As filed with the Securities and Exchange Commission on June 25, 1997
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
LUNN INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 3469 1-1581582
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(State or Other Jurisdiction of (Primary Standard Industrial I.R.S. Employer
dIncorporation or Organization) Classification Code Number) Identification No.)
----------------
1 Garvies Point Road
Glen Cove, New York 11542-2828
(516) 671-9000
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
Alan W. Baldwin
Chairman of the Board
LUNN INDUSTRIES, INC.
1 Garvies Point Road
Glen Cove, New York 11542-2828
(516) 671-9000
(Name, address including zip code, and telephone number, including area code,
of agent for service)
----------------
With Copies to:
Bruce B. Wood, Esq. Eric A. Blumrosen, Esq.
Nina P. Grayson, Esq. Gardere & Wynne, L.L.P.
Dechert Price & Rhoads 800 Three Allen Center
30 Rockefeller Plaza 333 Clay, 8th Floor
New York, New York 10112 Houston, Texas 77002
(212) 698-3500 (713) 308-5500
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: UPON CONSUMMATION OF THE MERGER DESCRIBED HEREIN.
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box.
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===============================================================================================================================
Title of Securities to be Amount to be Proposed Maximum Proposed Maximum Amount of
Registered (1) Registered (2) Offering Price per Share Aggregate Offering Price Registration Fee(3)
===============================================================================================================================
<S> <C> <C> <C> <C>
Common Stock, par value $0.01
per share.................. 5,609,995 Not Applicable Not Applicable $6,621.17
===============================================================================================================================
<FN>
(1) This Registration Statement relates to the common stock, par value $0.01
per share (the "Combined Company Common Stock"), to be issued pursuant to
the Acquisition Agreement and Plan of Merger described in this Registration
Statement to (i) holders of the common stock, par value $0.01 per share
(the "Lunn Common Stock"), of Lunn Industries, Inc. and (ii) holders of the
common stock, par value $0.01 per share (the "TPG Common Stock"), of TPG
Holdings, Inc.
(2) Represents the maximum number of shares of Combined Company Common Stock
issuable pursuant to the Acquisition Agreement and Plan of Merger described
in this Registration Statement.
(3) Computed in accordance with Rule 457(f)(1) and (2) on the basis of (i) the
average of the high and low prices for Lunn Common Stock on June 24, 1997
as reported on the Nasdaq SmallCap Market of the Nasdaq Stock Market, Inc.
and (ii) the book value of the TPG Common Stock computed as of April 30,
1997.
</FN>
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE>
LUNN INDUSTRIES, INC.
1 GARVIES POINT ROAD
GLEN COVE, NEW YORK 11542-2828
, 1997
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of
Stockholders (the "Lunn Annual Meeting") of Lunn Industries, Inc. ("Lunn") to be
held on , 1997 at 10:00 a.m., local time, at the principal executive offices of
Lunn located at 1 Garvies Point Road, Glen Cove, New York 11542-2828.
At the Lunn Annual Meeting, you will be asked to consider and
vote upon the following:
(1) a proposal to approve and adopt the Acquisition Agreement and Plan
of Merger dated as of June 6, 1997 (the "Merger Agreement") between
Lunn and TPG Holdings, Inc., a Delaware corporation ("TPG"), pursuant
to which, among other things: (i) TPG will be merged (the "Merger")
with and into Lunn (as the surviving corporation in the Merger, the
"Combined Company"); (ii) the Restated Certificate of Incorporation of
Lunn will be amended and restated to become the Certificate of
Incorporation of the Combined Company at the effective time of the
Merger; and (iii) a new stock option plan will be adopted to become the
1997 Stock Option Plan of the Combined Company at the effective time of
the Merger. Upon consummation of the Merger, each share (other than
dissenters' shares) of the common stock, par value $0.01 per share, of
Lunn ("Lunn Common Stock") will be converted into the right to receive
0.1 of a share of the common stock, par value $0.01 per share, of the
Combined Company ("Combined Company Common Stock"), each share (other
than dissenters' shares) of the common stock, par value $0.01 per
share, of TPG ("TPG Common Stock") will be converted into the right to
receive 8.3028 shares of Combined Company Common Stock, and each share
of the preferred stock, par value $1.00 per share, of TPG ("TPG
Preferred Stock") will be converted into the right to receive one share
of the preferred stock, par value $1.00 per share, of the Combined
Company ("Combined Company Preferred Stock"). The Combined Company
Preferred Stock will not be convertible into shares of Combined Company
Common Stock. In addition, upon consummation of the Merger the Combined
Company will assume all outstanding options to purchase TPG Common
Stock ("TPG Options"), all outstanding options to purchase Lunn Common
Stock ("Lunn Options") and all outstanding warrants to purchase Lunn
Common Stock ("Lunn Warrants"); each such TPG Option, Lunn Option and
Lunn Warrant will become exercisable for that number of whole shares of
the Combined Company Common Stock equal to the number of shares of TPG
Common Stock or Lunn Common Stock covered thereby immediately prior to
the effective time of the Merger multiplied by 8.3028 (in the case of
the TPG Options) or 0.1 (in the case of the Lunn Options and the Lunn
Warrants). The foregoing is sometimes hereinafter collectively referred
to as the "Joint Proxy Proposal";
(2) the election of two Class I directors, each to hold office until
Lunn's Annual Meeting of Stockholders in 2000 or until his respective
successor is elected and qualified ("Lunn Proxy Proposal 1").
Notwithstanding the foregoing, however, in the event that the Merger is
approved and is consummated, only two directors of Lunn (Mr. Alan W.
Baldwin, a Class III director, and Mr. John M. Simon, a Class I
director and one of the nominees for election of director named herein)
will be directors of the Combined Company after the effective time of
the Merger;
(3) the ratification of the appointment by the Board of Directors of
Lunn (the "Lunn Board of Directors") of KPMG Peat Marwick LLP as the
independent accountants to audit Lunn's financial statements for the
year ending December 31, 1997 ("Lunn Proxy Proposal 2").
<PAGE>
Notwithstanding the foregoing, however, in the event that the Merger is
approved and is consummated the Board of Directors of the Combined
Company will meet after the Merger to determine the Combined Company's
independent accountants for the year ending December 31, 1997; and
(4) the transaction of such other business as may properly come before
the Lunn Annual Meeting or any adjournment thereof.
The Merger is structured to be a tax-free reorganization and
recapitalization in which neither Lunn and its stockholders nor TPG and its
stockholders will recognize taxable gain upon consummation of the Merger, except
to the extent of gain recognized on cash paid in lieu of fractional shares and
payments for dissenting shares, and will be treated as a purchase for accounting
purposes. The Lunn Board of Directors has unanimously approved the Joint Proxy
Proposal and has determined that the Merger is in the best interests of Lunn and
its stockholders. The Lunn Board of Directors recommends that the stockholders
of Lunn vote "FOR" the Joint Proxy Proposal. However, you are urged to carefully
consider all aspects of the Merger discussed in the attached Proxy
Statement/Prospectus, as the Merger will result in the issuance to the TPG
stockholders and the holders of the TPG Options of approximately 74% of the
Combined Company Common Stock to be outstanding immediately after the Merger,
calculated on a fully-diluted basis. The Lunn Board of Directors also recommends
that the stockholders of Lunn vote "FOR" Lunn Proxy Proposal 1 and Lunn Proxy
Proposal 2.
Under the Delaware General Corporation Law, as amended (the
"DGCL"), the affirmative vote of holders of a majority of Lunn Common Stock
outstanding as of the close of business on , 1997 will be necessary for approval
and adoption of the Joint Proxy Proposal. However, under the Merger Agreement it
is a condition to the obligation of TPG to consummate the Merger that the
holders of not more than 10% of the Lunn Common Stock outstanding immediately
prior to the effective time of the Merger dissent from the Merger in accordance
with the procedures set forth in the DGCL. Under the DGCL, a plurality of votes
of the shares of Lunn Common Stock, and a majority of shares of Lunn Common
Stock, present in person or represented by proxy at the Lunn Annual Meeting is
required with respect to approval of Lunn Proxy Proposal 1 and Lunn Proxy
Proposal 2, respectively.
Pursuant to Section 262 of the DGCL, holders of Lunn Common
Stock may, in certain circumstances, be entitled to appraisal rights in
connection with the Merger. See "The Joint Proxy Proposal--Dissenters' Rights of
Appraisal" for a brief summary of the procedures to be followed by the holders
of Lunn Common Stock in order to perfect their rights of appraisal, if any,
under the DGCL.
In the material accompanying this letter, you will find a
Notice of Special Meeting of Stockholders, a Proxy Statement/Prospectus relating
to, among other things, the actions to be taken by the Lunn stockholders at the
Lunn Annual Meeting, a proxy card and copies of Lunn's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1996 and Quarterly Report on Form
10-QSB for the quarter ended March 31, 1997. The Proxy Statement/Prospectus more
fully describes the Merger and includes information about Lunn and TPG and also
serves as a Prospectus for Lunn with respect to the shares of Combined Company
Common Stock which will be issuable upon consummation of the Merger. The Proxy
Statement/Prospectus also includes information with respect to the nominees for
election as directors. Stockholders are urged to review carefully the
information contained in the accompanying Proxy Statement/Prospectus, including
in particular the information under the captions "Risk Factors" and "The Merger"
prior to making any voting decision in connection with their Lunn Common Stock.
The Lunn Board of Directors believes that the best way to
maximize prospects of enhancing stockholder value over the long-term is to merge
Lunn with another entity that (i) has operations in the advanced composite
structures market industry, (ii) is profitable, (iii) has good prospects for
future growth and (iv) has the ability to increase Lunn's market capitalization
such that it
<PAGE>
may permit the Combined Company Common Stock to be listed for trading on the
National Market System of the National Association of Securities Dealers, Inc.
Automated Quotation System. In the opinion of the Board of Directors of Lunn,
the proposed Merger fits within these parameters.
All stockholders are cordially invited to attend the Lunn
Annual Meeting in person. However, whether or not you plan to attend the Lunn
Annual Meeting, it is very important that you sign, date and return the
completed and signed proxy card as soon as possible; please use the enclosed
postage prepaid envelope to return the executed proxy card. If you attend the
Lunn Annual Meeting, you may revoke the proxy at that time by requesting the
right to vote in person.
Sincerely,
Alan W. Baldwin
Chairman of the Board of Directors
and Chief Executive Officer
Your vote is important. Please complete and return your proxy promptly.
Lunn stockholders should not surrender or otherwise attempt to exchange their
Lunn stock certificates for Combined Company stock certificates unless and until
they have received appropriate notice and instructions for exchange.
<PAGE>
LUNN INDUSTRIES, INC.
1 GARVIES POINT ROAD
GLEN COVE, NEW YORK 11542-2828
----------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1997
10:00 A.M.
AT
1 GARVIES POINT ROAD
GLEN COVE, NEW YORK 11542-2828
-------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders
(the "Lunn Annual Meeting") of Lunn Industries, Inc., a Delaware corporation
("Lunn"), will be held on , 1997 at 10:00 a.m., local time, at the principal
executive offices of Lunn located at 1 Garvies Point Road, Glen Cove, New York
11542-2828 to consider and vote upon the following matters described in the
accompanying Proxy Statement/Prospectus:
(1) a proposal to approve and adopt the Acquisition Agreement and Plan
of Merger dated as of June 6, 1997 (the "Merger Agreement") between
Lunn and TPG Holdings, Inc., a Delaware corporation ("TPG"), pursuant
to which, among other things: (i) TPG will be merged (the "Merger")
with and into Lunn (as the surviving corporation in the Merger, the
"Combined Company"); (ii) the Restated Certificate of Incorporation of
Lunn will be amended and restated to become the Certificate of
Incorporation of the Combined Company at the effective time of the
Merger; and (iii) a new stock option plan will be adopted to become the
1997 Stock Option Plan of the Combined Company at the effective time of
the Merger. Upon consummation of the Merger, each share (other than
dissenters' shares) of the common stock, par value $0.01 per share, of
Lunn ("Lunn Common Stock") will be converted into the right to receive
0.1 of a share of the common stock, par value $0.01 per share, of the
Combined Company ("Combined Company Common Stock"), each share (other
than dissenters' shares) of the common stock, par value $0.01 per
share, of TPG ("TPG Common Stock") will be converted into the right to
receive 8.3028 shares of Combined Company Common Stock, and each share
of the preferred stock, par value $1.00 per share, of TPG ("TPG
Preferred Stock") will be converted into the right to receive one share
of the preferred stock, par value $1.00 per share, of the Combined
Company ("Combined Company Preferred Stock"). The Combined Company
Preferred Stock will not be convertible into shares of Combined Company
Common Stock. In addition, upon consummation of the Merger the Combined
Company will assume all outstanding options to purchase TPG Common
Stock ("TPG Options"), all outstanding options to purchase Lunn Common
Stock ("Lunn Options") and all outstanding warrants to purchase Lunn
Common Stock ("Lunn Warrants"); each such TPG Option, Lunn Option and
Lunn Warrant will become exercisable for that number of whole shares of
the Combined Company Common Stock equal to the number of shares of TPG
Common Stock or Lunn Common Stock covered thereby immediately prior to
the effective time of the Merger multiplied by 8.3028 (in the case of
the TPG Options) or 0.1 (in the case of the Lunn Options and the Lunn
Warrants). The foregoing is sometimes hereinafter collectively referred
to as the "Joint Proxy Proposal";
(2) the election of two Class I directors, each to hold office until
Lunn's Annual Meeting of Stockholders in 2000 or until his respective
successor is elected and qualified ("Lunn Proxy Proposal 1").
Notwithstanding the foregoing, however, in the event that the Merger is
approved and is consummated, only two directors of Lunn (Mr. Alan W.
Baldwin, a Class III director, and
<PAGE>
Mr. John Simon, a Class I director and one of the nominees for election
of director named herein) will be directors of the Combined Company
after the effective time of the Merger;
(3) the ratification of the appointment by the Board of Directors of
Lunn of KPMG Peat Marwick LLP as the independent accountants to audit
Lunn's financial statements for the year ending December 31, 1997
("Lunn Proxy Proposal 2"). Notwithstanding the foregoing, however, in
the event that the Merger is approved and is consummated, the Board of
Directors of the Combined Company will meet after the Merger to
determine the Combined Company's independent accountants for the year
ending December 31, 1997; and
(4) the transaction of such other business as may properly come before
the Lunn Annual Meeting or any adjournment thereof.
Copies of each of the Merger Agreement, the proposed form of Amended and
Restated Certificate of Incorporation and the proposed form of 1997 Stock Option
Plan are attached to the accompanying Proxy Statement/Prospectus as Annex A, B
and D, respectively.
The Board of Directors has fixed the close of business on ,
1997 as the record date for the determination of stockholders entitled to notice
of, and to vote at, the Lunn Annual Meeting, or at any adjournment or
postponement thereof. A list of stockholders entitled to vote at the Lunn Annual
Meeting, or at any adjournment or postponement thereof, will be available for
examination by any stockholder, for any purpose relevant to the Lunn Annual
Meeting, on and after , 1997, during ordinary business hours at Lunn's principal
executive offices located at the address first set forth above.
Under the Delaware General Corporation Law, as amended (the
"DGCL"), approval and adoption of the Joint Proxy Proposal requires the
affirmative vote of the holders of at least a majority of the shares of Lunn
Common Stock outstanding as of the record date. However, under the Merger
Agreement it is a condition to the obligation of TPG to consummate the Merger
that the holders of not more than 10% of the Lunn Common Stock outstanding
immediately prior to the effective time of the Merger dissent to the Joint Proxy
Proposal. In addition, under the DGCL, a plurality of votes of the shares of
Lunn Common Stock, and a majority of the shares of Lunn Common Stock, present in
person or represented by proxy at the Lunn Annual Meeting is required with
respect to approval of Lunn Proxy Proposal 1 and Lunn Proxy Proposal 2,
respectively.
Pursuant to Section 262 of the DGCL, holders of Lunn Common
Stock may, in certain circumstances, be entitled to appraisal rights in
connection with the Merger. See "The Joint Proxy Proposal--Dissenters' Rights of
Appraisal" for a brief summary of the procedures to be followed by holders of
Lunn Common Stock in order to perfect their rights, if any, to payments under
the DGCL.
By order of the Board of Directors,
Lawrence Schwartz,
Chief Financial Officer and Secretary
, 1997
Whether or not you plan to attend the Lunn Annual Meeting,
please complete, sign and date the enclosed proxy card and mail it promptly in
the enclosed return envelope, which requires no postage if mailed in the United
States. If you attend the Lunn Annual Meeting, you may vote in person if you
wish to do so even if you have previously sent in your proxy.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED JUNE 25, 1997
JOINT PROXY STATEMENT
OF
LUNN INDUSTRIES, INC.
AND
TPG HOLDINGS, INC.
--------------------
PROXY STATEMENT
OF
LUNN INDUSTRIES, INC.
--------------------
PROSPECTUS OF LUNN INDUSTRIES, INC.
5,609,995 SHARES OF
COMMON STOCK, PAR VALUE $0.01
This Proxy Statement/Prospectus relates to: (i) a proposal to
approve and adopt the Acquisition Agreement and Plan of Merger dated as of June
6, 1997 (the "Merger Agreement") between Lunn Industries, Inc., a Delaware
corporation ("Lunn"), and TPG Holdings, Inc., a Delaware corporation ("TPG"),
pursuant to which, among other things: (a) TPG will be merged (the "Merger")
with and into Lunn (as the surviving corporation in the Merger, the "Combined
Company"), (b) the Restated Certificate of Incorporation of Lunn (the "Lunn
Certificate of Incorporation") will be amended and restated to become the
Certificate of Incorporation of the Combined Company (the "Combined Company
Certificate of Incorporation") at the Effective Time (as defined) of the Merger,
and (c) a new stock option plan will be adopted to become the 1997 Stock Option
Plan of the Combined Company (the "Option Plan") at the Effective Time of the
Merger (sometimes hereinafter collectively referred to as the "Joint Proxy
Proposal"); (ii) the election of two Class I directors of Lunn, each to hold
office until Lunn's Annual Meeting of Stockholders in 2000 or until his
respective successor is elected and qualified (sometimes hereinafter referred to
as "Lunn Proxy Proposal 1"); and (iii) the ratification of the appointment by
the Board of Directors of Lunn (the "Lunn Board of Directors") of KPMG Peat
Marwick LLP as the independent accountants to audit Lunn's financial statements
for the year ending December 31, 1997 (sometimes hereinafter referred to as
"Lunn Proxy Proposal 2"), each as described in this Proxy Statement/Prospectus.
In the event that the Merger is approved and is consummated, only two directors
of Lunn (Mr. Alan Baldwin, a Class III director, and Mr. John Simon, a Class I
director and one of the nominees for election of director named herein) will be
directors of the Combined Company and the Board of Directors of the Combined
Company will meet after the Merger to determine the Combined Company's
independent accountants for the year ending December 31, 1997.
This Proxy Statement/Prospectus is being furnished to the
holders of the common stock, par value $0.01 per share, of Lunn ("Lunn Common
Stock") in connection with the solicitation of proxies by the Lunn Board of
Directors for use at the Annual Meeting of Stockholders of Lunn (the "Lunn
Annual Meeting") to be held on , 1997 at 10:00 a.m., local time, at
the principal executive offices of Lunn located at 1 Garvies Point Road, Glen
Cove, New York 11542-2828, and at any adjournment or postponement thereof. At
the Lunn Annual Meeting, holders of Lunn Common Stock will be asked to consider
and vote upon the Joint Proxy Proposal, Lunn Proxy Proposal 1, Lunn Proxy
Proposal 2 and such other business as may properly come before the Lunn Annual
Meeting. This Proxy Statement/Prospectus is also being furnished to the holders
of the common stock, par value $0.01 per share, of TPG ("TPG Common Stock") in
connection with the Special Meeting of Stockholders of TPG (the "TPG Special
Meeting") to be held on , 1997 at , local time, at the
principal executive offices of TPG located at 3353 Peachtree Road, Suite 920,
Atlanta, Georgia 30326, and at any
<PAGE>
adjournment or postponement thereof. At the TPG Special Meeting, holders of TPG
Common Stock will be asked to consider and vote upon the Joint Proxy Proposal
and such other business as may properly come before the TPG Special Meeting.
In connection with the Merger, Lunn has filed a Registration
Statement on Form S-4 (the "Registration Statement") with the Securities and
Exchange Commission (the "Commission") pursuant to the Securities Act of 1933,
as amended (the "Securities Act"), covering an aggregate of up to 5,609,995
shares of the common stock, par value $0.01 per share, of the Combined Company
("Combined Company Common Stock") which will be issuable in the Merger. This
Proxy Statement/Prospectus also constitutes the prospectus of Lunn filed as part
of the Registration Statement relating to the Combined Company Common Stock.
This Proxy Statement/Prospectus does not cover any resales of Combined Company
Common Stock received by affiliates of Lunn or TPG in connection with the
Merger, and no person is authorized to make use of this Proxy
Statement/Prospectus in connection with any such resales.
As a result of the Merger, TPG will cease to exist as a
separate corporate entity and the Combined Company will succeed to and assume
all of the rights and obligations of TPG in accordance with the Delaware General
Corporation Law, as amended (the "DGCL"). In connection with the Merger, (i)
each outstanding share of Lunn Common Stock, other than shares of Lunn Common
Stock that are outstanding immediately prior to the Effective Time and which are
held by stockholders of Lunn who shall not have voted in favor of the Merger or
consented thereto in writing, who shall have demanded properly in writing
payment for such shares in accordance with the DGCL and who shall not have
withdrawn such demand or have been deemed to or otherwise have forfeited the
right to payment under the DGCL (the "Lunn Dissenters' Shares"), will be
converted into the right to receive 0.1 of a share of Combined Company Common
Stock (the "Lunn Exchange Ratio"), (ii) each outstanding share of TPG Common
Stock, other than shares of TPG Common Stock that are outstanding immediately
prior to the Effective Time and which are held by stockholders of TPG who shall
not have voted in favor of the Merger or consented thereto in writing, who shall
have demanded properly in writing payment for such shares in accordance with the
DGCL and who shall not have withdrawn such demand or have been deemed to or
otherwise have forfeited the right to payment under the DGCL (the "TPG
Dissenters' Shares"), will be converted into the right to receive 8.3028 shares
of Combined Company Common Stock (the "TPG Exchange Ratio") and (iii) each
outstanding share of the preferred stock, par value $1.00 per share, of TPG
("TPG Preferred Stock") will be converted into the right to receive one share of
the preferred stock, par value $1.00 per share, of the Combined Company
("Combined Company Preferred Stock"). The Combined Company Preferred Stock will
not be convertible into shares of Combined Company Common Stock. In addition,
upon consummation of the Merger the Combined Company will assume all outstanding
options to purchase TPG Common Stock ("TPG Options"), all outstanding options to
purchase Lunn Common Stock ("Lunn Options") and all outstanding warrants to
purchase Lunn Common Stock ("Lunn Warrants"); each such TPG Option, Lunn Option
and Lunn Warrant will become exercisable for that number of whole shares of the
Combined Company Common Stock equal to the number of shares of TPG Common Stock
or Lunn Common Stock covered thereby immediately prior to the effective time of
the Merger multiplied by the TPG Exchange Ratio (in the case of the TPG Options)
or the Lunn Exchange Ratio (in the case of the Lunn Options and the Lunn
Warrants). No fractional shares of Combined Company Common Stock shall be issued
in connection with the Merger. See "The Joint Proxy Proposal--Terms of the
Merger Agreement--Merger Consideration" and "--No Fractional Shares."
As of June 6, 1997, there were 12,762,153 shares of Lunn
Common Stock outstanding, no shares of the preferred stock, par value $0.01 per
share, of Lunn ("Lunn Preferred Stock") outstanding and 1,167,500 and 656,300
shares of Lunn Common Stock issuable upon exercise of the Lunn Options and Lunn
Warrants, respectively. As of June 6, 1997, there were 475,000 shares of TPG
Common Stock outstanding, 1,000,000 shares of TPG Preferred Stock outstanding
and 25,000 shares of TPG Common
<PAGE>
Stock issuable upon exercise of the TPG Options. Upon consummation of the Merger
(assuming exercise of all of the Lunn Options, Lunn Warrants and TPG Options),
the former holders of Lunn Common Stock will own 26% of the Combined Company
Common Stock, the former holders of TPG Common Stock will own 74% of the
Combined Company Common Stock and the former holders of TPG Preferred Stock will
own all of the Combined Company Preferred Stock.
This Proxy Statement/Prospectus is first being mailed to
stockholders of Lunn and stockholders of TPG on or about , 1997.
All information herein with respect to Lunn has been furnished by Lunn and
all information herein with respect to TPG has been furnished by TPG.
Lunn Common Stock is listed on The Nasdaq SmallCap Market
of The Nasdaq Stock Market, Inc. (the "Nasdaq SmallCap Market") under the
symbol "LUNN."
----------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY LUNN STOCKHOLDERS AND TPG
STOCKHOLDERS BEFORE VOTING ON THE MATTERS MORE FULLY DESCRIBED HEREIN.
----------------------
THE SHARES OF COMBINED COMPANY COMMON STOCK TO WHICH THIS PROXY
STATEMENT/PROSPECTUS RELATES HAVE NOT BEEN APPROVED OR DIS-
APPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR BY
ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY RE-
PRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------
The date of this Proxy Statement/Prospectus is , 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION...........................................................................................(i)
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE...............................................................(i)
SUMMARY...........................................................................................................1
The Companies............................................................................................1
Lunn............................................................................................1
TPG.............................................................................................2
Industry Overview........................................................................................2
Operations of the Combined Company.......................................................................3
The Meetings.............................................................................................4
Annual Meeting of Stockholders of Lunn..........................................................4
Special Meeting of Stockholders of TPG..........................................................4
The Joint Proxy Proposal.................................................................................5
General.........................................................................................5
Conversion of Lunn Common Stock, TPG Common Stock and TPG Preferred Stock.......................5
Recommendation of the Lunn Board of Directors...................................................5
Recommendation of the TPG Board of Directors....................................................6
Effective Time..................................................................................6
Procedure for Converting Shares.................................................................6
Interests of Certain Persons in the Merger......................................................6
Conditions to the Merger; Termination and Amendment of the Merger Agreement.....................7
Representations, Warranties and Covenants.......................................................8
Effects Of Termination; Termination Fee.........................................................8
Charter Amendments in Connection with the Merger................................................8
Option Plan.....................................................................................8
Management of the Combined Company after the Merger.............................................8
Listing of Combined Company Common Stock........................................................9
Accounting Treatment............................................................................9
Certain Federal Tax Consequences................................................................9
Dissenters' Rights of Appraisal................................................................10
Regulatory Matters.............................................................................10
Market Price Data..............................................................................10
Risk Factors...................................................................................10
Financial Information...................................................................................11
Summary Financial Data of Lunn.................................................................11
Summary Financial Data of TPG..................................................................12
Unaudited Pro Forma Combined Summary Financial Data............................................13
Pro Forma Per Share Data.......................................................................14
Lunn Proxy Proposal 1...................................................................................15
Lunn Proxy Proposal 2...................................................................................15
RISK FACTORS.....................................................................................................16
Risk Factors Applicable to the Businesses of Lunn and TPG..............................................16
Risk Factors Applicable to the Merger...................................................................18
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<PAGE>
THE MEETINGS, VOTING AND PROXIES.................................................................................20
Annual Meeting of Stockholders of Lunn..................................................................20
Date, Time and Place of Lunn Annual Meeting....................................................20
Purpose of the Meeting.........................................................................20
Record Date and Outstanding Shares.............................................................20
Voting of Proxies..............................................................................20
Vote Required..................................................................................20
Expenses; Solicitation of Proxies..............................................................21
Special Meeting of Stockholders of TPG..................................................................21
Date, Time and Place of TPG Special Meeting....................................................21
Purpose of the Meeting.........................................................................21
Vote Required..................................................................................21
THE JOINT PROXY PROPOSAL.........................................................................................22
The Merger..............................................................................................22
Background of the Merger................................................................................22
Reasons for the Merger; Recommendations of the Lunn and TPG Boards of Directors.........................23
Lunn Reasons for the Merger....................................................................23
Lunn's Board Recommendation....................................................................24
TPG Reasons for the Merger.....................................................................24
TPG's Board Recommendation.....................................................................24
Interests of Certain Persons in the Merger..............................................................24
Fairness Opinion of Allen & Company Incorporated........................................................25
Accounting Treatment....................................................................................26
Certain Federal Tax Consequences........................................................................26
Resale of Combined Company Common Stock; Affiliates.....................................................28
Dissenters' Rights of Appraisal.........................................................................28
Preemptive Rights.......................................................................................31
Charter Amendments in Connection with the Merger........................................................31
General........................................................................................31
Amendment of Certificate of Incorporation to Increase the Number of Authorized Shares
of Lunn Preferred Stock......................................................................31
Amendment of Certificate of Incorporation to Change the Par Value of the
Lunn Preferred Stock.........................................................................32
Amendment of Certificate of Incorporation to Designate New Series of Preferred Stock...........32
Amendment of Certificate of Incorporation to Change the Name of Lunn...........................32
The Option Plan.........................................................................................32
Shares Subject to the Option Plan..............................................................33
Type of Options................................................................................33
Administration.................................................................................33
Eligibility....................................................................................33
Option Contracts...............................................................................33
Terms and Conditions of Options................................................................33
Adjustment in Event of Capital Changes.........................................................34
- ii -
Duration and Amendment of the Option Plan......................................................34
Federal Income Tax Treatment...................................................................34
Management of the Combined Company after the Merger.....................................................35
General........................................................................................35
Board of Directors after the Merger............................................................35
Officers after the Merger......................................................................36
Operations of the Combined Company......................................................................36
General........................................................................................36
Commercial Aircraft Expansion..................................................................36
Aluminum Honeycomb Products....................................................................36
Composite-to-Metal Bonding.....................................................................37
Acquisitions...................................................................................37
Terms of the Merger Agreement...........................................................................37
General........................................................................................37
Merger Consideration...........................................................................37
No Fractional Shares...........................................................................38
Treatment of Lunn Options and Lunn Warrants....................................................38
Treatment of TPG Options.......................................................................38
Effective Time of the Merger...................................................................38
Procedure for Converting Shares................................................................38
Conditions to the Merger; Termination and Amendment of the Merger Agreement....................39
Termination Fee................................................................................41
Representation, Warranties and Covenants.......................................................41
Listing of Combined Company Common Stock.......................................................42
Certain Regulatory Matters..............................................................................43
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS......................................................44
Description of Capital Stock of Combined Company........................................................49
General........................................................................................49
Surviving Corporation Common Stock.............................................................49
Surviving Corporation Preferred Stock..........................................................49
Undesignated Preferred Stock...................................................................50
Transfer Agent and Registrar...................................................................50
Comparison of Rights Under Corporate Documents..........................................................50
Limitation of Liability and Indemnification Matters............................................51
Delaware Law and Certain Charter and By-Law Provisions.........................................52
Market Data.............................................................................................54
Information Concerning TPG..............................................................................55
TPG Selected Financial Data....................................................................55
Management's Discussion and Analysis of Financial Condition and Results
of Operations of TPG.........................................................................56
Business of TPG................................................................................60
TPG Management.................................................................................67
TPG Executive Compensation.....................................................................70
TPG Security Ownership of Certain Beneficial Owners and Management.............................72
Certain Relationships of TPG...................................................................74
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<PAGE>
LUNN PROXY PROPOSAL 1: ELECTION OF DIRECTORS....................................................................75
Nominees for Election as Directors......................................................................75
Directors...............................................................................................75
Meeting and Committees of the Board of Directors........................................................76
Compensation of Directors...............................................................................77
Executive Officers......................................................................................77
Security Ownership of Certain Beneficial Owners and Management..........................................78
Certain Relationships and Related Transactions..........................................................79
Executive Compensation..................................................................................80
Long-Term Incentive Plan Awards.........................................................................81
Employment Contracts and Termination of Employment and Change in Control Arrangements...................81
Compensation Committee Interlocks and Insider Participation.............................................81
Legal Proceedings.......................................................................................81
Compliance with Section 16(a) of the Exchange Act.......................................................82
Stockholder Proposals...................................................................................83
LUNN PROXY PROPOSAL2: RATIFICATION OF ACCOUNTANTS...............................................................83
SECURITIES AND EXCHANGE COMMISSION POSITION ON INDEMNIFICATION...................................................84
EXPERTS..........................................................................................................84
LEGAL MATTERS....................................................................................................84
</TABLE>
ANNEX A - Acquisition Agreement and Plan of Merger
ANNEX B - Amended and Restated Certificate of Incorporation of Lunn
ANNEX C - Fairness Opinion of Allen & Company Incorporated
ANNEX D - 1997 Stock Option Plan of Lunn
ANNEX E - Section 262 of the Delaware General Corporation Law, as amended
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<PAGE>
AVAILABLE INFORMATION
Lunn is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information about
Lunn with the Commission. Such reports, proxy statements and other information
filed by Lunn can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W, Judiciary
Plaza, Washington, D.C. 20549 and at certain regional offices of the Commission
located at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and 7
World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material may be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 at prescribed
rates. The Commission also maintains a site on the World Wide Web that contains
reports, proxy and information statements and other information regarding Lunn
and other registrants that file electronically with the Commission. The address
for such site is http://www.sec.gov.
Lunn has filed a Registration Statement with the Commission
under the Securities Act, with respect to the shares of Combined Company Common
Stock to be issued in connection with the Merger. This Proxy
Statement/Prospectus omits certain information contained in the Registration
Statement and reference is made to the Registration Statement and the exhibits
and schedules thereto for further information with respect to Lunn, TPG and the
Merger. Statements contained herein concerning the provisions of any documents
are not necessarily complete, and in each instance reference is made to the copy
of such document filed as an exhibit to the Registration Statement or
incorporated herein by reference. Each such statement is qualified in its
entirety by such reference.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by Lunn with the Commission
under the Exchange Act, are incorporated herein by reference:
(a) Lunn's Annual Reports on Form 10-KSB for the years ended December
31, 1996 and December 31, 1995;
(b) Lunn's Quarterly Report on Form 10-QSB for the quarter ended
March 31, 1997; and
(c) Lunn's Reports on Form 8-K dated January 21, 1997 (filed with the
Commission on January 23, 1997) and dated May 15, 1997 (filed
with the Commission on June 12, 1997).
All documents filed by Lunn pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date hereof and prior to the date of
the later of the Lunn Annual Meeting and the TPG Special Meeting shall be deemed
to be incorporated by reference in this Proxy Statement/Prospectus and to be a
part of this Proxy Statement/Prospectus from the date of filing thereof. Any
statement contained in a document incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Proxy
Statement/Prospectus to the extent that a statement contained herein or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statements
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Proxy Statement/Prospectus.
(i)
<PAGE>
This Proxy Statement/Prospectus incorporates documents by
reference which are not presented herein or delivered herewith. These documents
(other than the exhibits to such documents, unless such exhibits are
specifically incorporated by reference into such documents) are available
without charge, upon oral or written request by any person, to Lunn Industries,
Inc., 1 Garvies Point Road, Glen Cove, New York 11542-2828, telephone (516)
671-9000, Attn: Lawrence Schwartz, Secretary. In order to ensure timely delivery
of the documents, any request should be made by , 1997.
No person is authorized to give any information or make any
representation not contained in this Proxy Statement/Prospectus, and, if given
or made, such information or representation should not be relied upon as having
been authorized. This Proxy Statement/Prospectus does not constitute an offer to
sell, or a solicitation of an offer to purchase, the securities offered by this
Proxy Statement/Prospectus, or the solicitation of a proxy, in any jurisdiction,
to or from any person to whom it is unlawful to make such offer or solicitation
of an offer or proxy solicitation in such jurisdiction. Neither the delivery of
this Proxy Statement/Prospectus, nor any distribution of securities made
hereunder shall, under any circumstances, create an implication that there has
been no change in the affairs of Lunn or TPG since the date of this Proxy
Statement/Prospectus.
--------------
Certain statements contained in this Proxy
Statement/Prospectus that are not related to historical results are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act and involve risks and uncertainties.
Although each of Lunn and TPG believes that the assumptions on which these
forward-looking statements are based are reasonable, there can be no assurance
that such assumptions will prove to be accurate and actual results could differ
materially from those discussed in the forward-looking statements. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed herein under "Risk Factors," "The Joint Proxy
Statement--Information Concerning TPG--Management's Discussion and Analysis of
Financial Condition and Results of Operations of TPG," and "The Joint Proxy
Statement--Information Concerning TPG--Business of TPG," as well as those
discussed elsewhere or incorporated by reference in this Proxy
Statement/Prospectus. All forward-looking statements contained in this Proxy
Statement/ Prospectus or incorporated by reference are qualified in their
entirety by this cautionary statement. Neither Lunn nor TPG intend to update or
otherwise revise the forward-looking statements contained herein to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
(ii)
<PAGE>
SUMMARY
Certain significant matters discussed in this Proxy
Statement/Prospectus are summarized below. The following summary is not intended
to be complete and is qualified in its entirety by the more detailed information
and financial statements and notes thereto appearing elsewhere in this Proxy
Statement/Prospectus, in the documents incorporated by reference in this Proxy
Statement/Prospectus and in the exhibits hereto. Stockholders of Lunn and TPG
are urged to review the entire Proxy Statement/Prospectus and to carefully
review the matters set forth under "Risk Factors" before voting upon the matters
to be considered by such stockholders.
Unless otherwise indicated or the context otherwise requires,
(i) the term "Lunn" refers to Lunn Industries, Inc., and its subsidiaries, and
(ii) the term "TPG" refers to TPG Holdings, Inc., (including its predecessors)
and its subsidiaries.
The Companies
Lunn. Lunn is a Delaware corporation originally incorporated
in 1948. Lunn has two primary operating divisions, Lunn Composites and Alcore,
Inc. ("Alcore"), a wholly-owned subsidiary. Lunn Composites produces a wide
range of composite products, including metal bonded panels, composite assemblies
that utilize honeycomb, high performance fiber and resin laminates and
filament-wound assemblies. Lunn Composites has developed a number of specialized
processes whereby layers of glass, graphite and other fibers are impregnated
with specially selected polyester, epoxy or other resins. These processes enable
Lunn Composites to manufacture products with unique properties such as high
resistance to corrosion, complex contours, lightweight, high chemical and
abrasion resistance, dimensional stability, high strength and high-impact
resistance. Lunn Composites is a licensee of Boeing Aircraft Company ("Boeing")
to operate a phosphoric acid anodized clean line for all metal products. Lunn
Composites' products have applications in radar devices, marine structures,
advanced composite structures, aerospace devices and aircraft and commercial
items.
Alcore produces aluminum honeycomb, a lightweight cellular
material composed of hexagonal cells with high strength-to-weight ratios. Alcore
also provides value-added honeycomb, selling semi-finished parts to its
customers. The most prominent characteristics of its aluminum honeycomb products
are high strength-to-weight ratios, fatigue resistance, energy absorption, sound
dampening, heat exchange, radio frequency shielding, machinability, airflow
directionalization and corrosion resistance. These characteristics make this
material well-suited for the aerospace and aircraft industries, Alcore's primary
market. Management believes that one of Alcore's most promising products is
PAA-CORE(R), a phosphoric acid anodized honeycomb product. PAA-CORE(R),
qualified to Boeing specifications as BMS 4-4 and 4-6, has recently been
designated as the material of choice for all new metal bonded structures at
Boeing and management believes it is now becoming the material of choice of
other commercial and military aircraft industries. Beginning in 1994, Alcore
expanded beyond the aerospace market into a number of non-aerospace markets.
Applications for high performance, low cost commercial product were developed
for "clean rooms" for computer chip manufacturing as well as for laminated
panels for cruise ship cabins. Alcore's honeycomb products are also utilized by
manufacturers of rail car doors for municipal transit systems, and due to unique
crush characteristics and energy absorbing qualities, by the nuclear industry,
and are used in other energy absorbing applications.
Lunn's products are sold principally to commercial customers,
both domestic and international, and to agencies of the United States
government. Lunn's customers are engaged in the aerospace and aircraft industry,
the industrial transportation and construction industry and the defense
industry. Lunn generally manufactures products to customer specifications. Lunn
operates its business from three locations: (i) its corporate headquarters and
its metal bonding and composite manufacturing facility in Glen Cove, New York;
(ii) its aluminum honeycomb products manufacturing facility in Belcamp,
Maryland; and (iii) its aluminum honeycomb block manufacturing facility in
Jessup, Maryland.
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<PAGE>
Lunn's principal executive offices are located at 1 Garvies
Point Road, Glen Cove, New York 11542-2828. It's telephone number at that
address is (516) 671-9000.
TPG. TPG is a Delaware corporation that was formed in 1995 to
acquire the business and assets (the "Business") of three operating units of the
Brunswick Technical Group of Brunswick Corporation ("Brunswick Technical Group")
pursuant to an Asset Purchase and Sale Agreement dated November 23, 1994 (the
"Brunswick Agreement") by and between TPG and Brunswick Corporation. The
acquisition of the Business was completed by TPG on April 28, 1995 (the
"Brunswick Acquisition"). Prior to that time, the Business had been operated by
Brunswick for over 40 years.
TPG designs, develops, produces and markets a variety of
products through its operating subsidiary, Technical Products Group, Inc.
("TPGI"). TPG has two principal business segments, an aerospace and defense
segment and a commercial segment. The aerospace and defense segment designs,
develops and manufactures advanced composite material products used in the
aerospace and defense industries, including radomes, aircraft components,
missile and satellite composite structures, engine components, rocket motor
cases, pressure vessels, relocatable shelters, missile launch tubes, torque
shafts and fuel tanks, as well as a wide range of integrated defense systems
including electro-optical systems, chemical detection systems, ordnance delivery
systems and light-weight camouflage systems. Management believes that TPG has
approximately a 75% share of the domestic high-performance radome market and is
the sole supplier of radomes for many high performance aircraft. Substantially
all of TPG's aerospace and defense business is subject to multi-year contracts
with agencies of the United States government or its prime contractors. The
commercial segment produces natural gas vehicle ("NGV") fuel tanks, specialty
vehicle electronic products and products used in the exploration and production
of oil and gas. TPG has developed an extremely durable, all composite,
plastic-lined NGV fuel tank and management believes that sales of NGV fuel tanks
will increase substantially over the next several years. For the year ended
December 31, 1996, TPG's aerospace and defense sales accounted for approximately
81% of TPG's consolidated revenues, while sales of TPG's commercial products
accounted for approximately 19% of its consolidated revenues.
TPG competes with manufacturers which, depending on the
product involved, range from large diversified enterprises to smaller companies
specializing in particular products. TPG's aerospace and defense products are
sold primarily to agencies of the United States government and to commercial
customers in the aerospace industry such as Lockheed Martin Corporation,
McDonnell Douglas Corporation and AlliedSignal Inc. TPG's commercial products
are generally sold to original equipment manufacturers and are incorporated into
other products. TPG operates its business through three divisions: (i) the
Marion Composites Division, which operates a manufacturing facility owned by
TPG, in Marion, Virginia, consisting of approximately 1,019,000 square feet;
(ii) the Intellitec Division, which operates a manufacturing facility in Deland,
Florida, owned by TPG, consisting of approximately 353,000 square feet; and
(iii) the Lincoln Composites Division, which operates a manufacturing facility
in Lincoln, Nebraska, owned by TPG, consisting of approximately 224,000 square
feet.
TPG's principal executive offices are located at 3353
Peachtree Road, Suite 920, Atlanta, Georgia 30326. It's telephone number at that
address is (404) 231-7272.
Industry Overview
Over the last decade, there has been a reduction of the United States
Department of Defense ("DOD") budget, largely as a result of the end of the Cold
War. This reduction in military spending has resulted in excess capacity and has
increased competition within the defense industry, resulting in smaller margins
and an overall consolidation in the industry. Conditions in the defense industry
are now beginning to improve as the DOD has begun to upgrade and replace certain
of its outdated weapons and defense systems.
Similarly, over the last decade, the commercial aircraft industry has also
suffered a downturn. The industry is cyclical and typically lags behind the
general economic cycle because of the length of time
- 2 -
<PAGE>
between aircraft orders and delivery. Beginning in 1989, the United States
economy experienced a recession which resulted in a decline in the production of
commercial aircraft. The industry has since experienced a rapid recovery,
supported by a strong economy and an increase in aircraft sales as a result of
the replacement of aircraft in the commercial airlines' somewhat older fleets.
The business of both Lunn and TPG experienced a decline during the last
decade as a direct result of the reduction of the DOD budget and the downturn of
the commercial aircraft industry. Management of TPG and Lunn believe that
combining their operations will allow the Combined Company to more effectively
manufacture and market their products in the recovering aerospace and defense
industries.
Operations of the Combined Company
General. Management of both TPG and Lunn believe that the
business and operations of TPG and Lunn are complimentary to one another and
that the combination of TPG and Lunn will create more opportunities for the
Combined Company than now exist separately for the two companies. Specifically,
it is believed that the Merger will (i) strengthen the Combined Company's
ability to participate in the commercial aircraft manufacturing expansion
currently underway and, as a result, derive a lower percentage of revenues from
sales to agencies of the United States government, (ii) allow the Combined
Company to manufacture its own aluminum honeycomb materials, rather than
purchase them from third party vendors, which is TPG's current practice, (iii)
allow the Combined Company to manufacture most external aircraft components as a
result of the metal bonded panels and composite business of Lunn and (iv)
provide the Combined Company with better access to the financial capital markets
to enable the Combined Company to pursue future strategic acquisitions.
Commercial Aircraft Expansion. Historically, TPG's sales have
been primarily attributable to government contracts. TPG and, prior to the
Brunswick Acquisition, Brunswick Technical Group, have been suppliers to the
United States government either directly or through other government prime
contractors for over 40 years. However, management of TPG and Lunn anticipates
that there will be increased demand for new commercial aircraft, given both the
age of the existing worldwide fleet and recent airline market expansion. TPG's
strategy is to increase the promotion and marketing of the commercial aircraft
applications of its design, development and manufacturing capabilities in
advanced composite structures, tactical systems, electronics and microwave
structures. Brunswick Technical Group historically had limited success in
supplying parts to commercial aircraft manufacturers. Since the Brunswick
Acquisition, TPG has been approved as a supplier to Boeing and has recently
begun to supply Boeing 737 nose landing gear core mats. Lunn has been a
Boeing-qualified supplier for over 20 years.
Aluminum Honeycomb Products. Two of TPG's facilities presently
use honeycomb material in their manufactured components. The addition of
Alcore's aluminum honeycomb capabilities will broaden the range of services that
can be offered by the Combined Company to TPG's existing customer base.
Additionally, because TPG, Lunn and Alcore all market these products to the same
aerospace and defense customers, management of TPG and Lunn expect the Merger to
enhance the marketing capabilities of the Combined Company.
Composite-to-Metal Bonding. The Lunn composite-to-metal
bonding capabilities is expected to allow the Combined Company to offer a
broader range of services to the existing TPG customer base without expanding
the technical operating risk. Most commercial and military aircraft use advanced
composite parts, metal bond assemblies and composite bonded components. The
fabrication processes used to manufacture metal bond parts and advanced
composite parts are similar in that they both use common heat-cure equipment,
inspection equipment and similar tooling approaches. Management of TPG has
extensive experience in the manufacture and marketing of metal bond components.
See "The Joint Proxy Proposal--Operations of the Combined Company."
- 3 -
<PAGE>
Acquisitions. The supplier base to prime manufacturers
historically has been fragmented and somewhat inefficient. Many prime government
contractors are implementing supply-chain management programs designed to
improve the quality of purchased parts and reduce the number of suppliers. The
Combined Company's strategy includes the acquisition of those companies that
management believes will increase its ability to provide its customers with a
higher quality product at a competitive price. Management of TPG and Lunn
believes that the combination of TPG and Lunn will create an entity with the
manufacturing capacity and quality assurance programs needed to better address
this trend among its customers. In addition, as a result of the Merger, it is
anticipated that the Combined Company should have better access to the financial
capital markets than either TPG or Lunn alone. However, the Combined Company
will be significantly leveraged and there can be no assurance that the Combined
Company will be able to obtain the financing necessary to pay for acquisitions.
See "Risk Factors--Risk Factors Applicable to the Business of Lunn and
TPG--Financial Leverage."
The Meetings
Annual Meeting of Stockholders of Lunn. The Lunn Annual
Meeting will be held on , 1997 at 10:00 a.m., local time, at Lunn's principal
executive offices located at 1 Garvies Point Road, Glen Cove, New York
11542-2828. The purpose of the Lunn Annual Meeting is to consider and vote upon
the approval and adoption of the Joint Proxy Proposal, Lunn Proxy Proposal 1,
Lunn Proxy Proposal 2 and such other business as may properly come before the
Lunn Annual Meeting.
Only holders of record of Lunn Common Stock at the close of
business on , 1997 (the "Lunn Record Date") are entitled to notice of, and to
vote at, the Lunn Annual Meeting, or at any adjournment or postponement thereof.
Under the DGCL, approval of the Joint Proxy Proposal requires the affirmative
vote of the holders of a majority of the outstanding shares of Lunn Common Stock
entitled to vote thereon. However, under the Merger Agreement it is a condition
to the obligation of TPG to consummate the Merger that the Lunn Dissenters'
Shares not exceed 10% of the outstanding shares of Lunn Common Stock. Under the
DGCL, approval of Lunn Proxy Proposal 1 and Lunn Proxy Proposal 2 requires a
plurality of the votes of the shares of Lunn Common Stock, and a majority of the
shares of Lunn Common Stock, respectively, present in person or represented by
proxy at the Lunn Annual Meeting and entitled to vote.
The presence, either in person or by properly executed proxy,
of the holders of a majority of the outstanding shares of Lunn Common Stock is
necessary to constitute a quorum at the Lunn Annual Meeting. If, however, a
majority of shares of Lunn Common Stock is not present or represented at the
Lunn Annual Meeting, the Lunn stockholders entitled to vote thereat, present in
person or by proxy, can adjourn the meeting from time to time, until a quorum is
present. Because the Joint Proxy Proposal must be approved by holders of a
majority of the outstanding shares entitled to vote on such matter, and because
Lunn Proxy Proposal 2 must be approved by holders of a majority of shares of
Lunn Common Stock present in person or represented by proxy at the Lunn Annual
Meeting, a stockholder or broker who abstains from voting on the resolution to
authorize and approve the Joint Proxy Proposal and Lunn Proxy Proposal 2 will
have the effect of a vote against the Joint Proxy Proposal and Lunn Proxy
Proposal 2 because the shares would be recorded as having abstained and could
not be counted in determining whether the necessary majority vote had been
obtained. Abstentions and broker non-votes will have no effect on Lunn Proxy
Proposal 1. See "The Meetings, Voting and Proxies."
Special Meeting of Stockholders of TPG. The TPG Special
Meeting will be held on , 1997 at , local time, at TPG's principal executive
offices located at 3353 Peachtree Road, Suite 920, Atlanta, Georgia 30326. The
purpose of the meeting is to consider and vote upon the approval and adoption of
the Joint Proxy Proposal and such other business as may properly come before the
TPG Special Meeting.
Under the DGCL, approval and adoption of the Joint Proxy
Proposal requires the affirmative vote of at least a majority of the outstanding
shares of TPG Common Stock entitled to vote thereon. However,
- 4 -
<PAGE>
under the Merger agreement it is a condition to the obligation of Lunn to
consummate the Merger that the TPG Dissenters' Shares not exceed 10% of the
outstanding shares of TPG Common Stock.
The presence, either in person or by properly executed proxy,
of the holders of a majority of the outstanding shares of TPG Common Stock is
necessary to constitute a quorum at the TPG Special Meeting. If, however, a
majority of the shares of TPG Common Stock is not present or represented at the
TPG Special Meeting, the TPG stockholders entitled to vote thereat, present in
person or by proxy, can adjourn the meeting from time to time, until a quorum is
present. Because the Joint Proxy Proposal must be approved by holders of a
majority of the outstanding shares entitled to vote on such matter, a
stockholder who abstains from voting on the resolution to authorize and approve
the Joint Proxy Proposal will have the effect of a vote against the Joint Proxy
Proposal because the shares would be recorded as having abstained and could not
be counted in determining whether the necessary majority vote had been obtained.
See "The Meetings, Voting And Proxies."
The Joint Proxy Proposal
General. As of June 6, 1997, Lunn and TPG entered into the
Merger Agreement, a copy of which is attached hereto as Annex A and incorporated
herein by this reference. Pursuant to the terms of the Merger Agreement, TPG
will merge with and into Lunn, with Lunn being the surviving corporation in the
Merger. As a result of the Merger, TPG will cease to exist as a separate
corporate entity and the Combined Company shall succeed to and assume all of the
rights and obligations of TPG in accordance with the DGCL. The terms of the
Merger are the result of arm's-length negotiations between representatives of
Lunn and TPG.
Conversion of Lunn Common Stock, TPG Common Stock and TPG
Preferred Stock. In connection with the Merger, (i) each outstanding share of
Lunn Common Stock, other than Lunn Dissenters' Shares, will be converted into
the right to receive shares of Combined Company Common Stock based on the Lunn
Exchange Ratio, (ii) each outstanding share of TPG Common Stock, other than TPG
Dissenters' Shares, will be converted into the right to receive shares of
Combined Company Common Stock based on the TPG Exchange Ratio and (iii) each
outstanding share of TPG Preferred Stock will be converted into the right to
receive one share of Combined Company Preferred Stock. The Combined Company
Preferred Stock will not be convertible into shares of Combined Company Common
Stock. In addition, upon consummation of the Merger, the Combined Company will
assume all TPG Options, Lunn Options and Lunn Warrants; each such TPG Option,
Lunn Option and Lunn Warrant will become exercisable for that number of whole
shares of the Combined Company Common Stock equal to the number of shares of TPG
Common Stock or Lunn Common Stock covered thereby immediately prior to the
effective time of the Merger multiplied by the TPG Exchange Ratio (in the case
of TPG Options) or the Lunn Exchange Ratio (in the case of the Lunn Options and
the Lunn Warrants) and rounded downward, and the exercise price thereof will be
adjusted accordingly. No fractional shares of Combined Company Common Stock
shall be issued in connection with the Merger. See "The Joint Proxy
Proposal--Terms of the Merger Agreement--Treatment of Lunn Options and Lunn
Warrants", "--Treatment of TPG Options " and "--Procedure for Converting
Shares."
As of June 6, 1997, there were 12,762,153 shares of Lunn
Common Stock outstanding, no shares of Lunn Preferred Stock outstanding and
1,167,500 and 656,300 shares of Lunn Common Stock issuable upon exercise of the
Lunn Options and Lunn Warrants, respectively. As of June 6, 1997, there were
475,000 shares of TPG Common Stock outstanding, 1,000,000 shares of TPG
Preferred Stock outstanding and 25,000 shares of TPG Common Stock issuable upon
exercise of the TPG Options. Upon consummation of the Merger (assuming exercise
of all of the Lunn Options, Lunn Warrants and TPG Options), the former holders
of Lunn Common Stock will own 26% of the Combined Company Common Stock, the
former holders of TPG Common Stock will own 74% of the Combined Company Common
Stock and the former holders of TPG Preferred Stock will own all of the Combined
Company Preferred Stock. See "The Joint Proxy Proposal--Terms of the Merger
Agreement."
Recommendation of the Lunn Board of Directors. The Lunn Board
of Directors has unanimously approved the Joint Proxy Proposal and has
determined that the Joint Proxy Proposal is in the best interests of Lunn and
its stockholders. The Lunn Board of Directors considered, among other things,
the
- 5 -
<PAGE>
written opinion (the "Fairness Opinion") of Allen & Company Incorporated
("Allen") that the terms of the Merger Agreement with respect to the conversion
of Lunn Common Stock, TPG Common Stock and TPG Preferred Stock are fair from a
financial point of view to the stockholders of Lunn. The Lunn Board of
Directors' recommendation is also based upon a number of other factors discussed
in this Proxy Statement/Prospectus, including the Lunn Board of Directors'
belief that the best way to maximize the prospects of enhancing stockholder
value over the long-term would be to merge Lunn with another entity that (i) has
operations in the advanced composite structures industry, (ii) is profitable,
(iii) has significant prospects for future growth, and (iv) has the ability to
increase Lunn's market capitalization such that it may permit the Combined
Company Common Stock to be listed for trading on the National Market System of
the National Association of Securities Dealers, Inc. Automated Quotation System
("Nasdaq National Market"). In the opinion of the Lunn Board of Directors, the
proposed Merger fits within these parameters. In addition to the foregoing
benefits, the Lunn Board of Directors also considered certain risks associated
with the proposed Merger. Such risks include the substantial diversion of Lunn's
management from the ordinary course of conduct of Lunn's business and the
incurrence of certain fees and expenses in connection with pursuing the proposed
Merger, including fees related to the delivery of the Fairness Opinion as well
as legal, accounting and other fees. If the Merger is not consummated, payment
of such fees and expenses could strain Lunn's capital resources. The Lunn Board
of Directors has determined that the benefits to stockholders of the proposed
Merger outweigh such risks. The Lunn Board of Directors recommends that the
stockholders of Lunn vote "FOR" the Joint Proxy Proposal. See "The Joint Proxy
Proposal--Reasons for the Merger; Recommendations of the Lunn and TPG Boards of
Directors."
Recommendation of the TPG Board of Directors. The TPG Board of
Directors has unanimously approved the Joint Proxy Proposal and has determined
that the Joint Proxy Proposal is in the best interests of TPG and its
stockholders. The TPG Board of Directors considered a number of factors in
considering the Merger, including, without limitation, the following: (i) the
current public trading market for the Lunn Common Stock and the fact that,
following the Merger, there will be a public trading market for the Combined
Company Common Stock, (ii) the complimentary nature of the business operations
of Lunn and TPG, and (iii) the combined business prospects of Lunn and TPG. The
TPG Board of Directors recommends that the stockholders of TPG vote "FOR" the
Joint Proxy Proposal. See "The Joint Proxy Proposal--Reasons for the Merger;
Recommendations of the Lunn and TPG Boards of Directors."
Effective Time. The Merger will become effective on the date
the Certificate of Merger (the "Certificate of Merger") is filed with the
Secretary of State of the State of Delaware (or at such other time as specified
in the Certificate of Merger) and the time and date of such filing is referred
to herein as the "Effective Time" and the "Effective Date", respectively.
Assuming all conditions to the Merger are satisfied or waived, it is anticipated
that the Effective Time will occur on or about , 1997.
Procedure for Converting Shares. Promptly after the Effective
Time, American Stock Transfer & Trust Co. (the "Exchange Agent") will mail to
all holders of record of Lunn Common Stock, TPG Common Stock and TPG Preferred
Stock a letter of transmittal with instructions for use by such holders in
surrendering certificates representing shares of Lunn Common Stock, TPG Common
Stock and TPG Preferred Stock in exchange for certificates representing the
Combined Company Common Stock and the Combined Company Preferred Stock,
respectively. No fractional shares will be issued in the Merger. See "The Joint
Proxy Proposal--Terms Of The Merger Agreement--Procedure for Converting Shares."
Interests of Certain Persons in the Merger. Upon consummation
of the Merger, John Simon, who will continue as a member of the Lunn Board of
Directors assuming Lunn Proxy Proposal 1 is approved, and Alan W. Baldwin, who
is currently a member of the Lunn Board of Directors and James S. Carter, Sam P.
Douglass, Garrett L. Dominy, Gary L. Forbes, Robert C. Sigrist and Lawrence E.
Wesneski, constituting all of the members of the TPG Board of Directors, will
become members of the Board of Directors of the Combined Company. Such directors
will have staggered terms from one to three years. It is also anticipated that
each non-employee director of the Combined Company will receive $20,000 annually
and will be granted options to
- 6 -
<PAGE>
purchase 7,500 shares of Combined Company Common Stock. In addition, all current
officers of TPG will continue as officers of the Combined Company.
Lunn has also agreed to cause Mr. Baldwin to terminate his
employment agreement with Lunn in exchange for the payment by the Combined
Company to Mr. Baldwin of a severance payment of $380,000 and the continuance of
the health and life insurance benefits provided Mr. Baldwin as of the date of
the Merger Agreement for one year following the Effective Date. In addition, as
a result of the Merger, a change of control provision in Mr. Baldwin's Lunn
Options is triggered which results in the extension of their exercise date for a
period of up to 24 months from the Effective Date. Allen has been engaged by
Lunn to deliver the Fairness Opinion in connection with the Merger. John Simon,
a managing director of Allen, serves as a director of Lunn and will serve as a
director of the Combined Company if the Joint Proxy Proposal is approved. As of
June 6, 1997, Mr. Simon owned 15,000 Lunn Options, and Allen owned 320,500
shares of Lunn Common Stock, which Lunn Options and Lunn Common Stock will be
treated in the Merger in the same manner as the Lunn Options and the Lunn Common
Stock held by other optionholders and stockholders of Lunn. See "The Joint Proxy
Proposal--Interests of Certain Persons in the Merger."
Additionally, Mr. Douglass is a general partner and Mr. Forbes
is a Vice President of the managing general partner of Equus Equity Appreciation
Fund L.P. ("Equus"), the largest holder of TPG Common Stock. See "The Joint
Proxy Proposal--Management of the Combined Company after the Merger--Officers
after the Merger", "--Information Concerning TPG--TPG Management" and "--TPG
Security Ownership of Certain Beneficial Owners and Management." In
contemplation of the Merger, TPG has entered into employment agreements with
each of Mr. Carter, its Chairman of the Board, President and Chief Executive
Officer, and Mr. Dominy, its Executive Vice President and Chief Financial
Officer, pursuant to which Messrs. Carter and Dominy will serve in those same
capacities on behalf of the Combined Company. Currently, such officers are not
covered by employment agreements and they will receive certain additional
benefits under such employment agreements. Such employment agreements also
subject such executives to non-disclosure and non-competition covenants which do
not currently exist. See "The Joint Proxy Proposal--Interests of Certain Persons
in the Merger" and "--Information Concerning TPG--TPG Executive
Compensation--Employment Agreements."
Conditions to the Merger; Termination and Amendment of the
Merger Agreement. In addition to approval by the stockholders of Lunn and TPG,
the obligations of the parties to consummate the Merger are subject to the
satisfaction, or where permitted, waiver of certain conditions, including
without limitation, (i) the receipt of all required regulatory approvals or
exemptions, (ii) the approval for listing, subject to official notice of
issuance, on the Nasdaq SmallCap Market of the Combined Company Common Stock,
(iii) the declaration of effectiveness of the Registration Statement and the
absence of any stop orders suspending the effectiveness of the Registration
Statement, (iv) the amount of Lunn Dissenters' Shares and TPG Dissenters' Shares
not exceeding 10% of the outstanding Lunn Common Stock and TPG Common Stock,
respectively, (v) the absence of any withdrawal or modification in a material
respect of the Fairness Opinion, and (vi) acceptable intercreditor arrangements
being agreed to by the primary lenders of Lunn and TPG.
The Merger Agreement may be terminated by either Lunn or TPG
upon certain reciprocal events including but not limited to (i) the mutual
written consent of Lunn and TPG, (ii) the failure of at least a majority of the
Lunn stockholders or the TPG stockholders to approve the Joint Proxy Proposal,
(iii) Lunn Dissenters' Shares or TPG Dissenters' Shares comprising more than 10%
of the outstanding shares of Lunn Common Stock or TPG Common Stock,
respectively, (iv) the withdrawal or material modification of the recommendation
of the Lunn Board of Directors or the TPG Board of Directors to each of their
respective stockholders of the Merger or their recommendation of another
takeover proposal, or (v) the failure to consummate the Merger prior to November
30, 1997. TPG may terminate the Merger Agreement upon the withdrawal or
modification in a material respect of the Fairness Opinion. The Merger Agreement
may also be amended by the parties thereto, provided such amendment is in
writing, at any time before or after the approval and adoption of the Merger
Agreement and the Merger by the stockholders of Lunn. After such stockholder
approval is obtained, no amendment shall be made that by law requires the
further approval of stockholders
- 7 -
<PAGE>
without obtaining such further approval. See "The Joint Proxy Proposal--Terms of
the Merger Agreement--Conditions to the Merger; Termination and Amendment of the
Merger Agreement."
Representations, Warranties and Covenants. Each of Lunn and TPG has
provided in the Merger Agreement customary representations, warranties and
covenants. See "The Joint Proxy Proposal--Terms Of The Merger
Agreement--Representations, Warranties and Covenants."
Effects of Termination; Termination Fee. Under the terms of the Merger
Agreement, either party may terminate the Merger Agreement without any liability
to the other party, subject to certain exceptions. Under certain circumstances,
however, termination shall not become effective until a specified termination
fee has been paid. A termination fee of $750,000 is payable by Lunn to TPG if
(i) TPG terminates the Merger Agreement as a result of the withdrawal or adverse
modification of the recommendation of the Lunn Board of Directors to the
stockholders of Lunn to consummate the Merger or the recommendation of the Lunn
Board of Directors to its stockholders of another takeover proposal, (ii) TPG
terminates the Merger Agreement as a result of the failure of Lunn to materially
comply with its covenants or the breach by Lunn of its representations or
warranties, or (iii) if Lunn terminates the Merger Agreement because the Lunn
Board of Directors has received another takeover proposal that, in the exercise
of its fiduciary duties under the DGCL, it determines to be more favorable than
the Merger to the stockholders of Lunn. A termination fee of $750,000 is payable
by TPG to Lunn if (i) Lunn terminates the Merger Agreement as a result of the
withdrawal or adverse modification of the recommendation of the TPG Board of
Directors to the stockholders of TPG to consummate the Merger or the
recommendation of the TPG Board of Directors to its stockholders of another
takeover proposal, (ii) Lunn terminates the Merger Agreement as a result of the
failure of TPG to materially comply with its covenants or the breach by TPG of
its representations and warranties or (iii) if TPG terminates the Merger
Agreement because the TPG Board of Directors has received another takeover
proposal that, in the exercise of its fiduciary duties under the DGCL, it
determines to be more favorable than the Merger to the stockholders of TPG. In
addition, in certain circumstances, upon termination of the Merger Agreement,
each of Lunn's and TPG's out-of-pocket expenses are payable by the other party.
See "The Joint Proxy Proposal--Terms of the Merger Agreement--Conditions to the
Merger; Termination and Amendment of the Merger Agreement" and "--Termination
Fee."
Charter Amendments in Connection with the Merger. If the Joint
Proxy Proposal is approved, the Lunn Certificate of Incorporation will be
amended and restated in the form of Annex B hereto to (i) increase the number of
authorized shares of Lunn Preferred Stock from 1,000,000 to 2,000,000; (ii)
change the par value of the authorized shares of Lunn Preferred Stock from $0.01
to $1.00; (iii) designate a new series of Lunn Preferred Stock as 8% Redeemable
Preferred Stock in accordance with the "blank check preferred stock" provisions
of the Lunn Certificate of Incorporation permitting the Lunn Board of Directors
to designate for issuance additional shares of preferred stock in one or more
series from time to time; and (iv) change the name of Lunn to "Advanced
Technical Products, Inc." The Lunn Certificate of Incorporation, as so amended
and restated, will be filed as an exhibit to the Certificate of Merger and will
become the Certificate of Incorporation of the Combined Company at the Effective
Time, and the new series of Lunn Preferred Stock designated thereby will become
the Combined Company Preferred Stock. Votes in favor of the Joint Proxy Proposal
shall be deemed to include a vote "FOR" the amendment and restatement of the
Lunn Certificate of Incorporation. See "The Joint Proxy Proposal--Charter
Amendments in Connection with the Merger."
Option Plan. The Lunn Board of Directors has adopted the
Option Plan, a copy of which is set forth as Annex D to this Proxy
Statement/Prospectus, in order to provide an incentive to officers, employees,
and non-employee consultants and advisors of the Combined Company and its
subsidiaries. The Option Plan is being adopted pursuant to the terms of the
Merger Agreement and votes in favor of the Merger shall be deemed to include a
vote "FOR" adoption of the Option Plan. The maximum number of shares of Combined
Company Common Stock for which options may be granted is 300,000. Either
incentive stock options ("ISOs") or non-qualified options ("NQSOs") may be
granted to employees. A more detailed description of the Option Plan is
contained below in this Proxy Statement/Prospectus. See "The Joint Proxy
Proposal--Option Plan."
- 8 -
<PAGE>
Management of the Combined Company after the Merger. At the
Effective Time, the Board of Directors of the Combined Company will be comprised
of two designees of Lunn (Messrs. John Simon and Alan W. Baldwin) and six
designees of TPG (Messrs. James S. Carter, Sam P. Douglass, Garrett L. Dominy,
Gary L. Forbes, Robert C. Sigrist and Lawrence E. Wesneski). Messrs. Simon and
Baldwin are current members of the Lunn Board of Directors. The remaining six
persons are current members of the TPG Board of Directors. Mr. Carter, who is
currently TPG's Chairman of the Board and President, will also serve as Chairman
of the Board, President and Chief Executive Officer of the Combined Company, Mr.
Dominy, who is currently TPG's Executive Vice President, Chief Financial
Officer, Secretary and Treasurer, will serve as Executive Vice President, Chief
Financial Officer, Assistant Secretary and Treasurer of the Combined Company and
James P. Hobt, who is currently TPG's Corporate Controller, will serve as
Secretary and Corporate Controller of the Combined Company. See "The Joint Proxy
Proposal--Management of the Combined Company after the Merger." For additional
biographical information about the six designees of TPG, see "The Joint Proxy
Proposal--Information Concerning TPG--TPG Management."
Listing of Combined Company Common Stock. Lunn intends to file
an application for the listing with the Nasdaq SmallCap Market of the Combined
Company Common Stock to be issued upon consummation of the Merger as well as
Combined Company Common Stock which will be issuable upon exercise of
outstanding Lunn Options, Lunn Warrants and TPG Options, and intends to cause
such application to be approved by the Nasdaq SmallCap market prior to the
Effective Time. Notwithstanding the foregoing, however, it is currently
contemplated that the Combined Company will apply for listing for trading on the
Nasdaq National Market, if it meets the market capitalization and other
requirements for listing for trading thereon. See "The Joint Proxy
Proposal--Terms of the Merger Agreement--Listing of Combined Company Common
Stock."
Accounting Treatment. For accounting purposes, the Merger will
be treated as a purchase with TPG being deemed to be the acquiring party and
Lunn being deemed to be the acquired party. See "The Joint Proxy
Proposal--Accounting Treatment."
Certain Federal Income Tax Consequences. The Merger is
structured to qualify as a reorganization under Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), in which case no gain or loss
would be recognized by the stockholders of TPG upon exchange of their shares of
TPG Common Stock or TPG Preferred Stock in the Merger (except with respect to
any cash received by such stockholders in lieu of fractional shares or any cash
or other property received in connection with exercising their dissenters'
rights). It is expected that TPG will receive an opinion of Gardere & Wynne,
L.L.P. to the effect that the Merger will qualify as a reorganization under
Section 368(a) of the Code. Such opinion, which will be based on certain
assumptions and representations stated therein, has no binding effect on the
Internal Revenue Service or other taxing authority or any court. No rulings have
been or will be requested from the Internal Revenue Service with respect to any
tax matters. Each TPG stockholder should consult his or her own tax advisor
concerning the tax consequences of the Merger in his or her particular
individual circumstances. See "The Joint Proxy Proposal--Certain Federal Income
Tax Consequences."
Lunn and its subsidiaries have reported consolidated net
operating loss carryovers of approximately $7.4 million for federal income tax
purposes as of December 31, 1996, which expire at varying dates between 2002 and
2011. Although these net operating loss carryovers would, in general, be
available to offset future taxable income of Lunn for a period of 15 years from
the year in which the net operating loss was incurred, certain restrictions may
apply. Under one such restriction, a corporation's ability to use its net
operating loss carryovers against future taxable income is limited if the
corporation undergoes an "ownership change" as defined in Section 382 of the
Code. If an ownership change occurs, the amount of net operating loss carryovers
(and certain other tax attributes) that may be applied against future taxable
income each year for both regular tax and alternative minimum tax purposes is
limited to a percentage (for ownership changes occurring in June 1997, 5.64%) of
the fair market value of such corporation's outstanding stock immediately before
the ownership change (the "Section 382 Limitation"). The Merger will cause an
ownership change of Lunn under Section 382 of the Code. Based on an estimated
market value of $13.2 million for the outstanding
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<PAGE>
stock of Lunn, Lunn and TPG estimate that the annual 382 Limitation on the use
of its net operating loss carryovers would, in general, be approximately
$700,000 if the Merger occurred during June 1997. There can be no assurance that
there will not be other limitations on the Combined Company's use of such net
operating loss carryovers against future taxable income, nor can there by any
assurance that the Combined Company will realize sufficient taxable income in
the future so as to be able to utilize fully the amount of its net operating
loss carryforwards following the application of its Section 382 Limitation.
Similar restrictions may apply to the Combined Company's ability to use net
operating loss carryovers for state income tax purposes.
Dissenters' Rights of Appraisal. Under the DGCL, holders of
Lunn Common Stock and holders of TPG Common Stock will be entitled to
dissenters' rights of appraisal assuming such rights are properly perfected
under the DGCL. See "The Joint Proxy Proposal--Dissenters' Rights of Appraisal."
Regulatory Matters. Lunn and TPG are not aware of any
governmental or regulatory requirement for consummation of the Merger other than
compliance with applicable state corporate laws, federal and state securities
laws and federal antitrust laws. See "The Joint Proxy Proposal--Certain
Regulatory Matters."
Market Price Data. Lunn Common Stock is traded on the Nasdaq
SmallCap Market under the symbol "LUNN." TPG Common Stock is not publicly
traded. On May 20, 1997, the last trading day prior to the public announcement
of an agreement in principle between Lunn and TPG concerning the Merger, the
closing bid price of Lunn Common Stock as reported on the Nasdaq SmallCap Market
was $1-1/32 per share. Following the Merger, the Combined Company Common Stock
will be traded on the Nasdaq SmallCap Market under the symbol " ." TPG
stockholders are urged to obtain current price information for Lunn Common Stock
in connection with their consideration of the Joint Proxy Proposal. See "The
Joint Proxy Proposal--Market Data."
Risk Factors. In considering whether to approve the Joint
Proxy Proposal, Lunn stockholders and TPG stockholders should consider, among
other things, the specific risk factors discussed beginning on page 17.
- 10 -
<PAGE>
Financial Information
Summary Financial Data of Lunn. The following table presents
certain summary financial data of Lunn. The balance sheet data presented below
as of December 31, 1995 and 1996 and the statements of operations data presented
below for the years ended December 31, 1994, 1995 and 1996 were derived from the
audited consolidated financial statements of Lunn incorporated herein by
reference. The balance sheet data presented below as of March 31, 1996 and 1997
and the statements of operations data presented below for the quarters ended
March 31, 1996 and 1997 were derived from unaudited consolidated financial
statements of Lunn incorporated herein by reference. Such unaudited financial
statements, in the opinion of Lunn's management, contain all adjustments,
consisting of normal recurring accruals, necessary for a fair presentation of
the financial position and results of operations for these periods. The
summarized historical financial data set forth below should be read in
conjunction with the annual report of Lunn on Form 10-KSB for the fiscal year
ended December 31, 1996 which is incorporated by reference in this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
Years Ended Quarters Ended
December 31, March 31,
--------------------------------------- ------------------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(unaudited)
(in thousands, except
per share data)
STATEMENTS OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Net sales................................... $ 15,209 $ 14,720 $ 18,098 $ 4,213 $ 5,020
Cost of sales............................... 13,774 11,821 $ 13,749 3,263 3,889
----------- ---------- ------------ ------------ -----------
Gross profit................................ $ 1,435 $ 2,899 4,349 $ 950 $ 1,131
Selling, general and administrative expenses 3,298 2,377 3,077 741 815
----------- ---------- ------------ ------------ -----------
Operating (loss) income..................... $ (1,863) $ 522 $ 1,272 $ 209 $ 316
----------- ---------- ------------ ------------ -----------
Other (income) expense:
Interest expense............................ 355 414 507 126 111
Other (income) expense...................... 63 (163) (6) (10) (30)
----------- ---------- ------------ ------------ -----------
Total other expense......................... $ 418 $ 251 $ 501 $ 116 $ 81
----------- ---------- ------------ ------------ -----------
Income (loss) before income taxes and
extraordinary item........................ (2,281) 271 771 93 235
Provision for (benefit of) income taxes..... 595 12 (33) 0 0
----------- ---------- ------------ ------------ -----------
Income (loss) before extraordinary items.... $ (2,876) $ 259 $ 804 $ 93 $ 235
----------- ---------- ------------ ------------ -----------
Extraordinary items:
Gain on disposal, net of income tax of $13.. 18 - - - -
Gain (loss) on extinguishment of debt
net of income tax of $38 in 1995......... - 796 (152) - -
----------- ---------- ------------ ------------ -----------
Net (loss) income........................... $ (2,858) $ 1,055 $ 652 $ 93 $ 235
=========== ========== ============ ============ ===========
Income (loss) per share:
Before extraordinary items.................. (.43) .03 .07 .01 .02
Extraordinary items......................... - .11 (.01) - -
----------- ---------- ------------ ------------ -----------
Net income (loss) per share................. $ (.43) $ .14 $ .06 $ .01 $ .02
=========== ========== ============ ============ ===========
Weighted average number of common
shares outstanding........................ 6,657,927 7,588,747 11,587,400 8,081,181 13,028,410
=========== ========== ============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
At December 31, At March 31,
-------------------------- -------------------------
1995 1996 1996 1997
---- ---- ---- ----
(unaudited)
(in thousands)
BALANCE SHEET DATA:
<S> <C> <C> <C> <C>
Current assets.............................. $ 6,885 $ 8,164 $ 7,839 $ 8,285
Property and equipment, net................. 7,486 9,214 7,516 9,914
Other assets, net........................... 629 537 583 578
-------- ------- ------- --------
Total assets................................ $ 15,000 $17,915 $15,938 $ 18,777
======== ======= ======= ========
Current liabilities......................... $ 3,412 $ 2,485 $ 3,003 $ 2,049
Long-term liabilities ...................... 3,007 4,785 2,920 5,295
Stockholders' equity........................ 8,581 10,645 10,015 11,433
-------- ------- ------- --------
Total liabilities and stockholders' equity.. $ 15,000 $17,915 $15,938 $ 18,777
======== ======= ======= ========
</TABLE>
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<PAGE>
Summary Financial Data of TPG. The following table presents
summarized historical statements of operations and balance sheet data of TPG.
The balance sheet data presented below as of December 31, 1995 and 1996 and the
statements of operations data presented below for the years ended December 31,
1994 and 1996 have been derived from audited financial statements. The balance
sheet data presented below as of March 29, 1996 and April 4, 1997 and the
statements of operations data presented below for the year ended December 31,
1995 (Pro Forma) and the quarters ended March 29, 1996 and April 4, 1997 are
derived from the unaudited financial statements of TPG. Such unaudited financial
statements of TPG, in the opinion of TPG's management, include all adjustments
considered necessary for a fair presentation of the financial position and
results of operations for these periods. The summarized historical financial
data set forth below should be read in conjunction with the audited and
unaudited financial statements and related notes thereto for TPG and Brunswick
Technical Group, "The Joint Proxy Proposal--Information Concerning
TPG--Management's Discussion and Analysis of Financial Condition and Results of
Operations of TPG" and other financial information included elsewhere in this
Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
Years Ended
December 31, Quarters Ended
--------------------------------------- ----------------------------
March 29, April 4,
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(unaudited) (unaudited)
Pro Forma(1)
(in thousands)
TATEMENTS OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Revenues.................................... $ 118,660 $ 107,588 $ 126,534 $ 27,048 $ 23,822
Costs and expenses:
Cost of goods sold......................... 112,950 82,667 94,365 20,628 18,736
Selling, general and administrative expenses 3,923 19,055 21,758 4,818 4,927
---------- ---------- ---------- ------------ ---------
Income from operations...................... 1,787 5,866 10,411 1,602 159
Interest and other expense.................. - 2,850 2,377 560 478
---------- ---------- ---------- ------------ ---------
Income before income taxes and
extraordinary item........................ 1,787 3,016 8,034 1,042 (319)
Income tax provision (benefit).............. 683 1,156 3,093 401 (123)
---------- ---------- ---------- ------------ ---------
Income (loss) before extraordinary item..... 1,104 1,860 4,941 641 (196)
Extraordinary item - loss on debt refinancing(2) - - 667 - -
---------- ---------- ---------- ------------ ---------
Net income (loss)........................... $ 1,104 $ 1,860 $ 4,274 $ 641 $ (196)
========== ========== ========== ============ =========
</TABLE>
<TABLE>
<CAPTION>
At December 31,
----------------------------- At March 29, At April 4,
1995 1996 1996 1997
---- ---- ---- ----
(unaudited)
(in thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents...................... $ 1,176 $ 1,059 $ 265 $ 142
Other current assets........................... 35,312 38,886 39,910 37,197
Property and equipment, net.................... 2,223 4,409 2,136 4,261
Other assets, net.............................. 200 369 768 548
--------- ---------- -------- ---------
Total assets................................... $ 38,911 $ 44,723 $ 43,079 $ 42,148
========= ========== ======== =========
Current liabilities............................ $ 18,930 $ 21,483 $ 23,451 $ 19,826
Long-term liabilities.......................... 16,062 15,222 15,068 14,500
Preferred Stock - mandatorily redeemable....... 1,000 1,000 1,000 1,000
Stockholders' equity........................... 2,919 7,018 3,560 6,822
--------- ---------- -------- ---------
Total liabilities and stockholders' equity..... $ 38,911 $ 44,723 $ 43,079 $ 42,148
========= ========== ======== =========
<FN>
____________________
(1) Gives effect to the April 28, 1995 Brunswick Acquisition as if it had
been effected January 1, 1995.
(2) Reflects an extraordinary loss from debt refinancing, net of an income
tax benefit of $418,000.
</FN>
</TABLE>
- 12 -
<PAGE>
Unaudited Pro Forma Combined Summary Financial Data. The
following table contains summary pro forma financial data of Lunn and TPG for
the fiscal year ended December 31, 1996 and as of and for the quarters ended
March 29, 1996 and April 4, 1997. The summary historical financial data for the
fiscal year ended December 31, 1996 was derived from the audited consolidated
financial statements of Lunn incorporated herein by reference and of TPG
included elsewhere in this Proxy Statement/Prospectus. The summary historical
financial data as of and for the quarters ended March 31, 1996 and March 31,
1997 was derived from the unaudited consolidated financial statements of Lunn
incorporated herein by reference and of TPG included elsewhere in this Proxy
Statement/Prospectus. In the opinion of management of Lunn and TPG, such
unaudited consolidated financial statements include all adjustments, consisting
of normal recurring accruals, necessary for a fair presentation of the financial
condition and results of operations of Lunn and TPG for such periods. The
summary pro forma financial data for the year ended December 31, 1996 and as of
and for the quarters ended March 29, 1996 and April 4, 1997 were derived from
the "The Joint Proxy Proposal--Unaudited Pro Forma Condensed Combined Financial
Statements" included elsewhere in this Proxy Statement/Prospectus. The pro forma
financial data is presented for informational purposes only and does not purport
to represent what Lunn or TPG's financial position or results of operations
would actually have been if the Merger had occurred on the assumed dates or to
project Lunn's or TPG's financial position or results of operations at any
future date or for any future periods. The information contained in this table
should be read in conjunction with "The Joint Proxy Proposal--Unaudited Pro
Forma Condensed Combined Financial Statements," "--Information Concerning
TPG--Management's Discussion and Analysis of Financial Condition and Results of
Operations of TPG," Lunn's historical consolidated financial statements,
including notes thereto, incorporated by reference in this Proxy
Statement/Prospectus and TPG's historical consolidated financial statements,
including notes thereto, included elsewhere in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
Year Ended December 31, 1996
---------------------------------------------------------------------
Historical Historical Pro Forma
Lunn TPG Adjustments(1) Pro Forma
---------- -------- ----------- ----------
(unaudited)
(in thousands, except per share data)
STATEMENTS OF OPERATIONS DATA:
<S> <C> <C> <C> <C>
Revenues................................. $ 18,098 $126,534 $ - $ 144,632
Gross profit............................. 4,349 32,169 - 36,518
Income (loss) from operations............ 1,272 10,411 (124) 11,559
Net income (loss)........................ $ 652 $4,274 $ (164) $ 4,762
Income (loss) per share.................. $ 0.06 $8.55 $ 0.90
Weighted average shares outstanding...... 11,587,400 500,000 5,310,140
<FN>
- ------------------
(1) Adjustments to reflect the net effects of the Merger. See "The Joint Proxy Proposal--Unaudited Pro Forma
Condensed Combined Financial Statements" and notes included therein.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended (unaudited)
-----------------------------------------------------------------------
March 31, 1996 March 29, 1996
Historical Historical Pro Forma
Lunn TPG Adjustments(1) Pro Forma
---------- -------- ----------- ----------
(in thousands, except per share data)
STATEMENTS OF OPERATIONS DATA:
<S> <C> <C> <C> <C>
Revenues............................... $ 4,213 $ 27,048 $ - $31,261
Gross profit........................... 950 6,420 - 7,370
Income (loss) from operations.......... 209 1,602 (31) 1,780
Net income (loss)...................... $ 93 $ 641 $ (35) $ 699
Income (loss) per share................ $ 0.01 $ 1.28 $ 0.14
Weighted average shares outstanding.... 8,081,181 500,000 4,959,518
<FN>
- -----------------
(1) Adjustments to reflect the net effects of the Merger. See "The Joint Proxy--Unaudited Pro Forma Condensed
Combined Financial Statements" and notes included therein.
</FN>
</TABLE>
- 13 -
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended (unaudited)
-----------------------------------------------------------------------
March 31, 1997 April 4, 1997
Historical Historical Pro Forma
Lunn TPG Adjustments(1) Pro Forma
---------- -------- ----------- ----------
(in thousands, except per share data)
STATEMENTS OF OPERATIONS DATA:
<S> <C> <C> <C> <C>
Revenues................................ $ 5,020 $ 23,822 $ - $ 28,842
Gross Profit............................ 1,131 5,086 - 6,217
Income from operations..................
outstanding........................... 13,028,410 500,000 5,454,241
<FN>
- ------------------
(1) Adjustments to reflect the net effects of the Merger. See "The Joint
Proxy Proposal--Unaudited Pro Forma Condensed Combined Financial
Statements" and notes included therein.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended (unaudited)
-----------------------------------------------------------------------
As of As of
March 31, 1997 April 4, 1997
Historical Historical Pro Forma
Lunn TPG Adjustments(1) Pro Forma
---------- -------- ----------- ----------
(in thousands)
BALANCE SHEET DATA:
<S> <C> <C> <C> <C>
Working capital........................... $ 6,236 $ 17,513 $ (1,300) $ 22,449
Total assets.............................. 18,777 42,148 3,100 64,025
Long-term liabilities..................... 5,295 14,500 - 19,795
Preferred stock-mandatorily redeemable.... 1,000 - 1,000
Stockholders' equity...................... $ 11,433 $ 6,822 $ 1,800 $ 20,055
<FN>
- --------------
(1) Adjustments to reflect the net effects of the Merger. See "The Joint
Proxy--Unaudited Pro Forma Condensed Combined Financial Statements"
and notes included therein.
</FN>
</TABLE>
Unaudited Pro Forma Per Share Data. The following unaudited information
reflects certain comparative per share data related to net income (loss) per
share and book value per share for each of Lunn and TPG. The pro forma
equivalent per share information is calculated by applying the Lunn Exchange
Ratio and the TPG Exchange Ratio, respectively, to the respective pro forma per
share information of the Combined Company. See "The Merger--Terms of the Merger
Agreement--Merger Consideration." The pro forma data is not necessarily
indicative of the results of operations or financial conditions that would have
been reported had the Merger been in effect as of the dates and during the
periods indicated below or that may be reported in the future. Neither Lunn nor
TPG has ever paid cash dividends on the Lunn Common Stock or the TPG Common
Stock, respectively, and following the Merger, it is expected that the Board of
Directors of the Combined Company will continue the policy of not paying cash
dividends on the Combined Company Common Stock.
<TABLE>
Lunn TPG
Lunn Equivalent TPG Equivalent
Historical Pro Forma Historical Pro Forma
---------- --------- ---------- ---------
Net income (loss) per share: (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Year ended December 31, 1996 $ 0.06 $ 0.09 $ 8.55 $ 7.47
Three months ended April 4, 1997
(unaudited) 0.02 0.00 (0.39) (0.17)
Book value per share:
At December 31, 1996 $ 0.92 $ 0.37 $ 14.04 $ 30.47
At April 4, 1997 (unaudited) 0.88 0.37 13.64 30.55
</TABLE>
- 14 -
<PAGE>
Lunn Proxy Proposal 1
The Lunn Board of Directors currently consists of five
members. The Lunn Board of Directors is divided into three classes, Class I,
Class II and Class III. The Class I, Class II and Class III directors serve for
terms that expire at the Lunn Annual Meeting, the 1998 Annual Meeting of
Stockholders of Lunn and the 1999 Annual Meeting of Stockholders of Lunn,
respectively, or until their respective successors are duly elected and
qualified. Thereafter, the successors to the class of directors whose term
expires at an annual meeting of stockholders will hold office for a term
expiring at the annual meeting of stockholders held in the third year following
the year of their election, or until their successors have been duly elected and
qualified.
It is intended that the persons named in the accompanying form
of proxy will, except as noted below, vote "FOR" the election of the following
Class I nominees as directors: Warren H. Haber and John M. Simon. Each of the
foregoing persons currently serves as a Class I director of Lunn and was most
recently elected as such at the Annual Meeting of Stockholders of Lunn held on
September 27, 1996. The Lunn Board of Directors does not contemplate that either
of such nominees will become unable to serve. If, however, either of such
nominees should become unable to serve before the Lunn Annual Meeting, proxies
solicited by the Lunn Board of Directors will be voted by the persons named as
proxies therein in accordance with the best judgment of such proxies.
Notwithstanding the foregoing, in the event that the Merger is
approved and is consummated, only two directors of Lunn (Alan W. Baldwin, a
Class III director, and John M. Simon, a Class I director and one of the
nominees for election of director named herein) will be directors of the
Combined Company after the Effective Time.
Lunn Proxy Proposal 2
The Lunn Board of Directors has appointed KPMG Peat Marwick
LLP, independent certified public accountants, to audit Lunn's consolidated
financial statements for the year ending December 31, 1997. Lunn has been
advised by KPMG Peat Marwick LLP that neither the firm nor any of its associates
has any material relationship with Lunn or any of its subsidiaries. In
accordance with a resolution adopted by the Lunn Board of Directors, such
appointment is being presented to the stockholders for ratification at the Lunn
Annual Meeting.
If Lunn Proxy Proposal 2 is not approved by a majority vote of
the stockholders present, in person or by proxy, at the Lunn Annual Meeting or
if prior to the Lunn Annual Meeting KPMG Peat Marwick LLP shall decline to
serve, then the Lunn Board of Directors will designate another firm to audit the
consolidated financial statements of Lunn for the year ending December 31, 1997
whose continued employment thereafter will be subject to ratification by the
stockholders of Lunn. In addition, in the event that the Merger is approved and
is consummated, the Board of Directors of the Combined Company will meet after
the Merger to determine the Combined Company's independent accountants for the
year ending December 31, 1997.
Representatives of KPMG Peat Marwick LLP are expected to be
present at the Lunn Annual Meeting to respond to appropriate questions of
stockholders and to make a statement if they desire.
- 15 -
<PAGE>
RISK FACTORS
The following factors, in conjunction with the other
information included in this Proxy Statement/Prospectus (including the documents
incorporated by reference herein), should be carefully considered by the
stockholders of Lunn and TPG in evaluating the matters presented herein.
Risk Factors Applicable to the Businesses of Lunn and TPG
Dependence on Principal Industries. The revenues of Lunn and
TPG are, and those of the Combined Company will be, concentrated in the defense
and aerospace industries. Sales to other non-defense and non-aerospace
industries, although growing, are anticipated to approximate 20% of total
revenues for the foreseeable future. The Combined Company's success will be
heavily dependent on its ability to successfully obtain major new defense orders
currently planned to be released by the United States government and government
prime contractors, as well as the continued strength of the aerospace industry,
particularly the commercial aircraft industry. No assurances can be given that
the Combined Company will be able to successfully obtain all or even a major
portion of the targeted defense industry orders anticipated to be placed. The
commercial aerospace industry is a cyclical business and the demand by
commercial airlines for new aircraft is highly dependent upon a variety of
factors, which historically have been related to the stability and health of the
United States and world economies. Although the aerospace and commercial
aircraft industries are currently enjoying a significant upturn in business
coupled with receipt of numerous major long-term orders, there can be no
assurances that the situation will continue in the future.
Risks of Reductions or Changes in Military Expenditures. The
primary customers of TPG are, and those of the Combined Company will be,
agencies of the DOD. Sales under contracts with the DOD or under subcontracts
that identify the DOD as the ultimate purchaser represented approximately 81% of
TPG's 1996 revenues. The United States defense budget has declined in real terms
since the mid-1980s, resulting in some delays in new program starts, program
stretch-outs and program cancellations. The United States defense budget has
begun to stabilize and, for the first time since the mid-1980s, it increased in
1996, adjusted for inflation. A major portion of the Combined Company's DOD
business is expected to be funded by the procurement and Research, Development,
Test and Evaluation segments of the defense budget. Procurement and Research,
Development, Test and Evaluation funding has been significantly reduced over the
last decade but is expected to remain relatively stable or grow slightly over
the next decade. A significant portion of the Combined Company's DOD business is
also expected to be funded by the operations and maintenance portion of the DOD
budget, which has declined less than the other segments. A further significant
decline or reallocation of the procurement, Research, Development, Test and
Evaluation or operations and maintenance segments of the DOD budget could
materially and adversely affect the Combined Company's sales and earnings. The
loss or significant curtailment of the Combined Company's material United States
defense contracts would also materially and adversely affect the Combined
Company's future sales and earnings.
Competition. The market for Lunn's and TPG's products is
highly competitive. Lunn and TPG compete with numerous competitors, a number of
which possess substantially greater financial, marketing, personnel and other
resources. Continued consolidation of major aerospace companies could result in
program cancellations as well as increased demand for price concessions. This,
together with increased competition for available business, could translate into
downward pressure on gross margins with resulting lower overall profit margins.
Vendor prices for production materials such as resins, liquid and film
adhesives, reinforcing fiber materials and other materials and supplies could
increase as demand for aircraft parts and assemblies increase to match higher
build rates for commercial aircraft. Higher material prices and demand for lower
aircraft part and assembly prices could place increasing pressure
- 16 -
<PAGE>
on the Combined Company's operating margins and net income. Although management
of TPG and Lunn believe that the Merger will enhance their competitiveness,
there can be no assurance that the Combined Company will be able to compete
successfully in the future.
Financial Leverage. Upon consummation of the Merger, the
Combined Company will have a significant amount of indebtedness, which could
have the following consequences: (i) additional financing for working capital,
capital expenditures, acquisitions or other purposes may be difficult to obtain,
and (ii) a substantial portion of cash flow from operations will be dedicated to
the payment of principal and interest on indebtedness. Moreover, the terms of
the Combined Company's indebtedness will impose various restrictions and
covenants on the Combined Company which could potentially limit the Combined
Company's ability to respond to market conditions or to take advantage of
business opportunities. The Combined Company's ability to meet its debt service
obligations and to reduce total debt will be dependent upon its future
performance, which, in turn, will be subject to general conditions in the
aerospace and defense industries and to financial, business and other factors
affecting the operations of the Combined Company, many of which will be beyond
its control.
Protection of Proprietary Rights. Lunn relies on proprietary
know-how and trade secrets and employs various methods to protect such know-how
and trade secrets, which include confidentiality agreements with its employees.
However, such methods may not afford complete protection and there can be no
assurance that others will not independently develop such know-how or trade
secrets. The patents for Lunn's phosphoric acid anodized core aluminum honeycomb
products expired in 1994. Lunn does not believe the expiration of such patents
has had or will have a material adverse effect on its business.
In pursuing protection for its proprietary rights, TPG relies
on a combination of patent, copyright, trademark and trade secret rights, as
well as contractual provisions, including confidentiality agreements with its
employees. TPG typically seeks patent protection for technology used in its
operations when deemed appropriate. However, patent protection may not always be
available. Furthermore, TPG can give no assurance that its patents will be
adequate to protect its interests or, if challenged, held valid. In addition,
TPG's competitors could develop technologies that are equivalent or superior to
those of TPG.
Dependence on Suppliers of Raw Materials. Generally, raw
materials required for Lunn's and TPG's businesses are purchased directly from
suppliers on a purchase order basis rather than on a contract basis. There can
be no assurance that, absent contracts with firm price and delivery terms,
suppliers will not increase their prices, change their credit terms or impose
other conditions of sale that may be unfavorable to the Combined Company. While
Lunn and TPG do not believe that the Combined Company would experience any
significant difficulty in obtaining materials from alternative sources on
comparable terms, there can be no assurance that such supplies could be obtained
on price and delivery terms favorable to the Combined Company.
Government and Environmental Regulations. Lunn's and TPG's
facilities and operations are required to comply with and are subject to
federal, state, local and foreign environmental and worker health and safety
laws, regulations and ordinances, including those relating to air emissions,
wastewater discharges and the management and disposal of certain materials,
substances and wastes. The nature of Lunn's and TPG's operations and the history
of industrial uses at some of its facilities will expose the Combined Company to
the risk of liabilities or claims with respect to environmental and worker
health safety matters. There can be no assurance that material costs will not be
incurred in connection with such liabilities or claims.
- 17 -
<PAGE>
Future events, such as changes in existing laws and
regulations or their interpretations, may give rise to additional compliance
costs or liabilities that could have a material adverse effect on the Combined
Company's business, financial condition or results of operations. Compliance
with more stringent laws or regulations, as well as more vigorous enforcement
policies of regulatory agencies or stricter or different interpretations of
existing laws, may require additional expenditures by the Combined Company which
may be material.
Labor Relations. Approximately 40 of Lunn's employees and
approximately 385 of TPG's employees are covered by collective bargaining
agreements with various international and local unions. Although both Lunn and
TPG consider their respective employee relations generally to be good, a
prolonged work stoppage or strike at any facilities with union employees could
have a material adverse effect on the Combined Company. In addition, there can
be no assurance that upon the expiration of existing collective bargaining
agreements new agreements will be reached without union action or that any such
new agreements will be on terms satisfactory to the Combined Company.
Risk Factors Applicable to the Merger
Risks Associated with the Lunn Exchange Ratio and TPG Exchange
Ratio and Fluctuations in the Market Price of the Lunn Common Stock. As of May
20, 1997, the last trading day prior to the public announcement of an agreement
in principle between Lunn and TPG with respect to the Merger, the reported
Nasdaq SmallCap Market closing bid price of the Lunn Common Stock was $1-1/32
per share. The price of the Lunn Common Stock may vary significantly from that
price prior to the Effective Time. Such variance may be due to changes in the
business, operations and prospects of Lunn, market assessment of the likelihood
that the Merger will be consummated, general market and economic conditions and
other factors. The Lunn Exchange Ratio and TPG Exchange Ratio are fixed at 0.1
shares of Combined Company Common Stock per share of Lunn Common Stock and
8.3028 shares of Combined Company Common Stock per share of TPG Common Stock,
respectively, and will not be adjusted based on changes in the price of Lunn
Common Stock. Thus, the dollar value of the Combined Company Common Stock to be
received by the holders of Lunn Common Stock and TPG Common Stock will not be
determined until the Effective Time, and may be more or less than the value of
the Lunn Common Stock as of May 20, 1997, the date of this Proxy
Statement/Prospectus or the date of the Lunn Annual Meeting or TPG Special
Meeting.
Immediate Dilution for Lunn Stockholders. Pursuant to the
Merger, shares of Lunn Common Stock and TPG Common Stock will be converted into
shares of Combined Company Common Stock at the Lunn Exchange Ratio and TPG
Exchange Ratio, respectively. Upon consummation of the Merger (assuming exercise
of all of the Lunn Options, Lunn Warrants and TPG Options), the former holders
of Lunn Common Stock will own 26% of the Combined Company Common Stock, the
former holders of TPG Common Stock will own 74% of the Combined Company Common
Stock and the former holders of TPG Preferred Stock will own all of the Combined
Company Preferred Stock. Prior to the Merger, shares of Lunn Common Stock had a
book value per share of $0.92 and $0.88 at December 31, 1996 and March 31, 1997,
respectively; after giving effect to the Merger on a pro forma basis (by
applying the Lunn Exchange Ratio to the pro forma per share information of the
Combined Company), shares of Lunn Common Stock will have book value per share of
$0.37 and $0.37 at December 31, 1996 and April 4, 1997, respectively. As a
result of the Merger, holders of Lunn Common Stock will experience an immediate
dilution in their aggregate percentage ownership of the Combined Company as well
as in the book value of their investment. See "Unaudited Pro Forma Condensed
Combined Financial Statements" and "Summary--Financial Information--Pro Forma
Per Share Data."
- 18 -
<PAGE>
Control by TPG Affiliates. Upon consummation of the Merger,
Equus will own approximately 48% of the issued and outstanding Combined Company
Common Stock. By virtue of such stock ownership, Equus may be able to direct the
affairs of the Combined Company and could determine the outcome of matters
required to be submitted to stockholders for approval, including the election of
a majority of directors and amendment of the Combined Company Certificate of
Incorporation
Volatility; Price of Combined Company Common Stock. The market
price of the Lunn Common Stock has been highly volatile. From time to time after
the Effective Date, there may be significant volatility in the trading price for
Combined Company Common Stock. The equity markets have, on occasion, experienced
significant price and volume fluctuation that have affected the market prices
for many companies' securities and that have been often unrelated to the
operating performance of these companies. Many factors, including the
performance of, and investor expectations for, the Combined Company, the trading
volume of the Combined Company Common Stock and general economic and market
conditions, may influence the trading price of the Combined Company Common
Stock. Accordingly, there can be no assurance as to the price at which the
Combined Company Common Stock will trade in the future.
Limited Trading Volume of Combined Company Common Stock.
Historically, the shares of Lunn Common Stock have had relatively low trading
volume on the Nasdaq SmallCap Market. During the four week period ended April
30, 1997, for example, the weekly trading volume averaged 124,894 shares. Low
trading volume can influence the trading price of a security, hamper the
liquidity of an investment in a security and result in volatility of the price
of a security. See "-- Volatility; Price of Combined Company Common Stock." As
of June 6, 1997, there were 12,762,153 shares of Lunn Common Stock outstanding;
upon consummation of the Merger (assuming exercise of all of the Lunn Options,
Lunn Warrants and TPG Options), there will be approximately 5,609,995 shares of
Combined Company Common Stock outstanding. The reduction in the number of shares
to be outstanding after the Merger could result in a decrease in trading volume,
which could have an impact on liquidity and could adversely affect the proceeds
received by stockholders from any sales of Combined Company Common Stock.
Stockholders of the Combined Company may realize a lower price on sales of
shares of Combined Company Common Stock because of this illiquidity.
No Dividends on Common Stock. Dividends have never been paid
on the Lunn Common Stock or the TPG Common Stock. Following consummation of the
Merger, it is anticipated that for the foreseeable future all earnings, if any,
will be retained for ongoing operations and general corporate purposes. Under
the terms of a forbearance agreement between Lunn and First Union Bank of
Maryland ("First Union"), the lender pursuant to Lunn's credit facility, Lunn is
prohibited from making any dividend, distribution, redemption or other transfer
to holders of Lunn Common Stock until Lunn's indebtedness to First Union has
been satisfied. Accordingly, Lunn does not expect the Combined Company to pay
dividends on Combined Company Common Stock in the foreseeable future.
No Survival of Representations and Warranties. The
representations and warranties of Lunn and TPG provided in the Merger Agreement
do not survive the Effective Time. In the event there is a material breach of a
representation or warranty prior to the Effective Time by TPG, Lunn has the
right to terminate the Merger Agreement; however, after the Effective Time
occurs, there is no right on the part of Lunn or holders of Lunn Common Stock
immediately prior to the Merger to indemnification or damages from TPG with
respect to a breached representation or warranty. In the event that there is a
material breach of a representation or warranty prior to the Effective Time by
Lunn, TPG has the right to terminate the Merger Agreement; however, after the
Effective Time occurs, there is no right on the part
- 19 -
<PAGE>
of TPG or the holders of TPG Common Stock immediately prior to the Merger to
obtain indemnification or damages from Lunn with respect to a breached
representation or warranty.
Interests of Certain Persons in the Merger; Possible Conflicts
of Interest. Certain directors and executive officers of Lunn and TPG have
interests in connection with the Merger that are in addition to those of the
stockholders of Lunn and TPG generally. See "The Joint Proxy Proposal--Interests
of Certain Persons in the Merger."
THE MEETINGS, VOTING AND PROXIES
Annual Meeting of Stockholders of Lunn
Date, Time and Place of Lunn Annual Meeting. The Lunn Annual
Meeting will be held at Lunn's principal executive offices located at 1 Garvies
Point Road, Glen Cove, New York 11542-2828 at 10:00 a.m., local time, on , 1997.
Purpose of the Meeting. The purpose of the Lunn Annual Meeting
is to consider and vote upon the Joint Proxy Proposal, Lunn Proxy Proposal 1,
Lunn Proxy Proposal 2 and such other business as may properly come before the
Lunn Annual Meeting. In the event that the Merger is approved and is
consummated, only two directors of Lunn (Mr. Alan Baldwin, a Class III director,
and Mr. John Simon, a Class I director and one of the nominees for election of
director named herein) will be directors of the Combined Company and the Board
of Directors of the Combined Company will meet after the Merger to determine the
Combined Company's independent accountants for the year ending December 31,
1997. See "The Joint Proxy Proposal--The Merger", "--Charter Amendments in
Connection with the Merger; "--Option Plan"; "Lunn Proxy Proposal 1" and "Lunn
Proxy Proposal 2."
Record Date and Outstanding Shares. Stockholders of record of
outstanding shares of Lunn Common Stock at the close of business on , 1997 (the
"Lunn Record Date") are entitled to notice of, and to vote at, the Lunn Annual
Meeting, or at any adjournment or postponement thereof. As of the Lunn Record
Date, there were approximately holders of record of Lunn Common Stock and
approximately shares of Lunn Common Stock issued and outstanding. The holders of
Lunn Common Stock are entitled to one vote per share on all matters to be voted
upon by the stockholders.
Voting of Proxies. All properly executed proxies that are not
revoked will be voted at the Lunn Annual Meeting in accordance with the
instructions contained therein. Proxies returned and containing no instructions
will be voted "FOR" approval and adoption of the Joint Proxy Proposal, "FOR"
adoption and approval of Lunn Proxy Proposal 1 and "FOR" adoption and approval
of Lunn Proxy Proposal 2, in accordance with the recommendation of the Lunn
Board of Directors. A Lunn stockholder who has executed and returned a proxy may
revoke it at any time before it is voted at the Lunn Annual Meeting by executing
and returning a proxy bearing a later date, by filing written notice of such
revocation with the Secretary of Lunn stating that the proxy is revoked or by
attending the Lunn Annual Meeting and voting in person. Other than approval and
adoption of the Joint Proxy Proposal, Lunn Proxy Proposal 1 and Lunn Proxy
Proposal 2, Lunn does not know of any matters that are to come before the Lunn
Annual Meeting. Should any other business properly come before the Lunn Annual
Meeting, the proxy holders will have discretionary authority to vote the shares
of Lunn Common Stock represented thereby on such matters in accordance with
their best judgment.
Vote Required. Under the DGCL, approval of the Joint Proxy
Proposal requires the affirmative vote of the holders of a majority of the
outstanding shares of Lunn Common Stock. However, under the Merger Agreement it
is a condition to TPG's obligation to consummate the Merger
- 20 -
<PAGE>
that the Lunn Dissenters' Shares not exceed 10% of the outstanding shares of
Lunn Common Stock. The presence, either in person or by properly executed proxy,
of the holders of a majority of the outstanding shares of Lunn Common Stock is
necessary to constitute a quorum at the Lunn Annual Meeting. If, however, a
majority of shares of Lunn Common Stock is not present or represented at the
Lunn Annual Meeting, the Lunn stockholders entitled to vote thereat, present in
person or by proxy, can adjourn the meeting from time to time, until a quorum is
present. Under the DGCL, a plurality of votes of the shares of Lunn Common
Stock, and a majority of shares of Lunn Common Stock, present in person or
represented by proxy at the Lunn Annual Meeting is required with respect to
approval of Lunn Proxy Proposal 1 and Lunn Proxy Proposal 2, respectively.
Abstentions and broker non-votes (i.e., shares of Lunn Common
Stock held in record name by brokers or nominees as to which (i) instructions
have not been received from the beneficial owners or persons entitled to vote,
(ii) the broker or nominee does not have discretionary voting power under
applicable Commission rules or the instrument under which it serves in such
capacity or (iii) the record holder has indicated on the proxy card or otherwise
notified Lunn that such record holder does not have authority to vote on that
matter) are counted for purposes of determining the existence of a quorum for
the transaction of business and will have the effect of a vote against the Joint
Proxy Proposal and Lunn Proxy Proposal 2 because a stockholder or broker who
abstains from voting on the resolution to authorize and approve the Joint Proxy
Proposal and Lunn Proxy Proposal 2 would in effect be voting against the Joint
Proxy Proposal and Lunn Proxy Proposal 2 because such shares would be recorded
as having abstained and could not be counted in determining whether the
necessary majority vote had been obtained. Abstentions and broker non-votes will
have no effect on approval of Lunn Proxy Proposal 1.
As of the Lunn Record Date, the executive officers and directors of Lunn
(and their affiliates) holding an aggregate of shares of Lunn Common Stock,
representing approximately % of the outstanding shares of Lunn Common Stock,
have indicated an intention to vote in favor of the Joint Proxy Proposal, Lunn
Proxy Proposal 1 and Lunn Proxy Proposal 2 at the Lunn Annual Meeting.
Expenses; Solicitation of Proxies. In addition to solicitation
by use of the mails, proxies may be solicited by directors, officers and
employees of Lunn in person or by telephone or other means of communication.
Such directors, officers and employees will not be additionally compensated, but
may be reimbursed for out-of-pocket expenses incurred in connection with such
solicitation. Arrangements will also be made with custodians, nominees and
fiduciaries for the forwarding of proxy solicitation materials to beneficial
owners of shares held of record by such custodians, nominees and fiduciaries,
and Lunn will reimburse such custodians, nominees and fiduciaries for reasonable
expenses incurred in connection therewith.
Special Meeting of Stockholders of TPG
Date, Time and Place of TPG Special Meeting. The TPG Special
Meeting will be held at the TPG's principal executive offices located at 3353
Peachtree Road, Suite 920, Atlanta, Georgia 30326 at , local time on , 1997.
Purpose of the Meeting. The purpose of the meeting is to
consider and vote upon the Joint Proxy Proposal and such other business as may
properly come before the TPG Special Meeting. See "The Joint Proxy Proposal--The
Merger."
Vote Required. Under the DGCL, approval of the Joint Proxy
Proposal requires the affirmative vote of the holders of record of a majority of
the outstanding shares of TPG Common Stock
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entitled to vote thereon. However, under the Merger Agreement it is a condition
to Lunn's obligation to consummate the Merger that the TPG Dissenters' Shares
not exceed 10% of the outstanding shares of TPG Common Stock. The presence,
either in person or by properly executed proxy, of the holders of a majority of
the outstanding shares of TPG Common Stock is necessary to constitute a quorum
at the TPG Special Meeting. If, however, a majority of the shares of TPG Common
Stock is not present or represented at the TPG Special Meeting, the TPG
stockholders entitled to vote thereat, present in person or by proxy, can
adjourn the meeting from time to time. Abstentions are counted for purposes of
determining the existence of a quorum for the transaction of business and will
have the effect of a vote against the Joint Proxy Proposal because a stockholder
who abstains from voting on the resolution to authorize and approve the Joint
Proxy Proposal would in effect be voting against the Joint Proxy Proposal
because his shares would be recorded as having abstained and could not be
counted in determining whether the necessary majority vote had been obtained.
Executive officers and directors of TPG (and their affiliates)
holding an aggregate of 138,225 shares of TPG Common Stock representing
approximately 29.1% of the outstanding shares of TPG Common Stock have indicated
an intention to vote in favor the Joint Proxy Proposal at the TPG Special
Meeting. See "The Joint Proxy Proposal--Information Concerning TPG--TPG Security
Ownership of Certain Beneficial Owners and Management."
THE JOINT PROXY PROPOSAL
The Merger
Pursuant to the Merger Agreement, TPG will merge with and into
Lunn, with Lunn being the surviving corporation. As a result of the Merger, TPG
will cease to exist as a separate corporate entity and the Combined Company will
succeed to and assume all the rights and obligations of TPG in accordance with
the DGCL. In connection with the Merger, (i) each outstanding share of Lunn
Common Stock, other than Lunn Dissenters' Shares, will be converted into the
right to receive shares of Combined Company Common Stock based on the Lunn
Exchange Ratio, (ii) each outstanding share of TPG Common Stock, other than TPG
Dissenters' Shares, will be converted into the right to receive shares of
Combined Company Common Stock based on the TPG Exchange Ratio and (iii) each
outstanding share of TPG Preferred Stock will be converted into the right to
receive one share of Combined Company Preferred Stock. The Combined Company
Preferred Stock will not be convertible into shares of Combined Company Common
Stock. In addition, upon consummation of the Merger the Combined Company will
assume all TPG Options, Lunn Options and Lunn Warrants; each such TPG Option,
Lunn Option and Lunn Warrant will become exercisable for that number of whole
shares of the Combined Company Common Stock equal to the number of shares of TPG
Common Stock or Lunn Common Stock covered thereby immediately prior to the
effective time of the Merger multiplied by the TPG Exchange Ratio (in the case
of TPG Options) or the Lunn Exchange Ratio (in the case of the Lunn Options and
the Lunn Warrants) rounded downward, and the exercise price thereof will be
adjusted accordingly. No fractional shares of Combined Company Common Stock
shall be issued in connection with the Merger. See "--Terms of the Merger
Agreement--Merger Consideration," "--No Fractional Shares," "--Treatment of Lunn
Options and Lunn Warrants", "--Treatment of TPG Options " and "--Procedure for
Converting Shares."
Background of the Merger
Although Lunn has from time to time during the past few years
considered whether a merger or similar transaction with another company would be
in its best interest, no specific proposal with respect to such a transaction
materialized during such period. However, in the fall of 1996, the
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Lunn Board of Directors initiated a search for a possible joint venture, merger
or acquisition that could enhance Lunn's stockholder value. Inquiries were made
to a number of potential candidates, including an inquiry to TPG in February
1997. A meeting of the management of Lunn and TPG was held on March 6, 1997 to
review the potential for a combination of Lunn and TPG. A confidentiality
agreement was entered into on March 18, 1997. The management of Lunn and its
financial advisors conducted a business review of TPG, which included the review
of business plans and financial projections. As a result of several meetings
prior to April 15, 1997 between representatives of Lunn and TPG with respect to
a proposed business combination between Lunn and TPG, on April 15, 1997, Lunn
and TPG reached an understanding with respect to certain terms and conditions of
a proposed merger between Lunn and TPG. On April 15, 1997, and April 17, 1997,
the Lunn Board of Directors and the TPG Board of Directors, respectively,
approved such terms and conditions, subject to execution of a definitive merger
agreement, certain regulatory and stockholder approvals and certain other
conditions. The Joint Proxy Proposal was submitted for approval to the Lunn
Board of Directors and unanimously approved on June 9, 1997 and submitted for
approval to the TPG Board of Directors and unanimously approved on May 30, 1997.
On June 9, 1997, each of TPG and Lunn executed and delivered the Merger
Agreement. The terms of the Merger Agreement are the result of the arm's-length
negotiations between the management of Lunn and TPG and their respective
advisors.
Reasons for the Merger; Recommendations of the Lunn and TPG Boards of Directors
Lunn Reasons for the Merger. The Lunn Board of Directors
believes that the best way to maximize the prospects of enhancing stockholder
value over the long-term is to merge Lunn with another entity that (i) has
operations in the advanced composite structures industry, (ii) is profitable,
(iii) has significant prospects for future growth and (iv) has the ability to
increase Lunn's market capitalization such that it may permit the Combined
Company Common Stock to be listed for trading on the Nasdaq National Market. In
the opinion of the Lunn Board of Directors, the proposed Merger fits within
these parameters.
In reaching its conclusion, the Lunn Board of Directors
considered a number of factors, including, among others:
- The Combined Company's greater geographic scope and diversification of
revenue sources;
- The Combined Company's more extensive product line to fulfill a wider
range of customer requirements;
- The Combined Company's greater management and operational resources;
- The Combined Company's anticipated long-term administrative
efficiencies;
- The strengthened management and technical staffs of the Combined
Company that will help accelerate the development and expansion of new
products; and
- The Combined Company's increased market capitalization and the
potential to list the Combined Company Common Stock on the Nasdaq
National Market, which will provide stockholders of the Combined
Company with increased liquidity and enhanced market visibility.
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However, in addition to considering the foregoing benefits of
the proposed Merger, the Lunn Board of Directors also considered certain risks
associated with the proposed Merger. Such risks include the substantial
diversion of the management of Lunn from the ordinary course of conduct of
Lunn's business, and the incurrence of certain fees and expenses in connection
with pursuing the proposed Merger, including fees related to the delivery of the
Fairness Opinion, as well as legal, accounting and other fees. If the Merger is
not consummated, payment of such fees and expenses could strain Lunn's capital
resources. The Lunn Board of Directors has determined that the benefits to
stockholders of the proposed Merger outweigh such risks.
Lunn's Board Recommendation. The Lunn Board of Directors has
unanimously approved the Joint Proxy Proposal and has determined that the Joint
Proxy Proposal is in the best interests of Lunn and its stockholders. After
careful consideration, the Lunn Board of Directors recommends that the
stockholders of Lunn vote "FOR" approval and adoption of the Joint Proxy
Proposal.
TPG Reasons for the Merger. In its consideration of the
Merger, the TPG Board of Directors consulted with TPG's management as well as
its financial and legal advisors. The TPG Board of Directors considered a number
of factors, including, without limitation: (i) the expectation that the
operations of Lunn would provide a complementary fit to the operations of TPG,
(ii) the business prospects of Lunn and (iii) the current public trading market
for the Lunn Common Stock. The TPG Board of Directors also considered a number
of other factors, including the following:
- The Combined Company would be able to more effectively compete in the
commercial aircraft expansion currently underway, which will allow it
to derive a lower percentage of revenues attributable to the United
States government and its agencies;
- The metal bonded panels and composite products business of Lunn would
allow the Combined Company to manufacture most exterior aircraft
components;
- The aluminum honeycomb material that Lunn produces is currently
purchased by TPG from third party vendors;
- The Combined Company would have access to a larger customer base in
which to sell its products;
- The Combined Company would be better able to penetrate select
commercial markets; and
- The Combined Company would be in a better position to increase its
marketing efforts to international customers.
Due to the wide variety of factors considered in its
evaluation of the Merger Agreement and the Merger, the TPG Board of Directors
considered the factors listed above as a whole and did not assign specific or
relative weights to such factors. Individual members of the TPG Board of
Directors also may have attributed differing levels of importance to each of the
factors considered.
TPG's Board Recommendation. The TPG Board of Directors has
unanimously approved the Joint Proxy Proposal and has determined that the Joint
Proxy Proposal is in the best interests of TPG and its stockholders. After
careful consideration, the TPG Board of Directors recommends that the
stockholders of TPG vote "FOR" approval and adoption of the Joint Proxy
Proposal.
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Interests of Certain Persons in the Merger
Upon consummation of the Merger, Messrs. Simon and Baldwin
will continue as directors of the Combined Company. In addition, James S.
Carter, Sam P. Douglass, Garrett L. Dominy, Gary L. Forbes, Robert C. Sigrist
and Lawrence E. Wesneski, who constitute all of the members of the TPG Board of
Directors, will become members of the Board of Directors of the Combined
Company. Such directors will have staggered terms from one to three years. It is
anticipated that all non-employee directors of the Combined Company will
receive, as compensation for serving on the Board of Directors of the Combined
Company, $20,000 annually and will be granted options to purchase shares of
Combined Company Common Stock. All current officers of TPG will continue as
officers of the Combined Company.
In addition, in connection with the Merger Agreement, Lunn has
agreed to cause Mr. Baldwin to terminate his employment agreement with Lunn in
exchange for the payment by the Combined Company of a severance payment of
$380,000 and the continuance of the health and life insurance benefits provided
Mr. Baldwin as of the date of the Merger Agreement for one year following the
Effective Date. As a result of the Merger, a change of control provision in Mr.
Baldwin's Lunn Options is triggered which results in the extension of their
exercise date for a period of up to 24 months from the Effective Date. In
addition, Allen has been engaged by Lunn to deliver the Fairness Opinion in
connection with the Merger. John Simon, a managing director of Allen, serves as
a director of Lunn and will serve as a director of the Combined Company if the
Joint Proxy Proposal is approved. As of June 6, 1997, Mr. Simon owned 15,000
Lunn Options and Allen owned 320,500 shares of Lunn Common Stock, which Lunn
Options and Lunn Common Stock will be treated in the Merger in the same manner
as the Lunn Options and Lunn Common Stock held by other optionholders and
stockholders of Lunn.
Additionally, Mr. Douglass is a general partner and Mr. Forbes is a Vice
President of the managing general partner of Equus, the largest holder of TPG
Common Stock. See "--Information Concerning TPG--TPG Management" and "--Security
Ownership of Certain Beneficial Owners and Management." In contemplation of the
Merger, TPG has entered into employment agreements with each of Mr. Carter, its
Chairman of the Board, President and Chief Executive Officer, and Mr. Dominy,
its Executive Vice President and Chief Financial Officer, pursuant to which
Messrs. Carter and Dominy will serve in those same capacities on behalf of the
Combined Company. Currently, such officers are not covered by employment
agreements and they will receive certain additional benefits under such
employment agreements. Such employment agreements also subject such executives
to non-disclosure and non-competition covenants which do not currently exist.
See "--Information Concerning TPG--TPG Executive Compensation--Employment
Agreements".
