdictions in
which the character of the properties owned or leased by, or
the nature of the business conducted by VCI makes qualifica-
tion to do business as a foreign corporation necessary,
except any such jurisdiction where failure to so qualify
could not reasonably be expected to have an adverse effect
upon VCI, its properties or business.
(f) Capital Stock. The authorized capital stock
of VCI consists of 500,000 shares of common stock, no
par value, of which 75,000 shares are validly issued and
outstanding, fully paid and nonassessable. VCI is not
authorized to issue any other class of capital stock. VCI
has not issued any shares of capital stock or any other
securities in violation of any preemptive rights or any
applicable securities or other laws, and there are no
existing options, warrants, rights, calls, puts or commit-
ments of any character relating to authorized but unissued
shares of the capital stock of VCI or to any other secu-
rities issued or to be issued by VCI. There are no voting
agreements, understandings or arrangements, whether written
or oral, which govern the voting of any capital stock of
VCI, the management of VCI, or the sale or transfer of the
capital stock of VCI, except as set forth in the Disclosure
Schedule.
10
<PAGE>
(g) Financial Statements. Attached hereto as Exhibit
2.1(g) are (i) Unaudited Financial Statements for the three (3)
years ended October 31, 1992, 1993, and 1994, including Balance
Sheets, Statements of Operations, Cash Flows and Notes thereof
and (ii) Interim Unaudited Financial Statements for the period
ended April 30, 1995. All of the aforementioned Financial
Statements are true and correct and fairly present the financial
position and results of operations and cash flows of VCI as of
the dates and for the periods indicated, contain and reflect all
necessary adjustments and have been prepared in conformity with
generally accepted accounting principles applied on a consistent
basis. The Financial Statements of October 31, 1994 shall be
referred to herein as the "Current Financial Statement."
(h) Absence of Changes. Since the date of
Current Financial Statement, there has not been:
(1) any adverse change or knowledge of any
impending adverse changes in the assets, liabilities,
working capital financial conditions, business or
prospects of VCI,
(2) any transaction, sale, lease, transfer
or assignment of any assets, tangible or intangible,
other than in the ordinary course of business,
(3) any capital expenditure exceeding
$50,000. Any damage, destruction or loss, whether or
11
<PAGE>
not covered by insurance, adversely affecting the busi-
ness, operations, prospects, or financial condition of
VCI,
(4) any declaration or setting aside or
payment of any dividend or other distribution with
respect to the shares of capital stock of VCI or any
redemption, purchase or other acquisition of any such
shares by VCI,
(5) (i) any increase in the rate or terms of
compensation payable to, or any increase in the rate or
terms of any bonus, insurance, pension or other
employee benefit plan on behalf of, their directors,
officers or key employees, except increases occurring
in the ordinary course of business in accordance with
customary practices (which shall include normal
periodic performance reviews and related compensation
and benefit increases), or (ii) any general or uniform
increase in the compensation or benefits of employees,
or (iii) any compensation paid or payable to any
Shareholder in excess of $150,000 on an annualized
basis, or (iv) any payment of bonus compensation to
Shareholders, or (v) any payment or declaration of
dividends,
(6) any entry into, amendment or termination
of any license, agreement, commitment or transaction
12
<PAGE>
(including without limitation, any borrowing, capital
expenditure or capital financing) by VCI, except agree-
ments, commitments or transactions entered into in the
ordinary course of business or as contemplated herein,
(7) any change in accounting methods, prin-
ciples or practices,
(8) any (i) creation, incurrence or assump-
tion of any indebtedness for money borrowed, including
obligations in respect of capital leases, but excluding
purchase money mortgages, if any, granted in connection
with the acquisition of property in the ordinary course
of business, (ii) short-term indebtedness in an amount
not to exceed the sum of the aggregate amount of such
short-term indebtedness outstanding as of the date of
Current Financial Statement, or (iii) intercompany
loans or advances,
(9) any waiver or release of any right or
claim of VCI, except in the ordinary course of
business,
(10) any other event or condition of any
character that has or might have an adverse effect on
the financial condition, business, assets or prospects
of VCI,
13
<PAGE>
(11) any issuance or sale by VCI of any
shares of capital stock of any class or of any other
securities, or
(12) any change in the status of items
accounted for on the basis of estimated or tentative,
preliminary, or inconclusive data,
(13) any new contingent liabilities,
(14) any adjustments to the Interim
Unaudited Financial Statements of VCI,
(15) any agreement by VCI or Shareholders to
do any of the things described in the preceding clauses
(1)-(14).
(i) Taxes.
(1) For purposes of this Agreement, the term
"Taxes" shall mean all taxes, charges, fees, levies or
other assessments, including, without limitation,
income, excise, property, sales and franchise taxes,
imposed by the United States, or any state, county,
local or foreign government or subdivision or agency
thereof, and including any interest, penalties or
additions attributable thereto.
(2) VCI has duly filed all reports and
returns of Taxes required to be filed by it and has
duly paid or made provisions for payment of all Taxes
14
<PAGE>
and other charges shown on such reports and returns
which are due.
(3) The reserves for Taxes reflected in the
Closing Financial Statement will be adequate, and there
will be no tax liens upon any property or assets of
VCI, except liens for current taxes not yet due or
delinquent and the validity of which is being contested
in good faith by appropriate proceedings.
(4) The federal income tax returns of VCI
have not been examined by the Internal Revenue Service
except for periods set forth in the Disclosure
Schedule, and, except to the extent shown therein,
all deficiencies asserted as a result of any such
examinations have been paid or finally settled.
(5) There are no outstanding agreements or
waivers extending the statutory period of limitation
applicable to any income tax return for any period of
VCI.
(j) Title and Related Matters.
(1) VCI owns, leases, or licenses all of the
property and assets, personal and real, tangible or
intangible, used by it in connection with the conduct
of its businesses as historically conducted. VCI has
good title to such property and assets, other than
leased or licensed property or assets, including
15
<PAGE>
without limitation the properties reflected in the
Current Financial Statement, free and clear of all
security interests, claims, charges or other
encumbrances.
(2) The Disclosure Schedule will set forth a
complete and accurate list of all the real property
owned and/or leased by VCI. The leases so listed are
valid and effective in accordance with their terms and
are in full force and effect; no event has occurred
which (with or without notice, lapse of time, or both)
constitutes a default by any party thereunder.
(3) The zoning of each parcel of property
described in Exhibit 2.1(j)(2) permits the presently
existing improvements and the continuation of the
business presently being conducted on such parcel.
(k) Inventory. The inventory owned by VCI is not
in excess of VCI's requirements for VCI as the business is
and has been historically conducted. The inventory
reflected in any and all Financial Statements referred to
in section 2.1(g) hereof consist of items of a quality and
quantity usable and salable in the ordinary course of
business by the VCI, except for obsolete and slow-moving
items and items below standard quality, all of which have
been written down on the books at net realizable market
value or have been provided for by adequate reserves. All
16
<PAGE>
items included in the inventory are property of VCI. The
inventory reflected in said Financial Statements is based
upon quantities determined by physical count or measurement
and were valued at the lower of cost or market on first-in,
first-out and on a basis consistent with that of prior
years. No item included in the inventory is held on
consignment from others.