Fairness Opinion of Allen & Company Incorporated
Allen was engaged by Lunn to deliver the Fairness Opinion to
the Board of Directors. The Fairness Opinion, states that, based upon the review
described therein, the terms of the Merger Agreement with respect to the
conversion of Lunn Common Stock, TPG Common Stock and TPG Preferred Stock to be
received in connection with the Merger are fair from a financial point of view
to the stockholders of Lunn. Such opinion states that Allen did not
independently verify the information furnished to it by Lunn and TPG and assumed
and relied upon the accuracy and completeness of such information. The full text
of the Fairness Opinion, which sets forth the procedures followed, assumptions
made, areas of reliance upon others and other matters considered in connection
with rendering such opinion, is attached hereto as Annex C and should be read in
its entirety.
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As compensation for rendering the Fairness Opinion, including
the review required in connection therewith, Lunn has agreed to pay Allen a fee
of $250,000. Lunn has also agreed to indemnify Allen against certain
liabilities, to the full extent provided by law, arising out of the Merger and
Allen's engagement in connection therewith and to reimburse Allen for its
reasonable out-of-pocket expenses, including the fees and disbursements of its
counsel. See "--Interests of Certain Persons in the Merger."
Allen is a nationally recognized investment banking firm. Lunn
selected Allen to render the Fairness Opinion with respect to the Merger because
of its reputation, personnel and familiarity with Lunn. As part of its
investment banking business, Allen regularly engages in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for estate,
corporate and other purposes.
Accounting Treatment
If consummated as proposed, for accounting and financial
reporting purposes, the Merger will be treated as a purchase in accordance with
generally accepted accounting principles and because the former stockholders of
TPG will hold 74% of the Combined Company Common Stock and the former
stockholders of Lunn will hold 26% of the Combined Company Common Stock, TPG
will be deemed to be the acquiring party and Lunn will be deemed to be the
acquired party. After the consummation of the Merger, the results of operations
of Lunn will be included in the consolidated financial statements of TPG, which
consolidated financial statements will be the consolidated financial statements
for the Combined Company. It is anticipated that approximately $3.1 million of
goodwill will be recorded on the financial statements of the Combined Company in
connection with the Merger.
Certain Federal Income Tax Consequences
Reorganization. The following discussion summarizes certain
material federal income tax considerations of the Merger that are generally
applicable to the stockholders of TPG. The following summary does not address
the tax consequences to stockholders of Lunn resulting from the Merger. This
discussion is based on currently existing provisions of the Code, existing and
proposed Treasury Regulations thereunder and current administrative rulings and
court decisions, all of which are subject to change. Any such change, which may
or may not be retroactive, could alter the tax consequences to Lunn, TPG or the
TPG stockholders as described herein.
The Merger has been structured to qualify as a reorganization
under Section 368(a) of the Code for federal income tax purposes so that no gain
or loss will be recognized by the TPG stockholders upon consummation of the
Merger, except with respect to cash received in lieu of fractional shares and
except with respect to cash or property received upon exercise of dissenters'
rights of appraisal. It is expected that TPG will receive a written opinion (the
"Tax Opinion") of Gardere & Wynne, L.L.P., which concludes that, on the basis of
certain assumptions and representations stated therein, the following are the
federal income tax consequences of the Merger:
(1) The Merger will constitute a reorganization in accordance with
Section 368(a) of the Code and Lunn and TPG will each be a "party to the
reorganization" within the meaning of Section 368(b) of the Code;
(2) With the exception of any cash received in lieu of fractional
shares or any cash or other property received in connection with exercising
their dissenters' rights, no gain or loss will be
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recognized by the stockholders of TPG upon their receipt of Combined Company
Common Stock in exchange for TPG Common Stock or their receipt of Combined
Company Preferred Stock in exchange for TPG Preferred Stock in the Merger;
(3) The tax basis of the Combined Company Common Stock received (and
fractional share interests deemed received) in the Merger by each stockholder of
TPG will equal the tax basis at the time of the Merger of the stockholder's TPG
Common Stock exchanged in the Merger and the tax basis of the Combined Company
Preferred Stock received in the Merger by each stockholder of TPG will equal the
tax basis at the time of the Merger of the stockholder's TPG Preferred Stock
exchanged in the Merger;
(4) The holding period for tax purposes of the Combined Company Common
Stock received by each stockholder of TPG in the Merger (and fractional share
interests deemed received) will include the period for which the TPG Common
Stock surrendered in exchange therefor was held by the recipient, provided the
TPG Common Stock is held as a capital asset at the time of the Merger and the
holding period for tax purposes of the Combined Company Preferred Stock received
by each stockholder of TPG in the Merger will include the period for which the
TPG Preferred Stock surrendered in exchange therefor was held by the recipient,
provided the TPG Preferred Stock is held as a capital asset at the time of the
Merger;
(5) Neither TPG nor Lunn will recognize income, gain, or loss solely as
a result of the Merger; and
(6) A stockholder of TPG who receives cash in the Merger in lieu of a
fractional share of Combined Company Common Stock will be treated as if the
fractional share were distributed to such stockholder in the Merger and then as
having received a cash distribution in redemption of such fractional share,
resulting in income, gain or loss upon receipt of such cash taxed as provided in
Section 302 of the Code. A stockholder of TPG who perfects his appraisal rights
under Delaware law and who receives payment in cash for a share of TPG stock
will be treated as having received such payment in a redemption of such TPG
stock, subject to the provisions of Section 302 of the Code.
In connection with the Tax Opinion, Gardere & Wynne, L.L.P. will
rely upon such factual assumptions as are stated therein which are customary in
similar transactions. The Tax Opinion cannot be relied upon if any such factual
assumption is, or later becomes, inaccurate. No ruling from the Internal Revenue
Service concerning the tax consequences of the Merger has been or will be
requested, and the Tax Opinion will not be binding upon the Internal Revenue
Service or any other taxing authority or any court. If the Merger is consummated
and it is later determined that the Merger did not qualify as a reorganization
under the Code, the stockholders of TPG would recognize taxable gain or loss on
the Combined Company Common Stock and Combined Company Preferred Stock in the
Merger equal to the difference between the fair market value of the Combined
Company Common Stock or Combined Company Preferred Stock, as applicable, that
they received in the Merger and their tax basis in the TPG Common Stock or TPG
Preferred Stock, as applicable. In addition, TPG would recognize taxable gain or
loss in the Merger equal to the difference between (i) the sum of the fair
market value of the Combined Company Common Stock and the Combined Company
Preferred Stock received by the stockholders of TPG plus the amount of
liabilities of TPG assumed by the Combined Company and (ii) the tax basis in the
assets of TPG.
The foregoing summary of material federal income tax
consequences is not intended to constitute advice regarding the federal income
tax consequences of the Merger to any holder of TPG Common Stock or TPG
Preferred Stock. This summary does not discuss tax consequences under the
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laws of foreign, state or local governments or of any other jurisdiction or tax
consequences to categories of stockholders that may be subject to special rules,
such as foreign persons, tax-exempt entities, insurance companies, financial
institutions and dealers in stocks and securities. In addition, the foregoing
may not be applicable to a holder of shares of TPG Common Stock or TPG Preferred
Stock who received such shares as employee compensation or pursuant to the
exercise of an employee stock option. Each holder of TPG Common Stock and TPG
Preferred Stock is urged to consult his or her own tax advisor as to the
specific consequences of the Merger, including the applicable federal, state,
local and foreign tax consequences to them of the Merger in light of his or her
particular circumstances.
Net Operating Loss Carryovers Following the Merger. Lunn and
its subsidiaries have reported consolidated net operating loss carryovers of
approximately $7.4 million for federal income tax purposes as of December 31,
1996, which expire at varying dates between 2002 and 2011. Although these net
operating loss carryovers would, in general, be available to offset future
taxable income of Lunn for a period of 15 years from the year in which the net
operating loss was incurred, certain restrictions may apply. Under one such
restriction, a corporation's ability to use its net operating loss carryovers
against future taxable income is limited if the corporation undergoes an
"ownership change" as defined in Section 382 of the Code. If an ownership change
occurs, the amount of net operating loss carryovers (and certain other tax
attributes) that may be applied against future taxable income each year for both
regular tax and alternative minimum tax purposes is limited to a percentage (for
ownership changes occurring in June 1997, 5.64%) of the fair market value of
such corporation's outstanding stock immediately before the ownership change
(the "Section 382 Limitation"). The Merger will cause an ownership change of
Lunn under Section 382 of the Code. Based on an estimated market value of $13.2
million for the outstanding stock of Lunn, Lunn and TPG estimate that the annual
382 Limitation on the use of its net operating loss carryovers would, in
general, be approximately $700,000 if the Merger occurred during June 1997.
There can be no assurance that there will not be other limitations on the
Combined Company's use of such net operating loss carryovers against future
taxable income, nor can there by any assurance that the Combined Company will
realize sufficient taxable income in the future so as to be able to utilize
fully the amount of its net operating loss carryforwards following the
application of its Section 382 Limitation. Similar restrictions may apply to the
Combined Company's ability to use net operating loss carryovers for state income
tax purposes.
Resale of Combined Company Common Stock; Affiliates
The Combined Company Common Stock to be issued to the Lunn and
TPG stockholders pursuant to the Merger Agreement will be freely transferable
under the Securities Act, except for shares issued to any person who may be
deemed an "affiliate" of Lunn or TPG within the meaning of Rule 145 promulgated
under the Securities Act. Shares of Combined Company Common Stock received by
persons who are deemed to be affiliates of Lunn or TPG may be resold by such
persons only in transactions permitted by the resale provisions of Rule 145
(permitting limited sales under certain circumstances) or as otherwise permitted
under the Securities Act. Persons who may be deemed to be affiliates of Lunn or
TPG generally include individuals or entities that, directly or indirectly
through one or more intermediaries, control, are controlled by or are under
common control with Lunn and may include certain officers, directors and
principal stockholders of Lunn or TPG, respectively.
It is a condition to Lunn's and TPG's obligation to consummate
the Merger that each of Lunn and TPG receive a letter from each affiliate of TPG
and Lunn, respectively, (each, an "Affiliate Letter"), pursuant to which each
such Lunn or TPG affiliate shall undertake not to sell, transfer or otherwise
dispose of the Combined Company Common Stock in violation of the Securities Act.
The certificates evidencing Combined Company Common Stock issued to affiliates
pursuant to the Merger Agreement will bear a legend summarizing the foregoing
restrictions unless the affiliate has furnished to
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Lunn or TPG an affidavit to the effect that such affiliate meets certain
exemptive provisions of Rule 145 promulgated under the Securities Act.
Persons who are not affiliates of Lunn or TPG may sell their
Lunn Common Stock or TPG Common Stock, respectively, without restrictions under
the Securities Act and without the need to deliver this Proxy
Statement/Prospectus.
Dissenters' Rights of Appraisal
Holders of Lunn Common Stock and TPG Common Stock are entitled
to appraisal rights under Section 262 of the DGCL. A person having a beneficial
interest in shares of Lunn Common Stock held of record in the name of another
person, such as a broker or nominee, must act promptly to cause the record
holder to follow the steps summarized below properly and in a timely manner to
perfect whatever appraisal rights the beneficial owner may have. The following
discussion is not a complete statement of the law pertaining to appraisal rights
under the DGCL and is qualified in its entirety by the full text of Section 262,
a copy of which is attached hereto as Annex E. Unless otherwise indicated, all
references in Section 262 and in this summary to a "stockholder" are to the
record holder of the shares of Lunn Common Stock and TPG Common Stock,
respectively, as to which appraisal rights are asserted.
Under the DGCL, holders of shares of Lunn Common Stock and TPG
Common Stock, respectively, who follow the procedures set forth in Section 262
will be entitled to have their shares of Lunn Common Stock and TPG Common Stock,
respectively, appraised by the Delaware Court of Chancery and to receive payment
of the "fair value" of such shares, exclusive of any element of value arising
from the accomplishment or expectation of the Merger, together with a fair rate
of interest, if any, as determined by such court.
A stockholder, however, is not entitled to appraisal rights if
the shares of stock held by the stockholder are, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to consider the agreement of merger or consolidation,
listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. ("NASD"), or held of record by more than 2,000
stockholders, unless the agreement of merger or consolidation converts such
shares of stock into anything except shares of stock of the surviving
corporation, shares of stock of any other corporation that at the effective date
of the merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an inter-dealer
quotation system by the NASD or held of record by more than 2,000 stockholders,
cash in lieu of fractional shares of such stock or any combination of such
shares and cash in lieu of fractional shares. Corporations may enlarge these
statutory rights by including in their certificate of incorporation a provision
allowing appraisal rights in any merger or consolidation in which the
corporation is a constituent corporation. Neither the Lunn Certificate of
Incorporation, nor the TPG Certificate of Incorporation, contains such a
provision on appraisal rights.
Under Section 262, where a merger is to be submitted for
approval at a meeting of stockholders, as in the case of the Lunn Annual Meeting
and the TPG Special Meeting, the corporation, not less than 20 days prior to the
meeting, must notify each of its stockholders who was such on the record date of
the meeting with respect to shares for which appraisal rights are available and
include in such notice a copy of Section 262. This Proxy Statement/Prospectus
shall constitute such notice to the holders of shares of Lunn Common Stock and
TPG Common Stock, respectively, and the applicable statutory provisions of the
DGCL are attached to this Proxy Statement/Prospectus. Any stockholder who wishes
to exercise such appraisal rights or who wishes to preserve his right to do so
should review the
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following discussion and Annex E carefully because failure to timely and
properly comply with the procedures specified will result in the loss of
appraisal rights under the DGCL.
A holder of shares of Lunn Common Stock and TPG Common Stock
wishing to exercise his appraisal rights must deliver to Lunn or TPG,
respectively, before the vote on the approval of the Joint Proxy Proposal at the
Lunn Annual Meeting and the TPG Special Meeting, a written demand for appraisal
of his shares of Lunn Common Stock or TPG Common Stock, respectively and must
not vote in favor of approval of the Joint Proxy Proposal. Because a proxy which
does not contain voting instructions will, unless revoked, be voted for approval
of the Joint Proxy Proposal, a holder of shares of Lunn Common Stock or TPG
Common Stock, respectively, who votes by proxy and who wishes to exercise his
appraisal rights must (i) vote against approval of the Joint Proxy Proposal or
(ii) abstain from voting on approval of the Joint Proxy Proposal. A vote against
approval of the Joint Proxy Proposal, in person or by proxy, will not in and of
itself constitute a written demand for appraisal satisfying the requirements of
Section 262. In addition, a holder of shares of Lunn Common Stock or TPG Common
Stock wishing to exercise his appraisal rights must hold of record such shares
on the date the written demand for appraisal is made and must continue to hold
such shares until the Effective Time.
Within ten days after the Effective Time, Lunn, as the
surviving corporation in the Merger, must provide notice of the Effective Time
to each person who has satisfied the appropriate provisions of Section 262.
Within 120 days after the Effective Time, any stockholder who has satisfied the
appropriate provisions of Section 262 may deliver to Lunn a written demand for a
statement listing the aggregate number of shares of Lunn Common Stock or TPG
Common Stock not voted in favor of the Joint Proxy Proposal and with respect to
which demands for appraisal have been received and the aggregate number of
holders of such shares of Lunn Common Stock and TPG Common Stock, respectively.
Such statements must be mailed within 10 days after a written request therefore
has been received by Lunn.
Within 120 days after the Effective Time, but not thereafter,
Lunn or TPG, or any stockholder of Lunn or TPG entitled to appraisal rights
under Section 262, may file a petition in the Delaware Court of Chancery
demanding a determination of the fair value of the shares of Lunn Common Stock
or TPG Common Stock, respectively. Each of Lunn and TPG is under no obligation
to and has no present intention to file a petition with respect to the appraisal
of the fair value of the shares of Lunn Common Stock or TPG Common Stock,
respectively. Accordingly, it is the obligation of the stockholders to initiate
all necessary action to perfect their appraisal rights within the time
prescribed in Section 262.
If a petition for an appraisal is timely filed, after a
hearing on such petition, the Delaware Court of Chancery will determine the
stockholders entitled to appraisal rights and will appraise the "fair value" of
their shares of Lunn Common Stock or TPG Common Stock, respectively, exclusive
of any element of value arising from the accomplishment or expectation of the
Merger, together with a fair rate of interest, if any, to be paid upon the
amount determined to be the fair value. Stockholders considering seeking
appraisal should be aware that the fair value of their shares as determined
under Section 262 could be more than, the same as or less than the consideration
that would have been received in the Merger and that opinions from financial
advisors as to fairness from a financial point of view are not necessarily
opinions as to fair value under Section 262. The Delaware Supreme Court has
stated that "proof of value by any techniques or methods which are generally
considered acceptable in the financial community and otherwise admissible in
court" may be considered in the appraisal proceedings. The Court will also
determine the amount of interest, if any, to be paid upon the amounts to be
received by persons whose shares of Lunn Common Stock or TPG Common Stock have
been appraised. The costs of the action may be determined by the Court and taxed
upon the parties as the Court deemed equitable.
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The Court may also order that all or a portion of the expenses incurred by any
stockholder in connection with an appraisal, including, without limitation,
reasonable attorneys' fees and the fees and expenses of experts utilized in the
appraisal proceeding, be charged pro rata against the value of the shares of
Lunn Common Stock or TPG Common Stock entitled to appraisal. In addition,
Delaware courts have held that the statutory appraisal remedy, depending on
factual circumstances, may or may not be a dissenter's exclusive remedy.
Any holder of Lunn Common Stock or TPG Common Stock who has
duly demanded an appraisal in compliance with Section 262 will not, after the
Effective Time, be entitled to vote such shares subject to such demand for any
purpose. Failure to follow the steps required by Section 262 of the DGCL for
perfecting appraisal rights may result in the loss of such rights (in which
event a stockholder will be entitled to receive shares of Combined Company
Common Stock pursuant to the terms of the Merger Agreement).
Lunn and TPG will not be required to consummate the Merger if
holders of more than 10% of the outstanding shares of TPG Common Stock or Lunn
Common Stock, respectively elect to exercise appraisal rights pursuant to the
DGCL and have failed to vote in favor of approval of the Merger Agreement.
Preemptive Rights
Unless the certificate of incorporation expressly provides
otherwise, stockholders of a Delaware corporation do not have preemptive rights.
Neither the Lunn Certificate of Incorporation nor the TPG Certificate of
Incorporation provides for preemptive rights, nor will the Combined Company
Certificate of Incorporation.
Charter Amendments in Connection with the Merger
General. If the Joint Proxy Proposal is approved, Lunn has
agreed to amend and restate the Lunn Certificate of Incorporation to (i)
increase the number of authorized shares of Lunn Preferred Stock from 1,000,000
to 2,000,000; (ii) change the par value of Lunn Preferred Stock from $0.01 to
$1.00; (iii) designate a new series of preferred stock in accordance with the
"blank check preferred stock" provisions of the Lunn Certificate of
Incorporation permitting the Lunn Board of Directors to designate for issuance
additional shares of preferred stock in one or more series from time to time;
and (iv) change the name of Lunn to "Advanced Technical Products, Inc." The Lunn
Certificate of Incorporation, as proposed to be amended and restated, is in the
form of Annex B hereto and is incorporated herein by this reference. The Lunn
Certificate of Incorporation, as proposed to be amended and restated, would be
filed as an exhibit to the Certificate of Merger and will become the Combined
Company Certificate of Incorporation upon the filing of such Certificate of
Merger. A vote "FOR" the Joint Proxy Proposal is deemed to include a vote "FOR"
the authorization and approval of the Combined Company Certificate of
Incorporation as such authorization and approval is being sought as an integral
part of approving the Merger Agreement, the Merger and the transactions
contemplated thereby.
As required by the DGCL and the Lunn Certificate of
Incorporation as presently in effect, the affirmative vote of the holders of a
majority of the outstanding shares of Lunn Common Stock is required to effect
the amendment and restatement of the Lunn Certificate of Incorporation. The same
vote is needed to approve the Merger. The effectiveness of the Combined Company
Certificate of Incorporation is conditioned upon the Merger being consummated.
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Amendment of Certificate of Incorporation to Increase the
Number of Authorized Shares of Lunn Preferred Stock. In connection with the Lunn
Board of Directors approval of the Joint Proxy Proposal, the Lunn Board of
Directors has approved the amendment and restatement of the Lunn Certificate of
Incorporation to increase the number of authorized shares of Lunn Preferred
Stock from 1,000,000 to 2,000,000. As of the date of this Proxy
Statement/Prospectus, there were no shares of Lunn Preferred Stock outstanding.
Upon consummation of the Merger, an aggregate of 1,000,000 shares of Combined
Company Preferred Stock will be issued to current holders of TPG Preferred
Stock. Therefore, upon consummation of the Merger, there would remain 1,000,000
authorized shares of preferred stock, par value $1.00, of the Combined Company
which the Board of Directors of the Combined Company could issue pursuant to the
"blank check preferred stock" provisions of the Combined Company Certificate of
Incorporation. The Lunn Board of Directors considers the size of the proposed
increase in the number of authorized shares of Lunn Preferred Stock desirable as
it will continue to give the Board of Directors of the Combined Company the
necessary flexibility to issue preferred stock in one or more series from time
to time with such terms and designations as they resolve.
Amendment of Certificate of Incorporation to Change the Par
Value of the Lunn Preferred Stock. In connection with the Lunn Board of
Directors' approval of the Joint Proxy Proposal, the Lunn Board of Directors has
approved the amendment and restatement of the Lunn Certificate of Incorporation
to increase the par value of the Lunn Preferred Stock from $0.01 per share to
$1.00 per share in order to match the par value of the TPG Preferred Stock.
Amendment of Certificate of Incorporation to Designate New
Series of Preferred Stock. In connection with the Lunn Board of Directors'
approval of the Joint Proxy Proposal, the Lunn Board of Directors has approved
the amendment and restatement of the Lunn Certificate of Incorporation to
designate a new series of preferred stock in accordance with the "blank check
preferred stock" provisions of the Lunn Certificate of Incorporation permitting
the Lunn Board of Directors to designate for issuance shares of preferred stock
in one or more series from time to time. The new series of preferred stock to be
designated by such amendment will be the Combined Company Preferred Stock and
will have substantially the same terms and designations as the TPG Preferred
Stock. It is the intention of Lunn and TPG that holders of TPG Preferred Stock
receive Combined Company Preferred Stock with substantially the same terms and
designations as the TPG Preferred Stock. See "--Description of Capital Stock of
the Combined Company--Combined Company Preferred Stock."
Amendment of Certificate of Incorporation to Change the Name
of Lunn. In connection with the Lunn Board of Directors' approval of the Joint
Proxy Proposal, the Lunn Board of Directors has approved the amendment and
restatement of the Lunn Certificate of Incorporation to change the name of Lunn
to "Advanced Technical Products, Inc." after the Merger. The Board of Directors
believes that if the Merger is approved and consummated, the Combined Company's
name, Lunn, would not accurately reflect the nature of TPG's business. The Board
of Directors believes that by changing the name of Lunn to "Advanced Technical
Products, Inc.", it will be more clearly identified with the business of TPG,
which will be the Combined Company's primary business after the Merger.
The Option Plan
On June 9, 1997, the Lunn Board of Directors adopted the
Option Plan, a copy of which is set forth as Annex D to this Proxy
Statement/Prospectus. The Option Plan is designed to provide an incentive to
officers, employees, and non-employee consultants and advisors of the Combined
Company and its present and future subsidiaries and to offer an additional
inducement in obtaining the services of such individuals.
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The approval of the Option Plan requires the affirmative vote
of the holders of a majority of the shares of Lunn Common Stock present, in
person or by proxy, at the Lunn Annual Meeting, however, such vote is not being
sought separately and is being sought as an integral part of the approval of the
Joint Proxy Proposal. A vote "FOR" the Joint Proxy Proposal is deemed to include
a vote "FOR" approval of the Option Plan. Lunn and TPG have agreed, pursuant to
the Merger Agreement, that the Combined Company will adopt the Option Plan at
the Effective Time. See "--Terms of the Merger Agreement--Treatment of Lunn
Options and Lunn Warrants."
No options have been granted under the Option Plan, as such
plan will not be adopted until the Joint Proxy Proposal is approved. The
Compensation and Stock Option Committee and the Lunn Board of Directors have not
specified any grantees of the options, covering 300,000 shares of Lunn Common
Stock authorized for issuance under the Option Plan, that will be available for
grant under the Option Plan.
The following summary of certain material features of the
Option Plan does not purport to be complete and is qualified in its entirety by
reference to the text of the Option Plan set forth as Annex D to this Proxy
Statement/Prospectus.
Shares Subject to the Option Plan. The maximum number of
shares as to which options may be granted under the Option Plan (subject to
adjustment as described below) is 300,000 shares of Lunn Common Stock. Upon
expiration, cancellation or termination of unexercised options, the shares of
Lunn Common Stock subject to such options will again be available for the grant
of options under the Option Plan. No options have been granted under the Option
Plan. The closing bid price of one share of Lunn Common Stock, as reported on
the Nasdaq SmallCap Market, as of May 20, 1997 the last trading day prior to the
public announcement of an agreement in principle between Lunn and TPG concerning
the Merger, was $1-1/32 per share.
Type of Options. Options granted under the Option Plan may
either be ISOs, within the meaning of Section 422 of the Code, or NQSOs. ISOs,
however, may only be granted to employees.
Administration. The Option Plan would be administered by a
Stock Option Committee (the "Committee") consisting of members of the Lunn Board
of Directors. It is intended that each member of the Committee will be an
"outside director" within the meaning of Section 162(m) of the Code. The
Committee will not be appointed until following the Effective Time of the
Merger.
Eligibility. Option Plan participation is limited to officers,
employees and non-employee consultants and advisors of the Combined Company or
of any subsidiary of Combined Company. Upon consummation of the Merger,
approximately officers, employees and non-employee consultants and advisors
would be eligible to participate in the Option Plan.
Option Contracts. Each option will be evidenced by a written
contract between Lunn and the optionee, containing such terms and conditions not
inconsistent with the Option Plan as may be determined by the Committee (the
"Contract").
Terms and Conditions of Options The options granted under the
Option Plan will be subject to, among other things, the following terms and
conditions:
(a) The exercise price of each option will be determined by
the Committee; provided, however, that the exercise price of an ISO may
not be less than the fair market value of
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Lunn Common Stock on the date of grant (110% of such fair market value
if the optionee owns (or is deemed to own) more than 10% of the voting
power of Lunn).
(b) Options may be granted for terms determined by the
Committee of up to 10 years; provided, however, that the term of an ISO
may not exceed five years if the optionee owns (or is deemed to own)
more than 10% of the voting power of Lunn.
(c) All or any part of the shares for which options may be
granted under the Option Plan may be granted to any eligible person.
The aggregate fair market value (determined at the time of grant) of
shares with respect to which ISOs may be granted to an employee which
are exercisable for the first time during any calendar year under the
Option Plan and all incentive stock option plans of Lunn, or any parent
or subsidiaries, shall not exceed $100,000.
(d) Any options granted to a person required to report under
Section 16(a) of the Exchange Act must be approved by both the Lunn
Board of Directors and the Committee in order to be effective.
(e) Payment of the exercise price of an option may be made in
cash, or, if the applicable Contract permits, in shares of Lunn Common
Stock or any combination thereof. An option agreement may provide that
upon the exercise of the option, the Committee may elect to pay an
amount in cash, stock or both, equal to the excess of the fair market
value per share on the date of exercise over the per share exercise
price under the option multiplied by the number of option shares
actually exercised.
(f) Options may not be transferred other than by will or by
the laws of descent and distribution and may be exercised during the
optionee's lifetime only by him or her.
(g) In the case of the death of the optionee, his or her legal
representative or beneficiary may exercise the option, to the extent
exercisable on the date of death, within 180 days after such date, but
in no event after the expiration of the term of the option. An optionee
whose employment was terminated by reason of his or her disability may
exercise the option, to the extent exercisable at the time of such
termination, within 180 days thereafter, but not after the expiration
of the term of the option.
(h) Lunn may withhold cash and/or shares of Lunn Common Stock
having an aggregate value equal to the amount which Lunn determines is
necessary to meet its obligations to withhold any federal, state and/or
local taxes or other amounts incurred by reasons of the grant or
exercise of an option, its disposition or the disposition of shares
acquired upon the exercise of the option. Alternatively, Lunn may
require the holder to pay Lunn such amount, in cash, promptly upon
demand.
Adjustment in Event of Capital Changes. Appropriate
adjustments shall be made in the number and kind of shares available under the
Option Plan, in the number and kind of shares subject to each outstanding option
and the exercise prices of such options, and in the limitation on the number of
shares that may be granted to any employee in any calendar year, in the event of
any change in the Lunn Common Stock by reason of any stock dividend,
recapitalization or merger in which Lunn is not the surviving corporation,
split-up, combination, exchange of shares or the like.
Duration and Amendment of the Option Plan. No option may be
granted pursuant to the Option Plan after the expiration of 10 years after its
adoption. The Lunn Board of Directors may at any
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time terminate or amend the Option Plan; provided, however, that, without the
approval of Lunn's stockholders, no amendment may be made which would (a)
increase the maximum number of shares available for the grant of options (except
as a result of the anti-dilution adjustments described above) or (b) materially
modify the eligibility requirements for individuals who may receive options.
Federal Income Tax Treatment. The following is a general
summary of the federal income tax consequences under current tax law of NQSOs
and ISOs. It does not purport to cover all of the special rules, including
special rules relating to optionees subject to Section 16(b) of the Exchange Act
and the exercise of an option with previously-acquired shares, or the state or
local income or other tax consequences inherent in the ownership and exercise of
stock options and the ownership and disposition of the underlying shares.
An optionee will not recognize taxable income for federal
income tax purposes upon the grant of a NQSO or an ISO.
Upon the exercise of a NQSO, the optionee will recognize
ordinary income in an amount equal to the excess, if any, of the fair market
value of the shares acquired on the date of exercise over the exercise price
thereof, and Lunn will generally be entitled to a deduction for such amount at
that time. If the optionee later sells shares acquired pursuant to the exercise
of a NQSO, he or she will recognize long-term or short-term capital gain or
loss, depending on the period for which the shares were held. Long-term capital
gain is generally subject to more favorable tax treatment than ordinary income
or short-term capital gain. The holding period for long-term capital gain
treatment is currently more than one year.
Upon the exercise of an ISO, the optionee will not recognize
taxable income. If the optionee disposes of the shares acquired pursuant to the
exercise of an ISO more than two years after the date of grant and more than one
year after the transfer of the shares to him or her, the optionee will recognize
long-term capital gain or loss and Lunn will not be entitled to a deduction.
However, if the optionee disposes of such shares prior to the end of the
required holding periods, all or a portion of his or her gain, if any, will be
treated as ordinary income, and Lunn will generally be entitled to deduct such
amount.
In addition to the federal income tax consequences described
above, an optionee may be subject to the alternative minimum tax, which is
payable to the extent it exceeds the optionee's regular tax. For alternative
minimum tax purposes, upon the exercise of an ISO, the excess of the fair market
value of the shares over the exercise price therefor is an adjustment which
increases alternative minimum taxable income. In addition, the optionee's basis
in such shares is increased by such amount for purposes of computing the gain or
loss on the disposition of the shares for alternative minimum tax purposes. If
an optionee is required to pay an alternative minimum tax, the amount of such
tax which is attributable to deferral preferences (including the ISO adjustment)
is generally allowed as a credit against the optionee's regular tax liability in
subsequent years. To the extent the credit is not used, it is carried forward.
Management of the Combined Company after the Merger
General. Upon consummation of the Merger, TPG will cease to
exist as a separate corporate entity, and all of the business, assets,
liabilities and obligations of TPG will be merged with and into Lunn as the
surviving corporation. Pursuant to the Merger Agreement, the Lunn Certificate of
Incorporation, as amended and restated at the Effective Time, and the Lunn
Bylaws in effect
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immediately prior to the Effective Time will become the Combined Company
Certificate of Incorporation and Bylaws of the Combined Company (the "Combined
Company Bylaws"), respectively.
Board of Directors after the Merger. Pursuant to the Merger
Agreement, at the Effective Time, the Board of Directors of the Combined Company
would be comprised of eight members comprised of two designees of Lunn and six
designees of TPG. Messrs. Simon and Baldwin are current members of the Lunn
Board of Directors. The remaining six persons are current members of the TPG
Board of Directors. The designees to the Board of Directors of the Combined
Company have been divided into three classes, Class I, Class II, and Class III,
each to serve for an initial term that will expire at the 1998, 1999 and 2000
annual meeting of stockholders of the Combined Company when their successors are
duly elected and qualified. Thereafter, the successors to the class of directors
whose term expires at the meeting shall be elected to hold office for a term
expiring at the annual meeting of stockholders held in the third year following
the year of their election when their successors are duly elected and qualified.
Messrs. Wesneski and Baldwin will become Class I directors, Messrs. Douglass and
Dominy will become Class II directors and Messrs. Simon, Forbes and Carter will
become Class III directors. For biographical information with respect to the
proposed directors of the Combined Company, see "--Information Concerning
TPG--TPG Management", and "Lunn Proxy Proposal 1."
Officers after the Merger. Upon consummation of the Merger,
all of the officers of TPG will continue as officers of the Combined Company.
James S. Carter, who is currently Chairman of the Board and President of TPG,
will serve as Chairman of the Board, President and Chief Executive Officer of
the Combined Company; Garrett L. Dominy, who is currently Executive Vice
President, Chief Financial Officer, Secretary and Treasurer of TPG, will serve
as Executive Vice President, Chief Financial Officer, Assistant Secretary and
Treasurer of the Combined Company; and James P. Hobt, who is currently Corporate
Controller of TPG, will serve as Corporate Controller and Secretary of the
Combined Company. In accordance with the Combined Company Bylaws, the officers
of the Combined Company will be appointed by the Board of Directors of the
Combined Company and shall hold their offices until their respective successors
are appointed and qualify, or until their earlier resignation or removal. Each
officer serves at the discretion of the Board of Directors of the Combined
Company. For biographical information with respect to the proposed officers of
the Combined Company, see "--Information Concerning TPG--TPG Management" and
"Lunn Proxy Proposal 1."
Operations of the Combined Company
General. Management of both TPG and Lunn believe that the
business and operations of TPG and Lunn are complimentary to one another and
that the combination of TPG and Lunn will create more opportunities for the
Combined Company than now exist separately for the two companies. Specifically,
it is believed that the Merger will (i) strengthen the Combined Company's
ability to participate in the commercial aircraft manufacturing expansion
currently underway and, as a result, derive a lower percentage of revenues from
sales to agencies of the United States government, (ii) allow the Combined
Company to manufacture its own aluminum honeycomb materials, rather than
purchase it from third party vendors, which is TPG's current practice, (iii)
allow the Combined Company to manufacture most external aircraft components as a
result of the metal bonded panels and composite business of Lunn and (iv)
provide the Combined Company with better access to the financial capital markets
to enable the Combined Company to complete future strategic acquisitions.
Commercial Aircraft Expansion. Historically, TPG's sales have
been primarily attributable to government contracts. TPG and, prior to the
Brunswick Acquisition, Brunswick Technical Group, have been suppliers to the
United States government either directly or through other government prime
contractors for over 40 years. However, management of TPG and Lunn anticipates
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that there will be increased demand for new commercial aircraft, given both the
age of the existing worldwide fleet and recent airline market expansion. TPG's
strategy is to increase the promotion and marketing of the commercial aircraft
applications of its design, development and manufacturing capabilities in
advanced composite structures, tactical systems, electronics and microwave
structures. Brunswick Technical Group historically had limited success in
supplying parts to commercial aircraft manufacturers. Since the Brunswick
Acquisition, TPG has been approved as a supplier to Boeing and has recently
begun to supply Boeing 737 nose landing gear core mats. Lunn has been a
Boeing-qualified supplier for over 20 years.
Aluminum Honeycomb Products. Two of TPG's facilities presently
use honeycomb material in their manufactured components. The addition of
Alcore's aluminum honeycomb capabilities will broaden the range of services that
can be offered by the Combined Company to TPG's existing customer base.
Additionally, because TPG, Lunn and Alcore all market these products to the same
aerospace and defense customers, management of TPG and Lunn expect the Merger to
enhance the marketing capabilities of the Combined Company.
Composite-to-Metal Bonding. The Lunn composite-to-metal
bonding capabilities are expected to allow the Combined Company to offer a
broader range of services to the existing TPG customer base without expanding
the technical operating risk. Most commercial and military aircraft use advanced
composite parts, metal bond assemblies and composite bonded components. The
fabrication processes used to manufacture metal bond parts and advanced
composite parts are similar in that they both use common heat-cure equipment,
inspection equipment and similar tooling approaches. Management of TPG has
extensive experience in the manufacture and marketing of metal bond components.
See "Information Concerning TPG--TPG Management."
Acquisitions. The supplier base to prime manufacturers
historically has been fragmented and somewhat inefficient. Many prime government
contractors are implementing supply-chain management programs designed to
improve the quality of purchased parts and reduce the number of suppliers. The
Combined Company's strategy includes the acquisition of those companies that
management believes will increase its ability to provide its customers with a
higher quality product at a competitive price. Management of TPG and Lunn
believe that the combination of TPG and Lunn will create an entity with the
manufacturing capacity and quality assurance programs needed to address this
trend among its customers. In addition, as a result of the Merger, it is
anticipated that the Combined Company should have better access to the financial
capital markets then either TPG or Lunn alone. However, the Combined Company
will be significantly leveraged and there can be no assurance that the Combined
Company will be able to obtain the financing necessary to pay for acquisitions.
See "Risk Factors--Risk Factors Applicable to the Business of Lunn and
TPG--Financial Leverage."
Terms of the Merger Agreement
General. The Merger Agreement provides that, subject to the
requisite approval of the stockholders of Lunn and of TPG, the receipt of all
required regulatory approvals and the satisfaction or, where permitted, waiver
of certain other conditions, TPG will be merged with and into Lunn. As a result
of the Merger, TPG will cease to exist as a separate corporate entity and Lunn
will be the surviving corporation in the Merger and shall succeed to and assume
all of the rights and obligations of TPG in accordance with the DGCL.
The descriptions of the terms and conditions of the Merger and
the Merger Agreement included in this Proxy Statement/Prospectus are qualified
in their entirety by reference to the Merger Agreement, a copy of which is
attached hereto as Annex A and incorporated by reference herein.
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Merger Consideration. At the Effective Time, (i) each
outstanding share of Lunn Common Stock, other than Lunn Dissenters' Shares, will
be converted into the right to receive fully paid and nonassessable shares of
Combined Company Common Stock based on the Lunn Exchange Ratio, (ii) each
outstanding share of TPG Common Stock, other than TPG Dissenters' Shares, will
be converted into the right to receive fully paid and nonassessable shares of
Combined Company Common Stock based on the TPG Exchange Ratio and (iii) each
outstanding share of TPG Preferred Stock will be converted into the right to
receive one fully paid and nonassessable share of Combined Company Preferred
Stock. The Combined Company Preferred Stock will not be convertible into shares
of Combined Company Common Stock. No fractional shares will be issued in the
Merger.
Each share of Lunn Common Stock, TPG Common Stock and TPG
Preferred Stock held in treasury immediately prior to the Effective Time by Lunn
or TPG, as the case may be, will be canceled and extinguished at the Effective
Time without any conversion thereof and without any payment with respect
thereto.
No Fractional Shares. No fractional shares of Combined Company
Common Stock will be issued in connection with the Merger. In lieu thereof, each
holder of TPG Common Stock and Lunn Common Stock who would otherwise have been
entitled to receive a fraction of a share of Combined Company Common Stock,
after taking into account all stock certificates delivered by such holder, shall
receive an amount in cash (without interest) equal to such fractional part of a
share of Combined Company Common Stock multiplied by the average of the last
reported sales prices of Lunn Common Stock, as reported on the Nasdaq SmallCap
Market, on each of the five trading days immediately prior to the Effective
Time.
Treatment of Lunn Options and Lunn Warrants. Pursuant to the
Merger Agreement, the Lunn Options and Lunn Warrants will be assumed by the
Combined Company. Each Lunn Option and Lunn Warrant will continue to have, and
be subject to, the same terms and conditions as set forth in Lunn's 1994 Stock
Incentive Plan (the "Lunn Stock Option Plan") and/or any agreements pursuant to
which such Lunn Option and Lunn Warrant were granted as in effect immediately
prior to the Effective Time, except that (i) each such Lunn Option and Lunn
Warrant will become exercisable for that number of whole shares of the Combined
Company Common Stock equal to the number of shares of Lunn Common Stock covered
thereby immediately prior to the effective time of the Merger multiplied by the
Lunn Exchange Ratio rounded downward, (ii) the price at which each such Lunn
Option or Lunn Warrant is exercisable will be divided by the Lunn Exchange Ratio
and then rounded upward to the nearest cent, and (iii) the vesting conditions of
each of the Lunn Options will be accelerated in full.
The Merger Agreement provides that there will be no more
option grants under the existing Lunn Stock Option Plan. At the Effective Time,
the Option Plan will become effective and will be available for additional
option grants. See "--The Option Plan."
Treatment of TPG Options. Pursuant to the Merger Agreement,
the TPG Options will be assumed by the Combined Company. Each TPG Option will
continue to have, and be subject to, the same terms and conditions as set forth
in TPG's 1996 Key Management Stock Option Plan ("TPG Stock Option Plan") and/or
any agreements pursuant to which such TPG Option was granted as in effect
immediately prior to the Effective Time, except that (i) each such TPG Option
will become exercisable for that number of whole shares of the Combined Company
Common Stock equal to the number of shares of TPG Common Stock covered thereby
immediately prior to the effective time of the Merger multiplied by the TPG
Exchange Ratio rounded downward, and (ii) the price at which each such TPG
Option is exercisable will be divided by the TPG Exchange Ratio and then rounded
upward to the nearest cent.
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The Merger Agreement provides that there will be no more
option grants under the existing TPG Stock Option Plan. At the Effective Time,
the Option Plan will become effective and will be available for additional
option grants. See "--The Option Plan."
Effective Time of the Merger. The Merger will become effective
on the date the Certificate of Merger is filed with the Secretary of State of
the State of Delaware (or such other time as specified in the Certificate of
Merger). It is presently anticipated that such filing will be made as soon as
practicable after the requisite approval of the stockholders of Lunn and of TPG
has been obtained and all required regulatory approvals or exemptions have been
received. Such filing will be made, however, only upon the satisfaction of or,
where permitted, waiver of all of the conditions contained in the Merger
Agreement and provided that the Merger Agreement has not been terminated in
accordance with its terms. See "--Conditions to the Merger; Termination and
Amendment of the Merger Agreement".
Procedure for Converting Shares. Promptly after the Effective
Time, the Exchange Agent will mail to all holders of record of Lunn Common
Stock, TPG Common Stock and TPG Preferred Stock a letter of transmittal with
instructions for use by such holders in surrendering certificates representing
shares of Lunn Common Stock, TPG Common Stock and TPG Preferred Stock in
exchange for certificates representing the Combined Company Common Stock and
Combined Company Preferred Stock. Stockholders of Lunn and TPG should not submit
their stock certificates for exchange until such instructions and letter of
transmittal are received. Upon surrender of a stock certificate for cancellation
to the Exchange Agent, together with such duly executed letter of transmittal,
the holder of such certificate will be entitled to receive, in exchange
therefor, a certificate representing that number of whole shares of Combined
Company Common Stock or Combined Company Preferred Stock that such holder has
the right to receive, and the certificate so surrendered shall be immediately
canceled.
Following surrender of a stock certificate, the record holder
of the certificate will receive payment, without interest of (i) the amount of
cash payable in lieu of fractional shares and the amount of dividends or other
distributions with a record date after the Effective Time previously paid with
respect to such whole shares of Combined Company Common Stock or Combined
Company Preferred Stock and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective Time but
prior to surrender and a payment date subsequent to surrender payable with
respect to such whole shares of Combined Company Common Stock or Combined
Company Preferred Stock, as the case may be.
After the Effective Time, there will be no further
registration of transfers on the stock transfer books of the Combined Company of
the shares of Lunn Common Stock, TPG Common Stock or TPG Preferred Stock that
were outstanding immediately prior to the Effective Time.
The Combined Company may deduct and withhold from the
consideration otherwise payable pursuant to the Merger Agreement to any holder
of shares of Lunn Common Stock, TPG Common Stock or TPG Preferred Stock such
amounts as it is required to deduct and withhold with respect to the making of
such payment under the Code, or any provision of state, local or foreign tax
law.
If any stock certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by a person claiming
such stock certificate to be lost, stolen or destroyed and, if required by the
Combined Company, the posting by such person of a bond as indemnity against any
claim that may be made against it with respect to such certificate, the Exchange
Agent will issue in exchange for such certificate the shares of Combined Company
Common Stock or Combined Company Preferred Stock and any cash in lieu of
fractional shares, and unpaid dividends and distributions on shares of Combined
Company Common Stock.
- 39 -
<PAGE>
Conditions to the Merger; Termination and Amendment of the
Merger Agreement. In addition to the requisite approval of the stockholders of
Lunn and of TPG, the obligations of Lunn and TPG to consummate the Merger are
subject to the satisfaction of or, where permitted, waiver of various conditions
which, if not fulfilled or waived, permit termination of the Merger Agreement
including, without limitation, the following: (a) the continuing accuracy in all
material respects at the Effective Time of the representations and warranties of
each of Lunn and TPG contained in the Merger Agreement; (b) the performance by
each of Lunn and TPG of all obligations under the Merger Agreement required to
be performed by them at or prior to the Effective Time of the Merger; (c) the
absence of any change in the financial condition, business, operations or
prospects of either Lunn or TPG, which would have or be reasonably likely to
have a material adverse effect, other than any change that affects Lunn and TPG
in a substantially similar manner; (d) the absence of any injunction or other
legal prohibition against, or any action or proceeding challenging or seeking to
restrain or prohibit, the Merger, or to obtain an amount of damages or other
material relief in connection with the consummation of the Merger; (e) the
absence of any notice of a governmental body to the effect that the consummation
of the Merger would constitute a violation of any applicable law or that it
intends to commence proceedings to restrain consummation of the Merger; (f) the
absence of any stop orders suspending the effectiveness of the Registration
Statement; (g) receipt by Lunn and TPG of all approvals of any governmental
body, agency or official required to be obtained prior to or at the Effective
Time in connection with the execution, delivery or performance of the Merger
Agreement; (h) the expiration of the applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "Hart-Scott-Rodino
Act"); (i) the approval for listing, subject to official notice of issuance, of
the shares of Combined Company Common Stock on the Nasdaq SmallCap Market; (j)
the delivery by Lunn and TPG of the Certificate of Merger and appropriate
certificates for filing with the Secretary of State of the State of Delaware;
(k) the receipt by each of Lunn and TPG of "comfort" letters from the
independent public accountants of the other party with respect to certain
financial information regarding the other party included in the Registration
Statement; (l) the qualification of the Merger as a "reorganization" under
Section 368(a) of the Code; (m) the number of TPG Dissenters' Shares not
exceeding 10% of the TPG Common Stock and the number of Lunn Dissenters' Shares
not exceeding 10% of the Lunn Common Stock; (n) the receipt by TPG of an
Affiliate Letter from each Lunn stockholder, respectively, who is an affiliate
of Lunn, respectively; (o) the absence of any withdrawal or modification in a
material respect of the Fairness Opinion; and (p) acceptable intercreditor
arrangements being agreed to by the primary lenders of Lunn and TPG.
Any one or more of such conditions, other than the requisite
stockholder approval, the absence of any injunction restraining the Merger, the
absence of any stop order suspending the effectiveness of the Registration
Statement, the receipt of all required regulatory approvals, the expiration of
the waiting period under the Hart-Scott-Rodino Act, the approval for listing of
the shares of Combined Company Common Stock on the Nasdaq SmallCap Market and
the delivery of the Certificate of Merger for filing, may be waived by the party
entitled to the benefits thereof. Neither Lunn nor TPG presently intends to
waive any condition to its obligations to consummate the Merger if such waiver
would adversely affect its stockholders.
The Merger Agreement provides that it may be terminated at any
time prior to the Effective Time, whether before or after the approval of the
Joint Proxy Proposal by the stockholders of TPG and Lunn, (a) by mutual written
consent of TPG and Lunn; (b) by Lunn or TPG if (i) the other party shall have
failed to comply in any material respect with any of its covenants or agreements
contained in the Merger Agreement; (ii) the stockholders of Lunn or TPG shall
have failed to approve the Joint Proxy Proposal; (iii) TPG Dissenters' Shares or
Lunn Dissenters' Shares comprise more than 10% of the outstanding shares of TPG
Common Stock or Lunn Common Stock, respectively; (iv) the Merger has not been
effected on or prior to the close of business on November 30, 1997; (v) any
court of competent
- 40 -
<PAGE>
jurisdiction or any governmental, administrative or regulatory authority, agency
or body shall have issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the transactions
contemplated by the Merger Agreement, and such order, decree, ruling or other
action shall have become final and nonappealable; (vi) there has been a material
breach by the other party of any representation or warranty that is not
qualified as to materiality; (vii) there has been a breach by the other party of
any representation or warranty that is not qualified as to materiality which
breach has not been cured within five business days following receipt by the
other party of written notice of the breach; (viii) the Lunn Board of Directors
or TPG Board of Directors, respectively, withdraws or modifies in a manner
adverse to each such party, respectively, its approval or recommendation of the
Joint Proxy Proposal or approves or recommends any proposal or any offer with
respect to a merger, acquisition, consolidation or similar transaction
involving, or any purchase of 20% or more of the assets on a consolidated basis
or 20% or more of the capital stock of, Lunn or TPG, respectively, (any such
proposal or offer being hereinafter referred to as an "Acquisition Proposal") or
other takeover proposal; (ix) the Lunn Board of Directors or the TPG Board of
Directors, respectively, receives an Acquisition Proposal that, in the exercise
of its fiduciary duties under the DGCL, it determines to be more favorable to
the stockholders of Lunn or TPG, respectively, than the Joint Proxy Proposal; or
(c) by TPG if Allen withdraws or modifies the Fairness Opinion in any material
respect.
The Merger Agreement may be amended by the parties thereto at
any time before or after approval of matters presented in connection with the
Merger by the Lunn stockholders. After such stockholder approval, no amendment
shall be made which, by law, requires the further approval of stockholders
without obtaining such further approval. Any amendments or modifications of the
Merger Agreement must be in writing and signed on behalf of Lunn and TPG.
Termination Fee. A termination fee of $750,000 is payable by
Lunn to TPG under certain circumstances including, without limitation, if (i)
TPG terminates the Merger Agreement as a result of the withdrawal or adverse
modification of the recommendation of the Lunn Board of Directors to the
stockholders of Lunn to consummate the Merger or the recommendation of the Lunn
Board of Directors to its stockholders of an Acquisition Proposal or other
takeover proposal; (ii) TPG terminates the Merger Agreement as a result of the
failure of Lunn to materially comply with its covenants or the breach by Lunn of
its representations and warranties; or (iii) Lunn terminates the Merger
Agreement because the Lunn Board of Directors has received an Acquisition
Proposal that, in the exercise of its fiduciary duties under the DGCL, it
determines to be more favorable than the Merger to the stockholders of Lunn.
A termination fee of $750,000 is payable by TPG to Lunn under
certain circumstances including, without limitation, if (i) Lunn terminates the
Merger Agreement as a result of the withdrawal or adverse modification of the
recommendation of the TPG Board of Directors to the stockholders of TPG to
consummate the Merger or the recommendation of the TPG Board of Directors to its
stockholders of an Acquisition Proposal or other takeover proposal, (ii) Lunn
terminates the Merger Agreement as a result of the failure of TPG to materially
comply with its covenants or the breach by TPG of its representations and
warranties or (iii) TPG terminates the Merger Agreement because the TPG Board of
Directors has received an Acquisition Proposal that, in the exercise of its
fiduciary duties under the DGCL, it determines to be more favorable than the
Merger to the stockholders of TPG.
The out of pocket expenses of Lunn and TPG are payable by the
other party if (i) Lunn or TPG terminates the Merger Agreement because such
other party fails to materially comply with its covenants or breaches a
representation or warranty, or the TPG Dissenters' Shares or Lunn Dissenters'
Shares, respectively, comprise more than 10% of the outstanding shares of each
class of stock immediately prior to the Effective Time, or (ii) TPG or Lunn
terminates the Merger Agreement as a
- 41 -
<PAGE>
result of the failure of such party's stockholders to approve the Joint Proxy
Proposal. In addition, TPG's out of pocket expenses are payable by Lunn if TPG
terminates the Merger Agreement because of Allen's withdrawal or material
modification of the Fairness Opinion.
Representation, Warranties and Covenants. Lunn and TPG have
made certain representations and warranties to each other including, without
limitation, as to their respective (i) organization and existence, (ii)
capitalization, corporate authority and approvals relating to the Merger, (iii)
subsidiaries, (iv) compliance with laws, (v) existence of conflicts with respect
to execution and delivery of the Merger Agreement, (vi) accuracy of information
in this Proxy Statement/Prospectus, (vii) litigation, (viii) absence of certain
changes since December 31, 1996, (ix) taxes, (x) employee benefit plans and
labor matters, (xi) environmental matters, (xii) title to properties, (xiii)
condition of fixed assets, (xiv) assets used in their business, (xv) accounts
receivable, (xvi) inventories, (xvii) material agreements, (xviii) intellectual
property, (xix) licenses and permits, (xx) use of brokers and (xxi) insurance.
In addition, Lunn has made certain representations and warranties to TPG
concerning the reports it has filed with the Commission since January 1, 1994
and TPG has made certain representations and warranties to Lunn with respect to
its financial statements.
The Merger Agreement also provides that each of Lunn and TPG
(i) will mail this Proxy Statement/Prospectus to the stockholders of Lunn and
TPG after the Registration Statement is declared effective; and (ii) will abide
by the terms of a certain confidentiality agreement between the parties dated as
of March 21, 1997.
Each of Lunn and TPG also covenants that (a) prior to the
Effective Time, neither party will permit any of its representatives to (i)
solicit or encourage any Acquisition Proposal (ii) enter into any agreement with
respect to any Acquisition Proposal, (iii) participate in any discussions or
negotiations regarding, or furnish to any person any information with respect
to, the making of any proposal that constitutes or may reasonably be expected to
lead to an Acquisition Proposal, (iv) solicit proxies in opposition to approval
by the stockholders of Lunn or TPG, respectively, of the Merger, (v) engage in
any negotiations concerning an Acquisition Proposal, (vi) enter into any
agreement or make any public announcement of a plan to do any of the foregoing
and (b) it will immediately cease and cause to be terminated any existing
negotiations with any parties conducted heretofore with respect to any of the
foregoing; provided, however, that each of Lunn's and TPG's directors may
provide information or engage in negotiations or discussions regarding an
unsolicited Acquisition Proposal if the failure to do so would be a violation of
their fiduciary obligation.
Each of Lunn and TPG also have made certain covenants with
respect to the operation of their respective businesses in the ordinary course
including, without limitation, that each of Lunn and TPG will not, without the
prior written consent of the other party, other than as otherwise contemplated
by the Merger Agreement; (i) change any provision of its Certificate of
Incorporation or Bylaws; (ii) except for the issuance of Lunn Common Stock or
TPG Common Stock pursuant to the exercise of Lunn Options, Lunn Warrants or TPG
Options, respectively, change the number of its authorized, issued or
outstanding capital stock, issue any right to purchase relating to the
authorized or issued capital stock of Lunn or TPG, respectively, or pay any
dividend with respect to the outstanding capital stock of Lunn or TPG,
respectively; (iii) institute any changes in management personnel or any
material change in any management policy; or (iv) knowingly jeopardize the
qualification of the Merger as a reorganization under Section 368(a) of the
Code. Each of Lunn and TPG also covenants that it will use its best efforts to
cause to be delivered to the other party "comfort" letters from each of their
independent public accountants and will provide to the other party its monthly
and quarterly consolidated financial statements.
- 42 -
<PAGE>
In addition, Lunn has agreed (i) to cause Alan Baldwin to
terminate his employment agreement with Lunn in exchange for the payment by the
Combined Company of a severance payment of $380,000, the continuation, at the
Combined Company's expense, of the health and life insurance benefits provided
to Mr. Baldwin as of the date of the Merger Agreement for one year following
consummation of the Merger and the extension for two years immediately following
consummation of the Merger of the period during which Mr. Baldwin can exercise
his Lunn Options, and (ii) to submit a listing application to the Nasdaq
SmallCap Market for the Combined Company Common Stock. TPG has agreed to deliver
Affiliate Letters to Lunn from all affiliates of TPG as of the TPG Record Date.
Listing of Combined Company Common Stock. Lunn intends to file
an application with the Nasdaq SmallCap Market for the purpose of listing the
Combined Company Common Stock which will be issuable upon consummation of to the
Merger as well as Combined Company Common Stock which will be issuable upon
exercise of outstanding Lunn Options, Lunn Warrants and TPG Options. Lunn
intends to use its best efforts to cause the application for the listing with
the Nasdaq SmallCap Market to be approved by the Nasdaq SmallCap Market prior to
the Effective Time. Assuming that the Nasdaq SmallCap Market approves such
application upon notice to the Nasdaq SmallCap Market to the effect that the
Merger has been consummated, the Combined Company Common Stock to be issued
pursuant to the Merger will be listed with the Nasdaq SmallCap Market. The
listing of such shares on the Nasdaq SmallCap Market is a condition to the
respective obligations of Lunn and TPG to consummate the Merger. See
"--Conditions to the Merger; Termination and Amendment of the Merger Agreement".
Notwithstanding the foregoing, however, it is currently contemplated that the
Combined Company will apply for listing for trading on the Nasdaq National
Market, if it meets the market capitalization and other requirements for trading
thereon.
Certain Regulatory Matters.
The Merger is subject to the requirements of the
Hart-Scott-Rodino Act. The Hart-Scott-Rodino Act provides that certain
acquisition transactions may not be consummated until certain information has
been furnished to the Antitrust Division of the United States Department of
Justice (the "DOJ") and the Federal Trade Commission (the "FTC"), and certain
waiting period requirements have been satisfied. Lunn and TPG filed the required
information and materials with the DOJ and the FTC on , 1997. The waiting period
under the Hart-Scott-Rodino Act is expected to expire on , 1997 unless earlier
terminated by the DOJ and the FTC.
Termination of the waiting period under the Hart-Scott-Rodino
Act does not preclude the DOJ, the FTC or any other party, either before or
after the Effective Time of the Merger, from challenging or seeking to delay or
enjoin the Merger on antitrust or other grounds. There can be no assurance that
such a challenge, if made, would not be successful; however, neither Lunn nor
TPG believes that the Merger will violate the antitrust laws. Any such action
taken prior to the Effective Time could relieve Lunn or TPG of its obligation to
consummate the Merger. See "--Conditions to the Merger; Termination and
Amendment of the Merger Agreement".
- 43 -
<PAGE>
Unaudited Pro Forma Condensed Combined Financial Statements
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF APRIL 4, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma Combined
TPG Lunn Adjustments Company
----------------------------------------------------------
(in thousands)
ASSETS
Current assets:
<S> <C> <C> <C> <C>
Cash $ 142 $ 8 $ - $ 150
Accounts receivable, net 12,550 3,139 - 15,689
Inventories 23,529 4,863 - 28,392
Prepaid expenses, deferred taxes and other current assets 1,118 275 - 1,393
---------- ---------- --------- ----------
Total current assets $ 37,339 $ 8,285 $ - $ 45,624
Property, plant and equipment, net 4,261 9,914 - 14,175
Goodwill and other intangibles, net - 409 3,100(1) 3,509
Deferred income taxes and other assets 548 169 - 717
---------- ---------- --------- ----------
Total assets $ 42,148 $ 18,777 $ 3,100 $ 64,025
========== ========== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,221 $ 1,493 $ - $ 10,714
Accrued expenses and other liabilities 5,493 556 - 6,049
Short-term debt 5,112 - 1,300(2) 6,412
---------- ---------- --------- ----------
Total current liabilities $ 19,826 $ 2,049 $ 1,300 $ 23,175
Long-term debt, net of current portion 14,500 5,295 - 19,795
---------- ---------- --------- ----------
Total liabilities $ 34,326 $ 7,344 $ 1,300 $ 42,970
---------- ---------- --------- ----------
Preferred stock-mandatorily redeemable $ 1,000 $ - $ - $ 1,000
Total stockholders' equity:
Common stock $ 5 $ 128 $ (81)(1) $ 52
Additional paid-in-capital 995 14,400 (1,214)(1) 14,181
Retained earnings (deficit) 6,052 (3,095) 3,095 (1) 6,052
Less: Notes receivable from officers (135) - - (135)
Additional minimum pension liability (95) - - (95)
---------- ---------- --------- ----------
Total stockholders' equity $ 6,822 $ 11,433 $ 1,800 $ 20,055
---------- ---------- --------- ----------
Total liabilities and stockholders' equity $ 42,148 $ 18,777 $ 3,100 $ 64,025
========== ========== ========= ==========
<FN>
- -----------------------
(1) Adjustments to reflect the net effects of the Merger based on the
application of purchase accounting. The purchase price is based on
$1.03 per share, which is the market value of the Lunn Common Stock on
May 20, 1997, plus the estimated transaction costs of $1.3 million.
Goodwill of approximately $3.1 million results from the excess of the
purchase price over the fair market value of the net assets acquired.
(2) To record net increase in debt to finance the estimated transaction
costs of $1.3 million.
</FN>
</TABLE>
- 44 -
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma Combined
TPG Lunn Adjustments Company
--------------------------------------------------------------
(in thousands, except share data)
<S> <C> <C> <C> <C>
Revenues $ 126,534 $ 18,098 $ - $ 144,632
Cost of sales 94,365 13,749 - 108,114
----------- ------------ --------- ----------
Gross profit $ 32,169 $ 4,349 $ - $ 36,518
General and administrative and other expenses 21,758 3,077 124(1) 24,959
----------- ------------ --------- ----------
Operating income $ 10,411 $ 1,272 $ (124) $ 11,559
Interest expense and other 2,377 501 117(2) 2,995
----------- ------------ --------- ----------
Income before taxes and extraordinary item $ 8,034 $ 771 $ (241) $ 8,564
Provision for (benefit of) income taxes 3,093 (33) (62)(3) 2,998
----------- ------------ --------- ----------
Income before extraordinary items $ 4,941 $ 804 $ (179) $ 5,566
Extraordinary loss for debt refinancing 667 15(3) (15)(3)
----------- ------------ --------- ----------
Net income (loss) $ 4,274 $ 652 $ (164) $ 4,762
=========== ============ ========= ==========
Earnings (loss) per share:
Before extraordinary item $ 9.88 $ 0.07 $ 1.05
Extraordinary item (1.33) (0.01) (0.15)
----------- ------------ ----------
Net earnings per share $ 8.55 $ 0.06 $ 0.90
=========== ============ ==========
Weighted average number of common shares outstanding 500,000 11,587,400 5,310,140
<FN>
- -----------------------
(1) Net increase in general and administrative and other expenses results
from an increase in goodwill amortization of $124,000.
(2) Net increase in interest expense related to increased indebtedness of
approximately $1.3 million at an estimated average interest rate of
9.0%.
(3) Tax effects of adjustments (1) and (2) and the change in the combined
effective tax rate because of a net operating loss limitation.
</FN>
</TABLE>
- 45-
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED APRIL 4, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma Combined
TPG Lunn Adjustments Company
-------------------------------------------------------------
(in thousands, except share data)
<S> <C> <C> <C> <C>
Revenues $ 23,822 $ 5,020 $ - $ 28,842
Cost of sales 18,736 3,889 - 22,625
--------- ---------- -------- ---------
Gross profit $ 5,086 $ 1,131 $ - $ 6,217
General and administrative and other expenses 4,927 815 31(1) 5,773
--------- ---------- -------- ---------
Operating income $ 159 $ 316 $ (31) $ 444
Interest expense and other 478 81 29(2) 588
---------- ---------- -------- ---------
Income before taxes $ (319) $ 235 $ (60) $ (144)
Provision for (benefit of) income taxes (123) - 73(3) (50)
---------- ---------- -------- ---------
Net (loss) income $ (196) $ 235 $ (133) $ (94)
========= ========== ======== =========
Net (loss) earnings per share $ (.39) $ 0.02 $ (.02)
========= ========== =========
Weighted average number of common shares outstanding 500,000 13,028,410 5,454,241
<FN>
- -----------------------
(1) Net increase in general and administrative and other expenses results
from an increase in goodwill amortization of $31,000.
(2) Net increase in interest expense related to increased indebtedness of
approximately $1.3 million at an estimated average interest rate of
9.0%.
(3) Tax effects of adjustments (1) and (2) and the change in the combined
effective tax rate because of a net operating loss limitation.
</FN>
</TABLE>
- 46 -
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED MARCH 29, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma Combined
TPG Lunn Adjustments Company
-----------------------------------------------------------
(in thousands, except share data)
<S> <C> <C> <C>
Revenues $ 27,048 $ 4,213 $ $ 31,261
Cost of sales 20,628 3,263 23,891
---------- ----------- ----------
Gross profit 6,420 950 7,370
General and administrative and other expenses 4,818 741 31(1) 5,590
---------- ----------- ----------
Operating income 1,602 209 (31) 1,780
Interest expense and other 560 116 29(2) 705
---------- ----------- ----------
Income before taxes 1,042 93 (60) 1,075
Provision for (benefit of) income taxes 401 - (25)(3) 376
---------- ----------- ----------
Net income (loss) $ 641 $ 93 $ (35) 699
========== =========== ======== ==========
Net earnings per share $ 1.28 $ 0.01 $ 0.14
========== =========== ==========
Weighted average number of common
shares outstanding 500,000 8,081,181 4,959,518
<FN>
- -----------------------
(1) Net increase in general and administrative and other expenses results
from an increase in goodwill amortization of $31,000.
(2) Net increase in interest expense related to increased indebtedness of
approximately $1.3 million at an estimated average interest rate of
9.0%.
(3) Tax effects of adjustments (1) and (2) and the change in the combined
effective tax rate because of a net operating loss limitation.
</FN>
</TABLE>
- 47 -
<PAGE>
Notes to Unaudited Pro Forma Condensed Combined Financial Statements:
1. Basis of Presentation:
The unaudited pro forma condensed combined financial
statements are presented for illustrative purposes only, giving effect to the
Merger of TPG and Lunn. The Merger will be accounted for under the purchase
method of accounting, whereby the purchase price is allocated based on the fair
value of the assets acquired and the liabilities assumed.
The unaudited pro forma condensed combined statements of
operations for the year ended December 31, 1996, and the quarters ended April 4,
1997 and March 29, 1996, give effect to the proposed Merger of TPG with and into
Lunn as if the Merger had occurred on January 1, 1996. The unaudited pro forma
condensed combined statements of operations for the quarters ended April 4, 1997
and March 29, 1996 include the consolidated statements of operations of Lunn for
the quarters ended March 31, 1997 and 1996 and the consolidated statements of
income of TPG for the quarters ended April 4, 1997 and March 29, 1996.
The unaudited pro forma condensed combined balance sheet as of
April 4, 1997 gives effect to the proposed Merger of TPG with and into Lunn as
if such transaction occurred on April 4, 1997. Such unaudited pro forma
condensed combined balance sheet includes the consolidated balance sheet of Lunn
as of March 31, 1997 and the consolidated balance sheet of TPG as of April 4,
1997.
The pro forma results are not necessarily indicative of the
results of operations had the acquisition taken place at the beginning of the
respective periods or of future results of the combined companies. The final
allocation of the purchase price may be different from that reflected in the pro
forma condensed combined financial statements. Upon final determination, the
purchase price will be allocated to the assets and liabilities acquired based on
their fair market values at the date of the Merger. The unaudited pro forma
condensed combined financial statements and the accompanying notes should be
read in conjunction with the historical statements and related notes of TPG,
appearing elsewhere herein and the historical consolidated financial statements
of Lunn and related notes thereto which are incorporated herein by reference in
this Proxy Statement/Prospectus.
2. Pro Forma Adjustments:
Pro forma adjustments to the condensed combined statements of
operations include: (i) amortization of goodwill, (ii) interest expense on
additional short-term debt required to finance merger transaction costs, and
(iii) incremental tax effects of the pro forma adjustments and the change in the
combined effective tax rate because of the NOL limitation. Pro forma adjustments
to the condensed combined balance sheet include purchase accounting entries for:
(i) the addition of goodwill resulting from the excess of the purchase price
over the fair market value of the net assets acquired and (ii) the increase in
short term debt to finance the transaction costs related to the Merger.
- 48 -
<PAGE>
Description of Capital Stock of Combined Company
General. The Lunn Certificate of Incorporation, as proposed to
be amended and restated in the form attached hereto as Annex B, will become the
Combined Company Certificate of Incorporation and will become effective upon the
filing of the Certificate of Merger. The Combined Company's authorized capital
stock will consist of (i) 30,000,000 shares of Combined Company Common Stock, of
which a maximum of 5,609,995 shares will be issued in connection with the
Merger, and (ii) 2,000,000 shares of preferred stock, par value $1.00 per share,
of which 1,000,000 shares of Combined Company Preferred Stock will be issued in
connection with the Merger. All shares of Combined Company Common Stock and
Combined Company Preferred Stock to be issued in connection with the Merger will
be validly issued, fully paid and nonassessable.
Combined Company Common Stock. Each holder of Combined Company
Common Stock will be entitled to one vote for each share owned of record on all
matters submitted to a vote of stockholders. There will be no cumulative voting
rights. Accordingly, the holders of a majority of the shares voting for the
election of directors will be able to elect all the directors if they choose to
do so, subject to any voting rights of holders of Combined Company Preferred
Stock to elect directors. Subject to the preferential rights of any outstanding
series of the preferred stock, par value $1.00 per share, of the Combined
Company (including the Combined Company Preferred Stock), and to any
restrictions on payment of dividends imposed by any credit documents, the
holders of Combined Company Common Stock will be entitled to such dividends as
may be declared from time to time by the Board of Directors of the Combined
Company from funds legally available therefor, and will be entitled, after
payment of all prior claims, to receive pro rata all assets of the Combined
Company upon the liquidation, dissolution or winding up of the Combined Company.
Holders of Combined Company Common Stock will have no redemption or conversion
rights or preemptive rights to purchase or subscribe for securities of the
Combined Company.
Lunn intends to file an application for the listing with the
Nasdaq SmallCap Market of the Combined Company Common Stock which will be
issuable upon consummation of the Merger as well as Combined Company Common
Stock which will be issuable upon exercise of outstanding Lunn Options, Lunn
Warrants and TPG Options. Lunn intends to cause such application to be approved
by the Nasdaq SmallCap Market prior to the Effective Time. Notwithstanding the
foregoing, it is further contemplated that the Combined Company will apply for
listing for trading on the Nasdaq National Market, if it meets the market
capitalization and other requirements for listing for trading thereon.
Combined Company Preferred Stock. The Combined Company
Preferred Stock will have the terms and designations set forth in the
Certificate of Incorporation of Lunn, as proposed to be amended and restated in
the form attached hereto as Annex B. The following is intended to be a summary
of the terms of the Combined Company Preferred Stock and is qualified in its
entirety by reference to Annex B which is incorporated by reference herein.
The aggregate number of shares of Combined Company Preferred
Stock will be 1,000,000 shares, designated as 8% cumulative redeemable preferred
stock, par value $1.00 per share. The Combined Company Preferred Stock will,
upon liquidation, dissolution, or winding up, rank senior and prior to the
Combined Company Common Stock and any other stock issued by the Combined Company
and designated as junior to the Combined Company Preferred Stock (collectively,
the "Junior Securities"). The holders of Combined Company Preferred Stock will
be entitled to receive when, as, and if declared by the Board of Directors of
the Combined Company or a duly authorized committee thereof, cumulative
dividends out of funds legally available therefor, at the annual rate of $0.08
per share, and no more, in preference to dividends on shares of the Junior
Securities. Such dividends will be payable semi-annually on June 30 and
- 49 -
<PAGE>
December 31 of each year. Dividends on shares of the Combined Company Preferred
Stock will be fully cumulative and shall accumulate (whether or not declared)
from the date of issuance. Upon any voluntary or involuntary liquidation,
dissolution, or winding up of the affairs of the Combined Company, before any
distribution or payment may be made to the holders of any Junior Securities, and
subject to the rights of creditors and holders of shares of stock ranking senior
to the Combined Company Preferred Stock, the holders of the Combined Company
Preferred Stock then outstanding will be entitled to be paid out of the assets
of the Combined Company available for distribution to its stockholders in an
amount in cash of $1.00 per share, plus any accumulated and unpaid dividends
thereon to the date fixed for payment of such distribution (collectively, the
"Liquidation Preference"). Holders of the Combined Company Preferred Stock will
not otherwise be entitled to any distribution in the event of liquidation,
dissolution or winding up of the affairs of the Combined Company.
To the extent the Combined Company will have funds legally
available for redemption, the Combined Company, at its option, may redeem the
whole or any part of the outstanding shares of Combined Company Preferred Stock,
at any time or from time to time, at a per share redemption price equal to the
Liquidation Preference. If less than all shares of Combined Company Preferred
Stock are to be redeemed, the shares to be redeemed will be selected pro rata
(based on the number of shares of Combined Company Preferred Stock held by each
holder thereof). Subject to applicable law, shares of Combined Company Preferred
Stock will be subject to mandatory redemption at a per share redemption price
equal to the Liquidation Preference on the earlier of (i) April 28, 2001 and
(ii) the date on which occurs a change in the ownership of 50% or more of the
assets or the common stock of the Combined Company. No redemption payment on
shares of Combined Company Preferred Stock, however, will be declared by the
Board of Directors of the Combined Company or paid or set apart for payment by
the Combined Company if any required redemption payment with respect to
securities of the Combined Company that will be senior in rank to the Combined
Company Preferred Stock shall not have been made by the Combined Company or at
such time as the terms and provisions of any credit agreement or note (as such
agreements or notes may be amended or supplemented from time to time) entered
into by the Combined Company or any of its subsidiaries prohibit such redemption
payment or setting apart for payment or provide that such redemption payment or
setting apart for payment would constitute a breach thereof or a default
thereunder. Except as expressly required by applicable law, the holders of
shares of Combined Company Preferred Stock will not have any voting rights with
respect to such shares.
Undesignated Preferred Stock. Subject to the terms of the
Combined Company Preferred Stock and applicable law, the remaining shares of
undesignated preferred stock, par value $1.00 per share, of the Combined Company
may be issued by the Combined Company in one or more series, at any time or from
time to time, with such designations, powers, preferences and rights, and
qualifications, limitations or restrictions thereof, as the Board of Directors
of the Combined Company shall determine, all without further action of the
stockholders of the Combined Company.
Transfer Agent and Registrar. American Stock Transfer & Trust Co. is the
transfer agent and registrar for Lunn Common Stock and will be the transfer
agent and registrar for the Combined Company Common Stock.
Comparison of Rights Under Corporate Documents
Currently, the rights of stockholders of TPG are governed by
the provisions of the DGCL, the TPG Certificate of Incorporation and the TPG
Bylaws and the rights of stockholders of Lunn are governed by the provisions of
the DGCL, the Lunn Certificate of Incorporation and the Lunn Bylaws. Holders of
Lunn Common Stock, TPG Common Stock and TPG Preferred Stock immediately prior to
the Effective Time (other than Lunn Dissenter's Shares and TPG Dissenters'
Shares, respectively) will
- 50 -
<PAGE>
become stockholders of the Combined Company, and from and after the Effective
Time their rights as stockholders of the Combined Company will be governed by
the provisions of the DGCL, the Combined Company Certificate of Incorporation
and the Combined Company Bylaws. Other than differences solely resulting from
the existence of the Combined Company Preferred Stock issued in connection with
the Merger, there will be no material differences between the rights of holders
of Combined Company Common Stock after the Merger and the current rights of
holders of Lunn Common Stock and TPG Common Stock, except that the Lunn
Certificate of Incorporation provides for, and the Combined Company Certificate
of Incorporation will provide for, a classified board of directors divided into
three classes. A classified board of directors prevents any one stockholder who
owns a majority of the voting common stock from replacing all of the members of
a board of directors and thereby protects the rights of minority stockholders.
The TPG Certificate of Incorporation does not provide for a classified board of
directors.
In addition, however, in connection with the Joint Proxy
Proposal, the Lunn Certificate of Incorporation will be amended and restated to
(i) increase the number of authorized shares of Lunn Preferred Stock from
1,000,000 to 2,000,000; (ii) change the par value of the Lunn Preferred Stock
from $0.01 per share to $1.00 per share; (iii) designate a new series of
preferred stock in accordance with the "blank check preferred stock" provisions
of the Lunn Certificate of Incorporation permitting the Lunn Board of Directors
to designate for issuance shares of preferred stock in one or more series from
time to time; and (iv) change the name of the Combined Company to "Advanced
Technical Products, Inc." See "--Charter Amendments in Connection with the
Merger," and "--Description of Capital Stock of Combined Company."
Limitation of Liability and Indemnification Matters. The Lunn
Certificate of Incorporation and the TPG Certificate of Incorporation, each
provide, and the Combined Company Certificate of Incorporation will provide,
that a director will not be personally liable to the company or its stockholders
for monetary damages for any breach of fiduciary duty as a director, except in
certain cases where liability is mandated by the DGCL. The Lunn Certificate of
Incorporation and Lunn Bylaws and the TPG Certificate of Incorporation and TPG
Bylaws each also provide, and the Combined Company Certificate of Incorporation
and Combined Company Bylaws will provide, for indemnification, to the fullest
extent permitted by the DGCL, of any person who will be or was involved in any
manner in any pending, threatened or completed investigation, claim or other
proceeding by reason of the fact that such person will be or was a director or
officer of the Combined Company, Lunn or TPG, as the case may be, or at the
request of such company, will be or was serving as a director or officer of
another entity, against all expenses, liabilities, losses and claims actually
incurred or suffered by such person in connection with the investigation, claim
or other proceeding. These provisions, among other things, will indemnify
directors and certain officers to the fullest extent permitted by the DGCL for
certain expenses (including attorneys' fees) and losses, claims, liabilities,
judgments, fines and settlement amounts incurred by such person arising out of
or in connection with such person's service as a director or officer of Lunn or
TPG or to be incurred by such person arising out of or in connection with such
person's service as a director or officer of the Combined Company, or a
corporation for which such person was serving as an officer or director at the
request of Lunn or TPG or will serve as an officer or director at the request of
the Combined Company. This provision offers persons who will serve on the Board
of Directors of the Combined Company protection against awards of monetary
damages resulting from breaches of their duty of care (except as indicated
above), including grossly negligent business decisions made in connection with
takeover proposals for the Combined Company. As a result of this provision, the
ability of the Combined Company or a stockholder thereof to successfully
prosecute an action against a director for a breach of his duty of care will be
limited. However, the provision will not affect the availability of equitable
remedies such as an injunction or recision based upon a director's breach of his
- 51 -
<PAGE>
duty of care. In addition, the Commission has taken the position that the
provision will have no effect on claims arising under the federal securities
laws.
Delaware Law and Certain Charter and By-Law Provisions. Lunn
is, and the Combined Company will be, subject to the provisions of Section 203
("Section 203") of the DGCL. TPG is not subject to the provisions of Section 203
because it is not a publicly held corporation and therefore, currently, the TPG
stockholders do not have the protection provided by Section 203. However, the
former stockholders of TPG, as stockholders of the Combined Company, will become
subject to Section 203 upon consummation of the Merger.
In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. A "business combination"
includes a merger, asset sale or other transaction resulting in a financial
benefit to the interested stockholder. An "interested stockholder" is a person
who, together with affiliates and associates, owns, (or, in certain cases,
within three years prior, did own) 15% or more of the corporation's voting
stock. Under Section 203, a business combination between the corporation and an
interested stockholder is prohibited unless it satisfies one of the following
conditions: (i) the Board of Directors must have previously approved either the
business combination or the transaction that resulted in the stockholder
becoming an interested stockholder, (ii) upon consummation of the transaction
that resulted in the stockholder becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the
corporation, outstanding at the time the transaction commenced (excluding, for
purposes of determining the number of shares outstanding, shares owned by (a)
persons who are directors and also officers and (b) employee stock plans, in
certain instances) or (iii) the business combination is approved by the Board of
Directors, and authorized at an annual or special meeting of the stockholders by
the affirmative vote of at least 66-2/3% of the outstanding voting stock which
is not owned by the interested stockholder.
The Combined Company Certificate of Incorporation will contain
and the Lunn Certificate of Incorporation contains, however, a provision which
differs in part from Section 203 of the DGCL and will provide, in the case of
the Combined Company Certificate of Incorporation, and provides, in the case of
the Lunn Certificate of Incorporation, that: (i) a Business Combination (as
defined) between the Combined Company and an Interested Stockholder (as defined)
will require, or between Lunn and an Interested Stockholder requires the
affirmative vote of not less than 80% of the voting stock entitled to vote
generally for the election of directors (the "Voting Stock"), unless (a) the
Business Combination has been approved by two-thirds of the Disinterested
Directors (as defined); or (b) two-thirds of the Disinterested Directors
determine that (x) the Interested Stockholder is the beneficial owner of at
least 80% of the Voting Stock of the Combined Company or Lunn, as the case may
be, and has declared its intention to vote in favor of such Business
Combination, (y) the fair market value of the consideration per share to be
received or retained by the holders of each class or series of stock of the
Combined Company or Lunn, as the case may be, in the Business Combination equals
the highest price per share (including brokerage commissions, transfer taxes and
soliciting dealer's fees) paid by such Interested Stockholder for any shares of
such class of stock previously within the two year period prior to the Business
Combination whether before or after the Interested Stockholder became an
Interested Stockholder or (z) the Interested Stockholder shall not have received
the benefit, directly or indirectly (except proportionately as a stockholder) of
any loans, advances, guarantees, pledges or other financial assistance provided
by the Combined Company or Lunn, as the case may be, whether in anticipation of
or in connection with such Business Combination or otherwise. In the event any
vote of holders of Voting Stock is required for the adoption or approval of any
Business Combination, a proxy or information statement describing the Business
Combination and complying with the requirements of the
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<PAGE>
Exchange Act is to be mailed at a date determined by the Disinterested Directors
to all stockholders of the Combined Company or Lunn, as the case may be, whether
or not such statement is required under the Exchange Act. The statement is to
contain any recommendations as to the advisability (or inadvisability) of the
Business Combination which the Disinterested Directors, or any of them, may
choose to state and, if deemed advisable by the Disinterested Directors, an
opinion of a reputable national investment banking firm as to the fairness of
the terms of such Business Combination. Such firm is to be selected by
two-thirds of the Disinterested Directors and paid a reasonable fee for its
services by Lunn, or the Combined Company, as the case may be, as approved by
the Disinterested Directors.
For purposes of the above-described provision included in the
Lunn Certificate of Incorporation and to be included in the Combined Company
Certificate of Incorporation, the following terms are defined as follows
therein. "Affiliate" and "beneficial owner" are used as defined in Rule 12b-2
and Rule 13d-3, respectively, under the Exchange Act, as in effect on March 16,
1987. The term "Affiliate" excludes Lunn and will exclude the Combined Company,
but includes the definition of "Associate" as contained in Rule 12b-2 of the
Exchange Act, as in effect on March 16, 1987. An "Interested Stockholder" is a
Person (as defined) other than Lunn or any subsidiary, or the Combined Company
or any subsidiary, as the case may be, who is (i) the beneficial owner, directly
or indirectly, of ten percent or more of the Voting Stock of Lunn, or the
Combined Company, as the case may be, or (ii) an Affiliate of Lunn or the
Combined Company, as the case may be, and either (a) at any time within a
two-year period prior to the record date to vote on a Business Combination was
the beneficial owner, directly or indirectly of ten percent or more of the
Voting Stock, or (b) at the completion of the Business Combination will be the
beneficial owner of ten percent or more of the Voting Stock. A "Person" is a
natural person or a legal entity of any kind, together with an Affiliate of such
person or entity, or any person or entity with whom such person, entity or an
Affiliate has any agreement or understanding relating to acquiring, voting or
holding Voting Stock. A "Disinterested Director" is a member of the Lunn Board
of Directors, or the Board of Directors of the Combined Company, as the case may
be, (other than an Interested Stockholder) who was a director prior to the time
the Interested Stockholder became an Interested Stockholder, or any director who
was recommended for election by the Disinterested Directors. Any action to be
taken by the Disinterested Directors shall require the affirmative vote of at
least two-thirds of the Disinterested Directors. A "Business Combination" is (i)
a merger or consolidation of Lunn or any of its subsidiaries, or the Combined
Company or any of its subsidiaries, as the case may be, with or into an
Interested Stockholder; (ii) the sale, lease, exchange, pledge, transfer or
other disposition (a) by Lunn or any of its subsidiaries, or the Combined
Company or any of its subsidiaries, as the case may be, of all or a Substantial
Part of the Corporation's Assets (as defined) to an Interested Stockholder, or
(b) by an Interested Stockholder of any of its assets, except in the ordinary
course of business, to Lunn or any of its subsidiaries, or the Combined Company
or any of its subsidiaries, as the case may be; (iii) the issuance of stock or
other securities of Lunn or any of its subsidiaries, or the Combined Company or
any of its subsidiaries, as the case may be, to an Interested Stockholder, other
than on a pro rata basis to all holders of Voting Stock of the same class held
by the Interested Stockholder pursuant to a stock split, stock dividend or
distribution of warrants or rights; (iv) the adoption of any plan or proposal
for the liquidation or dissolution of Lunn, or the Combined Company, as the case
may be, proposed by or on behalf of an Interested Stockholder; (v) any
reclassification of securities, recapitalization, merger or consolidation or
other transaction which has the effect, directly or indirectly, of increasing
the proportionate share of any Voting Stock beneficially owned by an Interested
Stockholder; or (vi) any agreement, contract or other arrangement providing for
any of the foregoing transactions. A "Substantial Part of the Corporation's
Assets" means assets of Lunn or any of its subsidiaries, or the Combined Company
or any of its subsidiaries, as the case may be, in an amount equal to 50% or
more of the fair market value, as determined by the Disinterested Directors, of
the total consolidated assets of Lunn and its subsidiaries taken as a whole, or
the Combined Company
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<PAGE>
and its subsidiaries taken as a whole, as the case may be, as of the end of its
most recent fiscal year ended prior to the time the determination is made.
Market Data
The Lunn Common Stock is traded on the Nasdaq SmallCap Market
under the symbol "LUNN". The following table sets forth the quarterly high and
low bids for the Lunn Common Stock for the quarters indicated.
Lunn Common Stock
----------------------
High Low
---- ---
1997
----
First Quarter $ .9375 $ .65625
Second Quarter through May 20, 1997 $1.03125 $ .75
1996
----
First Quarter $1.9375 $ .625
Second Quarter $2.00 $1.09375
Third Quarter $1.4375 $ .9375
Fourth Quarter $1.375 $ .6875
1995
----
First Quarter $ .8125 $ .500
Second Quarter $ .6250 $ .375
Third Quarter $1.7500 $ .375
Fourth Quarter $1.4375 $ .625
On May 20, 1997, the last trading day prior to the public
announcement of an agreement in principle between Lunn and TPG, the closing bid
price for Lunn Common Stock on the Nasdaq SmallCap Market was $1-1/32 per share.
As of June 9, 1997, there were 1,059 holders of record of Lunn Common Stock. The
TPG Common Stock is not publicly traded. There are fewer than 35 holders of
record of TPG Common Stock and of TPG Preferred Stock.
Neither Lunn nor TPG has paid dividends on the Lunn Common
Stock or the TPG Common Stock, respectively, and it is contemplated that upon
consummation of the Merger, no such dividends will be paid by the Combined
Company on the Combined Company Common Stock.
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<PAGE>
Information Concerning TPG
TPG Selected Financial Data. The selected financial data
presented below as of and for the periods ending December 31, 1994 through
December 31, 1996, have been derived from the audited financial statements of
TPG and Brunswick Technical Group, the assets of which were acquired by TPG on
April 28, 1995 pursuant to the Brunswick Acquisition. The information presented
as of and for the quarters ended April 4, 1997 and March 29, 1996, are derived
from the unaudited financial statements of TPG, and the financial information as
of and for the years ended December 31, 1992 and December 31, 1993, are derived
from the unaudited financial statements of Brunswick Technical Group. The
unaudited financial statements include all adjustments considered necessary for
a fair presentation of the financial condition and results of operation for
these periods. Operating results for the quarter ended April 4, 1997 are not
necessarily indicative of the results that may be expected for the entire year
ending December 31, 1997.
The pro forma information presented below for the year ended
December 31, 1995 gives effect to the April 28, 1995 Brunswick Acquisition and
certain transactions associated therewith as if such transactions had occurred
on January 1, 1995. The pro forma information is not necessarily indicative of
the results that actually would have been achieved had such transactions been
consummated as of January 1, 1995, or that may be achieved in the future.
The information presented below should be read in conjunction
with "--Management's Discussion and Analysis of Financial Condition and Results
of Operations of TPG," the financial statements of TPG and related notes and
other financial information included elsewhere in this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
Brunswick Technical Group TPG
-------------------------------------------- ------------------------------------------------------
As of As of As of As of
and for and for and for the and for the
As of and the Four the Eight Year Ended Quarter Ended
for the Year Ended Months Months --------------------- -------------------
------------------------------- Ended Ended Pro Forma
Dec. 31, Dec. 31, Dec. 31, April 28, Dec. 31, Dec. 31, Dec. 31, March 29, April 4,
1992 1993 1994 1995 1995 1995(1) 1996 1996 1997
---- ---- ---- ---- ---- ---- ---- ---- ----
(unaudited) (unaudited) (unaudited)
(in thousands) (in thousands)
Income Statement Data:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 143,747 $ 122,244 $ 118,660 $ 28,416 $ 79,172 $ 107,588 $ 126,534 $ 27,048 $ 23,822
Cost of sales 131,999 116,155 112,950 27,354 61,738 82,667 94,365 20,628 18,736
--------- --------- --------- --------- -------- --------- --------- --------- ---------
Gross profit 11,748 6,089 5,710 1,062 17,434 24,921 32,169 6,420 5,086
General and administrative
and other expenses 8,888 13,675 3,923 1,350 12,123 19,055 21,758 4,818 4,927
--------- --------- --------- --------- -------- --------- --------- --------- ---------
Operating income (loss) 2,860 (7,586) 1,787 (288) 5,311 5,866 10,411 1,602 159
Interest expense(2) - - - - 1,892 2,850 2,377 560 478
--------- --------- --------- --------- -------- --------- --------- --------- ---------
Income (loss) before income
taxes and extraordinary items 2,860 (7,586) 1,787 (288) 3,419 3,016 8,034 1,042 (319)
Income tax provision (benefit) 1,133 (2,959) 683 (112) 1,312 1,156 3,093 401 (123)
--------- --------- --------- --------- -------- --------- --------- --------- ---------
Income (loss) before extra-
ordinary items 1,727 (4,627) 1,104 (176) 2,107 1,860 4,941 641 (196)
Extraordinary item (3) - - - - - - 667 - -
--------- --------- --------- --------- -------- --------- --------- --------- ---------
Net income (loss) $ 1,727 $ (4,627) $ 1,104 $ (176) $ 2,107 $ 1,860 $ 4,274 $ 641 $ (196)
========= ========= ========= ========= ======== ========= ========= ========= =========
Balance Sheet Data:
Working capital 20,565 20,426 29,882 26,868 17,558 18,462 17,513
Total assets 64,564 53,413 54,995 53,358 38,911 44,723 42,148
Long-term debt, including
current portion(2) - - - - 17,926 17,222 16,500
Redeemable 8% cumulative
preferred stock - - - - 1,000 1,000 1,000
Common stockholders' equity - - - - 2,919 7,018 6,822
<FN>
- -----------------------
(1) Gives effect to the April 28, 1995 Brunswick Acquisition as if it had been
effected January 1, 1995. Pro forma adjustments include (i) an increase of
$5,582,000 in general and administrative expenses ("G & A") to reflect a
change in accounting for plant G & A as period costs, (ii) a decrease of
$5,528,000 in cost of sales for reclassification of G & A expenses relating
to the aforementioned accounting change, (iii) a decrease of $897,000 in
cost of sales to reflect lower depreciation expense resulting from fixed
asset writedown to fair value in connection with the Brunswick Acquisition,
(iv) increase of $958,000 in interest expense because of new debt used to
finance the Brunswick Acquisition and (v) a decrease of $44,000 in income
taxes as a net result of the pro forma entries described above.
(2) Prior to April 29, 1985, the Brunswick Technical Group was included as part
of Brunswick's consolidated financial statements. Brunswick did not
allocate any debt or interest expense to the Brunswick Technical Group.
(3) Reflects an extraordinary loss from debt refinancing, net of an income tax
benefit of $418,000.
</FN>
</TABLE>
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<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of TPG. The following discussion should be read in
conjunction with the financial statements of TPG and related notes contained
elsewhere in this Proxy Statement/Prospectus.
General
Historically, approximately 80% of TPG's products and services
have been sold to the United States government through prime contracts directly
with governmental agencies, primarily the DOD, or through subcontracts with
other government contractors. During the mid-1980s, the defense industry began
to be negatively impacted by a perceived reduction of threats from the former
Soviet Union and affiliated countries in eastern Europe. In addition, increased
competition for the United States federal budget dollar resulted in a reduction
in the United States defense budget over the last decade on an
inflation-adjusted, real dollar basis. Defense spending has recently begun to
stabilize, and management of TPG believes that budgeted procurement spending
will increase slightly over the next few years.
The contraction of the defense budget over the last decade and
the resulting excess capacity and intensified competition among defense
contractors has resulted in significant industry consolidation. TPG's strategy
includes the pursuit of acquisitions which will increase its revenue base and
improve its cost competitiveness through reduced overhead costs, facility
consolidations and the elimination of other duplicative costs. Management of TPG
believes continued defense industry consolidation will create opportunities for
selected acquisitions that will allow TPG to further increase its revenue base
and enhance its cost-competitive position. However, because of the uncertainty
of the nature and size of these opportunities, as well as TPG's leverage, there
can be no assurance that the financing necessary to pay for acquisitions can be
obtained.
Although the long-term impact of industry consolidation and
the defense spending budget cannot be predicted with certainty, management of
TPG believes that it is positioned to further its presence in the United States
defense industry and increase its ongoing diversification efforts into foreign
defense markets and selected commercial markets.
The United States government's fiscal year begins on October 1
and contracts and options on contracts are generally awarded just prior to its
year end. The lead time to procure material and begin production is generally
several months, which creates a period of low production and sales. This
generally occurs in the first calendar quarter of the year. As a result, 60% of
TPG's shipments and sales are made in the second half of the year which,
historically, has generated a net loss for TPG in the first quarter of each
year. Recovery to profitability is gradual, but normally begins in the second
quarter.
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<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, the
components of the income statement expressed as a percentage of revenues.
Percentages for the year ended December 31, 1995 reflect the pro forma results
of operations for TPG and the Brunswick Technical Group, presented as if the
Brunswick Acquisition had been consummated on January 1, 1995. See "--Business
of TPG--General".
<TABLE>
<CAPTION>
Year Ended December 31, Quarter Ended
--------------------------------------- ---------------------------
Pro Forma March 29, April 4,
1994 1995(1) 1996 1996 1997
---- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales 95.2 76.8 74.6 76.3 78.6
----- ----- ----- ----- -----
Gross profit 4.8 23.2 25.4 23.7 21.4
General and administrative
and other expenses 3.3 17.7 17.2 17.8 20.7
----- ----- ----- ----- -----
Operating income 1.5 5.5 8.2 5.9 0.7
Interest expense - 2.6 1.9 2.1 2.0
----- ----- ----- ----- -----
Income (loss) before
income taxes and
extraordinary items 1.5 2.9 6.3 3.9 (1.3)
Income tax provision
(benefit) 0.6 1.2 2.4 1.5 (0.5)
----- ----- ----- ----- -----
Income (loss) before
extraordinary items 0.9 1.7 3.9 2.4 (0.8)
Extraordinary item - loss on
debt refinancing - - 0.5 - -
----- ----- ----- ----- -----
Net income (loss) 0.9% 1.7% 3.4% 2.4% (0.8)%
===== ===== ===== ===== =====
<FN>
- ----------------------------
(1) The pro forma information set forth above is not necessarily
indicative of the results that actually would have been achieved had
the Brunswick Acquisition actually been consummated as of January 1,
1995.
</FN>
</TABLE>
Quarter Ended April 4, 1997 compared with the Quarter Ended March 29, 1996
Revenues decreased $3.2 million, or 11.9%, from $27.0 million
in 1996 to $23.8 million in 1997. The decrease primarily relates to (i) lower
product deliveries during 1997 on a few government contracts which were
substantially completed in 1996 ahead of schedule, (ii) reduced military shelter
sales due to a customer requested deferral of scheduled timing and (iii) the
start-up phase of a significant new contract. Such decreased revenues were
partially offset by increased shipments of ordnance delivery systems. Commercial
sales remained relatively the same for the two periods.
Gross profit decreased $1.3 million, or 20.8%, from $6.4
million in 1996 to $5.1 million in 1997, reflecting the revenue reduction. Gross
profit as a percent of sales decreased from 23.7% in 1996 to 21.4% in 1997
primarily because of an aerospace/defense sales mix of lower margin products.
Commercial margins were approximately break-even for the two periods.
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Interest expense decreased $0.1 million during 1997,
reflecting lower interest rates and lower average loan balances.
Net income decreased by $0.8 million, from $0.6 million in 1996 to a loss
of $0.2 million in 1997 as a result of timing of sales.
Year Ended December 31, 1996 Compared with the Year Ended December 31,
1995 (Pro forma)
Revenues increased $18.9 million, or 17.6%, from $107.6
million in 1995 to $126.5 million in 1996. The increase was primarily the result
of increased shipments during 1996 of chemical agent detectors under a contract
with the United States Army. Approximately 4.5% of the increase was a result of
increased commercial sales, consisting primarily of NGV tanks.
Gross profit increased from $24.9 million in 1995 to $32.2
million in 1996. Gross profit as a percent of sales increased from 23.2% in 1995
to 25.4% in 1996, reflecting a more favorable sales mix of higher profit
contracts in 1996, and a significant decrease in losses attributable to the
commercial segment.
General and administrative and other expenses increased by
14.2%, from $19.1 million in 1995 to $21.8 million in 1996. The increase
primarily results from expense accrued for the TPG Incentive Compensation Plan,
which was initially adopted in 1996.
Operating income increased $4.5 million, from $5.9 million in
1995 to $10.4 million in 1996, as a result of sales increases on higher margin
products.
Interest expense decreased $0.5 million, or 16.6%, from $2.9
million in 1995 to $2.4 million in 1996. The decrease is primarily attributable
to lower rates charged on debt during 1996 due to a general market interest rate
decline and a lower average loan balance during 1996 versus 1995.
An extraordinary loss of $0.7 million (after tax) was recorded
in 1996 for costs incurred in connection with a debt refinancing.
Year Ended December 31, 1995 (Pro Forma) compared with the Year Ended
December 31, 1994
Revenues decreased $11.1 million, or 9.4%, from $118.7 million
in 1994 to $107.6 million in 1995. The decrease was primarily the result of
reduced shipments of camouflage to the United States government caused by a
temporary reduction in product demand while the new generation of camouflage was
being developed. Commercial sales were approximately the same in each year.
Gross profit and general and administrative and other expenses
are not comparable for 1995 versus 1994 due to a difference in accounting
methods whereby plant general and administrative expenses were recorded in cost
of sales in proportion to products shipped prior to the Brunswick Acquisition on
April 28, 1995, whereas such expenses were recognized as a period expense and
reported as general and administrative expenses subsequent to the Brunswick
Acquisition. In addition, fixed assets and depreciation expense are not
comparable because of the purchase accounting write down of fixed assets
recorded in connection with the Brunswick Acquisition.
Interest expense was $2.9 million in 1995 compared to zero in
1994 as interest bearing debt was taken on to finance the Brunswick Acquisition
on April 28, 1995. No debt or interest expense were allocated to
the Business during 1994.
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Cash flow from operations is not comparable for the year ended
December 31, 1995 versus the year ended December 31, 1994 because of differences
in accounting methods discussed above.
Financial Condition and Liquidity
Working capital was $17.5 million at April 4, 1997, down $1.0
million from $18.5 million at December 31, 1996. Cash flow from operating
activities for the first quarter of 1997 compared to the first quarter of 1996
increased by $6.6 million as result of a $7.4 million decrease in working
capital requirements. This was a result of significant decreases in accounts
receivable balances and inventory liquidation during the comparable periods
primarily caused by heavy military product sales in the fourth quarter of 1996.
Cash flow from operations for the year ended December 31, 1996, was $5.0 million
less than the eight months ended December 31, 1995 due to increased working
capital requirements resulting from increased operations for new contracts.
In December 1996, TPG completed a refinancing of its then
existing debt. The new debt consists of (i) a term loan in the amount of $14
million, payable in equal quarterly installments of $500 thousand amortized on a
seven year basis and (ii) a revolving line of credit of $17 million, both
becoming due in December 1999. TPG was able to reduce its interest charge on
borrowings by 1.0% on the revolving loan and 1.25% on the term loan while
increasing the total maximum revolving loan availability to $17.0 million from
$14.0 million. The average daily availability under the line of credit since
entering into the agreement has been $16 million and the average daily loan
balance outstanding has been $5.5 million.
During 1996, TPG made a payment of $1.0 million to Brunswick
Corporation in full settlement of an obligation arising from the Brunswick
Acquisition specifying that TPG would make payments to Brunswick Corporation
contingent on future earnings. The payment was recorded as additional purchase
price of the acquisition.
At May 2, 1997, TPG had a firm backlog, excluding options, of
approximately $120 million. This backlog represents approximately 70% of
projected sales for the remainder of 1997, 27% for 1998 and 10% for 1999. In
addition, TPG had, as of May 2, 1997, a backlog of unexercised contract options
of $240 million.
TPG has a significant amount of unused manufacturing capacity
and therefore does not anticipate large annual capital commitments. Capital
expenditures since TPG's inception, April 28, 1995, have not exceeded $2.0
million a year on an annualized basis and management does not anticipate capital
expenditures to exceed $2.0 million for the year ending December 31, 1997.
Management of TPG believes that cash flow generated from
operations and the availability from its revolving line of credit are adequate
to sustain TPG's current operating level and near-term growth.
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Business of TPG.
General
TPG is a Delaware corporation that was formed in 1995 to
acquire the business and assets of three operating units of the Brunswick
Technical Group pursuant to an Asset Purchase and Sale Agreement dated November
23, 1994 by and between TPG and Brunswick Corporation. The Brunswick Acquisition
was completed by TPG on April 28, 1995. Prior to that time, the Business had
been operated by the Brunswick Technical Group for over 40 years. In December
1993, the Brunswick Technical Group disposed of its operations in Willard, Ohio,
which was primarily responsible for the production of chemical and biological
defense gloves.
TPG currently designs develops, produces and markets a variety
of products through its operating subsidiary, TPGI. TPG has two principal
business segments, an aerospace and defense segment and a commercial segment.
The aerospace and defense segment designs, develops and manufactures advanced
composite material products used in the aerospace and defense industries,
including radomes, aircraft components, missile and satellite composite
structures, engine components, rocket motor cases, pressure vessels, relocatable
shelters, missile launch tubes, torque shafts and fuel tanks, as well as a wide
range of integrated defense systems including electro-optical systems, chemical
detection systems, ordnance delivery systems and light-weight camouflage
systems. The commercial segment produces NGV fuel tanks, specialty vehicle
electronic products and products used in the exploration and production of oil
and gas. For the year ended December 31, 1996, TPG's aerospace and defense sales
accounted for approximately 81% of TPG's consolidated revenues, while sales of
TPG's commercial products accounted for approximately 19% of its consolidated
revenues. See footnote 5 of the TPG/Brunswick Technical Group Financial
Statements contained in this Proxy Statement/Prospectus for a discussion of
TPG's industry segment information.
Industry Overview
Over the last decade, there has been a reduction of the DOD
budget, largely as a result of the end of the Cold War. This reduction in
military spending has resulted in excess capacity and has increased competition
within the defense industry, resulting in smaller margins and an overall
consolidation within the industry. Conditions within the defense industry are
now beginning to improve as the DOD has begun to upgrade and replace certain of
its outdated weapons and defense systems.
Similarly, over the last decade, the commercial aircraft
industry has also suffered a downturn. The industry is cyclical and typically
lags behind the general economic cycle because of the length of time between
aircraft orders and delivery. Beginning in 1989, the United States economy
experienced a recession, which resulted in a decline in the production of
commercial aircraft. this industry has since experienced a rapid recovery,
supported by a strong economy and an increase in aircraft sales as a result of
the replacement of aircraft in the commercial airlines' somewhat older fleets.
Aerospace and Defense Segment
Composite Based Products
Radomes. TPG develops and manufactures high-temperature
composite materials and products for aerospace and defense applications and is a
leading manufacturer of composite aircraft structures and composite missile
structures. One of TPG's principal products is high-performance radomes. A
radome is the housing, usually made of composite materials, that shelters the
antenna
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assembly of a radar set on an airplane, rocket or missile. Management believes
that TPG has an approximate 75% share of the domestic high-performance radome
market and is the sole supplier of radomes for aircraft such as the A-6, AV-8B,
B-1, B-1B, C-5B, C-17, F-4, F-5, F-14, F-15, F-16 and the F/A-18. Additionally,
TPG owns a ceramic radome manufacturing technology which enables it to
manufacture high temperature, high performance radomes for interceptor missile
applications. Management believes that TPG has been the sole supplier of Patriot
Missile radomes for the past 12 years. Sales of radomes for each of 1996, 1995
and 1994 constituted 14.3%, 14.7% and 12.8%, respectively, of the total
consolidated revenues of TPG.
Aircraft Components. TPG manufactures a variety of other
components used in the aerospace and defense industry. TPG currently fabricates
flap assemblies for the C-17 aircraft and expects to begin delivery of winglets
and landing gear doors for the C-17 in February 1998. Because the C-17 is a
high-priority program for the United States Air Force, management of TPG
believes that the production of these C-17 components is expected to provide a
stable stream of revenue for the foreseeable future. TPG also manufactures
composite-based canopies, fuel tanks and participates in several leading edge
projects. TPG has also participated in developmental projects that include the
successful application of radar absorbing materials and structures, frequency
selective surfaces and low observable applications. TPG recently won a program
to supply flat track fairings to The Aerostructures Corporation, which parts are
installed on the Airbus A330 and A340 aircraft. This "life of the program"
contract is anticipated to cover approximately 500 aircraft. Sales of aircraft
components for each of 1996, 1995 and 1994 constituted 12.1%, 19.8% and 22.1%,
respectively, of the total consolidated revenues of TPG.
Rocket Motor Cases. TPG manufactures a variety of rocket motor
cases used in solid propellant propulsion systems that are incorporated into
strategic (long-range) and tactical missile systems as well as orbiting
commercial satellites and deep-space penetration spacecraft. TPG manufactures
rocket motor cases for use in strategic missiles such as the D-5 Trident II and
the Minuteman III, as well as for tactical missile systems such as the VT-1 and
the PAC-3 Anti-Missile missile. TPG also manufactures the ORBUS-21D rocket motor
case, which is used in conjunction with the space shuttle and other unmanned
launch vehicles to place satellites into earth's orbit, and is used on deep
space missions.
Pressure Vessels. TPG produces various high-performance
pressure vessels that are used predominantly in aircraft, launch vehicles and
space applications where weight minimization is critical. These high-performance
pressure vessels are used in critical system applications, including emergency
power, crew capsule impact and flotation, maneuvering, environmental, fuel feed
and purge systems. TPG has been a leader in the integration of filament winding
technology in combination with metal liners that results in vessels that meet or
exceed structural requirements. A number of existing pressure vessel
configurations are currently qualified by prime contractors and the military.
This qualification minimizes competition for follow-on orders and provides a
variety of products that can be offered for new applications with minimal
capital investment and production lead time.
Fuel Tanks. External fuel tanks are used by the military to
provide an aircraft with additional operating range. The military requires
all-composite external fuel tanks because they offer a significant weight
advantage and improved crash survivability, greater safety in a fire, and
improved gun fire protection. Management believes that TPG is currently the only
qualified producer of the tank liner for the 230-Gallon AH-64/UH-60 Fuel Tank,
which is used by the United States Army. TPG is also completing the full-scale
development of a 480-Gallon Fuel Tank for the F-18 E/F. This program is
scheduled to start low-rate initial production in mid 1998.
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Vehicle/Missile Structures. TPG's vehicle/missile structure
product line historically has included composite products used for various
structured applications in the aerospace and defense area, including marine,
launch vehicles, space and aircraft applications. Products more recently
included in this product line are missile warheads, explosive containment
structures, radar housings, missile structures, aircraft and missile control
surfaces and aircraft engine ducts. These structures must be light-weight and
have excellent structural properties in order to replace conventional metal
products. These projects are usually obtained from various aerospace and defense
companies and government laboratories which need to develop prototype hardware
to demonstrate capabilities of advanced composites.
Tubular Products. TPG's tubular product line includes missile
launch tubes and torque shafts. The primary products in the launch tube line
include the Multiple Launch Rocket System ("MLRS") launch tube and the launch
canister for the submarine launched Tomahawk Missile. While the MLRS program is
extremely important to the United States Army as an effective, low-cost weapon
system, the Army has a combined inventory of over 500,000 of these missiles and
the funding level for this program has been, and likely will remain, low.
Composites offer desirable properties for torque shafts for various aerospace
and defense applications and are presently being used in the V-22 Osprey and
Boeing Vertol's 234 helicopter. TPG has also manufactured two prototype drive
shafts for GD-Electric Boat for evaluation for submarines.
Resin Transfer Molding. Resin transfer molding is the
fabrication of a composite component by pumping resin into a mold containing
reinforcement material. The rough product is then removed from the mold and
finished. While use of this manufacturing process is primarily driven by its
lower cost, recent advances in materials and equipment have helped to make the
process a viable choice for fabricating composite aircraft and military
structures. Currently, TPG has over 100 components on the advanced military
fighter aircraft currently in development, including the F-18-E/F and the F-22.
In addition to serving as a supplier to the manufacturers of military aircraft,
TPG is also providing components for the MD-80 commercial aircraft, engine
components and containers for military hardware. TPG is continuing to look for
ways to expand the use of this manufacturing process to a wide variety of
applications in support of the aerospace and defense customer base.
Other Defense Systems
Shelters/Shelter Integration. TPG designs, develops and
produces mobile military shelters and has developed leading design and automated
production capabilities for honeycomb, and foam and beam sandwich panel
construction, relocatable shelters. Management believes that most of the
shelters in the inventory of the DOD were designed and produced by TPG or its
predecessors. Sales of shelters and shelter integration products for each of
1996, 1995 and 1994 constituted 16.2%, 14.9% and 5.6%, respectively, of the
total consolidated revenues of the business of TPG.
Tactical Deception. TPG manufactures various types of
camouflage products which conceal military personnel and equipment from enemy
detection through visual, near-infrared, ultraviolet and radar remote sensing
systems. Other products within this line include decoys, false operating
surfaces and coated cloth for military applications. Because of its vertically
integrated production facility, TPG has historically been the low cost producer
of camouflage products. Currently TPG is not producing any of these products but
is competing for a United States Army contract for the production of a new
generation of camouflage systems, expected to be awarded by October 1997. There
are two other competitors for this contract.
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Chemical Defense. TPG is involved in production of the
Improved Chemical Agent Monitor ("ICAM"), a monitoring system designed to detect
surface contamination on a wide variety of objects. Upon the completion of first
article testing, TPG anticipates full-scale production of the ICAM to continue
through 2002. TPG is also actively involved in the development and production of
collective protection systems. Collective protection systems provide a clean and
over-pressured environment for soldiers to conduct their mission. Management
believes that TPG's collective protection systems, such as the internally
developed Bio-Chem Filter Blower Unit, are the collective protection system of
choice for several of the next generation vehicle systems. Also, TPG is
producing the M28 Deployable Medical Collective Protection Equipment ("CPE").
This product assures a clean environment for field hospital units for both the
United States Army and Air Force. Production of the M28 CPE is expected to
continue through 1999. TPG has submitted competitive bids for the United States
Marine Corps chemical defense recon vehicles and the United States Army Gen II
Remote Chemical Agent Detector, both of these contracts are expected to be
awarded in 1997.
Commercial Segment
Natural Gas Vehicle Fuel Tanks. Legislation mandating stricter
air pollution regulations combined with the abundance of natural gas has created
a demand for clean running NGVs. The demand for NGV's is expected to grow
dramatically over the next several years as installation and refueling
infrastructure is added. The most rapidly growing segment of this market is for
transit buses and other types of fleet vehicles which return to a central depot
at the end of each shift. There is also a great deal of interest in many
economically developing countries for NGV's. TPG is actively working with
regulatory agencies in other countries to develop standards to allow use of all
composite NGV cylinders. TPG has signed a distribution agreement with Mitsui
Plastics, Inc. for certain Asian countries.
TPG has spent over six years and $10 million to design,
develop and market an extremely durable, all-composite, plastic-lined Type IV
Tank for the NGV market. The TPG trademarked "Tuffshell" (R) tank competes with
steel tanks (Type I), metal-lined tanks with a hoop over-wrap (Type II) and
metal-lined tanks with a full over-wrap (Type III). Weight reduction and
resistance to external damage are the primary technical criteria during fuel
tank selection. The Type IV tank offers the most substantial weight reductions
(a minimum of 30% versus glass wrapped aluminum lined Type III tanks) and the
flexibility to reduce the impact of the weight increase. Type IV tanks may be
placed on the roof or underbody of transit busses without violating Federal
restrictions on curb weight. Metal lined tanks that offer reliable impact
resistance are generally too heavy to place on the roof of busses. The Type IV
tank has captured over 75% of the transit bus market in the past four years and
is preferred by all major builders of transit CNG powered coaches. Light duty
sedan/truck designers must also keep their gross vehicle weights below defined
Federal levels to meet EPA classifications and to meet customer preferences
concerning vehicle handling and low repair costs for suspension and brake
components. This is especially important for the highly successful import
vehicle sedan segment where engine displacement is below the North American
average.
Sale of this product has grown significantly since it was
first introduced in 1993. In 1996, sales reached $7.5 million and are expected
to exceed $10 million in 1997.
Specialty Vehicle Electronic Products. The specialty vehicle
electronics group is engaged in the design and manufacture of electronic
products for the specialty vehicle market that are primarily used to distribute
and control electrical power throughout the vehicle. This market includes
recreational vehicles ("RV's"), conversion vans, trucks, buses, and boats.
Currently, TPG sells approximately 250 different products, most of which have
been introduced to meet a customer's request to solve a particular problem.
TPG's products fall into three main categories: battery run-down
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protection and charging, power switching and control, and 120 volt AC power
management. Many of the battery run-down protection and charging products are
centered around TPG's patented disconnect relay. The power switching and
distribution products center on TPG's unique patented multiplex system. TPG's
patented 120 volt AC power management products are used in RV's to minimize the
overloading of circuit breakers. TPG's electrical products are currently
utilized by all major motor home original equipment manufacturer's and all but
one of the major van convertors. TPG is currently directing efforts at
increasing its market penetration into the truck, bus and marine industries.
Oil & Gas Exploration And Products. TPG manufactures several
products used in the oil and gas industry. TPG has developed a flexible drill
pipe that facilitates horizontal drilling, allowing an operator to re-enter an
old small diameter well that is no longer an effective producer and drill a
horizontal lateral into a producing zone. The technology exists to increase the
size of the drill pipe for use in larger extended reach applications. TPG has
also developed drillable casing for the horizontal drilling market, which is
placed in the well at the location where a horizontal lateral will be drilled.
The drill motor will easily drill through the wall of the drillable casing as
opposed to the more lengthy milling operation required by the use of
conventional steel casing.
TPG is also participating with several companies on a National
Institute for Science and Technology project for the development of a production
riser to be used in water depths of 3000' and beyond. This product will be much
lighter than steel casing and both lighter and much less expensive than
titanium. All key test requirements have been demonstrated and management
believes that the product will be ready for commercialization in 1999-2000. The
number of deep water platforms is expected to increase as oil reserves in
shallower waters decrease and, because there are numerous wells per platform,
this represents a significant future opportunity.
TPG applied the NGV all-composite tank technology to develop
an accumulator tank for the Production Riser Tensioning system on off-shore
platforms. There are as many as four accumulator's per well and the new
platforms have in excess of 25 wells per platform. The all-composite accumulator
is lighter weight, non-corrosive and competitively priced with all steel
accumulators. The TPG accumulator meets ASME Code X and currently there is not a
qualified competitor for this product. These accumulators offer some significant
advantages for the platform and as a result the revenue is expected to increase
significantly over the next several years.
Shafts And Rollers. In the industrial machine industry, there
is a growing recognition and acceptance of the advantages of composite shafts
and rollers over heavier steel units. Composite shafts are much lighter and,
with the use of carbon fiber, the stiffness is maintained and the fatigue life
is increased. TPG manufactures several sizes and configurations of shafts.
Competition and Markets
TPG competes with many manufacturers which, depending on the
product involved, range from large diversified enterprises to smaller companies
specializing in particular products. Factors that affect TPG's competitive
posture are the quality of products and services, the ability to employ certain
technologies and pricing strategies. TPG competes by defining and understanding
customer and market needs, using its technology base to develop new product
applications that meet those needs, communicating and demonstrating the
technical advantage of its products and building long-term relationships with
its customers.
There are many companies that compete with TPG in the
aerospace and defense industry. While TPG's management believes that it has an
approximate 75% share of the domestic high-
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performance radome market and is a leading supplier of radomes in the domestic
and international markets, TPG competes with a number of other companies in the
production of composite based products used in the aerospace and defense
industries. TPG is a leader in the design and production of tactical deception
and chemical detection equipment Similarly, while TPG's market share varies with
respect to its other aerospace and defense products such as rocket motor cases,
fuel tanks and pressure vessels, TPG overall has only a minor share of the total
aerospace and defense markets.
Certain of TPG's other commercial products are highly
specialized and face less competition in their respective markets. TPG's
management believes that TPG has approximately 30% of the NGV fuel tank market
and is a leading supplier of battery run-down protection and the power switching
and control devices for the motor home and van conversion original equipment
manufacturer markets. Additionally, while there are numerous producers of
standard drill pipe and casing and fiberglass tubulars, TPG has a leading
position in the application of advanced composites in the oil and gas industry.
Marketing and Customers
TPG markets its aerospace and defense products through direct
personal contacts with its customers, active membership in various industry
groups, and by participation in industry trade shows. TPG's aerospace and
defense products are sold primarily to agencies of the United States government
and to commercial customers in the aerospace industry. In 1996, sales to the
United States government either directly or by subcontract constituted 81% of
TPG's total revenue. Other customers include Lockheed Martin Corporation,
McDonnell Douglas Corporation and AlliedSignal Inc. Combined aerospace component
sales to these customers, most of which are included above as United States
government sales by subcontract, represented 17.7% of TPG's total revenues
during 1996. TPG's aerospace and defense products are generally designed and
developed to customer specifications.
TPG markets and sells NGV fuel tanks and specialty vehicle
electronics primarily to vehicle manufacturers. TPG sells its specialty vehicle
products to only a few customers, the loss of any of which would have an adverse
impact on its specialty vehicle products group.
In the commercial composites business, it is necessary to
carry a reasonable raw material and finished goods inventory to allow for a
rapid customer response. The average days sales outstanding of accounts
receivable for the commercial products run somewhat longer than for comparable
aerospace and defense products.
Also, there is a greater risk of bad debt associated with commercial products.
Warranties on these products are for material and workmanship
and are based on standard industry practice. Though TPG has endeavored to design
an extremely safe and durable product, the NGV tank and production riser has a
potential for greater product liability than standard aerospace and defense
products. TPG believes it has adequate product liability insurance to offset
these risks.
Patents
TPG owns numerous patents and patent applications, some of
which, together with licenses under patents owned by others, are utilized in its
operations. While such patents and licenses are, in the aggregate, important to
the operation of TPG's business, no existing patent, license or other similar
intellectual property right is of such importance that its loss or termination
would, in the opinion of management, materially affect TPG's business.
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Backlog
TPG's total backlog of firm contracts, excluding options at
May 2, 1997 and December 31, 1996 was approximately $120,000,000, as compared
with approximately $150,000,000 at May 31, 1996. In addition, TPG had a backlog
of unexercised options of $240,000,000 at May 2, 1997.
Government Contracts
Because the United States government is a primary customer,
TPG's revenues are directly affected by the government's budget process and
inadequate funding of the operation and maintenance portion of the DOD budget or
a reduction in the budgeted amount for certain programs could have an adverse
impact on the revenue of TPG. All government contracts, and, in general,
subcontracts thereunder are subject to termination in whole or in part at the
convenience of the United States government as well as for default. Long-term
government contracts and related orders are subject to cancellation if
appropriations for subsequent performance periods become unavailable.
Raw Materials and Supplies
Raw materials essential to the conduct of all of TPG's
business segments generally are available at competitive prices. TPG has not
experienced significant difficulties in its ability to obtain raw materials and
other supplies needed in its manufacturing processes, nor does TPG expect such
difficulties to arise in the future. The supply of carbon fiber has been tight
in 1997, but management expects additional capacity in 1998 to alleviate this
situation.
Research and Development
TPG and Brunswick Technical Group have spent $1,213,000,
$799,000 and $1,030,000 for each of 1996, 1995 and 1994, respectively, on
research and development. Approximately 50% of these expenditures relate to the
development of ultralightweight camouflage net systems to be sold to the United
States Army. If TPG wins this contract, management anticipates it will begin
production of these systems in 1999.
Facilities
TPG maintains various facilities nationwide and considers all
of its facilities to be in relatively good operating condition and adequate for
their present uses. TPG believes that it has sufficient capacity to meet its
current and anticipated manufacturing requirements. The following table sets
forth TPG's principal offices and manufacturing plants:
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Approximate Leased
Square or
Footage Owned
------- -----
Corporate Offices:
Atlanta, Georgia........................... 4,500 Leased
Marion Composites Division:
Marion, Virginia........................... 1,019,000 Owned
Intellitec Division:
Deland, Florida............................ 353,000 Owned
Lombard, Illinois.......................... 12,000 Leased
Lincoln Composites Division:
Lincoln, Nebraska.......................... 224,000 Owned
Lincoln, Nebraska.......................... 94,000 Leased
East Camden, Arkansas...................... 64,000 Leased
TPG pays approximately $68,000 in rental expense with respect
to its leased facilities in Lombard, Illinois, and $253,804 in rental expense
with respect to its leased facilities in Lincoln, Nebraska. TPG earns
approximately $250,000 in rental income on certain of its Deland, Florida
facilities.
Environmental Regulation
TPG's operations are subject to numerous local, state and
federal laws and regulations concerning the containment and disposal of
hazardous materials, pursuant to which TPG has incurred compliance costs. Such
costs to date have not been material. TPG does not presently anticipate the need
for significant expenditures to ensure continued compliance with current
environmental protection laws. Regulations in this area are subject to change
and there can be no assurance that future laws or regulations will not have a
material adverse effect on TPG.
Employees
At April 30, 1997, TPG had 932 employees. Approximately 385 of
TPG's employees are covered by three separate collective bargaining agreements
with various international and local unions. TPG's management considers employee
relations generally to be good and believes that the probability is remote that
renegotiating these contracts will have a material adverse effect on its
business.
Legal Proceedings
TPG is not currently a party to any material legal proceedings
that management believes would have a material adverse effect on TPG's financial
condition or results of operations.
TPG Management. The following table sets forth information
with respect to the persons who will become members of the Board of Directors
and Executive Officers of the Combined Company upon consummation of the Merger.
The Lunn Certificate of Incorporation, as amended and restated as of the
Effective Time, will provide that directors are divided into three classes which
serve for staggered terms of one to three years or until their successors are
duly elected and qualified at the next
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annual meeting of stockholders; officers will serve at the discretion of the
Board of Directors of the Combined Company.
Name Age Position
- ---- --- --------
James S. Carter.......... 61 Chairman of the Board, President, Chief
Executive Officer and Directors
Garrett L. Dominy........ 52 Executive Vice President, Chief Financial
Officer, Assistant Secretary, Treasurer and
Director
James P. Hobt............ 42 Corporate Controller and Secretary
H. Dwight Byrd........... 59 Vice President (President, Marion Composites
Division)
James G. Fuller.......... 58 Vice President (President, Lincoln Composites
Division)
Henry R. Lattanzi........ 55 Vice President (President, Intellitec Division)
Richard R. Zeits......... 55 Vice President, Business Development
Sam P. Douglass.......... 64 Director
Gary L. Forbes........ .. 53 Director
Robert C. Sigrist........ 64 Director
Lawrence E. Wesneski..... 49 Director
- -------------------------
James S. Carter. Mr. Carter, has been the President and Chief Executive
Officer and a Director of TPG since April 28, 1995. Mr. Carter served as an
industry consultant from 1993 to 1995 and Vice President and General Manager of
the Composite Structures Division of Alcoa Composites, Inc. from 1989 to 1993.
Prior to joining Alcoa Composites, Inc., Mr. Carter was Director of Composites
with NorthropCorporation for the B-2 Aircraft Group from 1980 to 1989. Mr.
Carter began his career in the aerospace industry with the Brunswick Technical
Group of Brunswick Corporation in 1956.
Garrett L. Dominy. Mr. Dominy has been the Chief Financial Officer,
Executive Vice President, Secretary and Treasurer of TPG since June 1995. Mr.
Dominy came to TPG from Arthur Andersen Worldwide, where he had been an audit
partner since September 1980. Mr. Dominy is a Certified Public Accountant.
James P. Hobt. Mr. Hobt has been Corporate Controller of TPG since August
1995. From December 1981 to July 1995, Mr. Hobt served in various accounting and
financial capacities at Brunswick Corporation, including Assistant Division
Controller and Corporate Audit Supervisor. Mr. Hobt is a Certified Public
Accountant.
Sam P. Douglass. Mr. Douglass has been a director of TPG since its
inception in 1995. Mr. Douglass has been Chairman of the Board and Chief
Executive Officer of Equus Capital Corporation, the managing general partner of
Equus Equity Appreciation Fund L.P., since its formation in September 1983. Mr.
Douglass has also been Chairman of the Board and Chief Executive Officer of
Equus II Incorporated, an investment company that trades as a closed-end fund on
the American Stock Exchange, and Equus Capital Management Corporation since
their formation in 1983. Since 1978, Mr. Douglass has served as Chairman and
Chief Executive Officer of Equus Corporation International, a privately owned
corporation engaged in a variety of investment activities.
- 68 -
<PAGE>
Gary L. Forbes. Mr. Forbes has been a director of TPG since its inception
in 1995. Mr. Forbes has been a Vice President of Equus Capital Corporation, the
managing general partner of Equus Equity Appreciation Fund L.P. since November,
1991. He has been a Vice President of Equus II Incorporated and Equus Capital
Management Corporation since December 1991. Mr. Forbes is a director of
Consolidated Graphics, Inc. (a NYSE consolidator of commercial printing
companies), Drypers Corporation (a Nasdaq National Market manufacturer of
disposable diapers), and NCI Building Systems, Inc. (a Nasdaq National Market
consolidator of pre-engineered metal building manufacturers).
Robert C. Sigrist. Mr. Sigrist has been a director of TPG since August
1995. Prior to that time, Mr. Sigrist served as the President of the Brunswick
Technical Group of Brunswick Corporation for seven years.
Lawrence E. Wesneski. Mr. Wesneski has been President and Chief Executive
Officer of Hoak Breedlove Wesneski & Co. since August 1996. Mr. Wesneski has
been engaged in the investment banking industry for approximately 21 years.
Prior to the formation of Hoak Breedlove Wesneski & Co., Mr. Wesneski was
president and managing director of Breedlove Wesneski & Co. for ten years. Mr.
Wesneski was formerly head of the Southwest Corporate Finance Department of Bear
Stearns & Co., Inc., a Managing Director of Corporate Finance at Eppler, Guerin
& Turner, Inc., and a member of the Corporate Finance Department at Dean Witter
Reynolds, Inc. Mr. Wesneski is a director of STB Systems, Inc., TPG and TSC
Communications Corp.
H. Dwight Byrd. Mr. Byrd has been Vice President of TPG and President of
the Marion Composites Division since April 1995. During the period from April
1992 to April 1995, Mr. Byrd served as General Manager of Brunswick
Corporation's Marion, Virginia division. During 1991 to April 1992, Mr. Byrd
served as Director of Manufacturing for Brunswick's Mercury Marine Division in
Stillwater, Oklahoma.
James G. Fuller. Mr. Fuller has been Vice President of TPG and President of
Lincoln Composites Division since April 28, 1995. Mr. Fuller was formerly with
Brunswick Corporation, where he served as the General Manager of Brunswick's
operations in Lincoln, Nebraska and Camden, Arkansas for over five years.
Henry R. Lattanzi. Mr. Lattanzi has been Vice President of TPG and
President of The Intellitec Division since April 1995. Mr. Lattanzi served as
Vice President of Brunswick Technical Group of Brunswick Corporation and General
Manager of its Deland, Florida operations for the prior ten years.
Richard R. Zeits. Mr. Zeits has been Vice President - New Business
Development of TPG since its inception in April 1995. Mr. Zeits was an industry
consultant from November 1993 until 1995. From April 1989 until November 1993,
Mr. Zeits was Manager, Manufacturing Engineering and Tooling of the Composite
Structures Division of Alcoa Composites, Inc. Mr. Zeits has over 30 years
experience in the development and manufacture of advanced composites and metal
bond structures.
- 69 -
<PAGE>
TPG Executive Compensation. The following table sets forth
certain information regarding the annual and long-term compensation for the
calendar year ended December 31, 1996 and the initial year ended December 31,
1995 of those person who will be either (i) the Chief Executive Officer, or (ii)
one of the four most highly compensated executive officers of the Combined
Company after the Merger (collectively, the "Future Named Officers"):
Summary Compensation Table
Annual Compensation
--------------------------- All Other
Name and Principal Position Year Salary Bonus Compensation
- --------------------------- ---- ------ ----- ------------
James S. Carter.............. 1996 $226,884 $106,638 $62,982(1)
President and 1995 $147,948 -0- $ 2,664(2)
Chief Executive Officer
Garrett L. Dominy............ 1996 $170,673 $ 79,279 $ 2,664(2)
Executive Vice President 1995 $ 98,109 -0- $51,962(3)
and Chief Financial
Officer
H. Dwight Byrd............... 1996 $145,558 $ 69,778 $ 3,906(5)
Vice President 1995 $ 91,970 9,380 $ 1,628(5)
James G. Fuller.............. 1996 $135,285 $ 64,896 $ 2,095(6)
Vice President 1995 $ 87,500 -0- $ 940(6)
Henry R. Lattanzi............ 1996 $163,172 $ 81,660 $ 4,578(5)
Vice President 1995 $105,522 $ 10,385 $ 2,127(5)
<PAGE>
- -------------------
(1) Includes $17,508 in transfer allowance, $41,241 for reimbursement of
federal and state income taxes paid on reimbursement of temporary
living expenses and transfer allowances, $1,425 in matching
contributions under TPG's 401(k) Savings Incentive Plan, and $2,808
for the taxable amount of group life insurance paid by TPG.
(2) Includes $1,872 for the taxable amount of group life insurance paid by
TPG and $792 contributed by TPG to match Mr. Carter's contributions
under TPG's 401(k) Savings Incentive Plan.
(3) Includes $12,692 in transfer allowances, $37,185 for reimbursement of
federal and state income taxes paid on reimbursement of temporary
living expenses, relocation costs and transfer allowances, $864 for
the taxable amount of group life insurance paid by TPG and $1,221
contributed by TPG to match Mr. Dominy's contributions under TPG's
401(k) Savings Incentive Plan.
(4) Includes $336 for the taxable amount of group life insurance paid by
TPG and $504 contributed by TPG to match Mr. Dominy's contributions
under TPG's 401(k) Savings Incentive Plan.
(5) Includes matching contributions under TPG's 40l(k) Savings Incentive
Plan, the taxable amount of group life insurance paid by TPG and the
cost of company provided automobiles.
(6) Includes matching contributions under TPG's 401(k) Savings Incentive
Plan and the taxable amount of group life insurance paid by TPG.
- 70 -
<PAGE>
Option/SAR Grants Table.
There were no stock options or stock appreciation rights
granted to any of the Future Named Officers during 1996.
Aggregated Option Exercises in 1996 and Year-End Values.
There were no options exercised during 1996 by any of the
Future Named Officers and there were no unexercised options granted to any of
the Future Named Officers that remained outstanding at December 31, 1996.
Director Compensation
Each director receives an annual fee of $20,000, with no
additional fees for serving on committees. In addition, it is anticipated that
shortly after consummation of the Merger, each non-employee director will be
granted stock options exercisable for 7,500 shares of Combined Company Common
Stock. It is also anticipated that each non-employee director of the Combined
Company will be granted additional stock options for 1,000 shares of Combined
Company at each annual meeting of the Board of Directors. The terms of these
options will be determined by the Board of Directors of the Combined Company.
Employment Agreements
TPG has entered into three-year employment agreements with
each of James S. Carter and Garrett L. Dominy, such employment agreements to
become effective upon consummation of the Merger. Pursuant to the employment
agreements, Mr. Carter will serve in the capacity as Chairman of the Board,
President and Chief Executive Officer of the Combined Company and Mr. Dominy
will serve as the Combined Company's Executive Vice President and Chief
Financial Officer. The employment agreements provide for base salaries of
$265,000 and $215,000 for Mr. Carter and Mr. Dominy, respectively, subject to
annual increases based, at a minimum, on the consumer price index (income) for
the previous year. Mr. Carter and Mr. Dominy are also entitled to receive,
subject to the discretion of the Board of Directors of the Combined Company,
annual bonuses up to 75% of their then annual base salary. The employment
agreements also entitle Mr. Carter and Mr. Dominy to receive standard company
benefits. The employment agreements are terminable by the Combined Company with
or without cause, provided, however, that if the Combined Company terminates an
executive without cause, then such executive is entitled to continue to receive
base salary and incentive bonus for specified periods. The employment agreements
also provide that if there is a "change of control" of the Combined Company or a
constructive termination of an employee without cause, then the executives are
entitled to a lump-sum payment of a specified amount within 60 days of the
effective date of termination. Following any termination of Mr. Carter's or Mr.
Dominy's employment for cause or upon such employee's breach of the terms of his
employment agreement, it is expected that such executive will be subject to
non-disclosure and non-competition covenants for up to two years.
- 71 -
<PAGE>
TPG Security Ownership of Certain Beneficial Owners and
Management. The following table sets forth certain information regarding
beneficial ownership, as of June 10, 1997, of TPG Common Stock, by each
stockholder who beneficially owned more than five percent of the outstanding TPG
Common Stock as of such date and regarding beneficial ownership of both TPG
Common Stock and TPG Preferred Stock by (i) each director of TPG; (ii) each
executive officer of TPG named in the TPG Summary Compensation Table; and (iii)
all directors and executive officers as a group. Except to the extent indicated
in the footnotes to the following table, each of the persons or entities listed
herein has sole voting and sole investment power with respect to the shares that
are deemed beneficially owned by such person or entity.
<TABLE>
<CAPTION>
TPG Common Stock TPG Preferred Stock
------------------------------ -----------------------------
Name and Address of Beneficial Shares Shares
Owner, Identity of Group Beneficially Owned Percent Beneficially Owned Percent
------------------------ ------------------ ------- ------------------ -------
<S> <C> <C> <C> <C>
Equus Equity Appreciation Fund L.P.(1) 299,250 63.0 913,043 91.3
2929 Allen Parkway, Suite 2500
Houston, TX 77019
James S. Carter 35,625 7.5 - -
353 Peachtree Rd, Suite 920
Atlanta, GA 30326
H. Dwight Byrd 23,750 5.0 - -
Marion Composites
150 Johnston Rd.
Marion, VA 24354
James G. Fuller 23,750 5.0 - -
Lincoln Composites
4300 Industrial Ave.
Lincoln, NE 68504
Henry R. Lattanzi(2) 23,750 5.0 - -
Intellitec
2000 Brunswick Lane
Deland, FL 32724
Garrett L. Dominy 19,000 4.0 - -
Robert C. Sigrist 7,125 1.5 21,739 2.2
Lawrence E. Wesneski(3) 5,225 1.1 15,946 1.6
All directors and executive officers as
a group (7 persons)(4) 138,225 29.1 37,685 37.7
<FN>
- -----------------------
(1) Sam P. Douglass is a general partner of Equus and Gary L. Forbes is a
Vice President of the managing general partner of Equus, Equus Capital
Corporation. Accordingly, each may be deemed to own all of the 299,250
shares of TPG Common Stock and 913,043 shares of TPG Preferred Stock
owned by Equus. Messrs. Douglass and Forbes each disclaim beneficial
ownership of such shares.
(2) Shares held by Henry R. and Justine D. Lattanzi, Trustee for the Henry
R. and Justine D. Lattanzi Trust.
(3) Includes 5,225 shares held directly by Mr. Wesneski through a SEP IRA.
Such figure does not include 11,875 shares held by Hoak Breedlove
Wesneski & Co., which Mr. Wesneski may be deemed to own as a result of
his position as President and Chief Executive Officer of such
corporation. Mr. Wesneski disclaims beneficial ownership of such
shares.
(4) Does not include 299,250 shares owned by Equus. Sam P. Douglass is a
general partner of Equus and Gary L. Forbes is a Vice President of the
managing general partner of Equus, Equus Capital Corporation. Messrs.
Douglass and Forbes each disclaim beneficial ownership of such shares.
</FN>
</TABLE>
- 72 -
<PAGE>
Certain Relationships of TPG. On April 28, 1995, TPG loaned
its President and Chief Executive Officer, James S. Carter, $74,925 to help fund
Mr. Carter's acquisition of 35,625 shares of TPG Common Stock. Mr. Carter
executed a promissory note in favor of TPG, bearing interest at 8% per annum,
the principal and interest of which mature on April 28, 2001. The promissory
note from Mr. Carter is secured by a stock pledge agreement pursuant to which
Mr. Carter pledged his shares of TPG Common Stock to TPG. As of December 31,
1996 an aggregate of $84,915 of principal and accrued and unpaid interest was
due and owing under such note.
- 73 -
<PAGE>
LUNN PROXY PROPOSAL 1: ELECTION OF DIRECTORS
Nominees for Election as Directors
The Lunn Board of Directors currently consists of five
members. The Lunn Board of Directors is divided into three classes, Class I,
Class II and Class III. The Class I, Class II and Class III directors serve for
terms that expire at the Lunn Annual Meeting, the 1998 Annual Meeting of
Stockholders of Lunn and the 1999 Annual Meeting of Stockholders of Lunn,
respectively, or until their respective successors are duly elected and
qualified. Thereafter, the successors to the class of directors whose term
expires at an annual meeting of stockholders will hold office for a term
expiring at the annual meeting of stockholders held in the third year following
the year of their election, or until their successors have been duly elected and
qualified.
It is intended that the persons named in the accompanying form
of proxy will, except as noted below, vote "FOR" the election of the following
Class I nominees as directors: Warren H. Haber and John Simon. Each of the
foregoing persons currently serves as a Class I director of Lunn and was most
recently elected as such at the Annual Meeting of Stockholders of Lunn held on
September 27, 1996. The Lunn Board of Directors does not contemplate that either
of such nominees will become unable to serve. If, however, either of such
nominees should become unable to serve before the Lunn Annual Meeting, proxies
solicited by the Lunn Board of Directors will be voted by the persons named as
proxies therein in accordance with the best judgment of such proxies.
Notwithstanding the foregoing, in the event that the Merger is
approved and is consummated, only two directors of Lunn (Alan W. Baldwin, a
Class III director, and John Simon, a Class I director and one of the nominees
for election of director named herein ) will be directors of the Combined
Company after the Effective Time. See "The Joint Proxy Proposal--Management of
the Combined Company after the Merger."
Directors
The Lunn Board of Directors has the responsibility to serve as
the representative of the stockholders of Lunn. It establishes broad corporate
policies and oversees the overall performance of Lunn. However, the Lunn Board
of Directors is not involved in day-to-day operating details. Members of the
Lunn Board of Directors are kept informed of Lunn's business activities through
discussions with the Chief Executive Officer, by reviewing analyses and reports
sent to them by management and by participating in Lunn Board of Directors
meetings.
Set forth below is the name, age and business experience for
the past five years and other directorships of each of Lunn's Class I, Class II
and Class III directors (including Lunn's nominees for election as directors).
Class I Directors
Warren H. Haber, 56. For more than 25 years, Mr. Haber has
been Chairman of the Board and Chief Executive Officer of Founders Equity, Inc.,
Founders Management Services, Inc., and their affiliates (collectively,
"Founders"). Founders is an all private investment concern engaged in
identifying businesses for acquisition by companies in which the principal
stockholders of Founders have a substantial equity interest and managing such
businesses for such principal stockholders' accounts. Since 1983, Mr. Haber has
been Chairman of the Board of Batteries Batteries, Inc. and Chief Executive
Officer since July 1996. Since 1993, Mr. Haber has been Chairman of the Board of
HealthRite, Inc., a
- 74 -
producer and distributor of vitamins, natural nutritional and dietary
supplements, herbal based products and weight-loss products. From 1986 through
December 1992, Mr. Haber was Chairman of the Board and Chief Executive Officer
of International Power Machines. Mr. Haber also served as a director of
International Power Machines from 1986 through February 1995. Mr. Haber has
served as an officer and director of Founders Property, Inc., a private real
estate investment concern from 1971 to the present. Mr. Haber is a director of
Realty Information Group, LP, a privately held commercial real estate
information provider. Mr. Haber was originally elected a director of Lunn in
1994.
John M. Simon, 54. Mr. Simon has been Managing Director of
Allen & Company Incorporated for more than five years. Mr. Simon is a director
of Immune Response Corporation, Tcell Sciences, Inc., Neurogen Corporation and
Batteries Batteries, Inc. Mr. Simon was originally elected a director of Lunn in
1993.
Class II Directors
William R. Lewis, 55. Mr. Lewis has been a financial
consultant offering services to multiple corporate clients since 1993, during
which time, in 1994, Mr. Lewis served as an interim Chief Financial Officer of
Air & Water Technologies Corporation and of Jenny Craig, Inc. Mr. Lewis was
Executive Vice-President, Chief Financial Officer and Director of Nutri/System,
Inc. from 1991 to 1993. Subsequent to Mr. Lewis' departure, Nutri/System, Inc.
filed for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code
in 1993. Mr. Lewis was originally elected a director of Lunn in 1995.
John F. Menzel, 54. Mr. Menzel has been Chairman and a
majority shareholder of Fiberglass Industries, Inc., a manufacturer of
fiberglass products for the marine, sporting goods and chemical tank industries
from before 1989 to the present. Mr. Menzel was originally elected a director of
Lunn in 1994.
Class III Directors
Alan W. Baldwin, 60. Mr. Baldwin has been Chairman of the
Board and Chief Executive Officer of Lunn since March 1994. Mr. Baldwin was Vice
President of Lunn from December 1993 to March 1994 and was an independent
consultant from 1991 to March 1994. Mr. Baldwin was originally elected a
director of Lunn in 1993.
Meeting and Committees of the Board of Directors
The following directors currently serve as members of the
Audit committee of the Lunn Board of Directors: Messrs. Warren H. Haber, William
R. Lewis, and John F. Menzel. The Audit Committee did not meet during 1996. The
principal functions of the Audit Committee are to recommend to the Lunn Board of
Directors the selection of the independent auditors for Lunn, to oversee and
review the audit of Lunn's financial statements and to monitor the effectiveness
of internal controls.
The Lunn Board of Directors annually appoints from among its
members a Compensation and Stock Option Committee to review and make
recommendations regarding salaries and employment contracts for key employees of
Lunn and stock options and awards to be granted under the Lunn Stock Option
Plan. Until September 1996, the Compensation and Stock Option Committee
consisted of Samuel Dastin, John Menzel, Charles Russell and John Simon. Messrs.
Dastin and Russell did not stand for re-election as directors in September 1996
and as such, are no longer members of the Compensation and Stock Option
Committee. Mr. Lewis became a member of the Compensation and Stock Option
Committee of the Lunn Board of Directors in September 1996 and served, together
- 75 -
with Messrs. Menzel and Simon, as members of such committee for the remainder of
1996. The Compensation and Stock Option Committee held no meetings prior to
September 1996 and held two meetings since such time.
The following directors currently serve as members of the
Executive Committee of the Lunn Board of Directors: Alan Baldwin, Warren Haber
and John Simon. The principal functions of the Executive Committee are to
exercise all powers and authority of the Lunn Board of Directors in the
management of the business and affairs of Lunn that may be lawfully designated
to it under the DGCL between meetings of the Lunn Board of Directors.
The Executive Committee did not meet in 1996.
The Board of Directors held six meetings during 1996, two of
which were telephonic meetings. In 1996, all directors attended more than 75% of
the total number of meetings of the Lunn Board of Directors and the total number
of meetings held by all committees of the Lunn Board of Directors on which each
such director served.
Compensation of Directors
Directors who are not employees of Lunn receive $500 for each
meeting attended. Additionally, non-employee directors receive a grant
immediately following Lunn's Annual Meeting of Stockholders under the Lunn Stock
Option Plan for the right to purchase 5,000 shares of Lunn Common Stock. Such
grant is at the fair market value of the Lunn Common Stock at the time of grant.
On December 2, 1996, Lunn entered into a consulting
arrangement with William Lewis to assist Lunn in locating and evaluating merger
and acquisition candidates one day a week over a six month period, with
compensation payable weekly at $1,000 per day.
Executive Officers
The following set forth the name, age and business experience
for the past five years of each of Lunn's executive officers, together with all
positions and offices held with Lunn by such executive officers. Officers are
appointed to serve until the meeting of the Lunn Board of Directors following
the next annual meeting of stockholders, or until their successors are duly
elected and qualified.
Alan W. Baldwin. See "--Directors--Class III Directors."
Lawrence Schwartz, 62. Mr. Schwartz has been Vice President,
Chief Financial Officer and Secretary of Lunn since 1992 and Controller of Lunn
from 1990 to 1992.
Edward Kiley, 47. Mr. Kiley has been President and General
Manager of Alcore, a wholly owned subsidiary of Lunn, since May 1996. Mr. Kiley
was Vice President and General Manager of Alcore from October 1993 to May 1996.
Mr. Kiley was Vice President and General Manager of Lunn from January 1993
through October 1993. He was Director of Sales and Marketing of Hexcel
Corporation from April 1978 through December 1992.
- 76 -
<PAGE>
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth the beneficial ownership of
Lunn Common Stock as of June 10, 1997 by (i) all stockholders known to Lunn to
own more than 5% of the outstanding shares of Lunn Common Stock, (ii) each
director and executive officer of Lunn and (iii) all directors and executive
officers of Lunn as a group. Except to the extent indicated in the footnotes to
the following table, each of the persons or entities listed herein has sole
voting and investment power with respect to the shares that are deemed
beneficially owned by such person or entity.
<TABLE>
<CAPTION>
Shares of Lunn Common Stock
Name and Address of ----------------------------------
Beneficial Owner Number(1) Percent
- ---------------- --------- -------
<S> <C> <C>
Cooke & Cie, S.A.............................. 1,592,000 12.47
7 Rue des Alps
Geneva 1, Switzerland
Karen Lamotte................................. 872,637(2) 6.84
16 Victoria Road
London, England
United Kingdom
Grange Nominees Limited....................... 760,000 5.96
P.O. Box 116
Commerce House
Les Banques
St. Peter Port, Guernsey GWY1 3EZ
Alan W. Baldwin............................... 400,000(3) 3.00
Warren Haber.................................. 95,000(4)(5)(6) *
Lawrence Schwartz............................. 22,691(7) *
Edward Kiley.................................. 51,666(7) *
John F. Menzel................................ 15,000(4)(5)(6) *
John Simon 15,000(4)(5)(6)(8) *
William R. Lewis.............................. 10,000(5)(6) *
All officers and directors as a group......... 609,357(8)(9) 4.60
(7 persons)
<FN>
- ----------------------------
* Less than 1%.
(1) Pursuant to the terms of the Lunn Stock Option Plan, each of the
options referred to in the following footnotes vests and becomes
exercisable upon a change of control of Lunn. Thus, upon consummation
of the Merger, each of the options will vest and become exercisable.
(2) Includes 165,137 shares held by Mrs. Lamotte's husband, Hughes
Lamotte.
(3) Includes options to purchase 200,000 shares at $.60 which expire on
June 9, 2004, options to purchase 100,000 shares at $.875 which expire
on November 30, 2005, and options to purchase 100,000 shares at $.75
which expire on February 25, 2006.
(4) Includes options to purchase 5,000 shares at $.625 which expire on
June 8, 2004.
(5) Includes options to purchase 5,000 shares at $1.50 which expire on
September 28, 2005.
(6) Includes options to purchase 5,000 shares at $1.16 which expire on
September 26, 2006.
(7) Includes options to purchase 16,666 shares at $.50 which expire on
December 20, 1999.
- 77 -
<PAGE>
(8) Does not include beneficial ownership of the shares owned by Allen,
where John Simon is a Managing Director. Allen disclaims beneficial
ownership of the shares owned by Mr. Simon.
(9) Includes options to purchase 488,332 shares at various exercise prices
and which expire on various dates.
</FN>
</TABLE>
Certain Relationships and Related Transactions
Lunn borrowed $360,000 from Cook & Cie, S.A. which was to be
repaid in January 1997, with interest at 10% per annum, payable in Lunn Common
Stock, or was convertible into Lunn Common Stock at the option of the holder at
any time during the term of the note. This note was converted into 900,000
shares of Lunn Common Stock by Cook & Cie, S.A. on January 17, 1997 at the
conversion rate of one share for each $.40 of principal converted. In addition,
Cook & Cie, S.A. received 45,000 additional shares of Lunn Common Stock
representing the interest payment on the note.
On March 21, 1996, Lunn sold 3.5 million shares of Lunn Common
Stock at $.40 per share in a private placement, under Regulation D of the
regulations promulgated under the Exchange Act. Such shares of Lunn Common Stock
were subsequently registered on a Registration Statement on Form S-3, filed with
the Commission on September 27, 1996. The following beneficial owners of Lunn
Common Stock listed in "--Security Ownership of Certain Beneficial Owners and
Management" purchased shares in the private placement:
Name Shares
---- ------
Allen & Company Incorporated 320,500 (1)
Cook & Cie, S.A. 840,000
Grange Nominees Limited 460,000
- -------------
(1) John Simon, a Director of Lunn, is a Managing Director of Allen.
Alan Baldwin, Chairman of the Board and Chief Executive
Officer of Lunn, has been employed by Lunn pursuant to an employment agreement,
dated March 14, 1994. See "--Employment Contracts and Termination of Employment
and Change in Control Arrangements."
- 78 -
<PAGE>
Executive Compensation
The following summary compensation table sets forth the cash,
as well as certain other compensation, for the years ended December 31, 1996,
1995 and 1994, paid to Lunn's three executive officers (including its Chief
Executive Officer).
<TABLE>
<CAPTION>
Annual
Compensation Other
Name and Principal Position Year Salary ($) Compensation($)
- --------------------------- ---- ---------- ---------------
<S> <C> <C> <C>
Alan W. Baldwin 1996 150,000 120,471(1)
Chairman of the Board of Directors 1995 150,000 -
and Chief Executive Officer 1994 127,257 4,616(2)
Edward Kiley 1996 130,347 31,437
President and General Manager of 1995 98,389 7,500(3)
Alcore, Inc. 1994 94,799 -
Lawrence Schwartz 1996 89,000 20,000
Vice President, Secretary and 1995 90,100 -
Chief Financial Officer 1994 89,100 -
<FN>
- --------------------------
(1) Includes a bonus of $75,000 earned for 1996 but paid in 1997.
(2) Consultant fee earned in 1993, but paid in 1994 to a corporation
controlled by Mr. Baldwin.
(3) Paid in restricted stock in exchange for a 15% wage concession. The
restricted stock was valued at the fair market value at the time the
wage concession was implemented.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Option/SAR Grants in Last Fiscal Year
Individual Grants
Number of $ of Total
Securities Options/SARs
Underlying Grannted to
Options/SARs Employees in Exercise or Base
Name Granted (#) Fiscal Year Price ($/Share) Expiration
- ---- ----------- ----------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Alan Baldwin 200,000 100% $.75 2/25/06
</TABLE>
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value Table
--------------------------------------------------------------------------
Number of Value of
Securities Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs
Shares FY-End (#) FY-End ($)
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized Unexercisable Unexercisable
- ---- ------------ -------- ---------------------- -------------
<S> <C> <C> <C> <C>
Alan W. Baldwin None None 300,000/200,000 30,000/0
Edward Kiley None None 16,666/8,334 4,166/2,084
Lawrence Schwartz None None 16,666/8,334 4,166/2,084
</TABLE>
- 79 -
<PAGE>
Long-Term Incentive Plan Awards
Lunn paid no long term compensation to the executive officers
during the fiscal year ended December 31, 1996.
Employment Contracts and Termination of Employment and Change in Control
Arrangements
In November, 1994, Lunn entered into an employment contract
commencing on March 14, 1994 with Alan W. Baldwin to serve as Chairman of the
Board and Chief Executive Officer of Lunn, for an initial term of one year, with
automatic renewals for additional one year terms, at an annual salary of
$150,000. The contract provides for salary increases on an annual basis upon
review by the Lunn Board of Directors or the Compensation and Stock Option
Committee. Additionally, an incentive compensation program has been implemented
on an annual basis by the Lunn Board of Directors. Lunn provides Mr. Baldwin the
normal employee benefits provided to other employees, in addition to a company
car. Mr. Baldwin's employment contract provides for a grant to Mr. Baldwin of a
non-statutory stock option for 200,000 shares of Lunn Common Stock exercisable
at $.60 per share.
On April 30, 1996, the Lunn Board of Director's Compensation
and Stock Option Committee approved the following revisions to Mr. Baldwin's
compensation: (a) a 1995 bonus award of $40,000, (b) an incentive stock option
grant for 100,000 shares of Lunn Common Stock, and (c) reimbursement of
insurance premiums paid by Mr. Baldwin for his individual life insurance policy.
Additionally, 1996 compensation for Mr. Baldwin was established as follows: (a)
his salary remained at $150,000; and (b) a 1996 bonus award was based upon
Lunn's attainment of the following financial goals: (x), the incentives for
meeting sales of $17 million, operating profit of $1.2 million and year-end
backlog exceeding $12 million, would be: (i) a bonus of 50 percent of annual
salary, and (ii) an incentive stock option grant for 200,000 shares of Lunn
Common Stock granted on February 26, 1996, with options covering 100,000 shares
being exercisable upon meeting the financial goals set forth above and options
covering the remaining 100,000 shares being exercisable twelve months
thereafter, and (y) the incentives for meeting 75 percent of the goals listed
above would be: (i) a bonus of 25 percent of annual salary, and (ii) an
incentive stock option grant for 100,000 shares of Lunn Common Stock granted on
February 26, 1996, with options covering 50,000 shares being exercisable upon
meeting the financial goals set forth above and options covering the remaining
50,000 shares being exercisable twelve months thereafter. See "The Joint Proxy
Proposal--Interests of Certain Persons in the Merger" regarding the effect of
the Merger upon Mr. Baldwin's employment contract.
Compensation Committee Interlocks and Insider Participation
None of Messrs. Dastin and Russell (who served on the
Compensation and Stock Option Committee prior to September 1996), nor Mr. Lewis
(who became a member of such committee in September 1996), nor Messrs. Menzel
and Simon (who served as members of such committee for all of 1996) (i) was,
during 1996, an officer or employee of Lunn or any of its subsidiaries, (ii) was
formerly an officer of Lunn or any of its subsidiaries, or (iii) had any
relationship requiring disclosure by Lunn pursuant to any paragraph of Item 404
of Regulation S-B promulgated by the Commission.
Legal Proceedings
Andrew J. Bobkowicz v. Lunn Industries, Inc. and Norfield
Corporation. A Demand for Arbitration was brought before the American
Arbitration Association (the "Association"), 111 Founders Plaza, East Hartford,
CT 06108, by a former employee, Dr. Andrew Bobkowicz (the "Claimant"), under the
terms of an employment agreement dated November 20, 1990 between the Claimant
and Norfield
- 80 -
<PAGE>
Corporation ("Norfield"), formerly a wholly owned subsidiary of Lunn. A hearing
was held on May 16 and May 17, 1995 before an arbitrator selected by the
Association. On August 2, 1995, the arbitrator awarded Dr. Bobkowicz $85,516.00,
plus costs, and found Lunn and Norfield jointly and severally liable thereof. On
September 1, 1995, Lunn filed a Motion to Vacate Arbitration Award in the
Superior Court, Judicial District of Danbury, Connecticut. A hearing was held on
such motion on November 16, 1995. On October 11, 1995, Lunn put Norfield on
notice of its claim for indemnification under the terms of the stock purchase
agreement between Lunn and Edwin F. Phelps, Jr. dated March 10, 1994. On May 7,
1996, the court denied Lunn's Motion to Vacate Arbitration Award and confirmed
the arbitration award and on June 26, 1996, judgment was rendered thereon. Lunn
has appealed the confirmation of the arbitration award and judgment to the
Appellate Court of the State of Connecticut. Briefs have not yet been filed.
Although the ultimate outcome of this matter remains uncertain, Lunn intends to
vigorously defend this suit.
Diana Pisani Romaniello v. Lunn Industries, Inc. and Norfield
Corporation. In June 1995, Lunn was served with a complaint filed in U.S.
District Court (Connecticut District) by Diana Pisani Romaniello ("Romaniello"),
individually, and on behalf of the U.S. Government. Norfield was also named as a
defendant in the suit. This action was brought under the False Claims Act (the
"Act") alleging that Norfield had falsified records in order to receive payments
under a sub-contract with a prime contractor for the construction of radar
reflector equipment for the DOD. The falsification of records is alleged to have
taken place in the last half of 1991 and the first half of 1992.
The complaint alleges, among other claims, that the defendant
Norfield terminated Romaniello to silence her objection to the falsification of
records. Lunn had acquired ownership of Norfield several days prior to the
termination of Romaniello and had previously sub-contracted work to Norfield for
the radar equipment for the DOD. This association with Norfield caused
Romaniello to name Lunn in the suit. The plaintiff is seeking: (a) punitive
damages equal to two times Romaniello's back pay; (b) damages equal to three
times the damages the U.S. Government has sustained; (c) a civil penalty of
$5,000 to $10,000 for each violation of the Act; and (d) between 15 and 30
percent of the damages and fines assessed against the defendants. The U.S.
Government has decided not to directly prosecute this case, as is its right.
However, it remains a named plaintiff in the suit and would benefit from any
recovery. On July 26, 1995, the court entered a default judgment against Lunn.
Lunn moved to set aside the default judgment, which was objected to by the
individual plaintiff. The plaintiff subsequently filed a Motion for Judgment.
Thereafter, the Court granted Lunn's motion, set aside the default and, by
inference, the subsequent Motion for Judgment. Lunn has answered the complaint
and filed its cross-claims. The case is presently in the discovery stage. Lunn
has responded to written interrogatories submitted by the individual plaintiff.
On June 7, 1996, Norfield filed a voluntary petition for
bankruptcy under Chapter 7 of the U.S. Bankruptcy Code. On September 7, 1996,
the court dismissed the suit against Lunn and Norfield, without prejudice to
reopen, upon motion. On November 4, 1996, the court denied the plaintiff's
Motion to Reopen, without prejudice to renewal, upon the plaintiff receiving
relief from stay from the bankruptcy court. Lunn believes that the plaintiff's
claim is without merit, and although the ultimate outcome of this matter remains
uncertain, Lunn intends to vigorously defend this suit.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires Lunn's executive
officers and directors, and persons who beneficially own more than 10% of the
Lunn Common Stock to file initial reports of ownership and reports of changes in
ownership with the Commission. Such officers, directors and
- 81 -
<PAGE>
stockholders are required by Commission regulations to furnish Lunn with copies
of all such reports that they file.
Based solely upon a review of copies of such reports furnished
to Lunn during and with respect to its fiscal year ended December 31, 1996, and
based on written representations received by Lunn from directors, officers and
beneficial owners of more than 10% of the Lunn Common Stock ("reporting
persons") that no other reports were required, Lunn believes that, during Lunn's
1996 fiscal year, Lunn's reporting persons complied with all applicable Section
16(a) filing requirements, except for the following: (1) Alan W. Baldwin's
untimely filing of Form 4 upon the grant of stock options in February 1996,
which filing has been made on Form 5 and (2) the untimely filing of Form 5 by
(i) Warren H. Haber, (ii) John F. Menzel, (iii) Charles W. Russell, (iv) John
Simon, and (v) Samuel J. Dastin.
Stockholder Proposals
Stockholder proposals intended to be presented at Lunn's 1998
Annual Meeting of Stockholders, which Lunn currently contemplates holding in ,
1998, would need to be received at Lunn's principal executive offices located at
1 Garvies Point Road, Glen Cove, New York, 11542-2828 on or before , 1998 for
consideration for inclusion in Lunn's Proxy Statement and form of proxy relating
to that meeting.
LUNN PROXY PROPOSAL 2: RATIFICATION OF ACCOUNTANTS
The Lunn Board of Directors has appointed KPMG Peat Marwick
LLP, independent certified public accountants, to audit Lunn's consolidated
financial statements for the year ending December 31, 1997. Lunn has been
advised by KPMG Peat Marwick LLP that neither the firm nor any of its associates
has any material relationship with Lunn or any of its subsidiaries. In
accordance with a resolution adopted by the Lunn Board of Directors, such
appointment is being presented to the stockholders for ratification at the Lunn
Annual Meeting.
If Lunn Proxy Proposal 2 is not approved by a majority vote
of the stockholders present, in person or by proxy, at the Lunn Annual Meeting
or if prior to the Lunn Annual Meeting KPMG Peat Marwick LLP shall decline to
serve, then the Lunn Board of Directors will designate another firm to audit the
financial statements of Lunn for the year ending December 31, 1997 whose
continued retention thereafter will be subject to ratification by the
stockholders of Lunn. In addition, in the event that the Merger is approved and
is consummated, the Board of Directors of the Combined Company will meet after
the Merger to determine the Combined Company's independent accountants for the
year ending December 31, 1997.
Effective January 21, 1997, Lunn dismissed the independent
accounting firm of Cooper's & Lybrand L.L.P. and engaged the independent
accounting firm of KPMG Peat Marwick LLP to examine and report on Lunn's
consolidated financial statements for the year ended December 31, 1996. The
termination of Coopers & Lybrand L.L.P. and the engagement of KPMG Peat Marwick
LLP were each approved by the Lunn Board of Directors. Lunn and Coopers &
Lybrand L.L.P. were unable to reach agreement on the fees for the audit of
Lunn's 1996 consolidated financial statements. Neither during the audit of
Lunn's two most recent fiscal years nor during any subsequent interim period
have there been any disagreements with Coopers & Lybrand L.L.P. on any matter of
accounting principles or practices, financial statement disclosure, auditing
scope or procedure or any reportable events. The report by Coopers & Lybrand
L.L.P. on Lunn's consolidated financial statements for the year ended December
31, 1995 did not contain any adverse opinion, disclaimer of opinion or was
modified as to
- 82 -
<PAGE>
uncertainty, audit scope, or accounting principles. The report by Coopers &
Lybrand L.L.P. on Lunn's consolidated financial statements for the year ended
December 31, 1994 did not contain any adverse opinion, disclaimer of opinion or
was modified as to uncertainty, audit scope, or accounting principles, except
for a separate paragraph that raised substantial doubt about Lunn's ability to
continue as a going concern. Lunn had incurred net losses of $4,476,000 for the
prior two years (1994 and 1993), was not in compliance with certain restrictive
debt covenants under its borrowing agreements and had not made certain required
payments, for which waivers of non-compliance had not been obtained. These
uncertainties raised substantial doubt about Lunn's ability to continue as a
going concern. Lunn has requested Coopers & Lybrand L.L.P. to furnish it with a
letter addressed to the Commission stating whether or not they agree with the
foregoing statements made in this paragraph and, if not, stating in what
respects they do not agree.
Representatives of KPMG Peat Marwick LLP are expected to be
present at the Lunn Annual Meeting to respond to appropriate questions of
stockholders and to make a statement if they desire.
SECURITIES AND EXCHANGE COMMISSION POSITION ON INDEMNIFICATION
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
the registrant pursuant to the provisions of the Lunn Certificate of
Incorporation, Lunn Bylaws, or other documents, Lunn has been informed that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
EXPERTS
The consolidated financial statements of Lunn as of December
31, 1996 and for the year ended December 31, 1996, incorporated by reference in
this Proxy Statement/Prospectus and the Registration Statement have been
incorporated by reference in reliance on the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon authority of said firm as experts in auditing and accounting. The
consolidated financial statements of Lunn, as of December 31, 1995 and for the
year ended December 31, 1995 and December 31, 1994, incorporated by reference in
this Proxy Statement/Prospectus and the Registration Statement have been
incorporated by reference in reliance on the report of Coopers & Lybrand,
L.L.P., independent certified public accountants, and upon authority of said
firm as experts in auditing and accounting. The financial statements of TPG as
of December 31, 1996 and 1995, and for the year ended December 31, 1996 and the
eight months ended December 31, 1995, and the financial statements of the
Brunswick Technical Group for the four months ended April 28, 1995 and the year
ended December 31, 1994, included in this Proxy Statement/Prospectus and
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
LEGAL MATTERS
Certain legal matters with respect to the validity of the
shares of Combined Company Common Stock offered hereby will be passed upon for
Lunn by Dechert Price & Rhoads, New York, New York. Gardere & Wynne, L.L.P.,
Houston, Texas, is acting as counsel for TPG in connection with certain legal
matters relating to the Merger and the transactions contemplated thereby.
- 83 -
<PAGE>
================================================================================
TPG HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Reports of Independent Public Accountants..................................F-2
Consolidated Balance Sheets................................................F-4
Consolidated Statements of Income..........................................F-5
Consolidated Statements of Cash Flows......................................F-8
Notes to Consolidated Financial Statements.................................F-11
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
TPG Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of TPG HOLDINGS,
INC. (a Delaware Corporation) AND SUBSIDIARIES as of December 31, 1996 and 1995,
and the related consolidated statements of income and cash flows for the year
ended December 31, 1996, and the eight months ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TPG Holdings, Inc. and
Subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for the year ended December 31, 1996, and the
eight months ended December 31, 1995, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 14, 1997
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
TPG Holdings, Inc.:
We have audited the accompanying statements of income and cash flows of the
BRUNSWICK TECHNICAL GROUP, a division of Brunswick Corporation (a Delaware
corporation), for the year ended December 31, 1994, and the four months ended
April 28, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of the Brunswick
Technical Group for the year ended December 31, 1994, and the four months ended
April 28, 1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
June 10, 1997
F-3
<PAGE>
TPG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of April 4, 1997, and December 31, 1996 and 1995
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
(unaudited) December December
ASSETS April 4, 1997 31, 1996 31, 1995
- ------ ------------- --------- ---------
CURRENT ASSETS:
<S> <C> <C> <C>
Cash $ 142 $ 1,059 $ 1,176
Accounts receivable (net of allowance for doubtful
accounts of $224, $179 and $171 as of
April 4, 1997 and December 31, 1996 and 1995) 12,550 17,148 14,875
Inventories and costs relating to long-term contracts
and programs in process, net of progress
payments 23,529 20,350 19,364
Prepaid expenses 809 1,079 987
Current deferred income taxes 309 309 86
------- -------- --------
Total current assets 37,339 39,945 36,488
------- -------- --------
PROPERTY, PLANT AND EQUIPMENT:
Buildings and improvements 257 256 103
Machinery and equipment 4,651 3,400 1,044
Construction in progress 327 1,460 1,214
Less-Accumulated depreciation (974) (707) (138)
-------- --------- ---------
Net property, plant and equipment 4,261 4,409 2,223
------- -------- --------
DEFERRED INCOME TAXES 191 191 -
OTHER ASSETS 357 178 200
------- -------- --------
Total assets $42,148 $ 44,723 $ 38,911
======= ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 9,221 $ 5,219 $ 6,711
Accrued expenses 5,493 6,640 5,559
Short-term debt 5,112 9,624 6,660
------- -------- --------
Total current liabilities 19,826 21,483 18,930
------- -------- --------
LONG-TERM LIABILITIES:
Long-term debt 14,500 15,222 15,640
Deferred income taxes - - 422
------- -------- --------
Total liabilities 34,326 36,705 34,992
Mandatorily Redeemable Preferred stock, 8% cumulative,
redeemable, $1.00 par value, 1,000,000 shares authorized,
issued and outstanding 1,000 1,000 1,000
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 1,000,000 shares authorized,
475,000 shares issued and outstanding as of April 4, 1997
and December 31, 1996; common stock, $1.00 par value,
500,000 shares authorized, 1,000 shares issued and
outstanding as of December 31, 1995 5 5 1
Additional paid-in capital 995 995 999
Retained Earnings 6,052 6,248 2,054
Less -
Notes receivable from officers (135) (135) (135)
Additional minimum pension liability (95) (95) -
-------- --------- --------
Total shareholders' equity 6,822 7,018 2,919
------- -------- --------
Total liabilities and shareholders' equity $42,148 $ 44,723 $ 38,911
======= ======== ========
The accompanying notes are an integral part of these statements.
</TABLE>
F-4
<PAGE>
TPG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Quarters Ended April 4, 1997 and March 29, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
Quarter Quarter
Ended Ended
April 4, 1997 March 29, 1996
------------- --------------
<S> <C> <C>
Revenues $ 23,822 $ 27,048
Cost of sales 18,736 20,628
General and administrative and other expenses 4,927 4,818
-------- --------
Operating income 159 1,602
Interest expense 478 560
-------- --------
(Loss) income before taxes (319) 1,042
Income tax (benefit) provision (123) 401
--------- --------
Net (loss) income $ (196) $ 641
========= ========
The accompanying notes are an integral part of these statements.
</TABLE>
F-5
<PAGE>
TPG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Year Ended December 31, 1996 and
For the Eight Months Ended December 31, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
Eight
1996 Months 1995
---- -----------
<S> <C> <C>
Revenues $ 126,534 $ 79,172
Cost of sales 94,365 61,738
General and administrative and other expenses 21,758 12,123
---------- --------
Operating income 10,411 5,311
Interest expense 2,377 1,892
---------- --------
Income before taxes and extraordinary item 8,034 3,419
Income tax provision 3,093 1,312
---------- --------
Net income before extraordinary item 4,941 2,107
Extraordinary loss from debt refinancing, net of income tax benefit of $418 667 -
---------- --------
Net income $ 4,274 $ 2,107
========== ========
The accompanying notes are an integral part of these statements.
</TABLE>
F-6
<PAGE>
BRUNSWICK TECHNICAL GROUP
CONSOLIDATED STATEMENTS OF INCOME
For the Four Months Ended April 28, 1995 and
For the Year Ended December 31, 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
Four Months 1995 1994
---------------- ---------
<S> <C> <C>
Revenues $ 28,416 $ 118,660
Cost of sales 27,354 112,950
General and administrative and other expenses 1,350 3,923
-------- ---------
Operating (loss) income before taxes (288) 1,787
Income tax (benefit) provision (112) 683
--------- ---------
Net (loss) income $ (176) $ 1,104
========= =========
The accompanying notes are an integral part of these statements.
</TABLE>
F-7
<PAGE>
TPG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Quarters Ended April 4,1997 and March 29, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
Quarter Quarter
Ended Ended
April 4, 1997 March 29, 1996
------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ (196) $ 641
Adjustments to reconcile net income to net cash provided by (used in)
operating activities -
Depreciation and amortization 285 120
Decrease in accounts receivable 4,598 169
Increase in inventories (3,179) (5,312)
Decrease in prepaid expenses 270 123
Increase in trade accounts payable 4,002 1,319
(Decrease) increase in accrued expenses (1,146) 865
Increase in other noncurrent assets (197) (125)
-------- --------
Total Adjustments 4,633 (2,841)
------- --------
Net cash provided by (used in) operating activities 4,437 (2,200)
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (119) (477)
-------- --------
Net cash used in investing activities (119) (477)
-------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
(Repayments) proceeds of borrowings (5,235) 1,766
-------- -------
Net cash (used-in) provided by financing activities (5,235) 1,766
-------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (917) (911)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,059 1,176
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 142 $ 265
======= =======
The accompanying notes are an integral part of these statements.
</TABLE>
F-8
<PAGE>
TPG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended December 31, 1996 and
For the Eight Months Ended December 31, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
Eight
1996 Months 1995
---- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 4,274 $ 2,107
Adjustments to reconcile net income to net cash provided by operating
activities -
Depreciation and amortization 646 138
Deferred tax provision (836) 374
Increase in accounts receivable (2,273) (3,014)
(Increase) decrease in inventories (986) 4,294
Increase in prepaid expenses (92) (801)
(Decrease) increase in trade accounts payable (1,492) 1,308
Increase in accrued expenses 999 803
(Increase) decrease in other noncurrent assets (55) 57
-------- -------
Total Adjustments (4,089) 3,159
-------- -------
Net cash provided by operating activities 185 5,266
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,755) (1,231)
Additional cash payment for business acquired (1,000) -
-------- ------
Net cash used in investing activities (2,755) (1,231)
-------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds of borrowings 21,624 -
Repayments of borrowings (19,078) (2,959)
Cash dividends paid (93) -
Proceeds from repayment of notes receivable - 100
------- -------
Net cash provided by (used in) by financing activities 2,453 (2,859)
------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (117) 1,176
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,176 -
------- ------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,059 $ 1,176
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 2,567 $ 1,512
Cash paid for income taxes 3,043 1,500
The accompanying notes are an integral part of these statements.
</TABLE>
F-9
<PAGE>
BRUNSWICK TECHNICAL GROUP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Four Months Ended April 28, 1995 and
For the Year Ended December 31, 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
Four
Months 1995 1994
----------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net (loss) income $ (176) $ 1,104
Adjustments to reconcile net (loss) income to net cash provided by
(used in) operating activities -
Depreciation and amortization 949 3,444
Deferred tax provision 795 1,046
Decrease (increase) in accounts receivable 6,420 (4,827)
Increase in inventories (6,028) (83)
Decrease (increase) in prepaid expenses and other current assets 930 (61)
(Decrease) increase in deferred pension (177) 493
Increase (decrease) in trade accounts payable 415 (1,775)
Increase (decrease) in accrued expenses 1,469 (2,708)
Decrease in other noncurrent assets 19 1,209
------- -------
Total Adjustments 4,792 (3,262)
------- --------
Net cash provided by (used in) by operating activities 4,616 (2,158)
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (462) (1,262)
-------- --------
Net cash used in investing activities (462) (1,262)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in due to affiliate (3,962) 3,422
-------- -------
Net cash (used in) provided by financing activities: (3,962) 3,422
-------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 192 2
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 65 63
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 257 $ 65
======= =======
The accompanying notes are an integral part of these statements.
</TABLE>
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TPG Holdings, Inc., and Subsidiaries/Brunswick Technical Group Notes to
consolidated financial statements. December 31, 1996, December 31, 1995, April
28, 1995 and December 31, 1994
1. ORGANIZATION AND BASIS OF PRESENTATION
Organization
The Brunswick Technical Group (the "Business") represents
substantially all of the assets and liabilities of the
Technical Group, an unincorporated entity of Brunswick
Corporation ("Brunswick"). On April 28, 1995, TPG Holdings,
Inc. (the "Company") acquired substantially all of the assets
and liabilities of the Business (the "Acquisition"). See Note
3 for further disclosure related to the Acquisition.
Accordingly, the financial statements presented for periods
prior to April 28, 1995 reflect the Business' results of
operations, and for periods subsequent to April 28, 1995
reflect the Company's results of operations beginning on April
29, 1995.
Basis of Presentation
The accompanying financial statements are prepared on a
consolidated basis and include those revenues and expenses
directly attributable to the operations of the Business and
the Company. All significant intercompany transactions have
been eliminated.
The consolidated statements of income reflect substantially
all of the costs associated with the normal cost of business.
Expenses allocated to the Business and allocation methods are
further discussed in Note 15.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of
the Company and all its subsidiaries, all of which are 100%
owned. The Company is incorporated in the state of Delaware,
with corporate headquarters located in Atlanta, Georgia.
Principal manufacturing operations are located in Marion,
Virginia; Lincoln, Nebraska; Deland, Florida; and Camden,
Arkansas. The Company's subsidiaries also include three
property companies: Marion Properties, Inc., Lincoln
Properties, Inc. and Deland Properties, Inc.
The Business' consolidated financial statements include the
assets, liabilities, revenues and expenses of the
manufacturing operations purchased by TPG Holdings, Inc., in
connection with the Acquisition, as well as expenses incurred
by the Brunswick Technical Group headquarters' office and by
Brunswick Corporation in support of the Business.
F-11
<PAGE>
Revenue Recognition
Revenues on long-term contracts are recognized principally on
the units-of-delivery method (i.e., sales are recorded as
units are delivered). Estimated losses on contracts are
recorded in full when identified.
General and Administrative Costs
Brunswick Technical Group and Brunswick Corporation expenses
which support the Business are reported as general and
administrative expenses during the periods through April 28,
1995. The Business absorbed the general and administrative
expenses incurred at its manufacturing operations in inventory
and recognized such costs in cost of sales as such inventory
was shipped.
General and administrative expenses reported for periods after
April 28, 1995 include all the Company's corporate
headquarters level expenses, as well as the general and
administrative expenses incurred at the manufacturing
operations.
Inventories
Inventories are valued at the lower of first-in, first-out
(FIFO) cost or market (net realizable value). Inventory cost
includes material, labor and manufacturing overhead for
periods beginning after April 28, 1995. For periods prior to
April 29, 1995, inventory cost also includes general and
administrative expenses incurred at the manufacturing
operations. Customer progress payments received on long-term
contracts are recorded as an offset to related inventory
balances.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. In particular, accounting for long-term
contracts requires management estimates of future contract
revenues and costs used for preparing estimates at contract
completion and determining contract profitability reflected in
the financial statements.
Actual results could differ from those estimates.
Property
For Eight Months Ended December 31, 1995 and Year Ended December 31,
1996
Property additions recorded subsequent to the Acquisition are
recorded at cost. The costs of maintenance and repairs are
charged to operating results as incurred. Depreciation is
charged against operations over three to ten years for
machinery and equipment and seven to fifteen years for
buildings and improvements. Improvements to leased property
are amortized over the life of the lease or the estimated life
of the improvement, whichever is shorter. Accelerated
depreciation is used for both financial reporting and tax
purposes where permitted. Depreciation expense for the year
ended
F-12
<PAGE>
December 31, 1996 and the eight months ended December 31, 1995
is $569,000 and $108,000, respectively.
For Four Months Ended April 28, 1995 and Year Ended December 31, 1994
Property was recorded at cost. Accounting policies were the
same as above, except that useful lives used to calculate
depreciation expense ranged from 10 to 35 years for buildings
and improvements and both straight-line and accelerated
methods of depreciation were used for financial reporting
purposes.
Depreciation expense for the four months ended April 28, 1995
and the year ended December 31, 1994 is $949,000 and
$3,444,000, respectively.
In Accordance with Statement of Financial Accounting Standards No. 121
("FAS 121"), "Accounting for the Impairment of Long-Lived Assets to Be
Disposed Of," the Company reviews for the impairment of long-lived
assets whenever events or changes in circumstances indicate the
carrying amount of an asset may not be recoverable. FAS 121 was adopted
by the Company beginning with the eight month period ended December 31,
1995. During 1996 and 1995, no such impairment losses have been
identified by the Company.
Reclassification
Certain amounts contained in previously issued financial statements
have been reclassified to conform to 1997 presentation.
3. FORMATION OF THE COMPANY
The Company was formed in connection with the Acquisition on April 28,
1995. The purchase price included cash of $22.0 million and debt
payable to Brunswick of $3.259 million of which $0.037 million was
forgiven in 1996. In addition, the purchase agreement specified that
the Company would make payments contingent on future earnings. On
December 30, 1996 the Company paid $1.0 million to Brunswick in full
settlement of this obligation and recorded this amount as additional
purchase price.
The Acquisition was accounted for as a purchase of assets. The purchase
price of $28.631 million (including the $26.222 million paid to
Brunswick plus $2.409 million of direct transaction costs) was
allocated to purchased assets and liabilities based on approximate fair
values as follows (in thousands):
Accounts Receivable $ 11,824
Inventories 23,658
Prepaid and other Assets 1,040
Fixed Assets 1,571
Current Liabilities (9,462)
------------
Total $ 28,631
===========
Brunswick indemnified the Company for certain legal, tax and
environmental contingencies relating to the period prior to the
Acquisition.
F-13
<PAGE>
4. NATURE OF BUSINESS AND CUSTOMER CONCENTRATION
The Company is engaged principally in the design and manufacture of a
wide range of advanced composite, aerospace and defense products
including radomes for high-performance military and commercial
aviation, rocket motor cases, pressure vessels, fuel tanks for military
aircraft and commercial natural gas vehicles, advanced electronic and
electro-optical components, chemical warfare detection systems and
ultra-lightweight camouflage.
Approximately 81% of the Company's 1996 sales were to the U.S.
Government on prime or sub-contract bases. U.S. Government sales for
all other periods reported ranged from 83% to 84%. More than 95% of
sales were on a fixed-price basis for all periods reported.
Sales backlog at December 31, 1996 and 1995 was $119.6 million and
$162.4 million, respectively. Backlog at April 28, 1995 and December
31, 1994 was $109.8 million and $121.8 million, respectively.
As a government contractor, the Company is exposed to certain inherent
industry risks and uncertainties including technological obsolescence,
changes in government policies, dependence on the federal defense
budget and annual congressional appropriation and allotment of funds.
Although the Company's major programs have been well supported during
recent years, future spending reductions and funding limitations could
negatively impact future operations.
Approximately 41% of the Company's labor force is covered by collective
bargaining agreements as of December 31, 1996.
5. SEGMENT REPORTING (UNAUDITED)
The Company operations are divided into two business segments:
Aerospace/Defense and Commercial. A description and financial data for
each segment are summarized below:
Aerospace/Defense
The Aerospace/Defense markets served by the Company primarily consist
of the United States government's Department of Defense, which the
Company sells to on a prime and subcontract basis, and the commercial
aerospace market. The Company designs, develops and manufactures a wide
range of advanced composite products, advanced electronic and
electro-optical components, and ultra-lightweight camouflage and other
integrated defense systems for this market segment.
Commercial
The Company designs and manufactures composite parts and components for
the automotive, oil and gas and other commercial industries, including
fuel tanks for natural gas vehicles, accumulator bottles, flexible
drill pipe and other composite products. The Company also manufactures
electrical power switching products for specialty vehicles including
recreational vehicles, motor homes, conversion vans, over-the-road
trucks and leisure boats.
F-14
<PAGE>
Selected Financial Data By Business Segment
<TABLE>
<CAPTION>
Brunswick Technical Group TPG Holdings, Inc.
---------------------------- -----------------------------
As of and As of and
As of and for the Four for the Eight As of and
(in thousands) for the Year Months Months for the Year
Ended Ended Ended Ended
December 31, April 28, December 31, December 31,
1994 1995 1995 1996
---- ---- ---- ----
Net revenues
<S> <C> <C> <C> <C>
Aerospace/Defense $ 108,619 $ 25,361 $ 71,409 $ 110,847
Commercial 10,041 3,055 7,763 15,687
Corporate & Other - - - -
------------ ---------- ----------- ----------
Total $ 118,660 $ 28,416 $ 79,172 $ 126,534
============ ========== =========== ===========
Operating income (loss)
Aerospace/Defense $ 6,475 $ 1,623 $ 7,841 $ 14,484
Commercial (765) (561) (1,004) (404)
Corporate & Other (3,923) (1,350) (1,526) (3,669)
------------- ----------- ------------ ------------
Total $ 1,787 $ (288) $ 5,311 $ 10,411
============ =========== =========== ===========
Identifiable assets
Aerospace/Defense $ 48,760 $ 46,418 $ 29,051 $ 34,320
Commercial 5,985 6,750 6,777 7,934
Corporate & Other 250 191 3,083 2,469
------------ ---------- ----------- -----------
Total $ 54,995 $ 53,359 $ 38,911 $ 44,723
============ ========== =========== ===========
Capital Expenditures
Aerospace/Defense $ 861 $ 410 $ 718 $ 955
Commercial 394 52 488 752
Corporate & Other 7 - 25 48
------------ ---------- ----------- -----------
Total $ 1,262 $ 462 $ 1,231 $ 1,755
============ ========== =========== ===========
Depreciation and amortization
Aerospace/Defense $ 2,948 $ 795 $ 92 $ 466
Commercial 436 139 46 158
Corporate & Other 60 15 - 22
------------ ---------- ----------- -----------
Total $ 3,444 $ 949 $ 138 $ 646
============ ========== =========== ===========
</TABLE>
6. INVENTORIES
Inventories at December 31, 1996 and 1995, consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------------------------
<S> <C> <C>
Finished goods $ 727 $ 836
Work in process 8,905 10,268
Raw materials 8,045 13,635
Progress payments (7,327) (5,375)
----------- ----------
$ 20,350 $ 19,364
=========== ==========
</TABLE>
F-15
<PAGE>
7. LEASES
The Company and the Business have various lease agreements for offices,
factories and certain equipment. The longest lease obligation extends
to 2001. Most leases contain renewal options and some contain purchase
options. No leases contain restrictions on the Company's activities
concerning dividends, further leasing or additional debt.
Rent expense for the year ended December 31, 1996, eight months ended
December 31, 1995, four months ended April 28, 1995 and the year ended
December 31, 1994, consisted of the following (in thousands):
<TABLE>
<CAPTION>
Eight Four
Year Months Months Year
Ended Ended Ended Ended
Dec. 31, Dec. 31, April 28, Dec. 31,
1996 1995 1995 1994
<S> <C> <C> <C> <C>
Basic Expense $ 1,085 $ 533 $ 315 $ 769
Sublease Income (250) (167) (132) (416)
------------------------------------------------------------
Rent Expense, Net $ 835 $ 366 $ 183 $ 353
============================================================
Future minimum rental payments at December 31, 1996, under
agreements classified as operating leases with noncancelable
terms in excess of one year, are as follows (in thousands):
1997 $ 828
1998 369
1999 193
2000 88
2001 6
----------
$ 1,484
</TABLE>
8. DEBT
Short -term debt at December 31 consisted of the following (in
thousands):
<TABLE>
<CAPTION>
1996 1995
---------------------------
<S> <C> <C>
Revolving loan $ 7,624 $ 4,374
Current maturities of term loans 2,000 2,286
-----------------------------
Total $ 9,624 $ 6,660
=============================
</TABLE>
Long-term debt at December 31, 1996 and 1995, consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1996 1995
---------------------------
<S> <C> <C>
Term loans (net of current maturities) $ 12,000 $ 12,381
Deferred obligation 3,000 3,000
Subordinated debt 222 259
-----------------------------
Total $ 15,222 $ 15,640
=============================
</TABLE>
F-16
Scheduled maturities of long-term debt are as follows (in
thousands):
1998 $ 2,000
1999 10,055
2000 56
2001 3,055
Thereafter 56
----------
Total $ 15,222
==========
On December 27, 1996, the Company refinanced its revolving and term
loans with a different bank. The Company recorded an after-tax
extraordinary loss of $667,000 ($1.085 million pre-tax) during 1996
related to prepayment fees, closing costs, origination fees and legal
costs. The initial term of the new revolving and term loans is three
years.
Under the revolving loan terms of the new agreement, the Company may
borrow, on a revolving basis, up to $17.0 million against the Company's
eligible receivables and inventories at an interest rate of 0.5% above
the domestic prime rate or, at the Company's option, 2.75% above the
London Interbank Offered Rates (LIBOR). Interest is payable monthly.
The Company must pay an unused line fee equal to 0.5% per annum of the
total revolving credit facility.
Under the term loan provisions of the new agreement, the Company
borrowed $14.0 million on December 27, 1996, at an annual interest rate
of .75% above prime. The interest rate on the term loan may be changed,
at the Company's option, to 3.0% above LIBOR. Interest is payable
monthly in arrears. Principal payments of $500,000 per quarter are due
through December 27, 1999, upon which date the balance is due.
The Company also may obtain equipment loans to finance certain
equipment purchases up to a total of $1.0 million in principal. No
equipment loans exist as of December 31, 1996.
The annual interest rate in effect at December 31, 1996, was 8.75% on
the revolving loan and 9.0% on the term loan. Both of the Company's
loans with the bank are secured by collateral consisting of
substantially all of the Company's property including inventory,
equipment, receivables, general intangibles, investment property and
real property.
The Company is subject to several financial and nonfinancial covenants
under the revolving and term loans. During 1996, the Company was in
compliance with all covenants.
Under the terms of the Company's former loan agreement (which was
replaced on December 27, 1996), the Company had a revolving loan which
carried an annual interest rate of prime plus 1.5% and a term loan
which carried an annual interest rate of prime plus 2.0%. Annual
interest rates in effect at December 31, 1995, were 10.0% on the
revolving loan and 10.5% on the term loan.
The average effective interest rates during 1996 were 9.8% for the
revolving loans and 10.3% for the term loans, and the Company recorded
interest expense of $710,000 and $1,402,000 on such loans,
respectively. Interest expense for the eight months ended December 31,
1995 was $567,000 and $1,143,000, respectively, on these loans.
F-17
<PAGE>
The deferred obligation of $3.0 million is payable to Brunswick on
April 28, 2001, with interest of 8.0% per annum payable annually. The
Company recorded interest expense of $240,000 and $160,000 in 1996 and
in 1995 (eight months), respectively, related to the deferred
obligation.
The subordinated debt of $222,000, also payable to Brunswick, is due in
four equal annual installments commencing on April 28, 1999, with
interest of 13.0% payable annually. The Company recorded interest
expense of $25,000 in 1996 and $22,000 in 1995 (eight months) related
to the subordinated debt.
For the four months ended April 28, 1995 and the year ended December
31, 1994, no debt was recorded on the Business' books and no interest
expense was allocated to the Business by Brunswick.
9. RETIREMENT AND EMPLOYEE BENEFIT COSTS OF THE COMPANY
Defined Contribution Plans
The Technical Products Group, Inc. Retirement and Savings Plan for
substantially all of the Company's employees allows participants to
make contributions up to 15% of their base pay via payroll deductions
pursuant to Section 401(k) of the Internal Revenue Code. Under the
plan, the Company may make discretionary matching contributions. The
Company's match for the 1996 and 1995 plan year was 10% of each
participant's pretax contributions, limited to 6% of their salary. The
10% match for 1996 and 1995, was $130,000 and $80,000, respectively and
was paid in January of the following year.
Defined Benefits Plans
Hourly union employees of the Company are covered by defined benefit
pension plans with benefits generally based on negotiated rates and
years of service. The Company's funding policy is to contribute
annually the minimum required amount determined by its actuaries.
The net pension cost of the defined benefit plans for the year ended
December 31, 1996, and for the eight months ended December 31, 1995, by
components is as follows (in thousands):
<TABLE>
<CAPTION>
Eight
Months
1996 1995
------- -------
<S> <C> <C>
Service cost-benefits earned during the Period $ 293 $ 168
Interest cost 37 8
Actual return on Plan assets 13 --
Net amortization and deferral (11) --
--------- ----------
Net pension cost $ 332 $ 176
------- ---------
</TABLE>
<PAGE>
The funded status of the Plans and amounts recognized in the
Company's balance sheets at December 31 were as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
Actuarial present value of benefit obligations-
<S> <C> <C>
Vested $ 470 $ 165
Nonvested 80 11
-------- ----------
Accumulated benefit obligation 550 176
Market value of plan assets (104) --
--------- ----------
Unfunded projected benefit obligation 446 176
Unrecognized net loss (95) --
Adjustment to recognized minimum liability 95 --
-------- --------
Net pension liability $ 446 $ 176
======== ==========
</TABLE>
Assumptions used to measure the projected benefit obligation
and the expected long-term rate of return on plan assets as of
December 31 were as follows:
<TABLE>
<CAPTION>
1996 1995
---------------------------------------------
<S> <C> <C>
Discount rate for obligations 7.25% 7.25%
Long-term rate of investment return 8.00% 8.00%
Mortality 1983 Group Annuity 1983 Group Annuity
</TABLE>
The Company does not have any significant postemployment or
postretirement medical or postemployment or postretirement
life insurance plans.
10. SHAREHOLDERS' EQUITY OF THE COMPANY
Capital Structure
On June 5, 1996, the Company's Board of Directors approved
resolutions to:
o Split the Company's common stock 475-to-1.
o Amend the Company's Articles of Incorporation to
establish the total authorized shares of common stock
as 1,000,000.
o Reduce the par value of the Company's common stock to
$.01 per share.
F-19
<PAGE>
The activity in the equity accounts for the period April 29,
1995, through December 31, 1996, is summarized as follows (in thousands):
<TABLE>
<CAPTION>
Notes Additional
Common Stock Additional Receivable Minimum
--------------------- Paid-in Retained from Pension
Shares Amount Capital Earnings Officers Liability Total
------ ------ ------- -------- -------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Initial stock
issuance
April 29, 1995 1 $ 1 $ 999 $ - $ - $ - $1,000
Issuance of notes
receivable from
officers for
purchase of stock - - - - (235) - (235)
Repayment of
notes receivable - - - - 100 - 100
Net income - - - 2,107 - - 2,107
Preferred dividends
declared - - - (53) - - (53)
--------- --------- --------- --------- -------- -------- --------
Balance,
December 31,
1995 1 $ 1 $ 999 $2,054 $ (135) - $2,919
Common stock
split (475-to-1) 474 474 (474) - - - -
Par value
adjustment
(common) - (470) 470 - - - -
Net income - - - 4,274 - 4,274
Preferred dividends
declared - - - (80) - - (80)
Additional
minimum
pension liability - - - - - (95) (95)
--------- --------- -------- --------- -------- -------- --------
Balance,
December 31,
1996 475 $ 5 $ 995 $ 6,248 $ (135) $ (95) $ 7,018
========= ========= ===== ========= ======== ======== ========
</TABLE>
Stock Option Plan
During 1996, the shareholders approved the adoption of the Key
Management Stock Option Plan. Under the Plan, the Company may grant
nonstatutory and incentive stock options to employees of the Company
for the purchase of the Company's common stock at an exercise price
equal to at least 100% of the fair market value as of the date of grant
(110% of such fair market value if the optionee owns more that 10% of
the combined voting power of all classes of stock of the Company) as
determined by the Board of Directors. Options granted under the Plan
vest at the rate of 20% on each of the five anniversary dates following
the year of the grant. The Company granted incentive stock options to
acquire 25,000 shares of the Company's common stock during 1996, all of
which were outstanding as of December 31, 1996. The exercise price of
such options is $3.38 per share. The weighted average fair value at
grant date of options granted in 1996 was $1.67 per share.
F-20
<PAGE>
The Company accounts for this plan under Accounting Principles Board
Opinion No. 25, under which no compensation cost has been recognized.
Had compensation cost for this plan been determined based on the fair
value at grant date under the optional method in Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
("FAS 123"), the impact on the Company's net income would have been
immaterial. Based on current and anticipated use of stock options, it
is not expected that the impact of the accounting provisions of FAS 123
will be material in future years.
11. MANDATORILY REDEEMABLE PREFERRED STOCK OF THE COMPANY
The preferred stock is 8% cumulative and redeemable with a $1.00 par
value and 1,000,000 shares are authorized, issued and outstanding. In
case of liquidation, the holders of preferred stock will be paid out of
the assets of the Company in an amount in cash of $1.00 per share, plus
any accumulated and unpaid dividends before the common stockholders.
The Company may, at its option, redeem any or all of the outstanding
shares of the preferred stock for an amount in cash of $1.00 per share,
plus any accumulated and unpaid dividends. The preferred shares are
subject to mandatory redemption at the above-stated value on the
earlier of April 28, 2001, or the date on which occurs a change in the
ownership of 50% or more of the assets or the common stock of the
Company.
12. RELATED-PARTY TRANSACTIONS
At December 31, 1996 and 1995, certain officers of the Company have
outstanding promissory notes in the aggregate amount of $134,865, which
were issued to the Company as consideration for the paid-in capital in
excess of par value for the shares of stock they own.
Common shares of the Company owned by each employee have been pledged
as collateral to secure the payment of the promissory notes. The notes
carry an interest rate of the lesser of 8% and the highest rate
permitted by applicable law. Principal and accrued interest payments
are due in full upon maker's sale of any pledged stock or on April 28,
2001, if earlier. The notes may be repaid at any time at the option of
the maker without penalty.
13. TECHNOLOGICAL EXPENDITURES
Technological expenditures, excluding reimbursed projects, for the year
ended December 31, 1996, eight months ended December 31, 1995, four
months ended April 28, 1995 and the year ended December 31, 1994
consisted of the following (in thousands):
<TABLE>
<CAPTION>
Eight Four
Year Months Months Year
Ended Ended Ended Ended
Dec. 31, Dec. 31, April 28, Dec. 31,
1996 1995 1995 1994
------------------------------------------------------------
<S> <C> <C> <C> <C>
Research and Development $ 1,213 $ 605 $ 194 $ 1,030
Engineering and Other 1,256 834 298 917
------------------------------------------------------------
Total $ 2,469 $ 1,439 $ 492 $ 1,947
============================================================
</TABLE>
The company was also reimbursed $4.311 million, $1.077 million, $0.258
million and $3.310 million under federally funded research and
development contracts during the year ended
F-21
<PAGE>
December 31, 1996, eight months ended December 31, 1995, four months
ended April 28, 1995 and the year ended December 31, 1994 respectively.
14. INCOME TAXES
For the four months ended April 28, 1995 and the year ended December
31, 1994, income taxes of the Business were included in the Brunswick
consolidated federal and state tax returns. Income taxes were paid by
Brunswick on behalf of the Business. Income tax provisions were
calculated at the division level on a stand-alone basis and were
recorded on the Business' books.
The combined provision for U.S. federal and state income taxes for the
periods presented consisted of the following components ( in
thousands):
<TABLE>
<CAPTION>
Eight Four
Year Months Months Year
Ended Ended Ended Ended
Dec. 31, Dec. 31, April 28, Dec. 31,
1996 1995 1995 1994
----------------------------------------------------
<S> <C> <C> <C> <C>
Current $ 3,511 $ 938 $ (907) $ (363)
Deferred (836) 374 795 1,046
---------------------------------------------------
Total income tax provision (benefit) $ 2,675 $ 1,312 $ (112) $ 683
===================================================
</TABLE>
The federal statutory tax rate for each period is reconciled to the
effective tax rate as follows:
<TABLE>
<CAPTION>
Eight Four
Year Months Months Year
Ended Ended Ended Ended
Dec. 31, Dec. 31, April 28, Dec. 31,
1996 1995 1995 1994
-------------------------------------------------
<S> <C> <C> <C> <C>
Federal statutory rate 34.0% 34.0% 34.0% 34.0%
State and local taxes, net
of federal benefit 4.5 4.4 5.0 4.2
-----------------------------------------------
Effective tax rate 38.5% 38.4% 39.0% 38.2%
===============================================
</TABLE>
Deferred income taxes result from the recognition, in different
periods, of revenue and expense for tax and financial statement
purposes. The primary components of the December 31, 1996 and 1995,
deferred tax assets (liabilities) are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
------------------------
Deferred tax assets-
<S> <C> <C>
Excess of tax over book capitalized inventory costs $ 193 $ -
Reserves not deductible until paid 307 129
------------------------
Total deferred tax assets 500 129
Deferred tax liabilities-
Excess of book over tax estimated basis of assets
Recorded in the preliminary acquisition purchase
Price allocation ---- (465)
------------------------
$ 500 $ (336)
========================
</TABLE>
F-22
<PAGE>
15. TRANSACTIONS AMONG THE BUSINESS AND BRUNSWICK CORPORATION
Related party transactions with Brunswick prior to the Acquisition and
not disclosed elsewhere in the financial statements are as follows:
Employee Benefit Programs
Prior to the Acquisition, the employees of the Business were
eligible to participate in certain employee benefit plans
(medical, dental, worker's compensation and other benefits
plans) sponsored by Brunswick which charged the Business its
proportionate cost of these programs based on actual charges,
historical experience and headcount. The Business recorded
cost of approximately $ 1.8 million and $ 5.0 million for the
four months ended April 28, 1995 and year ended December 31,
1994, respectively.
On April 28, 1995, the Company terminated its participation in
the Brunswick employee benefit plans. Brunswick retained all
assets and liabilities related to the plans. Effective April
29, 1995, all employees of the Company were offered
participation in its employee benefit plans, including
medical, dental, worker's compensation and other plans. See
Note 9 for further discussion of these plans.
Retirement Plans
Costs charged to the Business' operations for the four months
ended April 28, 1995 and the year ended December 31, 1994 for
its retirement plans are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Four
Months Year
Ended Ended
April 28, Dec. 31,
1995 1994
--------------------------
Defined Benefit Plans:
<S> <C> <C>
Hourly $ 135 $ 342
Salary 305 718
--------------------------
Total $ 440 $ 1,060
--------------------------
Retirement and savings plan $ 50 $ 294
-------------------------
</TABLE>
The following assumptions were used in determining the expense
recognized for the defined benefit pension plans:
<TABLE>
<CAPTION>
Four Months Year Ended
Ended April 28, 1995 December 31, 1994
------------------------------------------------
<S> <C> <C>
Discount rate 7.25% 8.5%
Rate of increase in compensation levels 5.5% 5.5%
Expected long term rate of return on assets 9.0% 9.0%
</TABLE>
Postretirement Medical Benefits-
Certain employees of the Business were eligible to participate
in a postretirement medical program sponsored by Brunswick.
Costs recorded by the Business represented the estimated
proportionate cost attributable to its employees.
Postretirement benefit costs charged to the Business'
operations for the four months ended April 28, 1995 and the
year ended December 31, 1994 were $329,000 and $960,000
respectively. Brunswick is liable for payments under these
programs. On April 28, 1995, the Company terminated its
participation in the Brunswick post retirement medical program
and Brunswick retained liabilities related to vested benefits.
Corporate Services-
Brunswick provided certain support services to the Business
including: cash management, benefits administration, risk
management and tax and audit services. The charges for these
services were allocated to the Business based on various
formulas which reasonably approximate the actual costs
incurred. The costs recorded by the Business and included in
G&A expenses for these allocations were approximately $570,000
for the four months ended April 28, 1995 and $1.980 million
for the year ended December 31, 1994. The amounts allocated to
the Business from Brunswick are not necessarily indicative of
the actual costs which may have been incurred had the Business
operated as an entity unaffiliated with Brunswick. However,
the Business believes that the allocation is reasonable and in
accordance with the Securities and Exchange Commission's Staff
Accounting Bulletin No. 55.
16. ADVANCES DUE TO RELATED PARTY
Advances due to related party represent advances from
Brunswick to fund operating and investing activities, net of
cash advanced to Brunswick from operating cash flows generated
by the Business. Advances owed to Brunswick are non-interest
bearing.
17. COMMITMENTS AND CONTINGENCIES
Contingent Liabilities
The Business had outstanding standby letters of credit of $0.6
million and $0.8 million at April 28, 1995 and December 31,
1994, respectively, representing conditional commitments
whereby the Business guarantees performance to a third party
in the ordinary course of business.
F-24
<PAGE>
Litigation
On March 1, 1995, the Business entered into a settlement
agreement and release with the United States of America of all
issues related to the Federal Grand Jury investigation of its
Marion, Virginia facility concerning whether any of
Brunswick's employees failed fully to conform to certain
documentation requirements and procedures in the course of
producing radomes for the F-16 aircraft from April through
August, 1992.
The Company, upon its acquisition of the Business, agreed to
keep in place the then current self-governance program of the
Business, and to have, at a minimum, two independent outside
reviews of the program performed; one commencing 30 days after
closing (or May 28, 1995) and the second commencing 18 months
after closing (or October 28, 1996). These independent reviews
have been performed and the associated results have been
reported to the U.S. Government. The Company also agreed to
provide the government with semi-annual internal
self-governance status reports for a period of three years
beginning six months after the Acquisition closing. Reports
have been submitted for periods through April, 1997 and the
last report required to be submitted is for the six month
period ending October 1998.
18. PROPOSED MERGER WITH LUNN
The Company signed an agreement with Lunn Industries, Inc. (Lunn) as of
June 6, 1997, for a proposed merger with Lunn. In connection with the
proposed merger, the Company's shareholders would receive 8.3028 shares
of the combined company's common stock for each share of the Company's
common stock.
19. INTERIM FINANCIAL STATEMENTS (UNAUDITED)
Basis of Presentation
The information contained in the interim consolidated financial
statements of the Company, including the consolidated balance sheet as
of April 4, 1997 and the consolidated statements of income and cash
flows for the quarters ended April 4, 1997 and March 29, 1996 is
unaudited, but includes, in the opinion of management, all adjustments
which are necessary for a fair presentation of the results for the
interim periods.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to the requirements of
the Securities and Exchange Commission, although management believes
that the disclosures included in these financial statements are
adequate to make the information not misleading.
The results of operations for the interim periods are not necessarily
indicative of the results to be expected for the entire year.
F-25
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification Of Directors And Officers.
The following summary is qualified in its entirety by
reference to the complete text of the DGCL, Lunn Bylaws and Lunn Certificate of
Incorporation referred to below.
Section 145 of the DGCL provides in relevant part that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation) by reason of the fact that such
person is or was a director, officer, employee, or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe such person's conduct was
unlawful.
In addition, Section 145 of the DGCL provides that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the corporation to procure a judgment in its favor by reason of the
fact that such person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection with the defense or settlement of such action or suit
if such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the corporation and
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Delaware Court of Chancery or
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Delaware Court of Chancery or such other
court shall deem proper.
Section 145 of the DGCL further provides that nothing in the
above-described provisions shall be deemed exclusive of any other rights to
indemnification or advancement of expenses to which any person may be entitled
under any bylaw, agreement, vote of stockholders or disinterested directors or
otherwise.
The Lunn Bylaws, which will become the Combined Company Bylaws
at the Effective Time, provide for the indemnification of each director,
officer, former director and former officer of Lunn, and each person who shall
have served at the request of Lunn as a director or officer of another
corporation in which Lunn owns shares of capital stock or of which Lunn is a
creditor, against expenses actually and necessarily incurred by him or her in
connection with the defense of any action, suit or proceeding in which he or she
is made a party by reason of his or her being or having been a director or
officer of Lunn or of such other corporation. The Lunn Bylaws also provide that
such indemnification
II-1
<PAGE>
shall not be deemed exclusive of any other rights to which those indemnified may
be entitled as a matter of law or under any bylaw, agreement, vote of
stockholders or otherwise.
Section 102(b)(7) of the DGCL provides that a corporation may,
in its certificate of incorporation, eliminate or limit the personal liability
of a director to the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director except for liability: for any breach of
the director's duty of loyalty to the corporation or its stockholders; for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; under Section 174 of the DGCL (pertaining to certain
prohibited acts including unlawful payment of dividends or unlawful purchase or
redemption of the corporation's capital stock); or for any transaction from
which the director derived an improper personal benefit. The Lunn Certificate of
Incorporation, as proposed to be amended and restated at the Effective Time to
become the Combined Company Certificate of Incorporation, will not contain a
provision so limiting the personal liability of directors of the Combined
Company.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
Exhibit No. Description
- ----------- -----------
2.1 Acquisition Agreement and Plan of Merger, dated as of June 6,
1997, by and among Lunn Industries, Inc., and TPG Holdings, Inc.
(exhibits omitted but will be filed by the registrant with the
Commission upon request)
3.1 Certificate of Incorporation of Lunn (incorporated by reference
to Lunn's Quarterly report on Form 10-QSB for the period ended
September 30, 1996 (File No. 0-1298) previously filed with the
Commission)
3.2 Bylaws of Lunn (incorporated by reference to Lunn's Quarterly
Report on Form 10-QSB for the period ended September 30, 1996
(File No. 0-1298) previously filed with the Commission)
*5.1 Form of Opinion of Dechert Price & Rhoads
*8.1 Form of Opinion of Gardere & Wynne, L.L.P.
13.1 Annual Report for Lunn on Form 10-KSB for the fiscal year ended
December 31, 1996
13.2 Annual Report for Lunn on Form 10-KSB for the fiscal year ended
December 31, 1995
13.3 Quarterly Report for Lunn on Form 10-QSB for the period ended
March 31, 1997
16.1 Letter on Change in Certifying Accountant
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Dechert Price & Rhoads (included in Exhibit 5.1)
23.3 Consent of Gardere & Wynne, L.L.P. (included in Exhibit 8.1)
23.4 Consent of Arthur Andersen LLP
23.5 Consent of Allen & Company Incorporated
23.6 Consent of Coopers & Lybrand, L.L.P.
23.7 Consent of Arthur Anderson LLP
24.1 Power of Attorney (included on signature page)
27.1 Financial Data Schedule (incorporated by reference to Lunn's
Annual Report on Form 10-KSB for the year ended December 31, 1996
(File No. 0-1298) and Lunn's Quarterly Report on Form 10-QSB for
the period ended March 31, 1997 (File No. 0-1298) previously
filed with the Commission)
*99.1 Form of Lunn proxy card
*99.3 Form of Letter of Transmittal to American Stock Transfer & Trust
Co. from stockholders of Lunn and TPG
------------------
* To be filed by amendment.
II-2
<PAGE>
Item 22. Undertakings.
(a) Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of the Registrant's annual report pursuant to Section 13(a) of 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned Registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11, or 13 of this Form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
(d) The undersigned Registrant hereby undertakes to supply by
means of a post-effective amendment all information concerning a transaction,
and the company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Falston, State of Maryland, on the 25th day of June, 1997.
LUNN INDUSTRIES, INC.
By: /s/ Alan W. Baldwin
------------------------------------
Name: Alan W. Baldwin
Title: Chairman of the Board and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below appoints Alan W.
Baldwin and Lawrence Schwartz, either of whom may act without the joinder of the
other, as his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto and all other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or their substitute or substitutes may lawfully do
or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed by the following persons in the
capacities at the above-named Registrant indicated on June 25, 1997.
Signature Title
--------- -----
/s/ Alan w. Baldwin Chief Executive Officer and
- ------------------------------ Chairman of the
Alan W. Baldwin Board (Principal Executive Officer)
/s/ Lawrence Schwartz Vice President, Secretary and Chief Financial
- ------------------------------ Officer (Principal Financial and Accounting
Lawrence Schwartz Officer)
/s/ Warren H. Haber Director
- ------------------------------
Warren H. Haber
/s/ John F. Menzel Director
- ------------------------------
John F. Menzel
/s/ John Simon Director
- ------------------------------
John Simon
/s/ William R. Lewis Director
- ------------------------------
William R. Lewis
II-4
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
2.1 Acquisition Agreement and Plan of Merger, dated as of June 6,
1997, by and among Lunn Industries, Inc., and TPG Holdings, Inc.
(exhibits omitted but will be filed by the registrant with the
Commission upon request)
3.1 Certificate of Incorporation of Lunn (incorporated by reference
to Lunn's Quarterly report on Form 10-QSB for the period ended
September 30, 1996 (File No. 0-1298) previously filed with the
Commission)
3.2 Bylaws of Lunn (incorporated by reference to Lunn's Quarterly
Report on Form 10-QSB for the period ended September 30, 1996
(File No. 0-1298) previously filed with the Commission)
*5.1 Form of Opinion of Dechert Price & Rhoads
*8.1 Form of Opinion of Gardere & Wynne, L.L.P.
13.1 Annual Report for Lunn on Form 10-KSB for the fiscal year ended
December 31, 1996
13.2 Annual Report for Lunn on Form 10-KSB for the fiscal year ended
December 31, 1995
13.3 Quarterly Report for Lunn on Form 10-QSB for the period ended
March 31, 1997
16.1 Letter on Change in Certifying Accountant
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Dechert Price & Rhoads (included in Exhibit 5.1)
23.3 Consent of Gardere & Wynne, L.L.P. (included in Exhibit 8.1)
23.4 Consent of Arthur Andersen LLP
23.5 Consent of Allen & Company Incorporated
23.6 Consent of Coopers & Lybrand, L.L.P.
23.7 Consent of Arthur Andersen LLP
24.1 Power of Attorney (included on signature page)
27.1 Financial Data Schedule (incorporated by reference to Lunn's
Annual Report on Form 10-KSB for the year ended December 31, 1996
(File No. 0-1298) and Lunn's Quarterly Report on Form 10-QSB for
the period ended March 31, 1997 (File No. 0-1298) previously
filed with the Commission)
*99.1 Form of Lunn proxy card
*99.3 Form of Letter of Transmittal to American Stock Transfer & Trust
Co. from stockholders of Lunn and TPG
------------------
* To be filed by amendment.
<PAGE>
ANNEX A
ACQUISITION AGREEMENT AND PLAN OF MERGER
BETWEEN
TPG HOLDINGS, INC.
AND
LUNN INDUSTRIES, INC.
DATED AS OF JUNE 6, 1997
<PAGE>
EXHIBITS AND SCHEDULES
Lunn Disclosure Letter
<TABLE>
<CAPTION>
<S> <C> <C>
Schedule 5.4 Subsidiaries
Schedule 5.9 Litigation
Schedule 5.10 Absence of Certain Changes
Schedule 5.12 Benefit Plans
Schedule 5.13 Labor Matters
Schedule 5.15 Title to Properties
Schedule 5.16 Condition of Fixed Assets
Schedule 5.21 Intellectual Property
Schedule 5.23 Licenses and Permits
Schedule 7.2(c) Conduct of Business
TPG Disclosure Letter
Schedule 6.4 Subsidiaries
Schedule 6.6(a) Conflicts
Schedule 6.7 Financial Statements
Schedule 6.9 Litigation
Schedule 6.10 Absence of Certain Changes
Schedule 6.11(b) Taxes
Schedule 6.12 Benefit Plans
Schedule 6.13 Labor Matters
Schedule 6.14 Environmental
Schedule 6.15 Title to Properties
Schedule 6.20 Material Agreements
Schedule 6.21 Intellectual Property
Schedule 6.23 Licenses and Permits
Schedule 7.3(c) Conduct of Business
Exhibits
Exhibit A Affiliate Letter
Exhibit B Transmittal Letter
Exhibit C Surviving Corporation Stock Option Plan
Exhibit D Corporate Opinion of Gardere & Wynne, L.L.P.
Exhibit E Tax Opinion of Gardere & Wynne, L.L.P.
Exhibit F Opinion of Dechert, Price & Rhoads
</TABLE>
<PAGE>
ACQUISITION AGREEMENT AND PLAN OF MERGER
THIS ACQUISITION AGREEMENT AND PLAN OF MERGER (this "Agreement") is
executed as of the 6th day of June, 1997, by and among TPG HOLDINGS, INC., a
Delaware corporation ("TPG"), and LUNN INDUSTRIES, INC., a Delaware corporation
("Lunn").
RECITALS
WHEREAS, TPG and Lunn desire to enter into a business combination
pursuant to which TPG will merge with and into Lunn;
WHEREAS, the Boards of Directors of TPG and Lunn each have determined
that such a business combination is in the best interests of the respective
corporations and their stockholders, and accordingly have approved this merger
upon the terms and conditions set forth herein.
WHEREAS, for federal income tax purposes, it is intended that this
merger qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, in consideration of the foregoing and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE 1
DEFINITIONS AND CERTAIN RULES OF CONSTRUCTION
1.1 Definitions. In addition to any other terms defined elsewhere in
this Agreement, including any Exhibit or Schedule hereto (unless such Exhibit or
Schedule provides for a different definition), as used herein, the following
terms shall have the following meanings:
"Affiliate" means any Person which (i) directly or indirectly controls,
is controlled by or is under common control with a specified Person, (ii) owns
or controls 5% or more of the outstanding equity interests of a specified Person
or (iii) is an officer, director, general partner or trustee of a specified
Person. For this purpose, the term "control" means possession, directly or
indirectly (through one or more intermediaries), of the power to direct or cause
the direction of management and policies of a Person through an ownership of
voting securities or other ownership interests, contract, voting trust or
otherwise.
"Affiliate Letter" means the Affiliate Letter substantially in the form
of Exhibit A hereto.
"Blue Sky Laws" means state securities Laws or "blue sky" Laws.
"Business Day" means any day other than a Saturday, Sunday or legal
holiday in the State of Delaware.
<PAGE>
"Certificate of Merger" is defined in Section 2.3.
"Closing" means closing and the consummation of the Merger pursuant to
the terms of this Agreement.
"Closing Date" means the date on which the Closing occurs.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidentiality Agreement" is defined in Section 7.1(e).
"DGCL" means the Delaware General Corporation Law, as amended.
"Effective Time" is defined in Section 2.3.
"Environmental Law" is defined in Section 5.14(a).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Agent" is defined in Section 4.2(a).
"Exchange Fund" is defined in Section 4.2(a).
"Fairness Opinion" is defined in Section 7.2(l).
"GAAP" means generally accepted accounting principles in the United
States of America as set forth in pronouncements of the Financial Accounting
Standards Board and the American Institute of Certified Public Accountants, as
such principles are from time to time supplemented and amended.
"Governmental Authority" means any foreign, federal, state or local
government, political subdivision or governmental or regulatory authority,
agency, board, bureau, commission, instrumentality or court or
quasi-governmental authority.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976.
"Indemnified Liabilities" is defined in Section 9.1.
"Indemnified Party" or "Indemnified Parties" is defined in Section 9.1.
"IRS" means the United States Internal Revenue Service.
"Joint Proxy Statement/Prospectus" is defined in Section 5.8.
2
<PAGE>
"Law" or "Laws" means any and all statutes, laws, ordinances,
proclamations, regulations, published requirements, orders, decrees and rules of
any Governmental Authority, including those covering environmental, tax, energy,
safety, health, transportation, bribery, recordkeeping, zoning, discrimination,
antitrust and wage and hour matters, in each case as amended and in effect from
time to time.
"Liens" means all liens, encumbrances, mortgages, pledges, security
interests, conditional sales agreements, charges, claims, options, rights of
first refusal, reservations, restrictions or other encumbrances or defects in
title.
"Lunn Acquisition Proposal" is defined in Section 7.2(a).
"Lunn Affiliate Stockholder" is defined in Section 7.2(d).
"Lunn Benefit Plans" is defined in Section 5.12.
"Lunn Common Stock" means the Common Stock, par value $0.01 per share,
of Lunn.
"Lunn Disclosure Letter" is defined in the preamble to Article 5.
"Lunn Dissenter Payment" is defined in Section 4.4(c).
"Lunn Dissenting Shares" is defined in Section 4.4(c).
"Lunn Exchange Ratio" means 0.1.
"Lunn Financial Statements" means the audited consolidated financial
statements of Lunn for the fiscal years ended December 31, 1995 and December 31,
1996, as disclosed in the Lunn SEC Reports, and the unaudited consolidated
financial statements of Lunn for the quarter ended March 31, 1997 delivered to
TPG as part of the Lunn Disclosure Letter.
"Lunn Intellectual Property" is defined in Section 5.21.
"Lunn's Most Recent Balance Sheet" shall mean the unaudited
consolidated balance sheet dated March 31, 1997 of Lunn.
"Lunn Option" means (a) any option to purchase Lunn Common Stock
granted by Lunn pursuant to the Lunn Stock Option Plan or (b) any option to
purchase Lunn Common Stock granted by Lunn but not pursuant to the Lunn Stock
Option Plan.
"Lunn Preferred Stock" shall mean the preferred stock, par value $0.01
per share, of Lunn.
"Lunn SEC Reports" is defined in Section 5.7.
3
<PAGE>
"Lunn Stockholder" means any holder of shares of the Lunn Common Stock.
"Lunn Stockholders' Meeting" is defined in Section 7.2(b).
"Lunn Stock Option Plan" means Lunn's 1994 Stock Incentive Plan.
"Lunn Superior Proposal" means any Lunn Acquisition Proposal to merge
with or acquire, directly or indirectly, all of the outstanding capital stock of
Lunn then outstanding on terms that the Board of Directors of Lunn determines in
its good faith reasonable judgment (based on advice of an independent financial
advisor of nationally recognized reputation) to be more favorable to the Lunn
Stockholders than the Merger.
"Lunn Warrant" means any warrant to purchase shares of Lunn Common
Stock.
"Material Adverse Effect" means, with respect to either TPG or Lunn,
any change or effect that is or would be materially adverse to the business,
results of operations or financial condition of TPG or Lunn, as the case may be,
and their respective Subsidiaries taken as a whole.
"Material Contracts" means, with respect to Lunn, any contracts or
agreements that are required to be filed as exhibits to the Lunn SEC Reports,
and, with respect to TPG, any contracts or agreements that would be required to
be filed as exhibits to SEC Reports if TPG were a Reporting Person.
"Merger" means the merger of TPG with and into Lunn, with Lunn as the
surviving corporation.
"Merger Consideration" means, with respect to any TPG Stockholder or
Lunn Stockholder, (i) certificates evidencing the number of whole shares of
Surviving Corporation Common Stock or Surviving Corporation Preferred Stock that
such Stockholder has the right to receive pursuant to Section 4.1, and (ii) any
cash in lieu of fractional shares of the Surviving Corporation Common Stock to
which such Stockholder is entitled pursuant to Section 4.2(e).
"Nasdaq SmallCap Market" means the Nasdaq SmallCap Market of The Nasdaq
Stock Market, Inc., a wholly owned subsidiary of the National Association of
Securities Dealers, Inc.
"Permitted Lien" means (i) with respect to Lunn, (a) any Lien reserved
against in Lunn's Most Recent Balance Sheet, (b) Liens for Taxes not yet due and
payable or which are being contested in good faith and by appropriate
proceedings if adequate reserves with respect thereto are maintained on Lunn's
books in accordance with GAAP, (c) Liens that, individually or in the aggregate,
would have only an immaterial effect on the value of any of the assets of Lunn
or the use thereof as currently used, and (d) obligations under operating and
capital leases, and (ii) with respect to TPG, (a) any Lien reserved against in
TPG's Most Recent Balance Sheet, (b) Liens for Taxes not yet due and payable or
which are being contested in good faith and by appropriate proceedings if
adequate reserves with respect thereto are maintained on TPG's books in
4
<PAGE>
accordance with GAAP, (c) Liens that, individually or in the aggregate, would
have only an immaterial effect on the value of any of the assets of TPG or the
use thereof as currently used, and (d) obligations under operating and capital
leases.
"Person" means an individual, corporation, partnership, limited
liability company, trust, association or other entity, including any
Governmental Authority.
"Proxy Statement" is defined in Section 5.8.
"Registration Statement" is defined in Section 5.8.
"Reporting Person" means any issuer which has a class of equity
securities registered pursuant to Section 12 of the Exchange Act or is required
to file periodic reports pursuant to Section 15(d) of the Exchange Act.
"Rule 145" means Rule 145 promulgated under the Securities Act.
"SEC" means the Securities and Exchange Commission.
"SEC Reports" any registration statement, report, proxy statement or
information statement (other than preliminary materials) filed with the SEC
pursuant to the Securities Act or the Exchange Act (including exhibits and any
amendments thereto).
"Securities Act" means the Securities Act of 1933, as amended.
"Stockholders" means the TPG Stockholders and Lunn Stockholders.
"Subsidiaries" means, with respect to any Person, any corporation or
other organization that is controlled by such Person. For this purpose, the term
"control" means possession, directly or indirectly (through one or more
intermediaries), of the power to direct or cause the direction of management and
policies of a Person through an ownership of voting securities or other
ownership interests, contract, voting trust or otherwise.
"Surviving Corporation" is defined in Section 2.1.
"Surviving Corporation Common Stock" means the common stock, par value
$0.01 per share, of the Surviving Corporation.
"Surviving Corporation Preferred Stock" means the preferred stock, par
value $1.00 per share, of the Surviving Corporation, having the same
designations, preferences and limitations as the TPG Preferred Stock.
"Tax" or "Taxes" means any foreign, federal, state or local income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under
Section 59A of the Code), customs duties, capital stock,
5
<PAGE>
franchise, profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated or other tax
of any kind whatsoever, including any interest, penalty or addition thereto,
whether disputed or not.
"TPG Acquisition Proposal" is defined in Section 7.3(a).
"TPG Affiliate Stockholder" is defined in Section 7.3(j).
"TPG Benefit Plans" is defined in Section 6.12.
"TPG Common Stock" means the common stock, $0.01 par value per share,
of TPG.
"TPG Disclosure Letter" is defined in the preamble to Article 6.
"TPG Dissenter Payment" is defined in Section 4.4(a).
"TPG Dissenting Shares" is defined in Section 4.4(a).
"TPG Exchange Ratio" means 8.3028.
"TPG Financial Statements" is defined in Section 6.7.
"TPG Intellectual Property" is defined in Section 6.21.
"TPG's Most Recent Balance Sheet" shall mean the unaudited consolidated
balance sheet dated March 31, 1997 of TPG.
"TPG Option" means (i) any option to purchase TPG Common Stock granted
by TPG pursuant to the TPG Stock Option Plan or (ii) any option to purchase TPG
Common Stock granted by TPG but not pursuant to the TPG Stock Option Plan.
"TPG Preferred Stock" means the 8% cumulative redeemable preferred
stock, par value $1.00 per share, of TPG, having the designations, preferences
and limitations described in TPG's Certificate of Incorporation, as amended.
"TPG Stockholders" means the holders of shares of the TPG Common Stock
or the TPG Preferred Stock.
"TPG Stockholders' Meeting" is defined in Section 7.3(b).
"TPG Stock Option Plan" means TPG's Key Management Stock Option Plan
(1996).
"TPG Superior Proposal" means any TPG Acquisition Proposal to merge
with or acquire, directly or indirectly, all of the outstanding capital stock of
TPG then outstanding on terms that
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the Board of Directors of TPG determines in its good faith reasonable judgment
(based on advice of an independent financial advisor of nationally recognized
reputation) to be more favorable to the TPG Stockholders than the Merger.
"Transactions" means the transactions contemplated by this Agreement.
"Transmittal Letter" means the Transmittal Letter substantially in the
form of Exhibit B hereto to be executed by each of the Stockholders who receive
Surviving Corporation Common Stock under this Agreement.
1.2 Certain Rules of Construction The captions in this Agreement are
for convenience of reference only and in no way define, limit or describe the
scope or intent of any provisions or sections of this Agreement. All references
in this Agreement to Articles or Sections are references to the Articles or
Sections in this Agreement, unless some other reference is clearly indicated.
All accounting terms not specifically defined in this Agreement shall be
construed in accordance with GAAP as in effect on the date hereof. In this
Agreement, unless the context otherwise requires, (a) words describing the
singular number shall include the plural and vice versa, (b) words denoting any
gender shall include all genders and (c) references to "including" shall mean
"including without limitation."
ARTICLE 2
THE MERGER
2.1 The Merger. Subject to the terms and conditions set forth in this
Agreement, and in accordance with the DGCL, at the Effective Time, TPG shall be
merged with and into Lunn and the separate corporate existence of TPG shall
thereupon cease. Lunn shall be the surviving corporation in the Merger
(sometimes referred to herein as the "Surviving Corporation") and shall succeed
to and assume all of the rights and obligations of TPG in accordance with the
DGCL. The name of the Surviving Corporation shall be Technical Products Group,
Inc., or such other name as may be mutually agreed to by TPG and Lunn prior to
the Closing. The Merger shall have the effects specified in the DGCL.
2.2 The Closing. Subject to the terms and conditions of this Agreement,
the Closing shall be held (a) at the offices of Gardere & Wynne, L.L.P., 333
Clay, Suite 800, Houston, Texas at 10:00 a.m., local time, as promptly as
practicable (and in any event within two Business Days) following the day on
which all of the conditions set forth in Article 8 shall be fulfilled or waived
in accordance herewith or (b) at such other time, date or place as TPG and Lunn
may agree. The Closing Date shall be the same as the date of the Effective Time.
2.3 Effective Time. If all of the conditions to the Merger set forth in
Article 8 shall have been fulfilled or waived in accordance herewith and this
Agreement shall not have been terminated as provided in Article 10, on the
Closing Date, the parties hereto shall cause a Certificate of Merger
incorporating this Agreement (and setting forth such other information as is
required by the DGCL (the "Certificate of Merger") to be properly executed and
filed, together
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with appropriate officers' certificates, in accordance with Section 251 of the
DGCL on the Closing Date. The Merger shall become effective at the time the
Certificate of Merger is filed with the Secretary of State of Delaware or at
such later time as Lunn and TPG shall have agreed upon and designated in such
filing as the effective time of the Merger (the "Effective Time").
ARTICLE 3
CERTIFICATE OF INCORPORATION AND BYLAWS
AND OFFICERS AND DIRECTORS OF THE SURVIVING CORPORATION
3.1 Certificate of Incorporation. The Certificate of Incorporation of
Lunn as amended at the Effective Time shall be the Certificate of Incorporation
of the Surviving Corporation, until duly amended in accordance with applicable
Law.
3.2 Bylaws. The Bylaws of Lunn in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation, until duly
amended in accordance with applicable Law.
3.3 Directors. The directors of the Surviving Corporation immediately
after the Effective Time shall be the following Persons:
James S. Carter
Sam P. Douglass
Garrett L. Dominy
Gary L. Forbes
Robert C. Sigrist
Lawrence E. Wesneski
Alan W. Baldwin
John M. Simon
In accordance with the Restated Certificate of Incorporation of Lunn,
as amended at the Effective Time, the terms of the members of the board of
directors of the Surviving Corporation shall be staggered such that Mssrs.
Simon, Forbes and Carter shall serve as directors of the Surviving Corporation
for a term of three years, Mssrs. Douglass and Dominy shall serve as directors
of the Surviving Corporation for a term of two years, and Mssrs. Wesneski,
Baldwin and Sigrist shall serve as directors of the Surviving Corporation for a
term of one year.
3.4 Officers. The officers of the Surviving Corporation immediately
after the Effective Time shall be the following Persons:
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<TABLE>
<CAPTION>
<S> <C> <C>
Chairman of Board, President and
Chief Executive Officer James S. Carter
Executive Vice President, Chief Financial
Officer, Assistant Secretary and
Treasurer Garrett L. Dominy
Secretary Jim Hobt
</TABLE>
ARTICLE 4
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES;
OTHER MATTERS
4.1 Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any action on the part of TPG, Lunn or the holders of any of
their respective securities:
(a) Capital Stock of Lunn. Each share of the capital stock of
Lunn issued and outstanding prior to the Effective Time (other than any
Lunn Dissenting Shares, if applicable) shall be converted, subject to
Section 4.2(e), into the right to receive a number of fully paid and
nonassessable shares of the Surviving Corporation Common Stock equal to
the Lunn Exchange Ratio. At the Effective Time, all shares of Lunn
Common Stock outstanding immediately prior to the Effective Time shall
no longer be outstanding and shall automatically be canceled and
retired and shall cease to exist, and each certificate previously
evidencing any such shares shall thereafter represent the right to
receive, upon the surrender of such certificate in accordance with
Section 4.2 (or in case of a lost, stolen or destroyed stock
certificate, compliance with the provisions of Section 4.2(i)),
certificates evidencing such number of whole shares of Surviving
Corporation Common Stock into which such Lunn Common Stock was
converted in accordance with the first sentence of this Section 4.1(a).
At the Effective Time, the holders of such certificates evidencing such
shares of Lunn Common Stock outstanding immediately prior to the
Effective Time shall cease to have any rights with respect to such
shares except as otherwise provided herein or by Law. No fractional
share of Surviving Corporation Common Stock shall be issued, and, in
lieu thereof, a cash payment shall be made pursuant to Section 4.2(e).
(b) TPG Common Stock. Each share of TPG Common Stock issued
and outstanding immediately prior to the Effective Time (other than any
TPG Dissenting Shares, if applicable) shall be converted, subject to
Section 4.2(e), into the right to receive a number of fully paid and
nonassessable shares of the Surviving Corporation Common Stock equal to
the TPG Exchange Ratio. At the Effective Time, all shares of TPG Common
Stock outstanding immediately prior to the Effective Time shall no
longer be outstanding and shall automatically be canceled and retired
and shall cease to exist, and each certificate previously evidencing
any such shares shall thereafter represent the right to receive, upon
the surrender of such certificate in accordance with Section 4.2 (or in
case of a lost, stolen or destroyed stock certificate, compliance with
the provisions of Section 4.2(i)), certificates evidencing such number
of whole shares of Surviving Corporation
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Common Stock into which such TPG Common Stock was converted in
accordance with the first sentence of this Section 4.1(b). At the
Effective Time, the holders of such certificates evidencing such shares
of TPG Common Stock outstanding immediately prior to the Effective Time
shall cease to have any rights with respect to such shares except as
otherwise provided herein or by Law. No fractional share of Surviving
Corporation Common Stock shall be issued, and, in lieu thereof, a cash
payment shall be made pursuant to Section 4.2(e).
(c) TPG Preferred Stock. Each share of TPG Preferred Stock
issued and outstanding immediately prior to the Effective Time (other
than TPG Dissenting Shares, if applicable) shall be converted into the
right to receive one fully paid and nonassessable share of Surviving
Corporation Preferred Stock. At the Effective Time, all shares of TPG
Preferred Stock outstanding immediately prior to the Effective Time
shall no longer be outstanding and shall automatically be canceled and
retired and shall cease to exist, and each certificate previously
evidencing any such shares shall thereafter represent the right to
receive, upon the surrender of such certificate in accordance with
Section 4.2 (or in case of a lost, stolen or destroyed stock
certificate, compliance with the provisions of Section 4.2(i)),
certificates evidencing such number of whole shares of Surviving
Corporation Preferred Stock into which such TPG Preferred Stock was
converted in accordance with the first sentence of this Section 4.1(c).
At the Effective Time, the holders of such certificates evidencing such
shares of TPG Preferred Stock outstanding immediately prior to the
Effective Time shall cease to have any rights with respect to such
shares except as otherwise provided herein or by Law.
(d) Shares Held in Treasury. Each share of Lunn Common Stock,
TPG Common Stock and TPG Preferred Stock held in treasury immediately
prior to the Effective Time by Lunn or TPG, as the case may be, shall
be canceled and extinguished at the Effective Time without any
conversion thereof and without any payment with respect thereto.
4.2 Exchange of Certificates. The procedures for exchanging outstanding
shares of TPG Common Stock and Lunn Common Stock for Surviving Corporation
Common Stock pursuant to the Merger are as follows:
(a) Exchange Agent. As of the Effective Time, the Surviving
Corporation shall deposit with American Stock Transfer & Trust Co. (the
"Exchange Agent"), for the benefit of the holders of shares of TPG
Common Stock and Lunn Common Stock, for exchange in accordance with
this Section 4.2 through the Exchange Agent, certificates representing
the shares of Surviving Corporation Common Stock and Surviving
Corporation Preferred Stock (such shares of Surviving Corporation
Common Stock and Surviving Corporation Preferred Stock, together with
any dividends or distributions with respect thereto, being hereinafter
referred to as the "Exchange Fund") issuable pursuant to Section 4.1 in
exchange for outstanding shares of TPG Common Stock, TPG Preferred
Stock or Lunn Common Stock, as the case may be.
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(b) Exchange Procedures. As soon as reasonably practicable
after the Effective Time, the Exchange Agent shall mail to each holder
of record of a certificate or certificates which immediately prior to
the Effective Time represented outstanding shares of TPG Common Stock,
TPG Preferred Stock or Lunn Common Stock, as the case may be (the
"Certificates"), whose shares were converted pursuant to Section 4.1
into the right to receive shares of Surviving Corporation Common Stock
or Surviving Corporation Preferred Stock, as the case may be, (i) a
letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent and shall
be in such form and have such other provisions as TPG may reasonably
specify prior to the Effective Time) and (ii) instructions for
effecting the surrender of the Certificates in exchange for
certificates representing shares of Surviving Corporation Common Stock
(plus cash in lieu of fractional shares, if any, of Surviving
Corporation Common Stock as provided below) or Surviving Corporation
Preferred Stock, as the case may be. Upon surrender of a Certificate
for cancellation to the Exchange Agent or to such other agent or agents
as may be appointed by the Surviving Corporation, together with such
letter of transmittal, duly executed, the holder of such Certificate
shall be entitled to receive in exchange therefor a certificate
representing that number of whole shares of Surviving Corporation
Common Stock or Surviving Corporation Preferred Stock that such holder
has the right to receive pursuant to the provisions of this Article 4,
and the Certificate so surrendered shall immediately be cancelled. In
the event of a transfer of ownership of TPG Common Stock, TPG Preferred
Stock or Lunn Common Stock, as the case may be, that is not registered
in the transfer records of TPG or Lunn, as the case may be, a
certificate representing the proper number of shares of Surviving
Corporation Common Stock or Surviving Corporation Preferred Stock, as
the case may be, may be issued to a transferee if the Certificate
representing such TPG Common Stock, TPG Preferred Stock or Lunn Common
Stock, as the case may be, is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such
transfer and by evidence that any applicable stock transfer taxes have
been paid. Until surrendered as contemplated by this Section 4.2, each
Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the certificate
representing shares of Surviving Corporation Common Stock or Surviving
Corporation Preferred Stock, as the case may be, and cash in lieu of
any fractional shares of Surviving Corporation Common Stock as
contemplated by this Section 4.2.
(c) Distributions With Respect to Unexchanged Shares. No
dividends or other distributions declared or made after the Effective
Time with respect to Surviving Corporation Common Stock or Surviving
Corporation Preferred Stock with a record date after the Effective Time
shall be paid to the holder of any unsurrendered Certificate with
respect to the shares of Surviving Corporation Common Stock or
Surviving Corporation Preferred Stock represented thereby and no cash
payment in lieu of fractional shares shall be paid to any holder of any
unsurrendered certificate with respect to the shares of Surviving
Corporation Common Stock represented thereby pursuant to subsection (e)
below until the holder of record of such Certificate shall surrender
such Certificate. Subject to the effect of applicable laws, following
surrender of any such Certificate, there
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<PAGE>
shall be paid to the record holder of the certificates representing
whole shares of Surviving Corporation Common Stock or Surviving
Corporation Preferred Stock issued in exchange therefor, without
interest, (i) at the time of such surrender, the amount of any cash
payable in lieu of a fractional share of Surviving Corporation Common
Stock to which such holder is entitled pursuant to subsection (e) below
and the amount of dividends or other distributions with a record date
after the Effective Time previously paid with respect to such whole
shares of Surviving Corporation Common Stock or Surviving Corporation
Preferred Stock, as the case may be, and (ii) at the appropriate
payment date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to surrender and a
payment date subsequent to surrender payable with respect to such whole
shares of Surviving Corporation Common Stock or Surviving Corporation
Preferred Stock, as the case may be.
(d) No Further Ownership Rights In TPG Common Stock, TPG
Preferred Stock or Lunn Common Stock. All shares of Surviving
Corporation Common Stock and Surviving Corporation Preferred Stock
issued upon the surrender for exchange of Certificates in accordance
with the terms hereof (including any cash paid pursuant to subsection
(c) or (e) of this Section 4.2) shall be deemed to have been issued in
full satisfaction of all rights pertaining to such shares of TPG Common
Stock, TPG Preferred Stock or Lunn Common Stock, as the case may be,
subject, however, to the Surviving Corporation's obligation to pay any
dividends or make any other distributions with a record date prior to
the Effective Time which may have been declared or made by TPG or Lunn
on such shares of TPG Common Stock, TPG Preferred Stock or Lunn Common
Stock, as the case may be, in accordance with the terms of this
Agreement prior to the date hereof and which remain unpaid at the
Effective Time, and from and after the Effective Time there shall be no
further registration of transfers on the stock transfer books of the
Surviving Corporation of the shares of TPG Common Stock, TPG Preferred
Stock or Lunn Common Stock that were outstanding immediately prior to
the Effective Time. If, after the Effective Time, Certificates are
presented to the Surviving Corporation for any reason, they shall be
cancelled and exchanged as provided in this Section 4.2.
(e) No Fractional Shares. No certificate or scrip representing
fractional shares of Surviving Corporation Common Stock shall be issued
upon the surrender for exchange of Certificates, and such fractional
share interests will not entitle the owner thereof to vote or to any
other rights of a stockholder of the Surviving Corporation.
Notwithstanding any other provision of this Agreement, each holder of
shares of TPG Common Stock and Surviving Corporation Common Stock
exchanged pursuant to the Merger who would otherwise have been entitled
to receive a fraction of a share of Surviving Corporation Common Stock
(after taking into account all Certificates delivered by such holder)
shall receive, in lieu thereof, cash (without interest) in an amount
equal to such fractional part of a share of Surviving Corporation
Common Stock multiplied by the average of the last reported sales
prices of Lunn Common Stock, as reported on the Nasdaq SmallCap Market,
on each of the five trading days immediately prior to the date of the
Effective Time.
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(f) Termination of Exchange Fund. Any portion of the Exchange
Fund which remains undistributed to the stockholders of TPG and Lunn
for 180 days after the Effective Time shall be delivered to the
Surviving Corporation, upon demand, and any stockholders of TPG and
Lunn who have not previously complied with this Section 4.2 shall
thereafter look only to the Surviving Corporation for payment of their
claim for Surviving Corporation Common Stock or Surviving Corporation
Preferred Stock, as the case may be, any cash in lieu of fractional
shares of Surviving Corporation Common Stock and any dividends or
distributions with respect to Surviving Corporation Common Stock or
Surviving Corporation Preferred Stock, as the case may be.
(g) No Liability. Neither the Surviving Corporation, Lunn nor
TPG shall be liable to any holder of shares of TPG Common Stock, TPG
Preferred Stock or Lunn Common Stock, as the case may be, for such
shares (or dividends or distributions with respect thereto) delivered
to a public official pursuant to any applicable abandoned property,
escheat or similar law.
(h) Withholding Rights. The Surviving Corporation shall be
entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of TPG
Common Stock, TPG Preferred Stock or Lunn Common Stock such amounts as
it is required to deduct and withhold with respect to the making of
such payment under the Code, or any provision of state, local or
foreign tax law. If amounts are so withheld by Surviving Corporation
then such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the shares of TPG Common
Stock, TPG Preferred Stock or Lunn Common Stock, as the case may be, in
respect of which such deduction and withholding was made by Surviving
Corporation.
(i) Lost Certificates. If any Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact
by the person claiming such Certificate to be lost, stolen or destroyed
and, if required by the Surviving Corporation, the posting by such
person of a bond in such reasonable amount as the Surviving Corporation
may direct as indemnity against any claim that may be made against it
with respect to such Certificate, the Exchange Agent will issue in
exchange for such lost, stolen or destroyed Certificate the shares of
Surviving Corporation Common Stock or Surviving Corporation Preferred
Stock and any cash in lieu of fractional shares, and unpaid dividends
and distributions on shares of Surviving Corporation Common Stock
deliverable in respect thereof pursuant to this Agreement.
4.3 Stock Options and Warrants.
(a) At the Effective Time, TPG's obligations with respect to each then
outstanding TPG Option shall be assumed by the Surviving Corporation. The TPG
Options so assumed by the Surviving Corporation shall not expire and shall
continue to have, and be subject to, the same terms and conditions as set forth
in the TPG Stock Option Plan and/or any agreements pursuant to which such TPG
Options were granted as in effect immediately prior to the Effective Time,
except that (i) each TPG Option shall be exercisable for that number of whole
shares of Surviving
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Corporation Common Stock equal to the number of shares of TPG Common Stock
covered by such TPG Option immediately prior to the Effective Time, multiplied
by the TPG Exchange Ratio and rounded downward to the nearest whole number of
shares of Surviving Corporation Common Stock, and (ii) the price at which each
such TPG Option is exercisable shall be divided by the TPG Exchange Ratio and
then rounded upward to the nearest cent.