(l) Patents, Trademarks, and Other Intellectual
Property. The Disclosure Schedule will list all patents,
patent applications, trademarks, trademark applications,
trade names, service marks, copyrights and other
intellectual property owned or utilized by VCI. With
respect to the property and rights so listed, (i) VCI is the
owner or is licensed or otherwise has the right to use the
same in the conduct of its business, and the consummation of
the transactions contemplated hereby will not alter or
impair any such rights, (ii) no claims have been asserted
by any person challenging such rights which would have an
adverse effect on the businesses of VCI, (iii) none of the
property and rights so listed infringes or otherwise vio-
lates the rights of others or is being infringed upon by
others, and (iv) no licenses, sublicenses or agreements
pertaining to any of the aforesaid have been granted by
VCI and (v) none of intellectual property for which the
17
<PAGE>
Companies are licensed will expire prior to December 31,
2000.
(m) Contracts and Commitments.
(1) the Disclosure Schedule will set forth a
complete and accurate list of (i) any contract for
the lease or license of personal property from
third parties providing for lease payments in
excess of Five Thousand Dollars ($5,000) per
annum, (ii) any contract in effect on the date
hereof which involves more than Ten Thousand
Dollars ($10,000) for the purchase of goods or
services or for the sale of services or goods by
VCI, (iii) any joint venture or partnership
agreement, (iv) any agreement or instrument under
which VCI is indebted for borrowed money, (v) any
agreement with stockholders, directors, officers,
employees, agents, sales representatives,
consultants, distributors or dealers, and (vi) any
other contract, lease, license or commitment,
whether written or oral, involving aggregate
consideration to or an aggregate expenditure by
VCI in excess of Ten Thousand Dollars ($10,000).
(2) all purchase contracts or commitments
and all sales contracts and commitments of VCI
18
<PAGE>
have been entered into in the ordinary course of
business.
(3) each of the contracts or obligations to
be listed in the Disclosure Schedule is in full
force and effect. There is not under any such
contract or obligation any event which has or
(with or without notice, lapse of time, or both)
would constitute a default on the part of VCI and
which has or would have an adverse effect on the
business or assets of VCI.
(4) VCI is not a guarantor or otherwise
liable for any indebtedness of any person, firm,
or corporation.
(5) the consummation of the transactions
contemplated hereby, and the continuation of the
business of VCI after the date of Closing in the
same manner as conducted prior to such date, will
not (i) conflict with or result in a breach of or
default under, or cause or permit the termination
or acceleration of the maturity of, or otherwise
impair any contract, agreement, lease, commitment,
indenture, loan or credit agreement or any other
agreement or instrument or obligation to which VCI
is a party or by which VCI or any of its
properties may be affected or is bound or (ii)
19
<PAGE>
require any consent, approval or waiver under any
contract, agreement, lease, commitment, indenture,
loan or credit agreement or any other agreement or
instrument or obligation to which VCI is a party
or by which VCI or any of its properties may be
affected or is bound.
(n) Litigation. VCI is not subject to any judg-
ment or order of any court or governmental or regulatory
authority or body of any jurisdiction, domestic or foreign,
relative to the business, operations, or financial condition
of VCI nor are there any charges, complaints, or lawsuits
pending or threatened by or against or relating to VCI which
would have an adverse effect on the business, operations, or
financial condition of VCI.
(o) Insurance. The policies of fire, liability,
workmen's compensation and other similar forms of insurance
carried by VCI on its assets and operations will be
described in the Disclosure Schedule. All such policies are
in full force and effect; all premiums with respect thereto
covering all periods up to and including the date as of
which this representation is being made have been paid, and
no notice of cancellation or termination has been received
with respect to any such policy and all such policies have
adequate coverage and limits to cover any loses which are
insurable and which could occur. Such policies are valid,
20
<PAGE>
outstanding and enforceable policies, and will not in any
way be affected by, or terminate or lapse by reason of, the
transactions contemplated by this Agreement.
(p) Labor Matters.
(1) The Disclosure Schedule will list all
profit sharing, pension or retirement plans, programs,
arrangements or agreements, health care plans,
cafeteria plans, and each other employee benefit plan,
program or agreement maintained by or contributed to or
required to be contributed to for the benefit of any
employee or terminated employee of VCI, whether formal
or informal (the "Plan" or "Plans"). There is no plan
or commitment, whether legally binding or not, to
create any additional Plan or modify or change any
existing Plan that would affect any employee or
terminated employee of VCI.
(2) No Plans are covered by Title IV of the
Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated
thereunder ("ERISA"), nor has VCI ever maintained any
such Plan covering its employees or former employees.
Each Plan of VCI is, and at all times has been, in
compliance with ERISA in all material respects.
(3) VCI is in compliance with all applicable
laws respecting employment and employment practices,
21
<PAGE>
terms and conditions of employment and wages and hours.
There is no labor strike, dispute, slowdown, represen-
tation campaign or work stoppage actually pending or
threatened against or affecting VCI. VCI has not
experienced any material work stoppage in the past five
years.
(q) Operating Assets. The assets of VCI, both
tangible and intangible, constitute all of the personal
property necessary for the conduct of its business as now
conducted.
(r) Customers. The Disclosure Schedule contains
a list of the ten largest customers with summaries of the
sales made to each of said customers during the most recent
fiscal year. None of the customers so listed have ceased
doing business with or have materially altered the amount of
the business that they are presently doing with VCI.
(s) Accounts Receivable. The Disclosure Schedule
contains an accurate aging of the accounts receivable
reflected in the Current Financial Statements. These
accounts receivable and all accounts receivable of VCI
arising after said date arose from valid sales in the
ordinary course of business.
(t) Income Tax Returns. The Disclosure Schedule
shall contain all Federal and State income tax returns filed
by VCI for each of its last three (3) fiscal years.
22
<PAGE>
(u) Environmental Laws. VCI is in compliance
with all material provisions of the Comprehensive Environ-
mental Response, Compensation and Liability Act of 1980, the
Resource Conservation and Recovery Act of 1976 ("RCRA"), the
Toxic Substances Control Act of 1976, the Solid Waste
Disposal Act, the Clean Water Act and the Clean Air Act,
each as amended, all other federal, state or local laws or
ordinances, including orders, rules and regulations there-
under, regulating or otherwise affecting the environment
and/or the disposal of wastes or other materials and all
similar legislation applicable to operations outside of the
United States (collectively "Environmental Laws"). During
its occupancy of the parcels identified in the Disclosure
Schedule, VCI has not caused or permitted materials to be
generated, stored, treated, recycled, disposed of on, under
or at such parcels, which materials, if known to be present,
would require clean-up, removal or other remedial or
responsive action under Environmental Laws. VCI is not
subject to any judgment, decree, order or citation related
to or arising out of Environmental Laws, and VCI has not
been named or listed as a potentially responsible party by
any governmental body or agency in any matter arising under
Environmental Laws. VCI has timely obtained all permits,
licenses and approvals required under Environmental Laws,
and all such permits, licenses and approvals are in full
23
<PAGE>
force and effect, and any fees and/or conditions for such
permits, licenses and approvals have been paid and are
complied with. VCI has disposed of all waste in compliance
with all Environmental Laws, and there is no existing
condition that may form the basis of any present or future
claim, demand or action seeking clean-up of any facility,
site, location or body of water, surface or subsurface, for
which VCI could be liable or responsible as a result of the
disposal of its waste at such site. All environmental
surveys regarding any real estate now owned or previously
owned by VCI will be set forth in the Disclosure Schedule.
(v) Licenses, Permits and Authorizations. VCI
has all approvals, authorizations, consents, licenses,
franchises, orders and other permits of, and has made all
filings with, any governmental authority, whether foreign,
federal, state, regional or local, which are required for
the conduct of its business as presently being conducted,
and all such licenses, permits and other authorizations will
be listed in the Disclosure Schedule. All such approvals,
authorizations, consents, licenses, franchises, orders and
other permits are in full force and effect, and all fees and
charges payable with respect thereto have been paid.
(w) Compliance with Laws. VCI is in compliance
with all applicable laws, ordinances and governmental
regulations, noncompliance with which could have an adverse
24
<PAGE>
effect on VCI, its assets, business, prospects or condition,
financial or otherwise, and all services and products
provided by VCI, and all marketing material and distribution
arrangements used or employed by VCI, conform to all
requirements of applicable laws, rules and regulations.
(x) Absence of Undisclosed Liabilities. There
will be no obligations or liabilities, secured or unsecured
(whether accrued, absolute, contingent or otherwise), of VCI
as of the Net Worth Date, except for (i) the liabilities and
obligations reflected or reserved for in the Closing Finan-
cial Statement, (ii) liabilities or obligations incurred in
the normal and ordinary course of business since the date of
the Closing Financial Statement, (iii) liabilities and obli-
gations which, under generally accepted accounting princi-
ples, would not be required to be disclosed on a balance
sheet but which are disclosed in the Disclosure Schedule,
and (iv) liabilities arising hereunder.
(y) No Omissions. No representation or warranty
by the Shareholders contained in this Agreement or in any
writing to be furnished pursuant thereto to Acquisition
contains any untrue statement of fact or omits to state any
fact required to make the statements herein or therein
contained not misleading.
(z) Brokers. No broker, finder, or other person
is entitled to any brokerage or finder's fee or commission
25
<PAGE>
in connection with the transactions contemplated by this
Agreement by reason of any action taken by VCI or any of the
Shareholders, except for the Bentley Companies.
(aa) Warranties and Guaranties. Neither VCI nor
Shareholders has taken any action which would cancel,
terminate, reduce or impair the validity, enforceability or
good standing of any of the warranties and guaranties
obtained from contractors, subcontractors, manufacturers,
suppliers and vendors otherwise held by the Company.
(bb) Exhibits and Deliveries. All exhibits
attached or to be attached hereto pursuant to any provisions
of this Agreement do now and will accurately reflect the
true, correct and complete list and description of all items
and matters referenced therein. Shareholders have delivered
or exhibited or will deliver or exhibit to Acquisition true,
correct and complete originals or copies of all documents
and instruments referenced, listed or described in all of
the exhibits, including any and all riders, attachments,
addenda and amendments thereto, and guaranties thereof. The
Shareholders will provide all Exhibits required herein to
Acquisition within fourteen (14) days after the date of this
Agreement.
2.2. Representations and Warranties of Acquisition.
Acquisition represents and warrants to the Shareholders as
follows:
26
<PAGE>
(a) Due Organization. Acquisition is duly
organized and validly existing and in good standing under
the laws of the State of Nevada.
(b) Authority. Acquisition has the power and
authority to enter into this Agreement and to perform its
obligations hereunder. All actions on the part of Acquisi-
tion necessary to duly authorize the execution, delivery and
performance of this Agreement and the consummation of the
transactions contemplated hereby have been taken. This
Agreement has been duly executed and delivered by Acquisi-
tion and constitutes its legal, valid and binding obligation
enforceable in accordance with its terms, except as may be
limited by bankruptcy, insolvency, reorganization, mora-
torium or other similar laws affecting creditors' rights
generally or by the application of general principles of
equity.
(c) No Conflicts. Neither the execution and
delivery of this Agreement by Acquisition will conflict
with, result in any breach or violation of, or require any
consent, approval, registration or filing under, any
provision of the charter documents of Acquisition or any
judgment, order or decree, or statute, law, ordinance, rule
or regulation applicable to Acquisition.
(d) Brokers. No broker, finder or other person
is entitled to any brokerage or finder's fee or commission
27
<PAGE>
from Acquisition or any of its affiliated companies in
connection with the transactions contemplated by this
Agreement by reason of any action taken by Acquisition or
its affiliates.
ARTICLE III
Conduct Pending Closing
3.1. Conduct Pending Closing. From date of this
Agreement and until the Closing, the Shareholders shall cause VCI
to carry on its business diligently and substantially in the
manner as heretofore conducted. The Shareholders shall not
permit VCI to enter into any contract or commitment or to engage
in any transaction not in the ordinary course of business and not
consistent with past business practices. The Shareholders shall
cause VCI to preserve for Acquisition VCI's business organiza-
tion, including present key employees, and their relationships
with customers, suppliers and others having business relations
with VCI. Furthermore, and without limiting the scope of the
foregoing, the Shareholders (in their capacity as shareholders,
directors and officers of VCI) shall:
(a) not permit VCI to make any capital expendi-
tures, or commitments with respect thereto (including,
without limitation, capital leases), other than capital
expenditures or commitments not in excess of $50,000 in the
aggregate,
(b) not permit VCI to amend its charter
documents,
28
<PAGE>
(c) not take any action which would cause a
breach of any of the representations and warranties made by
the Shareholders in this Agreement or take any action which
would make any of the Representations or Warranties untrue
if made at the time of Closing,
(d) not permit VCI to declare or pay any dividend
on, or make any distribution in respect of, its capital
stock, or directly or indirectly redeem, purchase, or other-
wise acquire any of its capital stock or issue any stock
rights, warrants or options,
(e) not permit VCI to make any pre-payments in
respect of any Company liability. Company will discharge
its obligations when due,
(f) require VCI to take all corporate and other
action necessary to consummate the transaction contemplated
hereby and will obtain all corporate and similar consents
and approvals required to enable it to carry out the
transactions contemplated in this Agreement.