(b) At the Effective Time, Lunn's obligations with respect to each then
outstanding Lunn Option and Lunn Warrant shall be assumed by the Surviving
Corporation. The Lunn Options and Lunn Warrants so assumed by the Surviving
Corporation shall not expire and shall continue to have, and be subject to, the
same terms and conditions as set forth in the Lunn Stock Option Plan and/or any
agreements pursuant to which such Lunn Options and Lunn Warrants were granted as
in effect immediately prior to the Effective Time, except that (i) each Lunn
Option or Lunn Warrant shall be exercisable for that number of whole shares of
Surviving Corporation Common Stock equal to the number of shares of Lunn Common
Stock covered by such Lunn Option or Lunn Warrant immediately prior to the
Effective Time, multiplied by the Lunn Exchange Ratio and rounded to the nearest
whole number of shares of Surviving Corporation Common Stock, and (ii) the price
at which each such Lunn Option or Lunn Warrant is exercisable shall be divided
by the Lunn Exchange Ratio and then rounded to the nearest cent.
(c) The Surviving Corporation shall reserve for issuance the aggregate
number of shares of Surviving Corporation Common Stock that will become issuable
upon the exercise of the TPG Options, Lunn Options and Lunn Warrants as adjusted
at the Effective Time in accordance with this Section 4.3.
(d) At the Effective Time, the Surviving Corporation shall adopt a
Stock Option Plan in substantially the form set forth in Exhibit C and 300,000
shares of Surviving Corporation Common Stock shall be reserved for issuance upon
exercise of options granted under such Stock Option Plan.
4.4 Dissenting Shares.
(a) If provided for under the DGCL, notwithstanding any other provision
of this Agreement to the contrary, shares of TPG Common Stock and TPG Preferred
Stock that are outstanding immediately prior to the Effective Time and which are
held by TPG Stockholders who shall not have voted in favor of the Merger or
consented thereto in writing and who shall have demanded properly in writing
payment for such shares in accordance with the DGCL (a "TPG Dissenter Payment")
and who shall not have withdrawn such demand or have been deemed to or otherwise
have forfeited the right to payment under the DGCL (such shares of TPG Common
Stock and TPG Preferred Stock being referred to as "TPG Dissenting Shares")
shall not be converted into or represent the right to receive the Merger
Consideration. Instead, such TPG Stockholders shall be entitled to receive their
TPG Dissenter Payments in accordance with the provisions of the DGCL, except
that all TPG Dissenting Shares held by TPG Stockholders who shall have failed to
perfect who effectively shall have withdrawn or lost the rights to payment for
such shares of TPG Common Stock and TPG Preferred Stock under the DGCL shall
thereupon be deemed to have been converted into, as of the Effective Time, the
right to receive, without any
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interest thereon, the Merger Consideration, upon surrender in the manner
provided in Section 4.2 hereof of the certificate or certificates that formally
evidence such shares of TPG Common Stock and TPG Preferred Stock (or compliance
with Section 4.2(i) hereof if applicable) and the presentation of an executed
Transmittal Letter.
(b) TPG shall give Lunn (i) prompt notice of any demands for TPG
Dissenter Payments received by TPG pursuant to the DGCL, withdrawals of such
demands, and any other instruments served pursuant to the DGCL and received by
TPG and (ii) the opportunity to participate in all negotiations and proceedings
with respect to demands for payment under the DGCL. TPG shall not, except with
the prior written consent of Lunn (which consent shall not be unreasonably
withheld or delayed), make any payment with respect to any demands for payment
of, or offer to settle, or settle, any such demands.
(c) If provided for under the DGCL, notwithstanding any other provision
of this Agreement to the contrary, shares of Lunn Common Stock that are
outstanding immediately prior to the Effective Time and which are held by Lunn
Stockholders who shall not have voted in favor of the Merger or consented
thereto in writing and who shall have demanded properly in writing payment for
such shares in accordance with the DGCL (a "Lunn Dissenter Payment") and who
shall not have withdrawn such demand or have been deemed to or otherwise have
forfeited the right to payment under the DGCL (such shares of Lunn Common Stock
being referred to as "Lunn Dissenting Shares") shall not be converted into or
represent the right to receive the Merger Consideration. Instead, such Lunn
Stockholders shall be entitled to receive their Lunn Dissenter Payments in
accordance with the provisions of the DGCL, except that all Lunn Dissenting
Shares held by Lunn Stockholders who shall have failed to perfect who
effectively shall have withdrawn or lost the rights to payment for such shares
of Lunn Common Stock under the DGCL shall thereupon be deemed to have been
converted into, as of the Effective Time, the right to receive, without any
interest thereon, the Merger Consideration, upon surrender in the manner
provided in Section 2.6 hereof of the certificate or certificates that formally
evidence such shares of Lunn Common Stock (or compliance with Section 4.2(i)
hereof if applicable) and the presentation of an executed Transmittal Letter.
(d) Lunn shall give TPG (i) prompt notice of any demands for Lunn
Dissenter Payments received by Lunn pursuant to the DGCL, withdrawals of such
demands, and any other instruments served pursuant to the DGCL received by Lunn
and (ii) the opportunity to direct all negotiations and proceedings with respect
to demands for payment under the DGCL. Lunn shall not, except with the prior
written consent of TPG, make any payment with respect to any demands for payment
of, or offer to settle, or settle, any such demands.
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ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF LUNN
Except as set forth in the disclosure letter delivered to TPG
concurrently with the execution hereof (the "Lunn Disclosure Letter") or as
disclosed with reasonable specificity in the Lunn SEC Reports, Lunn represents
and warrants to TPG that:
5.1 Existence; Good Standing; Corporate Authority. Lunn is a
corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation. Lunn is duly qualified to do business
as a foreign corporation and is in good standing under the laws of any
jurisdiction in which the character if the properties owned or leased by it
therein or in which the transaction of its business makes such qualification
necessary, except where the failure to be so qualified would not have,
individually or in the aggregate, a Material Adverse Effect. Lunn has all
requisite corporate power and authority to own, operate and lease its properties
and to carry on its business as now conducted. The copies of Lunn's certificate
of incorporation and bylaws previously made available to TPG are true and
correct.
5.2 Authorization; Validity and Effect of Agreements. Lunn has the
requisite corporate power and authority to execute and deliver this Agreement
and all agreements and documents contemplated hereby. The consummation by Lunn
of the Transactions has been duly authorized by all requisite corporate action,
other than, with respect to the Merger, the approval and adoption of this
Agreement by the Lunn Stockholders. This Agreement constitutes the valid and
legally binding obligation of Lunn, enforceable in accordance with its terms.
Lunn has taken all action necessary to render the restrictions set forth in
Section 203 of the DGCL inapplicable to this Agreement and the Merger.
5.3 Capitalization. The authorized capital stock of Lunn consists of
30,000,000 shares of Lunn Common Stock and 1,000,000 shares of Lunn Preferred
Stock. As of the date hereof, there are 12,762,153 shares of Lunn Common Stock
and no shares of Lunn Preferred Stock issued and outstanding and 150 shares of
Lunn Common Stock and no shares of Lunn Preferred Stock are held as treasury
shares. All such issued and outstanding shares of Lunn Common Stock are duly
authorized, validly issued, fully paid, nonassessable and free of preemptive
rights. There are 1,500,000 shares of Lunn Common Stock reserved for issuance
pursuant to the Lunn Stock Option Plan and 656,300 shares of Lunn Common Stock
reserved for issuance upon exercise of the Lunn Warrants and, as of the date
hereof, Lunn Options to purchase 1,167,500 shares of Lunn Common Stock and Lunn
Warrants to purchase 656,300 shares of Lunn Common Stock were outstanding. As of
the date of this Agreement, there are no other outstanding shares of capital
stock and there are no other options, warrants, calls, subscriptions,
convertible securities, or other rights, agreements or commitments which
obligate Lunn or any of its Subsidiaries to issue, transfer or sell and shares
of capital stock or other voting securities of Lunn or any of its Subsidiaries.
Lunn has no outstanding bonds, debentures, notes or other obligations the
holders of which have the right to vote (or which are convertible into or
exercisable for securities having the right to vote) with the stockholders of
Lunn on any matter.
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5.4 Subsidiaries. Each of Lunn's Subsidiaries is a corporation or
partnership duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation or organization, has the corporate or
partnership power and authority to own, operate, and lease its properties and to
carry on its business as it is now being conducted, and is duly qualified to do
business and is in good standing in each jurisdiction in which the ownership,
operation or lease of its property or the conduct of its business requires such
qualification, except for jurisdictions in which such failure to be so qualified
or to be in good standing would not have a Material Adverse Effect. Except as
reflected on Schedule 5.4 of the Lunn Disclosure Letter, all of the outstanding
shares of capital stock, or other ownership interests in, each of Lunn's
Subsidiaries is duly authorized, validly issued, fully paid and nonassessable,
and is owned, directly or indirectly, by Lunn free and clear of all Liens.
Schedule 5.4 of the Lunn Disclosure Letter sets forth the following information
for each Subsidiary of Lunn, as applicable; (i) its name and jurisdiction of
incorporation or organization; (ii) its authorized capital stock or share
capital; and (iii) the number of issued and outstanding shares of capital stock
or share capital.
5.5 No Violation of Law. Neither Lunn nor any of its Subsidiaries is in
violation of any order of any court, Governmental Authority or arbitration board
or tribunal, or any Law to which Lunn or any of its Subsidiaries or any of their
respective properties or assets is subject, except as would not have,
individually or in the aggregate, a Material Adverse Effect.
5.6 No Conflict. (a) Neither the execution and delivery by Lunn of this
Agreement nor the consummation by Lunn of the Transactions in accordance with
the terms hereof, will: (i) violate any provisions of the certificate of
incorporation or bylaws of Lunn; (ii) violate any provision of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination or in a right of
termination or cancellation of, or accelerate the performance required by, or
result in the creation of any Lien upon any of the properties of Lunn or its
Subsidiaries under, or result in being declared void, voidable, or without
further binding effect, any of the terms, conditions or provisions of, any note,
bond, mortgage, indenture, deed of trust, license, franchise, permit, lease,
contract, agreement or other instrument or obligation to which Lunn or any of
its Subsidiaries is a party, or by which Lunn or any of its Subsidiaries or any
of their properties is bound or affected; or (iii) constitute a violation of any
provision of any Law binding upon or applicable to Lunn or any of its
Subsidiaries, except, in the case of matters described in clause (ii) or (iii),
as would not have, individually or in the aggregate, a Material Adverse Effect.
(b) Neither the execution and delivery by Lunn of this
Agreement nor the consummation by Lunn of the Transactions in accordance with
the terms hereof will require any consent, approval or authorization of, or
filing or registration with, any governmental or regulatory authority, other
than (i) such filings, consents and approvals that are obtained before Closing
and (ii) filings required under the HSR Act, the Exchange Act, the Securities
Act or applicable state securities and "Blue Sky" laws, except for any consent,
approval or authorization the failure of which to obtain and for any filing or
registration the failure of which to make would not have a Material Adverse
Effect.
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5.7 SEC Documents. Lunn has made available to TPG each registration
statement, report, proxy statement or information statement (other than
preliminary materials) filed by Lunn with the SEC since January 1, 1994, each in
the form (including exhibits and any amendments thereto) filed with the SEC
(collectively, the "Lunn SEC Reports"). Each of the Lunn SEC Reports, as of
their respective dates, (i) were prepared in all material respects in accordance
with the applicable requirements of the Securities Act, the Exchange Act, and
the rules and regulations thereunder and (ii) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements made therein, in the light of
the circumstances under which they were made, not misleading except for such
statements, if any, as have been modified by subsequent filings prior to the
date hereof. Each of the consolidated balance sheets of Lunn included in or
incorporated by reference into the Lunn SEC Reports (including the related notes
and schedules) fairly presents the consolidated financial position of Lunn and
its Subsidiaries as of its date and each of the consolidated statements of
income, cash flows and changes in stockholders' equity ("retained earnings") of
Lunn included in or incorporated by reference into the Lunn SEC Reports
(including any related notes and schedules) fairly presents the results of
operations, cash flows or retained earnings, as the case may be, of Lunn and its
Subsidiaries for the periods set forth therein (subject, in the case of
unaudited statements, to (x) such exceptions as may be permitted by Form 10-Q of
the SEC and (y) normal year-end audit adjustments), in each case in accordance
with GAAP, except as may be noted therein. Except as and to the extent set forth
on the consolidated balance sheet of Lunn and its Subsidiaries at December 31,
1996, including all notes thereto, neither Lunn nor any of its Subsidiaries has
any liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) that would be required to be reflected on, or reserved
against in, a balance sheet of Lunn or in the notes thereto prepared in
accordance with GAAP, other than liabilities or obligations which would not
have, individually or in the aggregate, a Material Adverse Effect and
liabilities and obligations arising in the ordinary course of business since
such date.
5.8 Registration Statement and Proxy Statement. None of the information
supplied or to be supplied by Lunn for inclusion in (a) the Registration
Statement on Form S-4 to be filed under the Securities Act with the SEC by Lunn
in connection with the Merger for the purpose of registering the Surviving
Corporation Common Stock to be issued in connection with the Merger (the
"Registration Statement"), or (b) the proxy statement to be distributed in
connection with the Lunn Stockholders' Meeting and the TPG Stockholders' Meeting
to vote upon this Agreement and the Transactions (the "Proxy Statement" and,
together with the prospectus included in the Registration Statement, the "Joint
Proxy Statement/Prospectus") will, in the case of the Proxy Statement or any
amendments thereof or supplements thereto, at the time of the mailing of the
Proxy Statement and any amendments or supplements thereto, at the time of the
Lunn Stockholders' Meeting and the TPG Stockholders' Meeting to be held in
connection with the Transactions, and at the Effective Time, or, in the case of
the Registration Statement, as amended or supplemented, at the time it is
declared effective by the SEC, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The Registration Statement and Joint Proxy
Statement/Prospectus shall comply in all material respects as to form and
substance with the requirements of the Securities Act, the Exchange Act and the
rules and regulations promulgated thereunder, except that no
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representation is made by Lunn with respect to information relating to TPG and
included therein, provided TPG approved of the inclusion of such information in
the Registration Statement and Joint Proxy Statement/Prospectus.
5.9 Litigation. There are no actions, suits or proceedings pending
against Lunn or any of its Subsidiaries or, to Lunn's knowledge, threatened
against Lunn or any of its Subsidiaries, at law or in equity, or before or by
any federal or state commission, board, bureau, agency or instrumentality, that
are likely to have, individually or in the aggregate, a Material Adverse Effect.
There are no outstanding judgments, decrees, injunctions, awards or orders
against Lunn or any of its Subsidiaries that are likely to have, individually or
in the aggregate, a Material Adverse Effect. Schedule 5.9 of the Lunn Disclosure
Letter contains, as of the date of this Agreement, an accurate and complete list
of all actions, suits and proceedings pending or, to the knowledge of Lunn,
threatened against Lunn or its Subsidiaries.
5.10 Absence of Certain Changes. Except as set forth on Schedule 5.10
of the Lunn Disclosure Letter, since December 31, 1996, there has not been (i)
any change in the financial condition or business of Lunn or its Subsidiaries
which has had a Material Adverse Effect, other than any adverse effect resulting
from adverse changes in general economic conditions, stock market fluctuations
or conditions or adverse changes in or affecting the aerospace or high
performance composites industries generally, (ii) any material change by Lunn in
its accounting methods, principles or practices, (iii) any declaration, setting
aside or payment of any dividend or distribution in respect of any capital stock
of Lunn or any redemption, purchase or other acquisition of any of its
securities, or (iv) any increase in or establishment of any bonus, insurance,
severance, deferred compensation, pension, retirement, profit sharing, stock
option, stock purchase or other employee benefit plan, except in the ordinary
course of business.
5.11 Taxes. (a) Lunn and its Subsidiaries have (i) duly filed (or there
has been filed on their behalf) with appropriate governmental authorities all
tax returns, statements, reports and forms required to be filed by them, on or
prior to the date hereof, except to the extent that any failure to file would
not have, individually or in the aggregate, a Material Adverse Effect and (ii)
duly paid in full or made provisions in accordance with GAAP (or there has been
paid or provision has been made on their behalf) for the payment of all material
Taxes for all periods ending through the date hereof or the Closing Date, as the
case may be.
(b) (i) Except as set forth in Schedule 5.11(b), the federal income tax
returns of Lunn and each of its Subsidiaries have been examined by the IRS (or
the applicable statutes of limitation for the assessment of federal income taxes
for such periods have expired) for all periods through and including December
31, 1996 and all material deficiencies asserted by the IRS have been paid, fully
settled or adequately provided for in the financial statements contained in the
Lunn SEC Reports; (ii) as of the date hereof, neither Lunn nor any of its
Subsidiaries has granted any requests, agreements, consents or waivers to extend
the statutory period of limitations applicable to the assessment of any taxes
with respect to any tax returns of Lunn or any of its Subsidiaries; and (iii)
neither Lunn nor any of its Subsidiaries is a party to any material tax sharing
or tax indemnity agreement.
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5.12 Employee Benefit Plans. Schedule 5.12 of the Lunn Disclosure
Letter contains a list of all employee benefit plans and other benefit
arrangements, including all "employee benefit plans" as defined in ERISA,
covering employees of Lunn and its Subsidiaries (the "Lunn Benefit Plans"). True
and complete copies of the Lunn Benefit Plans and, if applicable, the most
recent Form 5500 and annual reports for each such plan have been made available
to TPG. To the extent applicable, the Lunn Benefit Plans comply, in all material
respects, with the requirements of the ERISA and the Code, and any Lunn Benefit
Plan intended to be qualified under section 401(a) of the Code has been
determined by the IRS to be so qualified. To Lunn's knowledge, there are no
pending or anticipated claims against or otherwise involving any Lunn Benefit
Plan and no suit, action or other litigation (excluding claims for benefits
incurred in the ordinary course of Lunn Benefit Plan activities) has been
brought against or with respect to any such Lunn Benefit Plan, except for any of
the foregoing which, individually or in the aggregate, would not have a Material
Adverse Effect. All material contributions required to be made as of the date
hereof to any Lunn Benefit Plans have been made or provided for. Lunn does not
maintain or contribute to any plan or arrangement which provides or has any
liability to provide life insurance, medical or other employee welfare benefits
to any employee or former employee upon his retirement or termination of
employment and Lunn has not represented, promised or contracted (whether in oral
or written form) to any employee or former employee that such benefits would be
provided. Except for any liability or any excise tax which would not have a
Material Adverse Effect, (i) neither Lunn nor any of its Subsidiaries has
incurred any direct or indirect liability under title IV of ERISA in connection
with the termination of, or withdrawal from, any Lunn Benefit Plan; (ii) there
does not exist with respect to any Lunn Benefit Plan any accumulated funding
deficiency within the meaning of section 412 of the Code or section 302 of
ERISA, whether or not waived; and (iii) no prohibited transaction has occurred
with respect to any Lunn Benefit Plan that would result in the imposition of any
excise tax or other liability under the Code or ERISA. The execution of this
Agreement and the performance of the Transactions will not (either alone or upon
the occurrence of any additional or subsequent events) constitute an event under
any benefit plan, policy, arrangement or agreement or any trust or loan that
will or may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligations to fund benefits with respect to any employee.
5.13 Labor Matters. Except as set forth on Schedule 5.13 of the Lunn
Disclosure Letter, neither Lunn nor any of its Subsidiaries is a party to, or
bound by, any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization. To Lunn's knowledge,
there are no organizational efforts with respect to the formation of a
collective bargaining unit presently being made or threatened involving
employees of Lunn or any of its Subsidiaries.
5.14 Environmental Matters. Except as would not have, individually or
in the aggregate, a Material Adverse Effect and except as set forth on Schedule
5.14:
(a) there are not any past or present conditions or
circumstances that interfere with the conduct of the business of Lunn
and each of its Subsidiaries in the manner now conducted or that
interfere with compliance with any order of any court, governmental
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authority or arbitration board or tribunal, or any law, ordinance,
governmental rule or regulation related to human health or the
environment ("Environmental Law");
(b) there are not any past or present conditions or
circumstances that, or arising out of, any current or former
businesses, assets or properties of Lunn or any Subsidiary of Lunn,
including but not limited to on-site or off-site disposal or release of
any chemical substance, product or waste, which may give rise to: (i)
liabilities or obligations for any cleanup, remediation or corrective
action under any Environmental Law or (ii) claims arising for personal
injury, property damage or damage to natural resources; and
(c) neither Lunn nor any of its Subsidiaries has (i) received
any notice of noncompliance with, violation of, or liability or
potential liability under any Environmental Law or (ii) entered into
any consent decree or order or is subject to any order of any court or
governmental authority or tribunal under any Environmental Law or
relating to the cleanup of any hazardous materials contamination.
5.15 Title to Properties. Lunn has, or will have at Closing, good and
marketable title to all its assets, free and clear of all Liens, except for
Permitted Liens, the Liens set forth on Schedule 5.15 of the Lunn Disclosure
Letter, and Liens expressly disclosed in the Lunn SEC Reports. No Lunn
Stockholder owns in his individual capacity any of Lunn's assets or any other
properties or assets used in its business.
5.16 Condition of Fixed Assets. Except as set forth on Schedule 5.16 of
the Lunn Disclosure Letter, the machinery, equipment and other tangible
properties included in the assets of Lunn, are in good operating condition
(ordinary wear and tear excepted) and have been maintained by Lunn in accordance
with industry standards, are acceptable for their intended uses in the ordinary
course consistent with past practices and conform in all material respects with
all applicable ordinances, regulations and other laws and there are no known
defects therein.
5.17 Assets Used in the Business. Lunn's assets as reflected on Lunn's
Most Recent Balance Sheet are all of the assets and leaseholds used by Lunn in
the conduct of its business as now being conducted, and are all of the assets
and leasehold interests necessary therefor.
5.18 Accounts Receivable. Subject to any reserves therefor established
in a consistent manner throughout the period covered by the Lunn Financial
Statements in accordance with GAAP, and except as reflected in Lunn's Most
Recent Balance Sheet, all accounts, notes, and other receivables reflected in
the Lunn Financial Statements or generated after the date of Lunn's Most Recent
Balance Sheet, with respect to Lunn's business, are valid and genuine, arise out
of bona fide sales and either have been collected or are enforceable and
collectible claims not subject to any valid defense, offset or credit. All
accounts receivable are recorded on the books of Lunn in accordance with GAAP.
Lunn has delivered to TPG the accounts receivable aging report of Lunn as of
April 30, 1997.
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5.19 Inventories. Subject to any reserves therefor established in a
consistent manner throughout the period covered by the Lunn Financial Statements
in accordance with GAAP, and except as reflected in Lunn's Most Recent Balance
Sheet, the inventories of Lunn's business reflected in the financial statements
of Lunn contained in the Lunn Financial Statements or acquired since the date of
Lunn's Most Recent Balance Sheet, consist of items that are in good, current,
standard, and merchantable condition, and are of a quantity and quality salable
in the ordinary course of business.
5.20 Material Agreements. Except as set forth in the Lunn Disclosure
Letter, Lunn has no material contracts which are required to be filed as
exhibits to the Lunn SEC Reports which have not been so filed, and complete
copies of the contracts identified in the Lunn Disclosure Letter have been
furnished to TPG.
5.21 Trademarks, Patents and Copyrights. Schedule 5.21 of the Lunn
Disclosure Letter describes all patents, patent rights, trademarks, trademark
rights and proprietary information used or held for use in connection with their
respective businesses as currently being conducted (the "Lunn Intellectual
Property"). Except as previously disclosed to TPG in writing, to the knowledge
of Lunn, Lunn and its Subsidiaries own or possess adequate licenses or other
valid rights to use the Lunn Intellectual Property, except where the failure to
own or possess such license and other rights would not have, individually or in
the aggregate, a Material Adverse Effect, and there are no assertions or claims
challenging the validity of any of the foregoing which are likely to have,
individually or in the aggregate, a Material Adverse Effect. To the knowledge of
Lunn, the conduct of Lunn's and its Subsidiaries' respective businesses as
currently conducted does not conflict with any patents, patent rights, licenses,
trademarks, trademark rights, trade names, trade name rights or copyrights of
others in any way likely to have, individually or in the aggregate, a Material
Adverse Effect. To the knowledge of Lunn, there is no material infringement of
any proprietary right owned by or licenses by or to Lunn or any of its
Subsidiaries which is likely to have, individually or in the aggregate, a
Material Adverse Effect.
5.22 Insurance. Lunn has previously delivered to TPG a schedule listing
the officers' and directors' liability insurance policies, primary and excess
casualty insurance policies providing coverage for bodily injury and property
damage to third parties, including products liability and completed operations
coverage, and worker's compensation insurance policies maintained by Lunn and
its Subsidiaries. Lunn and its Subsidiaries maintain insurance coverage
reasonably adequate for the operation of their respective businesses (taking
into account the cost and availability of such insurance).
5.23 Licenses and Permits. Set forth on Schedule 5.23 of the Lunn
Disclosure Letter is a list of all material permits, licenses, consents,
approvals and governmental or regulatory authorizations used by or affecting the
conduct of Lunn's business. Lunn has all licenses and permits (federal, state
and local) necessary to own its assets and to conduct its operations, and such
licenses and permits are in full force and effect. No violations are or have
been recorded in respect of such licenses or permits and no proceeding is
pending or, to the knowledge of Lunn, threatened, seeking the revocation or
limitation of any of such licenses or permits.
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5.24 Federal Income Tax Representations.
(a) Lunn is undertaking the Merger for a bona fide business purpose and
not merely for the avoidance of federal income tax.
(b) Lunn is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
5.25 No Brokers. Lunn has not entered into any contract, arrangement or
understanding with any person or firm that may result in the obligation of the
Surviving Corporation to pay any finder's fees, brokerage or agent's commissions
or other like payments in connection with the negotiations leading to this
Agreement or the consummation of the Transactions, except that Lunn has retained
Allen & Company Incorporated to render a fairness opinion with respect to the
transaction, the arrangements with which have been disclosed in writing to TPG
prior to the date hereof.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF TPG
Except as set forth in the disclosure letter delivered to Lunn
concurrently with the execution hereof (the "TPG Disclosure Letter"), TPG
represents and warrants to Lunn that:
6.1 Existence; Good Standing; Corporate Authority. TPG is a corporation
duly incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation. TPG is duly qualified to do business as a foreign
corporation and is in good standing under the laws of any jurisdiction in which
the character of the properties owned or leased by it therein or in which the
transaction of its business makes such qualification necessary, except where the
failure to be so qualified would not have, individually or in the aggregate, a
Material Adverse Effect. TPG has all requisite corporate power and authority to
own, operate and lease its properties and to carry on its business as now
conducted. The copies of TPG's certificate of incorporation and bylaws
previously made available to Lunn are true and correct.
6.2 Authorization; Validity and Effect of Agreements. TPG has the
requisite corporate power and authority to execute and deliver this Agreement
and all agreements and documents contemplated hereby. The consummation by TPG of
the Transactions has been duly authorized by all requisite corporate action,
other than, with respect to the Merger, the approval and adoption of this
Agreement by the TPG Stockholders. This Agreement constitutes the valid and
legally binding obligation of TPG, enforceable in accordance with its terms. TPG
has taken all action necessary to render the restrictions set forth in Section
203 of the DGCL inapplicable to this Agreement and the Merger.
6.3 Capitalization. The authorized capital stock of TPG consists of
1,000,000 shares of TPG Common Stock and 1,000,000 shares of TPG Preferred
Stock. As of the date hereof, there are 475,000 shares of TPG Common Stock and
1,000,000 shares of TPG Preferred Stock
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issued and outstanding and no shares of TPG Common Stock or and TPG Preferred
Stock are held as treasury shares. All such issued and outstanding shares of TPG
Common Stock are duly authorized, validly issued, fully paid, nonassessable and
free of preemptive rights. Except as set forth in Schedule 6.3, there are 25,000
shares of TPG Common Stock reserved for issuance pursuant to the TPG Stock
Option Plan and, as of the date hereof, TPG Options to purchase 25,000 shares of
TPG Common Stock are outstanding. There are no other outstanding shares of
capital stock and there are no other options, warrants, calls, subscriptions,
convertible securities, or other rights, agreements or commitments which
obligate TPG or any of its Subsidiaries to issue, transfer or sell any shares of
capital stock or other voting securities of TPG or any of its Subsidiaries. TPG
has no outstanding bonds, debentures, notes or other obligations the holders of
which have the right to vote (or which are convertible into or exercisable for
securities having the right to vote) with the stockholders of TPG on any matter.
6.4 Subsidiaries. Each of TPG's Subsidiaries is a corporation or
partnership duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation or organization, has the corporate or
partnership power and authority to own, operate, and lease its properties and to
carry on its business as it is now being conducted, and is duly qualified to do
business and is in good standing in each jurisdiction in which the ownership,
operation or lease of its property or the conduct of its business requires such
qualification, except for jurisdictions in which such failure to be so qualified
or to be in good standing would not have a Material Adverse Effect. Except as
reflected on Schedule 6.4 of the TPG Disclosure Letter, all of the outstanding
shares of capital stock, or other ownership interests in, each of TPG's
Subsidiaries is duly authorized, validly issued, fully paid and nonassessable,
and is owned, directly or indirectly, by TPG free and clear of all Liens.
Schedule 6.4 of the TPG Disclosure Letter sets forth the following information
for each Subsidiary of TPG, as applicable; (a) its name and jurisdiction of
incorporation or organization; (b) its authorized capital stock or share
capital; and (c) the number of issued and outstanding shares of capital stock or
share capital.
6.5 No Violation of Law. Neither TPG nor any of its Subsidiaries is in
violation of any order of any court, Governmental Authority or arbitration board
or tribunal, or any Law, to which TPG or any of its Subsidiaries or any of their
respective properties or assets is subject, except as would not have,
individually or in the aggregate, a Material Adverse Effect.
6.6 No Conflict. (a) Except as set forth in Schedule 6.6(a) of the TPG
Disclosure Letter, neither the execution and delivery by TPG of this Agreement
nor the consummation by TPG of the Transactions in accordance with the terms
hereof, will: (i) violate any provisions of the certificate of incorporation or
bylaws of TPG; (ii) violate any provision of, or constitute a default (or an
event which, with notice or lapse of time or both, would constitute a default)
under, or result in the termination or in a right of termination or cancellation
of, or accelerate the performance required by, or result in the creation of any
Lien upon any of the properties of TPG or its Subsidiaries under, or result in
being declared void, voidable, or without further binding effect, any of the
terms, conditions or provisions of, any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, lease, contract, agreement or other
instrument or obligation to which TPG or any of its Subsidiaries is a party, or
by which TPG or any of its Subsidiaries or any of their properties is bound or
affected; or (iii) constitute a violation of any provision of any Law
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binding upon or applicable to TPG or any of its Subsidiaries, except, in the
case of matters described in clause (ii) or (iii), as would not have,
individually or in the aggregate, a Material Adverse Effect.
(b) Neither the execution and delivery by TPG of this
Agreement nor the consummation by TPG of the Transactions in accordance with the
terms hereof will require any consent, approval or authorization of, or filing
or registration with, any governmental or regulatory authority, other than (i)
such filings, consents and approvals that are obtained before the Closing and
(ii) filings required under the HSR Act, the Exchange Act, the Securities Act or
applicable state securities and "Blue Sky" laws, except for any consent,
approval or authorization the failure of which to obtain and for any filing or
registration the failure of which to make would not have a Material Adverse
Effect.
6.7 Financial Statements. Schedule 6.7 of the TPG Disclosure Letter
contains the audited consolidated financial statements of TPG for the fiscal
years ended December 31, 1995 and December 31, 1996 and the unaudited
consolidated financial statements of TPG for the quarter ended April 4, 1997
(collectively, the "TPG Financial Statements"). Each of the balance sheets
included in the TPG Financial Statements (including the related notes and
schedules) fairly presents the consolidated financial position of TPG as of its
date and each of the statements of income, retained earnings and cash flows
(including any related notes and schedules) fairly presents the consolidated
results of operations, retained earnings and cash flows, respectively, of TPG
for the periods set forth therein (subject, in the case of interim statements,
to normal year-end audit adjustments which will be consistent with prior years'
adjustments and which would not be material in amount or effect, and except as
disclosed in Schedule 6.7 of the TPG Disclosure Letter) in each case in
accordance with GAAP consistently applied during the periods involved, except as
may be noted therein and except for the absence of notes, a consolidated
statement of cash flow and a consolidated statement of shareholders' equity in
interim statements. Except as and to the extent set forth on the consolidated
balance sheet of TPG and its Subsidiaries at December 31, 1996, including all
notes thereto, neither TPG nor any of its Subsidiaries has any liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise)
that would be required to be reflected on, or reserved against in, a balance
sheet of TPG or in the notes thereto prepared in accordance with GAAP, other
than liabilities or obligations which would not have, individually or in the
aggregate, a Material Adverse Effect and liabilities and obligations arising in
the ordinary course of business since such date.
6.8 Registration Statement and Proxy Statement. None of the information
supplied or to be supplied by TPG for inclusion in (a) the Registration
Statement, or (b) the Proxy Statement will, in the case of the Proxy Statement
or any amendments thereof or supplements thereto, at the time of the mailing of
the Proxy Statement and any amendments or supplements thereto, at the time of
the Lunn Stockholders' Meeting and the TPG Stockholders' Meeting, and at the
Effective Time, or, in the case of the Registration Statement, as amended or
supplemented, at the time it is declared effective by the SEC, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
Registration Statement and Joint Proxy Statement/Prospectus shall comply in all
material respects as to form
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and substance with the requirements of the Securities Act, the Exchange Act and
the rules and regulations promulgated thereunder, except that no representation
is made by TPG with respect to information supplied by Lunn for inclusion
therein.
6.9 Litigation. There are no actions, suits or proceedings pending
against TPG or any of its Subsidiaries or, to TPG's knowledge, threatened
against TPG or any of its Subsidiaries, at law or in equity, or before or by any
federal or state commission, board, bureau, agency or instrumentality, that are
likely to have, individually or in the aggregate, a Material Adverse Effect.
There are no outstanding judgments, decrees, injunctions, awards or orders
against TPG or any of its Subsidiaries that are likely to have, individually or
in the aggregate, a Material Adverse Effect. Schedule 6.9 of the TPG Disclosure
Letter contains, as of the date of this Agreement, an accurate and complete list
of all actions, suits and proceedings pending or, to the knowledge of TPG,
threatened against TPG or its Subsidiaries.
6.10 Absence of Certain Changes. Except as reflected in Schedule 6.10,
since December 31, 1996, there has not been (i) any change in the financial
condition or business of TPG or its Subsidiaries which has had a Material
Adverse Effect, other than any adverse effect resulting from adverse changes in
general economic conditions, stock market fluctuations or conditions or adverse
changes in or affecting the aerospace or high performance composites industries
generally, (ii) any material change by TPG in its accounting methods, principles
or practices, (iii) any declaration, setting aside or payment of any dividend or
distribution in respect of any capital stock of TPG or any redemption, purchase
or other acquisition of any of its securities, or (iv) any increase in or
establishment of any bonus, insurance, severance, deferred compensation,
pension, retirement, profit sharing, stock option, stock purchase or other
employee benefit plan, except in the ordinary course of business.
6.11 Taxes. (a) TPG and its Subsidiaries have (i) duly filed (or there
has been filed on their behalf) with appropriate governmental authorities all
tax returns, statements, reports and forms required to be filed by them, on or
prior to the date hereof, except to the extent that any failure to file would
not have, individually or in the aggregate, a Material Adverse Effect and (ii)
duly paid in full or made provisions in accordance with GAAP (or there has been
paid or provision has been made on their behalf) for the payment of all material
Taxes for all periods ending through the date hereof on the Closing Date, as the
case may be.
(b) (i) Except as reflected in Schedule 6.11(b), the federal income tax
returns of TPG and each of its Subsidiaries have been examined by the IRS (or
the applicable statutes of limitation for the assessment of federal income taxes
for such periods have expired) for all periods through and including December
31, 1996, and all material deficiencies asserted by the IRS have been paid,
fully settled or adequately provided for in the TPG financial statements; (ii)
as of the date hereof, neither TPG nor any of its Subsidiaries has granted any
requests, agreements, consents or waivers to extend the statutory period of
limitations applicable to the assessment of any taxes with respect to any tax
returns of TPG or any of its Subsidiaries; and (iii) neither TPG nor any of its
Subsidiaries is a party to any material tax sharing of tax indemnity agreement.
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6.12 Employee Benefit Plans. Schedule 6.12 of the TPG Disclosure Letter
contains a list of all employee benefit plans and other benefit arrangements,
including all "employee benefit plans" as defined in ERISA, covering employees
of TPG and its Subsidiaries (the "TPG Benefit Plans"). True and complete copies
of TPG Benefit Plans and, if applicable, the most recent Form 5500 and annual
reports for each such plan have been made available to TPG. To the extent
applicable, TPG Benefit Plans comply, in all material respects, with the
requirements of ERISA and the Code, and any TPG Benefit Plan intended to be
qualified under section 401(a) of the Code has been determined by the IRS to be
so qualified. To TPG's knowledge, there are no pending or anticipated claims
against or otherwise involving any TPG Benefit Plan and no suit, action or other
litigation (excluding claims for benefits incurred in the ordinary course of TPG
Benefit Plan activities) has been brought against or with respect to any such
TPG Benefit Plan, except for any of the foregoing which, individually or in the
aggregate, would not have a Material Adverse Effect. All material contributions
required to be made as of the date hereof TPG Benefit Plans have been made or
provided for. TPG does not maintain or contribute to any plan or arrangement
which provides or has any liability to provide life insurance, medical or other
employee welfare benefits to any employee or former employee upon his retirement
or termination of employment and TPG has not represented, promised or contracted
(whether in oral or written form) to any employee or former employee that such
benefits would be provided. Except for any liability or any excise tax which
would not have a Material Adverse Effect, (i) neither TPG nor any of its
Subsidiaries has incurred any direct or indirect liability under title IV of
ERISA in connection with the termination of, or withdrawal from, any TPG Benefit
Plan; (ii) there does not exist with respect to any TPG Benefit Plan any
accumulated funding deficiency within the meaning of section 412 of the Code or
section 302 of ERISA, whether or not waived; and (iii) no prohibited transaction
has occurred with respect to any TPG Benefit Plan that would result in the
imposition of any excise tax or other liability under the Code or ERISA. The
execution of this Agreement and the performance of the Transactions will not
(either alone or upon the occurrence of any additional or subsequent events)
constitute an event under any benefit plan, policy, arrangement or agreement or
any trust or loan that will or may result in any payment (whether of severance
pay or otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligations to fund benefits with respect
to any employee.
6.13 Labor Matters. Except as reflected on Schedule 6.13, neither TPG
nor any of its Subsidiaries is a party to, or bound by, any collective
bargaining agreement, contract or other agreement or understanding with a labor
union or labor organization. To TPG's knowledge, there are no organizational
efforts with respect to the formation of any collective bargaining unit
presently being made or threatened involving employees of TPG or any of its
Subsidiaries.
6.14 Environmental Matters. Except as set forth on Schedule 6.14 and as
would not have, individually or in the aggregate, a Material Adverse Effect and
except as set forth on Schedule 6.14:
(a) there are not any past or present conditions or
circumstances that interfere with the conduct of the business of TPG
and each of its Subsidiaries in the manner now conducted or that
interfere with compliance with any order of any court, governmental
authority or arbitration board or tribunal, or any Environmental Law;
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(b) there are not any past or present conditions or
circumstances at, or arising out of, any current or former businesses,
assets or properties of TPG or any Subsidiary of TPG, including but not
limited to on-site or off-site disposal or release of any chemical
substance, product or waste, which may give rise to: (i) liabilities or
obligations for any cleanup, remediation or corrective action under any
Environmental Law or (ii) claims arising for personal injury, property
damage or damage to natural resources; and
(c) neither TPG nor any of its Subsidiaries has (i) received
any notice of noncompliance with, violation of, or liability or
potential liability under any Environmental Law or (ii) entered into
any consent decree or order or is subject to any order of any court or
governmental authority or tribunal under any Environmental Law or
relating to the cleanup of any hazardous materials contamination.
6.15 Title to Properties. TPG has, or will have at Closing, good and
marketable title to all its assets, free and clear of all Liens, except for
Permitted Liens and the liens set forth on Schedule 6.15 of the TPG Disclosure
Letter. No TPG Stockholder owns in his individual capacity any of TPG's assets
or any other properties or assets used in its business.
6.16 Condition of Fixed Assets. The machinery, equipment and other
tangible properties included in the assets of TPG, are in good operating
condition (ordinary wear and tear excepted) and have been maintained by TPG in
accordance with industry standards, are acceptable for their intended uses in
the ordinary course consistent with past practices and conform in all material
respects with all applicable ordinances, regulations and other laws and there
are no known defects therein.
6.17 Assets Used in the Business. TPG's assets are all of the assets
and leaseholds used by TPG in the conduct of its business as now being
conducted, and are all of the assets and leasehold interests necessary therefor.
6.18 Accounts Receivable. Subject to any reserves therefor established
in a consistent manner throughout the periods covered by the TPG Financial
Statements in accordance with GAAP, and except as reflected in TPG's Most Recent
Balance Sheet, all accounts, notes, and other receivables reflected in the TPG
Financial Statements, or generated after TPG's Most Recent Balance Sheet, with
respect to TPG's business, are valid and genuine, arise out of bona fide sales
and either have been collected or are enforceable and collectible claims not
subject to any valid defense, offset or credit. All accounts receivable are
recorded on the books of TPG in accordance with GAAP. TPG has delivered to Lunn
the accounts receivable aging report of TPG as of March 31, 1997.
6.19 Inventories. Subject to any reserves therefor established in a
consistent manner throughout the periods covered by the TPG Financial Statements
in accordance with GAAP, and except as reflected in TPG's Most Recent Balance
Sheet, the inventories of TPG's business reflected in the TPG Financial
Statements or acquired since the date of TPG's Most Recent
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Balance Sheet consist of items that are in good, current, standard, and
merchantable condition, and are of a quantity and quality salable in the
ordinary course of business.
6.20 Material Agreements. Schedule 6.20 of the TPG Disclosure Letter
lists and describes all material contracts which TPG would be required to file
as exhibits to SEC Reports if TPG were a Reporting Person. Complete copies of
the contracts identified in the TPG Disclosure Letter have been made available
to Lunn.
6.21 Trademarks, Patents and Copyrights. Schedule 6.21 to the TPG
Disclosure Letter describes all patents, patent rights, trademarks, trademark
rights and proprietary information used or held for use in connection TPG and
its Subsidiaries' respective businesses as currently being conducted (the "TPG
Intellectual Property"). Except as previously disclosed to Lunn in writing, to
the knowledge of TPG, TPG and its Subsidiaries own or possess adequate licenses
or other valid rights to use the TPG Intellectual Property, except where the
failure to own or possess such license and other rights would not have,
individually or in the aggregate, a Material Adverse Effect, and to the
knowledge of TPG, there are no assertions or claims challenging the validity of
any of the foregoing which are likely to have, individually or in the aggregate,
a Material Adverse Effect. To the knowledge of TPG, the conduct of TPG's and its
Subsidiaries' respective businesses as currently conducted does not conflict
with any patents, patent rights, licenses, trademarks, trademark rights, trade
names, trade name rights or copyrights of others in any way likely to have,
individually or in the aggregate, a Material Adverse Effect. To the knowledge of
TPG, there is no material infringement of any proprietary right owned by or
licenses by or to TPG or any of its Subsidiaries which is likely to have,
individually or in the aggregate, a Material Adverse Effect.
6.22 Insurance. TPG has made available to Lunn copies of all officers'
and directors' liability insurance policies, primary and excess casualty
insurance policies providing coverage for bodily injury and property damage to
third parties, including products liability and completed operations coverage,
and worker's compensation insurance policies maintained by TPG and its
Subsidiaries. TPG and its Subsidiaries maintain insurance coverage reasonably
adequate for the operation of their respective businesses (taking into account
the cost and availability of such insurance).
6.23 Licenses and Permits. Set forth on Schedule 6.23 of the TPG
Disclosure Letter is a list of all material permits, licenses, consents,
approvals and governmental or regulatory authorizations used by or affecting the
conduct of TPG's business. TPG has all licenses and permits (federal, state and
local) necessary to own its assets and to conduct its operations, and such
licenses and permits are in full force and effect. No violations are or have
been recorded in respect of such licenses or permits and no proceeding is
pending or, to the knowledge of TPG, threatened, seeking the revocation or
limitation of any of such licenses or permits.
6.24 Federal Income Tax Representations
(a) TPG is undertaking the Merger for a bona fide business purpose and
not merely for the avoidance of federal income tax.
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(b) TPG is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
6.25 No Brokers. TPG has not entered into any contract, arrangement or
understanding with any person or firm which may result in the obligation of TPG
or Lunn to pay any finder's fees, brokerage or agent's commissions or other like
payments in connection with the negotiations leading to this Agreement or the
consummation of the Transactions.
ARTICLE 7
COVENANTS
7.1 Covenants of TPG and Lunn. During the period from the date hereof
and continuing until the Effective Time (except as expressly contemplated or
permitted hereby, or to the extent Lunn consents in writing in the case of TPG's
obligations and to the extent TPG consents in writing in the case of Lunn's
obligations) each of TPG and Lunn covenants with the other that, insofar as the
obligations relate to it:
(a) TPG and Lunn and their respective Subsidiaries shall each carry on
and conduct their respective businesses only in the ordinary course in
substantially the same manner as previously conducted and shall use all
commercially reasonable efforts to preserve intact their present business
organizations, maintain their rights and franchises and preserve their
relationships with customers, suppliers and others having business dealings with
them to the end that their businesses shall not be impaired in any material
respect at the Effective Time.
(b) TPG and Lunn and their respective subsidiaries shall cooperate in
all commercially reasonable respects and promptly prepare, and Lunn shall file
with the SEC as soon as practicable, the Registration Statement, a portion of
which Registration Statement shall also serve as the proxy statement with
respect to the Lunn Stockholders' Meeting and the TPG Stockholders' Meeting in
connection with the Merger. The respective parties will cause the Joint Proxy
Statement/Prospectus and the Registration Statement to comply as to form in all
material respects with the applicable provisions of the Securities Act and the
rules and regulations thereunder. Lunn shall use all commercially reasonable
efforts, and TPG will cooperate in all commercially reasonable respects with
Lunn, to have the Registration Statement declared effective by the SEC as
promptly as practicable. Lunn shall use all commercially reasonable efforts to
obtain, prior to the effective date of the Registration Statement, all necessary
state securities law permits or approvals required to carry out the
Transactions. TPG shall furnish all information concerning TPG and the TPG
Stockholders' as Lunn may reasonably request in connection with such actions. As
promptly as practicable after the Registration Statement shall have become
effective, Lunn shall mail the Joint Proxy Statement/Prospectus to the Lunn
Stockholders and the TPG Stockholders. Lunn agrees that the Joint Proxy
Statement/Prospectus at the time of mailing thereof and at the time of the Lunn
Stockholders' Meeting or the TPG Stockholders' Meeting (or during the period
that consents are solicited or received) will not include an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the
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statements therein, in light of circumstances under which they were made, not
misleading; provided, however, that the foregoing shall not apply to the extent
that any such untrue statement of a material fact or omission to state a
material fact relates TPG and was approved by TPG for use in the Joint Proxy
Statement/Prospectus. TPG agrees that the information relating to TPG provided
to Lunn for use in the Joint Proxy Statement/Prospectus, at the time of mailing
thereof and at the time of the Lunn Stockholders' Meeting and the TPG
Stockholders' Meeting (or during the period that consents are solicited or
received), will not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Neither the Joint Proxy Statement/Prospectus nor any amendment
or supplement to the Joint Proxy Statement/Prospectus will be made by TPG or
Lunn without the approval of the other party. Lunn will advise TPG, promptly
after it receives notice thereof, of the time when the Registration Statement
has become effective. TPG and Lunn each hereby (i) consents to the use of its
name, and on behalf of its Affiliates, the names of such Affiliates and to the
inclusion of financial statements and business information relating to such
party and its Affiliates (in each case, to the extent required by applicable
securities Laws) in the Registration Statement or Joint Proxy
Statement/Prospectus and (ii) agrees to use commercially reasonable efforts to
obtain the written consent of any Person retained by it which may be required to
be named (as an expert or otherwise) in the Registration Statement or Joint
Proxy Statement/Prospectus. Lunn shall not amend or supplement the Registration
Statement at any time after it is filed with the SEC without first obtaining the
consent of TPG, which consent shall not be unreasonably withheld or delayed.
(c) TPG and Lunn shall each use their commercially reasonable efforts
to (i) take, or cause to be taken, all appropriate action, and do, or cause to
be done, all things necessary and proper under applicable law to consummate and
make effective the Transactions as promptly as practicable, (ii) obtain from any
Governmental Authority or any other third party any consents, licenses, permits,
waivers, approvals, authorizations, or orders required to be obtained or made by
TPG or Lunn or any of their Subsidiaries in connection with the authorization,
execution and delivery of this Agreement and the consummation of the
Transactions including, without limitation, the Merger, and (iii) as promptly as
practicable, make all necessary filings, and thereafter make any other required
submissions, with respect to this Agreement and the Merger required under (A)
the Securities Act and the Exchange Act, and any other applicable federal or
state securities laws, (B) the HSR Act and any related governmental request
thereunder, or (C) any other applicable law. TPG and Lunn shall cooperate with
each other in connection with the making of all such filings, including
providing copies of all such documents to the non-filing party and its advisors
prior to filing and, if requested, to accept all reasonable additions, deletions
or changes suggested in connection therewith. TPG and Lunn shall use their
commercially reasonable efforts to furnish to each other all information
required for any application or other filing to be made pursuant to the rules
and regulations of any applicable law (including all information required to be
included in the Joint Proxy Statement and the Registration Statement) in
connection with the Transactions.
(d) Lunn and TPG agree, and shall cause each of their respective
Subsidiaries, to cooperate and to use their respective commercially reasonable
efforts to obtain any government clearances required for Closing (including
through compliance with the HSR Act and any
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applicable foreign government reporting requirements), to respond to any
government requests for information, and to contest and resist any action,
including any legislative, administrative or judicial action, and to have
vacated, lifted, reversed or overturned any decree, judgment, injunction or
other order (whether temporary, preliminary or permanent) that restricts,
prevents or prohibits the consummation of the Merger or any other Transactions,
including, without limitation, by pursuing all commercially reasonable avenues
of administrative and judicial appeal. Lunn and TPG also agree to take any and
all of the following actions to the extent necessary to obtain the approval of
any Governmental Authority with jurisdiction over the enforcement of any
applicable laws regarding the Merger: entering into negotiations; providing
information; substantially complying with any second request for information
pursuant to the HSR Act; making proposals; entering into and performing
agreements or submitting to judicial or administrative orders; selling or
otherwise disposing of, or holding separate (through the establishment of a
trust or otherwise) particular assets or categories of assets, or businesses of
Lunn, TPG or any of their Affiliates; and withdrawing from doing business in a
particular jurisdiction. The parties hereto will consult and cooperate with one
another, and consider in good faith the views of one another, in connection with
any analyses, appearances, presentations, memoranda, briefs, arguments, opinions
and proposals made or submitted by or on behalf of any party hereto in
connection with proceedings under or relating to the HSR Act or any other
federal, state or foreign antitrust or fair trade law. Lunn shall be entitled to
direct any proceedings or negotiations with any Governmental Authority relating
to any of the foregoing, provided that it shall afford TPG a reasonable
opportunity to participate therein. Notwithstanding anything to the contrary in
this Section 7.1(d), neither Lunn nor TPG nor any of their respective
Subsidiaries shall be required to take any action that would reasonably be
expected to substantially impair the overall benefits expected, as of the date
hereof, to be realized from the consummation of the Merger.
(e) Prior to the Closing, TPG and Lunn shall adhere to and abide by the
terms and conditions of that certain Confidentiality Agreement dated as of March
21, 1997 (the "Confidentiality Agreement").
7.2 Covenants of Lunn. Lunn covenants and agrees with TPG that during
the period from the date hereof and continuing until the Effective Time (except
as expressly contemplated or permitted hereby, or to the extent that TPG shall
otherwise consent in writing):
(a) Lunn hereby agrees as follows:
(i) (A) Prior to the Effective Time, neither it nor
any of is Subsidiaries shall, and each of them shall not permit any of
its officers, directors, employees, agents or representatives
(including, without limitation, any investment banker, attorney or
accountant retained by it or any of its Subsidiaries) to, directly or
indirectly, (1) solicit or encourage any inquiry, proposal or offer
(including, without limitation, any proposal or offer to its
stockholders) with respect to a merger, acquisition, consolidation or
similar transaction involving, or any purchase of 20% or more of the
assets on a consolidated basis or 20% or more of the capital stock of,
Lunn (any such proposal or offer being hereinafter referred to as a
"Lunn Acquisition Proposal") (2) enter into any agreement with respect
to any Lunn Acquisition Proposal, (3) participate in any discussions or
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negotiations regarding, or furnish to any person any information with
respect to, the making of any proposal that constitutes, or may
reasonably be expected to lead to, or to endorse, any Lunn Acquisition
Proposal, (4) solicit proxies in opposition to approval by the Lunn's
stockholders of the Merger, (5) engage in any negotiations concerning a
Lunn Acquisition Proposal, or (6) directly or indirectly, enter into
any agreement to, or make any public announcement by or on behalf of
Lunn of a plan or intention to do any of the foregoing; and (B) it will
immediately cease and cause to be terminated any existing negotiations
with any parties conducted heretofore with respect to any of the
foregoing; provided that nothing contained in this Agreement shall
prevent Lunn or its Board of Directors from (w) complying with Rule
14e-2 promulgated under the Exchange Act with regard to a Lunn
Acquisition Proposal or (x) providing information to or engaging in any
negotiations or discussions with any person or entity who has made an
unsolicited bona fide Lunn Acquisition Proposal if the Board of
Directors of Lunn, after consultation with Dechert, Price & Rhoads or
other legal counsel reasonably acceptable to TPG, determines in good
faith that the failure to do so would be a violation of its fiduciary
obligations under Delaware Law. Without limiting the foregoing, it is
understood that any violation of the restrictions set forth in the
preceding sentence by any officer, director or employee of Lunn or any
of Lunn's Subsidiaries or any investment banker, attorney or other
advisor, agent or representative of Lunn shall be deemed to be a
material breach of this Agreement by Lunn. Except to the extent the
Board of Directors of Lunn determines in good faith, after consultation
with Dechert, Price & Rhoads or other legal counsel reasonably
acceptable to TPG, that such actions are necessary to discharge
properly such Board's fiduciary duties, neither the Board of Directors
of Lunn nor any committee thereof shall (y) modify or withdraw, or
propose to modify or withdraw, in a manner adverse to TPG the approval
or recommendation by such Board of Directors or any such committee of
this Agreement or the Merger or take any action having such effect or
(z) approve or recommend, or propose to approve or recommend, any Lunn
Acquisition Proposal. Notwithstanding the foregoing, if the Board of
Directors of Lunn receives a Lunn Acquisition Proposal that, in the
exercise of its fiduciary duties (as determined in good faith after
consultation with Dechert, Price & Rhoads or other legal counsel
reasonably acceptable to TPG), it determines to be a Lunn Superior
Proposal, the Board of Directors of Lunn may withdraw or modify its
approval or recommendation of this Agreement and the Merger and may
terminate this Agreement.
(ii) If the Board of Directors of Lunn or any
committee thereof shall (A) withdraw or modify in a manner adverse to
TPG the approval or recommendation by the Board of Directors of such
corporation or any such committee of this Agreement or the Merger or
take any action having such effect or (B) approve or recommend any Lunn
Acquisition Proposal, TPG may terminate this Agreement.
(iii) In addition to the obligations of Lunn set
forth in Section 7.2(a)(i), Lunn shall (A) promptly advise TPG of the
existence of any negotiations or discussions entered into in reliance
on the proviso in the first sentence of Section 7.2(a)(i) prior to
furnishing any information to any person or entity in connection with a
Lunn Acquisition Proposal; provided, however, that Lunn shall not be
obligated to provide TPG with the
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identity of such person or entity until it becomes reasonably likely
that such person or entity or his or its Affiliate will make a Lunn
Acquisition Proposal; (B) obtain from such person or entity an executed
confidentiality agreement with terms not materially less favorable to
Lunn than those contained in the Confidentiality Agreement; and (C)
keep TPG informed, on a current basis, of the status of any such
discussions or negotiations.
Notwithstanding anything to the contrary contained herein, it is agreed and
understood that any termination of this Agreement shall be pursuant to Section
10.1 and that, prior to any such termination, Lunn shall not enter into any
written agreement with any person or entity that provides for, or in any way
facilitates, a Lunn Acquisition Proposal, other than a confidentiality agreement
in accordance with the terms hereof.
(b) Promptly after the date of this Agreement and subject to the timing
of the SEC's review of the Registration Statement, Lunn shall take all action
necessary in accordance with the DGCL and its Certificate of Incorporation and
Bylaws to convene an annual meeting of Lunn's Stockholders (or seek consent in
lieu of a meeting) for the purpose of considering and approving the Merger (the
"Lunn Stockholders' Meeting"), and Lunn shall consult with TPG in connection
therewith. Lunn shall use commercially reasonable efforts to solicit from the
Lunn Stockholders proxies in favor of the Merger (and consents to be bound by
the terms of this Agreement).
(c) Lunn will make all normal and customary repairs, replacements, and
improvements to their facilities, and without limiting the generality of the
foregoing or the covenants set forth in Section 7.1(a), Lunn will not, without
the prior written consent of TPG or as otherwise contemplated by this Agreement:
(i) change any provision of its Certificate of Incorporation
or Bylaws (or equivalent organizational documents);
(ii) except for the issuance of Lunn Common Stock pursuant to
the exercise of any Lunn Options or Lunn Warrants and any related
agreements, change the number of shares of the authorized, issued or
outstanding capital stock or share capital of Lunn, including any
issuance, purchase, redemption, split, combination or reclassification
thereof, or issue or grant any option, warrant, call, commitment,
subscription, right or agreement to purchase relating to the authorized
or issued capital stock or share capital of Lunn, or declare, set aside
or pay any dividend or other distribution in cash or in kind with
respect to the outstanding capital stock or share capital of Lunn;
(iii) incur any liabilities or obligations, whether directly
or indirectly, or by way of guaranty, and whether or not evidenced by
any note, bond, debenture, or similar instrument, except as set forth
in Schedule 7.2(c) of the Lunn Disclosure Letter and except in the
ordinary course of business consistent with past practices and prior
periods;
(iv) except as set forth in Schedule 7.2(c) of the Lunn
Disclosure Letter, make any capital expenditures (or enter into any
lease required to be capitalized in accordance with GAAP) individually
in excess of $100,000 or in the aggregate in excess of $500,000;
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(v) pay any bonuses or commissions to any employee of Lunn
except as set forth on Schedule 7.2(c) of the Lunn Disclosure Letter;
enter into any new or amend in any respect any existing employment
agreement with any Person; adopt any new or amend in any respect any
existing Plan, except as may be otherwise required by Law; purchase any
additional "key man" life insurance policy covering any employee or
director of Lunn, or any other Person; grant any increase in
compensation or benefits of any kind to its employees, officers or
directors, except regularly scheduled general increases in the ordinary
course of business and consistent with past practices and policies; or
effect any change in any respect in retirement benefits to any class of
employees or officers, except as otherwise required by Law;
(vi) purchase, sell, mortgage, pledge, or otherwise dispose of
or encumber any asset owned by Lunn, other than purchase and sales,
mortgages, pledges, or other dispositions or Encumbrances occurring in
the ordinary course of business consistent with past practices and
prior periods;
(vii) incur or collect receivables, or extend loans or
advances, incur or pay trade payables or accrued liabilities in any
manner other than consistent with past practices and prior periods and
in the ordinary course of business;
(viii) cancel without payment or satisfaction in full, waive
or extend the time for performance of, any notes, loans, or other
obligations inuring to the benefit of Lunn unless such cancellation or
termination occurs in the ordinary course of business of Lunn
consistent with past practices or unless such cancellations or
terminations, individually or in the aggregate, would have only an
immaterial effect on the business, results of operations or financial
condition of Lunn, taken as a whole;
(ix) make any material modification of or material amendment
to any of the contracts or agreements listed or described on any
Schedule to this Agreement;
(x) fail to use commercially reasonable efforts to maintain in
full force and effect all insurance now carried by Lunn;
(xi) institute any changes in management personnel or any
material change in any management policy; or
(xii) make any agreement or commitment by or on behalf of Lunn
to do or take any of the actions referred to in the foregoing Section
7.2(c)(i) through (xi).
(d) At least 30 days prior to the Closing Date, Lunn shall deliver to
TPG a list, which shall be reasonably satisfactory to TPG, of names and
addresses of those Persons who were, in Lunn's reasonable judgment after
discussion with its counsel, at the record date for the Lunn Stockholder's
Meeting, "affiliates" (each such Person, a "Lunn Affiliate Stockholder") of Lunn
within the meaning of Rule 145 promulgated pursuant to the Exchange Act. Lunn
shall provide
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TPG such information and documents as TPG shall reasonably request for purposes
of reviewing such list. Lunn shall deliver or cause to be delivered to TPG prior
to the Closing Date, from each of the Lunn Affiliate Stockholders identified in
the foregoing list, an Affiliate Letter. The Surviving Corporation shall be
entitled to place legends as specified in such Affiliate Letters on the
certificates evidencing any Surviving Corporation Common Stock to be received by
such Affiliates pursuant to the terms of this Agreement and to issue appropriate
stop transfer instructions to the transfer agent for the Surviving Corporation
Common Stock consistent with the terms of such Affiliate Letters.
(e) Without the prior written consent of TPG, Lunn shall not knowingly
take any action which would cause or would be reasonably likely to cause the
conditions upon the obligations of the parties hereto to effect the Transactions
not to be fulfilled, including taking, causing to be taken, or permitting or
suffering to be taken or to exist any action, condition or thing which would
cause the representations and warranties made by Lunn herein not to be true,
correct and accurate as of any time between the date hereof and the Closing
Date.
(f) Lunn shall promptly provide to TPG monthly and quarterly
consolidated financial statements of Lunn.
(g) Lunn shall not (i) knowingly take any action, or knowingly fail to
take any action, that would jeopardize qualification of the Merger as a
reorganization within the meaning of Section 368(a) of the Code; or (ii) enter
into any contract, agreement, commitment or arrangement with respect to the
foregoing.
(h) Upon at least 24 hours' notice to Lunn, Lunn shall afford to the
officers, employees, advisors, attorneys and accountants of TPG access during
normal business hours to the offices, properties, records, books, contracts and
other documents (including computer files, retrievable programs and similar
documentation) of Lunn to the extent that TPG shall reasonably request and shall
furnish to TPG such additional information as shall be reasonably requested by
TPG; provided that neither the furnishing of such information nor any
investigation made heretofore or hereafter by TPG shall affect TPG's right to
rely on any representation or warranty made by Lunn.
(i) Lunn shall use its best efforts to cause to be delivered to TPG
"comfort" letters of KPMG Peat Marwick LLP, Lunn's independent public
accountants, dated the effective date of the Registration Statement and the
Closing Date, respectively, and addressed to TPG, with respect to certain
financial information regarding Lunn included in the Registration Statement, in
form and substance reasonably satisfactory to TPG and customary in scope and
substance for "comfort" letters delivered by independent public accountants in
connection with registration statements similar to the Registration Statement.
(j) Lunn shall promptly prepare and submit to the Nasdaq SmallCap
Market an additional listing application covering the shares of Lunn Common
Stock issuable in the Merger, and shall use commercially reasonable efforts to
obtain, prior to the Effective Time, approval for the listing of such Lunn
Common Stock, subject to official notice of issuance.
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(k) Prior to the Closing, Lunn shall cause Alan Baldwin to agree to the
termination of his employment agreement with Lunn as of the Effective Time and
without any further liability or obligation to Lunn or the Surviving
Corporation, including without limitation any liability arising as a result of
Lunn entering into this Agreement or consummating the transactions contemplated
hereby, which termination shall be conditioned only upon the Surviving
Corporation's agreement to (i) pay Alan Baldwin an aggregate severance payment
of $380,000 in 12 equal consecutive monthly payments, commencing the month
immediately following the Closing, (ii) continue, at the Surviving Corporation's
expense, the health and life insurance benefits that Lunn provides to Baldwin as
of the date of this Agreement for one year following the Closing, and (iii)
extend for two years immediately following the Closing, the period during which
Alan Baldwin may exercise his Lunn Options.
(l) Lunn shall use its best efforts to cause Allen & Company
Incorporated to deliver to Lunn its opinion letter to the effect that the terms
of the Merger are fair from a financial point of view to the Lunn Stockholders
(the "Fairness Opinion") and cause such Fairness Opinion to be delivered as soon
as possible, but in no event later than one business day prior to the filing of
the Registration Statement with the SEC.
7.3 Covenants of TPG. TPG covenants with Lunn that during the period
from the date hereof and continuing until the Effective Time (except as
expressly contemplated or permitted hereby, or to the extent that Lunn shall
otherwise consent in writing):
(a) TPG hereby agrees as follows:
(i) (A) Prior to the Effective Time, neither it nor
any of is Subsidiaries shall, and each of them shall not permit any of
its officers, directors, employees, agents or representatives
(including, without limitation, any investment banker, attorney or
accountant retained by it or any of its Subsidiaries) to, directly or
indirectly, (1) solicit or encourage any inquiry, proposal or offer
(including, without limitation, any proposal or offer to its
stockholders) with respect to a merger, acquisition, consolidation or
similar transaction involving, or any purchase of 20% or more of the
assets on a consolidated basis or 20% or more of the capital stock of,
the TPG (any such proposal or offer being hereinafter referred to as a
"TPG Acquisition Proposal") (2) enter into any agreement with respect
to any TPG Acquisition Proposal, (3) participate in any discussions or
negotiations regarding, or furnish to any person any information with
respect to, the making of any proposal that constitutes, or may
reasonably be expected to lead to, or to endorse, any TPG Acquisition
Proposal, (4) solicit proxies in opposition to approval by the TPG's
stockholders of the Merger, (5) engage in any negotiations concerning
an TPG Acquisition Proposal, or (6) directly or indirectly, enter into
any agreement to, or make any public announcement by or on behalf of
TPG of a plan or intention to do any of the foregoing; and (B) it will
immediately cease and cause to be terminated any existing negotiations
with any parties conducted heretofore with respect to any of the
foregoing; provided that nothing contained in this Agreement shall
prevent TPG or its Board of Directors from (x) providing information to
or engaging in any negotiations or discussions
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with any person or entity who has made an unsolicited bona fide TPG
Acquisition Proposal if the Board of Directors of TPG, after
consultation with Gardere & Wynne, L.L.P. or other legal counsel
reasonably acceptable to Lunn, determines in good faith that the
failure to do so would be a violation of its fiduciary obligations
under Delaware Law. Without limiting the foregoing, it is understood
that any violation of the restrictions set forth in the preceding
sentence by any officer, director or employee of TPG or any of TPG's
Subsidiaries or any investment banker, attorney or other advisor, agent
or representative of TPG shall be deemed to be a material breach of
this Agreement by TPG. Except to the extent the Board of Directors of
TPG determines in good faith, after consultation with Gardere & Wynne,
L.L.P. or other legal counsel reasonably acceptable to Lunn, that such
actions are necessary to discharge properly such Board's fiduciary
duties, neither the Board of Directors of TPG nor any committee thereof
shall (y) modify or withdraw, or propose to modify or withdraw, in a
manner adverse to Lunn the approval or recommendation by such Board of
Directors or any such committee of this Agreement or the Merger or take
any action having such effect or (z) approve or recommend, or propose
to approve or recommend, any TPG Acquisition Proposal. Notwithstanding
the foregoing, if the Board of Directors of TPG receives an TPG
Acquisition Proposal that, in the exercise of its fiduciary duties (as
determined in good faith after consultation with Gardere & Wynne,
L.L.P. or other legal counsel reasonably acceptable to Lunn), it
determines to be an TPG Superior Proposal, the Board of Directors of
Lunn may withdraw or modify its approval or recommendation of this
Agreement and the Merger and may terminate this Agreement.
(ii) If the Board of Directors of TPG or any
committee thereof shall (A) withdraw or modify in a manner adverse to
Lunn the approval or recommendation by the Board of Directors of such
corporation or any such committee of this Agreement or the Merger or
take any action having such effect or (B) approve or recommend any TPG
Acquisition Proposal, Lunn may terminate this Agreement.
(iii) In addition to the obligations of TPG set forth
in Section 7.3(a)(i), TPG shall (A) promptly advise Lunn of the
existence of any negotiations or discussions entered into in reliance
on the proviso in the first sentence of Section 7.3(a)(i) prior to
furnishing any information to any person or entity in connection with
an TPG Acquisition Proposal, (B) obtain from such person or entity an
executed confidentiality agreement with terms not materially less
favorable to TPG than those contained in the Confidentiality Agreement
and (C) keep Lunn informed, on a current basis, of the status of any
such discussions or negotiations.
Notwithstanding anything to the contrary contained herein, it is agreed and
understood that any termination of this Agreement shall be pursuant to Section
10.1 and that, prior to any such termination, TPG shall not enter into any
written agreement with any person or entity that provides for, or in any way
facilitates, an TPG Acquisition Proposal, other than a confidentiality agreement
in accordance with the terms hereof.
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(b) Promptly after the date of this Agreement and subject to the timing
of the SEC's review of the Registration Statement, TPG shall take all action
necessary in accordance with the DGCL and its Certificate of Incorporation and
Bylaws to convene a special meeting of TPG's Stockholders (or seek consent in
lieu of a meeting) for the purpose of considering and approving the Merger (the
"TPG Stockholders' Meeting"), and TPG shall consult with Lunn in connection
therewith. TPG shall use commercially reasonable efforts to solicit from the TPG
Stockholders proxies in favor of the Merger (and consents to be bound by the
terms of this Agreement).
(c) TPG will make all normal and customary repairs, replacements, and
improvements to their facilities, and without limiting the generality of the
foregoing or the covenants set forth in Section 7.1(a), TPG will not, without
the prior written consent of Lunn or as otherwise contemplated by this
Agreement:
(i) change any provision of its Certificate of Incorporation
or Bylaws (or equivalent organizational documents);
(ii) except as set forth in Schedule 7.3(c) and except for the
issuance of TPG Common Stock pursuant to the exercise of any TPG
Options, and except pursuant to the terms of the TPG Preferred Stock,
and any related agreements, change the number of shares of the
authorized, issued or outstanding capital stock or share capital of
TPG, including any issuance, purchase, redemption, split, combination
or reclassification thereof, or issue or grant any option, warrant,
call, commitment, subscription, right or agreement to purchase relating
to the authorized or issued capital stock or share capital of TPG, or
declare, set aside or pay any dividend or other distribution in cash or
in kind with respect to the outstanding capital stock or share capital
of TPG;
(iii) incur any liabilities or obligations, whether directly
or indirectly, or by way of guaranty, and whether or not evidenced by
any note, bond, debenture, or similar instrument, except as set forth
in Schedule 7.3(c) of the TPG Disclosure Letter and except in the
ordinary course of business consistent with past practices and prior
periods;
(iv) except as set forth in Schedule 7.3(c) of the TPG
Disclosure Letter, make any capital expenditures (or enter into any
lease required to be capitalized in accordance with GAAP) individually
in excess of $100,000 or in the aggregate in excess of $500,000;
(v) pay any bonuses or commissions to any employee of TPG
except as set forth on Schedule 7.3(c) of the TPG Disclosure Letter;
enter into any new or amend in any respect any existing employment
agreement with any Person; adopt any new or amend in any respect any
existing Plan, except as may be otherwise required by Law; purchase any
additional "key man" life insurance policy covering any employee or
director of TPG, or any other Person; grant any increase in
compensation or benefits of any kind to its employees, officers or
directors, except regularly scheduled general increases in the ordinary
course of business and consistent with past practices and policies; or
effect any change in any respect in retirement benefits to any class of
employees or officers, except as otherwise required by Law;
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(vi) except as set forth in Schedule 7.3(c) of the TPG
Disclosure Letter, purchase, sell, mortgage, pledge, or otherwise
dispose of or encumber any asset owned by TPG, other than purchase and
sales, mortgages, pledges, or other dispositions or Encumbrances
occurring in the ordinary course of business consistent with past
practices and prior periods;
(vii) incur or collect receivables, or extend loans or
advances, incur or pay trade payables or accrued liabilities in any
manner other than consistent with past practices and prior periods and
in the ordinary course of business;
(viii) cancel without payment or satisfaction in full, waive
or extend the time for performance of, any notes, loans, or other
obligations inuring to the benefit of TPG unless such cancellation or
termination occurs in the ordinary course of business of TPG consistent
with past practices or unless such cancellations or terminations,
individually or in the aggregate, would have only an immaterial effect
on the business, results of operations or financial condition of TPG,
taken as a whole;
(ix) make any material modification of or material amendment
to any of the contracts or agreements listed or described on any
Schedule to this Agreement;
(x) fail to use commercially reasonable efforts to maintain in
full force and effect all insurance now carried by TPG;
(xi) institute any changes in management personnel or any
material change in any management policy; or
(xii) make any agreement or commitment by or on behalf of TPG
to do or take any of the actions referred to in the foregoing Section
7.3(c)(i) through (xi).
(d) Without the prior written consent of Lunn, TPG shall not knowingly
take any action which would cause or be reasonably likely to cause the
conditions upon the obligations of the parties hereto to effect the Transactions
not to be fulfilled, including without limitation, taking, causing to be taken,
or permitting or suffering to be taken or to exist any action, condition or
thing which would cause the representations and warranties made by TPG herein
not to be true, correct and accurate as of any time between the date hereof and
the Closing Date.
(e) TPG shall not (i) knowingly take any action, or knowingly fail to
take any action, that would jeopardize qualification of the Merger as a
reorganization within the meaning of Section 368(a) of the Code; or (ii) enter
into any contract, agreement, commitment or arrangement with respect to the
foregoing.
(f) TPG shall promptly provide to Lunn monthly and quarterly
consolidated financial statements of TPG.
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(g) Upon at least 24 hours' notice to TPG, TPG shall afford to the
officers, employees, advisors, attorneys and accountants of Lunn access during
normal business hours to the offices, properties, records, books, contracts and
other documents (including computer files, retrievable programs and similar
documentation) of TPG to the extent that Lunn shall reasonably request and shall
furnish to Lunn such additional information as shall be reasonably requested by
Lunn; provided that neither the furnishing of such information nor any
investigation made heretofore or hereafter by Lunn shall affect Lunn's right to
rely on any representation or warranty made by TPG.
(h) TPG shall use its best efforts to cause to be delivered to Lunn
"comfort" letters of Arthur Andersen LLP, TPG's independent public accountants,
dated the effective date of the Registration Statement and the Closing Date,
respectively, and addressed to Lunn, with respect to certain financial
information regarding TPG included in the Registration Statement, in form and
substance reasonably satisfactory to Lunn and customary in scope and substance
for "comfort" letters delivered by independent public accountants in connection
with registration statements similar to the Registration Statement.
(i) At the Closing, TPG shall cause the Surviving Corporation to agree
to (i) pay Alan Baldwin an aggregate severance payment of $380,000 in 12 equal
consecutive monthly payments, commencing the month immediately following the
Closing, (ii) continue, at the Surviving Corporation's expense, the health and
life insurance benefits that Lunn provides to Baldwin as of the date of this
Agreement for one year following the Closing, and (iii) extend for two years
immediately following the Closing, the period during which Alan Baldwin may
exercise his Lunn Options, which agreement shall be conditioned upon the
termination of Alan Baldwin's employment agreement with Lunn as of the Effective
Time and Alan Baldwin's release of Lunn and the Surviving Corporation of any
further liability or obligation thereunder, including without limitation any
liability arising as a result of Lunn entering into this Agreement or
consummating the transactions contemplated hereby.
(j) At least 30 days prior to the Closing Date, TPG shall deliver to
Lunn a list, which shall be reasonably satisfactory to Lunn, of names and
addresses of those Persons who were, in TPG's reasonable judgment after
discussion with its counsel, at the record date for the TPG Stockholder's
Meeting, "affiliates" (each such Person, a "TPG Affiliate Stockholder") of TPG
within the meaning of Rule 145 promulgated pursuant to the Exchange Act. TPG
shall provide Lunn such information and documents as Lunn shall reasonably
request for purposes of reviewing such list. TPG shall deliver or cause to be
delivered to Lunn prior to the Closing Date, from each of the TPG Affiliate
Stockholders identified in the foregoing list, an Affiliate Letter. The
Surviving Corporation shall be entitled to place legends as specified in such
Affiliate Letters on the certificates evidencing any Surviving Corporation
Common Stock to be received by such Affiliates pursuant to the terms of this
Agreement and to issue appropriate stop transfer instructions to the transfer
agent for the Surviving Corporation Common Stock consistent with the terms of
such Affiliate Letters.
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7.4 Fees and Expenses. (a) Whether or not the Merger is consummated,
except as provided in Section 7.4(b) and (c), all costs and expenses incurred in
connection with this Agreement and the Transactions shall be paid by the party
incurring such costs and expenses.
(b) (i) Notwithstanding any provision in this Agreement to the
contrary, if TPG terminates this Agreement pursuant to Section 10.1 (b)(i), (e),
(g), or (j), then Lunn shall immediately pay TPG cash in the amount of $750,000;
provided, however, that Lunn shall not be obligated to pay TPG such amount if
TPG terminates this Agreement pursuant to Section 10.1(e) as a result of Lunn's
breach of its representations in Section 5.14(a) or (b) or the first sentence of
Section 5.18 and if Lunn had no knowledge of the facts or circumstances giving
rise to such breach.
(ii) Notwithstanding any provision in this Agreement to the
contrary, if Lunn terminates this Agreement pursuant to Section 10.1(i), then
Lunn shall immediately pay TPG cash in the amount of $750,000.
(c) (i) Notwithstanding any provision in this Agreement to the
contrary, if Lunn terminates this Agreement pursuant to Section 10.1 (c)(i),
(f), (h), or (l), then TPG shall immediately pay Lunn cash in the amount of
$750,000; provided, however, that TPG shall not be obligated to pay Lunn such
amount if Lunn terminates this Agreement pursuant to Section 10.1(f) as a result
of TPG's breach of its representations in Section 6.14(a) or (b) or the first
sentence of Section 6.18 and if TPG had no knowledge of the facts or
circumstances giving rise to such breach.
(ii) Notwithstanding any provision in this Agreement to the
contrary, if TPG terminates this Agreement pursuant to Section 10.1(k), then TPG
shall immediately pay Lunn cash in the amount of $750,000.
(d) (i) Notwithstanding any provision in this Agreement to the
contrary, if TPG terminates this Agreement pursuant to Section 10.1(b)(i), (ii),
(iii), (v) or Section 10.1(e) or if Lunn terminates this Agreement pursuant to
Section 10.1(c)(ii), Lunn shall pay TPG, within five business days following
such termination and presentation of receipts therefor, an amount in cash equal
to all out-of-pocket expenses actually and reasonably incurred by TPG in
connection with this Agreement and the Transactions; provided, however, that
Lunn shall not be obligated to pay TPG such expenses if TPG terminates this
Agreement pursuant to Section 10.1(e) as a result of Lunn's breach of its
representations in Section 5.14(a) or (b) or the first sentence of Section 5.18
and if Lunn had no knowledge of the facts or circumstances giving rise to such
breach.
(ii) Notwithstanding any provision in this Agreement to the
contrary, if Lunn terminates this Agreement pursuant to Section 10.1(c)(i),
(iii) or (iv) or Section 10.1(f), or if TPG terminates this Agreement pursuant
to Section 10.1(b)(iv), TPG shall pay Lunn within five business days following
such termination and presentation of receipts therefor, an amount in cash equal
to all out-of-pocket expenses actually and reasonably incurred by Lunn in
connection with this Agreement and the transaction contemplated hereby;
provided, however, that TPG shall not be obligated to pay Lunn such expenses if
Lunn terminates this Agreement pursuant to Section
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10.1(f) as a result of Lunn's breach of its representations in Section 6.14(a)
or (b) or the first sentence of Section 6.18 and if TPG had no knowledge of the
facts or circumstances giving rise to such breach.
ARTICLE 8
CONDITIONS
8.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) This Agreement and the Transactions shall have been approved in the
requisite manner, according to the Certificate of Incorporation and Bylaws of
Lunn and the DGCL, by the holders of the issued and outstanding shares of
capital stock of Lunn entitled to vote thereon, which approval and the voting
thereon shall be certified by the Chief Executive Officer of Lunn.
(b) This Agreement and the Transactions shall have been approved in the
requisite manner, according to the Certificate of Incorporation and Bylaws of
TPG and the DGCL, by the holders of the issued and outstanding shares of capital
stock of TPG entitled to vote thereon, which approval and the voting thereon
shall be certified by the Chief Executive Officer of TPG.
(c) No action or proceeding shall have been instituted before a court
or other Governmental Authority to restrain or prohibit the Transactions or to
obtain an amount of damages or other material relief in connection with the
execution of the Agreement or the related agreements or the consummation of the
Merger; and no Governmental Authority shall have given notice to any party
hereto to the effect that consummation of the Transactions would constitute a
violation of any applicable Law or that it intends to commence proceedings to
restrain consummation of the Merger.
(d) The Registration Statement shall have become effective, no stop
orders suspending its effectiveness shall have been issued, and no proceedings
for that purpose shall have been instituted or, to the knowledge of TPG or Lunn,
shall be contemplated.
(e) All consents, authorizations, orders and approvals of (or filings
or registrations with) any Governmental Authority required in connection with
the execution, delivery and performance of this Agreement shall have been
obtained or made, except for filings in connection with the Merger and any other
documents required to be filed after the Effective Time and except where the
failure to have obtained or made any such consent, authorization, order,
approval, filing or registration would not have a Material Adverse Effect on
Lunn.
(f) The waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated.
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(g) The shares of Surviving Corporation Common Stock issuable in the
Merger shall have been approved for listing, subject to official notice of
issuance, on the Nasdaq SmallCap Market.
(h) TPG and Lunn shall have executed and delivered the Certificate of
Merger and appropriate certificates for filing with the Secretary of State of
Delaware.
8.2 Conditions to Obligation of Lunn to Effect the Merger. The
obligations of Lunn to effect the Merger shall be subject to the fulfillment, or
the waiver by Lunn, at or prior to the Closing Date of the following conditions:
(a) TPG shall have performed its agreements contained in this Agreement
required to be performed on or prior to the Closing Date and the representations
and warranties of TPG contained in this Agreement shall be true and correct in
all material respects as of the Closing Date, and Lunn shall have received a
certificate of the Chief Executive Officer of TPG, dated the Closing Date,
certifying to such effect.
(b) From the date of this Agreement through the Effective Time, there
shall not have occurred any change in the financial condition, business or
operations of TPG that would have or would be reasonably likely to have a
Material Adverse Effect other than any such change that affects Lunn and TPG in
a substantially similar manner.
(c) Lunn shall have received a written opinion letter, dated as of the
Closing Date, from Gardere & Wynne, L.L.P. substantially in the form of Exhibit
D hereto.
(d) Lunn shall have received "comfort" letters of Arthur Andersen LLP,
TPG's independent public accountants, dated the effective date of the
Registration Statement and the Closing Date, respectively, and addressed to
Lunn, with respect to certain financial information regarding TPG included in
the Registration Statement, in form and substance reasonably satisfactory to TPG
and customary in scope and substance for "comfort" letters delivered by
independent public accountants in connection with registration statements
similar to the Registration Statement.
(e) Lunn shall have received a good standing certificate for TPG from
the Secretary of State of the State of Delaware and the Secretary of State of
each state where TPG or its Subsidiaries is qualified to do business.
(f) Lunn shall have received from TPG certified copies of all
resolutions adopted by the Board of Directors and the TPG Stockholders in
connection with this Agreement and the Transactions.
(g) The Merger will qualify as a "reorganization" within the meaning of
Section 368(a) of the Code.
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(h) The number of TPG Dissenting Shares for each of the TPG Common
Stock does not exceed 10% of the TPG Common Stock.
(i) TPG and Fleet Capital Corporation shall have executed a First
Amendment to Loan and Security Agreement substantially in the form of that
delivered to Lunn at or prior to the date of this Agreement.
(j) TPG shall have obtained the waiver of Brunswick Corporation with
respect to the acceleration of that certain obligation to make payments under
the Amended and Restated Asset Purchase Agreement dated April 28, 1995 by and
between TPG and Brunswick; provided, however, that TPG may, in lieu of obtaining
such waiver, refinance the payment of such obligation with a third party.
(k) Fleet Capital Corporation, TPG's primary lender, and First Union
National Bank of Maryland, Lunn's primary lender, shall have consented to the
Merger and, to the extent necessary, entered into an intercreditor arrangement,
which arrangement shall be mutually acceptable to TPG and Lunn.
8.3 Conditions to Obligation of TPG to Effect the Merger. The
obligations of TPG to effect the Merger shall be subject to the fulfillment, or
waiver by TPG, at or prior to the Closing Date of the following conditions:
(a) Lunn shall have performed its agreements contained in this
Agreement required to be performed on or prior to the Closing Date and the
representations and warranties of Lunn contained in this Agreement shall be true
and correct in all material respects as of the Closing Date, and Lunn shall have
received a certificate of the Chief Executive Officer of Lunn, dated the Closing
Date, certifying to such effect.
(b) From the date of this Agreement through the Effective Time, there
shall not have occurred any change in the financial condition, business,
operations or prospects of Lunn that would have or would be reasonably likely to
have a Material Adverse Effect on Lunn, other than any such change that affects
and Lunn in a substantially similar manner (e.g., changes in general economic
conditions).
(c) TPG shall have received a written opinion letter, dated as of the
Closing Date, from Dechert, Price & Rhoads, substantially in the form of Exhibit
F attached hereto and a written opinion letter, dated as of the Closing Date.
(d) TPG shall have received "comfort" letters of KPMG Peat Marwick LLP,
Lunn's independent public accountants, dated the effective date of the
Registration Statement and the Closing Date, respectively, and addressed to TPG,
with respect to certain financial information regarding Lunn included in the
Registration Statement, in form and substance reasonably satisfactory to TPG and
customary in scope and substance for "comfort" letters delivered by
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independent public accountants in connection with registration statements
similar to the Registration Statement.
(e) TPG shall have received an Affiliate Letter from each Lunn
Affiliate Stockholder.
(f) TPG shall have received good standing certificates for Lunn from
the Secretary of State of the State of Delaware and the Secretary of State of
each state where Lunn and its Subsidiaries are qualified to do business.
(g) TPG shall have received from Lunn (i) certified copies of all
resolutions adopted by the Board of Directors and the Lunn Stockholders in
connection with this Agreement and the Transactions, and (ii) original minute
books and stock record books relating to Lunn.
(h) The number of Lunn Dissenting Shares does not exceed 10% of the
Lunn Common Stock.
(i) Allen & Company Incorporated shall have delivered the Fairness
Opinion to Lunn no later than one business day prior to the filing of the
Registration Statement with the SEC, and the Fairness Opinion shall not have
been withdrawn or modified in any material respect.
(j) TPG shall have received a written opinion letter, dated as of the
Closing Date, from Gardere & Wynne, L.L.P. substantially in the form of Exhibit
E attached hereto.
(k) Fleet Capital Corporation, TPG's primary lender, and First Union
National Bank of Maryland, Lunn's primary lender, shall have consented to the
Merger and, to the extent necessary, entered into an intercreditor arrangement,
which arrangement shall be mutually acceptable to TPG and Lunn.
ARTICLE 9
INDEMNIFICATION
9.1 Indemnification.
(a) After the Effective Time, the Surviving Corporation shall, to the
fullest extent permitted under applicable law, defend, indemnify and hold
harmless each person who is now, or has been at any time prior to the date
hereof or who becomes prior to the Effective Time, an officer or director of
Lunn, TPG or any of their respective Subsidiaries (each, an "Indemnified Party"
and, collectively, the "Indemnified Parties") against all costs or expenses
(including, without limitation, reasonable attorneys' fees), judgments, fines,
losses, claims, damages, liabilities and amounts paid in settlement in
connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, based in whole or in part on,
or arising in whole or in part out of, the fact that such person is or was an
officer or director of Lunn or TPG as the case may be, whether pertaining to any
matter existing or occurring at or prior to the Effective Time and whether
asserted or claimed prior to, at or after, the Effective
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Time (collectively, the "Indemnified Liabilities"); and (ii) all Indemnified
Liabilities based in whole or in part on, or arising in whole or in part out of,
or pertaining to, this Agreement, the Merger or the Transactions. After the
Effective Time, the Surviving Corporation will be entitled to participate in
and, to the extent that it may wish, to assume the defense of any action, with
counsel reasonably satisfactory to the Indemnified Party; provided, however, if
there is an actual conflict of interest, or if the Surviving Corporation shall
fail after the Effective Time to assume responsibility for such defense, such
Indemnified Party may retain counsel reasonably satisfactory to the Surviving
Corporation who will represent such Indemnified party, and the Surviving
Corporation shall be obligated to pay all reasonable fees and disbursements of
such counsel promptly as statements therefor are received. Each of the
Indemnified Party and the Surviving Corporation will cooperate with each other
and use their reasonable efforts to assist each other in the vigorous defense of
any such matter; provided, however, that the Surviving Corporation shall not be
liable for any settlement of any claim effected without its written consent,
which consent, however, shall not be unreasonably withheld. Any Indemnified
Party wishing to claim indemnification under this Section 9.1, upon learning of
any such claim, action, suit, proceeding or investigation, shall promptly notify
the Surviving Corporation, as applicable (but the failure to be so notified by
an Indemnified Party shall not relieve an indemnifying party from any liability
that it may have under this Section 9.1 except to the extent such failure
materially prejudices such indemnifying party). The indemnifying parties shall
be required to pay for only one law firm (in addition to any required local
counsel) selected by the Indemnified Parties as a group in accordance with the
foregoing provisions with respect to each such matter unless there is, under
applicable standards of professional conduct, a conflict in any significant
issue between the positions of any two or more Indemnified Parties. This Section
9.1 is intended to be for the benefit of, and shall be enforceable by, each
Indemnified Party, his or her heirs and his or her representatives and shall be
binding upon all successors and assigns of the Surviving Corporation. All rights
and obligations under this Section 9.1 shall be in addition to any rights an
Indemnified Party may have under the Certificates of Incorporation or Bylaws of
Lunn, TPG or the Surviving Corporation, or pursuant to any other agreement,
arrangement or document in effect prior to the Effective Time.
ARTICLE 10
TERMINATION
10.1 Termination. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after any approval by the TPG Stockholders
and the Lunn Stockholders:
(a) by mutual written consent of TPG and Lunn;
(b) by TPG if (i) Lunn shall have failed to comply in any
material respect with any of its covenants or agreements contained in
this Agreement required to be complied with by Lunn prior to the date
of such termination, which failure to comply has not been cured within
ten business days following receipt by Lunn of notice of such failure
to comply, (ii) the Lunn Stockholders shall have failed to approve the
Merger and this Agreement at the Lunn Stockholders' Meeting, (iii) Lunn
Dissenting Shares comprise
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more than an aggregate of 10% of the aggregate outstanding shares of
Lunn Common Stock, (iv) the TPG Stockholders shall have failed to
approve this Agreement and the Merger at the TPG Stockholders' Meeting,
or (v) Allen & Company Incorporated shall have failed to deliver the
Fairness Opinion to Lunn before one business day prior to the filing of
the Registration Statement with the SEC or shall have withdrawn or
modified the Fairness Opinion in any material respect;
(c) by Lunn if (i) TPG shall have failed to comply in any
material respect with any of its covenants or agreements contained in
this Agreement required to be complied with by TPG prior to the date of
such termination, which failure to comply has not been cured within ten
business days following receipt by TPG of notice of such failure to
comply, (ii) the Lunn Stockholders shall have failed to approve the
Merger and this Agreement at the Lunn Stockholders' Meeting, (iii) the
TPG Stockholders shall have failed to approve this Agreement and the
Merger at the TPG Stockholders' Meeting, or (iv) TPG Dissenting Shares
comprise more than an aggregate of 10% of the outstanding TPG Common
Stock;
(d) by either TPG or Lunn, if (i) the Merger has not been
effected on or prior to the close of business on November 30, 1997;
provided, however, that the right to terminate this Agreement pursuant
to this clause shall not be available to any party whose failure to
fulfill any obligation of this Agreement has been the cause of, or
resulted in, the failure of the Merger to have occurred on or prior to
such date, or (ii) any court of competent jurisdiction or any
governmental, administrative or regulatory authority, agency or body
shall have issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the
Transactions and such order, decree, ruling or other action shall have
become final and nonappealable;
(e) by TPG, if there has been (i) a material breach by Lunn of
any representation or warranty that is not qualified as to materiality,
or (ii) a breach by Lunn of any representation or warranty that is not
qualified as to materiality, in each case which breach has not been
cured within five business days following receipt by Lunn of written
notice of the breach from TPG;
(f) by Lunn, if there has been (i) a material breach by TPG of
any representation or warranty that is not qualified as to materiality,
or (ii) a breach by TPG of any representation or warranty that is not
qualified as to materiality, in each case which breach has not been
cured within five business days following receipt by TPG of written
notice of the breach from Lunn;
(g) by TPG, (i) if, after the delivery of the Fairness Opinion
to Lunn, the Board of Directors of Lunn shall not have recommended, or
shall have resolved not to recommend, or shall have modified or
withdrawn its recommendation of the Merger or declaration that the
Merger is fair to and advisable and in the best interest of Lunn, as
the case may be, and the Lunn Stockholders, or shall have resolved to
do so, or (ii) if the Board of Directors of Lunn shall have
recommended, or shall have resolved to
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recommend, to the Lunn Stockholders any Lunn Acquisition Proposal or
other takeover proposal or offer for Lunn, as the case may be;
(h) by Lunn, (i) if the Board of Directors of TPG shall not
have recommended, or shall have resolved not to recommend, or shall
have modified or withdrawn its recommendation of the Merger or
declaration that the Merger is fair to and advisable and in the best
interest of TPG and the TPG Stockholders, or shall have resolved to do
so, or (ii) if the Board of Directors of TPG shall have recommended, or
shall have resolved to recommend, to the TPG Stockholders any TPG
Acquisition Proposal or other takeover proposal or offer for TPG, as
the case may be;
(i) by Lunn, in accordance with Section 7.2(a)(i);
(j) by TPG, in accordance with Section 7.2(a)(ii);
(k) by TPG, in accordance with Section 7.3(a)(i); and
(l) by Lunn, in accordance with Section 7.3(a)(ii).
10.2 Effect of Termination. In the event of termination of this
Agreement by TPG or Lunn, as provided in Section 10.1, this Agreement shall
forthwith become void and there shall be no liability hereunder on the part of
TPG, Lunn or their respective officers or directors; provided, however, that
nothing contained in this Section 10.2 shall relieve any party hereto from any
liability for any breach of this Agreement; and provided, further, that, (i) any
termination under Section 10.1(b)(i),(e),(g) or (j) shall not become effective
until the fee required to be paid pursuant to Section 7.4(b)(i) shall have been
paid to TPG, (ii) any termination under Section 10.1(c)(i),(f),(h) or (l) shall
not become effective until the fee required to be paid pursuant to Section
7.4(c)(i) shall have been paid to Lunn, (iii) if this Agreement is terminated
pursuant to Section 10.1(h), the provisions of Section 7.4(b)(ii) shall survive
until any payments required to be made thereunder are made, (iv) if this
Agreement is terminated pursuant to Section 10.1(k), the provisions of Section
7.4(c)(ii) shall survive until any payments required to be made thereunder are
made, (v) if this Agreement is terminated pursuant to Section 10.1(b)(i),(ii),
or (iii), (c)(ii), or (e), the provisions of Section 7.4(d)(i) shall survive
until any payments required to be made thereunder are made, and (iv) if this
Agreement is terminated pursuant to Section 10.1(b)(iv), (c)(i) or (iii), or
(f), the provisions of Section 7.4(d)(ii) shall survive until any payments
required to be made thereunder are made.
ARTICLE 11
GENERAL PROVISIONS
11.1 Nonsurvival of Representations and Warranties. All
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall not survive the Merger;
provided, however, that the agreements contained in Articles 4 and 9 and in
Sections 7.2(d), 7.2(g), 7.3(d), and 7.4 and this Article 11 and the agreements
delivered
49
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pursuant to this Agreement shall survive the Merger. Notwithstanding anything to
the contrary contained herein, the Confidentiality Agreement shall survive any
termination of this Agreement, and the provisions of the Confidentiality
Agreement shall apply to all information and material delivered by or on behalf
of any party hereunder.
11.2 Extension; Waiver. At any time prior to the Effective Time, TPG or
Lunn, by action taken or authorized by its Board of Directors, may, to the
extent legally allowed, (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of TPG or Lunn to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party. Except as provided in this Agreement, no action taken pursuant to
this Agreement, including any investigation by or on behalf of any party, shall
be deemed to constitute a waiver by the party taking such action of compliance
with any representations, warranties, covenants or agreements contained in this
Agreement. The right of TPG or Lunn to terminate this Agreement pursuant to
Article 10 shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any party hereto, whether prior to or
after execution of this Agreement.
11.3 Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date delivered, mailed or transmitted, and shall be effective
upon receipt, if delivered personally, mailed by registered or certified mail
(postage prepaid, return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
changes of address) or sent by electronic transmission to the facsimile numbers
specified below:
(a) If to TPG:
TPG Holdings, Inc.
3353 Peachtree Road, Suite 920
Atlanta, Georgia 30326
Attention: President and Chief Financial Officer
Facsimile No.: (404) 231-7277
with a copy to:
Gardere & Wynne, L.L.P.
333 Clay Avenue, Suite 800
Houston, Texas 77002-4086
Attention: Eric Blumrosen, Esq.
Facsimile No.: (713) 308-5555
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(b) If to Lunn:
Lunn Industries, Inc.
1 Garvies Point Road
Glen Cove, New York 11542-2828
Attention: President
Facsimile No.: (510) 671-9091
With a copy to:
Valerie A. Price, Esq.
76 Parkview Road South
Pound Ridge, New York 10576
Facsimile No.: (914) 763-2590
11.4 Assignment; Binding Effect; Benefit. Neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by any
of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties. Subject to the preceding sentence,
this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns.
11.5 Entire Agreement. Except with respect to the Confidentiality
Agreement, which shall remain in full force and effect until the Closing, this
Agreement, the Exhibits and the Schedules constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings among the parties with respect thereto among the
parties. No addition to or modification of any provision of this Agreement shall
be binding upon any party hereto unless made in writing and signed by all
parties hereto.
11.6 Amendment. This Agreement may be amended by the parties hereto at
any time before or after approval of matters presented in connection with the
Merger by the Lunn Stockholders, but after any such stockholder approval, no
amendment shall be made which by Law requires the further approval of
stockholders without obtaining such further approval. This Agreement may not be
modified or amended except by an instrument in writing signed on behalf of TPG
and Lunn.
11.7 Governing Law. THE VALIDITY OF THIS AGREEMENT, THE CONSTRUCTION OF
ITS TERMS AND THE DETERMINATION OF THE RIGHTS AND DUTIES OF THE PARTIES HERETO
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE UNITED
STATES AND THOSE OF THE STATE OF DELAWARE APPLICABLE TO CONTRACTS MADE AND TO BE
PERFORMED WHOLLY WITHIN SUCH STATE AND WITHOUT REGARD TO THE CONFLICTS OF LAWS
PRINCIPLES THEREOF.
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11.8 Counterparts. This Agreement may be executed by the parties hereto
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
11.9 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
11.10 Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of competent
jurisdiction, this being in addition to any other remedy to which they are
entitled at law or in equity.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first written above.
ATTEST: TPG HOLDINGS, INC.
By: ______________________________ By: ______________________________
______________________________
[Printed Name]
______________________________
[Title]
ATTEST: LUNN INDUSTRIES, INC.
By: ______________________________ By: ______________________________
______________________________
[Printed Name]
______________________________
[Title]
53
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TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS AND CERTAIN RULES OF CONSTRUCTION
<TABLE>
<CAPTION>
<S> <C> <C>
1.1 Definitions............................................................ 1
1.2 Certain Rules of Construction.......................................... 7
ARTICLE 2
THE MERGER
2.1 The Merger............................................................. 7
2.2 The Closing............................................................ 7
2.3 Effective Time......................................................... 7
ARTICLE 3
CERTIFICATE OF INCORPORATION AND BYLAWS
3.1 Certificate of Incorporation........................................... 8
3.2 Bylaws................................................................. 8
3.3 Directors.............................................................. 8
3.4 Officers............................................................... 8
ARTICLE 4
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES;
OTHER MATTERS
4.1 Conversion of Securities............................................... 9
4.2 Exchange of Certificates...............................................10
4.3 Stock Options and Warrants.............................................13
4.4 Dissenting Shares......................................................14
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF LUNN
5.1 Existence; Good Standing; Corporate Authority..........................16
5.2 Authorization; Validity and Effect of Agreements.......................16
5.3 Capitalization.........................................................16
5.4 Subsidiaries...........................................................17
5.5 No Violation of Law....................................................17
5.6 No Conflict............................................................17
5.7 SEC Documents..........................................................18
5.8 Registration Statement and Proxy Statement.............................18
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
5.9 Litigation.............................................................19
5.10 Absence of Certain Changes.............................................19
5.11 Taxes..................................................................19
5.12 Employee Benefit Plans.................................................20
5.13 Labor Matters..........................................................20
5.14 Environmental Matters..................................................20
5.15 Title to Properties....................................................21
5.16 Condition of Fixed Assets..............................................21
5.17 Assets Used in the Business............................................21
5.18 Accounts Receivable....................................................21
5.19 Inventories............................................................22
5.20 Material Agreements....................................................22
5.21 Trademarks, Patents and Copyrights.....................................22
5.22 Insurance..............................................................22
5.23 Licenses and Permits...................................................22
5.24 Federal Income Tax Representations.....................................23
5.25 No Brokers.............................................................23
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF TPG
6.1 Existence; Good Standing; Corporate Authority..........................23
6.2 Authorization; Validity and Effect of Agreements.......................23
6.3 Capitalization.........................................................23
6.4 Subsidiaries...........................................................24
6.5 No Violation of Law....................................................24
6.6 No Conflict............................................................24
6.7 Financial Statements...................................................25
6.8 Registration Statement and Proxy Statement.............................25
6.9 Litigation.............................................................26
6.10 Absence of Certain Changes.............................................26
6.11 Taxes..................................................................26
6.12 Employee Benefit Plans.................................................27
6.13 Labor Matters..........................................................27
6.14 Environmental Matters..................................................27
6.15 Title to Properties....................................................28
6.16 Condition of Fixed Assets..............................................28
6.17 Assets Used in the Business............................................28
6.18 Accounts Receivable....................................................28
6.19 Inventories............................................................28
6.20 Material Agreements....................................................29
6.21 Trademarks, Patents and Copyrights.....................................29
6.22 Insurance..............................................................29
6.23 Licenses & Permits.....................................................29
6.24 Federal Income Tax Representations.....................................29
6.25 No Brokers.............................................................30
</TABLE>
<PAGE>
ARTICLE 7
COVENANTS
<TABLE>
<CAPTION>
<S> <C> <C>
7.1 Covenants of TPG and Lunn..............................................30
7.2 Covenants of Lunn......................................................32
7.3 Covenants of TPG.......................................................37
7.4 Fees and Expenses......................................................42
ARTICLE 8
CONDITIONS
8.1 Conditions to Each Party's Obligation to Effect the Merger.............43
8.2 Conditions to Obligation of Lunn to Effect the Merger..................44
8.3 Conditions to Obligation of TPG to Effect the Merger...................45
ARTICLE 9
INDEMNIFICATION
9.1 Indemnification........................................................46
ARTICLE 10
TERMINATION
10.1 Termination............................................................47
10.2 Effect of Termination..................................................49
ARTICLE 11
GENERAL PROVISIONS
11.1 Nonsurvival of Representations and Warranties..........................49
11.2 Extension; Waiver......................................................50
11.3 Notices................................................................50
11.4 Assignment; Binding Effect; Benefit....................................51
11.5 Entire Agreement.......................................................51
11.6 Amendment..............................................................51
11.7 Governing Law..........................................................51
11.8 Counterparts...........................................................52
11.9 Severability...........................................................52
11.10 Enforcement of Agreement...............................................52
</TABLE>
<PAGE>
ANNEX B
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
LUNN INDUSTRIES, INC.
Lunn Industries, Inc., a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is Lunn Industries, Inc. The date
of filing of its original Certificate of Incorporation with
the Secretary of State was March 25, 1987, which was amended
and restated in its Restated Certificate of Incorporation
filed with the Secretary of State on October 25, 1996.
2. This Amended and Restated Certificate of Incorporation
restates and further amends the Certificate of Incorporation
of this corporation as previously amended and restated, by:
(1) amending Article I to change the name of Lunn Industries,
Inc. to Advanced Technical Products, Inc.; (2) deleting the
present Article IV and substituting a new Article IV in its
place which shall result in a change of the par value of the
preferred stock from $0.01 to $1.00, an increase in the number
of authorized shares of preferred stock from 1,000,000 to
2,000,000, and the designation of a series of 8% Cumulative
Redeemable Preferred Stock.
3. The text of the Certificate of Incorporation as amended or
supplemented heretofore is further amended hereby to read as
herein set forth in full:
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
ADVANCED TECHNICAL PRODUCTS, INC.
I, the undersigned, for the purposes of incorporating and organizing a
corporation under the General Corporation Law of the State of Delaware, do
execute this Certificate of Incorporation and do hereby certify as follows:
ARTICLE I
The name of the Corporation is Advanced Technical Products, Inc.
ARTICLE II
The registered office of the Corporation in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801, County
of New Castle. The name of the Corporation's registered agent is The Corporation
Trust Company.
<PAGE>
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
ARTICLE IV
A. AUTHORIZED SHARES.
The total number of shares of all classes of stock that the Corporation
shall have the authority to issue is 32,000,000 shares, of which 2,000,000
shares shall be Preferred Stock, having a par value of $1.00 per share
("Preferred Stock"), and 30,000,000 shall be Common Stock, having a par value of
$0.01 per share ("Common Stock"). The Board of Directors is expressly authorized
to provide for the classification and reclassification of any unissued shares of
Preferred Stock or Common Stock and issuance thereof in one or more classes or
series without the approval of the stockholders of the Corporation.
B. COMMON STOCK.
1. Relative Rights.
The Common Stock shall be subject to all of the rights, privileges,
preferences and priorities of the Preferred Stock as set forth in the
certificate or certificates of designation filed to establish the respective
series of Preferred Stock. Each share of Common Stock shall have the same
relative rights as and be identical in all respects to all the other shares of
Common Stock.
2. Voting Rights.
Each holder of shares of Common Stock shall be entitled to attend all
special and annual meetings of the stockholders of the Corporation and, share
for share and without regard to class, together with the holders of all other
classes of stock entitled to attend such meetings and to vote (except any class
or series of stock having special voting rights), to cast one vote for each
outstanding share of Common Stock so held upon any matter or thing (including,
without limitation, the election of one or more directors) properly considered
and acted upon by the stockholders, except as otherwise provided in this
Certificate of Incorporation or by applicable law.
3. Dividends.
Whenever there shall have been paid or declared and set aside for
payment, to the holders of shares of any class of stock having preference over
the Common Stock as to the payment of dividends, the full amount of dividends
and of sinking fund or retirement payments, if any, to which such holders are
respectively entitled in preference to the Common Stock, then the holders of
record of the Common Stock and any class or series of stock entitled to
participate therewith as to dividends, shall be entitled to receive dividends,
when, as, and if declared by the Board of Directors, out of any assets legally
available for the payment of dividends thereon.
2
<PAGE>
4. Dissolution, Liquidation, Winding Up.
In the event of any dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, the holders of record of the
Common Stock then outstanding, and all holders of any class or series of stock
entitled to participate therewith in whole or in part, as to distribution of
assets, shall become entitled to participate in the distribution of any assets
of the Corporation remaining after the Corporation shall have paid, or set aside
for payment, to the holders of any class of stock having preference over the
Common Stock in the event of dissolution, liquidation or winding up, the full
preferential amounts (if any) to which they are entitled, and shall have paid or
provided for payment of all debts and liabilities of the Corporation.
C. PREFERRED STOCK.
1. 8% Cumulative Redeemable Preferred Stock
Of the Preferred Stock, 1,000,000 shares shall be designated as 8%
Cumulative Redeemable Preferred Stock, $1.00 par value ("8% Redeemable
Preferred"). The 8% Redeemable Preferred shall have the following preferences,
relative, participating, optional and other special rights and qualifications,
limitations and restrictions:
(a) Priority. The 8% Redeemable Preferred shall, upon
liquidation, dissolution, or winding up, rank senior and prior to the
Common Stock and any other stock issued by the Corporation and
designated as junior to the 8% Redeemable Preferred (collectively, the
"Junior Securities"). The Corporation shall not issue any stock that is
ranked senior to or pari passu with the 8% Redeemable Preferred with
respect to the payment of dividends or upon liquidation, dissolution,
or winding up.
(b) Dividends.
(1) The holders of shares of 8% Redeemable Preferred
shall be entitled to receive when, as, and if declared by the
Board of Directors or a duly authorized committee thereof (an
"Authorized Board Committee"), cumulative dividends out of
funds legally available therefor, at the annual rate of $0.08
per share, and no more, in preference to dividends on shares
of the Junior Securities. Such dividends shall be payable
semi-annually on June 30 and December 31 of each year (each of
such dates being a "Dividend Payment Date," and each period
between such dates (or the date of issue, if earlier) being a
"Dividend Period,"), to shareholders of record of the 8%
Redeemable Preferred on the respective date, not exceeding 60
days preceding such Dividend Payment Date, as shall be fixed
for this purpose by the Board of Directors or an Authorized
Board Committee in advance of payment of each particular
dividend. Dividends payable on the 8% Redeemable Preferred for
the initial Dividend Period and for any period less than a
full period shall be computed on the basis of the actual
number of days elapsed in a year of 365 days.
(2) Dividends on shares of 8% Redeemable Preferred
shall be fully cumulative and shall accumulate (whether or not
declared) from the date of issuance. Accumulated unpaid
dividends for any past Dividend Periods may be declared by the
Board of Directors
3
<PAGE>
or an Authorized Board Committee and paid on any date fixed by
the Board of Directors or an Authorized Board Committee,
whether or not a regular Dividend Payment Date, to holders of
record on the books of the Corporation on such record date as
may be fixed by the Board of Directors or an Authorized Board
Committee. Holders of 8% Redeemable Preferred will not be
entitled to any dividends in excess of full cumulative
dividends. No interest or sum of money in lieu of interest
shall be payable in respect of any accumulated unpaid
dividends.
(3) So long as any shares of the 8% Redeemable
Preferred are outstanding, the Corporation shall not (i)
declare, pay, or set apart for payment any dividend or
distribution on any Junior Securities (other than in shares of
Junior Securities) or (ii) make any payment on account of, or
set apart for payment money for, a sinking or similar fund for
the purchase, redemption, retirement, or other acquisition for
value of any of, or redeem, purchase, retire, or otherwise
acquire for value any of, the Junior Securities or any
warrants, rights, calls or options exercisable for or
convertible into any of the Junior Securities (except by
conversion into or exchange for shares of Junior Securities),
unless in each case before or concurrently with such
declaration, payment, setting apart for payment, purchase,
redemption, retirement, or other acquisition for value, as the
case may be, all accumulated and unpaid dividends, if any, on
the shares of the 8% Redeemable Preferred have been paid.
(4) Subject to the foregoing provisions of this
Subparagraph (b), the Board of Directors may declare, and the
Corporation may pay or set apart for payment, dividends and
other distributions on any of the Junior Securities and may
purchase or otherwise acquire any of the Junior Securities or
any warrants, rights, calls, or options exercisable for any of
the Junior Securities, and the holders of the shares of the 8%
Redeemable Preferred are not entitled to share therein.
(c) Liquidation Preference.
(1) Upon any voluntary or involuntary liquidation,
dissolution, or winding up of the affairs of the Corporation,
before any distribution or payment may be made to the holders
of any Junior Securities, and subject to the rights of
creditors and holders of shares of stock ranking senior to the
8% Redeemable Preferred, the holders of the 8% Redeemable
Preferred then outstanding shall be entitled to be paid out of
the assets of the Corporation available for distribution to
its shareholders in an amount in cash of $1.00 per share, plus
any accumulated and unpaid dividends thereon to the date fixed
for payment of such distribution (collectively, the
"Liquidation Preference"). Except as provided in this
Subparagraph (c), holders of 8% Redeemable Preferred shall not
be entitled to any distribution in the event of liquidation,
dissolution or winding up of the affairs of the Corporation.
Neither the sale of all or substantially all of the property
or business of the Corporation, the merger or consolidation of
the Corporation into or with any other corporation, nor the
merger or consolidation of any other corporation with or into
the Corporation shall be deemed to be a dissolution,
liquidation, or winding up, voluntary or involuntary, for
purposes of this Subparagraph (c).
4
<PAGE>
(2) Upon any voluntary or involuntary liquidation,
dissolution, or winding up of the affairs of the Corporation,
the holders of 8% Redeemable Preferred then outstanding shall
be entitled to receive payment of the Liquidation Preference
only after the holders of Senior Securities outstanding at the
time have received fully the amount to which they are
entitled. If the assets of the Corporation available for
distribution to shareholders shall be insufficient to permit
the payment of the full liquidation preferences to which the
holders of 8% Redeemable Preferred and the holders of any
shares of capital stock of the Corporation ranking equal to or
on a parity with the 8% Redeemable Preferred with respect to
the distribution of assets in liquidation are entitled, then
all of such assets of the Corporation shall be distributed
ratably among the holders of the 8% Redeemable Preferred and
the holders of any such other class of capital stock of the
Corporation then outstanding and ranking equal to or on a
parity with the 8% Redeemable Preferred in proportion to the
respective amounts of their full liquidation preferences.
(3) After payment in full to the holders of the 8%
Redeemable Preferred of the amounts distributable to them as
described in this Subparagraph, the holders of the Common
Stock and any other Junior Securities in respect of such
distributable amounts shall be entitled, to the exclusion of
the holders of the 8% Redeemable Preferred, to share ratably
in the remaining assets of the Corporation in accordance with
their respective rights.
(d) Redemption.
(1) To the extent the Corporation shall have funds
legally available for such redemption, the Corporation, at its
option, may redeem the whole or any part of the outstanding
shares of 8% Redeemable Preferred, at any time or from time to
time, at a per share redemption price equal to the Liquidation
Preference. If less than all shares of 8% Redeemable Preferred
are to be redeemed, the shares to be redeemed shall be
selected pro rata (based on the number of shares of 8%
Redeemable Preferred held by each holder thereof).
(2) Subject to the provisions of this Subparagraph
and to applicable law, shares of 8% Redeemable Preferred shall
be subject to mandatory redemption at a per share redemption
price equal to the Liquidation Preference on the earlier of
(i) April 28, 2001, and (ii) the date on which occurs a change
in the ownership of 50% or more of the assets or the common
stock of the Corporation or Technical Products Group, Inc.
from the ownership of such assets and common stock on April
28, 1995.
(3) The Corporation shall cause to be mailed to each
holder of 8% Redeemable Preferred, by overnight courier
service or by first class mail, postage prepaid, mailed not
less than 30 days nor more than 60 days prior to the date of
any redemption pursuant to Subparagraph (d)(1) (the
"Redemption Date"), at such holder's address as the same
appears on the records of the Corporation, a notice (the
"Redemption Notice") stating the date on which such redemption
is to take place. Each such notice shall specify (i) the
Redemption Date, (ii) the number of shares to be redeemed, and
if fewer than all shares
5
<PAGE>
held by such holder are to be redeemed, the number of such
shares to be redeemed from such holder, (iii) the
consideration payable with respect to such redemption, and
(iv) the place or places where certificates for such shares
are to be surrendered for payment of such consideration. If
less than all shares of 8% Redeemable Preferred represented by
any certificate are redeemed, a new certificate representing
the unredeemed shares shall be issued to the holder thereof.
(4) If any such notice of redemption shall have been
duly given and if on the Redemption Date all funds necessary
for such redemption shall have been set aside and shall
continue to be available for payment on and after the
Redemption Date upon surrender of the certificates for the
shares of 8% Redeemable Preferred so called for redemption,
then notwithstanding that any certificate for shares so called
for redemption shall not have been surrendered for
cancellation, the shares so called for redemption shall on and
after such Redemption Date no longer be deemed to be
outstanding, and all rights with respect to such shares shall
forthwith cease and terminate, except only the right of the
holders of the certificates therefor, upon surrender thereof,
to receive the amount payable on redemption thereof, without
interest.
(5) Any funds set aside as provided in the
immediately preceding Subparagraph (d)(4) and unclaimed at the
end of six years from such Redemption Date shall be released
to the Corporation, to be held for the benefit of such holder,
after which the holders of the shares so called for redemption
shall look only to the Corporation for the payment thereof.
(6) Shares of 8% Redeemable Preferred redeemed,
purchased, or otherwise acquired by the Corporation shall be
deemed retired and may not under any circumstances thereafter
be reissued or otherwise disposed of by the Corporation, and
the Corporation shall from time to time, and at least once
each year, cause all such shares to be canceled in the manner
provided by applicable law.
(7) Notwithstanding anything contained herein to the
contrary, no redemption payment on shares of 8% Redeemable
Preferred shall be declared by the Board or paid or set apart
for payment by the Corporation if any required redemption
payment with respect to securities of the Corporation that are
senior in rank to the 8% Redeemable Preferred shall not have
been made by the Corporation or at such time as the terms and
provisions of any credit agreement or note (as such agreements
or notes may be amended or supplemented from time to time)
entered into by the Corporation or any of its subsidiaries
prohibit such redemption payment or setting apart for payment
or provide that such redemption payment or setting apart for
payment would constitute a breach thereof or a default
thereunder.
e. Voting Rights. Except as expressly required by applicable
law, the holders of shares of 8% Redeemable Preferred shall not have
any voting rights with respect to such shares.
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2. Undesignated Preferred Stock
(a) Issuance, Designations, Powers, Etc.
The Board of Directors expressly is authorized, subject to limitations
prescribed by the Delaware General Corporation Law and the provisions of this
Certificate of Incorporation, to provide, by resolution and by filing a
certificate of designations pursuant to the Delaware General Corporation Law,
for the issuance from time to time of the shares of Preferred Stock not
otherwise designated herein in one or more series, to establish from time to
time the number of shares to be included in each series, and to fix the
designation, powers, preferences and other rights of the shares of each such
series and to fix the qualifications, limitations and restrictions thereon,
including but without limiting the generality of the foregoing, the following:
(1). the number of shares constituting that series and the
distinctive designation of that series;
(2) the dividend rate on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or dates,
and the relative rights of priority, if any, of payment of dividends on
shares of that series;
(3) whether that series shall have voting rights, in addition
to voting rights provided by law, and, if so, the terms of such voting
rights;
(4) whether that series shall have conversion privileges, and,
if so, the terms and conditions of such conversion, including
provisions for adjustment of the conversion rate in such events as the
Board of Directors shall determine;
(5) whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such redemption,
including the dates upon or after which they shall be redeemable, and
the amount per share payable in case of redemption, which amount may
vary under different conditions and at different redemption dates;
(6) whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the terms
and amount of such sinking fund;
(7) the rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, and the relative rights of priority, if any, of payment of
shares of that series; and
(8) any other relative powers, preferences and rights of that
series, and qualifications, limitations or restrictions on that series.
(b) Dissolution, Liquidation, Winding Up.
In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of Preferred Stock of
each series shall be entitled to receive only such amount or amounts as shall
have been fixed by the certificate of designations or by the resolution or
resolutions of the Board of Directors providing for the issuance of such series.
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ARTICLE V
A. CLASSIFICATION.
Except as may be provided in the certificate of designations relating
to the rights of the holders of any class or series of Preferred Stock, voting
separately by class or series, to elect additional directors under specified
circumstances, the number of directors of the Corporation shall be as fixed from
time to time by or pursuant to the By-laws of the Corporation. The directors,
other than those who may be elected by the holders of any class or series of
Preferred Stock voting separately by class or series, shall be classified, with
respect to the time for which they severally hold office, into three classes,
Class I, Class II and Class III, which shall be as nearly equal in number as
possible. Each initial director in Class I shall hold office for a term expiring
at the 1997 annual meeting of stockholders, each initial director in Class II
shall hold office initially for a term expiring at the 1998 annual meeting of
stockholders, and each initial director in Class III shall hold office for a
term expiring at the 1999 annual meeting of stockholders. Notwithstanding the
foregoing provisions of Section A, each director shall serve until such
director's successor is duly elected and qualified or until such director's
earlier death, resignation or removal. At each annual meeting of stockholders,
the successors to the class of directors whose term expires at the meeting shall
be elected to hold office for a term expiring at the annual meeting of
stockholders held in the third year following the year of their election but in
any event until any such director's successor has been duly elected and
qualified or until any such director's earlier death, resignation or removal.
B. REMOVAL.
1. Except as may be provided in a certificate of designations relating
to the rights of the holders of any class or series of Preferred Stock, voting
separately by class or series, to elect directors under specified circumstances,
any director or directors may be removed from office at any time, but only for
cause (as defined in Section B(2) hereof) and only by the affirmative vote, at
an annual meeting of the stockholders or a special meeting of the stockholders
called for such purpose, of not less than two-thirds of the total number of
votes of the then outstanding shares of stock of the Corporation entitled to
vote generally in the election of directors, voting together as a single class,
and, in the case of a removal proposed at a special meeting, only if notice of
the proposal was contained in the notice of the meeting. The person proposing
the removal of a director shall provide written notice to the director of the
proposal and of the facts alleged to constitute cause for the removal. In the
event that the shareholders are provided with at least 40 days' notice of the
meeting, the written notice to the director shall be delivered at least 30 days
before the meeting. In the event that the shareholders are provided with less
than 40 days' notice of the meeting, the written notice to the director shall be
delivered no later than 10 days after the shareholders are provided with written
notice of the meeting. Any vacancy in the Board of Directors resulting from any
such removal or otherwise shall be filed only by vote of a majority of the
directors then in office, although less than a quorum, and any director so
chosen shall hold office until the next election of the class for which such
director shall have been chosen and until such director's successor shall be
elected and qualified or until such director's earlier death, resignation or
removal.