(g) not permit VCI to do, or agree to do any of
the following acts: (i) grant any increase in salaries
payable or to become payable by either of them, to any
officer, employee, sales agent, or representative, (ii)
increase benefits payable to any officer, employee, sales
agent, or representative under any bonus or pension plan or
other contract or commitment, or (iii) modify any collective
29
<PAGE>
bargaining agreement to which it is a party or by which
either may be bound.
ARTICLE IV
Conditions Precedent
4.1. Conditions Precedent to Obligations of Acquisi-
tion. The obligations of Acquisition to purchase the shares
under this Agreement are subject to the satisfaction, at or
before the Closing, of all the conditions set out below in this
section 4.1. Acquisition may waive any or all of these condi-
tions in whole or in part without prior notice; provided,
however, that no such waiver of a condition shall constitute a
waiver by Acquisition of any of its other rights or remedies, at
law or in equity, if Shareholders or VCI shall be in default of
any of their representations, warranties, or covenants under this
Agreement.
(a) each representation and warranty made by the
Shareholders in this Agreement shall be true and correct on
and as of the date of the Closing with the same effect as
though each such representation and warranty had been made
or given on and as of such date,
(b) the Shareholders shall have performed and
complied with all of their obligations under this Agreement
which are to be performed or complied with by them prior to
or at the Closing,
30
<PAGE>
(c) no suit, action, investigation, inquiry or other
proceeding by any governmental authority or other person or legal
or administrative proceeding shall have been instituted or
threatened which questions the validity or legality of the
transactions contemplated hereby or which otherwise seeks to
affect, or could affect, the transactions contemplated hereby or
impose damages or penalties upon any party hereto if such
transactions are consummated,
(d) the Shareholders shall have tendered delivery
of the items required under section 5.1 below,
(e) based upon the Closing Financial Statement,
VCI's earnings, before interest and State and Federal income
taxes ("the EBIT earnings") and before Shareholders' com-
pensation in excess of $375,000, will be no less than
$1,100,000.
(f) the Closing Financial Statement must be
free and clear of all interest bearing debt in excess of
$300,000, except for the debt relating to the installation
of new computers incurred on or about July 1995 and
estimated at $100,000.
(g) the Closing Financial Statement shall reflect
a minimum Net Worth in VCI of no less than $1,400,000 after
subtracting from assets all notes or accounts receivable
from Shareholders, Officers, Directors or Employees.
31
<PAGE>
(h) Shareholders and VCI shall not have received
any notice or indication of the intention or reason to
believe that any of its customers or suppliers will cease
doing business or reduce the business transacted or
terminate any agreements with VCI, and VCI shall not have
been adversely affected as a result of any transaction or
event occurring prior to the Closing. Events shall include,
but not limited to, destruction of VCI's headquarters,
branch offices or the death or disability of any
Shareholders.
(i) Acquisition shall have secured and shall be
the sole beneficiary of a five (5) year key man term life
insurance policies on the lives of each of the Shareholders,
at the discretion of Acquisition, except as set forth in
Exhibit 4.1(i).
(j) Acquisition shall have received all other
documents required to be delivered to it in this Agreement.
(k) Shareholders shall have executed a Security
Agreement in substantially the form of Exhibit 4.1(k)
representing a pledge of 20% of the Common Stock of VCI to
secure Shareholders representations and warranties contained
in Article II hereto, for as long as such warranties are
effective pursuant to the terms of this Agreement.
(l) VCI shall have all necessary or appropriate
permits for the conduct of its business, including but not
32
<PAGE>
limited to necessary contractors licenses for the State of
California.
(m) VCI and Acquisition shall have entered into
a tax sharing agreement reasonably satisfactory to
Acquisition and Shareholders.
(n) Receipt by Acquisition of phase one environ-
mental review relating to all locations where VCI now
operates its business, which reviews are satisfactory in
form and substance to Acquisition.
4.2. Conditions Precedent to Obligations of the
Shareholders. The obligations of Shareholders to sell the shares
under this Agreement are subject to the satisfaction, at or
before the Closing, of all the conditions set out below in this
section 4.2. Shareholders may waive any or all of these condi-
tions in whole or in part without prior notice; provided, how-
ever, that no such waiver of a condition shall constitute a
waiver by Shareholders of any of its other rights or remedies, at
law or in equity, if Acquisition or VCI shall be in default of
any of its representations, warranties, or covenants under this
Agreement.
(a) each representation and warranty made by
Acquisition in this Agreement shall be true and correct on
and as of the date of the Closing with the same effect as
though each such representation and warranty had been made
or given on and as of such date;
33
<PAGE>
(b) Acquisition shall have performed and complied with
all of their obligations under this Agreement which are to be
performed or complied with by them prior to or at the Closing,
(c) no suit, action, investigation, inquiry or
other proceeding by any governmental authority or other
person or legal or administrative proceeding shall have been
instituted or threatened which questions the validity or
legality of the transactions contemplated hereby or which
otherwise seeks to affect, or could affect, the transactions
contemplated hereby or impose damages or penalties upon any
party hereto if such transactions are consummated,
(d) Acquisition shall have executed a Security
Agreement in substantially the form of Exhibit 4.2(d) repre-
senting a pledge of Acquisition's shares of VCI to secure
the obligations of Acquisition under the Note referred to in
paragraph 1.2(b) hereafter and such Security Agreement shall
terminate upon payment of such Note.
(e) Acquisition shall have tendered delivery of
the items required under section 5.2 below.
ARTICLE V
Deliveries At Closing
5.1. Deliveries by the Shareholders at the Closing.
At the Closing, the Shareholders shall deliver to Acquisition the
following:
34
<PAGE>
(a) stock certificates evidencing the shares of
common stock to be sold in accordance with section 1.1,
above, duly endorsed for transfer in blank or accompanied by
appropriate stock powers duly endorsed in blank,
(b) a certificate executed by each of the Share-
holders in form satisfactory to Acquisition, certifying to
the fulfillment of the conditions set forth in paragraphs
(a), (b), and (h) of section 4.1, above,
(c) an opinion from Robert Kasper, counsel to the
Shareholders, dated as of the date of Closing, to the effect
specified in Exhibit 5.1(c) to this Agreement,
(d) written resignations effective as of the date
of Closing of such directors of VCI as Acquisition may
request,
(e) general releases satisfactory to Acquisition
of all claims and possible claims the Shareholders may have
to the time of the Closing against VCI or any of its
officers and/or directors,
(f) the stock books, stock ledgers, minute books
and corporate seals of VCI,
(g) Security Agreement of Shareholders, and
(h) Stock certificates representing Shareholders'
continuing ownership of VCI, for the purpose of placing a
legend on such certificates indicating that such shares are
(1) subject to the Shareholder's Agreement described in
35
<PAGE>
Section 1.4, (2) restricted, (3) may not be transferred or
assigned to any third parties, and (4) may be sold by Share-
holders only pursuant to the provisions of the Shareholder's
Agreement.
5.2. Deliveries by Acquisition at the Closing. At the
Closing, Acquisition shall deliver to Shareholders the following:
(a) the consideration for the shares of stock to
be purchased by Acquisition in accordance with sections
1.2(a) and 1.2(b), above,
(b) a certificate executed by Acquisition, in
form satisfactory to the Shareholders, certifying to the
fulfillment of the conditions set forth in paragraphs (a)
and (b) of section 2.2, above, and
(c) an opinion from Kenneth Hunt, counsel to
Acquisition, dated as of the date of Closing, to the effect
specified in Exhibit 5.2(c) to this Agreement.
(d) Security Agreement as set forth in paragraph
1.3.
ARTICLE VI
Additional Covenants and Agreements of the Parties
6.1. Disclosure Schedule. Promptly following the
execution and delivery of this Agreement, the Shareholders will
cause to be prepared a Disclosure Schedule setting out the
exceptions to representations and warranties and other informa-
tion required under section 2.1 of this Agreement. At any time
36
<PAGE>
prior to the thirtieth (30th) day following the date on which
this Disclosure Schedule is delivered, Acquisition may elect to
terminate this Agreement as a result of any information set forth
in the Disclosure Schedule or any information obtained in the
course of the investigations or reviews by Acquisition or their
respective representatives.
6.2. Preparation of Audited Statements. Promptly
following the execution and delivery of this Agreement, the
Shareholders will cause to be examined and audited by the
accounting firm specified in Exhibit 6.2, an unqualified opinion
of the Financial Statements including Balance Sheets and
Statements of Income and Cash Flow of VCI referred to in section
2.1(g)(i), which shall be prepared in accordance with generally
accepted accounting principles consistently applied. Promptly
following completion of this audit and at least 15 days prior to
the Closing, the Shareholders shall deliver these audited
financial statements to Acquisition. At the request of
Acquisition, the designated representatives of Acquisition will
be entitled to observe the audit procedures employed in the
examination and audit of such financial statements and shall have
full access to the documentation and records of VCI as if it were
performing the audit. Also at the request of Acquisition, the
Shareholders shall make available to Acquisition's
representatives the working papers, schedules and source
materials used in the preparation, examination and audit of such
37
<PAGE>
Financial Statements. Shareholders's Certified Public
Accountants shall provide Acquisition with its proposed audit
programs, audit procedures and scopes for Acquisition's review
and acceptance prior to the commencement of the audit. The
auditors additionally follow the instructions set forth in
Exhibit 6.2(a).
6.3. Inspection. Until the Closing, the Shareholders
shall cause VCI to provide Acquisition and its authorized
representatives and agents, full access to all books, records,
offices and other facilities and properties of VCI, and all such
information with respect to the business and affairs of VCI as
they may reasonably request. The Shareholders shall also cause
VCI to provide such access and information to any financial
institution and its representatives and agents from which
Acquisition proposes to obtain financing in connection with the
transactions contemplated hereby. No such review, examination,
inspection, study or audit shall be deemed to be a waiver by
Acquisition or release of the Shareholders from any represen-
tations, warranties, covenants, conditions, liabilities or
obligations set forth in this Agreement.
6.4. No Solicitation. Upon execution of this Agree-
ment, the Shareholders shall not, nor shall the Shareholders
permit VCI to, directly or indirectly, initiate contact with or
solicit or incur any inquiries or proposals by, enter into any
discussions or negotiations or agreements with, or disclose
38
<PAGE>
directly or indirectly any information not customarily disclosed
concerning the business and properties of VCI to, or offer any
access to their properties, books and records to, any person in
connection with any possible proposal regarding a sale of the
capital stock of VCI, or a merger or consolidation involving VCI,
or a sale of all or a substantial portion of the assets of the
Companies, or any similar transaction.
6.5. Reasonable Efforts. Subject to the terms and
conditions herein provided, the Shareholders and Acquisition each
agree to use all reasonable efforts to take, or to cause to be
taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective
the transactions contemplated by this Agreement.
6.6. Accounts Receivable. Shareholders guarantee to
Acquisition that the unpaid balance of all accounts receivable
reflected in the Closing Balance Sheet will be paid during a
collection period of 90 days immediately following the Closing,
except for construction retention in which case the guarantee
shall be payable 60 days after notice of completion of project.
Within 90 business days after delivery to Shareholders of a
schedule of all these accounts receivable unpaid at the end of
this collection period, Shareholders will pay to Buyer the full
amount of these unpaid receivables, in cash, less (i) the amount
of the reserve for doubtful accounts reflected in the Closing
Balance Sheet and (ii) the amount of any receivables written off
39
<PAGE>
as uncollectible before the Closing Date, but paid during this
collection period. All payments of the scheduled accounts made
after the collection period shall promptly be paid over to
Shareholders. If more than one invoice is outstanding for any
customer, the "first-in, first-out" principle shall be applied in
determining the invoice to which a payment relates, unless the
payment by its terms specifies or clearly indicates the invoice
to which it relates.
6.7. Closing Financial Statement. Shareholders agree
to prepare a Proposed Financial Statement ("PFS") of VCI and
cause it be examined and audited by the accounting firm specified
in Exhibit 6.2, Certified Public Accountant for VCI (VCI's CPA)
as of the close of business on August 31, 1995 ("Net Worth Date")
for the period from November 1, 1994 through August 31, 1995, to
be prepared in accordance with generally accepted accounting
principles consistently applied with those used in preparation of
the Financial Statements for the year ended October 31, 1994,
(referred to herein as the "Current Financial Statement") except
as otherwise set forth herein. The PFS will properly reflect
accruals for vacation pay and work in process and will not
reflect extraordinary gains from the sale of wire and cable. The
value reflected for inventory on the PFS shall be based on
physical counts as of the Net Worth Date on a first-in, first-out
basis and shall be consistent with the inventory provisions of
paragraph 3.1(k) herein, provided however that any inventory
40
<PAGE>
items included in the October 31, 1993 Financial Statements shall
be excluded from the PFS. The value reflected for accounts
receivable on the PFS shall be determined net of the allowance
for estimated uncollectible accounts established with respect
thereto, the amount of said allowance to be determined in a
manner consistent with the principles and practices used in
establishing such allowance on the Current Financial Statement.