2. For purposes of this Section B(2), "cause" shall mean (i) conduct as
a director of the Corporation or any subsidiary involving dishonesty of a
material nature; (ii) willful conduct by the director that is demonstrably or
materially injurious to the Corporation, monetarily or otherwise; or (iii)
conduct by the director that results in a felony conviction, including a
conviction resulting from a plea of nolo contendere. No act, or failure to act,
on the director's part shall be deemed "willful" unless done, or
8
<PAGE>
omitted to be done, by the director not in good faith and without reasonable
belief that the director's action or omission was in the best interest of the
Corporation.
C. CHANGE OF AUTHORIZED NUMBER.
In the event of any increase or decrease in the authorized number of
directors, the newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the Board of Directors among the
three classes of directors so as to maintain such classes as nearly equal as
possible. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
ARTICLE VI
Unless and except to the extent that the By-laws of the Corporation
shall so require, the election of directors of the Corporation need not be by
written ballot.
ARTICLE VII
In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware, the Board of Directors is expressly authorized
and empowered to make, alter and repeal the By-laws of the Corporation, subject
to the power of the stockholders of the Corporation to alter or repeal any
By-law made by the Board of Directors. In order for the stockholders of the
Corporation to exercise their power to alter or repeal any By-law made by the
Board of Directors, the action must be approved by the holders of at least
two-thirds of the issued and outstanding shares of the Corporation's Common
Stock.
ARTICLE VIII
A director of this Corporation shall not be liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent such exemption from liability or limitation
thereof is not permitted under the General Corporation Law of the State of
Delaware as the same exists or may hereafter be amended.
Any repeal or modification of the foregoing paragraph shall not
adversely affect any right or protection of a director of the Corporation
existing hereunder with respect to any act or omissions occurring prior to such
repeal or modification.
ARTICLE IX
The Corporation shall indemnify to the full extent permitted by law
(such as it presently exists or may hereafter be amended) any person made, or
threatened to be made, a defendant or witness to any action, suit or proceeding
(whether civil, criminal, administrative or investigative) by reason of the fact
that he is or was a director of officer of the Corporation or by reason of the
fact that such director or officer, at the request of the Corporation, is or was
serving any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, in any capacity.
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Any repeal or modification of the foregoing paragraph shall not
adversely affect any right to indemnification provided hereunder with respect to
any act or omission occurring prior to such repeal or modification.
ARTICLE X
Subject to any affirmative vote required by law, the affirmative vote
of not less than eighty percent of the Voting Stock (as hereinafter defined)
shall be required for the adoption or authorization of a Business Combination
(as hereinafter defined), unless:
(1) Two-thirds of the Disinterested Directors (as hereinafter defined)
determine that:
(i) The Interested Stockholder (as hereinafter defined) is the
beneficial owner (as hereinafter defined) of not less than eighty percent of the
Voting Stock and has declared its intention to vote in favor of or approve such
Business Combination; or
(ii) (A) The fair market value of the consideration per share
to be received or retained by the holders of each class or series of stock of
the Corporation in the Business Combination is equal to the highest price per
share (including brokerage commissions, transfer taxes and soliciting dealer's
fees) paid by such Interested Stockholder for any shares of such class of stock
previously within the two-year period prior to the Business Combination, whether
before or after the Interested Stockholder became an Interested Stockholder, and
(B) the Interested Stockholder shall not have received the benefit, directly or
indirectly (except proportionately as a stockholder), of any loans, advances,
guarantees, pledges or other financial assistance provided by the Corporation,
whether in anticipation of or in connection with Business Combination or
otherwise; or
(2) The Business Combination has been approved by two-thirds of the
Disinterested Directors.
In the event any vote of the holders of Voting Stock is required for
the adoption or approval of any Business Combination, a proxy or information
statement describing the Business Combination and complying with the
requirements of the 1934 Act (as hereinafter defined) shall be mailed at a date
determined by the Disinterested Directors to all stockholders of the Corporation
whether or not such statement is required under the 1934 Act. The statement
shall contain any recommendations as to the advisability (or inadvisability) of
the Business combination which the Disinterested Directors, or any of them, may
choose to state and, if deemed advisable by the Disinterested Directors, an
opinion of a reputable national investment banking firm as to the fairness of
the terms of such Business Combination. Such firm shall be selected by
two-thirds of the Disinterested Directors and paid a reasonable fee for its
services by the Corporation as approved by the Disinterested Directors.
For purposes of this Article:
(i) "Affiliate" and "beneficial owner" are used herein as
defined in Rule 12b-2 and Rule 13d-3, respectively, under the Securities and
Exchange Act of 1934, as amended, as in effect on March 16, 1987 ("1934 Act").
The term "Affiliate" as used herein shall exclude the Corporation, but shall
include the definition of "Associate" as contained in said Rule 12b-2.
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(ii) An "Interested Stockholder" is a Person (as hereinafter
defined) other than the Corporation or any subsidiary who is (A) the beneficial
owner, directly or indirectly of ten percent or more of the capital stock of the
Corporation entitled to vote generally for the election of directors ("Voting
Stock"), or (B) an Affiliate of the Corporation and either (1) at any time
within a two-year period prior to the record date to vote on a Business
Combination was the beneficial owner, directly or indirectly of ten percent or
more of the Voting Stock, or (2) at the completion of the Business Combination
will be the beneficial owner of ten percent or more of the Voting Stock.
(iii) A "Person" is a natural person or a legal entity of any
kind, together with an Affiliate of such person or entity, or any person or
entity with whom such person, entity or an Affiliate has any agreement or
understanding relating to acquiring, voting or holding Voting Stock.
(iv) A "Disinterested Director" is a member of the Board of
Directors of the Corporation (other than the Interested Stockholder) who was a
director prior to the time the Interested Stockholder became an Interested
Stockholder, or any director who was recommended for election by the
Disinterested Directors. Any action to be taken by the Disinterested Directors
shall require the affirmative vote of at least two-thirds of the Disinterested
Directors.
(v) A "Business Combination" is (A) a merger of consolidation
of the Corporation or any of its subsidiaries with or into an Interested
Stockholder; (B) the sale, lease, exchange, pledge, transfer or other
disposition (1) by the Corporation or any of its subsidiaries of all or a
Substantial Part of the Corporation's Assets to an Interested Stockholder, or
(2) by an Interested Stockholder of any of its assets, except in the ordinary
course of business, to the Corporation or any of its subsidiaries; (C) the
issuance of stock or other securities of the Corporation or any of its
subsidiaries to an Interested Stockholder, other than on a pro rate basis to all
holders of Voting Stock of the same class held by the Interested Stockholder
pursuant to a stock split, stock dividend or distribution of warrants or rights;
(D) the adoption of any plan or proposal for the liquidation or dissolution of
the Corporation proposed by or on behalf of an Interested Stockholder; (E) any
reclassification of securities, recapitalization, merger or consolidation or
other transaction which has the effect, directly or indirectly, of increasing
the proportionate share of any Voting Stock beneficially owned by an Interested
Stockholder; or (F) any agreement, contract or other arrangement providing for
any of the foregoing transactions.
(vi) A "Substantial Part of the Corporation's Assets" shall
mean assets of the Corporation or any of its subsidiaries in an amount equal to
50 percent or more of the fair market value, as determined by the Disinterested
Directors, of the total consolidated assets of the Corporation and its
subsidiaries taken as a whole as of the end of its most recent fiscal year ended
prior to the time the determination is made.
ARTICLE XI
Any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of the
stockholders, and may not be effected by any consent in writing by such
stockholder, unless such consent in unanimous.
4. This Amended and Restated Certificate of Incorporation was
duly adopted by the vote of the stockholders in accordance
with Sections 242 and 245 of the General Corporation Law of
the State of Delaware.
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IN WITNESS WHEREOF, said Lunn Industries, Inc. has caused this
Certificate to be signed by _______________________, its ___________________,
this _______ day of __________ 1997.
LUNN INDUSTRIES, INC.
By:________________________________
Name:______________________________
Title:_____________________________
12
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ANNEX C
[Allen & Company Incorporated Letterhead]
June 6, 1997
Lunn Industries, Inc.
1 Garvies Point Road
Glen Cove, NY 11542-2828
Gentlemen:
We understand that Lunn Industries, Inc. ("Lunn") and Technical
Products Group, Inc. ("TPG") have entered into an Acquisition Agreement and Plan
of Merger, dated June 6, 1997 (the "Merger Agreement"), pursuant to which, among
other things, (i) TPG will be merged with and into Lunn, (ii) the holders of
Common Stock, par value $0.01 per share, of TPG ("TPG Common Stock") will
receive 8.3028 shares of Common Stock, par value $0.01 per share, of Lunn on a
post-merger basis ("Post-Merger Lunn Common Stock") in consideration of the
surrender and cancellation of each share of TPG Common Stock, (iii) the
shareholders of Preferred Stock, par value $0.01 per share, of TPG ("TPG
Preferred Stock") will receive one share of Preferred Stock, par value $1.00 per
share, of Lunn on a post-merger basis ("Lunn Preferred Stock") in consideration
for surrender and cancellation of each of each share of TPG Preferred Stock, and
(iv) the shareholders of Lunn will receive 0.1 shares of Post-Merger Lunn Common
Stock in consideration for surrender and cancellation of each share of Common
Stock, par value $0.01 per share, of Lunn (the "Transaction"). The terms and
conditions of the Transaction are more fully set forth in the Merger Agreement.
You have requested our opinion as to the fairness to the shareholders
of Lunn from a financial point of view of the terms of the Transaction.
Allen & Company Incorporated ("Allen"), as part of its investment
banking business, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes. We
will receive a fee for rendering this opinion pursuant to an engagement letter
with Lunn dated May 20, 1997. In addition, Allen and certain of its officers and
directors own approximately 320,000 shares of common stock of Lunn, and
<PAGE>
John Simon, a Managing Director of Allen, is a member of the Board of Directors
of Lunn. From time to time in the ordinary course of its business as a
broker-dealer, Allen may also hold positions and trade securities of Lunn.
In connection with our opinion, we have reviewed the form of Merger
Agreement and drafts of the Preliminary Joint Proxy Statement/Prospectus on Form
S-4 (the "Joint Proxy Statement/Prospectus") to be filed with the Securities and
Exchange Commission. We also have reviewed certain financial and other
information of Lunn and TPG that was publicly available or furnished to us by
Lunn and TPG, including financial projections provided by their respective
managements and representatives, certain internal financial analyses, reports
and other information prepared by their respective managements and
representatives. We have held discussions with various members of senior
management of Lunn and TPG concerning each company's historical and current
operations, financial condition and prospects. We have also held discussions
with senior management of TPG concerning the strategic and operating benefits
anticipated from the Transaction. In addition, we have (i) reviewed the price
and trading histories of the Pre-Merger Lunn Common Stock and compared that
price and trading history with those of publicly traded companies we deemed
relevant; (ii) compared the financial positions and operating results of Lunn
and TPG with those of publicly traded companies we deemed relevant; (iii)
compared certain financial terms of the Transaction to certain financial terms
of selected other business combinations we deemed relevant; (iv) reviewed the
potential pro forma financial effects of the Transaction on Lunn and TPG; (v)
assisted in Lunn's deliberations regarding the material terms of the Transaction
and Lunn's negotiations with TPG and their financial and legal advisors; and
(vi) conducted such other financial studies, analyses and investigations and
reviewed such other factors as we deemed appropriated for purposes of this
opinion.
We have assumed and relied upon the accuracy and completeness of the
financial and other information used by us in arriving at our opinion without
independent verification and have further relied upon the assurances of
management of Lunn and TPG that they are not aware of any facts that would make
such information inaccurate or misleading. With respect to the financial
projections of Lunn and TPG, we have relied upon the assurances of management of
Lunn and TPG that such projections have been reasonably prepared on a basis
reflecting the best currently available estimates and judgments of the
management of Lunn and TPG as to the future financial performance of Lunn and
TPG. In arriving at our opinion, we neither conducted a physical inspection of
the properties and facilities of Lunn and TPG nor obtained any evaluations or
appraisals of the assets or liabilities of Lunn and TPG. In addition, you have
not authorized us to solicit, and we have not solicited, any indications of
interest from any third party with respect to the purchase of all or a part of
Lunn. Our opinion is necessarily based upon market, economic and other
conditions as they exist on, and can be evaluated as of, the date of this
letter.
The opinion rendered herein does not constitute a recommendation of the
Transaction over any other alternative transaction which may be available to
Lunn. Our
<PAGE>
engagement and the opinion contained herein are solely for the benefit of the
Board of Directors of Lunn and are not intended to confer rights or remedies
upon TPG or any of its stockholders, or any stockholder of Lunn or any other
person or entity other than Lunn's Board of Directors. Furthermore, the opinion
rendered herein does not constitute a recommendation that any shareholder of the
Company vote to approve the Transaction.
Based on the foregoing and subject to the qualifications stated herein,
we are of the opinion that as of the date hereof the terms of the Transaction
are fair to the shareholders of Lunn from a financial point of view.
Very truly yours,
ALLEN & COMPANY INCORPORATED
By: _____________________________
John Simon
Managing Director
<PAGE>
ANNEX D
1997 LUNN INDUSTRIES, INC.
STOCK OPTION PLAN
INTRODUCTION
On ____________________, 1997, the Board of Directors of the
Company adopted the following Stock Option Plan:
1. PURPOSE. The purpose of the Plan is to provide Employees with
a proprietary interest in the Company through the granting of Incentive Options
and Nonqualified Options which will:
(a) increase the interest of the Employees in the
Company's welfare;
(b) furnish an incentive to the Employees to
continue their services for the Company; and
(c) provide a means through which the Company may
attract able persons to enter its employ.
2. ADMINISTRATION. The Plan shall be administered by the
Committee.
3. PARTICIPANTS. The Committee shall, from time to time, select
the particular Employees of the Company and its Subsidiaries to whom options are
to be granted, and who will, upon such grant, become participants in the Plan.
The individuals eligible for selection by the Committee shall be those Employees
whose performance and responsibilities are determined by the Committee to be
influential to the success of the Company.
4. STOCK OWNERSHIP LIMITATION. No Incentive Option may be granted
to an Employee who owns more than 10% of the voting power of all classes of
stock of the Company or its
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Parent or Subsidiaries. This limitation will not apply if the option price is at
least 110% of the fair market value of the stock at the time the Incentive
Option is granted and the Incentive Option is not exercisable more than five
years from the date it is granted.
5. SHARES SUBJECT TO PLAN. Options may not be granted pursuant to
the terms of the Plan for more than 300,000 shares of Common Stock of the
Company, but this number shall be adjusted to reflect, if deemed appropriate by
the Committee, any stock dividend, stock split, share combination,
recapitalization or the like, of or by the Company. Shares to be optioned and
sold may be made available from either authorized but unissued Common Stock or
Common Stock held by the Company in its treasury. Shares that by reason of the
expiration of an option or otherwise are no longer subject to purchase pursuant
to an option granted under the Plan may be re-offered under the Plan.
6. LIMITATION ON AMOUNT. The aggregate fair market value
(determined at the time of grant) of the shares of Common Stock which any
Employee is first eligible to purchase in any calendar year by exercise of
Incentive Options granted under this Plan and all incentive stock option plans
of the Company or any Parent or Subsidiaries shall not exceed $100,000. For this
purpose, the fair market value (determined at the respective date of grant of
each option) of the stock purchasable by exercise of an Incentive Option (or an
installment thereof) shall be counted against the $100,000 annual limitation for
an Employee only for the calendar year such stock is first purchasable under the
terms of the option.
7. ALLOTMENT OF SHARES. Grants of options under the Plan shall be
as described in this Section 7 of the Plan, provided that the grant of an option
shall not be deemed either to entitle the Employee to, or to disqualify the
Employee from, participation in any other grant of options under
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the Plan.
(a) The Committee shall determine the number of
shares of Common Stock to be offered from
time to time by grant of options to Employees
of the Company or its Subsidiaries.
(b) Any option granted to a person required to
report under Section 16(a) of the Securities
Exchange Act of 1934, as amended, must also
be approved by the Board in order to be
effective.
8. GRANT OF OPTIONS. The maximum number of shares that may be
granted under the Plan in accordance with Section 6 of the Plan may be granted
to any one Employee. The Committee and the Board are authorized to grant both
Incentive Options and Nonqualified Options under the Plan. Incentive Options may
only be granted to employees within the meaning of Section 422 of the Internal
Revenue Code. The grant of options shall be evidenced by stock option agreements
containing such terms and provisions as are approved by the Committee but not
inconsistent with the Plan, including provisions that may be necessary to assure
that any option that is intended to be an Incentive Option will comply with
Section 422 of the Internal Revenue Code. Stock option agreements may provide
that an option holder may request approval from the Committee to exercise an
option or a portion thereof by tendering shares of Common Stock of the Company
at the fair market value per share on the date of exercise in lieu of cash
payment of the exercise price. Moreover, stock option agreements for
Nonqualified Options may provide that the option holder may request approval
from the Committee to pay any withholding associated with the Nonqualified
Option by tendering shares of Common Stock of the Company at the fair market
value per share on the date of exercise. An option agreement may provide, if the
Committee so determines, that upon exercise of the option
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<PAGE>
the Committee may elect to pay, in lieu of receipt from the optionholder of the
exercise price and issuance of certificates for the shares of stock exercised,
an amount equal to the excess of the fair market value per share on the date of
exercise over the per share exercise price under the option, multiplied by the
number of shares covered by the option or portion thereof being exercised
("Stock Appreciation"). Any such option agreement may provide that the Stock
Appreciation shall be paid to the optionholder either in cash or in Common Stock
or in cash and Common Stock (based on the fair market value of such stock on the
date of the exercise by the optionholder). The method of payment shall be
determined by the Committee in its sole discretion. The option to purchase
shares shall terminate with respect to the number of shares for which the Stock
Appreciation is paid. The Company shall execute stock option agreements upon
instructions from the Committee. The Plan shall be submitted to the Company's
shareholders for approval. The Committee and the Board may grant options under
the Plan prior to the time of shareholder approval, which options will be
effective when granted, but if for any reason the shareholders of the Company do
not approve the Plan prior to one year from the date of adoption of the Plan by
the Board, all options granted under the Plan will be terminated and of no
effect, and no option may be exercised in whole or in part prior to such
shareholder approval.
9. OPTION PRICE. The option price for an Incentive Option shall
not be less than 100% of the fair market value per share of the Common Stock on
the date the option is granted. The Committee shall determine the fair market
value of the Common Stock on the date of grant and shall set forth the
determination in its minutes, using any reasonable valuation method.
10. OPTION PERIOD. The Option Period will begin on the date the
option is granted, which will be the date the Committee authorizes the option
unless the Committee specifies a later date.
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<PAGE>
No option may terminate later than ten years from the date the option is
granted. The Committee may provide for the exercise of options in installments
and upon such terms, conditions and restrictions as it may determine. The
Committee may provide for termination of an option in the case of termination of
employment or any other reason.
11. RIGHTS IN EVENT OF DEATH OR DISABILITY. If a participant dies
or becomes disabled [within the meaning of Section 22(e)(3) of the Internal
Revenue Code] prior to termination of his right to exercise an option in
accordance with the provisions of his stock option agreement without having
totally exercised the option, the option agreement may provide that it may be
exercised, to the extent of the shares with respect to which the option could
have been exercised by the participant on the date of the participant's death or
disability, (i) in the case of death, by the participant's estate or by the
person who acquired the right to exercise the option by bequest or inheritance
or by reason of the death of the participant, or (ii) in the case of disability,
by the participant or his personal representative, provided the option is
exercised prior to the date of its expiration or 180 days from the date of the
participant's death or disability, whichever first occurs. The date of
disability of a participant shall be determined by the Committee.
12. PAYMENT. Unless cash is paid to the participant upon exercise
of the option, full payment for shares purchased shall be made in cash or by
check or, if allowed by the stock option agreement and approved by the
Committee, by tendering shares of Common Stock at the fair market value per
share at the time of exercise. Likewise, any withholding associated with a
Nonqualified Option may, if allowed by the stock option agreement and approved
by the Committee, be paid by tendering shares of Common Stock at the fair market
value per share at the time of exercise. No shares may be issued until full
payment of the purchase price therefor has been made, and a participant
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<PAGE>
will have none of the rights of a shareholder until shares are issued to him.
13. EXERCISE OF OPTION. Options granted under the Plan may be
exercised during the Option Period, at such times, in such amounts, in
accordance with such terms and subject to such restrictions as are set forth
below. In no event may an option be exercised or shares be issued pursuant to an
option if any requisite action, approval or consent of any governmental
authority of any kind having jurisdiction over the exercise of options shall not
have been taken or secured. If the option agreement does not contain Stock
Appreciation provisions, the Committee may offer an optionholder, upon such
conditions and restrictions as it deems advisable and in lieu of receipt from
him of the exercise price and issuance of certificates for the shares of stock
exercised, the right to elect to receive payment in cash, Common Stock, or a
combination of cash and Common Stock, as the Committee shall determine, in an
amount equal to the Stock Appreciation.
14. CAPITAL ADJUSTMENTS AND REORGANIZATIONS. The number of shares
of Common Stock covered by each outstanding option granted under the Plan and
the option price shall be adjusted to reflect, as deemed appropriate by the
Committee, any stock dividend, stock split, share combination, exchange of
shares, recapitalization, merger, consolidation, separation, reorganization,
liquidation or the like, of or by the Company.
15. NON-ASSIGNABILITY. Options may not be transferred other than
by will or by the laws of descent and distribution. During a participant's
lifetime, options granted to a participant may be exercised only by the
participant or as provided in section 11 hereof.
16. INTERPRETATION. The Committee shall interpret the Plan and
shall prescribe such rules and regulations in connection with the operation of
the Plan as it determines to be advisable for the administration of the Plan.
The Committee may rescind and amend its rules and regulations.
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<PAGE>
17. AMENDMENT OR DISCONTINUANCE. The Plan may be amended or
discontinued by the Board without the approval of the shareholders of the
Company, except that any amendment that would (1) materially increase the number
of securities that may be issued under the Plan, or (2) materially modify the
requirements of eligibility for participation in the Plan must be approved by
the shareholders of the Company.
18. EFFECT OF PLAN. Neither the adoption of the Plan nor any
action of the Board or the Committee shall be deemed to give any Employee any
right to be granted an option to purchase Common Stock of the Company or any
other rights except as may be evidenced by the stock option agreement, or any
amendment thereto, duly authorized by the Committee and executed on behalf of
the Company and then only to the extent and on the terms and conditions
expressly set forth therein.
19. TERM. Unless sooner terminated by action of the Board, this
Plan will terminate on _______________, 2007. The Committee may not grant
options under the Plan after that date, but options granted before that date
will continue to be effective in accordance with their terms.
20. DEFINITIONS. For the purpose of this Plan, unless the context
requires otherwise, the following terms shall have the meanings indicated:
(a) "Board" means the Board of Directors of the
Company.
(b) "Committee" means the committee or committees
of the Board appointed by the Board to
administer the Plan, or in the absence of
such a committee, shall mean the entire
Board.
(c) "Common Stock" means the Common Stock which
the Company is currently authorized to issue
or may in the future be authorized to issue
(as long as the common stock varies from that
currently authorized, if at all, only in
amount of
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<PAGE>
par value).
(d) "Company" means Lunn Industries, Inc., a
Delaware corporation.
(e) "Employee" means any employee, officer, or
consultant or advisor, provided that bona
fide services shall be rendered by
consultants or advisors and such services
must not be in connection with the offer or
sale of securities in a capital-raising
transaction.
(f) "Internal Revenue Code" means the Internal
Revenue Code of 1986, as amended.
(g) "Incentive Option" means an option granted
under the Plan which meets the requirements
of Section 422 of the Internal Revenue Code.
(h) "Nonqualified Option" means an option granted
under the Plan which is not intended to be an
Incentive Option.
(i) "Option Period" means the period during which
an option may be exercised.
(j) "Parent" means any corporation in an unbroken
chain of corporations ending with the Company
if, at the time of granting of the option,
each of the corporations other than the
Company owns stock possessing 50% or more of
the total combined voting power of all
classes of stock in one of the other
corporations in the chain.
(k) "Plan" means this Stock Option Plan, as
amended from time to time.
(l) "Subsidiary" means any corporation in an
unbroken chain of corporations beginning with
the Company if, at the time of the granting
of the option, each of the corporations other
than the last corporation in the unbroken
chain owns
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<PAGE>
stock possessing 50% or more of the total
combined voting power of all classes of stock
in one of the other corporations in the
chain, and "Subsidiaries" means more than one
of any such corporations.
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<PAGE>
ANNEX E
262 APPRAISAL RIGHTS. - (a) Any stockholder of a corporation of this
State who holds shares of stock on the date of the making of a demand pursuant
to subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to Section 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of the stockholder's shares of stock under
the circumstances described in subsections (b) and (c) of this section. As used
in this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation: the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation: and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class
or series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of any class or
series of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
Sections 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
<PAGE>
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of Securities
Dealers, Inc., or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this paragraph;
or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts described in
the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under Section 253 of this title is not
owned by the parent corporation immediately prior to the merger, appraisal
rights shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsections (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporation, and shall include in such notice a
copy of this section. Each stockholder electing to demand the appraisal of his
shares shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to demand
the appraisal of his shares. A proxy or vote against the merger or consolidation
shall not constitute such a demand. A stockholder electing to take such action
must do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation who
has complied with this subsection and has not voted in favor of or consented to
the merger or consolidation of the date that the merger or consolidation has
become effective; or
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(2) If the merger or consolidation was approved pursuant to
Section 228 or Section 253 of this title, each constituent corporation, either
before the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of stock of
such constituent corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are available
for any or all shares of such class or series of stock of such constituent
corporation, and shall include in such notice a copy of this section; provided
that, if the notice is given on or after the effective date of the merger or
consolidation, such notice shall be given by the surviving or resulting
corporation to all such holders of any class or series of stock of a constituent
corporation that are entitled to appraisal rights. Such notice may, and, if
given on or after the effective date of the merger or consolidation, shall, also
notify such stockholders of the effective date of the merger or consolidation.
Any stockholder entitled to appraisal rights may, within 20 days after the date
of mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
such holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the merger
or consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders on or within 10
days after such effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first notice, such second
notice need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice that
such notice has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent corporation may
fix, in advance, a record date that shall be not more than 10 days prior to the
date the notice is given, provided, that if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the day next
preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the
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<PAGE>
aggregate number of shares not voted in favor of the merger or consolidation and
with respect to which demands for appraisal have been received and the aggregate
number of holders of such shares. Such written statement shall be mailed to the
stockholder within 10 days after his written request for such a statement is
received by the surviving or resulting corporation or within 10 days after
expiration of the period for delivery of demands for appraisal under subsection
(d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service
of a copy thereof shall be made upon the surviving or resulting corporation,
which shall within 20 days after such service file in the office of the Register
in Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Curt shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is
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required, may participate fully in all proceedings until it is finally
determined that he is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the
shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple or
compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and the
case of holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree may
be enforced as other decrees in the Court of Chancery may be enforced, whether
such surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded his appraisal rights as provided
in subsection (d) of this section shall be entitled to vote such stock for any
purpose or to receive payment of dividends or other distributions on the stock
(except dividends or other distributions payable to stockholders of record at a
date which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal of
his demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which
the shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation. (Last amended by Ch.
299, L. '96, eff. 2-1-96 and Ch. 349, L. '96, eff. 7-1-96.)
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<PAGE>
Exhibit 2.1
ACQUISITION AGREEMENT AND PLAN OF MERGER
BETWEEN
TPG HOLDINGS, INC.
AND
LUNN INDUSTRIES, INC.
DATED AS OF JUNE 6, 1997
<PAGE>
EXHIBITS AND SCHEDULES
Lunn Disclosure Letter
<TABLE>
<CAPTION>
<S> <C> <C>
Schedule 5.4 Subsidiaries
Schedule 5.9 Litigation
Schedule 5.10 Absence of Certain Changes
Schedule 5.12 Benefit Plans
Schedule 5.13 Labor Matters
Schedule 5.15 Title to Properties
Schedule 5.16 Condition of Fixed Assets
Schedule 5.21 Intellectual Property
Schedule 5.23 Licenses and Permits
Schedule 7.2(c) Conduct of Business
TPG Disclosure Letter
Schedule 6.4 Subsidiaries
Schedule 6.6(a) Conflicts
Schedule 6.7 Financial Statements
Schedule 6.9 Litigation
Schedule 6.10 Absence of Certain Changes
Schedule 6.11(b) Taxes
Schedule 6.12 Benefit Plans
Schedule 6.13 Labor Matters
Schedule 6.14 Environmental
Schedule 6.15 Title to Properties
Schedule 6.20 Material Agreements
Schedule 6.21 Intellectual Property
Schedule 6.23 Licenses and Permits
Schedule 7.3(c) Conduct of Business
Exhibits
Exhibit A Affiliate Letter
Exhibit B Transmittal Letter
Exhibit C Surviving Corporation Stock Option Plan
Exhibit D Corporate Opinion of Gardere & Wynne, L.L.P.
Exhibit E Tax Opinion of Gardere & Wynne, L.L.P.
Exhibit F Opinion of Dechert, Price & Rhoads
</TABLE>
<PAGE>
ACQUISITION AGREEMENT AND PLAN OF MERGER
THIS ACQUISITION AGREEMENT AND PLAN OF MERGER (this "Agreement") is
executed as of the 6th day of June, 1997, by and among TPG HOLDINGS, INC., a
Delaware corporation ("TPG"), and LUNN INDUSTRIES, INC., a Delaware corporation
("Lunn").
RECITALS
WHEREAS, TPG and Lunn desire to enter into a business combination
pursuant to which TPG will merge with and into Lunn;
WHEREAS, the Boards of Directors of TPG and Lunn each have determined
that such a business combination is in the best interests of the respective
corporations and their stockholders, and accordingly have approved this merger
upon the terms and conditions set forth herein.
WHEREAS, for federal income tax purposes, it is intended that this
merger qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, in consideration of the foregoing and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE 1
DEFINITIONS AND CERTAIN RULES OF CONSTRUCTION
1.1 Definitions. In addition to any other terms defined elsewhere in
this Agreement, including any Exhibit or Schedule hereto (unless such Exhibit or
Schedule provides for a different definition), as used herein, the following
terms shall have the following meanings:
"Affiliate" means any Person which (i) directly or indirectly controls,
is controlled by or is under common control with a specified Person, (ii) owns
or controls 5% or more of the outstanding equity interests of a specified Person
or (iii) is an officer, director, general partner or trustee of a specified
Person. For this purpose, the term "control" means possession, directly or
indirectly (through one or more intermediaries), of the power to direct or cause
the direction of management and policies of a Person through an ownership of
voting securities or other ownership interests, contract, voting trust or
otherwise.
"Affiliate Letter" means the Affiliate Letter substantially in the form
of Exhibit A hereto.
"Blue Sky Laws" means state securities Laws or "blue sky" Laws.
"Business Day" means any day other than a Saturday, Sunday or legal
holiday in the State of Delaware.
<PAGE>
"Certificate of Merger" is defined in Section 2.3.
"Closing" means closing and the consummation of the Merger pursuant to
the terms of this Agreement.
"Closing Date" means the date on which the Closing occurs.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidentiality Agreement" is defined in Section 7.1(e).
"DGCL" means the Delaware General Corporation Law, as amended.
"Effective Time" is defined in Section 2.3.
"Environmental Law" is defined in Section 5.14(a).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Agent" is defined in Section 4.2(a).
"Exchange Fund" is defined in Section 4.2(a).
"Fairness Opinion" is defined in Section 7.2(l).
"GAAP" means generally accepted accounting principles in the United
States of America as set forth in pronouncements of the Financial Accounting
Standards Board and the American Institute of Certified Public Accountants, as
such principles are from time to time supplemented and amended.
"Governmental Authority" means any foreign, federal, state or local
government, political subdivision or governmental or regulatory authority,
agency, board, bureau, commission, instrumentality or court or
quasi-governmental authority.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976.
"Indemnified Liabilities" is defined in Section 9.1.
"Indemnified Party" or "Indemnified Parties" is defined in Section 9.1.
"IRS" means the United States Internal Revenue Service.
"Joint Proxy Statement/Prospectus" is defined in Section 5.8.
2
<PAGE>
"Law" or "Laws" means any and all statutes, laws, ordinances,
proclamations, regulations, published requirements, orders, decrees and rules of
any Governmental Authority, including those covering environmental, tax, energy,
safety, health, transportation, bribery, recordkeeping, zoning, discrimination,
antitrust and wage and hour matters, in each case as amended and in effect from
time to time.
"Liens" means all liens, encumbrances, mortgages, pledges, security
interests, conditional sales agreements, charges, claims, options, rights of
first refusal, reservations, restrictions or other encumbrances or defects in
title.
"Lunn Acquisition Proposal" is defined in Section 7.2(a).
"Lunn Affiliate Stockholder" is defined in Section 7.2(d).
"Lunn Benefit Plans" is defined in Section 5.12.
"Lunn Common Stock" means the Common Stock, par value $0.01 per share,
of Lunn.
"Lunn Disclosure Letter" is defined in the preamble to Article 5.
"Lunn Dissenter Payment" is defined in Section 4.4(c).
"Lunn Dissenting Shares" is defined in Section 4.4(c).
"Lunn Exchange Ratio" means 0.1.
"Lunn Financial Statements" means the audited consolidated financial
statements of Lunn for the fiscal years ended December 31, 1995 and December 31,
1996, as disclosed in the Lunn SEC Reports, and the unaudited consolidated
financial statements of Lunn for the quarter ended March 31, 1997 delivered to
TPG as part of the Lunn Disclosure Letter.
"Lunn Intellectual Property" is defined in Section 5.21.
"Lunn's Most Recent Balance Sheet" shall mean the unaudited
consolidated balance sheet dated March 31, 1997 of Lunn.
"Lunn Option" means (a) any option to purchase Lunn Common Stock
granted by Lunn pursuant to the Lunn Stock Option Plan or (b) any option to
purchase Lunn Common Stock granted by Lunn but not pursuant to the Lunn Stock
Option Plan.
"Lunn Preferred Stock" shall mean the preferred stock, par value $0.01
per share, of Lunn.
"Lunn SEC Reports" is defined in Section 5.7.
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"Lunn Stockholder" means any holder of shares of the Lunn Common Stock.
"Lunn Stockholders' Meeting" is defined in Section 7.2(b).
"Lunn Stock Option Plan" means Lunn's 1994 Stock Incentive Plan.
"Lunn Superior Proposal" means any Lunn Acquisition Proposal to merge
with or acquire, directly or indirectly, all of the outstanding capital stock of
Lunn then outstanding on terms that the Board of Directors of Lunn determines in
its good faith reasonable judgment (based on advice of an independent financial
advisor of nationally recognized reputation) to be more favorable to the Lunn
Stockholders than the Merger.
"Lunn Warrant" means any warrant to purchase shares of Lunn Common
Stock.
"Material Adverse Effect" means, with respect to either TPG or Lunn,
any change or effect that is or would be materially adverse to the business,
results of operations or financial condition of TPG or Lunn, as the case may be,
and their respective Subsidiaries taken as a whole.
"Material Contracts" means, with respect to Lunn, any contracts or
agreements that are required to be filed as exhibits to the Lunn SEC Reports,
and, with respect to TPG, any contracts or agreements that would be required to
be filed as exhibits to SEC Reports if TPG were a Reporting Person.
"Merger" means the merger of TPG with and into Lunn, with Lunn as the
surviving corporation.
"Merger Consideration" means, with respect to any TPG Stockholder or
Lunn Stockholder, (i) certificates evidencing the number of whole shares of
Surviving Corporation Common Stock or Surviving Corporation Preferred Stock that
such Stockholder has the right to receive pursuant to Section 4.1, and (ii) any
cash in lieu of fractional shares of the Surviving Corporation Common Stock to
which such Stockholder is entitled pursuant to Section 4.2(e).
"Nasdaq SmallCap Market" means the Nasdaq SmallCap Market of The Nasdaq
Stock Market, Inc., a wholly owned subsidiary of the National Association of
Securities Dealers, Inc.
"Permitted Lien" means (i) with respect to Lunn, (a) any Lien reserved
against in Lunn's Most Recent Balance Sheet, (b) Liens for Taxes not yet due and
payable or which are being contested in good faith and by appropriate
proceedings if adequate reserves with respect thereto are maintained on Lunn's
books in accordance with GAAP, (c) Liens that, individually or in the aggregate,
would have only an immaterial effect on the value of any of the assets of Lunn
or the use thereof as currently used, and (d) obligations under operating and
capital leases, and (ii) with respect to TPG, (a) any Lien reserved against in
TPG's Most Recent Balance Sheet, (b) Liens for Taxes not yet due and payable or
which are being contested in good faith and by appropriate proceedings if
adequate reserves with respect thereto are maintained on TPG's books in
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accordance with GAAP, (c) Liens that, individually or in the aggregate, would
have only an immaterial effect on the value of any of the assets of TPG or the
use thereof as currently used, and (d) obligations under operating and capital
leases.
"Person" means an individual, corporation, partnership, limited
liability company, trust, association or other entity, including any
Governmental Authority.
"Proxy Statement" is defined in Section 5.8.
"Registration Statement" is defined in Section 5.8.
"Reporting Person" means any issuer which has a class of equity
securities registered pursuant to Section 12 of the Exchange Act or is required
to file periodic reports pursuant to Section 15(d) of the Exchange Act.
"Rule 145" means Rule 145 promulgated under the Securities Act.
"SEC" means the Securities and Exchange Commission.
"SEC Reports" any registration statement, report, proxy statement or
information statement (other than preliminary materials) filed with the SEC
pursuant to the Securities Act or the Exchange Act (including exhibits and any
amendments thereto).
"Securities Act" means the Securities Act of 1933, as amended.
"Stockholders" means the TPG Stockholders and Lunn Stockholders.
"Subsidiaries" means, with respect to any Person, any corporation or
other organization that is controlled by such Person. For this purpose, the term
"control" means possession, directly or indirectly (through one or more
intermediaries), of the power to direct or cause the direction of management and
policies of a Person through an ownership of voting securities or other
ownership interests, contract, voting trust or otherwise.
"Surviving Corporation" is defined in Section 2.1.
"Surviving Corporation Common Stock" means the common stock, par value
$0.01 per share, of the Surviving Corporation.
"Surviving Corporation Preferred Stock" means the preferred stock, par
value $1.00 per share, of the Surviving Corporation, having the same
designations, preferences and limitations as the TPG Preferred Stock.
"Tax" or "Taxes" means any foreign, federal, state or local income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under
Section 59A of the Code), customs duties, capital stock,
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franchise, profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated or other tax
of any kind whatsoever, including any interest, penalty or addition thereto,
whether disputed or not.
"TPG Acquisition Proposal" is defined in Section 7.3(a).
"TPG Affiliate Stockholder" is defined in Section 7.3(j).
"TPG Benefit Plans" is defined in Section 6.12.
"TPG Common Stock" means the common stock, $0.01 par value per share,
of TPG.
"TPG Disclosure Letter" is defined in the preamble to Article 6.
"TPG Dissenter Payment" is defined in Section 4.4(a).
"TPG Dissenting Shares" is defined in Section 4.4(a).
"TPG Exchange Ratio" means 8.3028.
"TPG Financial Statements" is defined in Section 6.7.
"TPG Intellectual Property" is defined in Section 6.21.
"TPG's Most Recent Balance Sheet" shall mean the unaudited consolidated
balance sheet dated March 31, 1997 of TPG.
"TPG Option" means (i) any option to purchase TPG Common Stock granted
by TPG pursuant to the TPG Stock Option Plan or (ii) any option to purchase TPG
Common Stock granted by TPG but not pursuant to the TPG Stock Option Plan.
"TPG Preferred Stock" means the 8% cumulative redeemable preferred
stock, par value $1.00 per share, of TPG, having the designations, preferences
and limitations described in TPG's Certificate of Incorporation, as amended.
"TPG Stockholders" means the holders of shares of the TPG Common Stock
or the TPG Preferred Stock.
"TPG Stockholders' Meeting" is defined in Section 7.3(b).
"TPG Stock Option Plan" means TPG's Key Management Stock Option Plan
(1996).
"TPG Superior Proposal" means any TPG Acquisition Proposal to merge
with or acquire, directly or indirectly, all of the outstanding capital stock of
TPG then outstanding on terms that
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the Board of Directors of TPG determines in its good faith reasonable judgment
(based on advice of an independent financial advisor of nationally recognized
reputation) to be more favorable to the TPG Stockholders than the Merger.
"Transactions" means the transactions contemplated by this Agreement.
"Transmittal Letter" means the Transmittal Letter substantially in the
form of Exhibit B hereto to be executed by each of the Stockholders who receive
Surviving Corporation Common Stock under this Agreement.
1.2 Certain Rules of Construction The captions in this Agreement are
for convenience of reference only and in no way define, limit or describe the
scope or intent of any provisions or sections of this Agreement. All references
in this Agreement to Articles or Sections are references to the Articles or
Sections in this Agreement, unless some other reference is clearly indicated.
All accounting terms not specifically defined in this Agreement shall be
construed in accordance with GAAP as in effect on the date hereof. In this
Agreement, unless the context otherwise requires, (a) words describing the
singular number shall include the plural and vice versa, (b) words denoting any
gender shall include all genders and (c) references to "including" shall mean
"including without limitation."
ARTICLE 2
THE MERGER
2.1 The Merger. Subject to the terms and conditions set forth in this
Agreement, and in accordance with the DGCL, at the Effective Time, TPG shall be
merged with and into Lunn and the separate corporate existence of TPG shall
thereupon cease. Lunn shall be the surviving corporation in the Merger
(sometimes referred to herein as the "Surviving Corporation") and shall succeed
to and assume all of the rights and obligations of TPG in accordance with the
DGCL. The name of the Surviving Corporation shall be Technical Products Group,
Inc., or such other name as may be mutually agreed to by TPG and Lunn prior to
the Closing. The Merger shall have the effects specified in the DGCL.
2.2 The Closing. Subject to the terms and conditions of this Agreement,
the Closing shall be held (a) at the offices of Gardere & Wynne, L.L.P., 333
Clay, Suite 800, Houston, Texas at 10:00 a.m., local time, as promptly as
practicable (and in any event within two Business Days) following the day on
which all of the conditions set forth in Article 8 shall be fulfilled or waived
in accordance herewith or (b) at such other time, date or place as TPG and Lunn
may agree. The Closing Date shall be the same as the date of the Effective Time.
2.3 Effective Time. If all of the conditions to the Merger set forth in
Article 8 shall have been fulfilled or waived in accordance herewith and this
Agreement shall not have been terminated as provided in Article 10, on the
Closing Date, the parties hereto shall cause a Certificate of Merger
incorporating this Agreement (and setting forth such other information as is
required by the DGCL (the "Certificate of Merger") to be properly executed and
filed, together
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with appropriate officers' certificates, in accordance with Section 251 of the
DGCL on the Closing Date. The Merger shall become effective at the time the
Certificate of Merger is filed with the Secretary of State of Delaware or at
such later time as Lunn and TPG shall have agreed upon and designated in such
filing as the effective time of the Merger (the "Effective Time").
ARTICLE 3
CERTIFICATE OF INCORPORATION AND BYLAWS
AND OFFICERS AND DIRECTORS OF THE SURVIVING CORPORATION
3.1 Certificate of Incorporation. The Certificate of Incorporation of
Lunn as amended at the Effective Time shall be the Certificate of Incorporation
of the Surviving Corporation, until duly amended in accordance with applicable
Law.
3.2 Bylaws. The Bylaws of Lunn in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation, until duly
amended in accordance with applicable Law.
3.3 Directors. The directors of the Surviving Corporation immediately
after the Effective Time shall be the following Persons:
James S. Carter
Sam P. Douglass
Garrett L. Dominy
Gary L. Forbes
Robert C. Sigrist
Lawrence E. Wesneski
Alan W. Baldwin
John M. Simon
In accordance with the Restated Certificate of Incorporation of Lunn,
as amended at the Effective Time, the terms of the members of the board of
directors of the Surviving Corporation shall be staggered such that Mssrs.
Simon, Forbes and Carter shall serve as directors of the Surviving Corporation
for a term of three years, Mssrs. Douglass and Dominy shall serve as directors
of the Surviving Corporation for a term of two years, and Mssrs. Wesneski,
Baldwin and Sigrist shall serve as directors of the Surviving Corporation for a
term of one year.
3.4 Officers. The officers of the Surviving Corporation immediately
after the Effective Time shall be the following Persons:
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<TABLE>
<CAPTION>
<S> <C> <C>
Chairman of Board, President and
Chief Executive Officer James S. Carter
Executive Vice President, Chief Financial
Officer, Assistant Secretary and
Treasurer Garrett L. Dominy
Secretary Jim Hobt
</TABLE>
ARTICLE 4
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES;
OTHER MATTERS
4.1 Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any action on the part of TPG, Lunn or the holders of any of
their respective securities:
(a) Capital Stock of Lunn. Each share of the capital stock of
Lunn issued and outstanding prior to the Effective Time (other than any
Lunn Dissenting Shares, if applicable) shall be converted, subject to
Section 4.2(e), into the right to receive a number of fully paid and
nonassessable shares of the Surviving Corporation Common Stock equal to
the Lunn Exchange Ratio. At the Effective Time, all shares of Lunn
Common Stock outstanding immediately prior to the Effective Time shall
no longer be outstanding and shall automatically be canceled and
retired and shall cease to exist, and each certificate previously
evidencing any such shares shall thereafter represent the right to
receive, upon the surrender of such certificate in accordance with
Section 4.2 (or in case of a lost, stolen or destroyed stock
certificate, compliance with the provisions of Section 4.2(i)),
certificates evidencing such number of whole shares of Surviving
Corporation Common Stock into which such Lunn Common Stock was
converted in accordance with the first sentence of this Section 4.1(a).
At the Effective Time, the holders of such certificates evidencing such
shares of Lunn Common Stock outstanding immediately prior to the
Effective Time shall cease to have any rights with respect to such
shares except as otherwise provided herein or by Law. No fractional
share of Surviving Corporation Common Stock shall be issued, and, in
lieu thereof, a cash payment shall be made pursuant to Section 4.2(e).
(b) TPG Common Stock. Each share of TPG Common Stock issued
and outstanding immediately prior to the Effective Time (other than any
TPG Dissenting Shares, if applicable) shall be converted, subject to
Section 4.2(e), into the right to receive a number of fully paid and
nonassessable shares of the Surviving Corporation Common Stock equal to
the TPG Exchange Ratio. At the Effective Time, all shares of TPG Common
Stock outstanding immediately prior to the Effective Time shall no
longer be outstanding and shall automatically be canceled and retired
and shall cease to exist, and each certificate previously evidencing
any such shares shall thereafter represent the right to receive, upon
the surrender of such certificate in accordance with Section 4.2 (or in
case of a lost, stolen or destroyed stock certificate, compliance with
the provisions of Section 4.2(i)), certificates evidencing such number
of whole shares of Surviving Corporation
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Common Stock into which such TPG Common Stock was converted in
accordance with the first sentence of this Section 4.1(b). At the
Effective Time, the holders of such certificates evidencing such shares
of TPG Common Stock outstanding immediately prior to the Effective Time
shall cease to have any rights with respect to such shares except as
otherwise provided herein or by Law. No fractional share of Surviving
Corporation Common Stock shall be issued, and, in lieu thereof, a cash
payment shall be made pursuant to Section 4.2(e).
(c) TPG Preferred Stock. Each share of TPG Preferred Stock
issued and outstanding immediately prior to the Effective Time (other
than TPG Dissenting Shares, if applicable) shall be converted into the
right to receive one fully paid and nonassessable share of Surviving
Corporation Preferred Stock. At the Effective Time, all shares of TPG
Preferred Stock outstanding immediately prior to the Effective Time
shall no longer be outstanding and shall automatically be canceled and
retired and shall cease to exist, and each certificate previously
evidencing any such shares shall thereafter represent the right to
receive, upon the surrender of such certificate in accordance with
Section 4.2 (or in case of a lost, stolen or destroyed stock
certificate, compliance with the provisions of Section 4.2(i)),
certificates evidencing such number of whole shares of Surviving
Corporation Preferred Stock into which such TPG Preferred Stock was
converted in accordance with the first sentence of this Section 4.1(c).
At the Effective Time, the holders of such certificates evidencing such
shares of TPG Preferred Stock outstanding immediately prior to the
Effective Time shall cease to have any rights with respect to such
shares except as otherwise provided herein or by Law.
(d) Shares Held in Treasury. Each share of Lunn Common Stock,
TPG Common Stock and TPG Preferred Stock held in treasury immediately
prior to the Effective Time by Lunn or TPG, as the case may be, shall
be canceled and extinguished at the Effective Time without any
conversion thereof and without any payment with respect thereto.
4.2 Exchange of Certificates. The procedures for exchanging outstanding
shares of TPG Common Stock and Lunn Common Stock for Surviving Corporation
Common Stock pursuant to the Merger are as follows:
(a) Exchange Agent. As of the Effective Time, the Surviving
Corporation shall deposit with American Stock Transfer & Trust Co. (the
"Exchange Agent"), for the benefit of the holders of shares of TPG
Common Stock and Lunn Common Stock, for exchange in accordance with
this Section 4.2 through the Exchange Agent, certificates representing
the shares of Surviving Corporation Common Stock and Surviving
Corporation Preferred Stock (such shares of Surviving Corporation
Common Stock and Surviving Corporation Preferred Stock, together with
any dividends or distributions with respect thereto, being hereinafter
referred to as the "Exchange Fund") issuable pursuant to Section 4.1 in
exchange for outstanding shares of TPG Common Stock, TPG Preferred
Stock or Lunn Common Stock, as the case may be.
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(b) Exchange Procedures. As soon as reasonably practicable
after the Effective Time, the Exchange Agent shall mail to each holder
of record of a certificate or certificates which immediately prior to
the Effective Time represented outstanding shares of TPG Common Stock,
TPG Preferred Stock or Lunn Common Stock, as the case may be (the
"Certificates"), whose shares were converted pursuant to Section 4.1
into the right to receive shares of Surviving Corporation Common Stock
or Surviving Corporation Preferred Stock, as the case may be, (i) a
letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent and shall
be in such form and have such other provisions as TPG may reasonably
specify prior to the Effective Time) and (ii) instructions for
effecting the surrender of the Certificates in exchange for
certificates representing shares of Surviving Corporation Common Stock
(plus cash in lieu of fractional shares, if any, of Surviving
Corporation Common Stock as provided below) or Surviving Corporation
Preferred Stock, as the case may be. Upon surrender of a Certificate
for cancellation to the Exchange Agent or to such other agent or agents
as may be appointed by the Surviving Corporation, together with such
letter of transmittal, duly executed, the holder of such Certificate
shall be entitled to receive in exchange therefor a certificate
representing that number of whole shares of Surviving Corporation
Common Stock or Surviving Corporation Preferred Stock that such holder
has the right to receive pursuant to the provisions of this Article 4,
and the Certificate so surrendered shall immediately be cancelled. In
the event of a transfer of ownership of TPG Common Stock, TPG Preferred
Stock or Lunn Common Stock, as the case may be, that is not registered
in the transfer records of TPG or Lunn, as the case may be, a
certificate representing the proper number of shares of Surviving
Corporation Common Stock or Surviving Corporation Preferred Stock, as
the case may be, may be issued to a transferee if the Certificate
representing such TPG Common Stock, TPG Preferred Stock or Lunn Common
Stock, as the case may be, is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such
transfer and by evidence that any applicable stock transfer taxes have
been paid. Until surrendered as contemplated by this Section 4.2, each
Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the certificate
representing shares of Surviving Corporation Common Stock or Surviving
Corporation Preferred Stock, as the case may be, and cash in lieu of
any fractional shares of Surviving Corporation Common Stock as
contemplated by this Section 4.2.
(c) Distributions With Respect to Unexchanged Shares. No
dividends or other distributions declared or made after the Effective
Time with respect to Surviving Corporation Common Stock or Surviving
Corporation Preferred Stock with a record date after the Effective Time
shall be paid to the holder of any unsurrendered Certificate with
respect to the shares of Surviving Corporation Common Stock or
Surviving Corporation Preferred Stock represented thereby and no cash
payment in lieu of fractional shares shall be paid to any holder of any
unsurrendered certificate with respect to the shares of Surviving
Corporation Common Stock represented thereby pursuant to subsection (e)
below until the holder of record of such Certificate shall surrender
such Certificate. Subject to the effect of applicable laws, following
surrender of any such Certificate, there
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shall be paid to the record holder of the certificates representing
whole shares of Surviving Corporation Common Stock or Surviving
Corporation Preferred Stock issued in exchange therefor, without
interest, (i) at the time of such surrender, the amount of any cash
payable in lieu of a fractional share of Surviving Corporation Common
Stock to which such holder is entitled pursuant to subsection (e) below
and the amount of dividends or other distributions with a record date
after the Effective Time previously paid with respect to such whole
shares of Surviving Corporation Common Stock or Surviving Corporation
Preferred Stock, as the case may be, and (ii) at the appropriate
payment date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to surrender and a
payment date subsequent to surrender payable with respect to such whole
shares of Surviving Corporation Common Stock or Surviving Corporation
Preferred Stock, as the case may be.
(d) No Further Ownership Rights In TPG Common Stock, TPG
Preferred Stock or Lunn Common Stock. All shares of Surviving
Corporation Common Stock and Surviving Corporation Preferred Stock
issued upon the surrender for exchange of Certificates in accordance
with the terms hereof (including any cash paid pursuant to subsection
(c) or (e) of this Section 4.2) shall be deemed to have been issued in
full satisfaction of all rights pertaining to such shares of TPG Common
Stock, TPG Preferred Stock or Lunn Common Stock, as the case may be,
subject, however, to the Surviving Corporation's obligation to pay any
dividends or make any other distributions with a record date prior to
the Effective Time which may have been declared or made by TPG or Lunn
on such shares of TPG Common Stock, TPG Preferred Stock or Lunn Common
Stock, as the case may be, in accordance with the terms of this
Agreement prior to the date hereof and which remain unpaid at the
Effective Time, and from and after the Effective Time there shall be no
further registration of transfers on the stock transfer books of the
Surviving Corporation of the shares of TPG Common Stock, TPG Preferred
Stock or Lunn Common Stock that were outstanding immediately prior to
the Effective Time. If, after the Effective Time, Certificates are
presented to the Surviving Corporation for any reason, they shall be
cancelled and exchanged as provided in this Section 4.2.
(e) No Fractional Shares. No certificate or scrip representing
fractional shares of Surviving Corporation Common Stock shall be issued
upon the surrender for exchange of Certificates, and such fractional
share interests will not entitle the owner thereof to vote or to any
other rights of a stockholder of the Surviving Corporation.
Notwithstanding any other provision of this Agreement, each holder of
shares of TPG Common Stock and Surviving Corporation Common Stock
exchanged pursuant to the Merger who would otherwise have been entitled
to receive a fraction of a share of Surviving Corporation Common Stock
(after taking into account all Certificates delivered by such holder)
shall receive, in lieu thereof, cash (without interest) in an amount
equal to such fractional part of a share of Surviving Corporation
Common Stock multiplied by the average of the last reported sales
prices of Lunn Common Stock, as reported on the Nasdaq SmallCap Market,
on each of the five trading days immediately prior to the date of the
Effective Time.
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(f) Termination of Exchange Fund. Any portion of the Exchange
Fund which remains undistributed to the stockholders of TPG and Lunn
for 180 days after the Effective Time shall be delivered to the
Surviving Corporation, upon demand, and any stockholders of TPG and
Lunn who have not previously complied with this Section 4.2 shall
thereafter look only to the Surviving Corporation for payment of their
claim for Surviving Corporation Common Stock or Surviving Corporation
Preferred Stock, as the case may be, any cash in lieu of fractional
shares of Surviving Corporation Common Stock and any dividends or
distributions with respect to Surviving Corporation Common Stock or
Surviving Corporation Preferred Stock, as the case may be.
(g) No Liability. Neither the Surviving Corporation, Lunn nor
TPG shall be liable to any holder of shares of TPG Common Stock, TPG
Preferred Stock or Lunn Common Stock, as the case may be, for such
shares (or dividends or distributions with respect thereto) delivered
to a public official pursuant to any applicable abandoned property,
escheat or similar law.
(h) Withholding Rights. The Surviving Corporation shall be
entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of TPG
Common Stock, TPG Preferred Stock or Lunn Common Stock such amounts as
it is required to deduct and withhold with respect to the making of
such payment under the Code, or any provision of state, local or
foreign tax law. If amounts are so withheld by Surviving Corporation
then such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the shares of TPG Common
Stock, TPG Preferred Stock or Lunn Common Stock, as the case may be, in
respect of which such deduction and withholding was made by Surviving
Corporation.
(i) Lost Certificates. If any Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact
by the person claiming such Certificate to be lost, stolen or destroyed
and, if required by the Surviving Corporation, the posting by such
person of a bond in such reasonable amount as the Surviving Corporation
may direct as indemnity against any claim that may be made against it
with respect to such Certificate, the Exchange Agent will issue in
exchange for such lost, stolen or destroyed Certificate the shares of
Surviving Corporation Common Stock or Surviving Corporation Preferred
Stock and any cash in lieu of fractional shares, and unpaid dividends
and distributions on shares of Surviving Corporation Common Stock
deliverable in respect thereof pursuant to this Agreement.
4.3 Stock Options and Warrants.
(a) At the Effective Time, TPG's obligations with respect to each then
outstanding TPG Option shall be assumed by the Surviving Corporation. The TPG
Options so assumed by the Surviving Corporation shall not expire and shall
continue to have, and be subject to, the same terms and conditions as set forth
in the TPG Stock Option Plan and/or any agreements pursuant to which such TPG
Options were granted as in effect immediately prior to the Effective Time,
except that (i) each TPG Option shall be exercisable for that number of whole
shares of Surviving
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Corporation Common Stock equal to the number of shares of TPG Common Stock
covered by such TPG Option immediately prior to the Effective Time, multiplied
by the TPG Exchange Ratio and rounded downward to the nearest whole number of
shares of Surviving Corporation Common Stock, and (ii) the price at which each
such TPG Option is exercisable shall be divided by the TPG Exchange Ratio and
then rounded upward to the nearest cent.
(b) At the Effective Time, Lunn's obligations with respect to each then
outstanding Lunn Option and Lunn Warrant shall be assumed by the Surviving
Corporation. The Lunn Options and Lunn Warrants so assumed by the Surviving
Corporation shall not expire and shall continue to have, and be subject to, the
same terms and conditions as set forth in the Lunn Stock Option Plan and/or any
agreements pursuant to which such Lunn Options and Lunn Warrants were granted as
in effect immediately prior to the Effective Time, except that (i) each Lunn
Option or Lunn Warrant shall be exercisable for that number of whole shares of
Surviving Corporation Common Stock equal to the number of shares of Lunn Common
Stock covered by such Lunn Option or Lunn Warrant immediately prior to the
Effective Time, multiplied by the Lunn Exchange Ratio and rounded to the nearest
whole number of shares of Surviving Corporation Common Stock, and (ii) the price
at which each such Lunn Option or Lunn Warrant is exercisable shall be divided
by the Lunn Exchange Ratio and then rounded to the nearest cent.
(c) The Surviving Corporation shall reserve for issuance the aggregate
number of shares of Surviving Corporation Common Stock that will become issuable
upon the exercise of the TPG Options, Lunn Options and Lunn Warrants as adjusted
at the Effective Time in accordance with this Section 4.3.
(d) At the Effective Time, the Surviving Corporation shall adopt a
Stock Option Plan in substantially the form set forth in Exhibit C and 300,000
shares of Surviving Corporation Common Stock shall be reserved for issuance upon
exercise of options granted under such Stock Option Plan.
4.4 Dissenting Shares.
(a) If provided for under the DGCL, notwithstanding any other provision
of this Agreement to the contrary, shares of TPG Common Stock and TPG Preferred
Stock that are outstanding immediately prior to the Effective Time and which are
held by TPG Stockholders who shall not have voted in favor of the Merger or
consented thereto in writing and who shall have demanded properly in writing
payment for such shares in accordance with the DGCL (a "TPG Dissenter Payment")
and who shall not have withdrawn such demand or have been deemed to or otherwise
have forfeited the right to payment under the DGCL (such shares of TPG Common
Stock and TPG Preferred Stock being referred to as "TPG Dissenting Shares")
shall not be converted into or represent the right to receive the Merger
Consideration. Instead, such TPG Stockholders shall be entitled to receive their
TPG Dissenter Payments in accordance with the provisions of the DGCL, except
that all TPG Dissenting Shares held by TPG Stockholders who shall have failed to
perfect who effectively shall have withdrawn or lost the rights to payment for
such shares of TPG Common Stock and TPG Preferred Stock under the DGCL shall
thereupon be deemed to have been converted into, as of the Effective Time, the
right to receive, without any
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interest thereon, the Merger Consideration, upon surrender in the manner
provided in Section 4.2 hereof of the certificate or certificates that formally
evidence such shares of TPG Common Stock and TPG Preferred Stock (or compliance
with Section 4.2(i) hereof if applicable) and the presentation of an executed
Transmittal Letter.
(b) TPG shall give Lunn (i) prompt notice of any demands for TPG
Dissenter Payments received by TPG pursuant to the DGCL, withdrawals of such
demands, and any other instruments served pursuant to the DGCL and received by
TPG and (ii) the opportunity to participate in all negotiations and proceedings
with respect to demands for payment under the DGCL. TPG shall not, except with
the prior written consent of Lunn (which consent shall not be unreasonably
withheld or delayed), make any payment with respect to any demands for payment
of, or offer to settle, or settle, any such demands.
(c) If provided for under the DGCL, notwithstanding any other provision
of this Agreement to the contrary, shares of Lunn Common Stock that are
outstanding immediately prior to the Effective Time and which are held by Lunn
Stockholders who shall not have voted in favor of the Merger or consented
thereto in writing and who shall have demanded properly in writing payment for
such shares in accordance with the DGCL (a "Lunn Dissenter Payment") and who
shall not have withdrawn such demand or have been deemed to or otherwise have
forfeited the right to payment under the DGCL (such shares of Lunn Common Stock
being referred to as "Lunn Dissenting Shares") shall not be converted into or
represent the right to receive the Merger Consideration. Instead, such Lunn
Stockholders shall be entitled to receive their Lunn Dissenter Payments in
accordance with the provisions of the DGCL, except that all Lunn Dissenting
Shares held by Lunn Stockholders who shall have failed to perfect who
effectively shall have withdrawn or lost the rights to payment for such shares
of Lunn Common Stock under the DGCL shall thereupon be deemed to have been
converted into, as of the Effective Time, the right to receive, without any
interest thereon, the Merger Consideration, upon surrender in the manner
provided in Section 2.6 hereof of the certificate or certificates that formally
evidence such shares of Lunn Common Stock (or compliance with Section 4.2(i)
hereof if applicable) and the presentation of an executed Transmittal Letter.
(d) Lunn shall give TPG (i) prompt notice of any demands for Lunn
Dissenter Payments received by Lunn pursuant to the DGCL, withdrawals of such
demands, and any other instruments served pursuant to the DGCL received by Lunn
and (ii) the opportunity to direct all negotiations and proceedings with respect
to demands for payment under the DGCL. Lunn shall not, except with the prior
written consent of TPG, make any payment with respect to any demands for payment
of, or offer to settle, or settle, any such demands.
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ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF LUNN
Except as set forth in the disclosure letter delivered to TPG
concurrently with the execution hereof (the "Lunn Disclosure Letter") or as
disclosed with reasonable specificity in the Lunn SEC Reports, Lunn represents
and warrants to TPG that:
5.1 Existence; Good Standing; Corporate Authority. Lunn is a
corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation. Lunn is duly qualified to do business
as a foreign corporation and is in good standing under the laws of any
jurisdiction in which the character if the properties owned or leased by it
therein or in which the transaction of its business makes such qualification
necessary, except where the failure to be so qualified would not have,
individually or in the aggregate, a Material Adverse Effect. Lunn has all
requisite corporate power and authority to own, operate and lease its properties
and to carry on its business as now conducted. The copies of Lunn's certificate
of incorporation and bylaws previously made available to TPG are true and
correct.
5.2 Authorization; Validity and Effect of Agreements. Lunn has the
requisite corporate power and authority to execute and deliver this Agreement
and all agreements and documents contemplated hereby. The consummation by Lunn
of the Transactions has been duly authorized by all requisite corporate action,
other than, with respect to the Merger, the approval and adoption of this
Agreement by the Lunn Stockholders. This Agreement constitutes the valid and
legally binding obligation of Lunn, enforceable in accordance with its terms.
Lunn has taken all action necessary to render the restrictions set forth in
Section 203 of the DGCL inapplicable to this Agreement and the Merger.
5.3 Capitalization. The authorized capital stock of Lunn consists of
30,000,000 shares of Lunn Common Stock and 1,000,000 shares of Lunn Preferred
Stock. As of the date hereof, there are 12,762,153 shares of Lunn Common Stock
and no shares of Lunn Preferred Stock issued and outstanding and 150 shares of
Lunn Common Stock and no shares of Lunn Preferred Stock are held as treasury
shares. All such issued and outstanding shares of Lunn Common Stock are duly
authorized, validly issued, fully paid, nonassessable and free of preemptive
rights. There are 1,500,000 shares of Lunn Common Stock reserved for issuance
pursuant to the Lunn Stock Option Plan and 656,300 shares of Lunn Common Stock
reserved for issuance upon exercise of the Lunn Warrants and, as of the date
hereof, Lunn Options to purchase 1,167,500 shares of Lunn Common Stock and Lunn
Warrants to purchase 656,300 shares of Lunn Common Stock were outstanding. As of
the date of this Agreement, there are no other outstanding shares of capital
stock and there are no other options, warrants, calls, subscriptions,
convertible securities, or other rights, agreements or commitments which
obligate Lunn or any of its Subsidiaries to issue, transfer or sell and shares
of capital stock or other voting securities of Lunn or any of its Subsidiaries.
Lunn has no outstanding bonds, debentures, notes or other obligations the
holders of which have the right to vote (or which are convertible into or
exercisable for securities having the right to vote) with the stockholders of
Lunn on any matter.
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5.4 Subsidiaries. Each of Lunn's Subsidiaries is a corporation or
partnership duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation or organization, has the corporate or
partnership power and authority to own, operate, and lease its properties and to
carry on its business as it is now being conducted, and is duly qualified to do
business and is in good standing in each jurisdiction in which the ownership,
operation or lease of its property or the conduct of its business requires such
qualification, except for jurisdictions in which such failure to be so qualified
or to be in good standing would not have a Material Adverse Effect. Except as
reflected on Schedule 5.4 of the Lunn Disclosure Letter, all of the outstanding
shares of capital stock, or other ownership interests in, each of Lunn's
Subsidiaries is duly authorized, validly issued, fully paid and nonassessable,
and is owned, directly or indirectly, by Lunn free and clear of all Liens.
Schedule 5.4 of the Lunn Disclosure Letter sets forth the following information
for each Subsidiary of Lunn, as applicable; (i) its name and jurisdiction of
incorporation or organization; (ii) its authorized capital stock or share
capital; and (iii) the number of issued and outstanding shares of capital stock
or share capital.
5.5 No Violation of Law. Neither Lunn nor any of its Subsidiaries is in
violation of any order of any court, Governmental Authority or arbitration board
or tribunal, or any Law to which Lunn or any of its Subsidiaries or any of their
respective properties or assets is subject, except as would not have,
individually or in the aggregate, a Material Adverse Effect.
5.6 No Conflict. (a) Neither the execution and delivery by Lunn of this
Agreement nor the consummation by Lunn of the Transactions in accordance with
the terms hereof, will: (i) violate any provisions of the certificate of
incorporation or bylaws of Lunn; (ii) violate any provision of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination or in a right of
termination or cancellation of, or accelerate the performance required by, or
result in the creation of any Lien upon any of the properties of Lunn or its
Subsidiaries under, or result in being declared void, voidable, or without
further binding effect, any of the terms, conditions or provisions of, any note,
bond, mortgage, indenture, deed of trust, license, franchise, permit, lease,
contract, agreement or other instrument or obligation to which Lunn or any of
its Subsidiaries is a party, or by which Lunn or any of its Subsidiaries or any
of their properties is bound or affected; or (iii) constitute a violation of any
provision of any Law binding upon or applicable to Lunn or any of its
Subsidiaries, except, in the case of matters described in clause (ii) or (iii),
as would not have, individually or in the aggregate, a Material Adverse Effect.
(b) Neither the execution and delivery by Lunn of this
Agreement nor the consummation by Lunn of the Transactions in accordance with
the terms hereof will require any consent, approval or authorization of, or
filing or registration with, any governmental or regulatory authority, other
than (i) such filings, consents and approvals that are obtained before Closing
and (ii) filings required under the HSR Act, the Exchange Act, the Securities
Act or applicable state securities and "Blue Sky" laws, except for any consent,
approval or authorization the failure of which to obtain and for any filing or
registration the failure of which to make would not have a Material Adverse
Effect.
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5.7 SEC Documents. Lunn has made available to TPG each registration
statement, report, proxy statement or information statement (other than
preliminary materials) filed by Lunn with the SEC since January 1, 1994, each in
the form (including exhibits and any amendments thereto) filed with the SEC
(collectively, the "Lunn SEC Reports"). Each of the Lunn SEC Reports, as of
their respective dates, (i) were prepared in all material respects in accordance
with the applicable requirements of the Securities Act, the Exchange Act, and
the rules and regulations thereunder and (ii) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements made therein, in the light of
the circumstances under which they were made, not misleading except for such
statements, if any, as have been modified by subsequent filings prior to the
date hereof. Each of the consolidated balance sheets of Lunn included in or
incorporated by reference into the Lunn SEC Reports (including the related notes
and schedules) fairly presents the consolidated financial position of Lunn and
its Subsidiaries as of its date and each of the consolidated statements of
income, cash flows and changes in stockholders' equity ("retained earnings") of
Lunn included in or incorporated by reference into the Lunn SEC Reports
(including any related notes and schedules) fairly presents the results of
operations, cash flows or retained earnings, as the case may be, of Lunn and its
Subsidiaries for the periods set forth therein (subject, in the case of
unaudited statements, to (x) such exceptions as may be permitted by Form 10-Q of
the SEC and (y) normal year-end audit adjustments), in each case in accordance
with GAAP, except as may be noted therein. Except as and to the extent set forth
on the consolidated balance sheet of Lunn and its Subsidiaries at December 31,
1996, including all notes thereto, neither Lunn nor any of its Subsidiaries has
any liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) that would be required to be reflected on, or reserved
against in, a balance sheet of Lunn or in the notes thereto prepared in
accordance with GAAP, other than liabilities or obligations which would not
have, individually or in the aggregate, a Material Adverse Effect and
liabilities and obligations arising in the ordinary course of business since
such date.
5.8 Registration Statement and Proxy Statement. None of the information
supplied or to be supplied by Lunn for inclusion in (a) the Registration
Statement on Form S-4 to be filed under the Securities Act with the SEC by Lunn
in connection with the Merger for the purpose of registering the Surviving
Corporation Common Stock to be issued in connection with the Merger (the
"Registration Statement"), or (b) the proxy statement to be distributed in
connection with the Lunn Stockholders' Meeting and the TPG Stockholders' Meeting
to vote upon this Agreement and the Transactions (the "Proxy Statement" and,
together with the prospectus included in the Registration Statement, the "Joint
Proxy Statement/Prospectus") will, in the case of the Proxy Statement or any
amendments thereof or supplements thereto, at the time of the mailing of the
Proxy Statement and any amendments or supplements thereto, at the time of the
Lunn Stockholders' Meeting and the TPG Stockholders' Meeting to be held in
connection with the Transactions, and at the Effective Time, or, in the case of
the Registration Statement, as amended or supplemented, at the time it is
declared effective by the SEC, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The Registration Statement and Joint Proxy
Statement/Prospectus shall comply in all material respects as to form and
substance with the requirements of the Securities Act, the Exchange Act and the
rules and regulations promulgated thereunder, except that no
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representation is made by Lunn with respect to information relating to TPG and
included therein, provided TPG approved of the inclusion of such information in
the Registration Statement and Joint Proxy Statement/Prospectus.
5.9 Litigation. There are no actions, suits or proceedings pending
against Lunn or any of its Subsidiaries or, to Lunn's knowledge, threatened
against Lunn or any of its Subsidiaries, at law or in equity, or before or by
any federal or state commission, board, bureau, agency or instrumentality, that
are likely to have, individually or in the aggregate, a Material Adverse Effect.
There are no outstanding judgments, decrees, injunctions, awards or orders
against Lunn or any of its Subsidiaries that are likely to have, individually or
in the aggregate, a Material Adverse Effect. Schedule 5.9 of the Lunn Disclosure
Letter contains, as of the date of this Agreement, an accurate and complete list
of all actions, suits and proceedings pending or, to the knowledge of Lunn,
threatened against Lunn or its Subsidiaries.
5.10 Absence of Certain Changes. Except as set forth on Schedule 5.10
of the Lunn Disclosure Letter, since December 31, 1996, there has not been (i)
any change in the financial condition or business of Lunn or its Subsidiaries
which has had a Material Adverse Effect, other than any adverse effect resulting
from adverse changes in general economic conditions, stock market fluctuations
or conditions or adverse changes in or affecting the aerospace or high
performance composites industries generally, (ii) any material change by Lunn in
its accounting methods, principles or practices, (iii) any declaration, setting
aside or payment of any dividend or distribution in respect of any capital stock
of Lunn or any redemption, purchase or other acquisition of any of its
securities, or (iv) any increase in or establishment of any bonus, insurance,
severance, deferred compensation, pension, retirement, profit sharing, stock
option, stock purchase or other employee benefit plan, except in the ordinary
course of business.
5.11 Taxes. (a) Lunn and its Subsidiaries have (i) duly filed (or there
has been filed on their behalf) with appropriate governmental authorities all
tax returns, statements, reports and forms required to be filed by them, on or
prior to the date hereof, except to the extent that any failure to file would
not have, individually or in the aggregate, a Material Adverse Effect and (ii)
duly paid in full or made provisions in accordance with GAAP (or there has been
paid or provision has been made on their behalf) for the payment of all material
Taxes for all periods ending through the date hereof or the Closing Date, as the
case may be.
(b) (i) Except as set forth in Schedule 5.11(b), the federal income tax
returns of Lunn and each of its Subsidiaries have been examined by the IRS (or
the applicable statutes of limitation for the assessment of federal income taxes
for such periods have expired) for all periods through and including December
31, 1996 and all material deficiencies asserted by the IRS have been paid, fully
settled or adequately provided for in the financial statements contained in the
Lunn SEC Reports; (ii) as of the date hereof, neither Lunn nor any of its
Subsidiaries has granted any requests, agreements, consents or waivers to extend
the statutory period of limitations applicable to the assessment of any taxes
with respect to any tax returns of Lunn or any of its Subsidiaries; and (iii)
neither Lunn nor any of its Subsidiaries is a party to any material tax sharing
or tax indemnity agreement.
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5.12 Employee Benefit Plans. Schedule 5.12 of the Lunn Disclosure
Letter contains a list of all employee benefit plans and other benefit
arrangements, including all "employee benefit plans" as defined in ERISA,
covering employees of Lunn and its Subsidiaries (the "Lunn Benefit Plans"). True
and complete copies of the Lunn Benefit Plans and, if applicable, the most
recent Form 5500 and annual reports for each such plan have been made available
to TPG. To the extent applicable, the Lunn Benefit Plans comply, in all material
respects, with the requirements of the ERISA and the Code, and any Lunn Benefit
Plan intended to be qualified under section 401(a) of the Code has been
determined by the IRS to be so qualified. To Lunn's knowledge, there are no
pending or anticipated claims against or otherwise involving any Lunn Benefit
Plan and no suit, action or other litigation (excluding claims for benefits
incurred in the ordinary course of Lunn Benefit Plan activities) has been
brought against or with respect to any such Lunn Benefit Plan, except for any of
the foregoing which, individually or in the aggregate, would not have a Material
Adverse Effect. All material contributions required to be made as of the date
hereof to any Lunn Benefit Plans have been made or provided for. Lunn does not
maintain or contribute to any plan or arrangement which provides or has any
liability to provide life insurance, medical or other employee welfare benefits
to any employee or former employee upon his retirement or termination of
employment and Lunn has not represented, promised or contracted (whether in oral
or written form) to any employee or former employee that such benefits would be
provided. Except for any liability or any excise tax which would not have a
Material Adverse Effect, (i) neither Lunn nor any of its Subsidiaries has
incurred any direct or indirect liability under title IV of ERISA in connection
with the termination of, or withdrawal from, any Lunn Benefit Plan; (ii) there
does not exist with respect to any Lunn Benefit Plan any accumulated funding
deficiency within the meaning of section 412 of the Code or section 302 of
ERISA, whether or not waived; and (iii) no prohibited transaction has occurred
with respect to any Lunn Benefit Plan that would result in the imposition of any
excise tax or other liability under the Code or ERISA. The execution of this
Agreement and the performance of the Transactions will not (either alone or upon
the occurrence of any additional or subsequent events) constitute an event under
any benefit plan, policy, arrangement or agreement or any trust or loan that
will or may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligations to fund benefits with respect to any employee.
5.13 Labor Matters. Except as set forth on Schedule 5.13 of the Lunn
Disclosure Letter, neither Lunn nor any of its Subsidiaries is a party to, or
bound by, any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization. To Lunn's knowledge,
there are no organizational efforts with respect to the formation of a
collective bargaining unit presently being made or threatened involving
employees of Lunn or any of its Subsidiaries.
5.14 Environmental Matters. Except as would not have, individually or
in the aggregate, a Material Adverse Effect and except as set forth on Schedule
5.14:
(a) there are not any past or present conditions or
circumstances that interfere with the conduct of the business of Lunn
and each of its Subsidiaries in the manner now conducted or that
interfere with compliance with any order of any court, governmental
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authority or arbitration board or tribunal, or any law, ordinance,
governmental rule or regulation related to human health or the
environment ("Environmental Law");
(b) there are not any past or present conditions or
circumstances that, or arising out of, any current or former
businesses, assets or properties of Lunn or any Subsidiary of Lunn,
including but not limited to on-site or off-site disposal or release of
any chemical substance, product or waste, which may give rise to: (i)
liabilities or obligations for any cleanup, remediation or corrective
action under any Environmental Law or (ii) claims arising for personal
injury, property damage or damage to natural resources; and
(c) neither Lunn nor any of its Subsidiaries has (i) received
any notice of noncompliance with, violation of, or liability or
potential liability under any Environmental Law or (ii) entered into
any consent decree or order or is subject to any order of any court or
governmental authority or tribunal under any Environmental Law or
relating to the cleanup of any hazardous materials contamination.
5.15 Title to Properties. Lunn has, or will have at Closing, good and
marketable title to all its assets, free and clear of all Liens, except for
Permitted Liens, the Liens set forth on Schedule 5.15 of the Lunn Disclosure
Letter, and Liens expressly disclosed in the Lunn SEC Reports. No Lunn
Stockholder owns in his individual capacity any of Lunn's assets or any other
properties or assets used in its business.
5.16 Condition of Fixed Assets. Except as set forth on Schedule 5.16 of
the Lunn Disclosure Letter, the machinery, equipment and other tangible
properties included in the assets of Lunn, are in good operating condition
(ordinary wear and tear excepted) and have been maintained by Lunn in accordance
with industry standards, are acceptable for their intended uses in the ordinary
course consistent with past practices and conform in all material respects with
all applicable ordinances, regulations and other laws and there are no known
defects therein.
5.17 Assets Used in the Business. Lunn's assets as reflected on Lunn's
Most Recent Balance Sheet are all of the assets and leaseholds used by Lunn in
the conduct of its business as now being conducted, and are all of the assets
and leasehold interests necessary therefor.
5.18 Accounts Receivable. Subject to any reserves therefor established
in a consistent manner throughout the period covered by the Lunn Financial
Statements in accordance with GAAP, and except as reflected in Lunn's Most
Recent Balance Sheet, all accounts, notes, and other receivables reflected in
the Lunn Financial Statements or generated after the date of Lunn's Most Recent
Balance Sheet, with respect to Lunn's business, are valid and genuine, arise out
of bona fide sales and either have been collected or are enforceable and
collectible claims not subject to any valid defense, offset or credit. All
accounts receivable are recorded on the books of Lunn in accordance with GAAP.
Lunn has delivered to TPG the accounts receivable aging report of Lunn as of
April 30, 1997.
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5.19 Inventories. Subject to any reserves therefor established in a
consistent manner throughout the period covered by the Lunn Financial Statements
in accordance with GAAP, and except as reflected in Lunn's Most Recent Balance
Sheet, the inventories of Lunn's business reflected in the financial statements
of Lunn contained in the Lunn Financial Statements or acquired since the date of
Lunn's Most Recent Balance Sheet, consist of items that are in good, current,
standard, and merchantable condition, and are of a quantity and quality salable
in the ordinary course of business.
5.20 Material Agreements. Except as set forth in the Lunn Disclosure
Letter, Lunn has no material contracts which are required to be filed as
exhibits to the Lunn SEC Reports which have not been so filed, and complete
copies of the contracts identified in the Lunn Disclosure Letter have been
furnished to TPG.
5.21 Trademarks, Patents and Copyrights. Schedule 5.21 of the Lunn
Disclosure Letter describes all patents, patent rights, trademarks, trademark
rights and proprietary information used or held for use in connection with their
respective businesses as currently being conducted (the "Lunn Intellectual
Property"). Except as previously disclosed to TPG in writing, to the knowledge
of Lunn, Lunn and its Subsidiaries own or possess adequate licenses or other
valid rights to use the Lunn Intellectual Property, except where the failure to
own or possess such license and other rights would not have, individually or in
the aggregate, a Material Adverse Effect, and there are no assertions or claims
challenging the validity of any of the foregoing which are likely to have,
individually or in the aggregate, a Material Adverse Effect. To the knowledge of
Lunn, the conduct of Lunn's and its Subsidiaries' respective businesses as
currently conducted does not conflict with any patents, patent rights, licenses,
trademarks, trademark rights, trade names, trade name rights or copyrights of
others in any way likely to have, individually or in the aggregate, a Material
Adverse Effect. To the knowledge of Lunn, there is no material infringement of
any proprietary right owned by or licenses by or to Lunn or any of its
Subsidiaries which is likely to have, individually or in the aggregate, a
Material Adverse Effect.
5.22 Insurance. Lunn has previously delivered to TPG a schedule listing
the officers' and directors' liability insurance policies, primary and excess
casualty insurance policies providing coverage for bodily injury and property
damage to third parties, including products liability and completed operations
coverage, and worker's compensation insurance policies maintained by Lunn and
its Subsidiaries. Lunn and its Subsidiaries maintain insurance coverage
reasonably adequate for the operation of their respective businesses (taking
into account the cost and availability of such insurance).
5.23 Licenses and Permits. Set forth on Schedule 5.23 of the Lunn
Disclosure Letter is a list of all material permits, licenses, consents,
approvals and governmental or regulatory authorizations used by or affecting the
conduct of Lunn's business. Lunn has all licenses and permits (federal, state
and local) necessary to own its assets and to conduct its operations, and such
licenses and permits are in full force and effect. No violations are or have
been recorded in respect of such licenses or permits and no proceeding is
pending or, to the knowledge of Lunn, threatened, seeking the revocation or
limitation of any of such licenses or permits.
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5.24 Federal Income Tax Representations.
(a) Lunn is undertaking the Merger for a bona fide business purpose and
not merely for the avoidance of federal income tax.
(b) Lunn is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
5.25 No Brokers. Lunn has not entered into any contract, arrangement or
understanding with any person or firm that may result in the obligation of the
Surviving Corporation to pay any finder's fees, brokerage or agent's commissions
or other like payments in connection with the negotiations leading to this
Agreement or the consummation of the Transactions, except that Lunn has retained
Allen & Company Incorporated to render a fairness opinion with respect to the
transaction, the arrangements with which have been disclosed in writing to TPG
prior to the date hereof.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF TPG
Except as set forth in the disclosure letter delivered to Lunn
concurrently with the execution hereof (the "TPG Disclosure Letter"), TPG
represents and warrants to Lunn that:
6.1 Existence; Good Standing; Corporate Authority. TPG is a corporation
duly incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation. TPG is duly qualified to do business as a foreign
corporation and is in good standing under the laws of any jurisdiction in which
the character of the properties owned or leased by it therein or in which the
transaction of its business makes such qualification necessary, except where the
failure to be so qualified would not have, individually or in the aggregate, a
Material Adverse Effect. TPG has all requisite corporate power and authority to
own, operate and lease its properties and to carry on its business as now
conducted. The copies of TPG's certificate of incorporation and bylaws
previously made available to Lunn are true and correct.
6.2 Authorization; Validity and Effect of Agreements. TPG has the
requisite corporate power and authority to execute and deliver this Agreement
and all agreements and documents contemplated hereby. The consummation by TPG of
the Transactions has been duly authorized by all requisite corporate action,
other than, with respect to the Merger, the approval and adoption of this
Agreement by the TPG Stockholders. This Agreement constitutes the valid and
legally binding obligation of TPG, enforceable in accordance with its terms. TPG
has taken all action necessary to render the restrictions set forth in Section
203 of the DGCL inapplicable to this Agreement and the Merger.
6.3 Capitalization. The authorized capital stock of TPG consists of
1,000,000 shares of TPG Common Stock and 1,000,000 shares of TPG Preferred
Stock. As of the date hereof, there are 475,000 shares of TPG Common Stock and
1,000,000 shares of TPG Preferred Stock
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issued and outstanding and no shares of TPG Common Stock or and TPG Preferred
Stock are held as treasury shares. All such issued and outstanding shares of TPG
Common Stock are duly authorized, validly issued, fully paid, nonassessable and
free of preemptive rights. Except as set forth in Schedule 6.3, there are 25,000
shares of TPG Common Stock reserved for issuance pursuant to the TPG Stock
Option Plan and, as of the date hereof, TPG Options to purchase 25,000 shares of
TPG Common Stock are outstanding. There are no other outstanding shares of
capital stock and there are no other options, warrants, calls, subscriptions,
convertible securities, or other rights, agreements or commitments which
obligate TPG or any of its Subsidiaries to issue, transfer or sell any shares of
capital stock or other voting securities of TPG or any of its Subsidiaries. TPG
has no outstanding bonds, debentures, notes or other obligations the holders of
which have the right to vote (or which are convertible into or exercisable for
securities having the right to vote) with the stockholders of TPG on any matter.
6.4 Subsidiaries. Each of TPG's Subsidiaries is a corporation or
partnership duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation or organization, has the corporate or
partnership power and authority to own, operate, and lease its properties and to
carry on its business as it is now being conducted, and is duly qualified to do
business and is in good standing in each jurisdiction in which the ownership,
operation or lease of its property or the conduct of its business requires such
qualification, except for jurisdictions in which such failure to be so qualified
or to be in good standing would not have a Material Adverse Effect. Except as
reflected on Schedule 6.4 of the TPG Disclosure Letter, all of the outstanding
shares of capital stock, or other ownership interests in, each of TPG's
Subsidiaries is duly authorized, validly issued, fully paid and nonassessable,
and is owned, directly or indirectly, by TPG free and clear of all Liens.
Schedule 6.4 of the TPG Disclosure Letter sets forth the following information
for each Subsidiary of TPG, as applicable; (a) its name and jurisdiction of
incorporation or organization; (b) its authorized capital stock or share
capital; and (c) the number of issued and outstanding shares of capital stock or
share capital.
6.5 No Violation of Law. Neither TPG nor any of its Subsidiaries is in
violation of any order of any court, Governmental Authority or arbitration board
or tribunal, or any Law, to which TPG or any of its Subsidiaries or any of their
respective properties or assets is subject, except as would not have,
individually or in the aggregate, a Material Adverse Effect.
6.6 No Conflict. (a) Except as set forth in Schedule 6.6(a) of the TPG
Disclosure Letter, neither the execution and delivery by TPG of this Agreement
nor the consummation by TPG of the Transactions in accordance with the terms
hereof, will: (i) violate any provisions of the certificate of incorporation or
bylaws of TPG; (ii) violate any provision of, or constitute a default (or an
event which, with notice or lapse of time or both, would constitute a default)
under, or result in the termination or in a right of termination or cancellation
of, or accelerate the performance required by, or result in the creation of any
Lien upon any of the properties of TPG or its Subsidiaries under, or result in
being declared void, voidable, or without further binding effect, any of the
terms, conditions or provisions of, any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, lease, contract, agreement or other
instrument or obligation to which TPG or any of its Subsidiaries is a party, or
by which TPG or any of its Subsidiaries or any of their properties is bound or
affected; or (iii) constitute a violation of any provision of any Law
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binding upon or applicable to TPG or any of its Subsidiaries, except, in the
case of matters described in clause (ii) or (iii), as would not have,
individually or in the aggregate, a Material Adverse Effect.
(b) Neither the execution and delivery by TPG of this
Agreement nor the consummation by TPG of the Transactions in accordance with the
terms hereof will require any consent, approval or authorization of, or filing
or registration with, any governmental or regulatory authority, other than (i)
such filings, consents and approvals that are obtained before the Closing and
(ii) filings required under the HSR Act, the Exchange Act, the Securities Act or
applicable state securities and "Blue Sky" laws, except for any consent,
approval or authorization the failure of which to obtain and for any filing or
registration the failure of which to make would not have a Material Adverse
Effect.
6.7 Financial Statements. Schedule 6.7 of the TPG Disclosure Letter
contains the audited consolidated financial statements of TPG for the fiscal
years ended December 31, 1995 and December 31, 1996 and the unaudited
consolidated financial statements of TPG for the quarter ended April 4, 1997
(collectively, the "TPG Financial Statements"). Each of the balance sheets
included in the TPG Financial Statements (including the related notes and
schedules) fairly presents the consolidated financial position of TPG as of its
date and each of the statements of income, retained earnings and cash flows
(including any related notes and schedules) fairly presents the consolidated
results of operations, retained earnings and cash flows, respectively, of TPG
for the periods set forth therein (subject, in the case of interim statements,
to normal year-end audit adjustments which will be consistent with prior years'
adjustments and which would not be material in amount or effect, and except as
disclosed in Schedule 6.7 of the TPG Disclosure Letter) in each case in
accordance with GAAP consistently applied during the periods involved, except as
may be noted therein and except for the absence of notes, a consolidated
statement of cash flow and a consolidated statement of shareholders' equity in
interim statements. Except as and to the extent set forth on the consolidated
balance sheet of TPG and its Subsidiaries at December 31, 1996, including all
notes thereto, neither TPG nor any of its Subsidiaries has any liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise)
that would be required to be reflected on, or reserved against in, a balance
sheet of TPG or in the notes thereto prepared in accordance with GAAP, other
than liabilities or obligations which would not have, individually or in the
aggregate, a Material Adverse Effect and liabilities and obligations arising in
the ordinary course of business since such date.
6.8 Registration Statement and Proxy Statement. None of the information
supplied or to be supplied by TPG for inclusion in (a) the Registration
Statement, or (b) the Proxy Statement will, in the case of the Proxy Statement
or any amendments thereof or supplements thereto, at the time of the mailing of
the Proxy Statement and any amendments or supplements thereto, at the time of
the Lunn Stockholders' Meeting and the TPG Stockholders' Meeting, and at the
Effective Time, or, in the case of the Registration Statement, as amended or
supplemented, at the time it is declared effective by the SEC, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
Registration Statement and Joint Proxy Statement/Prospectus shall comply in all
material respects as to form
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and substance with the requirements of the Securities Act, the Exchange Act and
the rules and regulations promulgated thereunder, except that no representation
is made by TPG with respect to information supplied by Lunn for inclusion
therein.
6.9 Litigation. There are no actions, suits or proceedings pending
against TPG or any of its Subsidiaries or, to TPG's knowledge, threatened
against TPG or any of its Subsidiaries, at law or in equity, or before or by any
federal or state commission, board, bureau, agency or instrumentality, that are
likely to have, individually or in the aggregate, a Material Adverse Effect.
There are no outstanding judgments, decrees, injunctions, awards or orders
against TPG or any of its Subsidiaries that are likely to have, individually or
in the aggregate, a Material Adverse Effect. Schedule 6.9 of the TPG Disclosure
Letter contains, as of the date of this Agreement, an accurate and complete list
of all actions, suits and proceedings pending or, to the knowledge of TPG,
threatened against TPG or its Subsidiaries.
6.10 Absence of Certain Changes. Except as reflected in Schedule 6.10,
since December 31, 1996, there has not been (i) any change in the financial
condition or business of TPG or its Subsidiaries which has had a Material
Adverse Effect, other than any adverse effect resulting from adverse changes in
general economic conditions, stock market fluctuations or conditions or adverse
changes in or affecting the aerospace or high performance composites industries
generally, (ii) any material change by TPG in its accounting methods, principles
or practices, (iii) any declaration, setting aside or payment of any dividend or
distribution in respect of any capital stock of TPG or any redemption, purchase
or other acquisition of any of its securities, or (iv) any increase in or
establishment of any bonus, insurance, severance, deferred compensation,
pension, retirement, profit sharing, stock option, stock purchase or other
employee benefit plan, except in the ordinary course of business.
6.11 Taxes. (a) TPG and its Subsidiaries have (i) duly filed (or there
has been filed on their behalf) with appropriate governmental authorities all
tax returns, statements, reports and forms required to be filed by them, on or
prior to the date hereof, except to the extent that any failure to file would
not have, individually or in the aggregate, a Material Adverse Effect and (ii)
duly paid in full or made provisions in accordance with GAAP (or there has been
paid or provision has been made on their behalf) for the payment of all material
Taxes for all periods ending through the date hereof on the Closing Date, as the
case may be.
(b) (i) Except as reflected in Schedule 6.11(b), the federal income tax
returns of TPG and each of its Subsidiaries have been examined by the IRS (or
the applicable statutes of limitation for the assessment of federal income taxes
for such periods have expired) for all periods through and including December
31, 1996, and all material deficiencies asserted by the IRS have been paid,
fully settled or adequately provided for in the TPG financial statements; (ii)
as of the date hereof, neither TPG nor any of its Subsidiaries has granted any
requests, agreements, consents or waivers to extend the statutory period of
limitations applicable to the assessment of any taxes with respect to any tax
returns of TPG or any of its Subsidiaries; and (iii) neither TPG nor any of its
Subsidiaries is a party to any material tax sharing of tax indemnity agreement.
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6.12 Employee Benefit Plans. Schedule 6.12 of the TPG Disclosure Letter
contains a list of all employee benefit plans and other benefit arrangements,
including all "employee benefit plans" as defined in ERISA, covering employees
of TPG and its Subsidiaries (the "TPG Benefit Plans"). True and complete copies
of TPG Benefit Plans and, if applicable, the most recent Form 5500 and annual
reports for each such plan have been made available to TPG. To the extent
applicable, TPG Benefit Plans comply, in all material respects, with the
requirements of ERISA and the Code, and any TPG Benefit Plan intended to be
qualified under section 401(a) of the Code has been determined by the IRS to be
so qualified. To TPG's knowledge, there are no pending or anticipated claims
against or otherwise involving any TPG Benefit Plan and no suit, action or other
litigation (excluding claims for benefits incurred in the ordinary course of TPG
Benefit Plan activities) has been brought against or with respect to any such
TPG Benefit Plan, except for any of the foregoing which, individually or in the
aggregate, would not have a Material Adverse Effect. All material contributions
required to be made as of the date hereof TPG Benefit Plans have been made or
provided for. TPG does not maintain or contribute to any plan or arrangement
which provides or has any liability to provide life insurance, medical or other
employee welfare benefits to any employee or former employee upon his retirement
or termination of employment and TPG has not represented, promised or contracted
(whether in oral or written form) to any employee or former employee that such
benefits would be provided. Except for any liability or any excise tax which
would not have a Material Adverse Effect, (i) neither TPG nor any of its
Subsidiaries has incurred any direct or indirect liability under title IV of
ERISA in connection with the termination of, or withdrawal from, any TPG Benefit
Plan; (ii) there does not exist with respect to any TPG Benefit Plan any
accumulated funding deficiency within the meaning of section 412 of the Code or
section 302 of ERISA, whether or not waived; and (iii) no prohibited transaction
has occurred with respect to any TPG Benefit Plan that would result in the
imposition of any excise tax or other liability under the Code or ERISA. The
execution of this Agreement and the performance of the Transactions will not
(either alone or upon the occurrence of any additional or subsequent events)
constitute an event under any benefit plan, policy, arrangement or agreement or
any trust or loan that will or may result in any payment (whether of severance
pay or otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligations to fund benefits with respect
to any employee.
6.13 Labor Matters. Except as reflected on Schedule 6.13, neither TPG
nor any of its Subsidiaries is a party to, or bound by, any collective
bargaining agreement, contract or other agreement or understanding with a labor
union or labor organization. To TPG's knowledge, there are no organizational
efforts with respect to the formation of any collective bargaining unit
presently being made or threatened involving employees of TPG or any of its
Subsidiaries.
6.14 Environmental Matters. Except as set forth on Schedule 6.14 and as
would not have, individually or in the aggregate, a Material Adverse Effect and
except as set forth on Schedule 6.14:
(a) there are not any past or present conditions or
circumstances that interfere with the conduct of the business of TPG
and each of its Subsidiaries in the manner now conducted or that
interfere with compliance with any order of any court, governmental
authority or arbitration board or tribunal, or any Environmental Law;
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(b) there are not any past or present conditions or
circumstances at, or arising out of, any current or former businesses,
assets or properties of TPG or any Subsidiary of TPG, including but not
limited to on-site or off-site disposal or release of any chemical
substance, product or waste, which may give rise to: (i) liabilities or
obligations for any cleanup, remediation or corrective action under any
Environmental Law or (ii) claims arising for personal injury, property
damage or damage to natural resources; and
(c) neither TPG nor any of its Subsidiaries has (i) received
any notice of noncompliance with, violation of, or liability or
potential liability under any Environmental Law or (ii) entered into
any consent decree or order or is subject to any order of any court or
governmental authority or tribunal under any Environmental Law or
relating to the cleanup of any hazardous materials contamination.
6.15 Title to Properties. TPG has, or will have at Closing, good and
marketable title to all its assets, free and clear of all Liens, except for
Permitted Liens and the liens set forth on Schedule 6.15 of the TPG Disclosure
Letter. No TPG Stockholder owns in his individual capacity any of TPG's assets
or any other properties or assets used in its business.
6.16 Condition of Fixed Assets. The machinery, equipment and other
tangible properties included in the assets of TPG, are in good operating
condition (ordinary wear and tear excepted) and have been maintained by TPG in
accordance with industry standards, are acceptable for their intended uses in
the ordinary course consistent with past practices and conform in all material
respects with all applicable ordinances, regulations and other laws and there
are no known defects therein.
6.17 Assets Used in the Business. TPG's assets are all of the assets
and leaseholds used by TPG in the conduct of its business as now being
conducted, and are all of the assets and leasehold interests necessary therefor.
6.18 Accounts Receivable. Subject to any reserves therefor established
in a consistent manner throughout the periods covered by the TPG Financial
Statements in accordance with GAAP, and except as reflected in TPG's Most Recent
Balance Sheet, all accounts, notes, and other receivables reflected in the TPG
Financial Statements, or generated after TPG's Most Recent Balance Sheet, with
respect to TPG's business, are valid and genuine, arise out of bona fide sales
and either have been collected or are enforceable and collectible claims not
subject to any valid defense, offset or credit. All accounts receivable are
recorded on the books of TPG in accordance with GAAP. TPG has delivered to Lunn
the accounts receivable aging report of TPG as of March 31, 1997.
6.19 Inventories. Subject to any reserves therefor established in a
consistent manner throughout the periods covered by the TPG Financial Statements
in accordance with GAAP, and except as reflected in TPG's Most Recent Balance
Sheet, the inventories of TPG's business reflected in the TPG Financial
Statements or acquired since the date of TPG's Most Recent
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Balance Sheet consist of items that are in good, current, standard, and
merchantable condition, and are of a quantity and quality salable in the
ordinary course of business.
6.20 Material Agreements. Schedule 6.20 of the TPG Disclosure Letter
lists and describes all material contracts which TPG would be required to file
as exhibits to SEC Reports if TPG were a Reporting Person. Complete copies of
the contracts identified in the TPG Disclosure Letter have been made available
to Lunn.
6.21 Trademarks, Patents and Copyrights. Schedule 6.21 to the TPG
Disclosure Letter describes all patents, patent rights, trademarks, trademark
rights and proprietary information used or held for use in connection TPG and
its Subsidiaries' respective businesses as currently being conducted (the "TPG
Intellectual Property"). Except as previously disclosed to Lunn in writing, to
the knowledge of TPG, TPG and its Subsidiaries own or possess adequate licenses
or other valid rights to use the TPG Intellectual Property, except where the
failure to own or possess such license and other rights would not have,
individually or in the aggregate, a Material Adverse Effect, and to the
knowledge of TPG, there are no assertions or claims challenging the validity of
any of the foregoing which are likely to have, individually or in the aggregate,
a Material Adverse Effect. To the knowledge of TPG, the conduct of TPG's and its
Subsidiaries' respective businesses as currently conducted does not conflict
with any patents, patent rights, licenses, trademarks, trademark rights, trade
names, trade name rights or copyrights of others in any way likely to have,
individually or in the aggregate, a Material Adverse Effect. To the knowledge of
TPG, there is no material infringement of any proprietary right owned by or
licenses by or to TPG or any of its Subsidiaries which is likely to have,
individually or in the aggregate, a Material Adverse Effect.
6.22 Insurance. TPG has made available to Lunn copies of all officers'
and directors' liability insurance policies, primary and excess casualty
insurance policies providing coverage for bodily injury and property damage to
third parties, including products liability and completed operations coverage,
and worker's compensation insurance policies maintained by TPG and its
Subsidiaries. TPG and its Subsidiaries maintain insurance coverage reasonably
adequate for the operation of their respective businesses (taking into account
the cost and availability of such insurance).
6.23 Licenses and Permits. Set forth on Schedule 6.23 of the TPG
Disclosure Letter is a list of all material permits, licenses, consents,
approvals and governmental or regulatory authorizations used by or affecting the
conduct of TPG's business. TPG has all licenses and permits (federal, state and
local) necessary to own its assets and to conduct its operations, and such
licenses and permits are in full force and effect. No violations are or have
been recorded in respect of such licenses or permits and no proceeding is
pending or, to the knowledge of TPG, threatened, seeking the revocation or
limitation of any of such licenses or permits.
6.24 Federal Income Tax Representations
(a) TPG is undertaking the Merger for a bona fide business purpose and
not merely for the avoidance of federal income tax.
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(b) TPG is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
6.25 No Brokers. TPG has not entered into any contract, arrangement or
understanding with any person or firm which may result in the obligation of TPG
or Lunn to pay any finder's fees, brokerage or agent's commissions or other like
payments in connection with the negotiations leading to this Agreement or the
consummation of the Transactions.
ARTICLE 7
COVENANTS
7.1 Covenants of TPG and Lunn. During the period from the date hereof
and continuing until the Effective Time (except as expressly contemplated or
permitted hereby, or to the extent Lunn consents in writing in the case of TPG's
obligations and to the extent TPG consents in writing in the case of Lunn's
obligations) each of TPG and Lunn covenants with the other that, insofar as the
obligations relate to it:
(a) TPG and Lunn and their respective Subsidiaries shall each carry on
and conduct their respective businesses only in the ordinary course in
substantially the same manner as previously conducted and shall use all
commercially reasonable efforts to preserve intact their present business
organizations, maintain their rights and franchises and preserve their
relationships with customers, suppliers and others having business dealings with
them to the end that their businesses shall not be impaired in any material
respect at the Effective Time.
(b) TPG and Lunn and their respective subsidiaries shall cooperate in
all commercially reasonable respects and promptly prepare, and Lunn shall file
with the SEC as soon as practicable, the Registration Statement, a portion of
which Registration Statement shall also serve as the proxy statement with
respect to the Lunn Stockholders' Meeting and the TPG Stockholders' Meeting in
connection with the Merger. The respective parties will cause the Joint Proxy
Statement/Prospectus and the Registration Statement to comply as to form in all
material respects with the applicable provisions of the Securities Act and the
rules and regulations thereunder. Lunn shall use all commercially reasonable
efforts, and TPG will cooperate in all commercially reasonable respects with
Lunn, to have the Registration Statement declared effective by the SEC as
promptly as practicable. Lunn shall use all commercially reasonable efforts to
obtain, prior to the effective date of the Registration Statement, all necessary
state securities law permits or approvals required to carry out the
Transactions. TPG shall furnish all information concerning TPG and the TPG
Stockholders' as Lunn may reasonably request in connection with such actions. As
promptly as practicable after the Registration Statement shall have become
effective, Lunn shall mail the Joint Proxy Statement/Prospectus to the Lunn
Stockholders and the TPG Stockholders. Lunn agrees that the Joint Proxy
Statement/Prospectus at the time of mailing thereof and at the time of the Lunn
Stockholders' Meeting or the TPG Stockholders' Meeting (or during the period
that consents are solicited or received) will not include an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the
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statements therein, in light of circumstances under which they were made, not
misleading; provided, however, that the foregoing shall not apply to the extent
that any such untrue statement of a material fact or omission to state a
material fact relates TPG and was approved by TPG for use in the Joint Proxy
Statement/Prospectus. TPG agrees that the information relating to TPG provided
to Lunn for use in the Joint Proxy Statement/Prospectus, at the time of mailing
thereof and at the time of the Lunn Stockholders' Meeting and the TPG
Stockholders' Meeting (or during the period that consents are solicited or
received), will not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Neither the Joint Proxy Statement/Prospectus nor any amendment
or supplement to the Joint Proxy Statement/Prospectus will be made by TPG or
Lunn without the approval of the other party. Lunn will advise TPG, promptly
after it receives notice thereof, of the time when the Registration Statement
has become effective. TPG and Lunn each hereby (i) consents to the use of its
name, and on behalf of its Affiliates, the names of such Affiliates and to the
inclusion of financial statements and business information relating to such
party and its Affiliates (in each case, to the extent required by applicable
securities Laws) in the Registration Statement or Joint Proxy
Statement/Prospectus and (ii) agrees to use commercially reasonable efforts to
obtain the written consent of any Person retained by it which may be required to
be named (as an expert or otherwise) in the Registration Statement or Joint
Proxy Statement/Prospectus. Lunn shall not amend or supplement the Registration
Statement at any time after it is filed with the SEC without first obtaining the
consent of TPG, which consent shall not be unreasonably withheld or delayed.
(c) TPG and Lunn shall each use their commercially reasonable efforts
to (i) take, or cause to be taken, all appropriate action, and do, or cause to
be done, all things necessary and proper under applicable law to consummate and
make effective the Transactions as promptly as practicable, (ii) obtain from any
Governmental Authority or any other third party any consents, licenses, permits,
waivers, approvals, authorizations, or orders required to be obtained or made by
TPG or Lunn or any of their Subsidiaries in connection with the authorization,
execution and delivery of this Agreement and the consummation of the
Transactions including, without limitation, the Merger, and (iii) as promptly as
practicable, make all necessary filings, and thereafter make any other required
submissions, with respect to this Agreement and the Merger required under (A)
the Securities Act and the Exchange Act, and any other applicable federal or
state securities laws, (B) the HSR Act and any related governmental request
thereunder, or (C) any other applicable law. TPG and Lunn shall cooperate with
each other in connection with the making of all such filings, including
providing copies of all such documents to the non-filing party and its advisors
prior to filing and, if requested, to accept all reasonable additions, deletions
or changes suggested in connection therewith. TPG and Lunn shall use their
commercially reasonable efforts to furnish to each other all information
required for any application or other filing to be made pursuant to the rules
and regulations of any applicable law (including all information required to be
included in the Joint Proxy Statement and the Registration Statement) in
connection with the Transactions.
(d) Lunn and TPG agree, and shall cause each of their respective
Subsidiaries, to cooperate and to use their respective commercially reasonable
efforts to obtain any government clearances required for Closing (including
through compliance with the HSR Act and any
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applicable foreign government reporting requirements), to respond to any
government requests for information, and to contest and resist any action,
including any legislative, administrative or judicial action, and to have
vacated, lifted, reversed or overturned any decree, judgment, injunction or
other order (whether temporary, preliminary or permanent) that restricts,
prevents or prohibits the consummation of the Merger or any other Transactions,
including, without limitation, by pursuing all commercially reasonable avenues
of administrative and judicial appeal. Lunn and TPG also agree to take any and
all of the following actions to the extent necessary to obtain the approval of
any Governmental Authority with jurisdiction over the enforcement of any
applicable laws regarding the Merger: entering into negotiations; providing
information; substantially complying with any second request for information
pursuant to the HSR Act; making proposals; entering into and performing
agreements or submitting to judicial or administrative orders; selling or
otherwise disposing of, or holding separate (through the establishment of a
trust or otherwise) particular assets or categories of assets, or businesses of
Lunn, TPG or any of their Affiliates; and withdrawing from doing business in a
particular jurisdiction. The parties hereto will consult and cooperate with one
another, and consider in good faith the views of one another, in connection with
any analyses, appearances, presentations, memoranda, briefs, arguments, opinions
and proposals made or submitted by or on behalf of any party hereto in
connection with proceedings under or relating to the HSR Act or any other
federal, state or foreign antitrust or fair trade law. Lunn shall be entitled to
direct any proceedings or negotiations with any Governmental Authority relating
to any of the foregoing, provided that it shall afford TPG a reasonable
opportunity to participate therein. Notwithstanding anything to the contrary in
this Section 7.1(d), neither Lunn nor TPG nor any of their respective
Subsidiaries shall be required to take any action that would reasonably be
expected to substantially impair the overall benefits expected, as of the date
hereof, to be realized from the consummation of the Merger.
(e) Prior to the Closing, TPG and Lunn shall adhere to and abide by the
terms and conditions of that certain Confidentiality Agreement dated as of March
21, 1997 (the "Confidentiality Agreement").
7.2 Covenants of Lunn. Lunn covenants and agrees with TPG that during
the period from the date hereof and continuing until the Effective Time (except
as expressly contemplated or permitted hereby, or to the extent that TPG shall
otherwise consent in writing):
(a) Lunn hereby agrees as follows:
(i) (A) Prior to the Effective Time, neither it nor
any of is Subsidiaries shall, and each of them shall not permit any of
its officers, directors, employees, agents or representatives
(including, without limitation, any investment banker, attorney or
accountant retained by it or any of its Subsidiaries) to, directly or
indirectly, (1) solicit or encourage any inquiry, proposal or offer
(including, without limitation, any proposal or offer to its
stockholders) with respect to a merger, acquisition, consolidation or
similar transaction involving, or any purchase of 20% or more of the
assets on a consolidated basis or 20% or more of the capital stock of,
Lunn (any such proposal or offer being hereinafter referred to as a
"Lunn Acquisition Proposal") (2) enter into any agreement with respect
to any Lunn Acquisition Proposal, (3) participate in any discussions or
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negotiations regarding, or furnish to any person any information with
respect to, the making of any proposal that constitutes, or may
reasonably be expected to lead to, or to endorse, any Lunn Acquisition
Proposal, (4) solicit proxies in opposition to approval by the Lunn's
stockholders of the Merger, (5) engage in any negotiations concerning a
Lunn Acquisition Proposal, or (6) directly or indirectly, enter into
any agreement to, or make any public announcement by or on behalf of
Lunn of a plan or intention to do any of the foregoing; and (B) it will
immediately cease and cause to be terminated any existing negotiations
with any parties conducted heretofore with respect to any of the
foregoing; provided that nothing contained in this Agreement shall
prevent Lunn or its Board of Directors from (w) complying with Rule
14e-2 promulgated under the Exchange Act with regard to a Lunn
Acquisition Proposal or (x) providing information to or engaging in any
negotiations or discussions with any person or entity who has made an
unsolicited bona fide Lunn Acquisition Proposal if the Board of
Directors of Lunn, after consultation with Dechert, Price & Rhoads or
other legal counsel reasonably acceptable to TPG, determines in good
faith that the failure to do so would be a violation of its fiduciary
obligations under Delaware Law. Without limiting the foregoing, it is
understood that any violation of the restrictions set forth in the
preceding sentence by any officer, director or employee of Lunn or any
of Lunn's Subsidiaries or any investment banker, attorney or other
advisor, agent or representative of Lunn shall be deemed to be a
material breach of this Agreement by Lunn. Except to the extent the
Board of Directors of Lunn determines in good faith, after consultation
with Dechert, Price & Rhoads or other legal counsel reasonably
acceptable to TPG, that such actions are necessary to discharge
properly such Board's fiduciary duties, neither the Board of Directors
of Lunn nor any committee thereof shall (y) modify or withdraw, or
propose to modify or withdraw, in a manner adverse to TPG the approval
or recommendation by such Board of Directors or any such committee of
this Agreement or the Merger or take any action having such effect or
(z) approve or recommend, or propose to approve or recommend, any Lunn
Acquisition Proposal. Notwithstanding the foregoing, if the Board of
Directors of Lunn receives a Lunn Acquisition Proposal that, in the
exercise of its fiduciary duties (as determined in good faith after
consultation with Dechert, Price & Rhoads or other legal counsel
reasonably acceptable to TPG), it determines to be a Lunn Superior
Proposal, the Board of Directors of Lunn may withdraw or modify its
approval or recommendation of this Agreement and the Merger and may
terminate this Agreement.
(ii) If the Board of Directors of Lunn or any
committee thereof shall (A) withdraw or modify in a manner adverse to
TPG the approval or recommendation by the Board of Directors of such
corporation or any such committee of this Agreement or the Merger or
take any action having such effect or (B) approve or recommend any Lunn
Acquisition Proposal, TPG may terminate this Agreement.
(iii) In addition to the obligations of Lunn set
forth in Section 7.2(a)(i), Lunn shall (A) promptly advise TPG of the
existence of any negotiations or discussions entered into in reliance
on the proviso in the first sentence of Section 7.2(a)(i) prior to
furnishing any information to any person or entity in connection with a
Lunn Acquisition Proposal; provided, however, that Lunn shall not be
obligated to provide TPG with the
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identity of such person or entity until it becomes reasonably likely
that such person or entity or his or its Affiliate will make a Lunn
Acquisition Proposal; (B) obtain from such person or entity an executed
confidentiality agreement with terms not materially less favorable to
Lunn than those contained in the Confidentiality Agreement; and (C)
keep TPG informed, on a current basis, of the status of any such
discussions or negotiations.
Notwithstanding anything to the contrary contained herein, it is agreed and
understood that any termination of this Agreement shall be pursuant to Section
10.1 and that, prior to any such termination, Lunn shall not enter into any
written agreement with any person or entity that provides for, or in any way
facilitates, a Lunn Acquisition Proposal, other than a confidentiality agreement
in accordance with the terms hereof.
(b) Promptly after the date of this Agreement and subject to the timing
of the SEC's review of the Registration Statement, Lunn shall take all action
necessary in accordance with the DGCL and its Certificate of Incorporation and
Bylaws to convene an annual meeting of Lunn's Stockholders (or seek consent in
lieu of a meeting) for the purpose of considering and approving the Merger (the
"Lunn Stockholders' Meeting"), and Lunn shall consult with TPG in connection
therewith. Lunn shall use commercially reasonable efforts to solicit from the
Lunn Stockholders proxies in favor of the Merger (and consents to be bound by
the terms of this Agreement).
(c) Lunn will make all normal and customary repairs, replacements, and
improvements to their facilities, and without limiting the generality of the
foregoing or the covenants set forth in Section 7.1(a), Lunn will not, without
the prior written consent of TPG or as otherwise contemplated by this Agreement:
(i) change any provision of its Certificate of Incorporation
or Bylaws (or equivalent organizational documents);
(ii) except for the issuance of Lunn Common Stock pursuant to
the exercise of any Lunn Options or Lunn Warrants and any related
agreements, change the number of shares of the authorized, issued or
outstanding capital stock or share capital of Lunn, including any
issuance, purchase, redemption, split, combination or reclassification
thereof, or issue or grant any option, warrant, call, commitment,
subscription, right or agreement to purchase relating to the authorized
or issued capital stock or share capital of Lunn, or declare, set aside
or pay any dividend or other distribution in cash or in kind with
respect to the outstanding capital stock or share capital of Lunn;
(iii) incur any liabilities or obligations, whether directly
or indirectly, or by way of guaranty, and whether or not evidenced by
any note, bond, debenture, or similar instrument, except as set forth
in Schedule 7.2(c) of the Lunn Disclosure Letter and except in the
ordinary course of business consistent with past practices and prior
periods;
(iv) except as set forth in Schedule 7.2(c) of the Lunn
Disclosure Letter, make any capital expenditures (or enter into any
lease required to be capitalized in accordance with GAAP) individually
in excess of $100,000 or in the aggregate in excess of $500,000;
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(v) pay any bonuses or commissions to any employee of Lunn
except as set forth on Schedule 7.2(c) of the Lunn Disclosure Letter;
enter into any new or amend in any respect any existing employment
agreement with any Person; adopt any new or amend in any respect any
existing Plan, except as may be otherwise required by Law; purchase any
additional "key man" life insurance policy covering any employee or
director of Lunn, or any other Person; grant any increase in
compensation or benefits of any kind to its employees, officers or
directors, except regularly scheduled general increases in the ordinary
course of business and consistent with past practices and policies; or
effect any change in any respect in retirement benefits to any class of
employees or officers, except as otherwise required by Law;
(vi) purchase, sell, mortgage, pledge, or otherwise dispose of
or encumber any asset owned by Lunn, other than purchase and sales,
mortgages, pledges, or other dispositions or Encumbrances occurring in
the ordinary course of business consistent with past practices and
prior periods;
(vii) incur or collect receivables, or extend loans or
advances, incur or pay trade payables or accrued liabilities in any
manner other than consistent with past practices and prior periods and
in the ordinary course of business;
(viii) cancel without payment or satisfaction in full, waive
or extend the time for performance of, any notes, loans, or other
obligations inuring to the benefit of Lunn unless such cancellation or
termination occurs in the ordinary course of business of Lunn
consistent with past practices or unless such cancellations or
terminations, individually or in the aggregate, would have only an
immaterial effect on the business, results of operations or financial
condition of Lunn, taken as a whole;
(ix) make any material modification of or material amendment
to any of the contracts or agreements listed or described on any
Schedule to this Agreement;
(x) fail to use commercially reasonable efforts to maintain in
full force and effect all insurance now carried by Lunn;
(xi) institute any changes in management personnel or any
material change in any management policy; or
(xii) make any agreement or commitment by or on behalf of Lunn
to do or take any of the actions referred to in the foregoing Section
7.2(c)(i) through (xi).
(d) At least 30 days prior to the Closing Date, Lunn shall deliver to
TPG a list, which shall be reasonably satisfactory to TPG, of names and
addresses of those Persons who were, in Lunn's reasonable judgment after
discussion with its counsel, at the record date for the Lunn Stockholder's
Meeting, "affiliates" (each such Person, a "Lunn Affiliate Stockholder") of Lunn
within the meaning of Rule 145 promulgated pursuant to the Exchange Act. Lunn
shall provide
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TPG such information and documents as TPG shall reasonably request for purposes
of reviewing such list. Lunn shall deliver or cause to be delivered to TPG prior
to the Closing Date, from each of the Lunn Affiliate Stockholders identified in
the foregoing list, an Affiliate Letter. The Surviving Corporation shall be
entitled to place legends as specified in such Affiliate Letters on the
certificates evidencing any Surviving Corporation Common Stock to be received by
such Affiliates pursuant to the terms of this Agreement and to issue appropriate
stop transfer instructions to the transfer agent for the Surviving Corporation
Common Stock consistent with the terms of such Affiliate Letters.
(e) Without the prior written consent of TPG, Lunn shall not knowingly
take any action which would cause or would be reasonably likely to cause the
conditions upon the obligations of the parties hereto to effect the Transactions
not to be fulfilled, including taking, causing to be taken, or permitting or
suffering to be taken or to exist any action, condition or thing which would
cause the representations and warranties made by Lunn herein not to be true,
correct and accurate as of any time between the date hereof and the Closing
Date.
(f) Lunn shall promptly provide to TPG monthly and quarterly
consolidated financial statements of Lunn.
(g) Lunn shall not (i) knowingly take any action, or knowingly fail to
take any action, that would jeopardize qualification of the Merger as a
reorganization within the meaning of Section 368(a) of the Code; or (ii) enter
into any contract, agreement, commitment or arrangement with respect to the
foregoing.
(h) Upon at least 24 hours' notice to Lunn, Lunn shall afford to the
officers, employees, advisors, attorneys and accountants of TPG access during
normal business hours to the offices, properties, records, books, contracts and
other documents (including computer files, retrievable programs and similar
documentation) of Lunn to the extent that TPG shall reasonably request and shall
furnish to TPG such additional information as shall be reasonably requested by
TPG; provided that neither the furnishing of such information nor any
investigation made heretofore or hereafter by TPG shall affect TPG's right to
rely on any representation or warranty made by Lunn.
(i) Lunn shall use its best efforts to cause to be delivered to TPG
"comfort" letters of KPMG Peat Marwick LLP, Lunn's independent public
accountants, dated the effective date of the Registration Statement and the
Closing Date, respectively, and addressed to TPG, with respect to certain
financial information regarding Lunn included in the Registration Statement, in
form and substance reasonably satisfactory to TPG and customary in scope and
substance for "comfort" letters delivered by independent public accountants in
connection with registration statements similar to the Registration Statement.
(j) Lunn shall promptly prepare and submit to the Nasdaq SmallCap
Market an additional listing application covering the shares of Lunn Common
Stock issuable in the Merger, and shall use commercially reasonable efforts to
obtain, prior to the Effective Time, approval for the listing of such Lunn
Common Stock, subject to official notice of issuance.