VCI shall cause said PFS to be audited by VCI's CPA and shall
cause it to be delivered to Buyer with the report of VCI's CPA to
the effect that said Statement has been prepared in a manner
consistent with the provisions of this Agreement. At Acquisi-
tion's request, Acquisition's CPA, shall be entitled to observe
the taking of physical inventories and other audit procedures
employed by VCI's CPA in examining and auditing the PFS. Imme-
diately following receipt of the report from VCI's CPA, VCI shall
furnish to Acquisition a copy of the PFS and shall make available
to Acquisition's accountants the working papers and schedules and
source materials used by VCI and by VCI's CPA in preparing and
reviewing the PFS and in connection with the preparation and/or
audit of the financial statement referred to hereinabove. If,
within fifteen (15) business days after the date on which the
report of VCI's CPA is delivered to Acquisition, VCI shall not
have received written notice from the Acquisition stating in
detail the respects in which Acquisition claims that the PFS does
not conform to the provisions hereof, or if Acquisition at an
41
<PAGE>
earlier date gives notice of acceptance or upon satisfaction of
any discrepancies as provided hereafter in this paragraph, then
said PFS so prepared by VCI shall be deemed to be the Closing
Financial Statement. In the event that Acquisition within said
fifteen (15) business day period gives written notice of any such
objection to said PFS, then the parties and their accountants
shall attempt to resolve all differences on a mutually acceptable
basis and the PFS so resolved shall be the Closing Financial
Statement. To the extent that such differences are not so
resolved within ten (10) business days after the receipt of
notice from Buyer of such objections, the cause giving rise to
such difference shall be submitted to the accounting firm
specified in Exhibit 6.7, independent public accountants
("Arbitrators") and any determination by such Arbitrators shall
be final and conclusive and binding upon the parties hereto and
the PFS as finally determined by Arbitrators shall be deemed to
be the Closing Financial Statement. Acquisition shall pay $25,000
and shareholders shall pay the remainder of the fees due to VCI's
CPA. All fees due to Arbitrators shall be paid equally by
Acquisition and Shareholders. All fees due Acquisition's firm of
CPAs shall be paid by Acquisition. Shareholders' Certified
Public Accountants shall provide Acquisition with its proposed
audit programs, audit procedures and scopes for Acquisition's
review and acceptance prior to the commencement of the audit.
The representations and warranties made by Shareholders contained
42
<PAGE>
in Article II hereof, which are stated to be made with reference
to the "Financial Statements" as defined in section 2.1(g), shall
also be deemed to be made with reference to the "Closing
Financial Statement."
ARTICLE VII
Indemnification
7.1. Survival of Representations and Warranties. The
representations, warranties and covenants of each party contained
in this Agreement or in any document delivered pursuant hereto
shall be deemed continuing and shall survive the Closing and any
investigation made by any party or its representatives.
7.2. Indemnification of Acquisition. The Shareholders
jointly and severally agree to indemnify Acquisition and to hold
it harmless from and against any loss, cost, expense or other
damage (including without limitation reasonable attorneys' fees)
suffered by VCI resulting from, arising out of or incurred with
respect to (i) the falsity or breach of any representation,
warranty or covenant made by the Shareholders herein, in any
exhibit attached hereto, or in any document delivered pursuant
hereto (including instruments of conveyance), or (ii) any
liabilities or obligations of VCI which are not to be assumed
under the terms of this Agreement.
7.3. Indemnification of the Shareholders. Acquisition
agrees to indemnify and hold the Shareholders harmless from and
against any loss, cost, expense or other damage (including,
43
<PAGE>
without limitation, reasonable attorneys' fees) suffered by them
resulting from, arising out of or incurred with respect to (i)
the falsity or breach of any representation, warranty or covenant
made by Acquisition herein, in any exhibit hereto, or in any
document delivered pursuant hereto, or (ii) any failure by
Acquisition to pay and/or perform any liabilities or obligations
to be assumed under the terms of this Agreement.
7.4. Limitations. Notwithstanding the foregoing, any
claim for indemnification as provided above must be asserted (i)
in the case of any claims arising out of matters relating to
Taxes, on or before the date of the expiration of the applicable
statute of limitations, and (ii) in the case of all other mat-
ters, on or before 36 months after the Closing Date. If not
asserted within this period, the right to assert such claims
shall lapse excepting any ongoing obligations to pay and/or
perform which accrue after said 36 month period.
7.5. Procedure Relative to Indemnification.
(a) in the event that any party hereto shall
claim that such party is entitled to be indemnified pursuant
to the terms of this Article VI, he or it (the "Claiming
Party") shall so notify the party or parties against which
the claim is made (the "Indemnifying Party") in writing of
such claim within thirty (30) days after receipt of a notice
of such claim or notice of any claim of a third party that
may reasonably be expected to result in a claim by such
44
<PAGE>
party against the party to which such notice is given;
provided, however, that failure to give such notification
shall not affect the indemnification provided hereunder
except to the extent the Indemnifying Party shall have been
actually prejudiced as a result of such failure. Such
notice shall specify the basis of the claim and the
liability, loss, cost or expense incurred by, or imposed
upon the Claiming Party on account thereof. If such
liability, loss, cost or expense is liquidated in amount,
the notice shall so state and such amount shall be deemed
the amount of the claim of the Claiming Party. If the
amount is not liquidated, the notice shall so state and in
such event a claim shall be deemed asserted against the
Indemnifying Party on behalf of the Claiming Party, but no
payment shall be made on account thereof until the amount
of such claim is liquidated and the claim is finally
determined.
(b) the Indemnifying Party shall, upon receipt of
such written notice and at its expense, defend such claim in
its own name or, if necessary, in the name of the Claiming
Party; provided, however, that if the proceeding involves a
matter solely of concern to the Claiming Party in addition
to the claim for which indemnification under this Article VI
is being sought, such matter shall be within the sole
responsibility of the Claiming Party and its legal counsel.
45
<PAGE>
The Claiming Party will cooperate with and make available to
the Indemnifying Party such assistance and materials as may
be reasonably requested of it, and the Claiming Party shall
have the right, at its expense, to participate in the
defense. The Indemnifying Party shall have the right to
settle and compromise such claim only with the consent of
the Claiming Party.
(c) in the event the Indemnifying Party shall
notify the Claiming Party that it disputes any claim made by
the Claiming Party and/or it shall refuse to conduct a
defense against such claim, then the Claiming Party shall
have the right to conduct a defense against such claim and
shall have the right to settle and compromise such claim
upon five (5) days notice to, but without the consent of,
the Indemnifying Party. Once the amount of such claim is
liquidated and the claim is finally determined, the Claiming
Party shall be entitled to pursue each and every remedy
available to it at law or in equity to enforce the indemni-
fication provisions of this Article VI and, in the event it
is determined, or the Indemnifying Party agrees, that it is
obligated to indemnify the Claiming Party for such claim,
the Indemnifying Party agrees to pay all costs, expenses and
fees, including all reasonable attorneys' fees which may be
incurred by the Claiming Party in attempting to enforce
46
<PAGE>
indemnification under this Article V, whether the same shall
be enforced by suit or otherwise.
ARTICLE VIII
Miscellaneous
8.1. Other Agreements. At the time of Closing and as
a condition precedent thereto:
(a) Shareholders shall each enter into
NonCompetition Agreements with Acquisition, the form of
which is attached hereto as Exhibit 8.1(a),
(b) Shareholders shall enter into Employment
Agreements with VCI, the form of which is attached hereto as
Exhibit 8.1(b).