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(k) Prior to the Closing, Lunn shall cause Alan Baldwin to agree to the
termination of his employment agreement with Lunn as of the Effective Time and
without any further liability or obligation to Lunn or the Surviving
Corporation, including without limitation any liability arising as a result of
Lunn entering into this Agreement or consummating the transactions contemplated
hereby, which termination shall be conditioned only upon the Surviving
Corporation's agreement to (i) pay Alan Baldwin an aggregate severance payment
of $380,000 in 12 equal consecutive monthly payments, commencing the month
immediately following the Closing, (ii) continue, at the Surviving Corporation's
expense, the health and life insurance benefits that Lunn provides to Baldwin as
of the date of this Agreement for one year following the Closing, and (iii)
extend for two years immediately following the Closing, the period during which
Alan Baldwin may exercise his Lunn Options.
(l) Lunn shall use its best efforts to cause Allen & Company
Incorporated to deliver to Lunn its opinion letter to the effect that the terms
of the Merger are fair from a financial point of view to the Lunn Stockholders
(the "Fairness Opinion") and cause such Fairness Opinion to be delivered as soon
as possible, but in no event later than one business day prior to the filing of
the Registration Statement with the SEC.
7.3 Covenants of TPG. TPG covenants with Lunn that during the period
from the date hereof and continuing until the Effective Time (except as
expressly contemplated or permitted hereby, or to the extent that Lunn shall
otherwise consent in writing):
(a) TPG hereby agrees as follows:
(i) (A) Prior to the Effective Time, neither it nor
any of is Subsidiaries shall, and each of them shall not permit any of
its officers, directors, employees, agents or representatives
(including, without limitation, any investment banker, attorney or
accountant retained by it or any of its Subsidiaries) to, directly or
indirectly, (1) solicit or encourage any inquiry, proposal or offer
(including, without limitation, any proposal or offer to its
stockholders) with respect to a merger, acquisition, consolidation or
similar transaction involving, or any purchase of 20% or more of the
assets on a consolidated basis or 20% or more of the capital stock of,
the TPG (any such proposal or offer being hereinafter referred to as a
"TPG Acquisition Proposal") (2) enter into any agreement with respect
to any TPG Acquisition Proposal, (3) participate in any discussions or
negotiations regarding, or furnish to any person any information with
respect to, the making of any proposal that constitutes, or may
reasonably be expected to lead to, or to endorse, any TPG Acquisition
Proposal, (4) solicit proxies in opposition to approval by the TPG's
stockholders of the Merger, (5) engage in any negotiations concerning
an TPG Acquisition Proposal, or (6) directly or indirectly, enter into
any agreement to, or make any public announcement by or on behalf of
TPG of a plan or intention to do any of the foregoing; and (B) it will
immediately cease and cause to be terminated any existing negotiations
with any parties conducted heretofore with respect to any of the
foregoing; provided that nothing contained in this Agreement shall
prevent TPG or its Board of Directors from (x) providing information to
or engaging in any negotiations or discussions
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with any person or entity who has made an unsolicited bona fide TPG
Acquisition Proposal if the Board of Directors of TPG, after
consultation with Gardere & Wynne, L.L.P. or other legal counsel
reasonably acceptable to Lunn, determines in good faith that the
failure to do so would be a violation of its fiduciary obligations
under Delaware Law. Without limiting the foregoing, it is understood
that any violation of the restrictions set forth in the preceding
sentence by any officer, director or employee of TPG or any of TPG's
Subsidiaries or any investment banker, attorney or other advisor, agent
or representative of TPG shall be deemed to be a material breach of
this Agreement by TPG. Except to the extent the Board of Directors of
TPG determines in good faith, after consultation with Gardere & Wynne,
L.L.P. or other legal counsel reasonably acceptable to Lunn, that such
actions are necessary to discharge properly such Board's fiduciary
duties, neither the Board of Directors of TPG nor any committee thereof
shall (y) modify or withdraw, or propose to modify or withdraw, in a
manner adverse to Lunn the approval or recommendation by such Board of
Directors or any such committee of this Agreement or the Merger or take
any action having such effect or (z) approve or recommend, or propose
to approve or recommend, any TPG Acquisition Proposal. Notwithstanding
the foregoing, if the Board of Directors of TPG receives an TPG
Acquisition Proposal that, in the exercise of its fiduciary duties (as
determined in good faith after consultation with Gardere & Wynne,
L.L.P. or other legal counsel reasonably acceptable to Lunn), it
determines to be an TPG Superior Proposal, the Board of Directors of
Lunn may withdraw or modify its approval or recommendation of this
Agreement and the Merger and may terminate this Agreement.
(ii) If the Board of Directors of TPG or any
committee thereof shall (A) withdraw or modify in a manner adverse to
Lunn the approval or recommendation by the Board of Directors of such
corporation or any such committee of this Agreement or the Merger or
take any action having such effect or (B) approve or recommend any TPG
Acquisition Proposal, Lunn may terminate this Agreement.
(iii) In addition to the obligations of TPG set forth
in Section 7.3(a)(i), TPG shall (A) promptly advise Lunn of the
existence of any negotiations or discussions entered into in reliance
on the proviso in the first sentence of Section 7.3(a)(i) prior to
furnishing any information to any person or entity in connection with
an TPG Acquisition Proposal, (B) obtain from such person or entity an
executed confidentiality agreement with terms not materially less
favorable to TPG than those contained in the Confidentiality Agreement
and (C) keep Lunn informed, on a current basis, of the status of any
such discussions or negotiations.
Notwithstanding anything to the contrary contained herein, it is agreed and
understood that any termination of this Agreement shall be pursuant to Section
10.1 and that, prior to any such termination, TPG shall not enter into any
written agreement with any person or entity that provides for, or in any way
facilitates, an TPG Acquisition Proposal, other than a confidentiality agreement
in accordance with the terms hereof.
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(b) Promptly after the date of this Agreement and subject to the timing
of the SEC's review of the Registration Statement, TPG shall take all action
necessary in accordance with the DGCL and its Certificate of Incorporation and
Bylaws to convene a special meeting of TPG's Stockholders (or seek consent in
lieu of a meeting) for the purpose of considering and approving the Merger (the
"TPG Stockholders' Meeting"), and TPG shall consult with Lunn in connection
therewith. TPG shall use commercially reasonable efforts to solicit from the TPG
Stockholders proxies in favor of the Merger (and consents to be bound by the
terms of this Agreement).
(c) TPG will make all normal and customary repairs, replacements, and
improvements to their facilities, and without limiting the generality of the
foregoing or the covenants set forth in Section 7.1(a), TPG will not, without
the prior written consent of Lunn or as otherwise contemplated by this
Agreement:
(i) change any provision of its Certificate of Incorporation
or Bylaws (or equivalent organizational documents);
(ii) except as set forth in Schedule 7.3(c) and except for the
issuance of TPG Common Stock pursuant to the exercise of any TPG
Options, and except pursuant to the terms of the TPG Preferred Stock,
and any related agreements, change the number of shares of the
authorized, issued or outstanding capital stock or share capital of
TPG, including any issuance, purchase, redemption, split, combination
or reclassification thereof, or issue or grant any option, warrant,
call, commitment, subscription, right or agreement to purchase relating
to the authorized or issued capital stock or share capital of TPG, or
declare, set aside or pay any dividend or other distribution in cash or
in kind with respect to the outstanding capital stock or share capital
of TPG;
(iii) incur any liabilities or obligations, whether directly
or indirectly, or by way of guaranty, and whether or not evidenced by
any note, bond, debenture, or similar instrument, except as set forth
in Schedule 7.3(c) of the TPG Disclosure Letter and except in the
ordinary course of business consistent with past practices and prior
periods;
(iv) except as set forth in Schedule 7.3(c) of the TPG
Disclosure Letter, make any capital expenditures (or enter into any
lease required to be capitalized in accordance with GAAP) individually
in excess of $100,000 or in the aggregate in excess of $500,000;
(v) pay any bonuses or commissions to any employee of TPG
except as set forth on Schedule 7.3(c) of the TPG Disclosure Letter;
enter into any new or amend in any respect any existing employment
agreement with any Person; adopt any new or amend in any respect any
existing Plan, except as may be otherwise required by Law; purchase any
additional "key man" life insurance policy covering any employee or
director of TPG, or any other Person; grant any increase in
compensation or benefits of any kind to its employees, officers or
directors, except regularly scheduled general increases in the ordinary
course of business and consistent with past practices and policies; or
effect any change in any respect in retirement benefits to any class of
employees or officers, except as otherwise required by Law;
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(vi) except as set forth in Schedule 7.3(c) of the TPG
Disclosure Letter, purchase, sell, mortgage, pledge, or otherwise
dispose of or encumber any asset owned by TPG, other than purchase and
sales, mortgages, pledges, or other dispositions or Encumbrances
occurring in the ordinary course of business consistent with past
practices and prior periods;
(vii) incur or collect receivables, or extend loans or
advances, incur or pay trade payables or accrued liabilities in any
manner other than consistent with past practices and prior periods and
in the ordinary course of business;
(viii) cancel without payment or satisfaction in full, waive
or extend the time for performance of, any notes, loans, or other
obligations inuring to the benefit of TPG unless such cancellation or
termination occurs in the ordinary course of business of TPG consistent
with past practices or unless such cancellations or terminations,
individually or in the aggregate, would have only an immaterial effect
on the business, results of operations or financial condition of TPG,
taken as a whole;
(ix) make any material modification of or material amendment
to any of the contracts or agreements listed or described on any
Schedule to this Agreement;
(x) fail to use commercially reasonable efforts to maintain in
full force and effect all insurance now carried by TPG;
(xi) institute any changes in management personnel or any
material change in any management policy; or
(xii) make any agreement or commitment by or on behalf of TPG
to do or take any of the actions referred to in the foregoing Section
7.3(c)(i) through (xi).
(d) Without the prior written consent of Lunn, TPG shall not knowingly
take any action which would cause or be reasonably likely to cause the
conditions upon the obligations of the parties hereto to effect the Transactions
not to be fulfilled, including without limitation, taking, causing to be taken,
or permitting or suffering to be taken or to exist any action, condition or
thing which would cause the representations and warranties made by TPG herein
not to be true, correct and accurate as of any time between the date hereof and
the Closing Date.
(e) TPG shall not (i) knowingly take any action, or knowingly fail to
take any action, that would jeopardize qualification of the Merger as a
reorganization within the meaning of Section 368(a) of the Code; or (ii) enter
into any contract, agreement, commitment or arrangement with respect to the
foregoing.
(f) TPG shall promptly provide to Lunn monthly and quarterly
consolidated financial statements of TPG.
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(g) Upon at least 24 hours' notice to TPG, TPG shall afford to the
officers, employees, advisors, attorneys and accountants of Lunn access during
normal business hours to the offices, properties, records, books, contracts and
other documents (including computer files, retrievable programs and similar
documentation) of TPG to the extent that Lunn shall reasonably request and shall
furnish to Lunn such additional information as shall be reasonably requested by
Lunn; provided that neither the furnishing of such information nor any
investigation made heretofore or hereafter by Lunn shall affect Lunn's right to
rely on any representation or warranty made by TPG.
(h) TPG shall use its best efforts to cause to be delivered to Lunn
"comfort" letters of Arthur Andersen LLP, TPG's independent public accountants,
dated the effective date of the Registration Statement and the Closing Date,
respectively, and addressed to Lunn, with respect to certain financial
information regarding TPG included in the Registration Statement, in form and
substance reasonably satisfactory to Lunn and customary in scope and substance
for "comfort" letters delivered by independent public accountants in connection
with registration statements similar to the Registration Statement.
(i) At the Closing, TPG shall cause the Surviving Corporation to agree
to (i) pay Alan Baldwin an aggregate severance payment of $380,000 in 12 equal
consecutive monthly payments, commencing the month immediately following the
Closing, (ii) continue, at the Surviving Corporation's expense, the health and
life insurance benefits that Lunn provides to Baldwin as of the date of this
Agreement for one year following the Closing, and (iii) extend for two years
immediately following the Closing, the period during which Alan Baldwin may
exercise his Lunn Options, which agreement shall be conditioned upon the
termination of Alan Baldwin's employment agreement with Lunn as of the Effective
Time and Alan Baldwin's release of Lunn and the Surviving Corporation of any
further liability or obligation thereunder, including without limitation any
liability arising as a result of Lunn entering into this Agreement or
consummating the transactions contemplated hereby.
(j) At least 30 days prior to the Closing Date, TPG shall deliver to
Lunn a list, which shall be reasonably satisfactory to Lunn, of names and
addresses of those Persons who were, in TPG's reasonable judgment after
discussion with its counsel, at the record date for the TPG Stockholder's
Meeting, "affiliates" (each such Person, a "TPG Affiliate Stockholder") of TPG
within the meaning of Rule 145 promulgated pursuant to the Exchange Act. TPG
shall provide Lunn such information and documents as Lunn shall reasonably
request for purposes of reviewing such list. TPG shall deliver or cause to be
delivered to Lunn prior to the Closing Date, from each of the TPG Affiliate
Stockholders identified in the foregoing list, an Affiliate Letter. The
Surviving Corporation shall be entitled to place legends as specified in such
Affiliate Letters on the certificates evidencing any Surviving Corporation
Common Stock to be received by such Affiliates pursuant to the terms of this
Agreement and to issue appropriate stop transfer instructions to the transfer
agent for the Surviving Corporation Common Stock consistent with the terms of
such Affiliate Letters.
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7.4 Fees and Expenses. (a) Whether or not the Merger is consummated,
except as provided in Section 7.4(b) and (c), all costs and expenses incurred in
connection with this Agreement and the Transactions shall be paid by the party
incurring such costs and expenses.
(b) (i) Notwithstanding any provision in this Agreement to the
contrary, if TPG terminates this Agreement pursuant to Section 10.1 (b)(i), (e),
(g), or (j), then Lunn shall immediately pay TPG cash in the amount of $750,000;
provided, however, that Lunn shall not be obligated to pay TPG such amount if
TPG terminates this Agreement pursuant to Section 10.1(e) as a result of Lunn's
breach of its representations in Section 5.14(a) or (b) or the first sentence of
Section 5.18 and if Lunn had no knowledge of the facts or circumstances giving
rise to such breach.
(ii) Notwithstanding any provision in this Agreement to the
contrary, if Lunn terminates this Agreement pursuant to Section 10.1(i), then
Lunn shall immediately pay TPG cash in the amount of $750,000.
(c) (i) Notwithstanding any provision in this Agreement to the
contrary, if Lunn terminates this Agreement pursuant to Section 10.1 (c)(i),
(f), (h), or (l), then TPG shall immediately pay Lunn cash in the amount of
$750,000; provided, however, that TPG shall not be obligated to pay Lunn such
amount if Lunn terminates this Agreement pursuant to Section 10.1(f) as a result
of TPG's breach of its representations in Section 6.14(a) or (b) or the first
sentence of Section 6.18 and if TPG had no knowledge of the facts or
circumstances giving rise to such breach.
(ii) Notwithstanding any provision in this Agreement to the
contrary, if TPG terminates this Agreement pursuant to Section 10.1(k), then TPG
shall immediately pay Lunn cash in the amount of $750,000.
(d) (i) Notwithstanding any provision in this Agreement to the
contrary, if TPG terminates this Agreement pursuant to Section 10.1(b)(i), (ii),
(iii), (v) or Section 10.1(e) or if Lunn terminates this Agreement pursuant to
Section 10.1(c)(ii), Lunn shall pay TPG, within five business days following
such termination and presentation of receipts therefor, an amount in cash equal
to all out-of-pocket expenses actually and reasonably incurred by TPG in
connection with this Agreement and the Transactions; provided, however, that
Lunn shall not be obligated to pay TPG such expenses if TPG terminates this
Agreement pursuant to Section 10.1(e) as a result of Lunn's breach of its
representations in Section 5.14(a) or (b) or the first sentence of Section 5.18
and if Lunn had no knowledge of the facts or circumstances giving rise to such
breach.
(ii) Notwithstanding any provision in this Agreement to the
contrary, if Lunn terminates this Agreement pursuant to Section 10.1(c)(i),
(iii) or (iv) or Section 10.1(f), or if TPG terminates this Agreement pursuant
to Section 10.1(b)(iv), TPG shall pay Lunn within five business days following
such termination and presentation of receipts therefor, an amount in cash equal
to all out-of-pocket expenses actually and reasonably incurred by Lunn in
connection with this Agreement and the transaction contemplated hereby;
provided, however, that TPG shall not be obligated to pay Lunn such expenses if
Lunn terminates this Agreement pursuant to Section
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10.1(f) as a result of Lunn's breach of its representations in Section 6.14(a)
or (b) or the first sentence of Section 6.18 and if TPG had no knowledge of the
facts or circumstances giving rise to such breach.
ARTICLE 8
CONDITIONS
8.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) This Agreement and the Transactions shall have been approved in the
requisite manner, according to the Certificate of Incorporation and Bylaws of
Lunn and the DGCL, by the holders of the issued and outstanding shares of
capital stock of Lunn entitled to vote thereon, which approval and the voting
thereon shall be certified by the Chief Executive Officer of Lunn.
(b) This Agreement and the Transactions shall have been approved in the
requisite manner, according to the Certificate of Incorporation and Bylaws of
TPG and the DGCL, by the holders of the issued and outstanding shares of capital
stock of TPG entitled to vote thereon, which approval and the voting thereon
shall be certified by the Chief Executive Officer of TPG.
(c) No action or proceeding shall have been instituted before a court
or other Governmental Authority to restrain or prohibit the Transactions or to
obtain an amount of damages or other material relief in connection with the
execution of the Agreement or the related agreements or the consummation of the
Merger; and no Governmental Authority shall have given notice to any party
hereto to the effect that consummation of the Transactions would constitute a
violation of any applicable Law or that it intends to commence proceedings to
restrain consummation of the Merger.
(d) The Registration Statement shall have become effective, no stop
orders suspending its effectiveness shall have been issued, and no proceedings
for that purpose shall have been instituted or, to the knowledge of TPG or Lunn,
shall be contemplated.
(e) All consents, authorizations, orders and approvals of (or filings
or registrations with) any Governmental Authority required in connection with
the execution, delivery and performance of this Agreement shall have been
obtained or made, except for filings in connection with the Merger and any other
documents required to be filed after the Effective Time and except where the
failure to have obtained or made any such consent, authorization, order,
approval, filing or registration would not have a Material Adverse Effect on
Lunn.
(f) The waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated.
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(g) The shares of Surviving Corporation Common Stock issuable in the
Merger shall have been approved for listing, subject to official notice of
issuance, on the Nasdaq SmallCap Market.
(h) TPG and Lunn shall have executed and delivered the Certificate of
Merger and appropriate certificates for filing with the Secretary of State of
Delaware.
8.2 Conditions to Obligation of Lunn to Effect the Merger. The
obligations of Lunn to effect the Merger shall be subject to the fulfillment, or
the waiver by Lunn, at or prior to the Closing Date of the following conditions:
(a) TPG shall have performed its agreements contained in this Agreement
required to be performed on or prior to the Closing Date and the representations
and warranties of TPG contained in this Agreement shall be true and correct in
all material respects as of the Closing Date, and Lunn shall have received a
certificate of the Chief Executive Officer of TPG, dated the Closing Date,
certifying to such effect.
(b) From the date of this Agreement through the Effective Time, there
shall not have occurred any change in the financial condition, business or
operations of TPG that would have or would be reasonably likely to have a
Material Adverse Effect other than any such change that affects Lunn and TPG in
a substantially similar manner.
(c) Lunn shall have received a written opinion letter, dated as of the
Closing Date, from Gardere & Wynne, L.L.P. substantially in the form of Exhibit
D hereto.
(d) Lunn shall have received "comfort" letters of Arthur Andersen LLP,
TPG's independent public accountants, dated the effective date of the
Registration Statement and the Closing Date, respectively, and addressed to
Lunn, with respect to certain financial information regarding TPG included in
the Registration Statement, in form and substance reasonably satisfactory to TPG
and customary in scope and substance for "comfort" letters delivered by
independent public accountants in connection with registration statements
similar to the Registration Statement.
(e) Lunn shall have received a good standing certificate for TPG from
the Secretary of State of the State of Delaware and the Secretary of State of
each state where TPG or its Subsidiaries is qualified to do business.
(f) Lunn shall have received from TPG certified copies of all
resolutions adopted by the Board of Directors and the TPG Stockholders in
connection with this Agreement and the Transactions.
(g) The Merger will qualify as a "reorganization" within the meaning of
Section 368(a) of the Code.
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(h) The number of TPG Dissenting Shares for each of the TPG Common
Stock does not exceed 10% of the TPG Common Stock.
(i) TPG and Fleet Capital Corporation shall have executed a First
Amendment to Loan and Security Agreement substantially in the form of that
delivered to Lunn at or prior to the date of this Agreement.
(j) TPG shall have obtained the waiver of Brunswick Corporation with
respect to the acceleration of that certain obligation to make payments under
the Amended and Restated Asset Purchase Agreement dated April 28, 1995 by and
between TPG and Brunswick; provided, however, that TPG may, in lieu of obtaining
such waiver, refinance the payment of such obligation with a third party.
(k) Fleet Capital Corporation, TPG's primary lender, and First Union
National Bank of Maryland, Lunn's primary lender, shall have consented to the
Merger and, to the extent necessary, entered into an intercreditor arrangement,
which arrangement shall be mutually acceptable to TPG and Lunn.
8.3 Conditions to Obligation of TPG to Effect the Merger. The
obligations of TPG to effect the Merger shall be subject to the fulfillment, or
waiver by TPG, at or prior to the Closing Date of the following conditions:
(a) Lunn shall have performed its agreements contained in this
Agreement required to be performed on or prior to the Closing Date and the
representations and warranties of Lunn contained in this Agreement shall be true
and correct in all material respects as of the Closing Date, and Lunn shall have
received a certificate of the Chief Executive Officer of Lunn, dated the Closing
Date, certifying to such effect.
(b) From the date of this Agreement through the Effective Time, there
shall not have occurred any change in the financial condition, business,
operations or prospects of Lunn that would have or would be reasonably likely to
have a Material Adverse Effect on Lunn, other than any such change that affects
and Lunn in a substantially similar manner (e.g., changes in general economic
conditions).
(c) TPG shall have received a written opinion letter, dated as of the
Closing Date, from Dechert, Price & Rhoads, substantially in the form of Exhibit
F attached hereto and a written opinion letter, dated as of the Closing Date.
(d) TPG shall have received "comfort" letters of KPMG Peat Marwick LLP,
Lunn's independent public accountants, dated the effective date of the
Registration Statement and the Closing Date, respectively, and addressed to TPG,
with respect to certain financial information regarding Lunn included in the
Registration Statement, in form and substance reasonably satisfactory to TPG and
customary in scope and substance for "comfort" letters delivered by
45
<PAGE>
independent public accountants in connection with registration statements
similar to the Registration Statement.
(e) TPG shall have received an Affiliate Letter from each Lunn
Affiliate Stockholder.
(f) TPG shall have received good standing certificates for Lunn from
the Secretary of State of the State of Delaware and the Secretary of State of
each state where Lunn and its Subsidiaries are qualified to do business.
(g) TPG shall have received from Lunn (i) certified copies of all
resolutions adopted by the Board of Directors and the Lunn Stockholders in
connection with this Agreement and the Transactions, and (ii) original minute
books and stock record books relating to Lunn.
(h) The number of Lunn Dissenting Shares does not exceed 10% of the
Lunn Common Stock.
(i) Allen & Company Incorporated shall have delivered the Fairness
Opinion to Lunn no later than one business day prior to the filing of the
Registration Statement with the SEC, and the Fairness Opinion shall not have
been withdrawn or modified in any material respect.
(j) TPG shall have received a written opinion letter, dated as of the
Closing Date, from Gardere & Wynne, L.L.P. substantially in the form of Exhibit
E attached hereto.
(k) Fleet Capital Corporation, TPG's primary lender, and First Union
National Bank of Maryland, Lunn's primary lender, shall have consented to the
Merger and, to the extent necessary, entered into an intercreditor arrangement,
which arrangement shall be mutually acceptable to TPG and Lunn.
ARTICLE 9
INDEMNIFICATION
9.1 Indemnification.
(a) After the Effective Time, the Surviving Corporation shall, to the
fullest extent permitted under applicable law, defend, indemnify and hold
harmless each person who is now, or has been at any time prior to the date
hereof or who becomes prior to the Effective Time, an officer or director of
Lunn, TPG or any of their respective Subsidiaries (each, an "Indemnified Party"
and, collectively, the "Indemnified Parties") against all costs or expenses
(including, without limitation, reasonable attorneys' fees), judgments, fines,
losses, claims, damages, liabilities and amounts paid in settlement in
connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, based in whole or in part on,
or arising in whole or in part out of, the fact that such person is or was an
officer or director of Lunn or TPG as the case may be, whether pertaining to any
matter existing or occurring at or prior to the Effective Time and whether
asserted or claimed prior to, at or after, the Effective
46
<PAGE>
Time (collectively, the "Indemnified Liabilities"); and (ii) all Indemnified
Liabilities based in whole or in part on, or arising in whole or in part out of,
or pertaining to, this Agreement, the Merger or the Transactions. After the
Effective Time, the Surviving Corporation will be entitled to participate in
and, to the extent that it may wish, to assume the defense of any action, with
counsel reasonably satisfactory to the Indemnified Party; provided, however, if
there is an actual conflict of interest, or if the Surviving Corporation shall
fail after the Effective Time to assume responsibility for such defense, such
Indemnified Party may retain counsel reasonably satisfactory to the Surviving
Corporation who will represent such Indemnified party, and the Surviving
Corporation shall be obligated to pay all reasonable fees and disbursements of
such counsel promptly as statements therefor are received. Each of the
Indemnified Party and the Surviving Corporation will cooperate with each other
and use their reasonable efforts to assist each other in the vigorous defense of
any such matter; provided, however, that the Surviving Corporation shall not be
liable for any settlement of any claim effected without its written consent,
which consent, however, shall not be unreasonably withheld. Any Indemnified
Party wishing to claim indemnification under this Section 9.1, upon learning of
any such claim, action, suit, proceeding or investigation, shall promptly notify
the Surviving Corporation, as applicable (but the failure to be so notified by
an Indemnified Party shall not relieve an indemnifying party from any liability
that it may have under this Section 9.1 except to the extent such failure
materially prejudices such indemnifying party). The indemnifying parties shall
be required to pay for only one law firm (in addition to any required local
counsel) selected by the Indemnified Parties as a group in accordance with the
foregoing provisions with respect to each such matter unless there is, under
applicable standards of professional conduct, a conflict in any significant
issue between the positions of any two or more Indemnified Parties. This Section
9.1 is intended to be for the benefit of, and shall be enforceable by, each
Indemnified Party, his or her heirs and his or her representatives and shall be
binding upon all successors and assigns of the Surviving Corporation. All rights
and obligations under this Section 9.1 shall be in addition to any rights an
Indemnified Party may have under the Certificates of Incorporation or Bylaws of
Lunn, TPG or the Surviving Corporation, or pursuant to any other agreement,
arrangement or document in effect prior to the Effective Time.
ARTICLE 10
TERMINATION
10.1 Termination. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after any approval by the TPG Stockholders
and the Lunn Stockholders:
(a) by mutual written consent of TPG and Lunn;
(b) by TPG if (i) Lunn shall have failed to comply in any
material respect with any of its covenants or agreements contained in
this Agreement required to be complied with by Lunn prior to the date
of such termination, which failure to comply has not been cured within
ten business days following receipt by Lunn of notice of such failure
to comply, (ii) the Lunn Stockholders shall have failed to approve the
Merger and this Agreement at the Lunn Stockholders' Meeting, (iii) Lunn
Dissenting Shares comprise
47
<PAGE>
more than an aggregate of 10% of the aggregate outstanding shares of
Lunn Common Stock, (iv) the TPG Stockholders shall have failed to
approve this Agreement and the Merger at the TPG Stockholders' Meeting,
or (v) Allen & Company Incorporated shall have failed to deliver the
Fairness Opinion to Lunn before one business day prior to the filing of
the Registration Statement with the SEC or shall have withdrawn or
modified the Fairness Opinion in any material respect;
(c) by Lunn if (i) TPG shall have failed to comply in any
material respect with any of its covenants or agreements contained in
this Agreement required to be complied with by TPG prior to the date of
such termination, which failure to comply has not been cured within ten
business days following receipt by TPG of notice of such failure to
comply, (ii) the Lunn Stockholders shall have failed to approve the
Merger and this Agreement at the Lunn Stockholders' Meeting, (iii) the
TPG Stockholders shall have failed to approve this Agreement and the
Merger at the TPG Stockholders' Meeting, or (iv) TPG Dissenting Shares
comprise more than an aggregate of 10% of the outstanding TPG Common
Stock;
(d) by either TPG or Lunn, if (i) the Merger has not been
effected on or prior to the close of business on November 30, 1997;
provided, however, that the right to terminate this Agreement pursuant
to this clause shall not be available to any party whose failure to
fulfill any obligation of this Agreement has been the cause of, or
resulted in, the failure of the Merger to have occurred on or prior to
such date, or (ii) any court of competent jurisdiction or any
governmental, administrative or regulatory authority, agency or body
shall have issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the
Transactions and such order, decree, ruling or other action shall have
become final and nonappealable;
(e) by TPG, if there has been (i) a material breach by Lunn of
any representation or warranty that is not qualified as to materiality,
or (ii) a breach by Lunn of any representation or warranty that is not
qualified as to materiality, in each case which breach has not been
cured within five business days following receipt by Lunn of written
notice of the breach from TPG;
(f) by Lunn, if there has been (i) a material breach by TPG of
any representation or warranty that is not qualified as to materiality,
or (ii) a breach by TPG of any representation or warranty that is not
qualified as to materiality, in each case which breach has not been
cured within five business days following receipt by TPG of written
notice of the breach from Lunn;
(g) by TPG, (i) if, after the delivery of the Fairness Opinion
to Lunn, the Board of Directors of Lunn shall not have recommended, or
shall have resolved not to recommend, or shall have modified or
withdrawn its recommendation of the Merger or declaration that the
Merger is fair to and advisable and in the best interest of Lunn, as
the case may be, and the Lunn Stockholders, or shall have resolved to
do so, or (ii) if the Board of Directors of Lunn shall have
recommended, or shall have resolved to
48
<PAGE>
recommend, to the Lunn Stockholders any Lunn Acquisition Proposal or
other takeover proposal or offer for Lunn, as the case may be;
(h) by Lunn, (i) if the Board of Directors of TPG shall not
have recommended, or shall have resolved not to recommend, or shall
have modified or withdrawn its recommendation of the Merger or
declaration that the Merger is fair to and advisable and in the best
interest of TPG and the TPG Stockholders, or shall have resolved to do
so, or (ii) if the Board of Directors of TPG shall have recommended, or
shall have resolved to recommend, to the TPG Stockholders any TPG
Acquisition Proposal or other takeover proposal or offer for TPG, as
the case may be;
(i) by Lunn, in accordance with Section 7.2(a)(i);
(j) by TPG, in accordance with Section 7.2(a)(ii);
(k) by TPG, in accordance with Section 7.3(a)(i); and
(l) by Lunn, in accordance with Section 7.3(a)(ii).
10.2 Effect of Termination. In the event of termination of this
Agreement by TPG or Lunn, as provided in Section 10.1, this Agreement shall
forthwith become void and there shall be no liability hereunder on the part of
TPG, Lunn or their respective officers or directors; provided, however, that
nothing contained in this Section 10.2 shall relieve any party hereto from any
liability for any breach of this Agreement; and provided, further, that, (i) any
termination under Section 10.1(b)(i),(e),(g) or (j) shall not become effective
until the fee required to be paid pursuant to Section 7.4(b)(i) shall have been
paid to TPG, (ii) any termination under Section 10.1(c)(i),(f),(h) or (l) shall
not become effective until the fee required to be paid pursuant to Section
7.4(c)(i) shall have been paid to Lunn, (iii) if this Agreement is terminated
pursuant to Section 10.1(h), the provisions of Section 7.4(b)(ii) shall survive
until any payments required to be made thereunder are made, (iv) if this
Agreement is terminated pursuant to Section 10.1(k), the provisions of Section
7.4(c)(ii) shall survive until any payments required to be made thereunder are
made, (v) if this Agreement is terminated pursuant to Section 10.1(b)(i),(ii),
or (iii), (c)(ii), or (e), the provisions of Section 7.4(d)(i) shall survive
until any payments required to be made thereunder are made, and (iv) if this
Agreement is terminated pursuant to Section 10.1(b)(iv), (c)(i) or (iii), or
(f), the provisions of Section 7.4(d)(ii) shall survive until any payments
required to be made thereunder are made.
ARTICLE 11
GENERAL PROVISIONS
11.1 Nonsurvival of Representations and Warranties. All
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall not survive the Merger;
provided, however, that the agreements contained in Articles 4 and 9 and in
Sections 7.2(d), 7.2(g), 7.3(d), and 7.4 and this Article 11 and the agreements
delivered
49
<PAGE>
pursuant to this Agreement shall survive the Merger. Notwithstanding anything to
the contrary contained herein, the Confidentiality Agreement shall survive any
termination of this Agreement, and the provisions of the Confidentiality
Agreement shall apply to all information and material delivered by or on behalf
of any party hereunder.
11.2 Extension; Waiver. At any time prior to the Effective Time, TPG or
Lunn, by action taken or authorized by its Board of Directors, may, to the
extent legally allowed, (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of TPG or Lunn to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party. Except as provided in this Agreement, no action taken pursuant to
this Agreement, including any investigation by or on behalf of any party, shall
be deemed to constitute a waiver by the party taking such action of compliance
with any representations, warranties, covenants or agreements contained in this
Agreement. The right of TPG or Lunn to terminate this Agreement pursuant to
Article 10 shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any party hereto, whether prior to or
after execution of this Agreement.
11.3 Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date delivered, mailed or transmitted, and shall be effective
upon receipt, if delivered personally, mailed by registered or certified mail
(postage prepaid, return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
changes of address) or sent by electronic transmission to the facsimile numbers
specified below:
(a) If to TPG:
TPG Holdings, Inc.
3353 Peachtree Road, Suite 920
Atlanta, Georgia 30326
Attention: President and Chief Financial Officer
Facsimile No.: (404) 231-7277
with a copy to:
Gardere & Wynne, L.L.P.
333 Clay Avenue, Suite 800
Houston, Texas 77002-4086
Attention: Eric Blumrosen, Esq.
Facsimile No.: (713) 308-5555
50
<PAGE>
(b) If to Lunn:
Lunn Industries, Inc.
1 Garvies Point Road
Glen Cove, New York 11542-2828
Attention: President
Facsimile No.: (510) 671-9091
With a copy to:
Valerie A. Price, Esq.
76 Parkview Road South
Pound Ridge, New York 10576
Facsimile No.: (914) 763-2590
11.4 Assignment; Binding Effect; Benefit. Neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by any
of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties. Subject to the preceding sentence,
this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns.
11.5 Entire Agreement. Except with respect to the Confidentiality
Agreement, which shall remain in full force and effect until the Closing, this
Agreement, the Exhibits and the Schedules constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings among the parties with respect thereto among the
parties. No addition to or modification of any provision of this Agreement shall
be binding upon any party hereto unless made in writing and signed by all
parties hereto.
11.6 Amendment. This Agreement may be amended by the parties hereto at
any time before or after approval of matters presented in connection with the
Merger by the Lunn Stockholders, but after any such stockholder approval, no
amendment shall be made which by Law requires the further approval of
stockholders without obtaining such further approval. This Agreement may not be
modified or amended except by an instrument in writing signed on behalf of TPG
and Lunn.
11.7 Governing Law. THE VALIDITY OF THIS AGREEMENT, THE CONSTRUCTION OF
ITS TERMS AND THE DETERMINATION OF THE RIGHTS AND DUTIES OF THE PARTIES HERETO
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE UNITED
STATES AND THOSE OF THE STATE OF DELAWARE APPLICABLE TO CONTRACTS MADE AND TO BE
PERFORMED WHOLLY WITHIN SUCH STATE AND WITHOUT REGARD TO THE CONFLICTS OF LAWS
PRINCIPLES THEREOF.
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11.8 Counterparts. This Agreement may be executed by the parties hereto
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
11.9 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
11.10 Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of competent
jurisdiction, this being in addition to any other remedy to which they are
entitled at law or in equity.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
52
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first written above.
ATTEST: TPG HOLDINGS, INC.
By: ______________________________ By: ______________________________
______________________________
[Printed Name]
______________________________
[Title]
ATTEST: LUNN INDUSTRIES, INC.
By: ______________________________ By: ______________________________
______________________________
[Printed Name]
______________________________
[Title]
53
<PAGE>
TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS AND CERTAIN RULES OF CONSTRUCTION
<TABLE>
<CAPTION>
<S> <C> <C>
1.1 Definitions............................................................ 1
1.2 Certain Rules of Construction.......................................... 7
ARTICLE 2
THE MERGER
2.1 The Merger............................................................. 7
2.2 The Closing............................................................ 7
2.3 Effective Time......................................................... 7
ARTICLE 3
CERTIFICATE OF INCORPORATION AND BYLAWS
3.1 Certificate of Incorporation........................................... 8
3.2 Bylaws................................................................. 8
3.3 Directors.............................................................. 8
3.4 Officers............................................................... 8
ARTICLE 4
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES;
OTHER MATTERS
4.1 Conversion of Securities............................................... 9
4.2 Exchange of Certificates...............................................10
4.3 Stock Options and Warrants.............................................13
4.4 Dissenting Shares......................................................14
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF LUNN
5.1 Existence; Good Standing; Corporate Authority..........................16
5.2 Authorization; Validity and Effect of Agreements.......................16
5.3 Capitalization.........................................................16
5.4 Subsidiaries...........................................................17
5.5 No Violation of Law....................................................17
5.6 No Conflict............................................................17
5.7 SEC Documents..........................................................18
5.8 Registration Statement and Proxy Statement.............................18
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
5.9 Litigation.............................................................19
5.10 Absence of Certain Changes.............................................19
5.11 Taxes..................................................................19
5.12 Employee Benefit Plans.................................................20
5.13 Labor Matters..........................................................20
5.14 Environmental Matters..................................................20
5.15 Title to Properties....................................................21
5.16 Condition of Fixed Assets..............................................21
5.17 Assets Used in the Business............................................21
5.18 Accounts Receivable....................................................21
5.19 Inventories............................................................22
5.20 Material Agreements....................................................22
5.21 Trademarks, Patents and Copyrights.....................................22
5.22 Insurance..............................................................22
5.23 Licenses and Permits...................................................22
5.24 Federal Income Tax Representations.....................................23
5.25 No Brokers.............................................................23
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF TPG
6.1 Existence; Good Standing; Corporate Authority..........................23
6.2 Authorization; Validity and Effect of Agreements.......................23
6.3 Capitalization.........................................................23
6.4 Subsidiaries...........................................................24
6.5 No Violation of Law....................................................24
6.6 No Conflict............................................................24
6.7 Financial Statements...................................................25
6.8 Registration Statement and Proxy Statement.............................25
6.9 Litigation.............................................................26
6.10 Absence of Certain Changes.............................................26
6.11 Taxes..................................................................26
6.12 Employee Benefit Plans.................................................27
6.13 Labor Matters..........................................................27
6.14 Environmental Matters..................................................27
6.15 Title to Properties....................................................28
6.16 Condition of Fixed Assets..............................................28
6.17 Assets Used in the Business............................................28
6.18 Accounts Receivable....................................................28
6.19 Inventories............................................................28
6.20 Material Agreements....................................................29
6.21 Trademarks, Patents and Copyrights.....................................29
6.22 Insurance..............................................................29
6.23 Licenses & Permits.....................................................29
6.24 Federal Income Tax Representations.....................................29
6.25 No Brokers.............................................................30
</TABLE>
<PAGE>
ARTICLE 7
COVENANTS
<TABLE>
<CAPTION>
<S> <C> <C>
7.1 Covenants of TPG and Lunn..............................................30
7.2 Covenants of Lunn......................................................32
7.3 Covenants of TPG.......................................................37
7.4 Fees and Expenses......................................................42
ARTICLE 8
CONDITIONS
8.1 Conditions to Each Party's Obligation to Effect the Merger.............43
8.2 Conditions to Obligation of Lunn to Effect the Merger..................44
8.3 Conditions to Obligation of TPG to Effect the Merger...................45
ARTICLE 9
INDEMNIFICATION
9.1 Indemnification........................................................46
ARTICLE 10
TERMINATION
10.1 Termination............................................................47
10.2 Effect of Termination..................................................49
ARTICLE 11
GENERAL PROVISIONS
11.1 Nonsurvival of Representations and Warranties..........................49
11.2 Extension; Waiver......................................................50
11.3 Notices................................................................50
11.4 Assignment; Binding Effect; Benefit....................................51
11.5 Entire Agreement.......................................................51
11.6 Amendment..............................................................51
11.7 Governing Law..........................................................51
11.8 Counterparts...........................................................52
11.9 Severability...........................................................52
11.10 Enforcement of Agreement...............................................52
</TABLE>
EXHIBIT 13.1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
- ----- SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended: December 31, 1996
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
- ----- SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from____________________________________
to________________________________.
Commission File Number 0-1298
LUNN INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as specified in its charter)
Delaware 11-1581582
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1 Garvies Point Road, Glen Cove, New York 11542-2828
- ----------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 671-9000
--------------------
Securities registered pursuant to Section 12(b) of the Act: NONE
-----------------
Securities registered pursuant to Section 12(g) of the Act: Common Stock
-----------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B (229.405 of this chapter) is not contained herein, and will
not be contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
The aggregate market value of the shares of Common Stock held by non-affiliates
of Lunn Industries, Inc. based on the market price as quoted on The Nasdaq Stock
Market on April 1, 1997 was $7,063,118.
The aggregate number of shares of Common Stock outstanding as of March 31, 1997
was 12,779,653.
Documents incorporated by reference to the Form 10-KSB: None
<PAGE>
Part I
Item 1. DESCRIPTION OF BUSINESS
Lunn Industries, Inc., ("Lunn", the "Registrant" or the "Company") is a
Delaware Corporation, originally incorporated in New York in 1948. Lunn
Industries has two primary operating divisions, Lunn Composites and Alcore Inc.,
("Alcore") a wholly-owned subsidiary. Lunn Composites produces a wide range of
composite products, including metal bonded panels, composite assemblies which
utilize honeycomb, high performance fiber and resin laminates and filament-wound
assemblies. Alcore produces aluminum honeycomb, a lightweight cellular material
composed of hexagonal cells with high strength-to-weight ratios. Alcore also
provides value-added honeycomb, selling semi-finished parts to its customers.
In January 1995, the Company purchased the assets of the metal bonding
business of Limco Manufacturing Corporation, located in Glen Cove, New York, and
relocated and consolidated the Company's fiber and resin laminated composite
businesses from Newtown, Connecticut and Wyandanch, New York to the newly leased
facilities containing the Lunn Composites business, including the metal bonded
business in Glen Cove, New York.
The Company's products are sold principally to commercial customers,
both domestic and international, and to agencies of the United States
Government. The Company's products are generally manufactured to customer's
specifications.
PRODUCTS - MANUFACTURING
Lunn Composites
Lunn Composites manufactures structures made of both fiber-reinforced
plastics assembled into complex structures as well as a wide variety of metal
bonded structures utilizing various core and skin materials. Lunn Composites has
developed a number of specialized processes whereby layers of glass, graphite,
Kevlar or other fibers are impregnated with specially selected polyester, epoxy
or other resins. These processes enable Lunn Composites to manufacture products
with unique properties such as high resistance to corrosion, complex contours,
light-weight, high chemical and abrasion resistance, dimensional stability, high
strength and high impact resistance. Lunn Composite's metal bonded composites
are generally made to customer specifications and frequently employ customer
provided tooling. Various alloy aluminum sheets are progressively processed
through brake, shear, layout and routing, heat treatment, cleaning and acid
anodizing operations to produce complex panels and skins that are
autoclave-bonded into finished assemblies. Lunn Composites has been qualified by
and is a licensee of Boeing Aircraft Company ("Boeing") to operate a phosphoric
acid anodized ("PAA") clean line for all metal products.
2
<PAGE>
Typical applications of Lunn Composites' products are as follows:
Radar: Radomes, antenna housings, parabolic reflectors, antenna masts, antennas,
and electronic cabinets.
Marine: Towed-array fairings, sonar buoys, submarine masts and mast fairings,
pressure vessels, sonar domes and ship deck structures.
Advanced Composite Structures: Tank hull parts, fairings, ducts, and fuel tanks.
Aerospace & Aircraft: Solar panels, wing panels, floor panels, hatches,
fairings, electronic cabinets, metal details, slats and other missile and
aircraft assemblies.
Commercial: Spherical projection display screens and panels.
Alcore
Alcore manufactures aluminum honeycomb products with a variety of
strengths, densities, thicknesses, span lengths, core orientations and contoured
shapes. The most prominent characteristics of the aluminum honeycomb products
are high strength-to-weight ratio, fatigue resistance, energy absorption, sound
dampening, heat exchange, radio frequency shielding, machinability, airflow
directionalization and corrosion resistance. Alcore is recognized as having
superior "node bond" adhesives which afford excellent honeycomb cell
configuration due to the nature of the adhesive utilized and the manner in which
it is applied. The above characteristics make this material ideal for the
aerospace and aircraft industries, the preeminent market for Alcore products.
Alcore's product line is broadly divided into two main segments: Block
and Panel and value-added Special Processing or SP. All honeycomb products are
produced by first manufacturing a block of non-expanded honeycomb material. The
block is either sold as a full block or alternately sliced into various
thicknesses depending on customer requirements. The slices may be sold to
customers unexpanded or further processed into fully expanded honeycomb panels.
The panels may then be sold to customers as complete panels or processed further
into Special Processing Assemblies.
The Block and Panel segment of the business consists of honeycomb
products sold as either block, slice or expanded panel. This segment represents
approximately 50% of Alcore's total business. The value-added Special Processing
or SP segment of the business consists of honeycomb products that have been
further processed by forming, rolling, routing, and cutting the aluminum core to
customer specifications, as well as splicing several densities of core together
to form a bonded core "blanket". These engineered parts are often shipped as
ready-to-assemble kits. Special Processing represents approximately 50% of
Alcore's total sales.
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One of the Company's most promising products is PAA-CORE(R), a
phosphoric acid anodized honeycomb product. PAA-CORE(R) is a trademark of
Alcore. PAA-CORE(R) was qualified by Boeing Aircraft on their BMS-4-4
specification in December 1994, and is the material of choice for all new metal
bonded structures. The main characteristic of PAA-CORE(R) is its superior node
bond durability in hostile environments due to the use of proprietary chemically
treated aluminum foil, proprietary primers and proprietary node bond adhesives.
This product sells at a premium to regular aluminum core. Currently PAA-CORE(R)
represents an increasing percentage of Alcore's aluminum honeycomb sales, and is
expected to continue growing in the future.
Beginning in 1994, Alcore expanded beyond the aerospace market into a
number of non-aerospace markets. Applications for high performance, low cost
commercial products were developed for manufacturers of "clean rooms" for
computer chip manufacturing and bio-medical research centers, laminated panels
for luxury cruise ship cabins and numerous other architectural uses. Alcore's
honeycomb products are also utilized by manufacturers of rail car doors for
municipal transit systems, and, due to unique crush characteristics and energy
absorbing qualities, by the nuclear and energy absorption industries.
Sales - Customers
Lunn's fiber-reinforced composite product sales represented
approximately 22% of the Company's consolidated net sales in 1996. The Company
sells fiber-reinforced composite products as both a prime contractor for
agencies of the U. S. Government and as a subcontractor to holders of government
contracts. The Company is a sole supplier of many of its fiber-reinforced
composite products. Major customers of fiber reinforced composite products are
the U. S. Government, Raytheon, General Dynamics (Electric Boat), United
Defense, Northrop/Grumman/Vought and Lockheed Martin.
Sales of Lunn's metal bonded composite product line, acquired in
January, 1995, represented approximately 12% of Lunn's 1996 consolidated net
sales. Metal bonded products are sold to major commercial aircraft original
equipment manufacturers such as Boeing, Northrop/Grumman/Vought, Lockheed
Martin, McDonnell Douglas and others.
Honeycomb product sales represented approximately 66% of the Company's
consolidated net sales in 1996. Major customers in the honeycomb segment include
such aerospace companies as Boeing, McDonnell Douglas, Lockheed Martin, Rohr,
Vought (Northrop Grumman), Gulfstream, and Hispano Suiza of France. Major
industrial and transportation customers include DAW Technologies and Metalmart,
Inc.
Aerospace and aircraft business represented approximately 59% of 1996
consolidated sales compared to 55% in 1995. Industrial, transportation and
construction business increased to approximately 18% of total sales in 1996,
compared to 16% in 1995.
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Military business continued to decline as a percentage of total sales in 1996,
falling to 23% compared to 29% in 1995. Aerospace and aircraft are projected to
represent an increasing share of total Company sales in future years due to
continued growth in the demand for new aircraft and the resultant demand for
increased quantities of honeycomb and metal bond products. Industrial,
transportation and construction uses are also expected to represent increasing
percentages of Company sales due primarily to continued diversification of
honeycomb sales into these markets.
The backlog as of December 31, 1996 was $28.1 million (subsequently
increased to $29.5 million at March 31,1997) compared to $13.6 million as of the
end of 1995. Approximately $13.1 million (46.7%) of the backlog at the end of
the year is scheduled to be released for shipment during fiscal 1997.
In 1996 and 1995, the Company had one customer, the U.S. Government,
which represented greater than 10% of the Company's sales. Sales to the U.S.
Government were approximately $2.3 million (12.7%) and $1.8 million (12.1%) in
1996 and 1995, respectively.
The Company believes the loss of any of its principal customers could
have a materially adverse effect on the Company's business. Each of the
Company's prime contracts with an agency of the U. S. Government is terminable
by that agency without cause after having paid normal cancellation and
termination claims as authorized in the terminated contract. In the event of
termination by a U. S. Government agency of a prime contract for which the
Company is a subcontractor, the prime contractor can, in turn, terminate the
subcontract with the Company again subject to payment of termination claims.
Much of the Company's business is obtained through competitive bidding.
The Company advertises in Thomas' Register, through direct mailings and by
participation in industry trade shows and seminars. Additionally, the Company
invests substantial resources to maintain customer qualifications and
certifications and thereby insure active bidder's list participation and receipt
of all pertinent RFQ's (requests for quotation). Honeycomb products are sold
domestically by a direct sales force and internationally by the direct sales
force as well as agents or distributors.
The Company believes that Alcore is the second largest producer of
aluminum honeycomb products in the world and has the broadest product line.
Domestically Alcore competes with Hexcel, the largest worldwide producer of all
types of honeycomb, as well as Plascore. Internationally, Alcore competes
primarily with Hexcel. Alcore's PAA-CORE(R) technology with its improved node
bond strength and resistance to corrosion is anticipated to enable the Company
to compete more broadly and expand its served available market to include
applications dominated previously by non-metallic honeycomb materials such as
Nomex(R). During 1996, Alcore expanded its business in Nomex(R)
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special processing, and entered into a long-term preferred price agreement with
a leading producer of Nomex(R).
The Company's composite business, both metal bond and fiber reinforced
resin, competes with a number of different companies who have substantially
greater resources than the Company. Notwithstanding, the Company has positioned
itself in a number of "niche" situations where the Company is essentially the
vendor of choice and often sole source. The Company has excellent pattern and
tooling capabilities, comprehensive engineering and fully integrated
manufacturing resources that enable the Company to offer high quality complex
composite products. The Company's metal bonded manufacturing line offers Boeing
qualified and licensed PAA clean line facilities, heat treatment and aerospace
qualified autoclave bonding capabilities comparable to those offered by 8 to 10
major competitors located throughout the United States.
Other
The Company utilizes materials in all of its manufacturing operations
which are widely available from several sources, thus not posing any materially
adverse restraints on its operations in the event of loss of any one of these
suppliers. The primary exception to this statement concerns proprietary node
bond adhesives and aluminum foil primers used in the manufacture of Alcore's
PAA-CORE(R) aluminum honeycomb products. The Company has a supply agreement with
Cytec (formerly American Cyanamid) for these materials on an exclusive basis
through 2002. The agreement with Cytec also provides the Company be given
formulations and know-how to be able to produce the adhesive and primer
materials in the event Cytec discontinues their manufacture. The underlying
patents for PAA-CORE(R) technology expired in 1994.
Management believes expiration of the PAA patent will have marginal
impact on the Company's proprietary position for PAA-CORE(R). PAA-CORE(R)
technology consists of three specific components: the anodizing process itself
covered by the patent; a proprietary primer material to coat the anodized foil;
and finally, proprietary node bond adhesives to fabricate the honeycomb. As
noted above, both the primer and the node bond adhesive materials are supplied
exclusively to the Company by Cytec until the year 2002. Additionally, the
anodizing process involves a number of trade secret process steps developed by
the Company and Cytec over a 10 year period.
The Company's honeycomb division, Alcore, completed a joint development
program during 1996 with Showa Aircraft Company of Tokyo, Japan ("Showa"), to
jointly qualify and supply a new PAA honeycomb core product, "FormGrid", for use
in Boeing 767 wings slat products, to be produced and delivered during 1997 and
beyond. First article production parts are in process (subsequently completed
during the first quarter 1997), and production quantities will be delivered at
increasing production rates during 1997 and beyond. Plans for additional joint
activities with Showa are currently under discussion.
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Compliance with federal, state and local provisions which have been
enacted to regulate the discharge of hazardous materials into the environment or
relating to safety in the work place have not to date had a material adverse
effect on the Company's business.
The Company is not subject to material seasonal variations.
As of December 31, 1996, 184 people were employed on a full-time basis
by the Company. Manufacturing labor at the Company's composite facilities in
Glen Cove, New York is unionized. The Company believes its employee relations
are good.
Research and Development
The Company conducted no research and development in 1996; however,
there are plans to expend funds in research and development in 1997.
Recent Developments
On January 13,1995, the Company borrowed $360 thousand and issued a
convertible note for repayment on or before January 13, 1997, with interest at
10% to be paid semi-annually in the form of shares of the common stock of the
Company. Pursuant to an agreement between the Company and the note holder, it
was agreed to reprice the conversion rate to the offering price of the March 21,
1996 private placement at $.40. The Note and accrued interest were converted
into 945,000 shares of common stock during January, 1997.
Item 2. DESCRIPTION OF PROPERTY
The Company operates its business from three locations:
1. Glen Cove, New York - The Company has its corporate headquarters, as well as
its metal bonding and composite manufacturing at this site. The Company signed a
five year lease for this 93,000 square foot facility in January 1995 at an
initial annual rental of $229,167, with incremental increases during the term of
the lease, bringing the annual rental in the final year of $275,000.
Additionally, the Company is responsible for the cost of real estate taxes and
insurance related to this property. The Company may exercise an option to extend
this lease for two additional five year terms at fair market value.
2. Belcamp, Maryland - The Company leases approximately 50,000 square feet in a
recently constructed industrial building under a lease which expires in February
2002. The annual rental amounted to $213,000 in 1996 with escalations throughout
the term of the
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lease to $254,000 in the lease's final year. Additionally, the Company is liable
for any increases in real estate taxes over the initial base period. Alcore
manufactures its aluminum honeycomb products at this site.
On November 4, 1996, Alcore entered into a lease for 2,006 square feet
providing additional office space at a second location in Belcamp, Maryland. The
initial annual rental amounted to $18,977, with rent escalations throughout the
term of the lease to $24,995 which expires in 2001. Additionally, Alcore is
responsible for its proportionate share of operating expenses, insurance and
taxes amounting to $5,095 per annum.
3. Jessup, Maryland - The Company leases approximately 43,000 square feet under
a lease that expires in 2006. The annual rental is presently $176,498 increasing
incrementally to $232,253 in the final year, plus real estate taxes and prorated
operating expenses. Alcore produces aluminum honeycomb block at this plant.
Item 3. LEGAL PROCEEDINGS
Andrew J. Bobkowicz v. Lunn Industries, Inc. and Norfield Corporation
A Demand for Arbitration was brought before the American Arbitration
Association (the "Association"), 111 Founders Plaza, East Hartford, CT. 06108,
by a former employee, Dr. Andrew Bobkowicz (the "Claimant"), under the terms of
an employment agreement dated November 20, 1990 between the Claimant and
Norfield Corporation ("Norfield"). A hearing was held on May 16 and 17, 1995
before an arbitrator selected by the Association. On August 2, 1995, the
Arbitrator awarded Dr. Bobkowicz $85,516.00 plus costs and found the Company and
Norfield jointly and severally liable thereof. On September 1, 1995, the Company
filed a Motion to Vacate Arbitration Award in the Superior Court, Judicial
District of Danbury, Connecticut. A hearing was held on the Motion on November
16, 1995. On October 11, 1995, the Company put Norfield on notice of its claim
for indemnification under the terms of the Stock Purchase Agreement between the
Company and Edwin F. Phelps, Jr. dated March 10, 1994, against Edwin F. Phelps,
Jr. and Norfield. On May 7, 1996, the Court denied the Company's Motion to
Vacate and confirmed the arbitration award and on June 26, 1996, judgement was
rendered thereon. The Company has appealed the confirmation of the arbitration
award and judgement to the Appellate Court of the State of Connecticut. Briefs
have not yet been filed. Although the ultimate outcome of this matter remains
uncertain the Company intends to vigorously defend this suit.
Diana Pisani Romaniello v. Lunn Industries, Inc. and Norfield Corporation
In June 1995, the Company was served with a complaint filed in U.S.
District Court (Connecticut District) by Diana Pisani Romaniello ("Romaniello"),
individually, and on behalf of the United States Government. Norfield
Corporation ("Norfield"), formerly a
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wholly owned subsidiary of the Company, was also named as a defendant in the
suit. This action was brought under the False Claims Act (the "Act") alleging
that Norfield had falsified records in order to receive payments under a
sub-contract with a prime contractor for the construction of radar reflector
equipment for the U.S. Department of Defense. The falsification of records is
allegedly to have taken place in the last half of 1991 and the first half of
1992.
The complaint alleges that among other claims, the defendant Norfield
terminated Romaniello to silence her objection to the falsification of records.
The Company had acquired ownership of Norfield several days prior to the
termination of Romaniello and had previously sub-contracted work to Norfield for
the radar equipment for the U.S. Department of Defense. This association with
Norfield caused Romaniello to name the Company in the suit.
The plaintiff is seeking: (a) Punitive damages equal two times
Romaniello's back pay; (b) Damages equal to three times the damages the U.S.
Government has sustained; (c) A civil penalty of $5 to $10 Thousand for each
violation of the Act; (d) Between 15 and 30 percent of the damages and fines
assessed against the defendants be awarded to Romaniello. The U.S. Government
has decided not to directly prosecute this case, as is its right under the
statute, however, it remains a named plaintiff in the suit and would benefit
from any recovery.
On July 26, 1995, the Court entered a default against the Company. The
Company moved to set aside the default, which was objected to by the individual
Plaintiff. The Plaintiff subsequently filed a Motion for Judgment. Thereafter,
the Court granted the Company's Motion, set aside the default and by inference,
the subsequent Motion for Judgement. The Company has answered the complaint and
filed its cross-claims. The case is presently in the discovery stage. The
Company has responded to written interrogatories submitted by the individual
Plaintiff.
On June 7, 1996, Norfield filed a voluntary petition for bankruptcy
under Chapter 7 of the U.S. Bankruptcy Code. On September 7, 1996, the District
Court dismissed the suit against the Company and Norfield without prejudice to
reopen, upon motion. On November 4, 1996, the Court denied the plaintiff's
Motion to Reopen without prejudice to renewal, upon the plaintiff receiving
relief from stay from the bankruptcy court. The Company believes that the
Plaintiff's claim is without merit, and although the ultimate outcome of this
matter remains uncertain, the Company intends to vigorously defend this suit.
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PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Bid Price ($)
High Low
1996
First Quarter $1.9375 $.625
Second Quarter $2.00 $1.09375
Third Quarter $1.4375 $.9375
Fourth Quarter $1.375 $.6875
1995
First Quarter $.8125 $.500
Second Quarter $.6250 $.375
Third Quarter $1.7500 $.375
Fourth Quarter $1.4375 $.625
The quarterly high and low quotations listed above were actual trades
as quoted by The Nasdaq Stock Market, Inc. The Company's common stock trades on
the NASDAQ SmallCap Market tier of the NASDAQ Stock Market under the symbol
"LUNN".
The number of record holders of the Company's common shares as of
March 31, 1997 was 1,056.
The Company has never paid dividends on its common stock and is not
expected to do so in the foreseeable future. Payment of dividends is restricted
by the Company's bank financing agreement.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Results of Operations
During fiscal year 1996, management's attention shifted from turning
the Company around to focusing on profitability in each of the core businesses
and setting the stage for future growth based on: a) improving the Company's
backlog; b) expanding its customer base; c) adding new technology and improved
processes; d) improving cash flow; and e) insuring sufficient credit line
availability to adequately finance anticipated growth during 1996 and beyond.
Continuing the growth trend established during 1995, Company revenues
for the year ended December 31, 1996 increased by $3.4 million or 23%, to $18.1
million compared to $14.7 million during 1995. The increase in revenue resulted
from increased sales in both the composite and honeycomb segments of the
Company's business.
Composite product sales in 1996 were $6.1 million compared to $4.5
million in 1995, an increase of $1.6 million or 35%. The increase in sales
resulted primarily from increased composite mast fairing and fuel tank shipments
to the U.S. government as well as increased metal bonded assembly shipments to
the aerospace and commercial aircraft markets. Other factors contributing to the
increase included improved quote response times, addition of new customers and
improved on-time deliveries.
Honeycomb product sales in 1996 were $12.0 million compared to $10.2
million for 1995, an increase of $1.8 million or 18%. This increase is a
reflection of the beginning of the recovery of the aerospace and commercial
aircraft markets, further development of non-aerospace business in
transportation, construction and industrial applications, as well as the
broadening of Alcore's product line and capabilities.
The backlog of customer orders as of December 31, 1996 increased to
$28.1 million, a 107% gain, compared to $13.6 million as of December 31, 1995.
The increase in backlog was attributed to expanded product line offerings,
long-term contract pricing strategies, an increased market penetration utilizing
the Company's PAA products and bonded structures capabilities. In addition, the
Company has developed an excellent reputation in the market place and is now
being solicited by an increased customer base.
Consolidated gross profit for 1996 improved 50% to $4.3 million
compared to $2.9 million for 1995, with corresponding improvement in gross
margin to 24% of sales in 1996 compared to 20% of sales during 1995. The overall
improvement was due to higher contribution margins obtained from the mix of
products sold in both the honeycomb and composite/bonding business segments, and
lower factory overhead costs in the
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composite/bonding business segment.
Selling, General and Administrative expenses for 1996 were $3.1 million
compared to $2.4 million for 1995, an increase of $700,000 or 29% attributable
principally to increased sales and marketing and increased staffing to support a
growing level of business. Selling, General and Administrative expenses as a
percentage of revenue for 1996 and 1995 remained relatively consistent at
approximately 17% in 1996 and 16% in 1995.
Interest expense increased $93 thousand to $507 thousand in 1996,
compared to $414 thousand in 1995. The increase resulted from expanded use of a
$3.5 million credit facility entered into with Gibraltar Corporation
("Gibraltar") in December 1995. During November 1996, the Company terminated its
credit facility with Gibraltar and entered into a further expanded $6 million
credit facility with First Union Bank of Maryland ("First Union") with a
favorable 30-day LIBOR plus 250 basis point interest rate. On November 25, 1996,
the Company entered into an agreement with First Union which fixed the interest
rate of the first $3 million outstanding under the credit facility at 8.65% to
protect against the risk of an increase in the LIBOR rate. (See Liquidity and
Capital Resources.)
Consolidated net income for the year ended December 31, 1996 was $652
thousand or $.06 per share (net of extraordinary loss of $152 thousand or $(.01)
per share on the early extinguishment of the Gibraltar line of credit), compared
to net income for 1995 of $1.1 million, or $.14 per share (of which $.11 per
share represented an extraordinary gain of $796 thousand related to debt
extinguishment with Fleet Bank as part of the Company's action to establish the
Gibraltar credit facility on December 28, 1995).
The Company has strengthened its honeycomb manufacturing organization
and production process, increased its emphasis on value-added special process
production, and initiated a program to acquire, expand and upgrade the honeycomb
manufacturing facility in Belcamp, Maryland. On March 17, 1997, the Company
agreed to purchase its Belcamp, Maryland facility. The purchase price for the
building and property is $2.025 million. The Company is presently considering
options to obtain financing for the purchase.
The Lunn Composites Division completed upgrading its Boeing Aircraft
certified phosphoric acid anodizing (PAA) clean line facility in Glen Cove, New
York during the third quarter of 1996. Additionally, the Division has sharpened
its focus on bonded panel composites for commercial aircraft, space applications
(i.e., solar panels and other spacecraft composites) and other aerospace and
commercial applications for 1997 and beyond. Traditional military composite
structures of the type produced by Lunn in the past are anticipated to represent
a declining share of the Division's business in the future.
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LIQUIDITY AND CAPITAL RESOURCES
Net cash provided from operations during 1996 was $143 thousand
compared to $103 thousand provided in 1995. Net cash provided from operations in
1996 was comprised of $652 thousand net income plus approximately $1.8 million
in non-cash items, consisting of depreciation and amortization, allowance for
doubtful accounts, loss on extinguishment of debt, and stock issued to pay
expenses and debt. This was offset by approximately $2.3 million of cash used in
operations resulting from changes in assets and liabilities related to reduced
accounts payable and increased accounts receivable, payroll and payroll-related
costs and other accrued liabilities, and inventory. The approximate $1.2 million
increase in accounts receivable was due to the increase in the 1996 fourth
quarter sales over the same period in 1995. Inventory increased by approximately
$660 thousand over the prior year directly as a result of increased backlog as
of December 31, 1996. Net cash provided from operations in 1995 was comprised of
approximately $1.1 million net income plus $400 thousand in non-cash items,
offset by approximately $1.3 million of cash used in operations due to changes
in assets and liabilities.
Net cash used in investing activities during 1996 was approximately
$2.4 million, with approximately $1.4 million utilized for the purchase of
machinery and equipment and leasehold improvements at the Company's New York and
Maryland facilities. Additionally, approximately $1.0 million net cash was used
for the construction of tooling at the Maryland facility.
Net cash provided by financing activities was approximately $2.1
million, comprised of approximately $1.3 million from sale of capital stock and
$800,000 of proceeds from long-term debt net of repayments of notes payable and
the Gibraltar Corp. credit facility.
On March 21, 1996, the Company sold 3.5 million shares of its common
stock for $.40 per share in a private placement. Total proceeds, net of
underwriting commissions and expenses, were $1,244,000. The Company used
$581,000 of the proceeds to reduce its bank debt obligation, pay down a portion
of the outstanding balance due to bridge lenders, and to reduce its obligation
to a shareholder. The balance was applied toward working capital. During the
first quarter of 1996, the Company issued 229,666 shares of common stock to pay
expenses and reduce debt valued at $97 thousand.
On November 19, 1996, the Company entered into a two-year revolving
credit facility with First Union. The credit facility allows for borrowings up
to 85% of eligible accounts receivable plus 50% of eligible inventory, as
defined, plus machinery and equipment (to be amortized over a five-year period),
as defined, up to $6,000,000. Based on this formula, the Company had
approximately $632 thousand available for additional borrowing under this credit
facility as of December 31, 1996. Proceeds from this
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financing were used to repay the above-mentioned revolving line of credit and
term loan of $3,424,290 and various notes payable of $398,558. As a result of
this early extinguishment of debt, the Company recognized an extraordinary loss
of $152,228, consisting of prepayment penalties and the expensing of unamortized
deferred financing costs.
On November 25, 1996, the Company entered into an agreement with First
Union which fixed the interest rate of the first $3,000,000 outstanding under
the credit facility at 8.65% to protect against the risk of an increase in the
LIBOR rate.
The Company believes it has sufficient capital resources to operate
successfully over the next twelve months. The Company's operating plan for 1997
calls for capital improvements and enhancements to equipment and facilities
located in New York and Maryland to support increased production, provide
environmental process controls and continue to meet environmental compliance
requirements. The Company believes that operating cash flow and depreciation
will be sufficient to support its capital needs. However, should circumstances
arise affecting cash flow or require additional capital expenditures beyond
those anticipated by the Company, there can be no assurance that such funds will
be available. [See "Forward Looking Statements - Cautionary Factors".]
FORWARD LOOKING STATEMENTS - CAUTIONARY FACTORS
Except for the historical information and statements contained in this
Report, the matters and items set forth in this Report are forward looking
statements that involve uncertainties and risks some of which are discussed at
appropriate points in the Report and are also summarized as follows:
1. The U.S. Government is a significant customer of the Company
representing 12.7 percent of its revenue. With the continuing pressure to reduce
government spending, in addition to the world-wide political climate creating an
environment of less visible military threats to the United States, the
de-emphasis in military spending is expected to continue. This could potentially
have a material adverse effect on future projects upon which the Company's
backlog is based, and upon programs the Company is pursuing.
2. Vendor prices for production materials such as aluminum foil,
resins, liquid and film adhesives, reinforcing fiber materials and other
materials and supplies could increase as demand for aircraft parts and
assemblies increase to match higher build rates for commercial aircraft. Higher
material prices and demand for lower aircraft part and assembly prices could
place increasing pressure on the Company's operating margins and net income.
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3. The Company currently sells honeycomb and bonded panel products to
the commercial aircraft industry. Future planning for the Company anticipates
continuing increases in demand for these products over the next several years.
To the extent these increases fail to materialize or fall significantly below
projections, the Company's business could be materially affected.
Item 7. FINANCIAL STATEMENTS
The Company's consolidated financial statements and schedules appear at the end
of this Report after Item 13.
THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.
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Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act.
<TABLE>
<CAPTION>
Name and Five Year Business Experience Age
- -------------------------------------- ---
<S> <C>
Alan W. Baldwin 60
Chairman of the Board and Chief Executive Officer of the Corporation
since March 1994. Vice President of the Corporation from December
1993 to March 1994. Independent consultant, January 1990 to March
1994. Mr. Baldwin was originally elected a director in 1993.
Lawrence Schwartz 61
Secretary of the Company since 1994. Vice President, Chief Financial
Officer, Treasurer and Assistant Secretary and Controller of the Company, since
1990.
Edward Kiley 46
President and General Manager of Alcore, Inc., a wholly owned
subsidiary of the Company, since May 1996. From November 1993 to May 1996, Vice
President and General Manager of Alcore. Vice President and General Manager of
the Company from January 1993 through October 1993. Director of Sales and
Marketing of Hexcel Corporation from April 1978 through December 1992.
Warren H. Haber 55
For more than 20 years, Chairman of the Board and Chief Executive
Officer of Founders Equity, Inc., Founders Management Services, Inc.,
and affiliates (collectively, "Founders") all private investment concerns
engaged in identifying businesses for acquisition by companies in which
the principal stockholders of Founders have a substantial equity interest
and managing such businesses for such principal stockholders' accounts.
Since 1983, Chairman of the Board of Batteries Batteries, Inc. Since
1993, Chairman of the Board and until August 1996, Chief Executive
Officer of HealthRite, Inc., a distributor and producer of vitamins, natural
nutritional and dietary supplements, herbal based products, and weight-
loss products. From 1986 through December 1992, Chairman of the
Board and Chief Executive Officer of International Power Machines. He
served as a Director until February 1995. Director of Realty Information
Group, LP, a privately held commercial real estate information provider.
Mr. Haber has served as an officer and a director of Founders Property,
Inc. a private real estate investment concern. Mr. Haber was originally
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elected a director of the Company in 1994.
John Simon 53
Executive Vice President and Managing Director of Allen & Company,
Incorporated, for more than five years. Director of Immune Response
orporation, Tcell Sciences, Inc., and Neurogen Corporation. Mr. Simon
was originally elected a director in 1993.
William R. Lewis 54
Financial consultant offering services to multiple corporate clients since
1994. Chief Financial Officer of Air & Water Technologies Corporation in
1994. Chief Financial Officer of Jenny Craig, Inc. in 1994. Executive
Vice-President, Chief Financial Officer and Director of Nutri/System, Inc
from 1991-1993. Subsequent to Mr. Lewis leaving, Nutri/System, Inc.
filed for protection from creditors under Chapter 11 of the U.S. Bankruptcy
Code in 1993. Mr. Lewis was originally elected a director in 1995.
John F. Menzel 53
Chairman and majority shareholder of Fiberglass Industries, Inc., a
manufacturer of fiberglass products for the marine, sporting goods and
chemical tank industries from before 1989 to the present. Mr. Menzel was
originally elected a director in 1994.
Samuel J. Dastin 65
Director of Advanced Products, Northrop-Grumman Corporation. Retired
July 1995, after thirty year career in advanced composite materials, structures
and manufacturing. Selected a Fellow by both the Society of Advanced Material
Processing Engineers (SAMPE) and the Society of Manufacturing Engineers (SME)
for his comprehensive work in advanced composites and reinforced plastics. Mr.
Dastin was originally elected a director in 1995, but did not stand for
re-election in 1996.
Charles. W. Russell 59
President of F.C. Funding, Inc., a private investment firm, for more than
five years. Executive Vice President, COO and a Director of Fallek
Chemical Group, an international chemical marketing concern, from
before 1989 to 1990. Mr. Russell was originally elected a director in
1989, but did not stand for re-election in 1996.
</TABLE>
BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors has the responsibility to serve as the
representative of
17
<PAGE>
the shareholders. The Board establishes broad corporate policies and oversees
the overall performance of the Corporation. However, the Board is not involved
in day-to-day operating details. Members of the Board are kept informed of the
Corporation's business activities through discussion with the Chief Executive
Officer, by reviewing analyses and reports sent to them by management and by
participating in board meetings.
During 1996 there were six meetings of the Board of Directors, two
which were telephonic meetings, and all directors attended more than 75% of the
Board of Directors' meetings.
The Company has standing Executive, Compensation and Stock Option and
Audit Committees.
The Executive Committee consists of Alan Baldwin, Warren Haber, and
John Simon. The Executive Committee did not meet in 1996.
The Compensation and Stock Option Committee consists of three
non-employee directors: William Lewis, John Menzel, and John Simon. The
Compensation and Stock Option Committee met on two occasions in 1996. The
committee has the power to grant options and stock awards under the Company's
1994 Incentive Stock Plan, and to negotiate salaries and employment contracts
for key employees of the Company.
The Audit Committee consists of Warren Haber, William Lewis and John
Menzel. The Audit Committee did not meet in 1996. The committee has the
responsibility of recommending the firm chosen as independent auditors,
overseeing and reviewing audit results, and monitoring the effectiveness of
internal audit functions.
Compliance with Section 16(a) of the Exchange Act
Alan W. Baldwin Untimely filing of Form 4 upon the grant of stock options in
February 1996. Filing has been made on Form 5.
Warren H. Haber Untimely filing of Form 5 for 1996.
John F. Menzel Untimely filing of Form 5 for 1996.
Charles. W. Russell Untimely filing of Form 5 1996.
John Simon Untimely filing of Form 5 for 1996.
Samuel J. Dastin Failure to file Form 5 for 1996.
18
<PAGE>
Item 10. Executive Compensation
Summary Compensation Table
Annual Compensation
<TABLE>
<CAPTION>
(a) (b) (c) (d)
Name
and
Principal Other
Position Year Salary($) Compensation($)
-------- ---- --------- ---------------
<S> <C> <C> <C>
Alan W. Baldwin(3) 1996 $150,000 $45,471
Chairman 1995 $150,000 $0
of the Board 1994 $127,257 $4,616 (1)
of Directors
and Chief Executive
Officer
Edward Kiley(3) 1996 $130,347 $31,437
President 1995 $98,389 $7,500 (2)
and General 1994 $94,799 $0
Manager of
Alcore, Inc.
Lawrence Schwartz 1996 $89,000 $20,000
Vice President, (3) 1995 $90,100 $0
Secretary and Chief 1994 $89,100 $0
Financial Officer
</TABLE>
- --------------------------
(1) Consultant fee earned in 1993, but paid in 1994 to a corporation
controlled by Mr. Baldwin.
(2) Paid in restricted stock in exchange for a 15 percent wage concession.
Stock valued at fair market value at the time wage the concession was
implemented.
(3) No other form of compensation was paid the executive except as set
forth above.
19
<PAGE>
(c) Options/SAR Grants Table
Option/SAR Grants in Last Fiscal Year
Individual Grants
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise or Base Expiration
Name Granted (#) Fiscal Year Price ($/Sh) Date
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alan
Baldwin 200,000 100% $.75 2/25/06
</TABLE>
(d) Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value Table
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs at
At FY-End (#) FY-End ($)
Shares Acquired Exercisable Exercisable/
Name on Exercise (#) Value Realized Unexercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alan W. Baldwin None None 300,000/200,000 $30,000/$0
Edward Kiley None None 16,666/8,334 $4,166/$2,084
Lawrence Schwartz None None 16,666/8,334 $4,166/$2,084
</TABLE>
(e) Long-Term Incentive Plan Awards Table
The Company paid no long term compensation to the Executive Officers
during the fiscal year ended December 31, 1996.
20
<PAGE>
(f) Compensation of Directors
Directors who are not employees of the Company earn a fee of $500 for
each meeting of the Board of Directors that is attended. Additionally,
non-employee Directors receive a grant immediately following the Company's
Annual Shareholder Meeting under the Company's 1994 Stock Incentive Plan for the
right to purchase 5,000 shares of the Company's common stock. Such grant shall
be at the fair market value of the common stock at the time of grant.
On December 2, 1996 the Company entered into a consulting arrangement
with William Lewis to assist the Company in locating and evaluating merger and
acquisition candidates one day a week over a six month period with compensation
payable weekly at $1,000 per day. This arrangement will be evaluated after the
six month term expires.
(g) Employment contracts and termination of employment and change in control
arrangements.
In November, 1994, the Company entered into an employment contract
commencing on March 14, 1994 with Alan W. Baldwin to serve as Chairman of the
Board and Chief Executive Officer of the Company, for an initial term of one
year, with automatic renewals for additional one year terms, at an annual salary
of $150,000. The contract provides for increases on an annual basis upon review
by the Board of Directors or the Compensation Committee. Additionally, an
incentive compensation program will be implemented on an annual basis by the
Board of Directors. The Company will provide Mr. Baldwin the normal employee
benefits provided to other employees, in addition to a company car. The contract
provides for a grant to Mr. Baldwin of a non-statutory stock option for 200,000
shares exercisable at $.60 per share.
On April 30, 1996, the Board of Director's Compensation and Stock
Option Committee approved the following revisions to Mr. Baldwin's compensation:
(a) A 1995 bonus award of $40,000; (b) An incentive stock option grant of
100,000 common stock shares; (c) Reimbursement of insurance premiums paid by Mr.
Baldwin for his individual life insurance policy.
Additionally, 1996 compensation for Mr. Baldwin was established as
follows: (a) Salary to remain at $150,000; (b) 1996 bonus award based upon the
Company meeting the following financial goals:
A. For 1996, sales of $17 million, operating profit of $1.2
million and year- end backlog exceeding $12 million.
(i) A bonus of 50 percent of annual salary.
(ii) Incentive stock option grant of 200,000 shares granted on
February 26, 1996, with 100,000 shares being exercisable upon
meeting the 1996 financial goals set forth above, the
remaining 100,000 shares being exercisable twelve months
thereafter.
21
<PAGE>
B. The incentives for meeting 75 percent of the goals listed
above would be: (i) A bonus of 25 percent of annual salary.
(ii) Incentive stock option grant of 100,000 shares granted on
February 26, 1996, with 50,000 shares being exercisable upon
meeting the financial goals above, the remaining 50,000 shares
being exercisable twelve months thereafter.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
(a) Security ownership of certain beneficial owners.
- -------------------------------------------------------------------------------
(1) (2) (3) (4)
Title of Class Name and Amount and Percent of
Class (1)
Address Nature of
Beneficial Beneficial
Owner Owner
- -------------------------------------------------------------------------------
Common Stock Karen Lamotte 872,637(2) 6.12
16 Victoria Road
London, England
United Kingdom
Common Stock Grange Nominees Limited 760,000 5.33
P.O. Box 116
Commerce House
Les Banques
St Peter Port, Guernsey
GWY1 3EZ
Common Stock Cooke & Cie, S.A. 1,592,000(3) 11.17
7 Rue des Alps
Geneva 1, Switzerland
- -----------------------------
(1) Percentage is based upon a 14,258,820 shares as of March 31, 1997,
comprised of outstanding shares, options and warrants that are
exercisable within sixty days of this date, totaling 12,779,653,
591,667, 887,500, respectively.
(2) Includes 165,137 shares held by her husband Hughes Lamotte.
(b) Security ownership of management.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
(1) (2) (3) (4)
22
<PAGE>
Title of Class Name and Amount and Percent of Class (8)
Address Nature of
Beneficial Beneficial
Owner Owner
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock Alan W. Baldwin 452,500 (1) 3.17
c/o Lunn Industries
1 Garvies Point Road
Glen Cove, NY. 11542
Common Stock Warren Haber 95,000 (2)(3)(8) .67
c/o Founders Equity
200 Madison Avenue
New York, NY. 10016
Common Stock John F. Menzel 15,000 (2)(3)(8) .11
c/o Fiber Glass Industries, Inc.
RD #5 Edison Street
Amsterdam, NY. 12010
Common Stock Charles W. Russell 170,077(2)(3)(4)(5) 1.19
c/o F.C. Funding
770 Lexington Avenue
New York, NY. 10021
Common Stock John Simon 15,000 (2)(3)(7)(8) .11
c/o Allen & Co.
711 Fifth Avenue
New York, NY. 10022
Common Stock Samuel Dastin 5,000(3) .04
c/o Dastin Associates
Company, Inc.
62 Wellesley Lane
Hicksville, NY. 11801
Common Stock William R. Lewis 10,000(3)(8) .07
636 Black Rock Road
Bryn Mawr, PA. 19010
Common Stock Edward Kiley 16,666(6) .12
c/o Alcore, Inc.
1324 Brass Mill Road
23
<PAGE>
Belcamp, MD. 21017
Lawrence Schwartz 21,691(6) .15
c/o Lunn Industries
1 Garvies Point Road
Glen Cove, NY. 11542
Common Stock Directors and Executive 625,857 4.39
Officers as a group
(7 persons)
</TABLE>
- ----------------------------
(1) Includes option to purchase 200,000 shares at $.60 which expires on
June 9, 2004, an option to purchase 100,000 shares at $.875 which
expires on November 30, 2005, and an option to purchase 100,000 at $.75
which expires on February 25, 2006.
(2) Includes options to purchase 5,000 shares at $.625 which expires on
June 8, 2004.
(3) Includes options to purchase 5,000 shares at $.1.50 which expires on
September 28, 2005.
(4) Includes warrants to purchase 10,000 shares at $1.50 which expires on
June 16, 1999.
(5) Includes warrants to purchase 10,000 shares at $4.37 which expires on
May 13, 2003.
(6) Includes options to purchase 16,666 shares at $.50 which expires on
December 20, 1999.
(7) Does not include beneficial ownership of Allen, where John Simon is a
Managing Director. Allen disclaims beneficial ownership of Mr. Simon's
ownership.
(8) Includes options to purchase 5,000 shares at $1.16 which expires on
September 26, 2006.
(9) Percentage is based upon a 14,258,820 shares as of March 31, 1997,
comprised of outstanding shares, options and warrants that are
exercisable within sixty days of this date, totaling 12,779,653;
591,667; 887,500, respectively.
Item 12. Certain Relationships and Related Transactions.
(a) Alan W. Baldwin.
See Executive Compensation, Employment contracts and termination of
employment and change in control arrangement.
(b) Cook & Cie, S.A..
The Company borrowed $360,000 from Cook & Cie, S.A. payable in January,
1997 plus interest at 10% per annum payable in common stock. This note is
convertible to the common stock of the Company, at the option of the holder at
anytime during the term of
24
<PAGE>
the note, at the conversion rate of one share for each $.40 of principal
converted.
(c) Private Placement
On March 21, 1996, the Company sold 3.5 million shares of common stock
at $.40 per share in a private placement, under Regulation D of the regulations
promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"). The
following beneficial owners listed in Item 11 purchased shares in the private
placement:
Allen & Company, Inc. 900,000 (1)
Cook & Cie, S.A. 840,000
Grange Nominees Limited 460,000
- -------------------------
(1) John Simon, Director of the Company, is a Managing Director of Allen &
Company, Inc.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit
3.1 Restated Certificate of Incorporation incorporated
by reference to the Registrant's Form 10-QSB,
Exhibit 3.1. for the period ended September 30,
1996 previously filed with the Commission.
3.2 By-laws of the Company incorporated by reference to
the Registrant's Form 10-QSB, Exhibit 3.2. for the
period ended September 30, 1996 previously filed
with the Commission.
10.1 Lease covering the Jessup, Maryland Plant
incorporated by reference to the Registrant's Form
10-K for the year ending December 31, 1992
10.2 Stock Purchase Agreement for the sale of Norfield
Corporation to Edwin F. Phelps, Jr. dated March 10,
1994 - incorporated by reference to the
Registrant's Report on Form 8-K dated March 10,
1994
10.3 Technology Royalty Agreement between the Company
and Norfield Corporation dated March 10, 1994 -
incorporated by reference to the Registrant's
Report on Form 8-K dated March 10, 1994
10.4 Employment Resignation Agreement between the
Company and Edwin F. Phelps, Jr. dated
25
<PAGE>
March 10, 1994 - incorporated by reference to the
Registrant's Report on Form 8-K dated March 10,
1994
10.5 Forbearance Agreement between the Company and
Shawmut Bank Connecticut, N.A. dated March 11, 1994
- incorporated by reference to the Registrant's
Report on Form 8-K dated March 10, 1994
10.6 Commitment letter between the Company and J.E.
Sheehan & Company, Inc. dated March 16, 1994 -
incorporated by reference to the Registrant's
Report on Form 8-K dated March 10, 1994
10.7 Form of Subscription Agreement pertaining to the
issuance of 2,400,000 shares at $.60 per share
dated March 31, 1994, incorporated by reference to
the Registrant's report on Form 10-Q/A Amendment 1,
for the period ended March 31, 1994.
10.8 Grant of Warrant for the purchase of 192,000 shares
of the common stock of the Registrant at $.70 per
share to J.E. Sheehan & Company, Inc. Dated March
31, 1994, incorporated by reference to the
Registrant's report on Form 10-Q/A Amendment 1, for
the period ended March 31, 1994.
10.9 Asset Purchase Agreement between Lunn Industries,
Inc., Limco Manufacturing Corp- oration and Alcore,
Inc. dated December 12, 1994 incorporated by
reference to Exhibit 10.1 of the Registrant's
report on Form 10-QSB for the period ended March
31, 1995, previously filed with the Commission.
10.10 Promissory Note dated January 16, 1995 Payable to
the order of Limco Manufacturing Corporation in the
amount of $608,762 incorporated by reference to
Exhibit 10.2 of the Registrant's report on Form
10-QSB for the period ended March 31, 1995,
previously filed with the Commission.
10.11 Promissory Note dated January 17, 1995 payable to
the order of Limco Manufacturing Corporation in the
amount of $96,238 incorporated by reference to
Exhibit 10.3 of the Registrant's report on Form
10-QSB for the period ended March 31, 1995,
previously filed with the Commission..
26
<PAGE>
10.12 Guaranty Agreement dated January 17, 1995 between
Alcore, Inc. and Limco Manufacturing Corporation
incorporated by reference to Exhibit 10.4 of the
Registrant's report on Form 10-QSB for the period
ended March 31, 1995, previously filed with the
Commission.
10.13 Subordination Agreement dated January 17, 995 by
and among TAT Technologies, Ltd., Limco
Manufacturing Corporation and Lunn Industries, Inc
incorporated by reference to Exhibit 10.5 of the
Registrant's report on Form 10-QSB for the period
ended March 31, 1995, previously filed with the
Commission..
10.14 Assignment and Assumption of Obligations Agreement
dated January 17, 1995 between Limco Manufacturing
Corporation and Lunn Industries, Inc. incorporated
by reference to Exhibit 10.6 of the Registrant's
report on Form 10-QSB for the period ended March
31, 1995, previously filed with the Commission..
10.15 Amendment dated January 17, 1995 to the Asset
Purchase Agreement by and among Lunn Industries,
Inc., Limco Manufacturing Corporation and Alcore,
Inc. dated December 12, 1994 incorporated by
reference to Exhibit 10.7 of the Registrant's
report on Form 10-QSB for the period ended March
31, 1995, previously filed with the Commission..
10.16 Loan Agreement dated January 17, 1995 between Lunn
Industries, Inc. and Cook and Cie, S.A.
incorporated by reference to Exhibit 10.8 of the
Registrant's report on Form 10-QSB for the period
ended March 31, 1995, previously filed with the
Commission..
10.17 Promissory note dated January 17, 1995 payable to
the order of Cook & Cie, S.A. in the amount of
$360,000 incorporated by reference to Exhibit 10.9
of the Registrant's report on Form 10-QSB for the
period ended March 31, 1995, previously filed with
the Commission..
10.18 Promissory note dated January 17, 1995 payable to
the order of J.E. Sheehan & Company, Inc. in the
Amount of $100,000 incorporated by reference to
Exhibit 10.10 of the Registrant's report on Form
10-QSB for the period ended March 31, 1995,
previously filed with the Commission..
10.19 Letter dated January 10, 1995 subordinating the
Commercial Revolving Loan, Term Loan and Security
Agreement dated
27
<PAGE>
May 21, 1993 with Shawmut Bank, Connecticut, N.A.
to the $100,000 promissory note payable to the
order of J.E. Sheehan & Company dated January 17,
1995 incorporated by reference to Exhibit 10.11 of
the Registrant's report on Form 10-QSB for the
period ended March 31, 1995, previously filed with
the Commission..
10.20 Lease for the Company's headquarters located in
Glen Cove, New York dated January 1, 1995 between
Grill Leasing Corp. and Lunn Industries, Inc.
incorporated by reference to Exhibit 10.12 of the
Registrant's report on Form 10-QSB for the period
ended March 31, 1995, previously filed with the
Commission..
10.21 Moratorium Agreement dated February 24, 1995
between Grill Leasing Corp. and Lunn Industries,
Inc. incorporated by reference to Exhibit 10.13 of
the Registrant's report on Form 10-QSB for the
period ended March 31, 1995, previously filed with
the Commission..
10.22 Agreement effective July 19, 1995, between the
Company and J.E. Sheehan & Company extending the
maturity date of note held by J.E. Sheehan &
Company incorporated by reference to Exhibit 10.1
of the Registrant's report on Form 10-QSB for the
period ended September 30, 1995, previously filed
with the Commission..
10.23 Amendment to the Company's 1994 Stock Incentive
Plan adopted at the 1996 Annual Shareholders
Meeting on September 27, 1996 incorporated to
reference to the Company's Schedule 14a previously
filed with the Commission.
10.24 Lease for office space in Belcamp, Maryland dated
November 4, 1996 filed herein.
10.25 Lease for office suite in Santa Fe Springs,
California dated January 24, 1996 filed herein.
10.26 Credit Agreement dated November 22, 1996 between
Lunn Industries, Inc. and Alcore, Inc. And First
Union National Bank of Maryland filed herein.
10.27 Promissory Note dated November 15, 1996 payable to
the order of First Union National Bank of Maryland
filed herein.
10.28 Security Agreement dated November 22, 1996 between
Lunn Industries, Inc. and Alcore, Inc. and First
Union National Bank of Maryland filed herein.
13.1 Form 10-QSB for the period ended March 31, 1996,
previously filed with the Commission,
28
<PAGE>
is herein incorporated by reference.
13.2 Form 10-QSB for the period ended June 30, 1996,
previously filed with the Commission, is herein
incorporated by reference.
13.3 Form 10-QSB for the period ended September 30,
1996, previously filed with the Commission, is
herein incorporated by reference.
21 List of Registrant's subsidiaries previously filed
with the Commission in the Annual Report on Form
10-K/A Amendment 1 for the fiscal year ended
December 31, 1993, is herein incorporated by
reference
23.1 Consent of Muenz & Meritz, P.C. incorporated to
reference to Exhibit 23.1 in the Company's Form S-3
Registration Statement No. 333-12905 previously
filed with the Commission.
23.3 Consent of Muenz & Meritz, P.C. incorporated to
reference to Exhibit 23.1 in the Company's Form S-8
Registration Statement No. 333-19759 previously
filed with the Commission.
23.4 Consent of Coopers & Lybrand, LLP. incorporated to
reference to Exhibit 23.2 in the Company's Form S-8
Registration Statement No. 333-19759 previously
filed with the Commission.
23.5 Consent of Coopers & Lybrand, LLP. incorporated to
reference to Exhibit 23.1 in the Company's Form S-3
Registration Statement No. 333-12905 previously
filed with the Commission.
(b) Reports on Form 8-K.
None
<PAGE>
LUNN INDUSTRIES, INC.
AND SUBSIDIARY
Financial Statements
December 31, 1996 and 1995
(With Independent Auditors' Report Thereon)
<PAGE>
[LETTERHEAD OF KPMG PEAT MARWICK LLP]
Independent Auditors' Report
The Board of Directors
and Shareholders
Lunn Industries, Inc.:
We have audited the consolidated balance sheet of Lunn Industries, Inc. and
subsidiary (the Company) as of December 31, 1996, and the related consolidated
statements of income, stockholders' equity and cash flows for the year ended
December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Lunn Industries,
Inc. and subsidiary at December 31, 1996, and the results of their operations
and their cash flows for the year ended December 31, 1996, in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Jericho, New York
April 2, 1997
<PAGE>
Report of Independent Accountants
To the Stockholders and Board of Directors of Lunn Industries, Inc.:
We have audited the accompanying consolidated statements of operations and cash
flows of Lunn Industries, Inc. and Subsidiary (the "Company") for the year ended
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations and cash flows of
Lunn Industries, Inc. and Subsidiary for the year ended December 31, 1995, in
conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Melville, New York
April 4, 1996.
<PAGE>
LUNN INDUSTRIES, INC. AND SUBSIDIARY
Consolidated Balance Sheet
December 31, 1996
<TABLE>
<CAPTION>
Assets
<S> <C>
Current assets:
Cash $ 5,176
Trade accounts receivable, net of allowance for doubtful accounts of
approximately $177,000 3,016,638
Inventories 4,765,817
Prepaid expenses and other current assets 375,683
-----------
Total current assets 8,163,314
Property and equipment, net of accumulated
depreciation of $4,812,731 9,214,424
Goodwill and other intangibles, net of
accumulated amortization of $100,952 422,114
Other assets 115,135
-----------
Total assets $17,914,987
===========
Liabilities and Stockholders' Equity
Current liabilities:
Cash overdraft 124,929
Current portion of long-term debt 375,000
Current portion of obligation under capital lease 88,451
Trade accounts payable 1,345,083
Accrued payroll and payroll-related costs 314,679
Other accrued liabilities 236,473
-----------
Total current liabilities 2,484,615
Long-term debt, net of current portion 4,519,123
Obligation under capital lease, net of current portion 266,051
-----------
Total liabilities 7,269,789
-----------
Commitments and contingencies
Stockholders' equity:
Preferred stock $.01 par value; authorized 1,000,000
shares; no shares issued and outstanding -
Common stock; par value $.01 per share; authorized
30,000,000 shares; issued and outstanding 11,396,999 shares 113,970
Additional paid-in capital 13,860,953
Accumulated deficit (3,329,388)
Treasury stock, at cost; 150 shares (337)
-----------
Total stockholders' equity 10,645,198
-----------
Total liabilities and stockholders' equity $17,914,987
===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
LUNN INDUSTRIES, INC. AND SUBSIDIARY
Consolidated Statements of Income
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net sales $18,098,473 14,720,718
Cost of sales 13,748,868 11,821,324
----------- ----------
Gross profit 4,349,605 2,899,394
Selling, general and administrative expenses 3,077,874 2,377,365
----------- ----------
Operating income 1,271,731 522,029
----------- ----------
Other income (expense):
Interest expense (507,374) (413,515)
Other income (expense) 6,415 162,931
----------- ----------
(500,959) (250,584)
----------- ----------
Income before income taxes and
extraordinary item 770,772 271,445
Provision for (benefit of) income taxes (33,000) 12,300
----------- ----------
Income before extraordinary item 803,772 259,145
Extraordinary item:
Gain (loss) on extinguishment of debt, net of income
tax effect of $37,700 in 1995 (152,228) 796,165
----------- ----------
Net income $ 651,544 1,055,310
=========== ==========
Income (loss) per share:
Before extraordinary item .07 .03
Extraordinary item (.01) .11
-------------- ------------
Net income per share $ .06 .14
============== ============
Weighted average number of common shares outstanding 11,587,400 7,588,747
============== ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
LUNN INDUSTRIES, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Common stock
----------------------- Additional
Number paid-in Accumulated Treasury
of shares Amount capital deficit stock Total
--------- ------ ------- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1994 7,057,927 $ 70,579 12,061,919 (5,036,242) (337) 7,095,919
Issuance of stock to
employees 203,406 2,034 154,589 - - 156,623
Expenses paid through
the issuance of stock 266,000 2,660 117,326 - - 119,986
Warrants issued in
connection with debt
extinguishment - - 153,000 - - 153,000
Net income - - - 1,055,310 - 1,055,310
-------------- ---------- -------------- ------------- ------ --------------
Balance at
December 31, 1995 7,527,333 75,273 12,486,834 (3,980,932) (337) 8,580,838
Sale of common stock 3,500,000 35,000 1,208,975 - - 1,243,975
Exercise of stock options
and warrants 27,500 275 14,100 - - 14,375
Expenses paid and debt
extinguished through
the issuance of stock 342,166 3,422 151,044 - - 154,466
Net income - - - 651,544 - 651,544
-------------- ---------- -------------- ------------- ------ --------------
Balance at
December 31, 1996 11,396,999 $ 113,970 13,860,953 (3,329,388) (337) 10,645,198
============== ========== ============== ============= ====== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
LUNN INDUSTRIES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 651,544 1,055,310
Adjustments to reconcile net income to cash provided
by operating activities:
Loss (gain) on extinguishment of debt, noncash portion 35,028 (796,165)
Depreciation and amortization 1,254,483 928,852
Bad debt expense (income) 507,000 (9,335)
Issuance of stock to employees - 156,623
Expenses paid through the issuance of stock 36,000 119,986
Changes in assets and liabilities:
Trade accounts receivable (1,258,217) (753,551)
Inventories (659,876) (811,768)
Prepaid expenses and other current assets (103,341) 109,174
Other assets 30,366 (117,895)
Trade accounts payable (212,387) 426,617
Payroll and payroll-related costs and
other accrued liabilities (137,786) (204,540)
------------- --------------
Net cash provided by operating activities 142,814 103,308
------------- --------------
Cash flows from investing activities:
Purchase of property and equipment (2,448,504) (685,514)
Purchase of assets from the Limco acquisition - (358,861)
------------- --------------
Net cash used in investing activities (2,448,504) (1,044,375)
------------- --------------
Cash flows from financing activities:
Cash overdraft 124,929 (27,745)
Proceeds from issuance of notes payable - 3,321,752
Repayment of notes payable (491,665) -
Proceeds from long-term debt, net of repayments 1,344,301 (2,160,245)
Proceeds from issuance of common stock 1,258,350 -
Payments on capital lease obligations (131,124) 13,380
------------- --------------
Net cash provided by financing activities 2,104,791 1,147,142
------------- --------------
Net increase (decrease) in cash (200,899) 206,075
Cash at beginning of year 206,075 -
------------- --------------
Cash at end of year $ 5,176 206,075
============= ==============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
LUNN INDUSTRIES, INC. AND SUBSIDIARY
Notes to Financial Statements
December 31, 1996 and 1995
(1) Summary of Significant Accounting Policies and Practices
(a) Description of Business
LunnIndustries, Inc. and subsidiary (the Company) manufactures a variety of
composite products made of metal, metal core, fiber and reinforced
plastic, assembled into complex structures to meet customer
requirements. The Company also produces honeycomb cores, some of which
are used in its other products. The Company's products are sold
principally to commercial customers, both domestic and international,
and to agencies of the U.S. Government. Military business represented
23% and 29% of net sales during 1996 and 1995, respectively.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, Alcore, Inc. All significant
intercompany balances and transactions have been eliminated in
consolidation.
(c) Revenue Recognition
Sales are recorded as units are delivered with the cost of sales recognized
on each shipment based upon an average estimated final contract unit
cost, including overhead costs. Customer advances received on fixed
price contracts are recognized as revenue ratably as partial shipments
are made. Losses on contracts are recorded when known.
(d) Cash and Cash Equivalents
The Company considers all liquid investments with an original maturity of
three months or less when purchased to be cash and cash equivalents.
There were no cash equivalents as of December 31, 1996.
(e) Inventories
Inventories of raw materials and finished goods are stated at the lower of
cost, determined by the first-in, first-out method, or market.
Inventories of work-in-process, substantially all of which relate to
short-term contracts, are stated at the actual production cost,
reduced by amounts relating to revenue recognized on units delivered.
(f) Property and Equipment
Property and equipment are stated at cost. Expenditures for maintenance and
repairs are charged to operations as incurred. Expenditures for
betterments and major renewals are capitalized. The cost of assets
sold or retired and the related amounts of accumulated depreciation
are eliminated from the accounts in the year of disposal, with any
resulting profit or loss included in income.
(Continued)
<PAGE>
2
LUNN INDUSTRIES, INC. AND SUBSIDIARY
Notes to Financial Statements, Continued
Depreciation and amortization of assets are provided using the
straight-line method over the estimated useful lives of the assets as
follows:
Machinery and equipment 5-10 years
Furniture and fixtures 5-10 years
Computers and computer software 4-5 years
Leasehold improvements 4-6 years
Capitalized values of properties under lease are amortized over the lesser
of term of the lease or estimated life of the asset, depending on the
provisions of the lease. Tooling and molds, all of which were in
process of construction as of December 31, 1996, will be amortized
over the life of the related customer program.
(g) Net Income Per Share of Common Stock
Net income per share of common stock is based on the weighted average
number of common shares outstanding during each period. Common stock
equivalents of 1,041,269 and 203,225 resulting from the effects of
options and warrants have been included in the calculation of weighted
average shares outstanding in 1996 and 1995.
(h) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized.
(i) Goodwill and Other Intangible Assets
Goodwill, which represents the excess of purchase price over the fair value
of net assets acquired, is amortized on a straight-line basis over the
expected periods to be benefited, not exceeding 25 years. The Company
assesses the recoverability of this intangible asset by determining
whether the amortization of the goodwill balance over its remaining
life can be recovered through undiscounted future operating cash flows
of the acquired operation. The amount of goodwill impairment, if any,
is measured based on projected discounted future operating cash flows
using a discount rate reflecting the Company's average cost of funds.
The assessment of the recoverability of goodwill will be impacted if
estimated future operating cash flows are not achieved.
Other intangibles includes a covenant not to compete associated with the
acquisition described in note 2 which is being amortized over the
four-year term of the agreement.
(Continued)
<PAGE>
3
LUNN INDUSTRIES, INC. AND SUBSIDIARY
Notes to Financial Statements, Continued
(j) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
Of
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No.121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," on January 1,
1996. SFAS No.121 requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized
is measured by the amount by which the carrying amount of the assets
exceed the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs
to sell. Adoption of SFAS No.121 did not have a material impact on the
Company's financial position, results of operations, or liquidity.
(k) Stock Option Plan
Prior to January 1, 1996, the Company accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board (APB)
Opinion No.25, "Accounting for Stock Issued to Employees", and related
interpretations. As such, compensation expense would be recorded on
the date of grant only if and to the extent that the current market
price of the underlying stock exceeded the exercise price. On January
1, 1996, the Company adopted SFAS No.123, "Accounting for Stock-Based
Compensation," which permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No.123 also allows entities to continue to
apply the provisions of APB Opinion No.25 and provide pro forma net
income and pro forma earnings per share disclosures for employee stock
option grants made in 1995 and future years as if the fair-value-based
method defined in SFAS No.123 had been applied. The Company has
elected to continue to apply the provisions of APB Opinion No.25 and
provide the pro forma disclosure provisions of SFAS No.123.
(l) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company's management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. The most
significant estimates made are for the recoverability of property and
equipment, intangibles and accounts receivable. Actual results could
differ from those estimates.
(2) Acquisition
On January 17, 1995, the Company purchased certain assets from the Limco
Aluminum Bonding Company for $358,861 in cash and notes payable of
$705,000, due in 48 equal monthly payments with interest at prime
rate. The notes payable were repaid in their entirety during 1996.
Assets acquired consisted of inventory ($75,000), machinery and
equipment ($517,000), goodwill ($221,861), trademarks ($100,000) and
covenant not to compete ($150,000).
(Continued)
<PAGE>
4
LUNN INDUSTRIES, INC. AND SUBSIDIARY
Notes to Financial Statements, Continued
(3) Supplemental Cash Flow Information
The following is supplemental information relating to the consolidated
statements of cash flows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash paid during the year for:
Interest $ 532,863 474,830
Income taxes 61,617 53,625
========== ============
Issuance of warrants in connection
with debt extinguishment $ - 153,000
========== ============
Acquisition:
Assets acquired - 1,063,861
Notes payable - 705,000
---------- ------------
Net cash paid for acquisition $ - 358,861
========== ============
Liabilities extinguished through the issuance
of common stock $ 118,567 -
</TABLE>
(4) Inventories
Components of inventories are summarized as follows:
Raw materials $ 2,962,285
Work-in-process 1,959,854
------------
4,922,139
Less progress billing and
advanced payments (156,322)
------------
$ 4,765,817
=============
(5) Property and Equipment
Property and equipment are summarized as follows:
Machinery and equipment $ 10,689,872
Furniture and fixtures 583,123
Computers and computer software 700,063
Leasehold improvements 553,309
Tooling and molds 1,337,737
Construction in process 163,052
--------------
14,027,156
Less accumulated depreciation and amortization (4,812,732)
--------------
$ 9,214,424
==============
(Continued)
<PAGE>
5
LUNN INDUSTRIES, INC. AND SUBSIDIARY
Notes to Financial Statements, Continued
Depreciation and amortization expense aggregated $1,192,699 in 1996 and
$907,852 in 1995.
(6) Long-Term Debt
At December 31, 1996, long-term debt consists of:
<TABLE>
<S> <C>
Revolving line of credit, collateralized by accounts receivable,
inventory and machinery and equipment. Interest is payable
at LIBOR plus 2.50% (8.0% at December 31, 1996) (a) $ 4,519,123
Note payable, due January 13, 1997. Interest is payable at 10%
per annum (b) 360,000
Note payable, due on demand (c) 15,000
-----------
4,894,123
Less current portion 375,000
-----------
$ 4,519,123
===========
</TABLE>
(a) In December 1995, the Company entered into a $3,500,000 credit
facility with a lending institution. The facility provided for a
$2,750,000 revolving line of credit and a $750,000 term loan with
interest at 2% over the lender's base rate. Proceeds from the credit
facility were used to repay outstanding debt of $3,189,000 through a
payment of $2,261,000 in cash and the issuance of warrants to purchase
500,000 shares of common stock (see note 10). As a result of the
extinguishment of debt in the fourth quarter of 1995, the Company
recognized an extraordinary gain of $796,165.
On November 19, 1996, the Company entered into a two-year revolving
credit facility with a new lending institution. The credit facility
allows for borrowings up to 85% of eligible accounts receivable plus
50% of eligible inventory, as defined, plus machinery and equipment
(to be amortized over a 5 year period), as defined, up to $6,000,000.
Proceeds from this financing were used to repay the above mentioned
revolving line of credit and term loan of $3,424,290 and various notes
payable of $398,558. As a result of this early extinguishment of debt,
the Company recognized an extraordinary loss of $152,228, consisting
of prepayment penalties and the expensing of unamortized deferred
financing costs. On November 25, 1996, the Company entered into an
interest rate swap agreement with a counterparty of this new lending
institution which fixed the interest rate of the first $3,000,000
outstanding under the credit facility at 8.65% to protect against the
risk of an increase in the LIBOR rate.
(b) In January 1995, the Company borrowed $360,000 and issued a note for
repayment on or before January 13, 1997 with interest at 10% to be
paid semi-annually in common stock. The note may be converted into
900,000 shares of common stock, at the option of the holder, at any
time during the term of the note. Pursuant to an agreement between the
Company and the noteholder, it was agreed to reprice the conversion
rate to $.40, the offering price of the private placement price
consummated in March 1996. Accordingly, this note and accrued interest
was converted into 945,000 shares of common stock on January 17, 1997.
(Continued)
<PAGE>
6
LUNN INDUSTRIES, INC. AND SUBSIDIARY
Notes to Financial Statements, Continued
(c) On September 8, 1995, the Company obtained $300,000 bridge financing
to provide interim working capital. In 1995, the bridge lenders
received warrants to purchase a total of 135,000 shares of the
Company's common stock at $.50 per share for a term of five years and
were repaid $100,000. During 1996, $138,333 was repaid in cash and
$46,667 was repaid with the issuance of 116,666 shares of common stock
valued at $.40 per share.
Aggregate maturities of long-term debt are as follows:
1997 $ 375,000
1998 4,519,123
-------------
$ 4,894,123
=============
(7) Income Taxes
The components of deferred taxes as of December 31, 1996 are as follows
(in thousands):
<TABLE>
<S> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 71,000
Accrued liabilities not deductible for tax purposes 77,000
Federal tax credits 97,000
Net operating loss carryforwards 2,956,000
------------
Total deferred tax asset 3,201,000
------------
Less valuation allowance 2,325,000
------------
Net deferred tax asset 876,000
Deferred tax liability:
Property and equipment 876,000
------------
Total deferred tax liability 876,000
Net deferred taxes $ -
============
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1996 and
1995 was $2,325,000 and $2,702,514, respectively. The net change in
the total valuation allowance for the year ended December 31, 1996 was
a decrease of $377,514. In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not that
some portion or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment.
Based upon the level of historical taxable income and projections for
future taxable income over the periods which the deferred tax assets
are deductible, management does not believe it is more likely than not
that the Company will realize the benefits of all these deductible
differences.
(Continued)
<PAGE>
7
LUNN INDUSTRIES, INC. AND SUBSIDIARY
Notes to Financial Statements, Continued
The following is a reconciliation of the reported income tax benefit
attributable to operations to the expected income tax expense
(benefit) utilizing federal statutory tax rates:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Expected income tax provision (benefit) $ 210,300 375,805
State income tax provision (benefit), net
of federal income tax effect 7,000 20,000
Change in valuation allowance on deferred
tax assets, net of change in effective rate (248,600) -
Decrease in effective rate used for deferred taxes 129,000 -
Reversal of prior year's over provision (40,000) -
Utilization of net operating loss carryforward (83,000) (397,825)
Other (7,700) 52,020
---------- -----------
$ (33,000) 50,000
========== ===========
</TABLE>
The Company has net operating loss carryforwards of approximately
$7,390,000 for federal income tax purposes which may be applied
against future taxable income and expire at varying dates between 2002
and 2011. At December 31, 1996, the Company has $97,000 in federal tax
credits available for use in future years which expire at varying
dates between 1997 and 2001.
The timing of the realization of a substantial portion of the Company's
net operating loss carryforwards may be subject to significant
limitation if the Company undergoes an ownership change (Ownership
Change) as defined in Section 382 of the Internal Revenue Code
(Section 382). Section 382 generally provides that, if a corporation
undergoes an Ownership Change, the amount of taxable income that the
corporation may offset with net operating loss carryforwards and
certain net unrealized built-in losses would be subject to an annual
limitation. If an Ownership Change were to occur as a result of future
equity transactions and the Company were to become subject to an
annual limitation as discussed above, it might adversely impact the
timing of the realization of all or a portion of the Company's net
operating loss carryforwards.
(8) Employee Benefit Plans
The Company's union employees are covered by a defined contribution
retirement plan, the cost of which was $26,021 and $22,597 in 1996 and
1995, respectively.
The Company maintains a 401(k) savings plan for its non-union employees.
Employees may contribute up to 25% of their annual salary not to
exceed certain amounts established by the Internal Revenue Code. Under
this plan, the Company contributes up to 1% of employees who
contribute up to 4% of annual salary to the plan. These matching
contributions aggregated $29,168 and $17,636 in 1996 and 1995,
respectively.
(9) Lease Arrangements
The Company is obligated under various capital leases for certain
machinery and equipment that expire at various dates through 2001. At
December 31, 1996, the gross amount of machinery and equipment and
related accumulated amortization recorded under capital leases were as
follows:
<PAGE>
8
LUNN INDUSTRIES, INC. AND SUBSIDIARY
Notes to Financial Statements, Continued
Machinery and equipment $ 492,031
Less accumulated amortization (72,447)
--------
$ 419,584
========
The Company leases property in Glen Cove, New York; Jessup, Maryland; and
Belcamp, Maryland under operating leases. The Company is required
under the lease agreements to pay certain costs, including insurance
and property taxes. The Company may exercise an option to extend its
Glen Cove lease for two additional five-year terms. In addition, the
Company leases certain equipment under various operating leases. Rent
expense aggregated $774,376 and $613,412 in 1996 and 1995,
respectively.
Future minimum lease payments under noncancelable operating leases (with
initial remaining lease terms in excess of one year) and the present
value of future minimum capital lease payments as of December 31, 1996
are:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------ ------
Year ending December 31:
<S> <C> <C>
1997 $ 131,661 619,166
1998 131,661 478,356
1999 98,605 483,980
2000 63,074 237,689
2001 32,327 220,739
----------- ------------
Total minimum lease payments 457,328 $ 2,039,930
============
Less amount representing interest (at
rates ranging from 6.6% to 18.2%) (102,826)
-----------
Net principal portion 354,502
Less portion due within one year 88,451
-----------
Long-term portion $ 266,051
-----------
</TABLE>
The schedule of operating lease obligations does not include the remaining
five years on the lease agreement for the Company's Belcamp, Maryland
facility as the Company has exercised its option under such agreement
to purchase the building as described in note 15.
(10) Stockholders' Equity
On September 27, 1996, the Company's shareholders approved an increase in
authorized shares of common stock to 30 million shares and authorized
the issuance of 1 million shares of preferred stock having a par value
of $.01 per share.
(Continued)
<PAGE>
9
LUNN INDUSTRIES, INC. AND SUBSIDIARY
Notes to Financial Statements, Continued
(a) Common Stock
On March 20, 1996, the Company sold 3,500,000 shares of its common stock
for $.40 per share in a private placement. Total proceeds, net of
underwriting commissions and expenses were $1,243,975. The Company has
used approximately $647,000 of the proceeds to reduce its bank debt
obligations, its obligations to bridge lenders and its obligation to a
shareholder.
During 1996, the Company issued 225,500 and 116,666, respectively, shares
to certain individuals and bridge loan holders in settlement of
expenses and debt obligations with a value of $107,799 and $46,667.
During 1996 and 1995 the Company issued 342,166 and 266,000 shares,
respectively, to certain individuals and a financial institution in
settlement of debt obligations and expenses with a value of $154,467
and $119,986.
During 1995, the Company issued 203,406 shares of restricted common stock
to employees for $.77 per share. As a result of the issuance, the
Company recorded a charge to income of approximately $157,000.
(b) Warrants
In connection with the Company's 1995 debt financings, the Company
granted warrants to purchase 635,000 shares of common stock, which
were valued at $153,000 and expensed in 1995. In addition, the Company
issued warrants to purchase 20,000 shares to its legal counsel for
services rendered. All outstanding warrants are fully exercisable. A
summary of warrant transactions follows:
<TABLE>
<CAPTION>
1996 1995
----------------------- ------------------------
Weighted Weighted
average average
exercise exercise
Shares price Shares price
------ ----- ------ -----
<S> <C> <C> <C> <C>
Beginning of year 1,341,545 $ 1.20 686,545 $ 1.62
Warrants granted 377,618 .40 655,000 .75
Warrants canceled (100,000) (4.90) - -
Warrants exercised (22,500) (.09) - -
--------- ------- --------- ------
End of year 1,596,663 $ .65 1,341,545 $ 1.20
========= ======= ========= ======
</TABLE>
Certain warrant agreements contain anti-dilutive provisions providing for
certain adjustments in the exercise price and the number of shares to
be received upon exercise in the event of subsequent sales of stock by
the Company below the initial warrant exercise price. In 1996, an
additional 202,618 warrants were granted under the anti-dilutive
provisions resulting from the March 1996 private placement at $.40 per
share.
(Continued)
<PAGE>
10
LUNN INDUSTRIES, INC. AND SUBSIDIARY
Notes to Financial Statements, Continued
(c) Stock Option Plan
On April 19, 1994, the Board of Directors of the Company adopted the 1994
Stock Incentive Plan (the Plan) authorizing the issuance of up to
700,000 shares of the Company's common stock through the grant of
incentive and nonqualified stock options, restricted and deferred
stock awards to employees and grants of nonqualified stock options to
non-employee directors. In September 1996, the number of authorized
shares under Plan was increased to 1.5 million shares and the
eligibility of the Plan was broadened to include consultants or
advisors to the Company. The purpose of the Plan is to promote the
interests of the Company with additional incentive and opportunity
through stock ownership to increase employees' and directors'
proprietary interests in the Company and their personal interest in
its continued success.
Under the terms of the Plan, the Company may grant incentive and
nonqualified stock options. For incentive stock options, the option
price per share may not be less than the fair market value of a
share on the date the option is granted. For those individuals who
own shares in excess of 10% of the capital stock of the Company
(affiliates), such price will be 110% of the fair market value for
incentive stock options. For nonqualified stock options, the option
price may be no less than 40% of the fair market value. Both
incentive and nonqualified stock options may be granted with a
term not to exceed ten years from the date of grant, except for
incentive stock options granted to affiliates shall have a term not
to exceed five years from the date of grant. Incentive stock options
granted to employees may not be exercisable sooner than one year
from grant date. In addition, shares of restricted stock may be
issued either alone or in addition to other awards granted under the
Plan.
The Compensation and Stock Option committee of the Board of Directors
shall determine the officers and key employees of the Company, to whom
and the time at which the grants of restricted stock will be made, the
number of shares to be awarded, the price and all other conditions of
the awards.
The Plan also provides grants of options to non-employee directors. Each
director will be granted an option to purchase 5,000 shares of common
stock each year immediately following the annual meeting of
stockholders. As of December 31, 1996 and 1995, options for 488,333
and 265,833 shares, respectively, were exercisable under the Plan and
742,500 shares were available for issuance under the Plan at December
31, 1996.
A summary of stock option transactions follows:
<TABLE>
<CAPTION>
1996 1995
---------------------- ------------------
Weighted Weighted
average average
exercise exercise
Shares price Shares price
------ ----- ------ -----
<S> <C> <C> <C> <C>
Beginning of year 537,500 $ .56 397,500 $ .56
Options granted 220,000 .78 140,000 1.00
Options exercised (5,000) (.63) - -
-------- ----- --------- -----
End of year 752,500 $ .71 537,500 $ .56
======== ===== ========= =====
</TABLE>
(Continued)
<PAGE>
11
LUNN INDUSTRIES, INC. AND SUBSIDIARY
Notes to Financial Statements, Continued
The weighted average fair value of options granted during 1996 and 1995
was $.67 and $.91, respectively, on the date of the grant using the
Black Scholes option-pricing model with the following weighted average
assumptions: expected dividend yield of 0%, risk free interest rate of
6%, expected stock volatility of 100% and an expected option life of
10 and 9 years in 1996 and 1995, respectively.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock
options in the consolidated financial statements. Had the Company
determined compensation cost based on the fair value at the grant date
for its stock options under SFAS No. 123, the Company's net income
would have been reduced to the pro forma amounts indicated below:
1996 1995
---- ----
Net income:
As reported $ 651,544 1,055,310
Pro forma 547,544 1,014,310
========= ============
Net income per share:
As reported $ .06 .14
Pro forma .05 .13
========== ============
Pro forma net income reflect only options granted in 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock
options under SFAS No.123 is not reflected in the pro forma net income
amounts presented above because compensation cost is reflected over
the options' vesting period.
(11) Industry Segment Information
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net sales:
Industry segments:
Composites $ 6,134,800 4,536,816
Honeycomb 11,963,673 10,183,902
-------------- ----------
Total $ 18,098,473 14,720,718
============== ==========
Geographic:
United States 16,351,139 13,281,309
Western Europe 1,348,965 1,439,409
Pacific 398,369 -
-------------- --------------
Total $18,098,473 14,720,718
============== ==============
Operating income (loss):
Industry segments:
Composites 220,787 (113,644)
Honeycomb 1,050,944 635,673
-------------- --------------
$ 1,271,731 522,029
============== ==============
</TABLE>
(Continued)
<PAGE>
12
LUNN INDUSTRIES, INC. AND SUBSIDIARY
Notes to Financial Statements, Continued
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Geographic:
United States $ 1,118,293 435,664
Western Europe 118,756 86,365
Pacific 34,682 -
-------------- --------------
$ 1,271,731 522,029
============== ==============
Depreciation and amortization expense:
Composites 324,792 109,971
Honeycomb 929,691 818,881
-------------- --------------
$ 1,254,483 928,852
============== ==============
Capital expenditures:
Composites 594,419 893,658
Honeycomb 1,854,085 633,856
-------------- --------------
Total $ 2,448,504 1,527,514
============== ==============
Identifiable assets:
Composites 4,575,624 4,029,616
Honeycomb 13,339,363 10,971,064
-------------- --------------
Total $ 17,914,987 15,000,680
============== ==============
</TABLE>
(12) Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of trade accounts
receivable. The Company grants credit to customers based upon analysis
of their financial position and other factors. Consequently, an
adverse change in those factors could affect the Company's estimate of
its bad debts. The Company estimates an allowance for doubtful
accounts based upon the creditworthiness of its customers as well as
general economic conditions. As the majority of the Company's sales
are made and credit is granted to the United States Government and
customers in the defense industry, the Company considers the credit
risks associated with its customers to be minimal. The Company
performs ongoing credit evaluations of its customers' financial
condition and generally requires no collateral from its customers. One
customer and two customers represent 12.7% and 12.0% of sales in 1996
and 1995, respectively. No one customer comprised more than 10% of
outstanding accounts receivable at December 31, 1996.
(13) Fair Value of Financial Instruments
The carrying value of all financial instruments classified as a current
asset or current liability as of December 31, 1996 are deemed to
approximate fair value because of the short maturity of these
instruments. The fair value of long-term debt including the interest
rate swap agreement approximates the carrying value as of December 31,
1996.
(Continued)
<PAGE>
13
LUNN INDUSTRIES, INC. AND SUBSIDIARY
Notes to Financial Statements, Continued
(14) Litigation
During 1995, the Company was served with a complaint filed under the False
Claims Act alleging that certain records had been falsified, in
connection with its former subsidiary, Norfield Corporation
(Norfield), in order for Norfield to receive payment under a
subcontract. In addition, the complainant alleges that she was
terminated due to this incident. On June 17, 1996, Norfield filed a
voluntary petition in bankruptcy. As a result, on September 4, 1996,
the Court dismissed the case without prejudice to reopen the case,
upon motion. On November 4, 1996, the Court denied the plaintiff's
motion to reopen the case without prejudice, upon the plaintiff
receiving relief from the automatic stay issued by the bankruptcy
court. The Company believes that this case is without merit and is of
the opinion, that the outcome of this case will not have a material
effect on the results of operations or financial condition of the
Company.
In addition, in May 1995, the Company was named as a defendant in a
demand of arbitration of a former employee for a breach of an
employment contract. On August 12, 1995, the arbitration awarded the
plaintiff $85,516 plus costs and found the Company and Norfield
jointly and severally liable. On June 26, 1996 the Court denied the
Company's motion to vacate and confirmed the arbitration award. The
Company has appealed this judgment, which is still pending. The
Company is exercising its rights against the owner of Norfield
pursuant to the indemnification provisions of the stock purchase
agreement entered into upon the sale of Norfield. In the opinion of
management and counsel, it is probable that the Company will be
successful in obtaining a judgment under this indemnification
agreement.
(15) Subsequent Event
On March 17, 1997, the Company agreed to purchase its Belcamp, Maryland
facility. The purchase price for the building and property is
$2,025,000. The Company is presently considering options to obtain
financing for the purchase.
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
LUNN INDUSTRIES, INC.
By: /s/ Alan W. Baldwin April 9, 1997
------------------- --------------
Alan W. Baldwin Date
Chairman of the Board,
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
By: /s/ Alan W. Baldwin April 9, 1997
------------------- --------------
Alan W. Baldwin Date
Chairman of the Board,
Chief Executive Officer and Director
By: /s/ Lawrence Schwartz April 10, 1997
--------------------- --------------
Lawrence Schwartz Date
Vice President, Secretary
and Chief Financial and
Accounting Officer
By: /s/Warren Haber 4/14/97
------------------- --------------
Warren H. Haber Date
Director
By: /s/John F. Menzel 4/12/97
------------------ --------------
John F. Menzel Date
Director
By: /s/ John Simon April 10, 1997
------------------- --------------
John Simon Date
Director
By: /s/ William R. Lewis April 10, 1997
-------------------- --------------
William R. Lewis Date
Director
<PAGE>
INDEX OF EXHIBITS
3.1 Restated Certificate of Incorporation incorporated
by reference to the Registrant's Form 10-QSB,
Exhibit 3.1. for the period ended September 30,
1996 previously filed with the Commission.
3.2 By-laws of the Company incorporated by reference to
the Registrant's Form 10-QSB, Exhibit 3.2. for the
period ended September 30, 1996 previously filed
with the Commission.
10.1 Lease covering the Jessup, Maryland Plant
incorporated by reference to the Registrant's Form
10-K for the year ending December 31, 1992
10.2 Stock Purchase Agreement for the sale of Norfield
Corporation to Edwin F. Phelps, Jr. dated March 10,
1994 - incorporated by reference to the
Registrant's Report on Form 8-K dated March 10,
1994
10.3 Technology Royalty Agreement between the Company
and Norfield Corporation dated March 10, 1994 -
incorporated by reference to the Registrant's
Report on Form 8-K dated March 10, 1994
10.4 Employment Resignation Agreement between the
Company and Edwin F. Phelps, Jr. dated March 10,
1994 - incorporated by reference to the
Registrant's Report on Form 8-K dated March 10,
1994
10.5 Forbearance Agreement between the Company and
Shawmut Bank Connecticut, N.A. dated March 11, 1994
- incorporated by reference to the Registrant's
Report on Form 8-K dated March 10, 1994
10.6 Commitment letter between the Company and J.E.
Sheehan & Company, Inc. dated March 16, 1994 -
incorporated by reference to the Registrant's
Report on Form 8-K dated March 10, 1994
10.7 Form of Subscription Agreement pertaining to the
issuance of 2,400,000 shares at $.60 per share
dated March 31, 1994, incorporated by reference to
the Registrant's report on Form 10-Q/A Amendment 1,
for the period ended March 31, 1994.
10.8 Grant of Warrant for the purchase of 192,000 shares
of the common stock of the Registrant at $.70 per
share to J.E. Sheehan & Company, Inc. Dated March
31, 1994, incorporated by reference to the
Registrant's report on Form 10-Q/A Amendment 1, for
the period ended
<PAGE>
March 31, 1994.
10.9 Asset Purchase Agreement between Lunn Industries,
Inc., Limco Manufacturing Corp- oration and Alcore,
Inc. dated December 12, 1994 incorporated by
reference to Exhibit 10.1 of the Registrant's
report on Form 10-QSB for the period ended March
31, 1995, previously filed with the Commission.
10.10 Promissory Note dated January 16, 1995 Payable to
the order of Limco Manufacturing Corporation in the
amount of $608,762 incorporated by reference to
Exhibit 10.2 of the Registrant's report on Form
10-QSB for the period ended March 31, 1995,
previously filed with the Commission.
10.11 Promissory Note dated January 17, 1995 payable to
the order of Limco Manufacturing Corporation in the
amount of $96,238 incorporated by reference to
Exhibit 10.3 of the Registrant's report on Form
10-QSB for the period ended March 31, 1995,
previously filed with the Commission..
10.12 Guaranty Agreement dated January 17, 1995 between
Alcore, Inc. and Limco Manufacturing Corporation
incorporated by reference to Exhibit 10.4 of the
Registrant's report on Form 10-QSB for the period
ended March 31, 1995, previously filed with the
Commission.
10.13 Subordination Agreement dated January 17, 995 by
and among TAT Technologies, Ltd., Limco
Manufacturing Corporation and Lunn Industries, Inc
incorporated by reference to Exhibit 10.5 of the
Registrant's report on Form 10-QSB for the period
ended March 31, 1995, previously filed with the
Commission..
10.14 Assignment and Assumption of Obligations Agreement
dated January 17, 1995 between Limco Manufacturing
Corporation and Lunn Industries, Inc. incorporated
by reference to Exhibit 10.6 of the Registrant's
report on Form 10-QSB for the period ended March
31, 1995, previously filed with the Commission..
10.15 Amendment dated January 17, 1995 to the Asset
Purchase Agreement by and among Lunn Industries,
Inc., Limco Manufacturing Corporation and Alcore,
Inc. dated December 12, 1994 incorporated by
reference to Exhibit 10.7 of the Registrant's
report on Form 10-QSB for the period ended March
31, 1995, previously filed with the Commission..
10.16 Loan Agreement dated January 17, 1995 between
<PAGE>
Lunn Industries, Inc. and Cook and Cie, S.A.
incorporated by reference to Exhibit 10.8 of the
Registrant's report on Form 10-QSB for the period
ended March 31, 1995, previously filed with the
Commission..
10.17 Promissory note dated January 17, 1995 payable to
the order of Cook & Cie, S.A. in the amount of
$360,000 incorporated by reference to Exhibit 10.9
of the Registrant's report on Form 10-QSB for the
period ended March 31, 1995, previously filed with
the Commission..
10.18 Promissory note dated January 17, 1995 payable to
the order of J.E. Sheehan & Company, Inc. in the
Amount of $100,000 incorporated by reference to
Exhibit 10.10 of the Registrant's report on Form
10-QSB for the period ended March 31, 1995,
previously filed with the Commission..
10.19 Letter dated January 10, 1995 subordinating the
Commercial Revolving Loan, Term Loan and Security
Agreement dated May 21, 1993 with Shawmut Bank,
Connecticut, N.A. to the $100,000 promissory note
payable to the order of J.E. Sheehan & Company
dated January 17, 1995 incorporated by reference to
Exhibit 10.11 of the Registrant's report on Form
10-QSB for the period ended March 31, 1995,
previously filed with the Commission..
10.20 Lease for the Company's headquarters located in
Glen Cove, New York dated January 1, 1995 between
Grill Leasing Corp. and Lunn Industries, Inc.
incorporated by reference to Exhibit 10.12 of the
Registrant's report on Form 10-QSB for the period
ended March 31, 1995, previously filed with the
Commission..
10.21 Moratorium Agreement dated February 24, 1995
between Grill Leasing Corp. and Lunn Industries,
Inc. incorporated by reference to Exhibit 10.13 of
the Registrant's report on Form 10-QSB for the
period ended March 31, 1995, previously filed with
the Commission..
10.22 Agreement effective July 19, 1995, between the
Company and J.E. Sheehan & Company extending the
maturity date of note held by J.E. Sheehan &
Company incorporated by reference to Exhibit 10.1
of the Registrant's report on Form 10-QSB for the
period ended September 30, 1995, previously filed
with the Commission..
10.23 Amendment to the Company's 1994 Stock Incentive
Plan adopted at the 1996 Annual Shareholders
Meeting on September 27, 1996 incorporated to
reference to the Company's Schedule 14a previously
filed with the Commission.
10.24 Lease for office space in Belcamp, Maryland dated
November 4, 1996 filed herein.
<PAGE>
10.25 Lease for office suite in Santa Fe Springs,
California dated January 24, 1996 filed herein.
10.26 Credit Agreement dated November 22, 1996 between
Lunn Industries, Inc. and Alcore, Inc. And First
Union National Bank of Maryland filed herein.
10.27 Promissory Note dated November 15, 1996 payable to
the order of First Union National Bank of Maryland
filed herein.
10.28 Security Agreement dated November 22, 1996 between
Lunn Industries, Inc. and Alcore, Inc. And First
Union National Bank of Maryland filed herein.
10.27 Promissory Note dated November 15, 1996 payable to
the order of First Union National Bank of Maryland
filed herein.
10.28 Security Agreement dated November 22, 1996 between
Lunn Industries, Inc. and Alcore, Inc. and First
Union National Bank of Maryland filed herein.
13.1 Form 10-QSB for the period ended March 31, 1996,
previously filed with the Commission, is herein
incorporated by reference.
13.2 Form 10-QSB for the period ended June 30, 1996,
previously filed with the Commission, is herein
incorporated by reference.
13.3 Form 10-QSB for the period ended September 30,
1996, previously filed with the Commission, is
herein incorporated by reference.
21 List of Registrant's subsidiaries previously filed
with the Commission in the Annual Report on Form
10-K/A Amendment 1 for the fiscal year ended
December 31, 1993, is herein incorporated by
reference
23.1 Consent of Muenz & Meritz, P.C. incorporated to
reference to Exhibit 23.1 in the Company's Form S-3
Registration Statement No. 333-12905 previously
filed with the Commission.
23.2 Consent of Coopers & Lybrand, LLP. incorporated to
reference to Exhibit 23.1 in the Company's Form S-3
Registration Statement No. 333-12905 previously
filed with the Commission.
23.3 Consent of Muenz & Meritz, P.C. incorporated to
reference to Exhibit 23.1 in the Company's Form S-8
Registration Statement No. 333-19759 previously
filed with the Commission.
23.4 Consent of Coopers & Lybrand, LLP. incorporated to
reference to Exhibit 23.2 in the Company's Form S-8
Registration Statement No. 333-19759 previously
filed with the Commission.
23.5 Consent of KPMG Peat Marwick, LLP filed herein.
<PAGE>
STANDARD OFFICE LEASE
THIS AGREEMENT OF LEASE (the "Lease") is made as of this 4 day of
Nov, 1996, by and between LAMBDIN DEVELOPMENT COMPANY, a corporation duly
organized and existing under the laws of the State of Maryland ("Landlord"), as
landlord, and ALCORE, INC., (the "Tenant"), as tenant.
ARTICLE I
General Provisions: Premises, Preparation
1.1 Premises. Landlord hereby leases to Tenant, and Tenant hereby
leases from Landlord, the premises shown on the floor plan attached as Exhibit A
to this Lease consisting of Two Thousand Six (2,006) Rentable Square Feet of
leased space (the "Leased Premises") located in that one (1) story office
building primarily of brick and masonry construction containing Nine Thousand
Six Hundred Fifteen (9,615) square feet of Total Rentable Space, known as 1250
Brass Mill Road, Suite 5 (the "Buildings") located on the property containing
approximately 1.292 acres, more or less, and more particularly shown on a plat
entitled "Final Plat Thirteen - Riverside Business Park", recorded among the
Land Records of Harford County in Liber 54, folio 62, the improvements to which
are known as 1250 Brass Mill Road, Belcamp, MD 21017 (collectively the Building
and the foregoing are referred to as the "Property") together with necessary
access, parking and utility easements to serve the Leased Premises, upon the
terms and conditions stated in this Lease. The Leased Premises is one of several
suites to be leased in the Building and includes the Interior Common Area.
1.2 Defined Terms and Lease Summary. The following are definitions of
terms used in this Lease, and not otherwise or elsewhere defined, and a
summary of the basic economic terms of the tenancy created hereunder:
(a) Additional Rent. See Section 3.8.
(b) Advance Rent. $2,006.00 (See Section 3.9)
(c) Base Rent. $18,976.76 per year during the first twelve (12)
full calendar months of the lease and thereafter the Base Rent due shall be
pursuant to Exhibit C (See Secton 3.1).
(d) Building Expenses. See Section 3.4.
(e) Commencement Date. See Section 2.1.
(f) Common Area or Common Areas. Means all areas within the
Building or within the Property reserved by the Landlord for the common,
non-exclusive use of the tenants and their invitees, including, but not limited
to, the entrance areas to the Building, the parking areas, areas reserved for
motor vehicle traffic for means of ingress and egress to, from and within the
Property, all landscaped areas and such other areas as may be designated by the
Landlord. The Landlord reserves the right to change any part or all of the
common areas, to relocate the same, provided that in making such change, the
Landlord does not materially, adversely affect the Tenant's use and enjoyment of
the Leased Premises.
(g) Completion Date. See Section 15.4(a)
(h) Expense Pass-Through. Tenants shall pay as Additional Rent
Tenant's Proportionate Share of the Impositions (see Section 3.2), the Utility
Cost (See Section 3.3), Building Expenses (see Section 3.4) and casualty, public
liability and workmen's compensation insurance for the Building (see Section
10.1 and 10.3).
(i) Estimated Expense Pass-Through. See Section 3.10.
(j) Estimated Utility Cost. See Section 3.3.
(k) Expiration Date. The date which is one (1) year from the
Commencement Date (see Section 2.1). If this Lease is canceled or terminated
prior to the originally fixed expiration date, then the expiration date shall be
the date on which this Lease is so canceled or terminated. However, if this
Lease is canceled or terminated prior to the originally fixed expiration date by
reason of Tenant's default, Tenant's liability under the provisions of this
Lease shall continue until the date the term of this Lease would have expired
had the cancellation or termination not occurred, as further provided in
Article XIII below.
(l) Impositions. See Section 3.2.
(n) Interior Common Area. Means the area within the Building
commonly used by the tenants of Suites 4 and 5, including the common entrance
way, hallway, bathrooms and kitchenette. The Interior Common Area is 319
square feet, as shown on Exhibit A. (See Section 3.1.)
(m) Insurance Requirements. This means the applicable provisions
of any casualty or liability insurance policy carried by Landlord or Tenant
covering the Leased Premises, the Property, or any part of either; all
requirements of the issuer of any such policy; and the applicable regulations
and other requirements of the National Board of Fire Underwriters, any
applicable local board of fire underwriters, and any other body exercising a
similar function.
(o) Landlord's Agents. This means Landlord's managing member,
employees, servants, licensees, assignees, contractors, representatives, heirs,
successors, legatees and devisees.
(p) Legal Requirements. This means all applicable laws, ordinances,
notices, orders, rules, regulations and requirements of all federal, state,
county or municipal governments or the departments, commissions, boards and
officers thereof.
(q) Mortgage. This means any mortgage, deed to secure debt, trust
indenture, or deed of trust which may now or later encumber or be a lien upon
the Leased Premises or the Property, and any agreements, renewals,
modifications, consolidations, replacements and extensions set forth therein
or to any instrument referred to in this section.
(r) Mortgagee. This means the holder of any Mortgage.
<PAGE>
(s) Notice Addresses. (See also Section 15.8).
Landlord's Notice Address:
Lambdin Development Company
P.O. Box 676
Bel Air, MD 21014-0676
Landlord's Notice Copy Address:
Tenant's Notice Address:
Alcore, Inc.
Suite 5
1250 Brass Mill Road
Belcamp, MD 21017
Tenant Notice Copy Address:
(t) Person. This means an individual, fiduciary, estate, trust,
partnership, firm, association, corporation, or other organization, or a
government or governmental authority.
(u) Repair. This includes the words "replacement and restoration",
"replace and restore" or "replace or restore", as the case may be.
(v) Review Date. See Section 10.4.
(w) Security Deposit. $2006.00.
(x) Tenant's Proportionate Share. 21% (calculated by dividing the
area of the Leased Premises by the Total Rentable Space in the Building - see
Sections 2.2, 3.2, 3.3, 3.4, 3.10, 10.1 and 10.3).
(y) Tenant's Agents. This includes Tenant's representatives,
officers, stockholders, directors, employees, servants, licensees, tenants,
subtenants, assignees, contractors, heirs, successors, legatees and devisees.
(z) Term. See Section 2.1(a).
(aa) Total Rentable Space. Means the gross square foot area of the
Building. The Total Rentable Space is 9,615 square feet.
(bb) Utility Cost. See Section 3.3.
ARTICLE II
Lease Term
2.1 Term.
(a) The term of this Lease shall begin on the Commencement Date and
shall end on the Expiration Date, unless sooner terminated as provided in this
Lease (such term as it may be extended pursuant to this Lease being called the
"Term").
(b) "Commencement Date" shall be the date specified in Landlord's
notice to Tenant that Tenant may take possession of the Leased Premises. Not
withstanding above, Lease shall commence 12/1/96 and tenant may take possession
at signing of Lease.
Upon the request of either Landlord or Tenant, the other party shall
execute a written agreement, in recordable form if requested, acknowledging the
Commencement Date of the Term, and the Expiration Date.
2.2 Renewal Option.
(a) Provided that this Lease shall be in good standing and in full
force and effect and shall not theretofore have been terminated and that Tenant
shall not be or have been within six (6) months of the expiration of the then
current term of this Lease in default under any of these terms or conditions of
this Lease, Tenant shall have the option to renew this Lease for one (1)
additional consecutive term of four (4) years, by notifying Landlord in writing,
sent by certified mail, to the Notice Address of Landlord, of Tenant's election
not fewer than one hundred eighty (180) days before the expiration of the then
current term of this Lease.
(b) The renewal shall be on the same terms and conditions set forth
in this Lease, except as follows:
(i) the terms of any further renewals shall be governed by
Section 2.2(a) above, as reduced by the exercise and expiration of any renewal
options thereunder, and
(ii) the Base Rent for the initial year of the applicable
renewal period shall be the Base Rent as determined in accordance with Exhibit
C. The Base Rent for each year after the initial year of the applicable renewal
period shall be increased in accordance with Exhibit C hereof.
<PAGE>
ARTICLE III
Rent
3.1 Annual Base Rent. Beginning on the Commencement Date, or on the
first day of the month next following if the Commencement Date falls on other
than the first day of a month, Tenant shall pay to Landlord annual Base Rent of
$18,976.76 (the "Base Rent", as modified from time to time and as set forth in
Exhibit C) payable to Landlord in equal monthly installments at the rate of
$1,581.40 per month, without demand or set-off, in legal tender, and in advance
on the first day of each of the first (1st) twelve (12) calendar months during
the Term. Thereafter, the annual and monthly rates for each succeeding twelve
(12) calendar month period during the initial three (3) year term of this
Agreement and any renewal periods shall be in accordance with Exhibit C. If the
Commencement Date shall fall on a day other than the first day of a calendar
month, the Tenant shall pay to Landlord together with the first monthly payment,
Rent for the month in which the Commencement Date shall occur, calculated by
prorating the monthly Rent payment from the Commencement Date through the end of
the first partial calendar month of the initial term of this Lease. Tenant shall
make all rental payments to Landlord's notice address as specified in Section
1.2(s) hereof or to such other address as may be designated by Landlord. In
addition to Base Rent, Tenant shall pay Rent and Additional Rent on their share
of the Interior Common Area calculated at the same rent per square foot for the
Leased Premises. Suite 5 share is 161 square feet (50.5% of 319 square feet)
and is included in the Rentable Square Feet.
3.2 Impositions. Tenant shall pay monthly as Additional Rent, Tenant's
Proportionate Share of the Expense Pass-Through which shall include annual real
estate or other taxes and special assessments imposed on or with respect to the
Property and the Building of which the Leased Premises are a part (including,
without limitation, front foot or benefit assessments for sewerage, water,
stormwater management, or paving and any Rent or occupancy tax which may be
imposed) (collectively the "Impositions"). All reasonable expenses incurred by
Landlord (including reasonable attorneys' fees and costs) in contesting any
increase in taxes or any increase in the assessment of Impositions shall be
included as an item of taxes for the purpose of computing Additional Rent due
hereunder. Tenant shall not be obligated to pay its share of any installment of
any special assessment levied or assessed during the Term but not due until
after termination of this Lease. It is agreed that Tenant's Proportionate
Share of the above shall remain fixed during the Term of the Lease in
accordance with Exhibit C.
3.3 Utilities. Tenant shall be responsible for the cost of all
utilities provided to the Leased Premises including, but not limited to
electric service, heating and air conditioning, and Tenant's Proportionate
Share of the cost of any computerized or mechanical energy management system
installed to control, monitor and minimize utility usage in the Building (the
"Utility Cost"). Those utilities for which separate meters are provided shall
be billed directly to the Tenant by the entity providing the utility service.
With respect to those utilities which are not separately metered, Tenant shall
pay Tenant's Proportionate Share of such Utility Cost, the Landlord will, at
the beginning of each calendar year, deliver to Tenant a good faith estmate of
the Utility Cost which will be due during that year (the "Estimated Utility
Cost"). Tenant agrees to pay one-twelfth (1/12) of the Estimated Utility Cost
to Landlord as Additional Rent which shall be due at the same time and in the
same manner as the Rent pursuant to Section 3.1. As soon as practicable each
year and for that portion of the calendar year prior to the Expiration Date,
Landlord shall deliver to Tenant a statement of the actual Utility Cost due
from Tenant for the relevant period. If the amount of the Estimated Utility
Cost paid by Tenant exceeds the amount of the actual utility cost, Tenant shall
be given a credit for such amount against the Rent next becoming due under the
terms of this Lease; provided, however, that upon termination of the Lease
such excess Estimated Utility Cost paid by Tenant shall be rebated to the
Tenant within thirty (30) days of the date the statement of the actual Utility
Cost is delivered for such calendar year. If the amount of the Estimated Utility
Cost is less than the amount of the actual Utility Cost, Tenant agrees to pay
same to Landlord, within thirty (30) days after receipt of a statement
therefor, the full amount of such difference. Tenant agrees to accept as final
and determinative the amount and computation shown on the statement,
unless Tenant, within fifteen (15) days after receipt thereof, notifies Landlord
in writing of any claimed error therein, or requests in writng for Landlord to
verify and detail the amounts of the Utility Costs on the statements. The
Landlord shall provide such verification and detail to the extent such
information is available to the Landlord without undue cost. In any event,
the dispute in regard to computation of the correct charge to Tenant for the
Utility Cost shall not be a reason or serve as a basis for Tenant to withhold
any payments of Rent, Additional Rent or other charges and sums owed by Tenant
to Landlord under the terms of this Lease.
3.4 Building Expenses. Included in the Expense Pass-Through of which
Tenant shall pay Tenant's Proportionate Share as Additional Rent are Building
Expenses. The Landlord will, at the beginning of each calendar year, deliver to
Tenant a good faith estimate of Tenant's Proportionate Share of the Building
Expenses which will be due during that year (the "Estmated Building Expenses").
Landlord agrees that except for snow removal, common area gas and electric,
water & sewer, and taxes, the Building Expenses shall not increase by more than
ten percent (10%) per year. Tenant agrees to pay one-twelfth (1/12) of the
Estimated Building Expenses to Landlord as Additional Rent which shall be due at
the same time and in the same manner as the Rent pursuant to Section 3.1. As
soon as practicable each year and for that portion of the calendar year prior
to the Expiration Date, Landlord shall deliver to Tenant a statement of the
actual Building Expenses due from Tenant for the relevant period. If the
amount of the Estmated Building Expenses paid by Tenant exceeds the amount of
the actual Building Expenses, Tenant shall be given a credit for such amount
against the Rent next becoming due under the terms of this Lease; provided,
however, that upon termination of the Lease such excess Estimated Building
Expenses paid by Tenant shall be rebated to the Tenant within thirty (30) days
of the date the statement of the actual Building Expenses is delivered for
such calendar year. If the amount of the Estimated Building Expenses is less
than the amount of the actual Building Expenses, Tenant agrees to pay same to
Landlord, within thirty (30) days after receipt of a statement therefor, the
full amount of such difference. Tenant agrees to accept as final and
determinative the amount and computation shown on the statement, unless Tenant,
within fifteen (15) days after receipt thereof, notifies Landlord in writing
of any claimed error therein, or requests in writing for Landlord to verify
and detail the amounts of the Building Expenses on the statements. The
Landlord shall provide such verification and detail to the extent such
information is available to the Landlord without undue cost. In any event, the
dispute in regard to computation of the correct charge to Tenant for the
Building Expenses shall not be a reason or serve as a basis for Tenant to
withhold any payments of Rent, Additional Rent or other charges and sums owed by
Tenant to Landlord under the terms of this Lease. Building Expenses shall be
those reasonable expenses paid or incurred (determined on an accrual basis under
generally accepted accounting principles) by Landlord in connection with
maintaining, operating and repairing the Property, including without limitation,
all costs and expenses of the following (net of reimbursement under insurance
policies, warranties, or similar contractual arrangements):
(a) common area janitorial, including, but not limited to sweeping
the parking lots and sidewalks, collecting debris, and maintaining the
appearance of the Building and the Property;
(b) trash removal, including, but not limited to garbage and recycling
material, but excluding Tenant's obligation to remove trash from Tenant's Leased
Premises and deposit same in Landlord's common receptacle and to make separate
arrangements for removal of specialty waste such as medical waste;
(c) mowing and landscaping, including, but not limited to landscaping
of all common areas;
(d) snow removal;
(e) service, repairs and maintenance, including, but not limited to
operating, decorating, cleaning, repairing and painting the Building and the
Property, and maintenance of mechanical, plumbing and electrical equipment and
systems, including heating, ventilating and air conditioning equipment;
(f) supplies and materials, including, but not limited to sales or use
taxes on supplies or services;
(g) common area gas and electric, including, but not limited to
utilities used or consumed at the Building or on the Property which are not
separately metered to other tenants and which are not already included in
Tenant's Utility Costs and the leasing of pole lights;
(h) water and sewer used or consumed at the Building or on the Property
which are not separately metered to other tenants and
<PAGE>
which are not already included in Tenant's Utility Costs;
(i) legal and accounting fees and expenses;
(j) Business Park Fee, including stormwater management assessments;
(k) reserves, including, but not limited to maintenance, repair and
replacement of roof, gutters, parking lot, sidewalks, and other common areas;
(l) miscellaneous, including all other items which would be considered
as procured or incurred in maintaining, operating, or repairing the Building or
the Property under sound management and accounting principles;
(m) management fee, including wages, salaries and compensation for all
persons engaged in the maintenance, operation or repair of the Building and the
Property (including Landlord's share of all payroll taxes).
(n) It is agreed that Tenant's Proportionate Share of the above shall
remain fixed during the Term of the Lease in accordance with Exhibit C.
3.5 Security Deposit. Tenant shall pay to Landlord upon the execution
of this Lease the amount of $2006.00 as a security deposit for the faithful
performance by Tenant of all the terms and covenants of this Lease. If Tenant
shall perform all such obligations, including, but not limited to, the
obligations set forth in Article VIII hereafter, Landlord shall refund the
security deposit to Tenant within forty-five (45) days of the end of the Term.
If Tenant shall default in any such obligation, Landlord shall be entitled to
apply the security deposit to payment of Landlord's actual monetary damages.
3.6 Late Charge. In the event any installment of Rent or Additional
Rent, or any sums otherwise due Landlord hereunder, shall be past due for more
than ten (10) days, Tenant shall pay to Landlord as Additional Rent a sum equal
to eight percent (8%) of the installment or amount due to cover Landlord's cost
for the collection and the loss of income.
3.7 Late Payments. All payments of Rent, Additional Rent and all other
sums due under this Lease, if not paid within ten (10) days of when due, shall,
in addition to the late payment charge, bear interest at the rate of fifteen
percent (15%) per annum from the due date until paid.
3.8 Additional Rent. All Impositions, charges, costs and expenses which
the Tenant is required to pay hereunder, together with all interest and
penalties (including but not limited to a $50.00 assessment for any check
returned for non-sufficient funds) that may accrue thereon in the event of the
Tenant's failure to pay such amounts, and all damages, costs, and expenses which
the Landlord may incur by reason of any default of the Tenant or failure on the
Tenant's part to comply with the terms of this Lease, shall be deemed to be
Additional Rent ("Additional Rent") and, in the event of non-payment by the
Tenant, the Landlord shall have all the rights and remedies with respect thereto
as the Landlord has for the nonpayment of the Rent. Tenant's obligation to pay
any Additional Rent occurring during the term of this Lease pursuant to the
terms of the Lease shall survive the expiration of this Lease.
3.9 Advance Rent. Tenant shall pay upon the execution of this Lease the
amount set forth in Section 1.2(b) to be held as advance rent and security (the
"Advance Rent") to be retained by Landlord, without limitation of other
remedies, to offset Landlord's costs in preparing and negotiating this Lease
and to protect Landlord against any defaults of this Lease by Tenant occurring
prior to the commencement of the Term. If no such defaults occur, the Advance
Rent shall be applied by Landlord against the first monthly installments of Rent
payable by Tenant.
3.10 Expense Pass-Through. During each year of the Term of this Lease
or any renewals or extensions hereof, Tenant shall pay to Landlord as Additional
Rent "Tenant's Proportionate Share" as defined in Section 1(x) of all Expense
Pass-Throughs. Expense Pass-Throughs shall consist of the Impositions described
in Section 3.2, the Utility Costs described in Secton 3.3, the Building Expenses
described in Section 3.4 and the Casualty, Public Liability and Workmen's
Compensation Insurance described in Section 10.1 and 10.3. At the beginning of
each calendar year, Landlord shall deliver to Tenant a good faith estimate of
the amount of the Expense Pass-Through which will be charged to and payable by
Tenant during that year (the "Estimated Expenses Pass-Through"). Except with
respect to Impositions which shall be paid as provided in Section 3.2 and
Casualty, Public Liability and Workmen's Compensation Insurance which shall be
paid as provided in Section 10.1 and 10.3, unless otherwise notified by Landlord
that such expenses will be collected monthly, Tenant agrees to pay to Landlord
monthly one-twelfth (1/12) of the Estimated Expenses Pass-Through as Additional
Rent which shall be due at the same time and in the same manner as the Rent
provided for in Section 3.1. Within one hundred twenty (120) days after the end
of each calendar year, Landlord shall have an accountng of the Expense
Pass-Through prepared for such year, and shall deliver the same to Tenant. If
the amount of the Estimated Pass-Through exceeds the amount of the actual
Expense Pass-Through, Tenant shall be given a credit for such amount against the
Base Rent and/or Additional Rent next becoming due under the terms of this
Lease; provided, however, that upon termination of this Lease such excess
Estimated Expense Pass-Through shall be rebated to the Tenant within thirty (30)
days of the date the statement of the actual Expense Pass-Through is delivered
for such calendar year. If the amount of the Estimated Expense Pass-Through is
less than the amount of the actual Expense Pass-Through, Tenant agrees to pay
the same to Landlord within thirty (30) days after receipt of such statement.
Tenant agrees to accept as final and determinative the amount and computation
shown on such statement, unless Tenant, within thirty (30) days after receipt
thereof, notifies Landlord in writing of any claimed error therein, or requests
in writing for Landlord to verify and detail the amounts of the Expense
Pass-Through on the statement. The Landlord shall provide such verification and
detail to the extent such information is available to the Landlord without
undue cost. During such thirty (30) day period, Tenant may have its own
accountant, at Tenant's cost, review the invoices and other document supporting
the Expense Pass-Through. In the event that Tenant notifies Landlord of any
claimed error within such thirty (30) day period, if the parties cannot agree
on the appropriate amount, then such issue shall be determined by a court of
competent jurisdiction. In no event shall Tenant offset or deduct any amount in
dispute against other sums due Landlord herein. It is agreed that Tenant's
Proportionate Share of the above shall remain fixed during the Term of the Lease
in accordance with Exhibit C.
ARTICLE IV
Occupancy
4.1 Quiet Enjoyment. Upon payment of the Base Rent, Additional Rent
and all other sums due Landlord hereunder, as required under this Lease and
performance by Tenant of all of the covenants and provisions of this Lease to be
performed by Tenant, Tenant shall have, during the Term, peaceful and quiet use
and possession of the Leased Premises, without hindrance on the part of the
Landlord or any of Landlord's Agents. Tenant acknowledges that Landlord will be
making alterations, additions or improvements for other tenants and Tenant
agrees that the noise and inconvenience of such activity or of any other tenant
shall not consititute a breach of Landlord's convenant of quiet enjoyment.
4.2 Use of Premises. Tenant may use the Leased Premises only for the
following purposes: General Office.
<PAGE>
4.3 Compliance with Law. Tenant shall at all times during the Term, at
its own expense, conform to and comply with all Legal Requirements and Insurance
Requirements now or hereafter in force, affecting the use or occupancy of all or
any part of the Leased Premises. At all times during the Term and for any period
that Tenant enters the Leased Premises prior to the Commencement Date to make
its installations, Tenant hereby indemnifies Landlord against and agrees to save
Landlord harmless from all expenses, liability, and penalty, imposed or incurred
for or because of any violation of any Legal Requirement occasioned by the
negligent act or omission, or willful act of Tenant's Agents, Tenant, its
customers, clients, visitors or invitees, independent contractors, or any
person on the Leased Premises by permission or holding under Tenant unless
such violation results solely from a negligent act or omission on the part of
Landlord or Landlord Agents. Following notice to Landlord, Tenant, by
appropriate proceedings conducted with due diligence at Tenant's expense and
in Tenant's name, may contest in good faith the validity or enforcement of any
applicable Legal Requirement provided that Landlord is not subjected to any
fine or penalty. At Tenant's request and at Tenant's expense, Landlord shall
assist Tenant to the extent reasonable and practicable in contesting the
validity of any such Legal Requirement.
4.4 Conduct on Premises.
(a) Tenant shall not do, or permit anything to be done, in the
Leased Premises, which will in any way (i) increase the rate of
fire or other insurance on the Building or Property, (ii)
invalidate or conflict with the fire or other insurance policies
on the Property or Building and fixtures or other property kept
therein, (iii) obstruct or interfere with the rights of Landlord
or of other tenants, (iv) subject Landlord to any liability for
injury to persons or damage to property, or (v) interfere with
normal operations of the Building. Any increase of fire or other
insurance premiums on the Property or Building or contents
thereof caused solely by the occupancy of Tenant and any expense
incurred solely in consequence of negligence or the willful action
of Tenant, Tenant's Agents, or invitees shall be payable upon
demand as Additional Rent. In addition, Tenant shall pay as
Additional Rent its pro rata portion of any increase of any such
fire insurance premiums or expenses incurred due in part to
occupancy of Tenant or in consequence of negligence or the
willful action of Tenant, Tenant's Agents or invitees.
(b) Tenant shall not place a load upon any floor of the Leased
Premises exceeding the floor load per square foot area which the
floor was designated to carry and which may be allowed by law.
Landlord reserves the right to prescribe the weight and position
of all safes or other heavy equipment, and to prescribe the
reinforcing necessary, if any, which in the opinion of Landlord's
architects or engineers may be required under the circumstances,
such reinforcing to be at Tenant's expense. Business or other
machines and mechanical equipment, if approved by Landlord in
writing, shall be placed and maintained by Tenant, at Tenant's
expense, in settings sufficient in Landlord's judgment to absorb
and prevent vibration, noise or other adverse condition. Tenant,
at its expense, shall take such steps as Landlord may direct to
remedy any such adverse condition. So long as the Leased Premises
are developed in accordance with the Tenant's Plans set forth on
Exhibit B hereto, Landlord finds such development to be in
accordance with the requirements of this Subsection 4.4(b).
(c) There shall be no allowance to Tenant for a diminution of
rental value, no abatement of Base Rent, and no liability on the
part of Landlord by reason of inconvenience, annoyance or injury
to business arising from Landlord, Tenant or others making any
repairs, alterations, additions or improvements in or to any
portion of the Building and the Property or Leased Premises, or
in or to the fixtures, appurtenances or equipment thereof, and no
liability upon Landlord for failure of Landlord or others to make
any repairs, alterations, additions or improvements in or to any
portion of the Building or of the Leased Premises, or in or to
the fixtures, appurtenances or equipment thereof; provided,
however, that the Landlord will make all reasonable efforts not to
interfere with Tenant's use or enjoyment of the Premises. Nothing
herein precludes Tenant from pursuing any remedies which it might
have against persons other than Landlord, any partner in Landlord
or any affiliate of any such person.
4.5 Property - Loss Damage. Landlord shall not be liable for damage to
property placed in the custody of its employees, nor for the loss of any
property by theft or otherwise unless caused by the gross negligence or willful
misconduct of Landlord or Landlord's Agents. Landlord shall not be liable for
damage or injury to persons or property unless caused by the gross negligence or
willful misconduct of Landlord or Landlord's Agents.
4.6 Regulations. Tenant agrees to be bound by all reasonable rules and
regulations, including regulations designed to achieve a uniform exterior
appearance, which may be attached hereto as an exhibit or which may be
established in the future by Landlord in order to maintain the attractive
appearance and business demeanor of the Building and Property.
4.7 Services. Landlord reserves the right to stop service of the
heating, air conditioning, plumbing and electric systems, when reasonably
necessary, by reason of accident, or emergency, or for repairs, alterations,
replacements or improvements which in the judgment of Landlord are desirable or
necessary to be made, until such repairs, alterations, replacements or
improvements shall have been completed. Landlord shall give notice to Tenant of
the dates and times Landlord intends to stop building services for planned
repairs, alterations, replacements or improvements, at least two (2) days in
advance, unless an emergency exists. In performing such activities, the Landlord
shall use its best efforts, to minimize any interference with the operations of
Tenant. Landlord shall have no responsibility or liability for failure to supply
heat, air conditioning, plumbing, cleaning, or electric service when prevented
from so doing by any cause beyond Landlord's control.
ARTICLE V
Transfers
5.1 Assignment and Subletting. The Tenant shall not assign, let or
sublet, nor use or permit to be used the Leased Premises for any purpose other
than that mentioned in Section 4.2, without the prior written consent of
Landlord, which consent may be withheld in the sole and absolute subjective
discretion of the Landlord. If so assigned, let or sublet, used or permitted
to be used without Landlord's prior written consent, Landlord may re-enter and
re-let the Leased Premises and this Lease by reason of such unauthorized act
shall become null and void at Landlord's election. If so assigned, let or
sublet, Landlord shall have a lien upon and shall be empowered to collect any
rent accruing from a subtenant or assignee and apply the amount collected to
the rents herein reserved. No assignment of this Lease shall be effectuated by
operation of law or otherwise without the prior written consent of the
Landlord. For purposes of this Lease the transfer of fifty percent (50%) or
more of the ownership interest of Tenant to any persons or entities that are
not owners or stockholders of Tenant on the date of execution of this Lease
shall be deemed to be a prohibited assignment of this Lease under this section.
5.2 Tenant Not Released. Subletting or assignment shall not relieve
Tenant of its obligations to Landlord under this Lease.
ARTICLE VI
Parking
Subject to such reasonable rules, regulations, or conditions as
Landlord may impose, Tenant shall be entitled to the non-exclusive use in common
with others of automobile parking areas, driveways, access roads, footways, and
loading facilities as may be constructed by Landlord for the common use by other
tenants of the
<PAGE>
Building. Although Landlord does not currently anticipate doing so, Landlord
shall have the right, at its option, to allocate among tenants, reserve or mark
parking spaces at the Property to assist the orderly control of parking;
provided, however, that Landlord shall not reduce the number of spaces at the
Property below that then required by applicable zoning requirements. In the
event that the Landlord determines that there is insufficient parking on the
Property for the convenience of business invitees of tenants, the Landlord may
prohibit employees of all tenants from parking thereon to the extent necessary
to provide convenient parking for business invitees.
ARTICLE VII
Maintenance and Alterations
7.1 Maintenance and Repair. Tenant, at its sole cost and expense, at
all times during the Term, shall maintain and keep the Leased Premises in an
orderly condition and in a good state of repair, except for structural repairs
and repairs caused by Landlord's negligence, which shall be performed by
Landlord at the Landlord's own expense. Tenant, at all times during the Term,
shall maintain, clean and keep the Interior Common Area in an orderly condition
and in a good state of repair, including furnishing supplies. The costs
associated with the Interior Common Area shall be shared on a pro rata basis
with other tenants who may use this space.
7.2 Alterations by Tenant. Tenant, without the prior written consent of
Landlord, shall not make any additions, alterations or changes to the Leased
Premises; provided, however, that Tenant need not obtain such consent to make
minor, nonstructural alterations which are readily removable or correctable.
7.3 Alterations by Landlord. Landlord reserves the right to make
changes or revisions in the layout of the Building and the Property to modify
the leasable area and to construct additional buildings or to expand the
Building or the Property; provided, however, that Landlord shall use its best
efforts, to minimize any interference with the operations of Tenant or access to
the Leased Premises, and provided further that Landlord shall give Tenant
reasonable prior written notice of any planned alterations to be made by the
Landlord. Landlord agrees that it will not make any material alterations or
revisions in the Leased Premises without Tenant's prior written consent, which
consent shall not be unreasonably withheld.
ARTICLE VIII
Surrender of Leased Premises
8.1 Surrender. Upon termination of the Term, or any earlier termination
of this Lease, Tenant shall surrender to Landlord the Leased Premises, including
all alterations, improvements and other additions except as set forth in Section
8.2, in the same conditions as at the beginning of the tenancy, reasonable wear
and tear excepted and subject to such additions, alterations and changes as are
permitted by Section 7.2. In the event Tenant fails to surrender the Leased
Premises to Landlord upon termination of the Term, Tenant shall pay Landlord two
(2) times the Base Rent paid during the last full calendar month of the Lease.
8.2 Tenant Equipment Excepted.
(a) If Tenant is not in default under this Lease, Tenant shall be
entitled to (or, at Landlords request, must) remove from the Leased Premises at
the end of the Term Tenant's office, trade and manufacturing fixtures,
furniture, equipment and signs, which Tenant has installed on the Leased
Premises prior to or during the Term at the cost of Tenant and which are not an
integral part or necessary to the operation of the Leased Premises, as are
plumbing, heating, ventilating, air conditioning and other similar equipment.
Tenant shall at its own cost and expense repair any and all damage to the Leased
Premises resulting from or caused by such removal, and shall restore the Leased
Premises to good order and condition, reasonable wear and tear excepted. Tenant
shall have five (5) business days after termination of this Lease for any reason
whatsoever to effect such removal, repair and restoration, except that no such
fixtures or equipment placed on or in the Leased Premises by Tenant, and which
remain the property of Tenant, may be removed at a time when Tenant is in
default in payment of Rent or any other money payable hereunder, or in the
performance of any other covenant under this Lease.
(b) If Tenant shall not remove all its personal property from the
Leased Premises within five (5) business days of the termination of this Lease,
Landlord may remove all or part of that property in any manner Landlord deems
appropriate and may store the same without liability of Landlord for its loss or
damage. Tenant shall be liable to Landlord for all expenses incurred in the
removal and storage of Tenant's personal property. If such removal and storage
does not appear to be economically reasonable to Landlord or if Landlord has
reason to suspect that Tenant is not in an economic position to pay for the
cost of such removal and storage, Landlord may, at Landlord's option, retain
any such fixtures and equipment and offset the fair market value of such
equipment, as appraised by an M.A.I. appraiser selected by Landlord, against
any sums Tenant owes Landlord. The determination of such appraiser as to the
fair market value of any such equipment and fixtures shall be finally binding
on both Landlord and Tenant.
ARTICLE IX
Mechanic's Liens
Prior to approving any construction on the Leased Premises by Tenant,
Landlord shall have the right to require Tenant to furnish such assurances
against mechanic's liens as may be reasonable, including, but not limited to,
that Tenant produce waivers of rights to claim liens signed by all contractors,
subcontractors and suppliers and/or that Tenant produce, performance and payment
bonds before commencing construction, and as construction progresses and is
completed, Tenant shall produce affidavits executed by Tenant, Tenant's
contractors or architect, that all labor and materials heretofore furnished have
been paid in full.
ARTICLE X
Insurance and Indemnity
10.1 Casualty Insurance.
(a) Beginning on the date of this Lease and continuing during the
entire Term, Landlord shall keep the Building and the Leased Premises insured
against loss or damage by fire, vandalism and other casualty to the extent now
or hereafter covered under standard full replacement cost extended coverage
provided, however, that Tenant shall pay, as Additional Rent, Tenant's
Proportionate Share of the cost of such insurance monthly. It is agreed that
Tentant's Proportionate Share of the above shall remain fixed during the Term of
the Lease in accordance with Exhibit C.
(b) Tenant shall at all times during the Term maintain at its own cost
and expense casualty insurance against loss, damage, or destruction to all
signs, trade fixtures, improvements, equipment, furniture and other
installations and all personal property installed or maintained by Tenant on the
Leased Premises, and shall, upon Landlord's request, provide Landlord with
certificates of insurance evidencing that such policies are in force or copies
of such policies. All required insurance shall be with insurers approved by
Landlord which approval shall not be unreasonably withheld or delayed. All
policies shall name Landlord and Tenant as beneficiary
<PAGE>
as their respective interests may appear and shall provide that notwithstanding
any act or negligence of Tenant which might otherwise result in a forfeiture,
such policies shall not be canceled without at least thirty (30) days prior
written notice to Landlord.
10.2 Indemnity.
(a) At all times after Tenant takes possession of the Leased Premises
and for any period that Tenant enters the Leased Premises prior to the
Commencement Date to make its installations and improvements, Tenant shall
protect, indemnify, and save and hold the Landlord harmless of, from and against
any and all actions, liabilities, damages, costs, expenses, fees, demands or
claims of any nature whatsoever arising from (i) any work or thing done in or
about the Leased Premises, and the improvements now or hereafter constructed
therein, or any part thereof, by Tenant or its agents or employees or
contractors hired by Tenant, (ii) injury to or death of any persons or damage to
property on the Leased Premises, and (iii) any negligent act or omission on the
part of the Tenant, or its employees or invitees or contractors arising out of
the occupancy or use of the Leased Premises, except that Tenant shall not be
required to save and hold Landlord harmless or to indemnify Landlord if the
injury or loss is due solely to the negligence of the Landlord or Landlord's
Agents.
(b) The Tenant covenants and agrees that all furniture, fixtures and
property of every kind, nature and description which may be in or upon the
Leased Premises or Building or Property during the Term of this Lease or any
extension thereof, shall be at the sole risk and hazard of the Tenant, and if
the whole or any part thereof shall be damaged, destroyed, stolen or removed
for any cause whatsoever, no part of said damage or loss shall be charged or
borne by the Landlord except said loss occasioned solely by the negligence of
the Landlord or Landlord's Agents.
10.3 Public Liability Insurance.
(a) During all periods of construction or reconstruction work performed
by Tenant on the Leased Premises, Tenant, at its own expense, shall keep in
force, by advance payments or premiums, workmen's compensation and builder's
risk insurance providing such coverage as is reasonably acceptable to Landlord's
Agents, which approval shall not be unreasonably withheld or delayed.
(b) Beginning on the Commencement Date or prior thereto upon Tenant's
entry into the Leased Premises and continuing during the entire Term, Tenant, at
Tenant's expense, shall keep in force, by advance payments of premiums, public
liability insurance in an amount of not less than one million dollars
($1,000,000) per occurrence for personal injury or death and not less than five
hundred thousand dollars ($500,000) for damage to property, insuring against any
liability that may accrue on account of any occurrences in or about the Leased
Premises or in consequence of Tenant's occupancy of the Leased Premises. Such
insurance shall protect and indemnify not only against any and all such
liability, but also against all loss, expense and damage of any and every sort
and kind, including costs of investigation and attorneys fees and other costs of
defense.
(c) All required insurance shall be with insurers approved by Landlord
which approval shall not be unreasonably withheld or delayed. All policies
(other than medical malpractice insurance if any is maintained by Tenant) shall
name Landlord and Tenant as beneficiary as their respective interests may
appear. All policies shall provide that notwithstanding any act or negligence
of Tenant which might otherwise result in a forfeiture, such policies shall not
be canceled without at least thirty (30) days' prior written notice to
Landlord. Tenant shall furnish Landlord with a copy of all such policies or a
certificate that such policies are in effect.
(d) In the event Landlord for its own account shall obtain (i) public
liability insurance for personal injury, death or property damage with respect
to liability that may accrue in or about the Building, or (ii) workmen's
compensation and builder's risk insurance, then Tenant, in addition to its other
obligations under this Section 10.3, shall pay, as Additional Rent, Tenant's
Proportionate Share of the cost of such insurance monthly. It is agreed that
Tenant's Proportionate Share of the above shall remain fixed during the Term of
the Lease in accordance with Exhibit C.
10.4 Revision of Insurance Coverage.
(a) Every third year during the Term of this Lease (the "Review Date"),
the parties shall review whether the insurance minimums stated in Section 10.3
provide for sound and prudent coverage in relation to liability risks as of each
such date. On each Review Date the Landlord, after consulting with Tenant, may
require an increase in scope, amount and nature of coverage and Tenant shall,
upon receipt of written demand of Landlord, obtain and maintain henceforth
appropriate insurance coverage as mandated by Landlord. If within thirty (30)
days following written notice to Tenant to modify or increase the scope, amount
or nature of insurance coverages, the Tenant fails to comply with the request of
the Landlord, the Landlord may procure the required insurance and charge the
cost hereof to Tenant as Additional Rent.
(b) Within thirty (30) days following establishment by Landlord of any
required adjustment in insurance coverage, Tenant shall forward to Landlord
certificates of insurance indicating that insurance in no less than the required
amounts is in full force and effect.
10.5 Waiver of Subrogation. Landlord and Tenant waive all right of
recovery by way of subrogation, each against the other, from any and all claims
for loss by fire or any of the casualties covered by standard extended insurance
coverage. If any additional change or increase in premium is made by the insurer
because of the waiver of subrogation, the party in whose favor the waiver is
obtained shall pay such additional charge or increase in premium. If such waiver
of the right of subrogation is not available from the insurers of either party,
then this Section 10.5 shall have no effect.
ARTICLE XI
Eminent Domain
11.1 Total Taking. If (a) the entire Leased Premises (b) or such other
part or all of the remainder of the Building thereby rendering the Building
unsuitable in the judgment of Landlord for its intended purpose, be taken under
the power of eminent domain or by purchase in place thereof (herein together
called "Eminent Domain"), this Lease shall terminate as of the date possession
is taken. Tenant shall immediately vacate the Leased Premises and shall have no
further right or claim against Landlord.
11.2 Partial Taking. If any portion of the Leased Premises shall be
taken under the power of Eminent Domain, and the portion not so taken would not,
in the reasonable judgment of Landlord, be adequate for the continued operation
of the Tenant's use of the Leased Premises either unrestored or restored, or if
Landlord deems such restoration to be impractical, Landlord may terminate this
Lease upon notice to Tenant so long as such notice is given within 120 days of
the taking. If this Lease is not terminated pursuant to this Section 11.2,
Landlord immediately following the taking, but solely to the extent of
condemnation proceeds made available to Landlord, shall proceed to restore such
part of the Leased Premises as is not taken to as near the former condition of
the original Leased Premises (less all signs, trade fixtures, improvements,
furniture, and other installations and property installed by Tenant) as the
circumstances will permit, and Tenant shall continue (except as hereafter
provided) to pay Base Rent and Additional Rent in full and to utilize the Leased
Premises for the operation of its business after restoration. Immediately
following the taking and until such time as the
<PAGE>
restoration is complete, Rent shall abate proportionally in relation to that
part of the Leased Premises which has been taken.
11.3 Damages. All damages awarded for any such taking under the power
of Eminent Domain shall be paid to the Landlord, except for damages related to
Tenant's permanent non-removable fixtures installed into the Leased Premises at
the cost of Tenant and any award relating to relocation expenses for the Tenant.
11.4 Rent. If this Lease is terminated as provided in this Article XI,
all Base Rent and Additional Rent shall be paid up to the date that possession
is taken by the condemning authority, and Landlord shall make a proportional
refund to Tenant of any Base Rent, Additional Rent or other amounts paid by
Tenant which are applicable to any period after that date and not yet earned.
11.5 Taking of All or Part of Common Areas. If all or such part of the
common areas or parking lot serving the Building are taken by Eminent Domain to
the extent that the Leased Premises are no longer suitable for the continued use
thereof by Tenant for the purposes set forth in Section 4.2, or access to the
Leased Premises is made impossible by a taking under Eminent Domain, the Tenant
may, by giving thirty (30) days written notice to Landlord, terminate this Lease
as of the date possession is taken.
ARTICLE XII
Damage and Destruction
12.1 Restoration of Damaged or Destroyed Leased Premises.
(a) If the Leased Premises, or any other portion of the Building,
shall, through no fault of Tenant or Tenant's Agents, be damaged by fire, the
elements, unavoidable accident or other casualty, but the Leased Premises are
not thereby rendered untenantable, Landlord shall promptly cause such damage to
be repaired but only to the extent of insurance proceeds made available to
Landlord.
(b) If by reason of such occurrence the Leased Premises shall be
rendered wholly untenantable, Landlord shall promptly but solely from insurance
proceeds made available to Landlord cause such damage to be repaired, unless
within one hundred twenty (120) days after such occurrence Landlord shall give
Tenant written notice that it has elected not to reconstruct the destroyed
premises, in which event this Lease and the tenancy hereby created shall cease
as of the date of such occurrence, and the rental and all other sums paid
Landlord by Tenant hereunder shall be adjusted as of such date.
(c) Any repair or reconstruction performed by Landlord pursuant to
this Section shall not include any signs, trade fixtures, improvements,
equipment, furniture, or other installations and property maintained or
installed by Tenant. Such items shall be restored or replaced by Tenant at
Tenant's sole cost and expense.
(d) All of the above notwithstanding, if Landlord, in its absolute
discretion, shall desire, within a reasonable time, not to exceed one hundred
twenty (120) days, after the occurrence of any such accident or casualty
rendering fifty percent (50%) or more of the Building untenantable (even though
the Leased Premises may not have been affected by such accident or casualty), to
demolish or not restore the Building, then, upon written notice from Landlord to
Tenant, this Lease shall terminate on a date to be specified in such notice, but
not less than 120 days from the date of such notice, and all Rent and other sums
payable hereunder shall be adjusted as of the time of the occurrence of any such
accident or casualty.
12.2 No Abatement. Tenant shall not be entitled to any abatement or
diminution of Rent during any period because of any casualty damage. Tenant at
all times shall maintain business interruption insurance with respect to the
business operated on the Lease Premises and Rent abatement insurance in such
amounts and for such period of time as the Landlord shall require.
ARTICLE XIII
Default by Tenant
13.1 Tenant's Default. If Tenant (a) shall fail to pay any Base Rent or
Additional Rent or other sum of money due hereunder within ten (10) days of the
date the same was first due, (b) shall breach the use restrictions set forth in
Section 4.2 hereof and such default shall continue beyond a period of five (5)
days after Landlord has provided notice to Tenant of such default, (c) shall
fail to perform any other of the terms, conditions, or covenants of this Lease
to be observed or performed by Tenant for thirty (30) days after written notice
of such default shall have been mailed to Tenant, unless such default is of a
nature that it cannot practically be cured within such thirty (30) day period
and Tenant is proceeding with due diligence and in a continuous manner to cure
such default, or (d) shall abandon the Leased Premises, then in any such event
at Landlord's option and without limiting Landlord in the exercise of any other
right or remedy Landlord may have in law or equity on account of such default,
and without any further demand or notice, Landlord may take any or all of the
following actions:
(1) Landlord may re-enter the Leased Premises, take possession of all
improvements, additions, alterations, equipment and fixtures thereon, eject all
parties in possession thereof therefrom, and, without terminating this Lease, at
any time and from time to time relet the Leased Premises or any part or parts
thereof for the account of Tenant or otherwise, receive and collect the Rents
therefore, applying the Rents first to the payment of such reasonable expense as
Landlord may have paid, assumed or incurred in recovering possession of the
Leased Premises, including costs, expenses and attorneys' fees, and in placing
the Leased Premises in good order and condition or preparing or altering the
same for reletting, and all other reasonable expenses, commission and charges
paid, assumed or incurred by Landlord in or in connection with reletting the
Leased Premises, and then to the fulfillment of the covenants of Tenant. Any
such reletting may be for the remainder of the Term of this Lease or for a
longer or shorter period. Landlord may execute any Lease made pursuant to the
terms hereof either in Landlord's name or in the name of Tenant, as Landlord may
see fit, and the subtenant therein shall be under no obligation whatsoever for
the application by Landlord of any Rent collected by Landlord from such
subtenant to any and all sums, due and owing or which may become due and owing
under the provisions of this Lease. Tenant shall not have any right or
authority to collect any Rent from any subtenant. In any case and whether or not
the Leased Premises or any part thereof be relet, Tenant shall pay to Landlord
all sums required to be paid by Tenant up to the time of re-entry by Landlord.
Thereafter Tenant, if required by Landlord, shall pay to Landlord, until the end
of the Term of this Lease, the equivalent of the amount of all Base Rent and
Additional Rent and other charges required to be paid by Tenant under the terms
of this Lease, less the proceeds of such reletting during the Term of this
Lease, if any, after payment of the expenses of Landlord. Such Rent shall be
due and payable on the several Rent days herein specified, and Landlord need not
wait until the termination of this Lease to recover any Base Rent or Additional
Rent by legal action or otherwise. Re-entry by Landlord shall not constitute an
election to terminate this Lease unless Landlord gives Tenant notice of
Landlord's election to terminate.
(2) Landlord may declare this Lease at an end, re-enter the Leased
Premises with or without process of law, eject all parties in possession thereof
therefrom and repossess and enjoy the Leased Premises together with all
improvements thereto, and Landlord shall thereupon be entitled to recover from
<PAGE>
Tenant the present value, at the time of such termination, of the amount of Base
Rent, Additional Rent and charges payable by Tenant to Landlord hereunder for
the balance of the Term. For the purpose of this subparagraph (2), the current
Impositions and contributions to expenses and other items paid by Tenant shall
be projected over the term of the Lease.
(3) Landlord may perfect and otherwise enforce a lien, which Tenant
hereby grants Landlord on all personal property, fixtures and trade fixtures of
Tenant, presently existing or subsequently acquired, except financed equipment,
placed in the Leased Premises or the Building by or for the benefit of Tenant.
Landlord may, without notice and without liability to Tenant or other party,
sell such personalty at public or private sale with the proceeds being applied
to amounts owed by Tenant and toward damages resulting from Tenant's breach of
this Lease.
13.2 Remedies Not Exclusive; No Waiver. The remedies of Landlord set
forth in this Lease are cumulative and are in addition to and not exclusive of
any other remedy of Landlord herein given or which may be permitted by law, and
if any breach or threatened breach by Tenant of this Lease occurs, Landlord
shall be entitled to enjoin such breach or threatened breach and shall have the
right to invoke any right and remedy allowed by law or in equity or by statute
or otherwise in addition to rights set forth in this Lease. Tenant shall permit
any re-entry as provided for in this Article XIII without hindrance to
Landlord, and Landlord shall not be liable in damages or guilty of trespass
because of such re-entry. The failure of Landlord to insist, in any one or more
instances, upon a strict performance of any of the covenants of this Lease or
to exercise any option contained herein, shall not be construed as a waiver or a
relinquishment for the future of such covenant or option. A receipt by Landlord
of Base Rent or Additional Rent with knowledge of the breach of any covenant of
this Lease shall not be deemed a waiver of such breach. No waiver by Landlord
of any provision of this Lease shall be deemed to have been made unless
expressed in writing and signed by Landlord. If Tenant fails to make any
payments when due and payable as provided in this Lease and Landlord sends
notice to Tenant more than twice in any one calendar year, then Tenant shall be
deemed in default, and Landlord shall have all rights and remedies provided in
this Lease for a default by Tenant.
13.3 Cure by Landlord. If Tenant at any time defaults in making any
payment or in performing any other obligation under this Lease within the time
required allowing notice, Landlord may cure such default by payment of the
amount due or performance of such obligation and Landlord may collect from
Tenant as Additional Rent the costs thereof, together with interest at the rate
of fifteen per cent (15%) per annum from the date of payment until
reimbursement by Tenant.
ARTICLE XIV
Bankruptcy
14.1 Effect of Bankruptcy or Other Proceedings. If at any time any
bankruptcy or any reorganization proceeding is instituted by or against Tenant
either in the State or Federal Courts, or if a receiver is appointed under any
bankruptcy or insolvency laws, for its business or property on or in the Leased
Premises, or if any lien is assessed against Tenant or its property on or in the
Leased Premises, or if Tenant shall make an assignment for the benefit of
creditors or voluntarily or involuntarily take advantage of any debtor relief
proceedings under present or future law, Landlord, in addition to any other
remedies provided Landlord in the event of Tenant's default as set forth in
this Lease or under any applicable law, shall have the option, to be exercised
by written notice given to Tenant, to declare this Lease terminated at any time
after the expiration of twenty (20) days following the commencement of such
proceeding or the assertion of such lien, unless the proceeding is dismissed or
the lien discharged and unless all payments of Base Rent and Additional Rent and
other payments required by this Lease to be made by Tenant to Landlord are paid
promptly during such period of twenty (20) days. Landlord shall under no
circumstances be required to permit a receiver or any person claiming through or
under Tenant to retain possession of the Leased Premises. Landlord need not
lease the Leased Premises to such receiver or person, and Landlord shall be
enabled to immediate possession of the Leased Premises. Any repossession or
termination hereunder shall not operate in any way to prejudice or affect the
right of Landlord for recovery of Base Rent and Additional Rent or other charges
theretofore accrued, thereafter accruing or to any other damages, nor shall any
such termination or repossession ever be construed as a waiver of or an election
not to claim future damages on account of such breach, but all such damages,
including all future rentals, shall be fully recoverable by Landlord.
14.2 Federal Bankruptcy Laws.
(a) In case any of the foregoing provisions are unenforceable or
invalid under the Bankruptcy Laws of the United States or the insolvency laws or
laws for the relief of debtors of any state or territory, the remaining
provisions of Article XIV shall not be affected thereby, but shall remain in
full force and effect.
(b) No trustee, interim trustee, debtor in possession, debtor engaged
in business, no custodian, receiver or assignee, or any fiduciary by whatever
name, in dominion, control, custody or title, acting under the purported
authority of any law, may assume or assign this Lease without the prior written
consent of Landlord unless all requirements of the Bankruptcy Laws of the
United States are fully satisfied. Such requirements, in the event of a
proceeding under 11 U.S.C. include Section 365(b)(1)(A), (B) and (C), (b)(3)(A),
(B) and (C), (b)(4) and (f)(2)(A) and (B), as the same may be amended
from time to time.
(c) If the property of Tenant is under administration pursuant to the
provisions of 11 U.S.C. Section 101 et seq., then no claim of Landlord for
failure or refusal of Tenant to perform the covenants of this Lease shall exceed
amounts allowable under 11 U.S.C. Section 502(b)(7)(A) and (B), together with
any other amounts allowable to Landlord under other provisions of 11 U.S.C. or
interpretations thereof.
14.3 Bankruptcy of Partner of Tenant. If Tenant is a partnership, a
bankruptcy or reorganization proceeding instituted by or against one or more of
the partners of Tenant shall not constitute a bankruptcy or reorganization
proceeding by or against Tenant allowing Landlord to declare the Lease
terminated within the meaning of this Article XIV, so long as no bankruptcy or
reorganization proceeding has been instituted by or against all of the general
partners of the Tenant.
ARTICLE XV
Miscellaneous
15.1 Recording. Landlord reserves the right at any time to require this
Lease, or a short form thereof, to be recorded at Landlord's expense among the
Land Records of Harford County, Maryland.
15.2 Estoppel Certificates. Tenant agrees at reasonable intervals and
from time to time upon not less than five (5) days prior written notice from
Landlord to execute, acknowledge and deliver a statement in writing certifying
(i) that this Lease is unmodified and in full force and effect (or if there
have been modifications, that the Lease is in full force and effect as modified
and stating the modifications), (ii) the dates to which the Rent and other
charges have been paid in advance, if any, and (iii) stating whether or not to
the best knowledge of Tenant and its authorized representative signing such
certificate the Tenant is in default in performance of any covenant, agreement
or condition contained in this Lease and, if so, specifying each such default of
which the signer may have knowledge. Tenant acknowledges that any such
statement delivered under this Lease may be relied upon by third parties not a
party to this Lease. Failure by the Tenant to respond to a request made
pursuant to this Section within fourteen (14) days shall operate as a
conclusive presumption that the Landlord is not in default of any covenant of
this Lease and that it is unmodified except as the Landlord may otherwise
indicate.
15.3 Right to Enter. Landlord and its agents shall have the right to
enter the Leased Premises at all reasonable hours, and at any time if any
<PAGE>
emergency exists, to examine the Leased Premises, or to make such repairs and
alterations as shall be reasonably necessary for the safety and preservation of
the Leased Premises, or during the last six (6) months of the Term to show both
the interior and exterior of the Leased Premises to prospective tenants or
purchasers and to place "For Rent" signs thereon. Landlord shall use its best
efforts to minimize any interference with Tenant's operations which may be
caused by the entrance upon the Leased Premises by Landlord or Landlord's
Agents.
15.4 Conditions and Termination.
(a) At Landlord's option this Lease shall become void and all parties
shall be relieved of all obligations imposed hereunder if Landlord has not
completed construction of the improvements within thirty (30) days of the
current tenant vacating the Leased Premises (the "Completion Date").
(b) If this Lease is terminated by Landlord pursuant to this Section
15.4, Landlord shall refund to Tenant the amount of all security deposits and
advance Rent made by Tenant to Landlord under this Lease.
15.5 Laws of Maryland. This Lease shall be construed and applied in
accordance with the laws of the State of Maryland.
15.6 Severability. Any provision or provisions of this Lease which
shall prove to be invalid, void, or illegal shall in no way affect or impair or
invalidate any other provision, and the remaining provisions shall remain in
full force and effect.
15.7 Headings. The headings of the various Articles and Sections of
this Lease are inserted for reference only and shall not to any extent have the
effect of modifying, amending or changing the express terms and provisions of
this Lease.
15.8 Notices. Any notice, request, demand, approval, or consent to be
given under this Lease shall be in writing and shall be deemed to have been
received when mailed by United States, registered or certified mail, postage
prepaid, addressed to the other party at the addresses set forth in Section
1.2(s) of this Lease, or if to the Tenant, at the Leased Premises after the
Tenant has occupied the Leased Premises. Either party may at any time change its
address by mailing a notice, as specified in this Section 15.8, that such change
is desired and setting forth the new address.
15.9 Force Majeure. In no event shall Landlord be liable for, nor shall
Tenant have the right to terminate this Lease for, delays in the prosecution of
Landlord's share of construction, or the performance by Landlord of any other
matters hereunder, beyond Landlord's control ("Force Majeure"), including (but
not limited to) delays caused directly or indirectly by strikes, lockouts, the
unavailability of labor or materials, Acts of God, acts of any Federal, State,
or local governmental agency or authority, war, insurrecton, rebellion, riot,
civil disorder, fire, explosion, windstorm, hail, snow, extreme cold, rain,
flood, damage from aircraft, vehicles, or smoke, or by any other casualty of a
substantial enough nature to cause delay. Landlord shall use its best efforts to
satisfy its obligations hereunder as soon as possible after the Force Majeure
have terminated.
15.10 Successors. This Lease shall be binding upon and inure to the
benefit, as the case may require, of the parties hereto and their respective
heirs, executors, administrators, successors and permitted assigns.
15.11 Subordination. This Lease shall be subject to and subordinate at
all times to the lien of any Mortgages now or hereafter made by Landlord on the
Leased Premises and to all advances made or hereafter to be made thereunder;
provided, however, that such Mortgages shall provide that, notwithstanding any
default under such Mortgages, if Tenant is not in default hereunder, Tenant may
remain on the Leased Premises undisturbed. Although this subordination provision
shall be self-operative and no further instrument of subordination shall be
required, Tenant shall, nevertheless, execute and deliver such further
instruments confirming such subordination or status of this Lease as may be
required by the Landlord for financing or refinancing the Leased Premises.
Tenant will execute an attornment instrument and attorn to any Mortgagee (under
a Mortgage which contains the aforementioned nondisturbance provision) or to any
successor in interest of Landlord, and become its Tenant on the same terms and
covenants of this Lease for the unexpired portion of the Term.
15.12 Assignment of Landlord's Interest. If Landlord should ever assign
this Lease or the Rents hereunder to a creditor as security for a debt or
otherwise, Tenant shall, after notice of such assignment and upon demand by
Landlord or the assignee, pay all sums hereafter becoming due Landlord hereunder
to the assignee and give all notices required to be given Landlord hereunder
both to Landlord and the assignee. In the event of such assignment of this
Lease or the Rents hereunder, the Landlord shall use its best efforts to obtain
a nondisturbance agreement from its assignee.
15.13 Transfer by Landlord. If Landlord sells, leases or in any manner
transfers title to the Building, including foreclosure sale by judicial
proceeding or otherwise, the Landlord shall be relieved of all covenants and
obligations arising hereunder, provided the Landlord is not then in default
hereunder. Tenant agrees that it will upon request, attorn to and acknowledge
such transferee, provided such transferee has assumed prospectively all of
Landlord's covenants and obligations hereunder, and Tenant shall continue to
perform all of the terms, covenants, and conditions, and obligations of this
Lease.
15.14 Time of Essence. Time is of the essence in all of the provisions
of this Lease.
15.15 Holding Over. If Tenant holds possession of the Leased Premises
after the termination of this Lease without Landlord's express permission,
Tenant shall become a tenant from month to month at two times the Rent specified
herein and upon all other terms herein until Landlord shall terminate such
tenancy or until this Lease is terminated by Tenant upon at least thirty (30)
days' prior notice to Landlord of Tenant's election to terminate.
15.16 Joint and Several Liability. In the event that two (2) or more
parties shall sign this Lease as Tenant, the liability of each such party to pay
Base Rent and Additional Rent and perform all other covenants of this Lease
shall be joint and several. In the event that the Tenant shall be a partnership
or other business association, the members of which are, by virtue of statute or
general law, subject to personal liability, the liability of each such member
shall be personal and joint and several.
15.17 No Discrimination. Landlord requires the Building be operated in
such a manner so that all tenants, and their customers, employees, licensees and
invitees shall have an equal opportunity to obtain all the goods, services,
accommodations, advantages, facilities and privileges of the Building without
discrimination because of race, creed, color, sex, age, national origin or
ancestry. Tenant agrees not to discriminate in the conduct and operation of its
business in the Leased Premises against any person or group of persons because
of the race, creed, color, sex, age, national origin or ancestry of such person
or group of persons.
<PAGE>
15.18 Integration of Agreements. This writing is intended by the
parties as a final expression of their agreement and is a complete and
exclusive statement of its terms, and all negotiations, considerations and
representations between the parties are incorporated. No course of prior
dealings between the parties or their affiliates shall be relevant or admissible
to supplement, explain, or vary any of the terms of this Lease. Acceptance of,
or acquiescence to, a course of performance rendered under this Lease or any
prior agreement between the parties or their affiliates shall not be relevant or
admissible to determine the meaning of any of the terms or covenants of this
Lease. Other than as specifically set forth in the Lease, no representations,
understandings, or agreements have been made or relied upon in the making of
this Lease. This Lease can only be modified in writing signed by each of the
parties hereto.
15.19 Third Party Beneficiary. Nothing contained in this Lease shall be
construed as to confer upon any other party the rights of a third party
beneficiary, except as may be otherwise specifically provided for herein.
15.20 Real Estate Broker. Landlord and Tenant each warrants to the
other that no real estate broker or any other party other than RKS Realty, Inc.
has participated in bringing about this Lease and each agrees to hold the other
harmless and indemnify the other from all claims of others arising out of the
negotiation or entering into of this Lease.
15.21 Effective Date of this Lease. All terms, conditions, and
covenants by Tenant contained in this Lease shall be effective as of delivery
of an executed copy of this Lease by Landlord to Tenant, except the covenant
to pay Base Rent and Additional Rent, which shall be effective on the
Commencement Date.
15.22 Variation in Pronouns. All pronouns and any variations thereof
shall be deemed to refer to masculine, feminine, neuter, singular or plural, as
the identity of the person or persons may require.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed as of the day and year first above written.
WITNESS: LANDLORD:
LAMBDIN DEVELOMENT COMPANY
___________________________ By: ________________________ (SEAL)
James Lambdin, President
TENANT:
ALCORE, INC.
___________________________ By: __________________________ (SEAL)
<PAGE>
LIST OF EXHIBITS
----------------
EXHIBIT A Floor Plan of Building
EXHIBIT B Tenant's Plans
EXHIBIT C Rent Schedule
EXHIBIT D Insurance Policies
EXHIBIT E Rules and Regulations
EXHIBIT F Common Area Expenses - Budget
<PAGE>
EXHIBIT B
TENANT'S PLANS
I. To be provided by Landlord at no cost to Tenant.
Tenant agrees to take space in as is condition and has use of the moveable
partitions.
II. To be provided by Landlord at cost of Tenant.
III. To be provided by Tenant - at Tenant's Cost.
<PAGE>
EXHIBIT C
RENTAL RATES
Impositions,
Building Rent
Year of Annual Expenses & Annual Monthly Per Square
Lease Base Rent* Insurance** Total Rent Payment Foot
- ------------------------------------------------------------------------------
1 $18,976.76 $5,095.24 $24,072.00 $2,006.00 $12.00
2 Option Year $18,976.76 $5,095.24 $24,072.00 $2,006.00 $12.00
3 Option Year $20,982.80 $5,095.24 $26,078.04 $2,173.17 $13.00
4 Option Year $22,988.72 $5,095.24 $28,083.96 $2,340.33 $14.00
5 Option Year $24,994.76 $5,095.24 $30,090.00 $2,507.50 $15.00
* Pursuant to Section 1.2(c) and Section 3.1 hereof.
** Pursuant to Sections 3.2, 3.4, 3.10, 10.1 and 10.3 hereof.
It is agreed that Tenant's Proportionate Share of Expense Pass-Throughs
including Impositions, Building Expenses and Insurance shall remain fixed
during the Term of the Lease and the four Option Years. However, Tenant shall
be responsible for its Proportionate Share of Utility Costs as described in
Section 3.3. For the first year, the estimated Utility Cost for those
utilities which are not separately metered is Six Hundred Sixty Dollars
$660.00) or Fifty-Five Dollars ($55.00) a month and will be added to and be
paid along with Rent each month.
<PAGE>
EXHIBIT D
TENANT INSURANCE
[TO BE COMPLETED]
I. Casualty Insurance - Tenants Property [under Section 10.3(b)].
Amount of
Insurer Coverage Term Insureds
- ------- --------- ---- --------
II. Public Liability Insurance [under Section 10.3(b)].
Amount of
Insurer Coverage Term Insureds
- ------- --------- ---- --------
III. Tenants Rent Interruption Insurance [under Section 12.2]
Amount of
Insurer Coverage Term Insureds
- ------- --------- ---- --------
<PAGE>
EXHIBIT D
RULES AND REGULATIONS
1. The sidewalks, halls, passages, and stairways shall not be
obstructed by any of the tenants or used by them for any other purpose than for
ingress and egress from and to their respective offices. The halls, passages,
stairways and roof are not for the use of the general public, and Landlord shall
in all cases retain the right to control and prevent access thereto of all
persons whose presence, in the judgment of Landlord or its employees, shall be
prejudicial to the safety, character, reputation and interest of the building
and its Tenants. No tenant or employee or invitee of any tenant, shall go upon
the roofs of said building without the written consent of Landlord or its agents
nor use the corridors other than those provided for the portion of the building
in which the leased premises are located. In case of invasion, mob riot, public
excitement or other commotion, Landlord reserves the right to prevent access to
the building during the continuance of the same by closing the doors or
otherwise for the safety of tenants and the protection of property in said
building. During other than business hours access to the building may also be
refused unless the person seeking admission is known by the watchman in charge
to have the right to enter demised premises therein or is properly identified
and the production of a key to such demised premises may in addition be
required, provided that Landlord shall in no case be liable in damages for the
admission or exclusion of any person from said building.
2. The floors, windows, doors and transoms that reflect or admit into
passage-ways or into any place in said building shall not be covered or
obstructed by any of the tenants. The tenant's toilet room and water apparatus
shall not be used for any purpose other than those for which they were
constructed, and no sweepings, rubbish, rags, ashes, chemicals, or other
unsuitable substance, shall be thrown therein. Any damage resulting from such
misuse or abuse shall be borne and immediately paid by the tenant by whom
employees or invitees it shall be cause.
3. Nothing shall be placed on the outside of the building, or of the
windows, window-sills or projections.
4. No sign, advertisement, or notice shall be inscribed, painted or
affixed on any part of the outside or inside of said building unless of such
color, size and style, and in places upon or in said buildings as shall be first
designated by the Landlord and endorsed hereon. A sign painter authorized by
Landlord will do such work at tenant's expenses. A directory, in a conspicuous
place on the first floor, will be provided by the Landlord, on which the names
of tenants will be placed by the Landlord.
5. Each tenant, upon the termination of his lease, must surrender all
keys of rooms and safes.
6. No tenant shall do or permit anything to be done in said premises,
or bring or keep anything therein which will in any way increase the rate of
fire insurance on said building, or on property kept therein, or obstruct or
interfere with the right of other tenants, or in any other way injure or annoy
them or conflict with the laws relating to fires, or with the regulations of the
Fire Department, or with any insurance policy upon said building or any part
thereof, or conflict with any of the rules and ordinances of the Board of
Health. The use of rooms as sleeping apartments is prohibited.
7. The Landlord shall in all cases retain the right to prescribe the
weight and proper position of safes, and all damage done to the building by
taking in or putting out a safe, or during the time it is in or on the premises
shall be made good and immediately paid by the tenant, and no safe shall be put
or hoisted in any part of said building. Tenants shall notify the Building
Manager of the weight of the safe, and arrange with him as to time for receiving
or delivering the same. Safes must be removed upon termination of the lease.
8. The Landlord or its agents shall have the right to enter any
premises at reasonable hours in the day or night to examine the same or to make
such repairs, additions and alterations as it shall deem necessary for the
safety, improvement, preservation or restoration of said building, or for the
safety or convenience of the occupants thereof and also to exhibit the said
premises to be let.
9. Tenants, and their employees or invitees, shall not make or commit
any improper noises, or disturbances of any kind in the building or mark or
defile the building, or interfere in any way with the other tenants or those
having business with them. Tenants shall be liable for all damages done to the
building by their employees.
10. No carpet, rug or other article shall be hung or shaken out of any
window, and nothing shall be thrown or allowed to drop by the tenants, or their
employees out of the windows or doors or down the passages or skylight of the
building, and no Tenant shall sweep or throw, or permit to be swept or thrown
from the leased premises, any dirt or other substances into any of the
corridors, halls, or stairways of said building, or into the light-shaft
thereof, or any adjoining building or roof.
11. No animals shall be kept in or about the premises.
12. If tenants desire to introduce signaling, telegraphic, telephonic
or other wires and instruments, the Landlord will direct the electricians as to
where and how the same are to be placed, and without such direction no placing,
boring or cutting for wires will be permitted. Landlord shall in all cases
retain the right to require the placing and using of such electrical protecting
devices to prevent the transmission of excessive currents of electricity into or
through the building and to require the changing of wires and of their placing
and arrangement as Landlord may deem necessary, and further, to require
compliance on the part of all using or seeking access to such wires, with such
rules as Landlord may establish relating thereto, and in the event of non-
compliance with the requirements and rules, Landlord shall have the right to
immediately cut and prevent the use of such wires.
13. Tenants shall not use or keep in the building any explosives,
kerosene, camphene, burning fluid or other illuminating materials.
14. The heating or air-conditioning apparatus must not be removed or
disturbed in any way nor shall articles be fastened to or holes drilled or
nails or screws driven into walls or partitions, nor shall the walls or
partitions be painted, papered or othewise covered, or in any way marked or
broken, nor shall any attachments be made to the electric lighting wires of
the building for the running of electric fans or motors, or other purposes, nor
will machinery of any kind be allowed to be operated on the premises nor shall
any tenant use any other method or heating or air-conditioning than that
provided by Landlord, without the written consent of the Landlord. Tenants
desiring to put in telephone will notify the Landlord, who will designate where
the same shall be placed.
15. The Landlord reserves the right to rescind any of these rules and
to make such other and further reasonable rules and regulations as, in
Landlord's judgment may from time to time be needful for the safety, care and
cleanliness of the premises, and for the preservation of good order therein,
which, when so made, and notice thereof given to the Tenant, shall have the same
force and effect as if originally made a part of the foregoing lease; and such
other and further rules, not however, to be inconsistent with the proper and
rightful enjoyment by the Tenant under the foregoing lease of the premises
therein referred to.
16. Canvassing, soliciting and peddling on the Property are prohibited.
Tenant shall cooperate to prevent such activity.
<PAGE>
EXHIBIT F
COMMON AREA MAINTENANCE EXPENSES
--------------------------------
LAMBDIN DEVELOPMENT COMPANY
1250 BRASS MILL ROAD
BELCAMP, MD 21017
1996 COMMON AREA MAINTENANCE BUDGET
CATEGORY ANNUAL MONTHLY PER SQ. FOOT
- -------- ------ ------- ------------
Janitorial $ 1,680.00 $ 140.00 $0.17
Trash Removal 1,080.00 90.00 0.11
Mowing & Landscaping 1,860.00 155.00 0.19
Snow Removal 108.00 9.00 0.01
Service, Repairs & Maintenance 1,008.00 84.00 0.11
Supplies & Materials 240.00 20.00 0.02
Gas & Electric 1,980.00 165.00 0.21
Water & Sewer 1,200.00 100.00 0.12
Legal & Accounting 1,008.00 84.00 0.11
Miscellaneous 108.00 9.00 0.01
Business Park Fees & Reserves 1,008.00 84.00 0.11
Real Estate Taxes 9,876.00 823.00 1.23
Insurance 1,224.00 102.00 0.13
---------- --------- -----
Subtotal $22,380.00 $1,865.00 $2.33
Management Fee 5,196.00 433.00 0.54
---------- --------- -----
TOTAL $27,576.00 $2,298.00 $2.87
========== ========= =====
<PAGE>
PROFESSIONAL EXECUTIVE SUITE OFFICE LEASE
This Professional Executive Suite Office Lease (hereinafter "Lease") is entered
into and executed by and between the Client whose name appears below
(hereinafter "Client") and International Satellite Promotions, Inc., dba
Corporate Executive Suites (hereinafter "Company"), the operator of the
Corporate Executive Suites Center located at Santa Fe Corporate Center, 14111
East Freeway Drive, Santa Fe Springs, California 90670 (hereinafter "Center").
Basic Lease Terms
(a) Effective Date: January 24, 1996
(b) Name Of Client: ALCORE, INC.
Address (For Notices): 1324 Brass Mill Road, Belcamp, MD 21017
Attention: Donna Bumford
Telephone: 410-272-2224
FAX: 410-272-8050
(c) Office Numbers(s) 319/320
(d) Number of Occupants 2
(e) Commencement Date March 1, 1996
(f) Term of Lease 18 Months
(g) Basic Monthly Rent $ 990.00
(h) Furniture Rental $ N/A
(i) Instrument, Voice Mail, PBX Charge
Phones 2 @$35.00 ea $ 70.00
(j) 2 Phone Lines @$28.00 ea $ 56.00
(k) 1 FAX/Modem Lines @$28.00 ea $ 28.00
$
(l) Total Monthly Basic Charges $1,144.00
(m) Security Deposit, including
non-refundable cleaning fee of $ 0 $ 990.00
(n) Telephone Deposit $ 0
(o) Key/Card Deposit $ 20.00
(p) Telephone Installation $ 80.00 (reg. $80./line)
(q) Directory Listing $ 35.00
(r) Deposit $ 100.00
(s) Total Move-In Charges (Due Upon Lease
Execution.) $
Total Amount Due at Lease Commencement $2,169.00
=========
COMPANY'S INITIALS: /s/ CLIENT'S INITIALS:
<PAGE>
l. PREMISES. Company hereby Leases to Client and Client hereby leases from
Company the Premises designated above herein, on the terms and conditions
hereinafter set forth. The lease of the Premises includes reasonable access to
common areas of the Center and the building including restrooms, corridors and
reception lobbies.
2. TERM. The term of this Lease shall begin on the Commencement Date and shall
continue for the term set forth above, unless sooner terminated pursuant to the
terms of this Lease. Such term, and any extension given with the express written
consent of Company, is hereafter referred to as "term." If Company is unable to
deliver possession of the Premises to Client at the Commencement Date, Company
will not be liable for any resulting damage, nor will this Lease be affected,
except that Client will not be obligated to pay the basic monthly rent as
hereafter defined, until Company delivers possession. If Client takes occupancy
of the Premises prior to the Commencement Date such occupancy shall be subject
to the terms and conditions of this Lease.
3. PAYMENTS. Client agrees to pay to Company the Basic Monthly Rent and other
Monthly Basic Charges in the amount stated in the Basic Lease Terms above
throughout the term of this Lease. Client will pay when due hereunder such rent
and charges, and any other charge(s), including any applicable sales, use and
other taxes, now or hereafter imposed by any governmental body, without any
deduction or offset to:
Corporate Executive Suites Center
14111 East Freeway Drive, Suite 300
Santa Fe Springs, California 90670
Attention: Douglas Maniaci
(a) All payments to Company of Monthly Basic Rent and Monthly Basic
Charges are due and payable in advance on the first of every month without
demand, deduction or offset. Any additional charges are due and payable upon
receipt of an invoice from Company.
(b) ANY PAYMENTS NOT RECEIVED WITHIN FIVE (5) DAYS AFTER THE DUE DATE
WILL BE SUBJECT TO A LATE CHARGE EQUAL TO SIX PERCENT (6%) OF THE PAST DUE
BALANCE, BUT NOT LESS THAN $20 TO COMPENSATE COMPANY FOR THE EXTRA COSTS
INCURRED AS A RESULT OF SUCH LATE PAYMENT. PAYMENTS RECEIVED SHALL BE APPLIED
FIRST TO BASIC MONTHLY RENT AND THEN TO OTHER MONTHLY BASIC CHARGES IN SUCH
PRIORITY AS COMPANY MAY ELECT.
(c) If Client fails to pay any amount when due, Client shall pay to
Company interest thereon at an annual rate of ten percent (10%) or such lower
rate as may be the maximum lawful rate.
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4. USE. Client shall use the Premises as and for an executive suite (as defined
hereinafter), and for no other purpose without the prior written consent of
Company. Client shall abide by all laws, ordinances, rules and regulations
pertaining to the use of the Premises including, without limitation, the Rules
and Regulations for the building in which the Premises are located.
(a) "Executive Suite" shall mean an office to be used for professional
business purposes and the use of adjoining facilities for services provided to
and shared by other clients of Company.
(b) Client agrees that Client will not offer or use the Premises to
provide services provided by Company to Company's clients, nor make nor permit
any use of the Premises in any manner which is forbidden by law or regulation,
or may be hazardous or unsafe, or may tend to impair the character, reputation,
appearance or operation of Company. Only telephone equipment and services
approved by Company may be used in the Premises. Client agrees that any ringing
or communications devices, e.g., pagers, will be adjusted to the lowest
reasonable ringing volume.
(c) Client understands and agrees that occupancy of the Premises is
subject to this Lease. Client will comply with all rules, regulations, and
requirements of the building in which the Premises are located and with other
reasonable rules and regulations established by Company and relating to the
Premises and Client's use thereof. Company will have no responsibility to Client
for violation of any lease provisions or rules and regulations by any other
Client of Company.
(d) In Company's sole and absolute discretion, upon thirty (30) days
prior written notice to Client, Company shall have the right to relocate Client
in comparable office space within the Center. Client agrees that all terms and
conditions of the Lease will remain the same. Company will incur all reasonable
out-of-pocket costs associated with any such relocation. Client shall not be
entitled to any compensation for any inconvenience or interference with Client's
business, nor to any abatement or reduction in rent, nor shall Client's
obligations under this Lease be otherwise affected.
(e) Client shall neither use nor occupy the Premises in any manner, nor
commit any act, resulting in a cancellation or reduction of any insurance
coverage or increase in premiums on any insurance policy covering the Premises
or the property or building of which the Premises are a part. Client agrees to
maintain a commercial general liability policy with a minimum limit of
$1,000,000. Failure to furnish Company with an endorsement of insurance naming
Company as an additional insured shall constitute a material breach of this
Lease entitling Company to terminate this Lease.
5. IMPROVEMENTS AND ALTERATIONS. Company has made no promise to alter or
improve the Premises or Center and has made no representations concerning the
condition thereof. By taking possession of the Premises, Client acknowledges
that they are in good order,
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<PAGE>
condition and repair and accepts the Premises and the Center in its "AS-IS"
condition as of the date of this Lease. Client shall maintain the Premises in
good condition and repair, will not make holes in walls for any reason except
the normal and reasonable hanging of pictures, or cause or permit the Premises
to be damaged or defaced in any manner whatsoever. Client will make no
alterations or additions to the Premises without Company's prior written
consent, which consent Company may grant or withhold in its sole discretion.
Client will return the Premises at the end of the term in as good of condition
and repair as when Client received the Premises, reasonable wear and tear
excepted. Client shall provide, at Client's expense, a plastic mat(s) to be
placed under each chair located within the Premises and will use it at all
times. If mat(s) are not installed within one week of move-in, Company will
purchase and install mat(s) at a cost to Client of $85.00 each. Company may, but
is not required to, make repairs or replacements for Client's account, and
Client will pay to Company all costs and expenses for such repairs and
replacements upon demand. It is also agreed that damage or injury done to the
Premises, by Client, or by any person who may be in or upon the Premises with
the consent of Client, other than from normal wear and tear, shall be paid by
Client. Upon termination of this Lease, whether upon expiration of the term
hereof or sooner, Client agrees to pay to Company the sum of $150 per leased
office to cover painting costs for each such office.
6. LIMITATION OF LIABILITY.
(a) THIS LEASE IS MADE UPON THE EXPRESS CONDITION THAT COMPANY SHALL BE
FREE FROM ALL LIABILITY AND CLAIM FOR DAMAGES by reason of any injury to any
person or persons, including Client, or property of any kind, from any cause or
causes, in any way connected with the Premises or the use or occupancy thereof
during the term of this Lease or any extensions hereof or any occupancy
hereunder. In no event shall Company be liable for any conduct of any other
client of Company or tenant of the building where the Premises are located, and
any such conduct shall not give Client the right to terminate this Lease or any
other agreement between Company and Client. Company or its agents shall not be
liable for any damage to property entrusted to employees of the Building nor for
loss or damage to property by theft or otherwise, nor for injury or damage to
persons or property resulting from fire, explosion, falling plaster, steam, gas,
electricity, water or rain, or from pipes or from any other cause whatsoever
unless caused by the gross negligence or willful misconduct of Company. Company
shall not be liable under any circumstances for consequential damages or damages
or injury to Client's business or potential business, no matter what causes such
damages.
(b) THE PREMISES AND ANY SERVICES, FURNISHINGS, AND FACILITIES PROVIDED
PURSUANT TO THIS LEASE ARE FURNISHED WITHOUT WARRANTY (EXPRESS, IMPLIED OR
STATUTORY) OF ANY KIND WHATSOEVER. Client's sole remedy, and Company's sole
obligation for any failure to render any service, furnishings or facility, any
error or omission, or any delay or interruption with respect thereto, is limited
to an adjustment to Client's billing in an amount equal to the charge for such
service, furnishing or facility for periods during which the failure, delay or
interruption continues. (By way of example only, if Client's office is
reasonably determined to be unusable due to the negligence or fault of Company,
Client's billing will be reduced in proportion to Client's reduced use thereof.)
With the sole exception of the remedy set forth in this Paragraph 6(b), Client
expressly and specifically agrees to waive, and agrees not to make any claim for
damages, direct or consequential, arising out of any failure to furnish any
service, furnishing or facility, any error or omission with respect thereto, or
any delay or interruption of the same. Notwithstanding anything in this
paragraph, there shall be no billing adjustment if Client is in default
hereunder.
7. INDEMNITY. Client hereby covenants and agrees to indemnify, protect, defend
(with counsel chosen by Company) and hold harmless Company from and against any
and all liability, loss, cost, claim, action or obligation, including, without
limitation, actual attorneys' fees on
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<PAGE>
account of Client's use of the Premises and anything done or allowed to be done
by Client on the Premises or the building where the Premises are located.
8. DESTRUCTION OF PREMISES. Should the Premises, the Center or the building in
which the Premises are located be so damaged by flood, fire, earthquake,
explosion or other cause, that, in the opinion of Company, it is impracticable
or inadvisable to restore the same, then this Lease shall terminate as of the
date of such damage, and both Company and Client shall be released from all
obligations hereunder arising subsequent to the date of such damage (except
Client shall not be released from any of its indemnification obligations under
this Lease as to events arising or accruing prior to the date of such
termination). If Company desires to restore the Premises or the Center, Company
shall have ninety (90) days, or such additional time as may be mutually agreed
to between the parties, to complete such restoration. In such event, this Lease
shall remain in full force and effect, except that the rent due hereunder during
the period that the Premises are in need of or are being restored shall be
abated or proportionately reduced, depending on whether the Premises are
entirely or partially untenantable.
9. EMINENT DOMAIN. If all or part of the Premises shall be taken under power of
eminent domain or sold under threat of such taking, this Lease shall terminate
as to the part so taken or sold, and the rent shall be reduced in the proportion
that the value of the Premises is reduced thereby. The entire award or proceeds
from such taking or sale of land and improvements, including severance damages,
shall belong to Company and Client shall be entitled only to the portion of the
award or proceeds for its personal property which may be taken, and any
relocation allowance actually paid by the condemning authority. Client may
terminate this Lease by notice to Company within thirty (30) days after such
taking or sale.
10. DEFAULT. Client shall be in default hereunder when Client does not pay any
sum payable by Client to Company after such sum becomes due and payable under
this Lease, or if Client fails to perform any of Client's other covenants or
provisions or agreements under this Lease. If Client does not cure any such
default within three (3) days after written notice from Company, Company shall
have the right, with or without further notice, and in addition to and not in
lieu of other remedies available, to terminate all of Client's rights under this
Lease or such of those rights as Company designates in such written notice. Such
notice shall be in lieu of, and not in addition to, any notice required by
California Code of Civil Procedure 1161.
If Client's rights under this Lease are so terminated, Company may, after
complying with any applicable requirements of law, take possession of the
Premises. Upon any such action by Company, Client shall remain liable for all
obligations which have previously accrued, and, to the maximum extent permitted
by law, for all obligations which may subsequently accrue under this Lease.
It is expressly agreed that in the event of any default by Client hereunder,
Company shall have a lien upon all goods, chattels and personal property of any
description belonging to Client which are placed in, or become part of the
Premises, as security for rent due and to become due for the remainder of the
then current term of this Lease, which lien shall not be in lieu of or in any
way affect any statutory lien given by law to Company, which shall be cumulative
thereof. Client hereby grants Company a security interest and all such personal
property placed in the Premises for the above described purposes.
11. SECURITY DEPOSIT. Upon execution of this Lease, Client shall pay to Company
the amount set forth in the Basic Lease Terms as a security deposit ("Security
Deposit"). Such amount shall be held by Company as security for the full,
faithful and complete performance by Client of all terms, covenants and
agreements to be kept by Client hereunder, or under any other agreement between
Client and Company. If Client fails to perform any of Client's obligations when
performance is due, Company may apply the Security Deposit to the payment of any
monthly charge or any other payment due from Client, or of any sum which Company
may spend
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<PAGE>
or be required to spend by reason of Client's failure. Upon written demand by
Company, Client will pay to Company any amount so applied so that such Security
Deposit is returned to its original amount as specified herein. If at the end of
the term of this Lease Client has performed all of the provisions of this Lease,
the Security Deposit, or any remaining balance, will be returned to Client,
without interest, less the cleaning/painting fee, within forty-five (45) days
after the end of such term.
12. ASSIGNMENT AND SUBLETTING. Only with the prior written consent of Company
may Client assign this Lease or any interest herein or sublet the Premises or
any portion thereof or permit any other person to occupy the Premises or any
portion thereof. Such consent may be withheld by Company in its sole, absolute
and subjective discretion without adhering to any standard of reasonableness.
Consent to one assignment or subletting shall not constitute a waiver of this
provision or consent to any further assignments or subletting. No assignee for
the benefit of creditors, trustee in bankruptcy or purchaser at any execution
sale shall have any right to possess or occupy the Premises or any part thereof,
or claim of right hereunder. Client agrees to reimburse Company its reasonable
attorneys' fees incurred in connection with the processing and documentation
of any requested transfer, assignment or subletting.
13. TERMINATION. CLIENT SHALL GIVE COMPANY NOT LESS THAN FORTY-FIVE (45) DAYS
WRITTEN NOTICE OF CLIENT'S INTENTION TO DISCONTINUE ITS OCCUPANCY HEREUNDER
PRIOR TO THE END OF ANY TERM. Unless otherwise notified by Client, if Client
fails to provide such notice, Client's term shall automatically be renewed for
an additional thirty (30) day term. Client's continued failure to provide
Company such notice will result in Client's term being automatically renewed for
successive additional thirty (30) day terms. Said notice may not be given more
than sixty (60) days prior to the end of any term.
14. SURRENDER OF POSSESSION BY CLIENT. Client hereby agrees, upon the
termination of this Lease, to immediately and peaceably yield up and surrender
the Premises in as good condition as the same were at the time of the taking of
possession, subject to reasonable wear and tear. Any personal property remaining
in the Premises upon expiration or termination shall be deemed abandoned.
Notwithstanding Client's failure to give forty-five (45) days notice of
termination as provided above, Company may, at any time prior to termination of
the initial term hereof or any thirty (30) day renewal period, give Client a
demand for possession of the Premises upon termination of the initial term or
the then applicable thirty (30) day period, as the case may be (the "Surrender
Date"). If Client remains in possession of the Premises after the Surrender
Date, Client shall become a lessee at sufferance only, upon the same terms and
conditions as contained herein except that the monthly rent shall equal two (2)
times the monthly rent which was in effect immediately prior to the Surrender
Date. Acceptance by Company of rent after the Surrender Date shall not
constitute consent to a holdover by Client or result in a renewal of this Lease.
In addition, Client shall indemnify, protect, defend (with counsel chosen by
Company) and hold harmless Company from and against any and all claims,
liabilities, actions, demands, losses or damages incurred by or asserted or
awarded against Company due to Client's failure to deliver possession of the
Premises at the Surrender Date, including, without limitation, any claims by any
succeeding Client for the Premises based on such delay.
15. RIGHT OF ENTRY. Company's agents may enter upon the Premises at any
reasonable time to inspect and examine the Premises and to see that the
covenants hereof are being kept and performed, to take action which may be
required or permitted hereunder, to clean the Premises, make repairs, additions,
or improvements as Company shall deem necessary, or to exhibit the Premises to
prospective Clients or purchasers thereof.
16. SIGNS. Client shall not place or permit to be placed any sign,
advertisement, notice or other similar matter on any doors, windows, or walls or
other areas of the Premises which are open to the view of persons in the common
area of the Center.
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<PAGE>
17. KEYS. Two (2) keys to the Premises will be furnished by Company. Additional
keys will be furnished upon Client's payment to Company of a fee therefor.
Client shall not cause or permit the duplication of any keys to be made, and
Client shall not cause or permit any keys to be possessed by any person other
than an authorized agent of Client. Client agrees to return to Company all keys
to the Premises at the termination of the tenancy. Company shall have the right
to charge Client $20 for each key which Client does not return to Company within
five (5) days of vacating the Premises, or each additional key provided to
Client upon request.
18. TELEPHONE ANSWERING AND OTHER SERVICES. Company agrees to provide the
following services as long as Client is not in breach of this Lease.
(a) Telephone answering, reception and other business services from
8:00 a.m. to 5:00 p.m. Monday through Friday, recognized holidays excepted.
(b) Moves, adds and changes relating to telephone service at the rates
described on the Rates and Fee Schedule, Section A, attached hereto.
(c) Dial tone. Client will have the ability to place local and long
distance telephone calls at the rates described on the Rates and Fee Schedule,
Section B, attached hereto.
Client acknowledges and agrees that said services are subject to human,
electrical and mechanical error, failure or illness which may result in a delay
or discontinuance of their services. CLIENT HEREBY REPRESENTS THAT CLIENT HAS
READ AND AGREES TO SECTIONS 6 (LIMITATION OF LIABILITY) AND 7 (INDEMNITY) AND 20
(WARRANTIES).
IF THIS LEASE TERMINATES, OR CLIENT IS IN DEFAULT HEREUNDER (AS DEFINED IN
SECTION 10), COMPANY MAY, AT ITS ELECTION, REFUSE TO ANSWER CLIENT'S TELEPHONES
AND/OR TERMINATE (DISCONNECT) TELEPHONE SERVICE AND COMPANY SHALL NOT BE IN
BREACH OF ANY OF ITS OBLIGATIONS HEREUNDER, UNDER THE LEASE, OR UNDER ANY OTHER
AGREEMENT, NOR SHALL SUCH REFUSAL BE DEEMED A CONSTRUCTIVE EVICTION OF CLIENT
UNDER THIS LEASE.
Client agrees that only Company provided telephone equipment will be used in
Client's offices, except for personal fax machines or computer modems after
written approval from Company. Client understands that any assigned phone
numbers are non-transferable when service is discontinued and are the property
of Company. CLIENT FURTHER UNDERSTANDS IT MAY NOT PLACE A DISPLAY AD IN THE
YELLOW PAGES OF ANY TELEPHONE DIRECTORY OR ORDER A CALLING CARD UNDER THE
ASSIGNED NUMBER.
19. WARRANTIES, REMEDIES AND LIMITATIONS.
(a) COMPANY'S ONLY LIABILITY AND CLIENT'S SOLE REMEDY FOR ANY LOSS OF
THE SERVICES TO BE PROVIDED PURSUANT TO THIS LEASE, OR OTHERWISE PROVIDED AT
CLIENT'S REQUEST, ARE LIMITED TO A PRO RATA CREDIT OF PAYMENTS MADE BY CLIENT
PURSUANT TO PARAGRAPH 3, SAID PRO RATA CREDIT SHALL APPLY TO THE PERIOD OF TIME
DURING WHICH COMPANY WAS NOT ABLE TO PROVIDE THE ABOVE-DESCRIBED SERVICES.
(b) COMPANY PROVIDES NO WARRANTIES AS TO ANY SERVICES PROVIDED TO
CLIENT AND ANY AND ALL WARRANTIES, WHETHER EXPRESS OR IMPLIED, ARE HEREBY
WAIVED.
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<PAGE>
(c) THE FOREGOING REMEDY IS EXCLUSIVE AND IS GIVEN AND ACCEPTED IN LIEU
OF ANY OBLIGATION, LIABILITY, RIGHT OR CLAIM OR REMEDY IN CONTRACT OR TORT,
WHETHER OR NOT ARISING FROM COMPANY'S NEGLIGENCE, ACTUAL OR IMPUTED. THE
REMEDIES OF CLIENT SHALL BE LIMITED TO THOSE PROVIDED HEREIN TO THE EXCLUSION OF
ANY AND ALL OTHER REMEDIES, INCLUDING, WITHOUT LIMITATION, INCIDENTAL OR
CONSEQUENTIAL DAMAGES.
20. FURNITURE AND EQUIPMENT. If Client uses or rents Company's furniture or
other equipment, including but not limited to telephones (the "Equipment"),
Client shall not damage said Equipment or make any modifications, alterations or
attachments thereto, nor remove the same. Client shall provide Company with
prior written notice of its proposed move-in and shall coordinate its move-in
with Company. Equipment shall only be moved by Company or its authorized
representatives. Client shall be responsible to pay all costs of such moves at
the Company's published fees as well as the costs of repairing any damage to the
Center caused by Client's move-in. Upon expiration of the Term or other
termination of the Lease, Client shall return the Equipment to Company in the
same condition as when provided, normal wear and tear excepted. If at the end of
the term of this Lease Client has performed all provisions of this Lease, the
deposits held on the equipment or any remaining balance will be refunded to
Client, without interest, within forty-five (45) days after the end of the term.
21. MAIL.
(a) Subject to any restrictions set forth herein, Client is hereby
authorized to use the address of Company as Client's business address (the
"Center Address"). Client acknowledges that Client has read and understood
United States Post Office Form #1583 and understands that in the event Client's
use of the Center Address terminates, Company shall cease to act as Client's
agent for receipt of mail and the U.S. Post Office will not forward Client's
mail in such event. It will be Client's responsibility to notify all parties of
termination of use of the Center Address.
(b) In the event that this Lease terminates, for whatever reason,
Client's right to use the Center Address shall immediately terminate, and
Company, at its election, may return to senders all mail addressed to Client. IN
THE EVENT OF Any DEFAULT BY CLIENT, COMPANY MAY TERMINATE CLIENT'S RIGHT TO USE
THE CENTER ADDRESS AND AT COMPANY'S ELECTION, UPON NOTICE TO CLIENT, MAY RETURN
ALL MAIL TO SENDERS.
(c) Prior to the exercise by Company of its options described in
Sections 21(a) and/or (b) above, and provided Client is not in default
hereunder, Client may elect to maintain mail handling services by submitting to
Company a completed mail handling services form which shall be subject to
Company's terms and listed price for such service. Payment for such service
shall be made monthly, in advance, on the first day of each month. Failure to
make such payments shall immediately terminate all of Company's obligations
under said mail handling services agreement.
22. FORCE MAJEURE. If Company's performance of this Lease or of any of its
obligations hereunder is prevented or restricted by reason of any cause beyond
the reasonable control of Company, including, but not limited to, mechanical or
electrical breakdown, fire, explosion or other casualty, acts of God, acts of
public enemies, embargo, delays of supplies, acts of any governmental agency,
labor difficulties, strikes or inclement weather, Company, upon giving timely
notice to Client, shall be excused from such performance hereunder to the extent
of such breakdown, prevention or restriction, provided that Company shall resume
performance within a reasonable time after any such cause has been removed or
ceases.
23. WAIVER. One or more waivers by Company of any breach by Client of any
covenant or condition hereunder shall not be construed as a waiver of a
subsequent or continuing breach by
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Client of the same or of any other covenant or condition, and the consent or
approval by Company to or of any act by Client requiring Company's consent or
approval shall not be deemed to waive or render unnecessary Company' s consent
or approval to or of any subsequent act by Client.
24. ASBESTOS NOTICE. In 1988, California enacted Legislation (specifically,
Chapter 10.4 of the Health and Safety Code, Section 25915 et seq.) requiring
landlords and tenants of commercial buildings constructed prior to 1979 to
notify each other and their employees of any knowledge they may have regarding
any asbestos-containing construction materials in the building. As required by
this Legislation, Landlord advises Tenant that certain sprayed-on fireproofing
material containing approximately .05 to .07 parts asbestos ("ACM") has been
identified in certain limited locations in the Building on the floor support
beams of the fourth floor, the third floor and the second floor, on roof support
beams and within certain walls. This notification is being given to provide the
information required under this Legislation in order to help Tenant and others
avoid any unintentional contact with the limited ACM in the Building and to
assist Tenant in making appropriate disclosures to Tenant's employees,
contractors and others, if any. This notice is intended to comply with the
requirements of California law.
Landlord has engaged qualified consultants to survey the Building for ACM and to
prepare a qualified plan for monitoring the limited ACM in the Building. This
Operations and Management Plan (the "O&M Plan") is available for review at the
Building during normal business hours between 9:00 a.m. and 3:00 p.m., Monday
through Friday, except legal holidays. The O&M Plan describes the nature and
location of the limited ACM in the Building, air quality test results
recommended avoidance measures and handling suggestions.
Based upon the O&M Plan, Landlord has no reason to believe that the ACM in the
Building is currently in a condition or location to release ACM fibers which
would pose any significant health hazard to the Building's occupants. However,
Tenant should take into consideration that Landlord's knowledge as to the
absence of health risks is based solely upon the information contained in the
O&M Plan, and that Landlord has no special knowledge concerning potential health
risks resulting from exposure to ACM in the Building. Landlord is therefore
required by the above-mentioned Legislation to encourage Tenant to contact local
or state public agencies if Tenant desires to obtain a better understanding of
any potential impacts resulting from any exposure to ACM.
To avoid any unnecessary disturbance of any of the limited ACM in the
above-mentioned areas, tenants should not perform any alterations or
improvements in such areas and should avoid moving, drilling, boring or
otherwise disturbing any identified ACM. Should Tenant have any questions
regarding which areas contain ACM, Tenant should contact Landlord. As provided
in the O&M Plan, Landlord will make available such instruction as may be
required. If Tenant observes any activity which has the potential to disturb any
ACM, Tenant should report the same to Landlord immediately, and Tenant and its
employees, agents, contractors, and others, should avoid touching or disturbing
any ACM.
25. TIME OF THE ESSENCE. Time is expressly of the essence of this Lease, and of
all covenants and conditions contained herein.
26. SUCCESSORS AND ASSIGNS. The covenants and conditions herein contained shall,
subject to the provision as to assignments and subletting, apply to and bind the
heirs, successors,
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executors, administrators and assigns of the respective parties hereto. If this
Lease is executed by more than one person as Client, their obligations hereunder
shall be joint and several.
27. ATTORNEYS' FEES. In the event of any legal action or proceeding by Client or
Company against the other under this Lease, the prevailing party shall be
entitled to recover all expenses and costs, including actual attorneys' fees and
costs of appeal, if any.
28. NOTICES. All notices by Client or Company to the other must be in writing
Notice to Client will be considered given if delivered personally to Client or
to one of Client's officers or mailed by U.S. mail, addressed to Client, either
at Company's premises address described herein or at Client's address described
herein. Notices to Company will be considered given if mailed by registered or
certified mail, postage prepaid, to Company at Company's address set forth in
the applicable Schedule or such other address as Company shall designate to
Client in writing.
29. SEVERABILITY. The invalidity or unenforceability of any provision hereof
shall not affect or impair the validity or enforceability of any other
provision. No waiver of any default of Client shall be implied from any failure
by Company to take action with respect to such default.
30. AUTHORITY. Each party represents that it has the full power and authority to
enter into and perform this Lease. If Client is a corporation, partnership or
association, each individual executing this Lease on behalf of said
corporation, partnership or association, represents and warrants that he or she
is duly authorized to execute and deliver this Lease on behalf of said
corporation, partnership or association, and that this Lease is binding on said
corporation, partnership or association.
31. ENTIRE AGREEMENT. This Lease supersedes any prior agreement or agreements
and embodies the entire agreement between Company and Client with regard to the
leasing of the Premises to Client, and may not be modified, changed or altered
in any way except in writing Submission of this instrument for examination does
not constitute a reservation of or option for the Premises and becomes effective
only upon execution and delivery by both parties and shall be interpreted and
enforced in accordance with the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be executed on
the date set forth hereinbelow.
COMPANY: CLIENT:
INTERNATIONAL SATELLITE Alcore, Inc.
PROMOTIONS, INC., DBA a _______________________________
CORPORATE EXECUTIVE SUITES
By: /s/Brenda Jobe By: /s/Donna L. Bumford
------------------------ ------------------------------
Name: Brenda Jobe Name: Donna L. Bumford
Title: Operating Mgr. Title: Human Resources Manager
Date: 6-14-96 Date: 6/12/96
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$6,000,000
CREDIT AGREEMENT
DATED AS OF NOVEMBER 22, 1996
BETWEEN
LUNN INDUSTRIES, INC. AND ALCORE, INC., AS BORROWER
AND
FIRST UNION NATIONAL BANK OF MARYLAND, AS LENDER
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CREDIT AGREEMENT DATED AS OF NOVEMBER 22, 1996
BETWEEN
LUNN INDUSTRIES, INC., A DELAWARE CORPORATION, AND ALCORE, INC.,
A DELAWARE CORPORATION,
AND
FIRST UNION NATIONAL BANK OF MARYLAND,
A NATIONAL BANKING ASSOCIATION
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 DEFINITIONS. All capitalized terms used in this
Agreement or in any Appendix, Schedule or Exhibit hereto which are not otherwise
defined herein or therein shall have the respective meanings set forth in the
Appendix attached hereto identified as the Definitions Appendix. The Definitions
Appendix is incorporated herein by reference in its entirety and is a part of
this Agreement to the same extent as if it had been set forth in this Section
1.01 in full.
Section 1.02 ACCOUNTING TERMS AND DETERMINATIONS. Unless
otherwise specified herein, all accounting terms used herein shall be
interpreted, all accounting determinations hereunder shall be made, and all
financial statements required to be delivered hereunder shall be prepared, in
accordance with generally accepted accounting principles in the United States of
America as in effect from time to time, applied on a basis consistent (except
for changes concurred in by the Borrower's independent public accountants) with
the most recent audited consolidated financial statements of the Borrower and
all Consolidated Subsidiaries delivered to the Bank.
ARTICLE II
THE CREDIT
Section 2.01 COMMITMENT TO LEND. The Bank agrees, on the terms
and conditions set forth in this Agreement, to make Loans to the Borrower from
time to time during the Revolving Credit Period in amounts such that: (a) the
aggregate principal amount of Loans at any one time outstanding will not exceed
the lesser of (i) the Commitment and (ii) the Borrowing Base; (b) the aggregate
principal amount of Loans at any one time advanced and outstanding against the
Alcore Borrowing Base do not exceed the Alcore Sublimit; and (c) the aggregate
principal amount of Loans advanced and outstanding against the Lunn Borrowing
Base do not exceed the Lunn Sublimit. Within the foregoing limits and sublimits,
the Borrower may borrow, prepay and reborrow Loans at any time during the
Revolving Credit Period.
Section 2.02 METHODS OF BORROWING.
(a) Notice of Borrowing; Borrowing Base Certificate. Except as
otherwise provided in this Section, each of Alcore and Lunn may, with the
approval of the Bank, give the Bank notice substantially in the form of Exhibit
A -- Notice of Borrowing (a "Notice of Borrowing") not later than 12:00 P.M.
(local time in Baltimore, Maryland) on the date of each requested Loan,
specifying the date of such Loan and the amount of such Loan and such other
information as is required to satisfy the requirements of Section 2.01 above.
(b) Operating Account Overdrafts. If on any day Items are
presented to the Bank for payment
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<PAGE>
against an Operating Account which Items, in the aggregate, would, if paid in
full, cause the Available Balance in such Operating Account on such day to be
less than $0, such presentation shall be deemed to be a request by the
applicable Borrower for a Loan on the date of such presentation in an amount
equal to the amount (rounded upward to the nearest $1,000) required to cause
such Available Balance to equal $0.
(c) Overdrafts in Other Accounts. The Bank may, at its option,
pay any Item which will cause any deposit account maintained by the Borrower
with the Bank to become overdrawn, and such payment shall be deemed a Loan
hereunder.
Section 2.03 FUNDING OF LOANS. The Bank shall disburse the
proceeds of each Loan requested, or deemed to be requested, pursuant to Section
2.02 as follows:
(a) The proceeds of each Loan under Section 2.02(a) shall be
made available by the Bank to the applicable Borrower in Federal or other funds
immediately available at the Bank's address referred to in Section 8.01.
(b) The proceeds of each Loan under Section 2.02(b) or (c)
shall be disbursed by the Bank by way of direct payment of the relevant Item or
by way of deposit to the Operating Account of the amount set forth in Section
2.02(b), as the case may be.
Section 2.04 NOTE.
(a) Evidence of Loans. The Loans shall be evidenced by a
single Note made by Alcore and Lunn, jointly and severally, as co-borrowers,
payable to the order of the Bank in the principal amount of $6,000,000.
(b) Records of Amounts Due. The Bank shall record the date and
amount of each Loan made by it and the date and amount of each payment of
principal made by each Borrower with respect thereto, and may, if the Bank so
elects in connection with any transfer or enforcement of the Note, endorse on
the schedule forming a part thereof appropriate notations to evidence the
foregoing information with respect to each such Loan then outstanding; provided
that the failure of the Bank to make any such recordation or endorsement shall
not affect the obligations of the Borrower hereunder or under the Note. The Bank
is hereby irrevocably authorized by the Borrower so to endorse the Note and to
attach to and make a part of the Note a continuation of any such schedule as and
when required.
Section 2.05 INTEREST RATES.
(a) LIBOR-Based Rate. Except as otherwise provided in
subsection (c) below, each Loan shall bear interest on the outstanding principal
amount thereof, for each day from the date such Loan is made until it becomes
due, at a rate per annum equal to the applicable LIBOR-based Rate for such day.
Such interest shall be payable for each month in arrears on the first day of the
immediately succeeding calendar month.
The "Adjusted London Interbank Offered Rate" means on any day
a rate per annum equal to the quotient obtained (rounded upward, if necessary,
to the next higher 1/100 of 1%) by dividing (i) the London Interbank Offered
Rate for such day by (ii) 1.00 minus the Euro-Dollar Reserve Percentage.
"LIBOR-based Rate" means for any day, the sum of (i) the
Adjusted London Interbank Offered Rate for such day plus (ii) 250 basis points.
The "London Interbank Offered Rate" means the rate per annum
designated as the British Bankers' Association settlement rate as of 11:00 A.M.
(London time) for one month deposits in Dollars in the London interbank market
that appears on the display on page 3750 (under the caption "USD" of the
Telerate Services, Incorporated screen (the "Telerate Screen") (or on such other
display as may replace such page on the Telerate Screen) at such time) each
Euro-Dollar Business Day; provided that if no offered quotations appear on the
Telerate Screen or if quotations are not
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<PAGE>
given on the Telerate Screen for such one month period, then the London
Interbank Offered Rate shall mean the rate per annum determined by the Bank at
which United States Dollars in the amount of $5,000,000 are being offered to
leading banks in the London interbank market for Dollar deposits at
approximately 11:00 A.M. London time two Euro-Dollar Business Days prior to such
day for settlement in immediately available funds by leading banks in the London
interbank market for a one month period.
"Euro-Dollar Reserve Percentage" means for any day that
percentage (expressed as a decimal) which is in effect on such day, as
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for determining the maximum reserve requirement for a member bank of
the Federal Reserve System in New York City with deposits exceeding five billion
dollars in respect of "Eurocurrency liabilities" (or in respect of any other
category of liabilities which includes deposits by reference to which the
interest rate on Loans is determined or any category of extensions of credit or
other assets which includes loans by a non-United States office of the Bank to
United States residents). The Adjusted London Interbank Offered Rate shall be
adjusted automatically on and as of the effective date of any change in the
Euro-Dollar Reserve Percentage.
The LIBOR-based Rate shall change from time to time with
changes to occur on the date the London Interbank Offered Rate changes on the
Telerate Screen page 3750, or if such rate is not available, by reference to the
rate being offered to leading banks.
(b) Overdue Amounts. Any overdue principal of or interest on
any Loan shall bear interest, payable on demand, for each day from and including
the date payment thereof was due to but excluding the date of actual payment, at
a rate per annum equal to the sum of 2% plus the LIBOR-based Rate or Base Rate,
as the case may be, applicable to such Loan on such day.
(c) Base Rate. Each Loan required to be converted into or made
as a Base Rate Loan pursuant to the provisions of Article VII shall bear
interest on the outstanding principal amount thereof, for each day on which such
Loan constitutes a Base Rate Loan, at a rate per annum equal to the Base Rate
for such day. Such interest shall be payable for each month in arrears on the
first day of the immediately succeeding calendar month.
"Base Rate" means for any day, the Prime Rate.
"Prime Rate" means the rate announced by the Bank from time to
time as its Prime Rate, as such rate may change from time to time with changes
to occur on the date the Bank's Prime Rate changes. The Bank's Prime Rate is one
of several interest rate bases used by the Bank. The Bank lends at rates above
and below the Bank's Prime Rate, and the Borrower acknowledges that the Bank's
Prime Rate is not represented or intended to be the lowest or most favorable
rate of interest offered by the Bank.
(d) Determination and Notice of Interest Rates. The Bank shall
determine each interest rate applicable to the Loans hereunder. The Bank shall
give prompt notice to the Borrower of each rate of interest so determined, and
its determination thereof shall be conclusive in the absence of manifest error.
Section 2.06 FEES.
(a) Servicing Fee. The Borrower shall pay to the Bank a
monthly servicing fee (the "Servicing Fee") equal to $750.00. The Servicing Fee
shall accrue from and including the Effective Date to but excluding the
Termination Date (or earlier date of termination of the Commitment in its
entirety), and be payable on the first day of the first month immediately
following the Effective Date, and on the first day of each month thereafter,
unless the Commitment is terminated prior to any such date, in which case all
Servicing Fees which have accrued and remain unpaid shall be payable on the
effective date of such termination.
(b) Commitment Fee. On the Effective Date, the Borrower
shall pay to the Bank a commitment fee equal to $27,500.
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<PAGE>
(c) Audit Fees. Recurring field audits of the Borrower's
books, records and assets will be conducted not more than semi-annually, and all
costs thereof (estimated to be no more than $2,500 per audit) will be paid by
the Borrower.
Section 2.07 TERMINATION, REDUCTION OR EXTENSION OF
COMMITMENT.