8.2. Expenses Incident to Transaction. Except as
provided in section 8.14, each party shall bear his or its own
expenses and costs relating to the negotiation, execution and
performance of this Agreement.
8.3. Further Assurances. After the Closing, each of
the parties agrees to execute and deliver such further instru-
ments and take such other actions as another party may reasonably
request to carry out the transactions contemplated by this
Agreement.
8.4. Governing Law. This Agreement shall be construed
and interpreted according to the laws of the State of California,
regardless of the laws that might otherwise govern under applica-
ble principles of conflicts of law.
47
<PAGE>
8.5. Notices. All notices and other communications
required or permitted to be given under this Agreement shall be
in writing and shall be considered to be given and received in
all respects when hand delivered, when sent by prepaid express or
courier delivery service, when sent by facsimile transmission
actually received by the receiving equipment, or three (3) days
after deposited in the United States Mail, certified mail,
postage prepaid, return receipt requested, in each case addressed
as follows, or to such other address as shall be designated by
notice duly given:
if to Acquisition:
Sydney B. Lilly
c/o The Diana Corporation
8200 West Brown Deer Road
Suite 200
Milwaukee, Wisconsin 53223
with a copy to:
Kenneth Hunt
Godfrey & Kahn
780 North Water Street
Milwaukee, Wisconsin 53202
if to the Shareholders addressed to each of the
Shareholders c/o:
Valley Communications Incorporated
4026 Clipper Court
Fremont, CA 94538
with a copy to:
Attorney: Robert Kasper
P.O. Box 574
Walpole, New Hampshire 03608-0574
48
<PAGE>
8.6. Set Off. If Acquisition claims against
Shareholders or any of them under Article VII hereof, or
otherwise liquidated, and the claim is otherwise finally
determined, Acquisition may, in addition to any other remedies
which may be available to Acquisition, set off such amounts
against any amounts otherwise due or owing to Shareholders, or
any of them, including without limitation, any amounts owed under
any employment agreements or notes payable to Shareholders under
section 1.2 hereof or in connection with any ownership interest
of Shareholders in VCI.
8.7.a. Publicity. No public announcement regarding
this Agreement or the transactions contemplated hereby shall be
made without the mutual consent of the Shareholders and Acqui-
sition, except as may be required by law.
8.7.b. Confidentiality. The parties hereto agree that
prior to and after the Closing Date, all of the parties will hold
in strict confidence all data and information regarding this
transaction of the business of VCI, except as may be either
required by law or in conducting due diligence investigations by
Acquisition. If the transaction is not completed, Acquisition
will, on demand, return to Shareholders any documents prepared or
made available to Acquisition.
8.8. Entire Agreement. This Agreement embodies the
entire agreement and understanding among the parties and super
49
<PAGE>
sedes all prior agreements and understandings relating to the
subject matter hereof.
8.9. Modification. No modification or waiver of any
of the provisions of this Agreement or consent to any departure
therefrom shall be effective unless in writing.
8.10. Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be an original but
all of which shall constitute but one and the same agreement and
shall become binding upon the parties when each party hereto has
executed one or more counterparts.
8.11. Benefit. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respec-
tive successors and assigns. This Agreement shall not be deemed
to confer any rights or remedies upon any person other than the
parties hereto and their respective successors and assigns.
8.12. Termination and Abandonment. This Agreement may
be terminated and the transactions provided for by this Agreement
may be abandoned at any time on or before the Closing:
(a) by Acquisition, in accordance with section
6.1, above, without liability on the part of Acquisition,
(b) by Acquisition, if any of the material
conditions of section 4.1, above, have not been met as of
the date of the Closing, without liability on the part of
Acquisition or
50
<PAGE>
(c) by the Shareholders, if any of the material
conditions of section 4.2 above, have not been met as of the
date of the Closing, without liability on the part of any of
the Shareholders.
In the event of termination and abandonment by any party as
provided in this section, this Agreement shall become void and
have no further effect, except any claim for damages arising out
of a breach of this Agreement shall not be lost or waived by
reason of such termination. Written notice of any such
termination shall be given by the party so terminating to other
parties hereto.
8.13. Hart-Scott-Rodino. In the event Acquisition
determines it is required to file an application or registration
pursuant to the Hart-Scott-Rodino Antitrust Improvements Act in
connection with the transactions contemplated in this Agreement,
any application, registration or filing fee shall be paid by
Shareholders. Shareholders shall be jointly and severally liable
for payment to Acquisition of any such amount.
8.14. Brokers Fee. Acquisition shall pay at Closing
the fee payable to the Bentley Companies in an amount not to
exceed $250,000.
51
<PAGE>
Executed on the date first above written.
C&L ACQUISITION CORPORATION
("Acquisition")
By: \s\ Donald E. Runge, President
SHAREHOLDERS
\s\ Henry Mutz
\s\ Chris O'Connor
\s\ Ken Hurst
FIRST AMENDMENT
PURCHASE AGREEMENT
This first amendment to the Purchase Agreement dated August
19, 1995, by and between C&L Acquisitions Corporation, a Nevada
corporation ("Acquisition"), Henry Mutz, Chris O'Connor and Ken
Hurst (together collectively referred to as the "Shareholders") who
together are all of the Shareholders of Valley Communications,
Incorporated, a California corporation ("VCI").
W I T N E S S E T H
WHEREAS, the above named Parties entered into a Purchase
Agreement on the 14th day of August 1995, and
WHEREAS, the Parties wish to amend said Purchase Agreement as
hereinafter described,
NOW THEREFORE, it is agreed as follows:
A. Section 1.2(iv) of the Purchase Agreement is hereby amended in
its entirety to read as follows:
(iv) Pretax Operating Profits. Pretax Operating Profits
are earnings before taxes and Operating Interest, and
before extraordinary gains or losses for the year or
period involved, prepared in accordance with generally
accepted accounting principles ("GAAP") consistently
applied and consistent with those accounting methods used
in the preparation of the Closing Financial Statement
1
<PAGE>
under section 6.7 hereof. Management fees charged to VCI
by Acquisition or its affiliates in any fiscal year shall
be $100,000 which shall include, but is not limited to,
tax preparation, internal audits, year-end audit,
participation as necessary in union negotiations,
financial assistance in negotiation with lenders for an
appropriate line of credit, board meetings and
acquisition assistance for VCI; provided that such
management fee shall be prorated for the partial fiscal
year from the date of closing through the end of such
year. Items of expense incurred by VCI as a direct
result of this acquisition shall not reduce Pre-Tax
Operating Profit. Interest on Sub-Debt (as defined in
1.4(a) herein) shall be a charge in determining Pretax
Operating Profits. Interest, other than Sub-Debt
interest ("Operating Interest"), in excess of 1% of
annual sales shall also be a charge in determining Pretax
Operating Profits. (See example in Exhibit 1.2(iv)
attached.
B. Section 1.4(a) of the Purchase Agreement is hereby amended in
its entirety to read as follows:
(a) Any shareholder or combination of shareholders of
VCI owning 10% or more of the common stock of VCI shall
have the right to require VCI to pay quarterly dividends
in the amount of the lesser of $1,300,000 (prorated for
2
<PAGE>
any period less than one fiscal year) or the After-Tax
Operating Profit of VCI for such period, provided that
such dividend payment (i) does not reduce the net worth
of VCI below One Million-Four Hundred Thousand Dollars
($1,400,000), (ii) does not render VCI insolvent or
otherwise impair its capital, (iii) does not violate any
agreement with creditors of VCI, and (iv) is not in
contravention of otherwise applicable laws. VCI may sell
subordinated notes (Sub-Debt) in amounts not to exceed
the amount of dividends paid by VCI after the date of
Closing; such Sub-Debt shall be due in five years and
bearing interest at 25% per annum with interest payments
due quarterly. Such Sub-Debt shall be offered to all
shareholders in proportion to their percentage ownership
of the common stock of VCI, provided that if any
shareholder declines to purchase any such note, the note
shall be offered to all shareholders who did purchase
notes in proportion to their relative holdings of common
stock of VCI.
C. Article II(c) of the Stockholders Agreement is hereby amended
in its entirety to read as follows:
(c) A trust (including a Trust Account or an IRA Trust
as defined below) created for the benefit of
himself, his spouse, his issue and/or the spouses
of his issue; or
3
<PAGE>
D. The first sentence of Section 1.4(c) of the Purchase Agreement
is hereby amended to read as follows:
(c) In the event that during the term of the Employment
Contracts attached hereto as Exhibits 1.4(c)(1),
1.4(c)(2) and 1.4(c)(3), a Shareholder voluntarily
terminates his employment with VCI, or if he is
terminated by VCI pursuant to Sub-paragraphs 6(c), 6(d)
and 6(e) of the Employment Contract, such Shareholder
will be required to sell at VCI's option, such
Shareholder's interest in VCI.
E. Section 1.4(e) of the Purchase Agreement is stricken in its
entirety.
F. Section 1.4(f) of the Purchase Agreement shall be amended to
change its section number to Section 1.4(e).
G. Section 4.2(d) of the Purchase Agreement shall be amended to
read as follows:
(d) Acquisition shall have executed a Security Agreement
in substantially the form of Exhibit 1.3 representing a
pledge of Acquisition's shares of VCI to secure the
obligations of Acquisition under the Note referred to in
paragraph 1.2(b) hereafter and such Security Agreement
shall terminate upon payment of such Note.
H. The last line of Section 6.7 on Page 40 of the Purchase
Agreement shall be amended to read as follows:
4
<PAGE>
paragraph 2.1(k) herein, provided however that any
inventory
I. Section 8.1(b) of the Purchase Agreement shall be amended to
read as follows:
(b) Shareholders shall enter into Employment Agreements
with VCI, the form of which is attached hereto as
Exhibits 1.4(c)(1), 1.4(c)(2) and 1.4(c)(3).
J. The following shall be added to paragraph 6(3) of the
Employment Contracts (Exhibits 1.4(c)(1), 1.4(c)(2):
In the event that there are fewer than three Shareholders
remaining at the time of termination of employee's
employment, pursuant to paragraph 6(c), 6(d), or 6(e),
one such Shareholder, together with all of the directors
appointed by acquisition, must agree on such termination.
K. Section 7.2 of the Shareholders Agreement (Exhibit 1.4) shall
be amended to read as follows:
Pretax Operating Profits. The term "Pretax Operating
Profits" as used herein shall mean earnings before taxes
and Operating Interest, and before extraordinary gains or
losses for the year or period involved, prepared in
accordance with generally accepted accounting principles
("GAAP") consistently applied and consistent with those
accounting methods used in the preparation of the Closing
Financial Statement under section 6.7 hereof. Management
fees charged to Company by Acquisition or its affiliates
5
<PAGE>
in any fiscal year shall be $100,000 which shall include,
but is not limited to, tax preparation, internal audits,
year-end audit, participation as necessary in union
negotiations, financial assistance in negotiation with
lenders for an appropriate line of credit, board meetings
and acquisition assistance for Company; provided that
such management fee shall be prorated for the partial
fiscal year (from the date of closing) through the end of
such fiscal year. Items of expense incurred by Company
as a direct result of this acquisition shall not be
included. Interest on Sub-Debt (as defined in 1.4(a)
herein) shall be a charge in determining Pretax Operating
Profits. Interest, other than Sub-Debt interest
("Operating Interest"), in excess of 1% of annual sales
shall also be a charge in determining Pretax Operating
Profits. (See example in Exhibit 1.2(iv) attached.
L. Article XV of the Shareholders Agreement (Exhibit 1.4) shall
be amended in its entirety to read as follows:
Any shareholder or combination of shareholders of Company
owning 10% or more of the common stock of Company shall
have the right to require Company to pay annual dividends
in the amount of the lesser of $1,300,000 (prorated for
any period less than one fiscal year) or the After-Tax
Operating Profit of Company for such period, provided
that such dividend payment (i) does not reduce the net
6
<PAGE>
worth of Company below One Million-Four Hundred Thousand
Dollars ($1,400,000), (ii) does not render Company
insolvent or otherwise impair its capital, (iii) does not
violate any agreement with creditors of Company, and (iv)
is not in contravention of otherwise applicable laws.
M. Article V of the Stockholders Agreement is hereby amended by
appending at the end of such Article V the following:
This Article V shall not affect the right or obligations
of any Stockholder to sell shares pursuant to other
agreements, including but limited to, any employment
agreement between a Stockholder and the Company.
N. Article VIII of the Stockholders Agreement is hereby amended
by deleting therefrom the following clause:
"...subject to discounts for minority interest,"
O. Article XV of the Stockholders Agreement is hereby amended by
deleting Section 15.2 thereof and by redesignating Section
15.1 as merely Article XV.
P. Section 18.9 of the Stockholders Agreement is hereby amended
by deleting the word "Wisconsin" and inserting in it place the
word "California."
Q. Section 18.14 of the Stockholders Agreement is hereby amended
to read as follows:
Sales by Company. The Company may sell stock in the
Company to persons who would not otherwise constitute a
Permitted Transferee (as defined in Article II hereof
7
<PAGE>
only):
(a) upon unanimous approval of the Company's Board
of Directors, or
(b) as part of an offering of shares of the
Company through an underwriter.
Except as specifically amended above, the Purchase Agreement
shall remain unchanged.
Dated this 20th day of November, 1995.
C&L ACQUISITION CORPORATION
("Acquisition")
By: \s\ Sydney B. Lilly, Secretary
SHAREHOLDERS
\s\ Henry Mutz
\s\ Chris O'Connor
\s\ Ken Hurst
8