(a) Optional Termination or Reductions of Commitment. The
Borrower may, upon at least three Business Days' notice to the Bank, (i)
terminate the Commitment at any time, if no Loans are outstanding at the time of
termination or (ii) reduce from time to time the amount of the Commitment in
excess of the aggregate outstanding principal amount of the Loans.
(b) Optional Extension of Commitment. In September, 1997 (and
each September thereafter, if the Loan is extended), after receipt and review of
each Borrower's quarterly financial statement, the Bank shall consider, in its
sole discretion, extending the Revolving Credit Period for an additional
twelve-month period.
Section 2.08 MATURITY AND REPAYMENT OF LOANS.
(a) Maturity at Termination Date. Each Loan shall mature,
and the principal amount thereof shall be due and payable, on the Termination
Date.
(b) Mandatory Prepayments of Loans Exceeding Borrowing Base.
If on any day the aggregate outstanding principal amount of all Loans exceeds
the Borrowing Base, the Borrower shall prepay, and there shall become due and
payable, on such date the principal amount of the Loans equal to such excess,
together with interest thereon to the date of repayment.
(c) Mandatory Repayments from Operating Accounts.
(i) Deposits of Proceeds to Operating
Accounts. The Borrower shall instruct all Account Debtors and other Persons
obligated in respect of Accounts and other Collateral to make all payments in
respect of the Accounts or other Collateral directly to the Bank (by instructing
that such payments be remitted to a post office box which shall be in the name
and under the control of the Bank). Except as provided in Section 3.04 of the
Security Agreement, all such payments made to the Bank with respect to Alcore
shall be deposited in the Alcore Operating Account, and all such payments made
to the Bank with respect to Lunn shall be deposited in the Lunn Operating
Account. In addition to the foregoing, the Borrower agrees that if the proceeds
of any Collateral (including the payments made in respect of Accounts) shall be
received by it, the Borrower shall, unless Section 3.04 of the Security
Agreement shall require otherwise, as promptly as possible deposit such proceeds
to the appropriate Operating Account. Until so deposited, all such proceeds
shall be held in trust by the Borrower for and as the property of the Bank and
shall not be commingled with any other funds or property of the Borrower. The
Borrower hereby irrevocably authorizes and empowers the Bank, its officers,
employees and authorized agents to endorse and sign its name on all checks,
drafts, money orders or other media of payment so delivered, and such
endorsements or assignments shall, for all purposes, be deemed to have been made
by the Borrower prior to any endorsement or assignment thereof by the Bank. The
Bank may use any convenient or customary means for the purpose of collecting
such checks, drafts, money orders or other media of payment.
(ii) Loans Due to Extent of Available Balance.
Each Business Day, that principal amount of the Loans equal to the then
Available Balance shall become due and payable.
(iii) Withdrawals from Operating Account to Pay
Obligations. The Available Balance on deposit in each Operating Account, or
so much thereof as is necessary to pay in full the Obligations referred to in
this Section 2.08(c)(iii), shall be withdrawn by the Bank each Business Day and
applied to repay the respective Obligations of each Borrower which are then due
and payable (including those which become due and payable on
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such date pursuant to subsection (ii) above).
(d) Optional Prepayments of Loans. The Borrower may upon at
least one Business Day's notice to the Bank, prepay any Loan, in whole at any
time, or from time to time in part, by paying the principal amount to be prepaid
together with accrued interest thereon to the date of prepayment. The notice of
prepayment delivered by the Borrower to the Bank shall not be revocable by the
Borrower following its receipt by the Bank.
Section 2.09 GENERAL PROVISIONS AS TO PAYMENTS. The Borrower
shall make each payment of principal of and interest on the Loans and fees
hereunder not later than 12:00 Noon (local time in Baltimore, Maryland) on the
date when due, without set-off, counterclaim or other deduction, in Federal or
other funds immediately available in Baltimore, Maryland, to the Bank at its
address referred to in Section 8.01. Each Borrower hereby irrevocably authorizes
the Bank to deduct from its respective Operating Account at any time such amount
as may then be necessary to pay Obligations referred to in clause (ii)(A) of the
definition of Available Balance. Whenever any payment of principal of, or
interest on, the Loans or of fees shall be due on a day which is not a Business
Day, the date for payment thereof shall be extended to the next succeeding
Business Day. If the date for any payment of principal is extended by operation
of law or otherwise, interest thereon shall be payable for such extended time.
Section 2.10 COMPUTATION OF INTEREST AND FEES. Interest on
Loans hereunder shall be computed on the basis of a year of 360 days and paid
for the actual number of days elapsed (including the first day but excluding the
last day).
ARTICLE III
CONDITIONS
Section 3.01 CONDITIONS TO CLOSING. The obligation of
the Bank to make the first Loan hereunder is subject to the satisfaction of
the following conditions:
(a) Effectiveness. This Agreement shall have become
effective in accordance with Section 8.08.
(b) Note. On or prior to the Closing Date, the Bank shall have
received a duly executed Note dated on or before the Closing Date complying with
the provisions of Section 2.04.
(c) Other Loan Documents. Each of the Loan Documents to be
executed on or before the Closing Date shall be in form and substance
satisfactory to the Bank and shall have been duly executed and delivered to the
Bank by each of the parties thereto.
(d) Adverse Change, etc. On the Closing Date, nothing shall
have occurred (and the Bank shall not have become aware of any facts or
conditions not previously known) which the Bank shall determine has, or could
reasonably be expected to have, a Material Adverse Effect.
(e) Officer's Certificate. The Bank shall have received a
certificate dated the Closing Date signed on behalf of the Borrower by the
Chairman of the Board, the President, any Vice President or the Treasurer of
each Borrower stating that (x) on the Closing Date and after giving effect to
the Loan being made on the Closing Date, no Default or Event of Default shall
have occurred and be continuing and (y) to the best knowledge and belief of such
officer, the representations and warranties of the Borrower contained in the
Loan Documents are true and correct on and as of the Closing Date.
(f) Opinion of Borrower's Counsel. On the Closing Date,
the Bank shall have received from
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counsel to the Borrower an opinion addressed to the Bank, dated the Closing
Date, substantially in the form of Exhibit C hereto and covering such additional
matters incident to the transactions contemplated hereby as the Bank may
reasonably request.
(g) Corporate Proceedings. On the Closing Date, the Bank shall
have received (i) a copy of each Borrower's articles or certificate of
incorporation (or analogous organizational documents), as amended, certified by
the applicable state filing office; (ii) certificates of the Maryland Department
of Assessments and Taxation and the Secretary of State of New York with respect
to Alcore, and certificates of the Secretary of State of Delaware and the
Secretary of the State of New York with respect to Lunn, dated as of a recent
date, as to the good standing and if available listing in long-form the charter
or similar organizational documents of the Borrower on file; and (iii) a
certificate of the Secretary or an Assistant Secretary of each Borrower dated
the Closing Date and certifying (A) that the articles or certificate of
incorporation of such Borrower have not been amended since the date of the last
amendment thereto indicated on the certificate furnished pursuant to clause (ii)
above, (B) as to the absence of dissolution or liquidation proceedings by or
against such Borrower, (C) that attached thereto is a true and complete copy of
the by-laws of such Borrower as in effect on the date of such certification and
all other times relevant to the transactions contemplated hereby, (D) that
attached thereto is a true, correct and complete copy of resolutions adopted by
the board of directors of such Borrower authorizing the execution, delivery and
performance of the Credit Agreement, the Note and the Security Agreement and
each other document delivered in connection herewith or therewith and that said
resolutions have not been amended and are in full force and effect on the date
of such certificate, (E) as to the incumbency and specimen signatures of each
officer of such Borrower executing this Agreement, the Note and the Security
Agreement or any other document delivered in connection herewith or therewith
and (F) certifying as to the names and respective jurisdictions of incorporation
of all Subsidiaries of such Borrower existing on the Closing Date. The
certificate referred to in clause (iii) of this subsection shall be
substantially in the form of such certificate as attached to the Memorandum of
Closing furnished by counsel for the Bank.
All corporate and legal proceedings and instruments and
agreements relating to the transactions contemplated by this Agreement or
in any other document delivered in connection therewith shall be
satisfactory in form and substance to the Bank and its counsel, and the
Bank shall have received all information and copies of all documents and
papers, including records of corporate proceedings, governmental
approvals, good standing certificates and bring-down telegrams, if any,
which the Bank reasonably may have requested in connection therewith, such
documents and papers where appropriate to be certified by proper corporate
or governmental authorities.
(h) Perfection of Security Interests; Search Reports.
On or prior to the Closing Date, the Bank shall have received:
(i) a Perfection Certificate of the Borrower,
substantially in the form of Exhibit A to the Security
Agreement;
(ii) appropriate Financing Statements (Form UCC-1 or
such other financing statements or similar notices as shall be
required by local law) fully executed for filing under the
Uniform Commercial Code or other applicable local law of each
jurisdiction in which the filing of a financing statement or
giving of notice may be required, or reasonably requested by
the Bank, to perfect the security interests purported to be
created by the Loan Documents;
(iii) copies of reports from Prentice-Hall Financial
Services or other independent search service reasonably
satisfactory to the Bank listing all effective financing
statements that name each Borrower (under its present name and
any previous name and, if requested by the Bank, under any
trade names) as debtor or seller that are filed in the
jurisdictions referred to in clause (i) above, together with
copies of such other financing statements (none of which shall
cover the Collateral except to the extent evidencing Permitted
Liens or for which the Bank shall have
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received termination statements (Form UCC-3) or such other
termination statements as shall be required by local law)
fully executed for filing; and
(iv) evidence of the completion of all other filings
and recordings of, or with respect to, the Loan Documents as
may be necessary or, in the opinion of the Bank, desirable to
perfect the security interests intended to be created by the
Loan Documents.
(i) Closing Date Borrowing Base Certificate. On the Closing
Date, each Borrower shall have delivered to the Bank an initial Borrowing
Base Certificate meeting the requirements of Section 5.01(f) hereof.
(j) Payment of Fees. All costs, fees and expenses due to
the Bank on or before the Closing Date shall have been paid.
(k) Counsel Fees. The Bank shall have received payment
from the Borrower of the fees and expenses of Piper & Marbury L.L.P.
described in Section 8.03 which are billed through the Closing Date, which shall
not exceed $7,500 plus disbursements.
(l) Cash Management and Depository Accounts. On or
before the Closing Date, each Borrower shall have established its
respective cash management and depository accounts with the Bank.
(m) Field Audits. On or before the Closing Date, the Bank
shall have received (a) an initial audit of each Borrower's Inventory, (b) an
initial audit of all of each Borrower's Machinery and Equipment in all
locations, and (c) an initial audit of each Borrower's books, records and other
assets. Such initial audits shall be paid for by the Bank, prepared by a firm
acceptable to the Bank, and otherwise be satisfactory to the Bank in form and
substance.
The Bank shall promptly notify the Borrower of the Closing Date, and
such notice shall be conclusive and binding on all parties hereto. The documents
referred to in this Section shall be delivered to the Bank no later than the
Closing Date. The certificates and opinion referred to in this Section shall be
dated the Closing Date.
Section 3.02 CONDITIONS TO ALL LOANS. The obligation of the
Bank to make each Loan is subject to the satisfaction of the following
conditions:
(a) the fact that the Closing Date shall have occurred;
(b) the fact that, immediately after the making of such Loan,
the aggregate outstanding principal amount of all Loans shall not exceed the
lesser of (A) the Commitment and (B) the Borrowing Base;
(c) the fact that, immediately after making such Loan,
neither the Alcore Sublimit nor the Lunn Sublimit is exceeded;
(d) the fact that, immediately before and after the making of
such Loan, no Default shall have occurred and be continuing; and
(e) the fact that the representations and warranties of the
Borrower contained in this Agreement shall be true on and as of the date of such
Loan.
Each Loan hereunder shall be deemed to be a representation and warranty by the
Borrower on the date of such Loan as to the facts specified in clauses (iii) and
(iv) of this Section.
ARTICLE IV
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REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
Section 4.01 CORPORATE EXISTENCE AND POWER. Each Borrower and
each of its Subsidiaries is a corporation duly incorporated, validly existing
and in good standing under the laws of the jurisdiction of its incorporation,
and has all corporate powers and all material governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted. Each Borrower and each of its Subsidiaries is duly qualified as a
foreign corporation, licensed and in good standing in each jurisdiction where
qualification or licensing is required by the nature of its business or the
character and location of its property, business or customers and in which the
failure to so qualify or be licensed, as the case may be, in the aggregate,
could have a Material Adverse Effect.
Section 4.02 CORPORATE AND GOVERNMENTAL AUTHORIZATION; NO
CONTRAVENTION. The execution, delivery and performance by the Borrower of the
Loan Documents to which it is a party are within the corporate powers of the
Borrower, have been duly authorized by all necessary corporate action, require
no action by or in respect of, or filing with, any governmental body, agency or
official (except for any such action or filing as shall have been taken or made
and that is in full force and effect from and after the Closing Date) and do not
contravene, or constitute (with or without the giving of notice or lapse of time
or both) a default under, any provision of applicable law or of the articles or
certificate of incorporation or by-laws (or analogous organizational documents)
of the Borrower or any Subsidiary or of any agreement, judgment, injunction,
order, decree or other instrument binding upon or affecting the Borrower or any
Subsidiary or result in the creation or imposition of any Lien on any asset of
the Borrower or any of its Subsidiaries.
Section 4.03 BINDING EFFECT. Each Loan Document to which the
Borrower is a party constitutes a valid and binding agreement of the Borrower
enforceable against the Borrower in accordance with its terms except as such
enforceability may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally and by equitable principles of general
applicability (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
Section 4.04 FINANCIAL CONDITION.
(a) Audited Financial Statements. The consolidated balance
sheet of the Borrower and all Consolidated Subsidiaries as of December 31, 1995
and the related consolidated statements of income and cash flows for the fiscal
year then ended, reported on by Coopers & Lybrand, copies of which have been
delivered to the Bank, fairly present, in conformity with generally accepted
accounting principles, the consolidated financial position of the Borrower and
all Consolidated Subsidiaries as of such date and their consolidated results of
operations and cash flows for such fiscal year. As of the date of such financial
statements, the Borrower and all Consolidated Subsidiaries did not have any
material contingent obligation, contingent liability or liability for taxes,
long-term lease or unusual forward or long-term commitment, which is not
reflected in any of such financial statements or notes thereto.
(b) Interim Financial Statements. The unaudited consolidated
balance sheet of the Borrower and all Consolidated Subsidiaries as of June 30,
1996 and the related unaudited consolidated income statements for the twelve
months then ended, copies of which have been delivered to the Bank, fairly
present, in conformity with generally accepted accounting principles applied on
a basis consistent with the financial statements referred to in subsection (a)
of this Section, the consolidated financial position of the Borrower and all
Consolidated Subsidiaries as of such date and their consolidated results of
operations and changes in financial position for such twelve-month period
(subject to normal year-end audit adjustments).
(c) Material Adverse Change. Since June 30, 1996 there
has been no material adverse change in condition (financial or otherwise),
results of operations, properties, assets, business or prospects of the Borrower
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or of the Borrower and all Consolidated Subsidiaries, considered as a whole.
Section 4.05 LITIGATION. Except as described in Schedule 4.05
attached hereto and made a part hereof, there is no action, suit, proceeding or
investigation pending against, or to the knowledge of the Borrower threatened
against, contemplated or affecting, the Borrower or any of its Subsidiaries
before any court, arbitrator or any governmental body, agency or official which
has, or, if adversely determined, could reasonably be expected to have, a
Material Adverse Effect, or which in any manner draws into question the validity
or enforceability of this Agreement or the Note, and there is no basis known to
the Borrower or any of its Subsidiaries for any such action, suit, proceeding or
investigation.
Section 4.06 REGULATION U; USE OF PROCEEDS. The Borrower and
its Subsidiaries do not own any "margin stock" as such term is defined in
Regulation U. The proceeds of the Loans will be used by the Borrower only for
the purposes set forth in Section 5.17 hereof.
Section 4.07 REGULATORY RESTRICTIONS ON BORROWING. Neither the
Borrower nor any of its Subsidiaries is an "investment company" within the
meaning of the Investment Company Act of 1940, as amended, a "holding company"
within the meaning of the Public Utility Holding Company Act of 1935, as
amended, or otherwise subject to any regulatory scheme which restricts its
ability to incur debt.
Section 4.08 SUBSIDIARIES. Part I of Schedule 4.08 (as such
Schedule may be supplemented by a writing delivered by the Borrower to the Bank
from time to time after the Effective Date) hereto lists each Subsidiary of the
Borrower (and the direct and indirect ownership interests of the Borrower
therein), in each case existing on the Effective Date. Except as set forth on
Part 1 of such Schedule 4.08, each such Subsidiary existing on the date hereof
is, and, in the case of any additional corporate Subsidiaries formed after the
Effective Date, each of such additional corporate Subsidiaries will be at each
time that this representation is made or deemed to be made after the Effective
Date, a wholly-owned Subsidiary that is a corporation duly incorporated, validly
existing and, to the extent relevant in such jurisdiction, in good standing
under the laws of its jurisdiction of incorporation, and has all corporate
powers and all material governmental licenses, authorizations, consents and
approvals required to carry on its business as now conducted. Except as listed
on Part 2 of Schedule 4.08 (as such Schedule may be supplemented by a writing
delivered by the Borrower to the Bank from time to time after the Effective
Date), neither the Borrower nor any of its Subsidiaries is engaged in any joint
venture or partnership with any other Person.
Section 4.09 FULL DISCLOSURE. All factual information (taken
as a whole) furnished by or on behalf of the Borrower or any of its Subsidiaries
in writing to the Bank for purposes of or in connection with this Agreement or
any transaction contemplated hereby is true and accurate in all material
respects on the date as of which such information is dated or certified and is
not incomplete by omitting to state any material fact necessary to make such
information (taken as a whole) not misleading at such time in light of the
circumstances under which such information was provided. Except for economic
trends generally known to the public affecting generally the industry in which
the Borrower and its Subsidiaries conduct their business, the Borrower has
disclosed to the Bank in writing any and all facts which materially and
adversely affect or may materially and adversely affect (to the extent the
Borrower can now reasonably foresee), the business, operations or financial
condition of the Borrower and its Consolidated Subsidiaries, taken as a whole,
or the ability of the Borrower to perform its obligations under this Agreement.
Section 4.10 TAX RETURNS AND PAYMENTS. Except as described in
Schedule 4.10 attached hereto and made a part hereof, each of the Borrower and
its Subsidiaries has filed all United States Federal income tax returns and all
other material tax returns, domestic and foreign, required to be filed by it and
has paid all taxes and assessments payable by it which have become due pursuant
to such returns or pursuant to any assessment received by the Borrower or any
Subsidiary, other than those not yet delinquent and except for those contested
in good faith. Each of the Borrower and its Subsidiaries has paid, or has
provided adequate reserves (in good faith judgment of the management of the
Borrower) for the payment of, all federal, state and foreign income taxes
applicable for all prior fiscal years and for the current fiscal year to the
date hereof.
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Section 4.11 COMPLIANCE WITH ERISA. Each member of the ERISA
Group has fulfilled its obligations under the minimum funding standards of ERISA
and the Internal Revenue Code with respect to each Plan and is in compliance in
all material respects with the presently applicable provisions of ERISA and the
Internal Revenue Code with respect to each Plan. No member of the ERISA Group
has (i) sought a waiver of the minimum funding standard under Section 412 of the
Internal Revenue Code in respect of any Plan, (ii) failed to make any
contribution or payment to any Plan or Multiemployer Plan or in respect of any
Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement,
which has resulted or could result in the imposition of a Lien or the posting of
a bond or other security under ERISA or the Internal Revenue Code or (iii)
incurred any liability under Title IV of ERISA other than a liability to the
PBGC for premiums under Section 4007 of ERISA.
Section 4.12 INTELLECTUAL PROPERTY. Each of the Borrower and
its Subsidiaries owns or possesses or holds under valid non-cancelable licenses
all Patents, Trademarks, service marks, trade names, copyrights, Licenses and
other intellectual property rights that are necessary for the operation of their
respective properties and businesses, and neither the Borrower nor any of its
Subsidiaries is in violation of any provision thereof. The Borrower and its
Subsidiaries conduct their business without infringement or claim of
infringement of any material license, patent, trademark, trade name, service
mark, copyright, trade secret or any other intellectual property right of others
and there is no infringement or claim of infringement by others of any material
license, patent, trademark, trade name, service mark, copyright, trade secret or
other intellectual property right of the Borrower and its Subsidiaries.
Section 4.13 NO BURDENSOME RESTRICTIONS. No contract, lease,
agreement or other instrument to which the Borrower or any of its Subsidiaries
is a party or by which any of its property is bound or affected, no charge,
corporate restriction, judgment, decree or order and no provision of applicable
law or governmental regulation has had or is reasonably expected to have a
Material Adverse Effect.
Section 4.14 ENVIRONMENTAL MATTERS. In the ordinary course of
its business, the Borrower conducts an ongoing review of the effect of
Environmental Laws on the business, operations and properties of the Borrower
and its Subsidiaries, in the course of which it identifies and evaluates
associated liabilities and costs (including, without limitation, any capital or
operating expenditures required for clean-up or closure of properties presently
or previously owned, any capital or operating expenditures required to achieve
or maintain compliance with environmental protection standards imposed by law or
as a condition of any license, permit or contract, any related constraints on
operating activities, including any periodic or permanent shutdown of any
facility or reduction in the level of or change in the nature of operations
conducted at any such facility, any costs or liabilities in connection with
off-site disposal of wastes or Hazardous Substances, and any actual or potential
liabilities to third parties, including employees, and any related costs and
expenses). On the basis of this review, the Borrower has reasonably concluded
that such associated liabilities and costs, including the costs of compliance
with Environmental Laws, are unlikely to have a material adverse effect on the
business, financial condition, results of operations or prospects of the
Borrower and its Consolidated Subsidiaries, considered as a whole.
Section 4.15 ACCOUNTS. With respect to each Account, all
records, papers and documents relating thereto (if any) are genuine and in all
respects what they purport to be, and all papers and documents (if any) relating
thereto: (i) represent legal, valid and binding obligations of the respective
Account Debtor, subject to adjustments customary in the business of the
Borrower, with respect to unpaid indebtedness incurred by such Account Debtor in
respect of the performance of labor or services or the sale or lease and
delivery of the merchandise listed therein, or both, (ii) are the only original
writings evidencing and embodying such obligation of the Account Debtor named
therein (other than copies created for general accounting purposes) and are in
compliance with all applicable federal, state and local laws and applicable laws
of any relevant foreign jurisdiction.
ARTICLE V
COVENANTS
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The Borrower agrees that, so long as the Bank has any
Commitment hereunder or any Obligation remains unpaid:
Section 5.01 INFORMATION. The Borrower will deliver or
cause to be delivered to the Bank:
(a) Annual Financial Statements. As soon as available and in
any event within 120 days after the end of each fiscal year of the Borrower, a
consolidated and consolidating balance sheet of the Borrower and all
Consolidated Subsidiaries as of the end of such fiscal year and the related
consolidated and consolidating statements of income and cash flows for such
fiscal year, setting forth in each case in comparative form the figures for the
previous fiscal year, all in reasonable detail and accompanied by an opinion
thereon by Coopers & Lybrand or other independent public accountants
satisfactory to the Bank, which opinion shall not be qualified as to the scope
of the audit and which shall state that such consolidated financial statements
present fairly the consolidated financial position of the Borrower and its
Consolidated Subsidiaries as of the date of such financial statements and the
results of their operations for the period covered by such financial statements
in conformity with generally accepted accounting principles applied on a
consistent basis (except for changes in the application of which such
accountants concur) and shall not contain any "going concern" or like
qualification or exception or qualification arising out of the scope of the
audit.
(b) Quarterly Financial Statements. As soon as available and
in any event within 50 days after the end of each quarter of each fiscal year of
the Borrower, a consolidated and consolidating balance sheet of the Borrower and
all Consolidated Subsidiaries as of the end of such fiscal quarter (with all
supporting schedules), the related consolidated and consolidating statements of
income and cash flows of the Borrower and all Consolidated Subsidiaries for such
quarter, and a profit and loss statement of the Borrower and its Consolidated
Subsidiaries, setting forth in each case in comparative form the figures for the
corresponding quarter of the Borrower's previous fiscal year, all certified
(subject to normal year-end audit adjustments) as to fairness of presentation,
generally accepted accounting principles and consistency by the chief financial
officer or chief accounting officer of the Borrower.
(c) Officer's Certificate. Simultaneously with the delivery of
each set of financial statements referred to in subsections (a) and (b) above, a
certificate of the chief financial officer or chief accounting officer of the
Borrower, (i) if applicable, setting forth in reasonable detail the calculations
required to establish whether the Borrower was in compliance with the
requirements of Sections 5.12, 5.15, and 5.19 through 5.22, on the date of such
financial statements, (ii) stating whether there exists on the date of such
certificate any Default and, if any Default then exists, setting forth the
details thereof and the action which the Borrower is taking or proposes to take
with respect thereto, and (iii) stating whether, since the date of the most
recent previous delivery of financial statements pursuant to subsections (a) and
(b) of this Section, there has been any material adverse change in the condition
(financial or otherwise), results of operations, properties, assets, business or
prospects of the Borrower or of the Borrower and all Consolidated Subsidiaries,
considered as a whole, and, if so, the nature of such material adverse change.
(d) Accountant's Certificate. Simultaneously with the delivery
of each set of financial statements referred to in subsection (a) above, a
statement of the firm of independent public accountants which reported on such
statements as to whether anything has come to their attention to cause them to
believe that any Default existed on the date of such statements and whether the
Borrower is in compliance with the financial covenants set forth in the Loan
Documents, and confirming the calculations set forth in the officer's
certificate delivered simultaneously therewith pursuant to subsection (c) above.
(e) Borrowing Base Certificate. As soon as available and in
any event within 10 days after the end of each calendar month, a Borrowing Base
Certificate executed by the chief financial officer or chief accounting officer
of each Borrower setting forth the Alcore Borrowing Base and the Lunn Borrowing
Base,
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respectively, as of the last Business Day of such month, each of which
certificates shall include Eligible Accounts, Eligible Inventory, their advance
rates, the then applicable Machinery and Equipment Advance (as reduced that
month), and the aggregate amount of Loans outstanding to each Borrower.
(f) Accounts Receivable, Account Payable Agings and Inventory
Reports. As soon as available and in any event within 10 business days after the
end of each calendar month:
(i) a report listing all Accounts of each Borrower as
of the last Business Day of such month, which report shall
include a detailed listing or the amount and age of each
Account, a summary listing with the name and mailing address
of each Account Debtor, the original date of each invoice, a
reconciliation statement, and such other information as the
Bank may require in order to verify the Eligible Accounts, all
in reasonable detail and in form satisfactory to the Bank;
(ii) a report listing all Inventory of each Borrower
as of the last Business Day of such month, which shall include
the cost and location thereof and such other information as
the Bank may require in order to verify the Eligible Inventory
(including, without limitation, individual values for raw
materials, work-in-progress, finished products and any
inventory obsolescence), all in reasonable detail and in form
satisfactory to the Bank; and
(iii) a report listing all accounts payable of each
Borrower (including a detailed aging of payables by total and
a summary aging of payables by vendor and vendor address, a
reconciliation statement and original invoice dates) in
reasonable detail and in form satisfactory to the Bank.
(g) Default. Forthwith upon the occurrence of any Default, a
certificate of the chief financial officer or chief accounting officer of
the Borrower setting forth the details thereof and the action which the
Borrower is taking or proposes to take with respect thereto.
(h) Litigation. As soon as reasonably practicable after
obtaining knowledge of the commencement of, or of a material threat of the
commencement of, an action, suit, proceeding or investigation against the
Borrower or any of its Subsidiaries which could materially adversely
affect the condition (financial or otherwise), results of operations,
properties, assets, business or prospects of the Borrower and its
Consolidated Subsidiaries, considered as a whole, or could otherwise have
a Material Adverse Effect or which in any manner questions the validity of
this Agreement or any of the other transactions contemplated hereby or
thereby, an explanation of the nature of such pending or threatened
action, suit, proceeding or investigation and such additional information
as may be reasonably requested by the Bank.
(i) Auditors' Management Letters. Promptly upon receipt
thereof, copies of each report submitted to the Borrower or any of its
Consolidated Subsidiaries by independent public accountants in connection
with any annual, interim or special audit made by them of the books of the
Borrower or any of its Consolidated Subsidiaries including, without
limitation, each report submitted to the Borrower or any of its
Consolidated Subsidiaries concerning its accounting practices and systems
and any final comment letter submitted by such accountants to management
in connection with the annual audit of the Borrower and its Consolidated
Subsidiaries.
(j) Tax Returns. Within 30 days after filing, copies of (i)
all federal, state and local income tax returns filed by the Borrower or
any Subsidiary, (ii) all quarterly reports by the Borrower or any
Subsidiary on Form 941 and (iii) all annual FUTA tax returns of the
Borrower or any Subsidiary.
(k) ERISA Matters. If and when any member of the ERISA Group
(i) gives or is required to give notice to the PBGC of any "reportable
event" (as defined in Section 4043 of ERISA) with respect to any Plan
which might constitute grounds for a termination of such Plan under Title
IV of ERISA, or knows that the
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plan administrator of any Plan has given or is required to give notice of
any such reportable event, a copy of the notice of such reportable event
given or required to be given to the PBGC; (ii) receives notice of
complete or partial withdrawal liability under Title IV of ERISA or notice
that any Multiemployer Plan is in reorganization, is insolvent or has been
terminated, a copy of such notice; (iii) receives notice from the PBGC
under Title IV of ERISA of an intent to terminate, impose liability (other
than for premiums under Section 4007 of ERISA) in respect of, or appoint a
trustee to administer any Plan, a copy of such notice; (iv) applies for a
waiver of the minimum funding standard under Section 412 of the Internal
Revenue Code, a copy of such application; (v) gives notice of intent to
terminate any Plan under Section 4041(c) of ERISA, a copy of such notice
and other information filed with the PBGC; (vi) gives notice of withdrawal
from any Plan pursuant to Section 4063 of ERISA, a copy of such notice; or
(vii) fails to make any payment-or contribution to any Plan or
Multiemployer Plan or in respect of any Benefit Arrangement or makes any
amendment to any Plan or Benefit Arrangement which has resulted or could
reasonably be expected to result in the imposition of a Lien or the
posting of a bond or other security, a certificate of the chief financial
officer or the chief accounting officer of the Borrower setting forth
details as to such occurrence and action, if any, which the Borrower or
applicable member of the ERISA Group is required or proposes to take.
(l) Reports and Proxies. The Borrower shall deliver to the
Bank: (i) prior to or simultaneously with its annual financial statements,
copies of all 10K's, (ii) prior to or simultaneously with its quarterly
financial statements, (A) copies of all 10-Q's, and (B) a current backlog
report, and (iii) promptly following the date of items, copies of all other
financial statements, reports, notices and proxy statements which are sent to
stockholders of the Borrower or its Consolidated Subsidiaries, and all regular
and periodic reports required to be filed by Borrower or its Consolidated
Subsidiaries with any governmental agency or authority.
(m) Environmental Matters. Promptly, upon receipt of any
complaint, order, citation, notice or other written communication from any
Person with respect to, or upon the Borrower's obtaining knowledge of, (i) the
existence or alleged existence of a violation of any applicable Environmental
Law in connection with any property now or previously owned, leased or operated
by the Borrower or any of its Subsidiaries, (ii) any release on such property or
any part thereof in a quantity that is reportable under any applicable
Environmental Law and (iii) any pending or threatened proceeding for the
termination, suspension or non-renewal of any permit required under any
applicable Environmental Law, in each case in which there is a reasonable
likelihood of an adverse decision or determination which could result in a
Material Adverse Effect.
(n) Other Information. From time to time such additional
financial or other information regarding the condition (financial or otherwise),
results of operations, properties, assets, business or prospects of the Borrower
or any of its Subsidiaries as the Bank may reasonably request.
Section 5.02 PAYMENT OF OBLIGATIONS. The Borrower will pay and
discharge, and will cause each of its Subsidiaries to pay and discharge, as the
same shall become due and payable, (i) all their respective obligations and
liabilities, including all claims or demands of materialmen, mechanics,
carriers, warehousemen, landlords and other like persons which, in any such
case, if unpaid, might by law give rise to a Lien upon any of their properties
or assets and (ii) all lawful taxes, assessments and charges or levies made upon
their properties or assets, by any governmental body, agency or official, except
where any of the items in clause (i) or (ii) of this Section 5.02 may be
diligently contested in good faith by appropriate proceedings and the Borrower
or such Subsidiary shall have set aside on its books, if required under
generally accepted accounting principles, appropriate reserves for the accrual
of any such items.
Section 5.03 MAINTENANCE OF PROPERTY; INSURANCE.
(a) Maintenance of Properties. The Borrower will keep, and
will cause each of its Subsidiaries to keep, all property useful and necessary
in their respective businesses in good working order and condition, subject to
ordinary wear and tear.
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(b) Insurance. The Borrower will maintain, and will cause each
of its Subsidiaries to maintain, insurance with financially sound and
responsible companies in such amounts (and with such risk retentions) and
against such risks as is usually carried by owners of similar businesses and
properties in the same general areas in which the Borrower and its Subsidiaries
operate. The Borrower will deliver to the Bank upon request from time to time
full information as to the insurance carried.
Section 5.04 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE.
The Borrower will continue, and will cause each of its Subsidiaries to continue,
to engage in business of the same general type as now conducted by the Borrower
and its Subsidiaries, and will preserve, renew and keep in full force and
effect, and will cause each of its Subsidiaries to preserve, renew and keep in
full force and effect, their respective corporate existence and their respective
rights, privileges and franchises necessary or desirable in the normal conduct
of business; provided that nothing in this Section 5.04 shall prohibit the
merger of a Subsidiary into the Borrower or the merger or consolidation of a
Subsidiary with or into another Person if the corporation surviving such
consolidation or merger is a Subsidiary and if, in each case, after giving
effect thereto, no Default shall have occurred.
Section 5.05 COMPLIANCE WITH LAWS. The Borrower will comply,
and will cause each of its Subsidiaries to comply, with all applicable laws,
ordinances, rules, regulations, and requirements of governmental authorities
(including, without limitation, Environmental Laws, ERISA and the rules and
regulations thereunder) except (i) where the necessity of compliance therewith
is contested in good faith by appropriate proceedings or (ii) where
noncompliance could not reasonably be expected to have a Material Adverse
Effect. Section 5.06 ACCOUNTING; INSPECTION OF PROPERTY, BOOKS AND RECORDS. The
Borrower will keep, and will cause each of its Subsidiaries to keep, proper
books of record and account in which full, true and correct entries in
conformity with generally accepted accounting principles shall be made of all
dealings and transactions in relation to their respective businesses and
activities, will maintain, and will cause each of its Subsidiaries to maintain,
their respective fiscal reporting periods on the present basis and will permit,
and will cause each of its Subsidiaries to permit, representatives of the Bank
to visit and inspect any of their respective properties, to examine and make
copies from any of their respective books and records and to discuss their
respective affairs, finances and accounts with their officers, employees and
independent public accountants, all at such reasonable times and as often as may
reasonably be desired.
Section 5.07 COLLECTION OF ACCOUNTS. The Borrower shall use
its best efforts to cause to be collected from each Account Debtor, as and when
due, any and all amounts owing under or on account of each Account (including,
without limitation, Accounts which are delinquent, such Accounts to be collected
in accordance with lawful collection procedures) and shall apply forthwith upon
receipt thereof all such amounts as are so collected to the outstanding balance
of such Account. The Borrower shall not rescind or cancel any indebtedness or
obligation evidenced by any Account, modify, make adjustments to, extend, renew,
compromise or settle any material dispute, claim, suit or legal proceeding
relating to or sell or assign any Account, or interest therein, without the
prior written consent of the Bank, except that, subject to the rights of the
Bank under the Loan Documents, if a Default or an Event of Default shall have
occurred and be continuing, the Borrower may allow in the ordinary course of
business as adjustments to amounts owing under its Accounts (i) an extension or
renewal of the time or times of payment, or settlement for less than the total
unpaid balance, which the Borrower finds appropriate in accordance with sound
business judgment and (ii) a refund or credit due as a result of discounts,
over-billings and miscellaneous credits, all in accordance with the Borrower's
ordinary course of business consistent with its historical collection practices.
The costs and expenses (including, without limitation, attorneys' fees) of
collection, whether incurred by the Borrower or the Bank, shall be borne by the
Borrower.
Section 5.08 NOTIFICATION TO ACCOUNT DEBTORS. Upon the
effectiveness of this Agreement, the Borrower will promptly notify each Account
Debtor in respect of any Account or Instrument that any payments due or to
become due in respect of such Collateral are to be made in the name of the
Borrower to such address and post office box as shall be specified by the Bank.
Except as set forth in Section 3.04 of the Security Agreement, each such payment
shall, upon receipt by the Bank, be deposited in the Operating Account in
accordance with Section 2.08(c). Upon the occurrence of a Default or an Event of
Default, the Borrower will promptly notify (and the Borrower
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hereby authorizes the Bank so to notify) each Account Debtor in respect of any
Account or Instrument that such Collateral has been assigned to the Bank and
that any payments due or to become due in respect of such Collateral are to be
made directly to the Bank in accordance with Section 3.04 of the Security
Agreement.
Section 5.09 RESTRICTION ON LIENS. The Borrower will not, and
will not permit any of its Subsidiaries to, create, incur, assume or suffer to
exist any Lien upon or with respect to any property or assets of any kind (real
or personal, tangible or intangible) of the Borrower or any such Subsidiary
whether now owned or hereafter acquired, or sell any such property or assets
subject to an understanding or agreement, contingent or otherwise, to repurchase
such property or assets (including sales of accounts receivable or notes with
recourse to the Borrower or any of its Subsidiaries) or assign any right to
receive income, or file or permit the filing of any financing statement under
the Uniform Commercial Code as in effect in any applicable jurisdiction or any
other similar notice of Lien under any similar recording or notice statute;
provided that the provisions of this Section 5.09 shall not prevent the
creation, incurrence, assumption or existence of the following (with such Liens
described below being herein referred to as "Permitted Liens"):
(a) Liens created by the Loan Documents;
(b) other Liens in favor of the Bank;
(c) Liens for taxes not yet due or Liens for taxes being contested in
good faith and by appropriate proceedings for which adequate reserves (in the
good faith judgment of the management of the Borrower) have been established;
(d) Liens imposed by law securing the charges, claims, demands or
levies of carriers, warehousemen, mechanics and other like persons which were
incurred in the ordinary course of business which (A) do not in the aggregate
materially detract from the value of the property or assets subject to such Lien
or materially impair the use thereof in the operation of the business of the
Borrower or any Subsidiary or (B) are being contested in good faith by
appropriate proceedings, which proceedings have the effect of preventing the
forfeiture or sale of the property or assets subject to such lien; and
(E) LIENS (OTHER THAN ANY LIENS IMPOSED BY ERISA OR PURSUANT TO ANY
ENVIRONMENTAL LAW) NOT SECURING DEBT OR DERIVATIVES OBLIGATIONS INCURRED OR
DEPOSITS MADE IN THE ORDINARY COURSE OF BUSINESS IN CONNECTION WITH WORKERS'
COMPENSATION, UNEMPLOYMENT INSURANCE AND OTHER TYPES OF SOCIAL SECURITY, OR TO
SECURE THE PERFORMANCE OF TENDERS, STATUTORY OBLIGATIONS, SURETY BONDS (OTHER
THAN APPEAL BONDS), BIDS, LEASES, GOVERNMENT CONTRACTS, PERFORMANCE AND
RETURN-OF-MONEY BONDS AND OTHER SIMILAR OBLIGATIONS INCURRED IN THE ORDINARY
COURSE OF BUSINESS.
The parties acknowledge that Alcore intends (a) to purchase the land
and the building presently being leased by Alcore at 1324 Brass Mill Road,
Belcamp, Maryland, as well certain additional land and equipment, and (b) to
finance such purchase with tax-exempt financing to be provided by the Maryland
Industrial Development Finance Authority ("MIDFA") and either the Bank or
another lender. In the event that such tax-exempt financing is provided by
another lender, the Bank agrees to subordinate its blanket lien covering the
Alcore Equipment to the lien of MIDFA and such other lender with respect to any
new equipment purchased with the proceeds of such tax-exempt financing, provided
that such new equipment is excluded from the Alcore Borrowing Base for purposes
of this Agreement.
Section 5.10 LIMITATION ON GUARANTEES. Neither the Borrower nor any of
its Subsidiaries shall Guarantee any Debt of any Person or Persons.
Section 5.11 NO VOLUNTARY PREPAYMENT OF SUBORDINATED DEBT AND LONG TERM
DEBT. Except as described in Schedule 5.11 attached hereto and made a part
hereof, the Borrower will not, and will not permit any of its Subsidiaries to,
directly or indirectly, redeem, retire, purchase, acquire, defease or otherwise
make any payment in respect of the principal of any Long Term Debt at a date in
advance of its legal obligations to do so.
Section 5.12 CONSOLIDATED CAPITAL EXPENDITURES. Unless previously
approved by the Bank, the
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Borrower will not make any Consolidated Capital Expenditures for any fiscal year
in excess of $2,000,000, excluding Consolidated Capital Expenditures for the
purchase of, and improvements to, the facility currently leased by Alcore and
located at 1324 Brass Mill Road, Belcamp, Maryland.
Section 5.13 CHANGE OF MANAGEMENT. The Borrower will not make any
material change of management.
Section 5.14 INVESTMENTS; LINE OF BUSINESS. Neither the Borrower nor
any Subsidiary will make or acquire any Investment in any Person, exclusive of
loans and advances to employees in the ordinary course of business, which loans
or advances, in the aggregate, at any time in excess of $500,000 outstanding.
Section 5.15 LIMITATION ON DEBT. Unless previously approved by the Bank
in writing, neither Borrower nor any of its Consolidated Subsidiaries shall,
directly or indirectly, become liable for any Consolidated Debt, contingent or
direct, if, giving effect to such additional Debt on a pro forma basis, causes
the aggregate amount of Borrower's Debt, excluding Debt outstanding with the
Bank, to exceed $500,000.
Section 5.16. CHANGE IN FISCAL YEAR. The Borrower shall not, without
the Bank's prior consent, change its fiscal year.
Section 5.17 USE OF PROCEEDS. The proceeds of the Loans made under this
Agreement will be used by the Borrower to (a) finance accounts receivable and
inventory purchases of the Borrower, (b) refinance existing term debt of the
Borrower, (c) finance working capital needs of the Borrower, and (d) satisfy
short-term financing needs for Equipment purchases. No such use of the proceeds
for general corporate purposes will be, directly or indirectly, for the purpose,
whether immediate, incidental or ultimate, of buying or carrying any "margin
stock" within the meaning of Regulation U.
Section 5.18 TRANSACTIONS WITH OTHER PERSONS. The Borrower will not,
and will not permit any of its Subsidiaries to, enter into any agreement with
any Person whereby any of them shall agree to any restriction on the right of
the Borrower or any of its Subsidiaries to amend or waive any of the provisions
of this Agreement or any other Loan Document.
Section 5.19 CONSOLIDATED CURRENT RATIO. The Consolidated Current
Ratio of Borrower, measured quarterly, shall not be less than 1.00 to 1.00.
Section 5.20 MINIMUM CONSOLIDATED TANGIBLE NET WORTH. Consolidated
Tangible Net Worth, measured quarterly, will at no time be less than $9,800,000.
Section 5.21 CONSOLIDATED DEBT TO CONSOLIDATED TANGIBLE NET WORTH. The
ratio of (i) Consolidated Debt (including Subordinated Debt) to (ii)
Consolidated Tangible Net Worth, will not exceed 1.00 to 1.00, measured
quarterly.
Section 5.22 CONSOLIDATED CASH FLOW COVERAGE RATIO. The Consolidated
Cash Flow Coverage Ratio will not be less than 1.25 to 1.00, measured quarterly.
Section 5.23 CASH MANAGEMENT RELATIONSHIP. Each Borrower will maintain
its cash management accounts with the Bank.
Section 5.24 DEPOSIT RELATIONSHIP. Each Borrower will maintain its
primary depository relationship with the Bank. The parties hereto acknowledge
and agree that Lunn may maintain its payroll account in New York with a
financial institution other than the Lender.
Section 5.25 INDEPENDENCE OF COVENANTS. All covenants contained herein
shall be given independent
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effect so that if a particular action or condition is not permitted by any of
such covenants, the fact that such action or condition would be permitted by an
exception to, or otherwise be within the limitations of another covenant shall
not avoid the occurrence of a Default if such action is taken or condition
exists.
ARTICLE VI
DEFAULTS
Section 6.01 EVENTS OF DEFAULT. If one or more of the following events
("Events of Default") shall have occurred and be continuing:
(a) the Borrower shall fail to pay when due any principal of the Loans
or shall fail to pay any interest on the Loans, any fee or any other amount
payable hereunder or under the Note;
(b) the Borrower shall fail to observe or perform any covenant
contained in Article V (other than those contained in Sections 5.01 through
5.06);
(c) the Borrower shall fail to observe or perform any covenant or
agreement contained in this Agreement (other than those covered by clauses (i)
or (ii) above) for 30 days after notice thereof has been given to the Borrower
by the Bank;
(d) any representation, warranty, certification or statement made by
the Borrower in this Agreement or in any certificate, financial statement or
other document delivered pursuant hereto or thereto shall prove to have been
incorrect in any material respect when made;
(e) the Borrower or any Subsidiary shall fail to make any payment or
perform any collateralization obligation with respect to any Material Financial
Obligations when due or within any applicable grace period;
(f) the Borrower shall default in the payment or performance of any
term, covenant, agreement or condition in any loan agreement, credit agreement,
note, deed of trust, security agreement, pledge agreement or other contract
securing or evidencing payment of any indebtedness to the Bank or any Affiliate
or Subsidiary of the Bank, other than the Loan.
(g) the Borrower or any Subsidiary shall commence a voluntary case or
other proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate action to authorize any of the
foregoing;
(h) an involuntary case or other proceeding shall be commenced against
the Borrower or any Subsidiary seeking liquidation, reorganization or other
relief with respect to it or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of 60 days; or an order for
relief shall be entered against the Borrower or any Subsidiary under the federal
Bankruptcy laws as now or hereafter in effect;
(i) any member of the ERISA Group shall fail to pay when due an amount
or amounts aggregating in excess of $25,000 which it shall have become liable to
pay under Title IV of ERISA; or notice of intent to terminate a
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Material Plan shall be filed under Title IV of ERISA by any member of the ERISA
Group, any plan administrator or any combination of the foregoing; or the PBGC
shall institute proceedings under Title IV of ERISA to terminate, to impose
liability (other than for premiums under Section 4007 of ERISA) in respect of,
or to cause a trustee to be appointed to administer any Material Plan; or a
condition shall exist by reason of which the PBGC would be entitled to obtain a
decree adjudicating that any Material Plan must be terminated; or there shall
occur a complete or partial withdrawal from, or default, within the meaning of
Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans
which could reasonably be expected to cause one or more members of the ERISA
Group to incur a current payment obligation in excess of $25,000;
(j) one or more judgments, orders for the payment of money, writs of
attachment or garnishment against any property or debt due Borrower, or tax lien
against any property or debt of Borrower, in excess of $500,000 in the aggregate
shall be rendered against the Borrower or any Subsidiary of the Borrower and
such judgments or orders shall continue unsatisfied and unstayed for a period of
30 days;
(k) (A) the Bank shall in good faith determine that its prospect of
receiving payment in full of the Obligations then outstanding or its ability to
exercise its rights and remedies hereunder and under the other Loan Documents
has been impaired, (B) an event or condition shall have occurred since the
Effective Date which has or could reasonably be expected to have a Material
Adverse Effect or (C) the Bank shall reasonably suspect that one or more Events
of Default have occurred, and the Borrower, upon 30 days' notice thereof by the
Bank, shall have failed to provide reasonably satisfactory evidence to the Bank
that such Events of Default have not in fact occurred;
then, and in every such event, while such event is continuing, the Bank may (A)
by notice to the Borrower terminate the Commitment and it shall thereupon
terminate, and (B) by notice to the Borrower declare the Loans (together with
accrued interest thereon) to be, and the Loans shall thereupon become,
immediately due and payable without presentment, demand, protest or other notice
of any kind (except as set forth in clause (A) above), all of which are hereby
waived by the Borrower; provided that in the case of any Default or any Event of
Default specified in clause 6.01(g) or 6.01(h) above with respect to the
Borrower, without any notice to the Borrower or any other act by the Bank, the
Commitment shall thereupon terminate and the Loans (together with accrued
interest and accrued and unpaid fees thereon) shall become immediately due and
payable without presentment, demand, protest or other notice of any kind, all of
which are hereby waived by the Borrower.
ARTICLE VII
CHANGE IN CIRCUMSTANCES
Section 7.01 UNAVAILABILITY OF INTEREST RATE. If, at any time, (a) the
Bank shall determine that, by reasons of circumstances affecting foreign
exchange and interbank markets generally, the London Interbank Offered Rate in
the applicable amounts are not being offered to the Bank; or (b)a new, or a
revision in any existing law or interpretation or administration (including
reversals) thereof, by any government authority, central bank or comparable
agency shall make it unlawful or impossible for the Bank to honor its
obligations under this Agreement, (i) the Bank's obligation to make, maintain or
convert into the Adjusted London Interbank Offered Rate shall be suspended; and
(ii) the applicable the Adjusted London Interbank Offered Rate shall immediately
be converted to the Base Rate for the remainder of the applicable interest
period. The Bank shall forthwith give notice thereof to the Borrower, whereupon
until the Bank notifies the Borrower that the circumstances giving rise to such
suspension no longer exist, (i) the obligations of the Bank to make Loans at the
LIBOR-based Rate shall be suspended and (ii) each outstanding Loan shall be
converted into a Base Rate Loan on the date of such determination. Unless the
Borrower notifies the Bank at least two Business Days before the date of any
Loan for which a Notice of Borrowing has previously been given that it elects
not to borrow on such date, such Loan shall instead be made as a Base Rate Loan.
Section 7.02 ILLEGALITY. If, on or after the date of this Agreement,
the adoption of any applicable law,
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rule or regulation, or any change in any applicable law, rule or regulation, or
any change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by the Bank with any request or directive
(whether or not having the force of law) of any such authority, central bank or
comparable agency shall make it unlawful or impossible for the Bank to make,
maintain or fund Loans and the Bank shall so notify the Borrower, until the Bank
notifies the Borrower that the circumstances giving rise to such suspension no
longer exist, the obligation of the Bank to make Loans shall be suspended. If
such notice is given, each Loan then outstanding which bears interest at the
LIBOR-based Rate shall be converted immediately to a Base Rate Loan.
Section 7.03 INCREASED COST AND REDUCED RETURN.
(a) Increased Costs. If on or after the date hereof, the adoption of
any applicable law, rule or regulation, or any change in any applicable law,
rule or regulation, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by the Bank
with any request or directive (whether or not having the force of law) of any
such authority, central bank or comparable agency:
(i) shall subject the Bank to any tax, duty or other charge
with respect to its Loans, the Note or its obligation to make Loans, or
shall change the basis of taxation of payments to the Bank of the
principal of or interest on its Loans or any other amounts due under
this Agreement in respect of its Loans or its obligation to make Loans
(except for changes in the rate of tax on the overall net income of the
Bank imposed by the jurisdiction in which the Bank's principal
executive office is located); or
(ii) shall impose, modify or deem applicable any reserve
(including, without limitation, any such requirement imposed by the
Board of Governors of the Federal Reserve System, but excluding any
such requirement included in an applicable Euro-Dollar Reserve
Percentage, special deposit, insurance assessment or similar
requirement against assets of, deposits with or for the account of,
letters of credit issued or participated in by, or other credit
extended by, the Bank or shall impose on the Bank or on the United
States market for certificates of deposit or the London interbank
market any other condition affecting its Loans, the Note or its
obligation to make Loans;
and the result of any of the foregoing is to increase the cost to the Bank of
making or maintaining any Loan, or to reduce the amount of any sum received or
receivable by the Bank under this Agreement or under the Note with respect
thereto, by an amount deemed by the Bank to be material, then, within 30
Business Days after demand by the Bank, the Borrower shall pay to the Bank such
additional amount or amounts, as determined by the Bank in good faith, as will
compensate the Bank for such increased cost or reduction.
(b) Capital Adequacy. If the Bank shall have determined that, after the
date hereof, the adoption of any applicable law, rule or regulation regarding
capital adequacy, or any change in any such law, rule or regulation, or any
change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on capital of the Bank (or its Parent) as a consequence of the Bank's
obligations hereunder to a level below that which the Bank could have achieved
but for such adoption, change, request or directive (taking into consideration
its policies with respect to capital adequacy) by an amount deemed by the Bank
to be material, then from time to time, within 30 Business Days after demand by
the Bank, the Borrower shall pay to the Bank such additional amount or amounts
as will compensate the Bank (or its Parent) for such reduction.
(c) Notices. The Bank will promptly notify the Borrower of any event of
which it has knowledge, occurring after the date hereof, that will entitle the
Bank to compensation pursuant to this Section. A certificate of the Bank
claiming compensation under this Section and setting forth in reasonable detail
the additional amount or amounts
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to be paid to it hereunder shall be conclusive in the absence of manifest error.
In determining such amount, the Bank may use any reasonable averaging and
attribution methods.
Section 7.04 BASE RATE LOANS SUBSTITUTED FOR AFFECTED LIBOR-BASED
LOANS. If (i) the obligation of the Bank to make or maintain Loans has been
suspended pursuant to Section 7.02 or (ii) the Bank has demanded compensation
under Section 7.03(a) with respect to its Loans and the Borrower shall, by at
least four Business Days' prior notice to the Bank have elected that the
provisions of this Section shall apply, then, unless and until the Bank notifies
the Borrower that the circumstances giving rise to such suspension or demand for
compensation no longer apply:
(a) all Loans shall be Base Rate Loans, and
(b) after each of the Loans, as the case may be, has been
repaid (or converted to a Base Rate Loan), all payments of principal that would
otherwise be applied to repay such Loans shall be applied to repay the Base Rate
Loans instead.
If the Bank notifies the Borrower that the circumstances giving rise to such
notice no longer apply, the principal amount of each such Base Rate Loan shall
cease immediately to constitute a Base Rate Loan and shall thereafter bear
interest in accordance with Section 2.05(a).
ARTICLE VIII
MISCELLANEOUS
Section 8.01 NOTICES. Unless otherwise specified herein, all
notices, requests and other communications to a party hereunder shall be in
writing (including bank wire, telex, facsimile transmission or similar writing)
and shall be given to such party: (i) at its address, facsimile number or telex
number set forth on the signature pages hereof, or (ii) at such other address,
facsimile number or telex number as such party may hereafter specify for the
purpose of communication hereunder by notice to the other party hereto. Each
such notice, request or other communication shall be effective (i) if given by
telex, when such telex is transmitted to the telex number specified in this
Section and the appropriate answer back is received, (ii) if given by facsimile
transmission, when transmitted to the facsimile number specified in this Section
and confirmation of receipt is received, (iii) if given by mail, 72 hours after
such communication is deposited in the mails, certified mail, return receipt
requested, with appropriate first class postage prepaid, addressed as specified
in this Section or (iv) if given by any other means, when delivered at the
address specified in this Section 8.01. Rejection or refusal to accept, or the
inability to deliver because of a changed address of which no notice was given
shall not affect the validity of notice given in accordance with this Section.
Section 8.02 NO WAIVERS. No failure by the Bank to exercise,
no course of dealing with respect to, and no delay in exercising any right,
power or privilege hereunder or under the Note shall operate as a waiver thereof
nor shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies provided herein shall be cumulative and not exclusive of any
rights or remedies provided by law.
Section 8.03 EXPENSES; INDEMNIFICATION.
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(a) Expenses. With the exception of the Bank's legal fees and
expenses incurred in connection with the preparation of the Loan Documents and
the closing of the Line of Credit which shall be paid for by the Bank, the
Borrower shall pay (i) all out-of-pocket expenses of the Bank, including fees
and disbursements of special and local counsel for the Bank, in connection with
the preparation and administration of this Agreement and the other Loan
Documents, any waiver or consent thereunder or any amendment thereof or any
Default or alleged Default thereunder and (ii) if an Event of Default occurs,
all out-of-pocket expenses incurred by the Bank, including (without duplication)
the fees and disbursements of outside counsel, in connection with such Event of
Default and collection, bankruptcy, insolvency and other enforcement proceedings
resulting therefrom.
(b) Indemnity in Respect of Loan Documents. The Borrower
agrees to indemnify the Bank, its affiliates and the respective directors,
officers, trustees, agents and employees of the foregoing (each an "Indemnitee")
and hold each Indemnitee harmless from and against any and all liabilities,
losses, damages, costs and expenses of any kind, including, without limitation,
the reasonable fees and disbursements of counsel, which may be incurred by such
Indemnitee in connection with any investigative, administrative or judicial
proceeding (whether or not such Indemnitee shall be designated a party thereto)
brought or threatened relating to or arising out of this Agreement or any actual
or proposed use of proceeds of Loans hereunder; provided that no Indemnitee
shall have the right to be indemnified hereunder for such Indemnitee's own gross
negligence or willful misconduct as determined by a court of competent
jurisdiction.
(c) Indemnity in Respect of Environmental Liabilities. The
Borrower hereby indemnifies the Bank from and against and agrees to hold each of
them harmless from any and all liabilities, losses, damages, costs and expenses
of any kind (including without limitation reasonable expenses of investigation
by engineers, environmental consultants and similar technical personnel and
reasonable fees and disbursements of counsel) of the Bank arising out of, in
respect of or in connection with any and all violations or alleged violations of
Environmental Laws. Without limiting the generality of the foregoing, the
Borrower hereby waives all rights for contribution or any other rights of
recovery with respect to liabilities, losses, damages, costs and expenses
arising under or related to Environmental Laws that it might have by statute or
otherwise against the Bank.
Section 8.04 AMENDMENTS AND WAIVERS. Any provision of this
Agreement or the Notes may be amended or waived if, but only if, such amendment
or waiver is in writing and is signed by the Borrower and the Bank.
Section 8.05 SUCCESSORS AND ASSIGNS. The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that the Borrower may not
assign or otherwise transfer any of its rights under this Agreement without the
prior written consent of the Bank.
Section 8.06 GOVERNING LAW. This Agreement and the Note
shall be governed by and construed in accordance with the laws of the State of
Maryland.
Section 8.07 ARBITRATION; SUBMISSION TO JURISDICTION.
(a) Upon demand of any party hereto, whether made before or
after institution of any judicial proceeding, any dispute, claim or controversy
arising out of, connected with or relating to this Agreement, the Note or any
other Loan Document ("Disputes") between parties to this Agreement shall be
resolved by binding arbitration as provided herein. Institution of a judicial
proceeding by a party does not waive the right of that party to demand
arbitration hereunder. Disputes may include, without limitation, tort claims,
counterclaims, disputes as to whether a matter is subject to arbitration, claims
brought as class actions, claims arising from loan documents executed in the
future, or claims arising out of or connected with the transaction reflected by
this Agreement.
Arbitration shall be conducted under and governed by the
Commercial Financial Disputes Arbitration Rules (the "Arbitration Rules") of the
American Arbitration Association (the "AAA") and Title 9 of the U.S. Code. All
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arbitration hearings shall be conducted in the city in which is located the
office of the Bank identified in Section 8.01 as the place where notices are to
be sent to the Bank. The expedited procedures set forth in Rule 51 et seq. of
the Arbitration Rules shall be applicable to claims of less than $1,000,000. All
applicable statutes of limitation shall apply to any Dispute. A judgment upon
the award may be entered in any court having jurisdiction. The panel from which
all arbitrators are selected shall be comprised of licensed attorneys. The
single arbitrator selected for expedited procedure shall be a retired judge from
the highest court of general jurisdiction, state or federal, of the state where
the hearing will be conducted or if such person is not available to serve, the
single arbitrator may be a licensed attorney. Notwithstanding the foregoing,
this arbitration provision does not apply to disputes under or related to
Derivatives Obligations.
(b) Notwithstanding the preceding binding arbitration
provisions, the Bank and the Borrower agree to preserve, without diminution,
certain remedies that any party hereto may employ or exercise freely,
independently or in connection with an arbitration proceeding or after an
arbitration action is brought. The Bank and the Borrower shall have the right to
proceed in any court of proper jurisdiction or by self-help to exercise or
prosecute the following remedies, as applicable: (i) all rights to foreclose
against any real or personal property or other security by exercising a power of
sale granted under any Loan Document or under applicable law or by judicial
foreclosure and sale, including a proceeding to confirm the sale; (ii) all
rights of self-help including peaceful occupation of real property and
collection of rents, set-off, and peaceful possession of personal property;
(iii) obtaining provisional or ancillary remedies including injunctive relief,
sequestration, garnishment, attachment, appointment of receiver and filing an
involuntary bankruptcy proceeding; and (iv) when applicable, a judgment by
confession of judgment. Preservation of these remedies does not limit the power
of an arbitrator to grant similar remedies that may be requested by a party in a
Dispute.
The Borrowers and the Bank agree that they shall not have a
remedy of punitive or exemplary damages against the other in any Dispute and
hereby waive any right or claim to punitive or exemplary damages they have now
or which may arise in the future in connection with any Dispute whether the
Dispute is resolved by arbitration or judicially.
(c) Any legal action or proceeding with respect to this
Agreement, the Note or any other Loan Document or any document related hereto or
thereto may be brought in the courts of the State of Maryland or of the United
States of America for the District of Maryland, and by execution and delivery of
this Agreement the Borrower hereby accepts for itself and in respect of its
property, generally and unconditionally, the nonexclusive jurisdiction of the
aforesaid courts. The Borrower hereby irrevocably and unconditionally waives any
objection, including without limitation, any objection to the laying of venue or
based on the grounds of the forum non conveniens which it now or hereafter may
have to the bringing of any action or proceeding in such respective
jurisdictions. Service of process in any such case may be had against the
Borrower by delivery in accordance with the notice provisions herein or as
otherwise permitted by law, and the Borrower agrees that such service shall be
valid in all respects for establishing personal jurisdiction over it.
Section 8.08 COUNTERPARTS; INTEGRATION; EFFECTIVENESS. This
Agreement may be signed in any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and hereto were upon
the same instrument. This Agreement and the Note constitute the entire agreement
and understanding among the parties hereto and supersedes any and all prior
agreements and understandings, oral or written, relating to the subject matter
hereof. This Agreement shall become effective upon receipt by the Bank of
counterparts hereof signed by each of the parties hereto.
Section 8.09 CONFIDENTIALITY. The Bank agrees to hold all
non-public information obtained pursuant to the requirements of this Agreement
in accordance with its customary procedure for handling confidential information
of this nature and in accordance with safe and sound banking practices, provided
that nothing herein shall prevent any Bank from disclosing such information (i)
to any other Person if reasonably incidental to the administration of the Loans,
(ii) upon the order of any court or administrative agency, (iii) upon the
request or demand of any regulatory agency or authority, (iv) which had been
publicly disclosed other than as a result of a
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disclosure by the Bank prohibited by this Agreement, (v) in connection with any
litigation to which the Bank or its subsidiaries or parent may be a party, (vi)
to the extent necessary in connection with the exercise of any remedy hereunder
and (vii) to the Bank's legal counsel and independent auditors. The Bank or
Bank's counsel may circulate promotional materials and place advertisements in
financial and other newspapers and periodicals or on a home page or similar
place for dissemination of information on the Internet or worldwide web after
the closing of the transactions contemplated by this Agreement in the form of a
"tombstone" or otherwise describing the name of the Borrower and the amount,
type and closing date of such transactions, all at their sole expense.
Section 8.10 WAIVER OF JURY TRIAL. Each Borrower waives trial
by jury in any action or proceeding to which such Borrower and Lender may be
parties, arising out of, in connection with or in any way pertaining to, this
Agreement, the Note, the Security Agreement or any of the other Loan Documents.
It is agreed and understood that this waiver constitutes a waiver of trial by
jury of all claims against all parties to such action or proceedings, including
claims against parties who are not parties to this Agreement. This waiver is
knowingly, willingly and voluntarily made by each Borrower, and each Borrower
hereby represents that no representations of fact or opinion have been made by
any individual to induce this waiver of trial by jury or to in any way modify or
nullify its effect. Each Borrower further represents and warrants that it has
been represented in the signing of this Agreement and in the making of this
waiver by independent legal counsel, or has had the opportunity to be
represented by independent legal counsel selected of its own free will, and that
it has had the opportunity to discuss this waiver with counsel.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
BORROWER:
LUNN INDUSTRIES, INC.
By:_____________________________(SEAL)
Name: Alan W. Baldwin
Title: Chief Executive Officer and Chairman
1 Garvies Point Road
Glen Cove, New York 11542-2828
Facsimile No.:________________
ALCORE, INC.
By:_____________________________(SEAL)
Name: Edward A. Kiley
Title: President/General Manager
1324 Brass Mill Road
Belcamp, Maryland 21017
Facsimile No.:__________________
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FIRST UNION NATIONAL BANK OF
MARYLAND
By:_____________________________(SEAL)
Name: Robert Linthicum
Title: Vice President
7 East Baltimore Street, 2nd Floor
Baltimore, Maryland 21202
Attn: Robert Linthicum
Facsimile No.:410-244-1236
- 25 -
<PAGE>
Schedule 4.08
<TABLE>
<CAPTION>
SUBSIDIARIES
PART I
PERCENT OF OUTSTANDING SHARES OF SUBSIDIARY
NAME OF SUBSIDIARY OWNED BY LUNN
- ------------------------------------------------- ------------------------------------------------
<S> <C>
<CAPTION>
PERCENT OF OUTSTANDING SHARES OF SUBSIDIARY
NAME OF SUBSIDIARY OWNED BY ALCORE
- ------------------------------------------------- ------------------------------------------------
PART II
</TABLE>
- 26 -
<PAGE>
Schedule 5.09
<TABLE>
<CAPTION>
BORROWER SECURED PARTY/LESSOR JURISDICTION FILING TYPE FILING NUMBER FILING DATE COLLATERAL DESCRIPTION
- -------- -------------------- ------------ ----------- ------------- ----------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
--------------------- ------------ ------------ -------------- ---------- -----------------------
</TABLE>
- 1 -
<PAGE>
EXHIBIT A
Form of Notice of Borrowing
_____________________, 199_
First Union National Bank of Maryland
1 East Baltimore Street
2nd Floor
Baltimore, Maryland 21202
Attn: Robert Linthicum
Ladies and Gentlemen:
This notice shall constitute a "Notice of Borrowing" pursuant
to Section 2.02(a) of the Credit Agreement dated as of November __, 1996 (the
"Credit Agreement") by and among Lunn Industries, Inc., Alcore, Inc. and First
Union National Bank of Maryland. Capitalized terms not otherwise defined herein
have the meanings ascribed to them in the Credit Agreement.
We hereby represent and warrant that all of the information
set forth in the Borrowing Base Certificate attached hereto and made a part
hereof is true and correct as of the date of this notice.
The date of the Loan will be ________________, _________.
The principal amount of the Loan will be $__________________.
The Borrower of the Loan will be the Borrower whose name is set forth
below.
Transfer Instructions:
[Insert appropriate delivery instructions, which shall include bank and account
number].
[BORROWER NAME]
By:____________________________________
Name:_______________________________
Title:________________________________
- 1 -
<PAGE>
EXHIBIT B
Form of Note
Baltimore, Maryland
November _, 1996
For value received, LUNN INDUSTRIES, INC., a Delaware
corporation, and ALCORE, INC., a Maryland corporation (collectively, the
"Borrower"), jointly and severally promise to pay to the order of FIRST UNION
NATIONAL BANK OF MARYLAND (the "Bank") the unpaid principal amount of each Loan
made by the Bank to the Borrower (and/or either of them) pursuant to the Credit
Agreement referred to below on the maturity date provided for in the Credit
Agreement. The Borrower promises to pay interest on the unpaid principal amount
of each such Loan on the dates and at the rate or rates provided for in the
Credit Agreement. All such payments of principal and interest shall be made in
accordance with the provisions of the Credit Agreement.
All Loans made by the Bank and all repayments of the principal
thereof shall be recorded by the Bank and, if the Bank so elects in connection
with any transfer or enforcement hereof, appropriate notations to evidence the
foregoing information with respect to each Loan then outstanding shall be
endorsed by the Bank on the schedule attached to and made a part hereof;
provided that the failure of the Bank to make any such recordation or
endorsement shall not affect the obligations of the Borrower hereunder or under
the Credit Agreement.
This note is the Note referred to in the Credit Agreement [of
even date herewith] [dated as of November __, 1996], between the Borrower and
the Bank (as the same may be amended from time to time, the "Credit Agreement").
Terms defined in the Credit Agreement are used herein with the same meanings.
Reference is made to the Credit Agreement for provisions for the mandatory and
optional prepayment hereof and the acceleration of the maturity hereof.
ATTEST: LUNN INDUSTRIES, INC.
____________________ By __________________________SEAL)
Name: Alan W. Baldwin
Title: Chief Executive Officer and
Chairman
[CORPORATE SEAL]
ALCORE, INC.
___________________ By:__________________________(SEAL)
Name: Edward A. Kiley
Title: President/General Manager
[CORPORATE SEAL]
- 2 -
<PAGE>
<TABLE>
<CAPTION>
LOANS AND PAYMENTS OF PRINCIPAL
Amount of UNPAID
BORROWER AMOUNT OF LOAN Principal PRINCIPAL NOTATION
DATE Repaid BALANCE MADE BY
============= ==================== ===================== ================== =================== ==================
<S> <C> <C> <C> <C> <C>
============= ==================== ===================== ================== =================== ==================
</TABLE>
- 1 -
<PAGE>
First Union National Bank of ___________________
November __, 1996
Page 1
EXHIBIT C
Form of Opinion of Counsel
November __, 1996
First Union National Bank of Maryland
1 East Baltimore Street
2nd Floor
Baltimore, Maryland 21202
Ladies and Gentlemen:
We have acted as counsel for Lunn Industries, Inc., a Delaware
corporation ("Lunn"), and Alcore, Inc., a Maryland corporation (Alcore and Lunn
being herein sometimes collectively called the "Borrower"), in connection with
the Credit Agreement [of even date herewith] [dated as of November __, 1996]
(the "Credit Agreement") between the Borrower and First Union National Bank of
Maryland, a national banking association (the "Bank"). This opinion is being
delivered pursuant to Section 3.01 of the Credit Agreement. Terms defined in the
Credit Agreement and not defined herein are used herein as therein defined.
We have examined (i) executed copies of the Loan Documents,
(ii) unfiled copies of the financing statements on Form UCC-1 (the "Financing
Statements") filed in the offices listed on Schedule I hereto (the "Filing
Jurisdictions") executed by the Borrower, as debtor, in favor of the Bank, (iii)
reports from [SEARCH SERVICE] as to copies of UCC financing statements naming
the Borrower as debtor and of federal tax liens filed against the Borrower that
are on file as set forth therein (the "Search Report") and (iv) originals or
copies, certified or otherwise identified to our satisfaction, of such other
documents, corporate records, certificates of public officials and other
instruments as we have deemed necessary or advisable for purposes of this
opinion.
In rendering the opinions expressed below, we have assumed
(except with respect to the Borrower) (a) the valid existence and good standing
in the jurisdiction of its organization of each of the parties to the Loan
Documents; (b) the due authorization, execution and delivery of the Loan
Documents by the parties thereto, (c) the corporate or partnership power and
authority, as applicable, of each party to the Loan Documents to execute,
deliver and perform the same, and that such execution, delivery and performance
does not violate its certificate or articles of incorporation, bylaws or
partnership agreement, as applicable, or any law or governmental rule or
regulation applicable to it, (d) the genuineness of all signatures and the
authority of all persons signing each of the Loan Documents on behalf of the
parties thereto, (e) that each of the Loan Documents constitutes the legal,
valid and binding obligation of each party to such Loan Document and is
enforceable against each such party in accordance with its terms and (f) the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as certified, conformed or
photostatic copies and the authenticity of the originals of such copies. As to
certain factual matters we have, to the extent deemed appropriate by us, relied
upon certificates of officers of the Borrower and the representations made by
the Borrower in the Loan Documents to which it is a party.
Based upon the foregoing, we are of the opinion that:
1. Lunn is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware, has all corporate
powers required to carry on its business as now conducted and is duly qualified
as a foreign corporation in each jurisdiction where qualification or licensing
is required by the nature of its
- 1 -
<PAGE>
First Union National Bank of ___________________
November __, 1996
Page 2
business or the character and location of its property, business or customers
and in which the failure so to qualify or be licensed, as the case may be, in
the aggregate, could have a material adverse effect on its business, financial
position, results of operations or properties.
2. Alcore is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Maryland, has all corporate
powers required to carry on its business as now conducted and is duly qualified
as a foreign corporation in each jurisdiction where qualification or licensing
is required by the nature of its business or the character and location of its
property, business or customers and in which the failure so to qualify or be
licensed, as the case may be, in the aggregate, could have a material adverse
effect on its business, financial position, results of operations or properties.
3. The execution, delivery and performance by the Borrower of
the Loan Documents to which it is a party are within its corporate power and
have been duly authorized by all necessary corporate action of the Borrower.
Each Borrower has duly executed and delivered the Loan Documents to which it is
a party. Each Loan Document is a valid and binding agreement or obligation of
each Borrower which is a party thereto, in each case enforceable against such
Borrower in accordance with its terms, except (i) as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforceability of creditors' rights generally and by equitable
principles of general applicability (regardless of whether such enforceability
is considered in a proceeding in equity or at law), (ii) that certain of the
remedial provisions in the Security Agreement may be limited by applicable law,
although such limitations do not in our opinion make the remedies provided for
therein inadequate for the practical realization of the principal benefit
intended to be afforded thereby, and (iii) that provisions of the Loan Documents
which permit the Bank to take action or make determinations or to require
payments under indemnity and similar provisions may be subject to a requirement
that such action be taken or such determination be made on a reasonable basis
and in good faith and that any action or omission to act in respect of which
such payment is so required be reasonable and in good faith.
4. The execution, delivery and performance by each Borrower of
the Loan Documents to which it is a party (i) require no action by or in respect
of, or filing with, any governmental body, agency or official (other than the
filings referred to in paragraph 8 of this opinion); (ii) do not contravene or
constitute (with or without the giving of notice or lapse of time or both) a
default under (A) any provision of applicable law or regulation or, to the best
of our knowledge, (B) any material indenture, mortgage, deed of trust, credit
agreement, loan agreement or other material agreement relating to indebtedness
known to us binding upon any Borrower or (C) any judgment, injunction, order,
decree or other instrument known to us binding upon any Borrower; and (iii) do
not result in the creation or imposition of any Lien (other than the Liens of
the Loan Documents) on any asset of any Borrower. The execution, delivery and
performance by the Borrower of the Loan Documents to which it is a party do not
contravene any provision of the articles of incorporation or by-laws of the
Borrower.
5. To the best of our knowledge, there is no action, suit,
proceeding or arbitration pending or threatened against the Borrower before any
court or arbitrator or any governmental body, agency or official in which there
is a reasonable possibility of an adverse decision which could materially and
adversely affect the business, financial position, results of operations or
properties of the Borrower or which in any manner questions the validity of any
Loan Document.
6. The Security Agreement creates security interests in favor
of the Bank, as security for the Loans, the Note and all other Obligations, in
such of the collateral purported to be covered thereby in which a security
interest may be created under Article 9 of the Uniform Commercial Code as in
effect in the State of Maryland (the "Article 9 Collateral"), except that the
Security Agreement will create such security interests in property in which the
Borrower has no present rights only when the Borrower acquires rights therein.
- 2 -
<PAGE>
First Union National Bank of ___________________
November __, 1996
Page 3
7. (a) The Financing Statements have been duly filed in all of
the Filing Jurisdictions. Accordingly, the security interests of the Bank in all
right, title and interest of the Borrower in the Article 9 Collateral (the
"Security Interests") have been (or when the Borrower acquires rights therein
will be) perfected under the UCC to the extent that the perfection of a security
interest under Article 9 of the UCC is achieved by the filing of a financing
statement, and no further filing or recording of any document or instrument or
other action will be required to perfect the Security Interests of the Bank
under the UCC, except that: (i) continuation statements with respect to each
Financing Statement must be filed within the respective time periods provided in
Schedule I hereto; (ii) additional filings may be necessary if the Borrower
changes its name, identity or corporate structure or the jurisdictions in which
its chief executive office or the Article 9 Collateral are located; (iii) in the
case of Collateral consisting of proceeds, perfection and the continuation of
perfection of the Security Interests therein is limited to the extent set forth
in Section 9-306 of the UCC and (iv) in the case of property which becomes part
of the Collateral after the date hereof, Section 552 of the federal Bankruptcy
Code limits the extent to which property acquired by the debtor after the
commencement of a case under the Bankruptcy Code may be subject to a security
interest arising from a security agreement entered into by the debtor before the
commencement of such case.
(b) As of each of the dates specified in the Search Report,
there were no
(i) UCC financing statements naming the Borrower as debtor or
seller and covering any of the Article 9 Collateral,
(ii) notices of the filing of any federal tax lien (filed
pursuant to Section 6323 of the Code) or any lien of the PBGC (filed pursuant to
Section 4068 of ERISA) covering any of the Collateral, or
(iii) judgment liens covering any of the Collateral
listed in the available records in any Filing Jurisdiction, except as set forth
therein, and the Filing Jurisdictions are all of the offices (i) prescribed
under the UCC as offices in which filings should be made to perfect security
interests in the Article 9 Collateral which are perfected by filing, and (ii)
having files which must be searched in order to determine fully the existence of
notices of the filing of federal tax liens (filed pursuant to Schedule 6323 of
the Code) liens of the PBGC (filed pursuant to Section 4068 of ERISA) or
judgment liens on the Collateral.
The opinions herein expressed are limited in all respects
solely to the matters governed by the internal laws of the State of Maryland and
the federal laws of the United States of America. Insofar as the matters covered
in this opinion pertaining to Articles 8 or 9 of the UCC are governed by the
laws of any State other than the State of Maryland, we have based our opinions
with regard thereto on our review of unofficial compilations of the UCC as in
effect therein as reported by the [West Publishing Company], and we have
otherwise assumed without independent investigation that the laws of each such
State are in all relevant aspects identical to the laws of the State of
Maryland.
This opinion is issued solely for your benefit, and is not to
be relied upon by any other entity.
Very truly yours,
- 3 -
<PAGE>
DEFINITIONS APPENDIX
The definitions set forth in this Definitions Appendix are
incorporated by reference into Section 1.01 of the Credit Agreement dated as of
November __, 1996, by and among Lunn Industries, Inc., a Delaware corporation,
and Alcore Inc., a Delaware corporation, and First Union National Bank of
Maryland, national banking association (as the same may be amended, modified or
supplemented from time to time, the "Credit Agreement"). Reference in this
Definitions Appendix to "this Agreement", "herein", "hereof", "hereunder" and to
any Article or Section shall be interpreted to mean the Credit Agreement and the
referenced Article or Section, including this Definitions Appendix.
"ACCOUNTS" means all "accounts" (as defined in the UCC) now
owned or hereafter acquired by the Borrower, and shall also mean and include all
accounts receivable, contract rights, book debts, notes, drafts and other
obligations or indebtedness owing to the Borrower arising from the sale, lease
or exchange of goods or other property by it and/or the performance of services
by it (including, without limitation, any such obligation which might be
characterized as an account, contract right or general intangible under the
Uniform Commercial Code in effect in any jurisdiction) and all of the Borrower's
rights in, to and under all purchase orders for goods, services or other
property, and all of the Borrower's rights to any goods, services or other
property represented by any of the foregoing (including returned or repossessed
goods and unpaid seller's rights of rescission, replevin, reclamation and rights
to stoppage in transit) and all monies due to or to become due to the Borrower
under all contracts for the sale, lease or exchange of goods or other property
and/or the performance of services by it (whether or not yet earned by
performance on the part of the Borrower), in each case whether now in existence
or hereafter arising or acquired including, without limitation, the right to
receive the proceeds of said purchase orders and contracts and all collateral
security and guarantees of any kind given by any Person with respect to any of
the foregoing.
"ACCOUNT DEBTOR" means, with respect to any Account, Document,
Instrument or General Intangible, any Person obligated to make payment
thereunder, including, without limitation, any account debtor thereon.
"ADJUSTED LONDON INTERBANK OFFERED RATE" has the meaning
set forth in Section 2.05(a).
"AFFILIATE" means (i) any Person that directly, or indirectly
through one or more intermediaries, controls the Borrower (a "Controlling
Person") or (ii) any Person (other than the Borrower or a Subsidiary) which is
controlled by or is under common control with a Controlling Person. As used
herein, the term "control" means possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
"AGREEMENT" means this Credit Agreement, as it may be amended,
modified or supplemented from time to time.
"ALCORE" means Alcore Inc., a Delaware corporation, and its
Consolidated Subsidiaries and Affiliates.
"ALCORE BORROWING BASE" means at any date an amount equal to
(i) eighty-five percent (85%) of the aggregate Net Unpaid Balance of all
Eligible Accounts of Alcore; plus (ii) the lesser of $1,750,000 or fifty percent
(50%) of the value of all Eligible Inventory of Alcore; plus (iii) the then
applicable Alcore Machinery and Equipment Borrowing Base, minus (iv) the
Liquidation Reserve.
"ALCORE MACHINERY AND EQUIPMENT BORROWING BASE" means the
maximum amount under the Alcore Borrowing Base which may be advanced against
Alcore's Machinery and Equipment from time to time, which amount shall equal
$1,072,000 on the Closing Date, but which amount will be automatically and
permanently reduced by $17,867 each month commencing on the first day of the
second month immediately following the Closing Date, and continuing on the first
day of each month thereafter.
- 1 -
<PAGE>
"ALCORE OPERATING ACCOUNT" means the demand deposit account
maintained with the Bank by Alcore on which Alcore draws checks to pay its
operating expenses.
"ALCORE SUBLIMIT" means $4,500,000, the maximum amount of
Loans that may be advanced to Alcore on the basis of the Alcore Borrowing Base.
"ASSIGNED AGREEMENTS" means those contracts and agreements of
the Borrower identified in or pursuant to Section 7 of the Perfection
Certificate, as the same may be amended, modified or supplemented from time to
time.
"AVAILABLE BALANCE" means at any time, (i) without
duplication, all funds on deposit in an Operating Account on such day which the
Bank, in accordance with its standard practices for posting of debits and
credits to demand deposit accounts of a type similar to such Operating Account,
deems to be collected funds, including, without limitation, all wire transfers
credited to such Operating Account at such time and all other Federal or other
immediately available funds on deposit in or deposited into such Operating
Account at such time less (ii) the sum of (A) all interest, fees and other
Obligations not constituting principal of the Loans which Obligations are due
and payable at such time and (B) all Items deducted from such Operating Account
at such time.
"BANK" means First Union National Bank of Maryland, a national
banking association, and its successors and assigns.
"BASE RATE" has the meaning set forth in Section 2.05(c).
"BASE RATE LOAN" means a Loan which bears interest at the Base
Rate pursuant to Section 2.05(c).
"BENEFIT ARRANGEMENT" means at any time an employee benefit
plan within the meaning of Section 3(3) of ERISA which is not a Plan or a
Multiemployer Plan and which is maintained or otherwise contributed to by any
member of the ERISA Group.
"BORROWER" means, collectively, Lunn and Alcore, and
individually, each of Lunn and Alcore, and their respective successors.
"BORROWING BASE" means, collectively, the Alcore Borrowing
Base and the Lunn Borrowing Base.
"BORROWING BASE CERTIFICATE" means a certificate of Lunn or
Alcore in a form satisfactory to the Bank containing a computation of its
applicable Borrowing Base.
"BUSINESS DAY" means any day except a Saturday, Sunday or
other day on which commercial banks in Maryland are authorized by law to close.
"CAPITAL LEASE" means any lease of property which, in
accordance with generally accepted accounting principles, should be capitalized
on the lessee's balance sheet.
"CASH EQUIVALENTS" means (i) direct obligations of the United
States or any agency thereof, or obligations guaranteed by the United States of
any agency thereof, (ii) commercial paper rated in the highest grade by a
nationally recognized credit rating agency or (iii) time deposits with,
including certificates of deposit issued by, any office located in the United
States of any bank or trust company which is organized under the laws of the
United States or any state thereof and has capital, surplus and undivided
profits aggregating at least $250,000,000; provided, in each case that such
investment matures within one year from the date of acquisition thereof by the
Borrower.
"CASH PROCEEDS ACCOUNTS" has the meaning set forth in Section
3.04 of the Security Agreement.
- 2 -
<PAGE>
"CLOSING DATE" means the date not later than November __, 1996
on which the Bank determines that the conditions specified in or pursuant to
Section 3.01 have been satisfied.
"COLLATERAL" means all right, title and interest of the
Borrower in the following, whether now owned or existing or hereafter acquired,
created or arising, whether tangible or intangible, and regardless of where
located:
(i) Accounts;
(ii) Inventory;
(iii) General Intangibles;
(iv) Documents;
(v) Instruments;
(vi) Equipment;
(vii) Assigned Agreements;
(viii) the Collateral Accounts, all cash deposited
therein from time to time, the Liquid Investments made pursuant to
Section 3.04 of the Security Agreement and other monies and property
(including deposit accounts) of any kind of the Borrower maintained
with or in the possession or under the control of the Bank;
(ix) all books and records (including, without
limitation, customer lists, credit files, computer programs, printouts and
other computer materials and records) of the Borrower pertaining to any of the
Collateral; and
(x) all Proceeds of all or any of the
Collateral described in clauses (i) through (ix) above.
"COLLATERAL ACCOUNTS" means the Cash Proceeds Accounts, the
Operating Accounts and the Insurance Account.
"COMMITMENT" means $6,000,000, as such amount may be increased
or decreased pursuant to this Agreement.
"CONSOLIDATED CAPITAL EXPENDITURES" means, for any period, the
additions to property, plant and equipment and other capital expenditures of the
Borrower and its Consolidated Subsidiaries for such period (including, without
limitation, gross leases to be capitalized under generally accepted accounting
principles and leasehold improvements), as the same are or would be set forth in
a consolidated statement of cash flows of the Borrower and its Consolidated
Subsidiaries for such period, but excluding (to the extent that they would
otherwise be included) any such expenditures made for the replacement or
restoration of assets to the extent financed by condemnation awards or proceeds
of insurance received with respect to the loss or taking of or damage to the
asset or assets being replaced or restored.
"CONSOLIDATED CASH FLOW COVERAGE RATIO" means the sum of net
profit, taxes, interest expenses, depreciation and amortization divided by
the sum of all current maturities of long term debt and capital lease
obligations and interest expense of the Borrower and its Consolidated
Subsidiaries.
"CONSOLIDATED CURRENT ASSETS" means the aggregate amount of
all assets of the Borrower and its
- 3 -
<PAGE>
Consolidated Subsidiaries which would, in accordance with generally accepted
accounting principles, be defined as current assets.
"CONSOLIDATED CURRENT LIABILITIES" means the aggregate amount
of all current liabilities of the Borrower and its Consolidated Subsidiaries, as
determined in accordance with generally accepted accounting principles, but in
any event shall include all liabilities except those having a maturity date
which is more than one (1) year from the date as of which such computation is
being made.
"CONSOLIDATED CURRENT RATIO" means the ratio of Consolidated
Current Assets divided by Consolidated Current Liabilities.
"CONSOLIDATED DEBT" means at any date the Debt of the Borrower
and its Consolidated Subsidiaries, determined on a consolidated basis as of such
date.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, the
total interest expense (including, without limitation, that attributable to
Capital Leases, all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing and net costs in
respect of Derivatives Obligations) of the Borrower and its Consolidated
Subsidiaries determined on a consolidated basis for such period.
"CONSOLIDATED NET INCOME" means, for any period, the net
income (or net loss) of the Borrower and its Consolidated Subsidiaries,
determined on a consolidated basis for such period.
"CONSOLIDATED SUBSIDIARY" means with respect to any Person at
any date, any Subsidiary of such Person or other entity, the accounts of which
would be consolidated with those of such Person in its consolidated financial
statements if such statements were prepared as of such date in accordance with
generally accepted accounting principles.
"CONSOLIDATED TANGIBLE NET WORTH" means at any date total
assets (less Intangible Assets) minus total liabilities (including Subordinated
Debt) of the Borrower and its Consolidated Subsidiaries. For purposes of this
definition, "Intangible Assets" means all intangible assets of the Borrower,
including, without limitation, goodwill, franchises, patents, licenses,
trademarks, copyrights, service marks, advances to Affiliates and related
parties, trade names and brand names.
"DEBT" of any Person means, at any date, without duplication,
(i) all obligations of such Person for borrowed money, (ii) all obligations of
such Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all obligations of such Person to pay the deferred purchase price of
property or services (other than trade accounts payable arising in the ordinary
course of business), (iv) all obligations of such Person as lessee under Capital
Leases, (v) all obligations of such Person to purchase securities or other
property which arise out of or in connection with the sale of the same or
substantially similar securities or property, (vi) all non-contingent
obligations (and, for purposes of Section 5.09 and the definitions of Material
Debt and Material Financial Obligations, all contingent obligations) of such
Person to reimburse any bank or other person in respect of amounts paid under a
letter of credit, bankers' acceptance or similar instrument, (vii) all
obligations of others secured by a Lien on any asset of such Person, whether or
not such obligation is assumed by such Person and (viii) all obligations of
others Guaranteed by such Person.
"DEFAULT" means any condition or event which constitutes an
Event of Default or which with the giving of notice or lapse of time or both
would, unless cured or waived, become an Event of Default.
"DERIVATIVES OBLIGATIONS" of any Person means all obligations
of such Person in respect of any rate swap transaction, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap,
equity or equity index option, bond option, interest rate option, foreign
exchange transaction, cap transaction, floor transaction, collar transaction,
currency swap transaction, cross-currency rate swap transaction, currency option
- 4 -
<PAGE>
or any other similar transaction (including any option with respect to any of
the foregoing transactions) or any combination of the foregoing transactions.
"DIVIDEND" has the meaning set forth in Section 5.15.
"DOCUMENTS" means all "documents" (as defined in the UCC) or
other receipts covering, evidencing or representing goods, now owned or
hereafter acquired by the Borrower.
"DOLLARS" and the sign "$" means lawful money of the United
States of America.
"EFFECTIVE DATE" means the date this Agreement becomes
effective in accordance with Section 8.08.
"ELIGIBLE ACCOUNTS" means all billed Accounts for goods
delivered or services rendered owing to the Borrower, excluding:
(i) Accounts arising out of sales that are not
in the ordinary course of the business of the Borrower;
(ii) Accounts on terms other than those normal
or customary in the business of the Borrower;
(iii) Accounts owing from any person that is an
Affiliate of the Borrower unless arising in the ordinary course of
business conducted on an arm's-length basis;
(iv) Domestic accounts which are outstanding
more than 90 days past the original invoice date with respect thereto;
(v) Foreign accounts (i.e., accounts generated
by account debtors outside the United States) which are outstanding
more than 120 days past the original invoice date with respect
thereto;
(vi) Accounts of any (A) domestic Account Debtor if
50% or more of the Accounts of any such domestic Account Debtor are
more than 90 days past original invoice date with respect thereto, or
(B) any foreign Account Debtor if 50% or more of the Accounts of any
such foreign Account Debtor are more than 120 days past the original
invoice date, with respect thereto;
(vii) Accounts the liability for which has been
disputed by the Account Debtor;
(viii) Accounts owing from any Person that shall
take or be the subject of any action or proceeding;
(ix) Accounts owing from any Person that is also
a supplier to or creditor of the Borrower;
(x) Accounts arising out of sales to Account Debtors
outside the United States, unless the account is (A) fully backed by an
irrevocable letter of credit containing terms acceptable to the Bank
issued by a financial institution satisfactory to the Bank or by credit
insurance in form substance satisfactory to the Bank, in either case
naming the Bank as beneficiary, and (B) on terms acceptable to the
Bank;
(xi) Accounts arising out of sales on a
bill-and-hold, guaranteed sale, sale-and-return, sale on approval or
consignment basis or subject to any right of return, set-off or
charge-back;
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<PAGE>
(xii) Accounts owing from an Account Debtor that is
an agency, department or instrumentality of the United States or any
state governmental authority in the United States unless the Borrower
shall have satisfied the requirements of the Assignment of Claims Act
of 1940, as amended, and any similar state legislation in respect
thereof and the Bank is satisfied as to the absence of set-offs,
counterclaims and other defenses to payment on the part of the United
States or such state governmental authority;
(xiii) Accounts representing billings in excess of
costs and earnings and retainage;
(xiv) Accounts in respect of which the Security
Agreement does not or has ceased to create a valid and perfected first
priority Lien in favor of the Bank, subject only to Permitted Liens;
and
(x) That portion of any Account which, when
aggregated with all of the Accounts of that Account Debtor, exceeds 20%
of the then aggregate of Eligible Accounts, unless the long-term senior
debt of that Account Debtor has received a rating of at least BBB-minus
from Standard and Poor's rating agency; and
(xi) Any other Accounts, the validity,
collectibility or amount of which is determined in good faith by the
Borrower or the Bank to be doubtful.
"ELIGIBLE INVENTORY" means (i) all aluminum coil, metallic and
non-metallic block Inventory in the possession of Alcore, and (ii) in the sole
discretion of the Bank after review of a field audit, raw materials of Lunn
excluding adhesives, in each case valued at the lower of cost or fair market
value on a first-in, first-out basis, as to which the Bank has a first priority
perfected security interest subject only to Permitted Liens, of a kind usually
and customarily sold by the Borrower and which is not, because of damage, age,
unmerchantability, obsolescence or any other condition or circumstance,
materially impaired in condition, value or marketability in the good faith
opinion of the Bank, excluding any inventory reserve, as determined by the Bank
in its sole discretion.
"ENVIRONMENTAL LAWS" means any and all federal, state, local
and foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges or releases of pollutants, contaminants, petroleum or petroleum
products, chemicals or industrial, toxic or hazardous substances or wastes into
the environment including, without limitation, ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, petroleum or petroleum products, chemicals or
industrial, toxic or hazardous substances or wastes or the clean-up or other
remediation thereof.
"EQUIPMENT" means all "equipment" (as defined in the UCC) now
owned or hereafter acquired by the Borrower, including all items of machinery,
equipment, furnishings and fixtures of every kind, whether affixed to real
property or not, as well as all motor vehicles, automobiles, trucks, trailers,
railcars, barges and vehicles of every description, trailers, handling and
delivery equipment, all additions to, substitutions for, replacements of or
accessions to any of the foregoing, all attachments, components, parts
(including spare parts) and accessories whether installed thereon or affixed
thereto and all fuel for any thereof.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, or any successor statute.
"ERISA GROUP" means the Borrower, any Subsidiary and all
members of a controlled group of corporations and all trades or businesses
(whether or not incorporated) under common control which, together with the
Borrower or any Subsidiary, are treated as a single employer under Section 414
of the Internal Revenue Code.
"EURO-DOLLAR BUSINESS DAY" means any Business Day on which
commercial banks are open for
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international business (including dealings in Dollar deposits) in London.
"EURO-DOLLAR RESERVE PERCENTAGE" has the meaning set forth in
Section 2.05(a).
"EVENT OF DEFAULT" has the meaning set forth in Section 6.01.
"FYE" and "FQE" mean fiscal year end and fiscal quarter end,
respectively, and when used in conjunction with a particular month mean the date
of ending of the relevant fiscal period nearest the last day of such month.
"GENERAL INTANGIBLES" means all "general intangibles" (as
defined in the UCC) now owned or hereafter acquired by the Borrower, including,
without limitation, (i) all obligations and indebtedness owing to the Borrower
(other than Accounts), from whatever source arising, (ii) all patents,
trademarks, copyrights, licenses, rights in intellectual property, goodwill,
trade names, service marks, trade secrets, confidential or proprietary technical
and business information, know-how, show-how, software, customer lists,
subscription lists, data bases and related documentation, registration,
franchises and all other intellectual or other similar property rights, (iii)
all rights or claims in respect of refunds for taxes paid, (iv) all rights in
respect of any pension plans or similar arrangements maintained for employees of
the Borrower or any member of the ERISA Group and (v) all "uncertificated
securities" (as defined in the UCC).
"GUARANTEE" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or other obligation (whether arising by virtue of
partnership arrangements, by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in any
other manner the obligee of such Debt or other obligation of the payment thereof
or to protect such obligee against loss in respect thereof (in whole or in
part); provided that the term Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"HAZARDOUS SUBSTANCES" means any toxic, radioactive, caustic
or otherwise hazardous substance, including petroleum, its derivatives,
by-products and other hydrocarbons, or any substance having any constituent
elements displaying any of the foregoing characteristics.
"INDEMNITEE" has the meaning set forth in Section 8.03(b).
"INSTRUMENTS" means all "instruments" (as defined in Article 9
of the UCC), "chattel paper" and "certificated securities" (each as defined in
the UCC) or "letters of credit" (as defined in Article 9 of the UCC) evidencing,
representing, arising from or existing in respect of, relating to, securing or
otherwise supporting the payment of, any of the Accounts or General Intangibles,
including (but not limited to) promissory notes, drafts, bills of exchange and
trade acceptances, now owned or hereafter acquired by the Borrower.
"INSURANCE ACCOUNT" has the meaning set forth in Section
3.03(a) of the Security Agreement.
"INSURANCE PROCEEDS" has the meaning set forth in
Section 3.03(a) of the Security Agreement.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of
1986, as amended, or any successor statute.
"INVENTORY" means all "inventory" (as defined in the UCC) now
owned or hereafter acquired by the Borrower, wherever located, and shall also
mean and include, without limitation, all raw materials and other materials
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<PAGE>
and supplies, work-in-process and finished goods and any products made or
processed therefrom and all substances, if any, commingled therewith or added
thereto.
"INVESTMENT" means any investment in any Person, whether by
means of share purchase, capital contribution, loan, time deposit or otherwise.
"ITEM" means any "item" as defined in Section 4-104 of the
UCC, and shall also mean and include checks, drafts, money orders or other media
of payment.
"LIBOR-BASED RATE" has the meaning set forth in
Section 2.05(a).
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<PAGE>
"LICENSE" means (i) with respect to any Patent, any agreement
now or hereafter in existence granting to the Borrower, or pursuant to which the
Borrower has granted to any other Person, any right with respect to any Patent
or any invention now or hereafter in existence, whether patentable or not,
whether a Patent or application for Patent is in existence on such invention or
not, and whether a Patent or application for Patent on such invention may come
into existence, and (ii) with respect to any Trademark, any agreement now or
hereafter in existence granting to the Borrower, or pursuant to which the
Borrower has granted to any other Person, any right to use any Trademark (in
each case exclusive of license agreements entered into after the date hereof
which by their terms prohibit assignment or a grant of a security interest by
the Borrower as licensee thereunder); provided that rights to payments under any
such license shall be included in the Collateral to the extent permitted thereby
or by Section 9-318 of the UCC.
"LIEN" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset. For the purposes of this Agreement, the Borrower or any Subsidiary shall
be deemed to own subject to a Lien any asset which it has acquired or holds
subject to the interest of a vendor or lessor under any conditional sale
agreement, Capital Lease or other title retention agreement relating to such
asset.
"LINE OF CREDIT" means the revolving credit facility extended
by the Bank to the Borrower under which one or more Loans may be made pursuant
to the terms and conditions of the Loan Documents.
"LIQUID INVESTMENTS" has the meaning set forth in
Section 3.03(c) of the Security Agreement.
"Liquidation Reserve has the meaning set forth in Insert A
attached hereto and made a part hereof.
"LOAN" means a loan made pursuant to Section 2.01.
"LOAN DOCUMENTS" means the Credit Agreement, the Note, the
Security Agreement and any and all other documents or instruments executed and
delivered by Borrower to evidence, secure, or in connection with, the Loans,
collectively, and "Loan Document" means any of them.
"LONDON INTERBANK OFFERED RATE" has the meaning set forth in
Section 2.05(a).
"LONG TERM DEBT" means liabilities with maturity dates greater
than one (1) year from the date as of which such computation in being made. For
purposes of calculating the financial covenants described herein, the Borrower
shall at all times characterize the Line of Credit and the Loans as Long Term
Debt
"LUNN" means Lunn Industries, Inc., a Delaware corporation,
and its Consolidated Subsidiaries and Affiliates.
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<PAGE>
"LUNN BORROWING BASE" means at any date the sum of (i)
eighty-five percent (85%) of the aggregate Net Unpaid Balance of all Eligible
Accounts of Lunn; plus (ii) the lesser of $250,000 or fifty percent (50 %) of
the value of all Eligible Inventory of Lunn; plus (iii) the then applicable Lunn
Machinery and Equipment Borrowing Base.
"LUNN MACHINERY AND EQUIPMENT BORROWING BASE" means the
maximum amount under the Lunn Borrowing Base which may be advanced against
Lunn's Machinery and Equipment from time to time, which amount shall equal
$600,000 on the Closing Date, but which amount will be automatically and
permanently reduced by $10,000 each month commencing on the first day of the
second month immediately following the Closing Date, and continuing on the first
day of each month thereafter.
"LUNN OPERATING ACCOUNT" means the demand deposit account
maintained with the Bank by Lunn on which Lunn draws checks to pay its operating
expenses.
"LUNN SUBLIMIT" means $1,500,000, the maximum amount of Loans
that may be advanced to Lunn on the basis of the Lunn Borrowing Base.
"MATERIAL ADVERSE EFFECT" means (i) any material adverse
effect upon the condition (financial or otherwise), results of operations,
properties, assets, business or prospects of the Borrower or of the Borrower and
its Consolidated Subsidiaries, taken as a whole; (ii) a material adverse effect
on the ability of the Borrower to consummate the transactions contemplated
hereby to occur on the Closing Date; (iii) a material adverse effect on the
ability of the Borrower to perform its obligations under this Agreement and the
Note or (iv) a material adverse effect on the rights and remedies of the Bank
under this Agreement and the Note.
"MATERIAL DEBT" means Debt (other than the Notes) of the
Borrower and/or one or more of its Subsidiaries, arising in one or more related
or unrelated transactions, in an aggregate principal or face amount exceeding
$10,000.
"MATERIAL FINANCIAL OBLIGATIONS" means a principal or face
amount of Debt and/or payment obligations in respect of Derivatives Obligations
of the Borrower and/or one or more of its Subsidiaries, arising in one or more
related or unrelated transactions, exceeding in the aggregate $250,000.
"MATERIAL PLAN" means at any time a Plan or Plans having
aggregate Unfunded Liabilities in excess of $25,000.
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<PAGE>
"MOODY'S" means Moody's Investors Service, a Delaware
corporation, and its successors or, absent any successor, such nationally
recognized statistical rating organization as the Borrower and the Bank may
select.
"MULTIEMPLOYER PLAN" means at any time an employee pension
benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any
member of the ERISA Group is then making or accruing an obligation to make
contributions or has within the preceding five plan years made contributions,
including for these purposes any Person which ceased to be a member of the ERISA
Group during such five year period.
"NET UNPAID BALANCE" means at any date the unpaid balance of
an Eligible Account at such date not including any unearned finance charges,
late payment charges or other charges, or any extension, service or collection
fees in respect thereof.
"NOTE" means a promissory note of the Borrower, substantially
in the form of Exhibit B hereto, evidencing the obligation of the Borrower to
repay the Loans.
"NOTICE OF BORROWING" means a Notice of Borrowing (as defined
in Section 2.02(a)).
"OBLIGATIONS" means:
(i) all principal of and interest (including, without
limitation, any interest which accrues after the commencement of any
case, proceeding or other action relating to the bankruptcy, insolvency
or reorganization of the Borrower, whether or not allowed or allowable
as a claim in any such proceeding) on any loan, fees payable or
reimbursement obligation under, or any note issued pursuant to, this
Agreement or any other Loan Document;
(ii) all other amounts now or hereafter payable by
the Borrower and all other obligations or liabilities now existing or
hereafter arising or incurred (including, without limitation, any
amounts which accrue after the commencement of any case, proceeding or
other action relating to the bankruptcy, insolvency or reorganization
of the Borrower, whether or not allowed or allowable as a claim in any
such proceeding) on the part of the Borrower pursuant to this Agreement
or any other Loan Document;
(iii) all Derivatives Obligations (including, without
limitation, any amounts which accrue after the commencement of any
case, proceeding or other action relating to the bankruptcy, insolvency
or reorganization of the Borrower, whether or not allowed or allowable
as a claim in any such proceeding) of the Borrower to the Bank;
(iv) all other indebtedness, obligations and
liabilities of the Borrower to the Bank, now existing or hereafter
arising or incurred, whether or not evidenced by notes or other
instruments, and whether such indebtedness, obligations and liabilities
are direct or indirect, fixed or contingent, liquidated or
unliquidated, due or to become due, secured or unsecured, joint,
several or joint and several, related or unrelated to the Loans,
similar or dissimilar to the indebtedness arising out of or in
connection with the Credit Agreement or of the same or a different
class of indebtedness as the indebtedness arising out of or in
connection with the Credit Agreement, including, without limitation,
any overdrafts in any deposit accounts maintained by the Borrower with
the Bank, all obligations of the Borrower with respect to letters of
credit, if any, issued by the Bank for the account of the Borrower any
indebtedness of the Borrower that is purchased by or assigned to the
Bank;
together in each case with all renewals, modifications, consolidations or
extensions thereof.
"OPERATING ACCOUNTS" means, collectively, the Alcore Operating
Account and the Lunn Operating
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Account.
"PARENT" means, with respect to the Bank, any Person
controlling the Bank.
"PATENTS" means all of the following:
(i) all letters patent and design letters patent of
the United States or any other country, all applications for letters
patent and design letters patent of the United States or any other
country including, without limitation, applications in the United
States Patent and Trademark Office or in any similar office or agency
of the United States, any State thereof or any other country or
political subdivision thereof;
(ii) all reissues, divisions, continuations,
continuations-in-part, renewals or extensions thereof;
(iii) all claims for, and rights to sue for, past
or future infringement of any of the foregoing; and
(iv) all income, royalties, damages and payments
now or hereafter due or payable with respect to any of the foregoing, including,
without limitation, damages and payments for past or future infringements
thereof.
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"PERFECTION CERTIFICATE" means a certificate, substantially in
the form of Exhibit A to the Security Agreement, completed and supplemented with
the schedules and attachments contemplated thereby to the satisfaction of the
Bank, and duly executed by the chief executive officer and the chief legal
officer of the Borrower.
"PERMITTED LIENS" means the Security Interests and the other
Liens on the Collateral permitted to be created, to be assumed or to exist
pursuant to Section 5.09.
"PERSON" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
"PLAN" means at any time an employee pension benefit plan
(other than a Multiemployer Plan) which is covered by Title IV of ERISA or
subject to the minimum funding standards under Section 412 of the Internal
Revenue Code and either (i) is maintained, or contributed to, by any member of
the ERISA Group for employees of any member of the ERISA Group or (ii) has at
any time within the preceding five years been maintained, or contributed to, by
any Person which was at such time a member of the ERISA Group for employees of
any Person which was at such time a member of the ERISA Group.
"PRIME RATE" has the meaning set forth in Section 2.05(c).
"PRINCIPAL" means any general partner of, or the holder of
any majority ownership interest in any Borrower.
"PROCEEDS" means all proceeds of, and all other profits,
products, rents or receipts, in whatever form, arising from the collection,
sale, lease, exchange, assignment, licensing or other disposition of or other
realization upon or payment for the use of, Collateral, including (without
limitation) all claims of the Borrower against third parties for loss of, damage
to or destruction of, or for proceeds payable under, or unearned premiums with
respect to, policies of insurance in respect of, any Collateral, and any
condemnation or requisition payments with respect to any Collateral, in each
case whether now existing or hereafter arising.
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<PAGE>
"QUARTERLY DATE" means the first Business Day of each January,
April, July and October.
"REGULATION U" means Regulation U of the Board of Governors of
the Federal Reserve System, as in effect from time to time.
"REVOLVING CREDIT PERIOD" means the period from and including
the Closing Date to but not including the Termination Date.
"S&P" means Standard & Poor's Ratings Group, a division of
McGraw Hill, Inc., a New York corporation, and its successors or, absent of any
successor, such nationally recognized statistical rating organization as the
Borrower and the Bank may select.
"SECURITY INTERESTS" means the security interests in the
Collateral granted under the Security Agreement securing the Obligations.
"SHAREHOLDER" means any Person owning shares of stock of the
Borrower, and "Shareholders" means any two or more of such Shareholders,
collectively.
"SUBORDINATED DEBT" of any Person means all Debt which (i)
bears interest at rates not greater than such Person shall reasonably determine
to be the prevailing market rate, at the time such Subordinated Debt is issued,
for interest on comparable subordinated debt issued by comparable issuers, (ii)
is subordinated in right of payment to such Person's indebtedness, obligations
and liabilities to the Bank under the Loan Documents pursuant to payment and
subordination provisions satisfactory in form and substance to the Bank and
(iii) is issued pursuant to loan documents having covenants and events of
default that are satisfactory in form and substance to the Bank but that in no
event are less favorable, including with respect to rights of acceleration, to
the Borrower than the terms hereof.
"SUBSIDIARY" means any corporation or other entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
are at the time directly or indirectly owned by the Borrower.
"TERMINATION DATE" means twenty four (24) months from the
Closing Date.
"TRADEMARK" means all of the following:
(i) all trademarks, trade names, corporate names,
company names, business names, fictitious business names, trade styles,
service marks, logos, brand names, trade dress, prints and labels on
which any of the foregoing have appeared or appear, package and other
designs, and any other source or business identifiers, and general
intangibles of like nature, and the rights in any of the foregoing
which arise under applicable law;
(ii) the goodwill of the business symbolized
thereby or associated with each of them;
(iii) all registrations and applications in
connection therewith, including, without limitation, registrations and
applications in the United States Patent and Trademark Office or in any
similar office or agency of the United States, any State thereof or any
other country or any political subdivision thereof;
(iv) all reissues, extensions and renewals
thereof;
(v) all claims for, and rights to sue for, past
or future infringements of any of the foregoing; and
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<PAGE>
(vi) all income, royalties, damages and payments
now or hereafter due or payable with respect to any of the foregoing,
including, without limitation, damages and payments for past or future
infringements thereof.
"UCC" means the Uniform Commercial Code as in effect on the
date hereof in the State of Maryland with respect to Alcore, and the State of
New York with respect to Lunn; provided that if by reason of mandatory
provisions of law, the perfection or the effect of perfection or non-perfection
of the Security Interest in any Collateral is governed by the Uniform Commercial
Code as in effect in a jurisdiction other than Maryland or New York, "UCC" means
the Uniform Commercial Code as in effect in such other jurisdictions for
purposes of the provisions hereof relating to such perfection or effect of
perfection or non-perfection.
"UNFUNDED LIABILITIES" means, with respect to any Plan at any
time, the amount (if any) by which (i) the value of all benefit liabilities
under such Plan, determined on a plan termination basis using the assumptions
prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the
fair market value of all Plan assets allocable to such liabilities under Title
IV of ERISA (excluding any accrued but unpaid contributions), all determined as
of the then most recent valuation date for such Plan, but only to the extent
that such excess represents a potential liability of a member of the ERISA Group
to the PBGC or any other Person under Title IV of ERISA.
"UNITED STATES" means the United States of America, including
the States and the District of Columbia, but excluding its territories and
possessions.
"WHOLLY-OWNED CONSOLIDATED SUBSIDIARY" means any Consolidated
Subsidiary all of the shares of capital stock or other ownership interests of
which (except directors' qualifying shares) are at the time directly or
indirectly owned by the Borrower.
USAGE
The following rules of construction and usage shall be
applicable to any instrument that is governed by this Appendix:
All terms defined in this Appendix shall have the
defined meanings when used in any instrument governed hereby and in any
certificate or other document made or delivered pursuant thereto unless
otherwise defined therein.
The words "hereof", "herein", "hereunder" and words
of similar import when used in an instrument refer to such instrument as a whole
and not to any particular provision or subdivision thereof; references in any
instrument to "Article", "Section" or another subdivision or
to an attachment are, unless the context otherwise requires, to an article,
section or subdivision of or an attachment to such instrument; and the term
"including" means "including without limitation".
The definitions contained in this Appendix are
equally applicable to both the singular and plural forms of such terms and to
the masculine as well as to the feminine and neuter genders of such terms.
4. Any agreement, instrument or statute defined or referred to
below or in any agreement or instrument that is governed by this Appendix means
such agreement or instrument or statute as from time to time amended, modified
or supplemented, including (in the case of agreements or instruments) by waiver
or consent and (in the case of statutes) by succession of comparable successor
statutes and includes (in the case of agreements or instruments) references to
all attachments thereto and instruments incorporated therein. References to a
Person are also to its permitted successors and assigns.
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<PAGE>
INSERT A.
(ATTACHED TO AND MADE A PART OF THIS DEFINITIONS APPENDIX OF PAGE 11 HEREOF)
"Liquidation Reserve" means a portion of availability under the Alcore
Borrowing Base equal to $200,000 (or such lower amount as may be approved by the
Lender in its sole discretion) to be reserved for any and all potential costs
associated with liquidating Alcore's Equipment located at its Jessup, Maryland
facility (such as costs of advertising and sale, rent payable in the event such
premises are vacated by Alcore, damages or other costs payable to the landlord
by the Lender, and any amounts payable to the landlord from the proceeds of any
sale of the Alcore Equipment).
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<PAGE>
Exhibit 10.27
PROMISSORTY NOTE
Baltimore, Maryland
November __, 1996
For value received, LUNN INDUSTRIES, INC., a Delaware
corporation, and ALCORE, INC., a Delaware corporation (collectively, the
"Borrower"), jointly and severally promise to pay to the order of FIRST UNION
NATIONAL BANK OF MARYLAND, a national banking association (the "Bank"), the
unpaid principal amount of each Loan made by the Bank to the Borrower (and/or
either of them) pursuant to the Credit Agreement referred to below on the
maturity date provided for in the Credit Agreement. The Borrower promises to pay
interest on the unpaid principal amount of each such Loan on the dates and at
the rate or rates provided for in the Credit Agreement. All such payments of
principal and interest shall be made in accordance with the provisions of the
Credit Agreement.
All Loans made by the Bank and all repayments of the principal
thereof shall be recorded by the Bank and, if the Bank so elects in connection
with any transfer or enforcement hereof, appropriate notations to evidence the
foregoing information with respect to each Loan then outstanding shall be
endorsed by the Bank on the schedule attached to and made a part hereof;
provided that the failure of the Bank to make any such recordation or
endorsement shall not affect the obligations of the Borrower hereunder or under
the Credit Agreement.
This note is the Note referred to in the Credit Agreement of
even date herewith, between the Borrower and the Bank (as the same may be
amended from time to time, the "Credit Agreement"). Terms defined in the Credit
Agreement are used herein with the same meanings. Reference is made to the
Credit Agreement for provisions for the mandatory and optional prepayment hereof
and the acceleration of the maturity hereof.
WITNESS/ATTEST: LUNN INDUSTRIES, INC.
____________________ By __________________________SEAL)
Name: Alan W. Baldwin
Title: Chief Executive Officer
and Chairman
[CORPORATE SEAL]
ALCORE, INC.
___________________ By:__________________________(SEAL)
Name: Edward A. Kiley
Title: President/General Manager
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<PAGE>
EXHIBIT 10.28
SECURITY AGREEMENT
DATED AS OF NOVEMBER 22, 1996
AMONG
LUNN INDUSTRIES, INC. AND ALCORE, INC.
AND
FIRST UNION NATIONAL BANK OF MARYLAND
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SECURITY AGREEMENT
THIS SECURITY AGREEMENT (AS AMENDED, SUPPLEMENTED OR MODIFIED
FROM TIME TO TIME, THIS "AGREEMENT") IS DATED AS OF NOVEMBER 22, 1996 AND IS
BETWEEN LUNN INDUSTRIES, INC., A DELAWARE CORPORATION, AND ALCORE, INC., A
DELAWARE CORPORATION (BOTH OF WHICH SHALL BE REFERRED TO HEREIN COLLECTIVELY AND
INDIVIDUALLY AS THE "BORROWER"), AND FIRST UNION NATIONAL BANK OF MARYLAND, A
NATIONAL BANKING ASSOCIATION (THE "BANK").
The Borrower and the Bank are parties to a Credit Agreement
dated as of November 22, 1996 (as the same may be amended, supplemented or
modified from time to time and including any agreement extending the maturity
of, refinancing or otherwise restructuring all or any portion of the obligations
of the Borrower under such agreement or any successor agreement, the "Credit
Agreement"). To induce the Bank to enter into the Credit Agreement, and as a
condition precedent to the Bank's obligations thereunder, the Borrower has
agreed to grant a continuing security interest in and to the Collateral (as
hereinafter defined) to secure the Obligations (as hereinafter defined).
Accordingly, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 DEFINITIONS. Terms defined in the Credit
Agreement and not otherwise defined herein have, as used herein, the respective
meanings provided for therein.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
SECTION 2.01 TITLE TO COLLATERAL. The Borrower has good and
marketable title to all of the Collateral, free and clear of any Liens other
than Permitted Liens. The Borrower has taken all actions necessary under the UCC
to perfect its interest in any Accounts and "chattel paper" (as defined in the
UCC) purchased or otherwise acquired by it, as against its assignors and
creditors of its assignors. The Borrower has not performed any acts which might
prevent the Bank from enforcing any of the terms of this Agreement or which
would limit the Bank in any such enforcement. Other than financing statements or
other similar or equivalent documents or instruments with respect to the
Security Interests and Permitted Liens, no financing statement, mortgage,
security agreement or similar or equivalent document or instrument covering all
or any part of the Collateral is on file or of record in any jurisdiction in
which such filing or recording would be effective to perfect a Lien on such
Collateral. No Collateral is in the possession of any Person (other than the
Borrower) asserting any claim thereto or security interest therein, except that
the Bank or its designee may have possession of Collateral as contemplated
hereby and by the Credit Agreement.
SECTION 2.02 VALIDITY, PERFECTION AND PRIORITY OF SECURITY
INTERESTS. The Security Interests constitute valid security interests under the
UCC securing the Obligations. When UCC financing statements containing a
description of the Collateral in the form specified in Exhibit B hereto shall
have been filed in the offices specified in Schedule 4.01 hereto, the Security
Interests shall constitute perfected security interests in all right, title and
interest of the Borrower in the Collateral (except Inventory in transit) to the
extent that a security interest therein may be perfected by filing pursuant to
the UCC, prior to all other Liens and rights of others therein except for
Permitted Liens.
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SECTION 2.03 INSURANCE. The Inventory and Equipment are
insured in accordance with the requirements of the Credit Agreement.
SECTION 2.04 FAIR LABOR STANDARDS ACT. All Inventory has or
will have been produced in compliance with the applicable requirements of the
Fair Labor Standards Act, as amended from time to time, or any successor
statute, and regulations promulgated thereunder.
SECTION 2.05 PATENTS AND TRADEMARKS. As of the date hereof,
the Borrower does not have any Patents, Patent Licenses, Trademarks or Trademark
Licenses.
ARTICLE III
SECURITY INTEREST
SECTION 3.01 GRANT OF SECURITY INTERESTS. In order to secure
the full and punctual payment of all of the Obligations in accordance with the
terms thereof (regardless of whether any Loan was advanced on the basis of the
Lunn Borrowing Base or the Alcore Borrowing Base), and to secure the performance
of all of the obligations of the Borrower hereunder and under the Credit
Agreement and the other Loan Documents, the Borrower hereby jointly and
severally grants to the Bank a continuing security interest in and to all of the
Collateral, whether now owned or existing or hereafter acquired, created or
arising, whether tangible or intangible, and regardless of where located.
SECTION 3.02 CONTINUING LIABILITY OF THE BORROWER. The
Security Interests are granted as security only and shall not subject the Bank
to, or transfer or in any way affect or modify, any obligation or liability of
the Borrower with respect to any of the Collateral or any transaction in
connection therewith.
SECTION 3.03 INSURANCE ACCOUNT.
(a) Creation of and Deposits to Insurance Account. Promptly
upon and at all times after the receipt of any cash proceeds of insurance
policies, awards of condemnation or other compensation required to be paid
to the Bank pursuant to Section 4.10 of this Agreement (the "Insurance
Proceeds"), the Borrower shall establish and shall thereafter maintain a
cash collateral account (the "Insurance Account") at the offices of the
Bank or such other bank as the Borrower and the Bank may agree (the
"Insurance Account Bank"), in the name and under the exclusive control of
the Bank. Forthwith upon such establishment, the Borrower shall notify the
Bank of the location, account name and account number of such account. The
Borrower hereby agrees to cause any Insurance Proceeds received from time
to time after the establishment of the Insurance Account to be deposited
therein as set forth in this paragraph. Any Insurance Proceeds received
from time to time by the Bank in respect of which the Bank is an insured
party and loss payee shall be promptly deposited in the Insurance Account
as set forth in this paragraph. Any income received with respect to the
balance from time to time standing to the credit of the Insurance Account,
including any interest or capital gains on Liquid Investments, shall
remain, or be deposited, in the Insurance Account. All right, title and
interest in and to the cash amounts on deposit from time to time in the
Insurance Account together with any Liquid Investments from time to time
made pursuant to Section 3.03(c) shall vest in the Bank, shall constitute
part of the Collateral and shall not constitute payment of the Secured
Obligations until applied thereto as hereinafter provided.
(b) Withdrawals from Insurance Account. The balance from time
to time standing to the credit of the Insurance Account shall be subject
to withdrawal only upon the instructions of the Bank. Except
upon the occurrence and continuation of a Default, the Bank agrees to give
instructions to distribute such amounts to the Borrower at such times and
in such amounts as the Borrower shall request for the purpose of
repairing, reconstructing or replacing the property in respect of which
such Insurance Proceeds were received. Any such request shall be
accompanied by a certificate of the chief executive officer or treasurer
of the Borrower setting forth in detail reasonably satisfactory to the
Bank the repair, reconstruction or replacement for
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which such funds will be expended. If immediately available cash on
deposit in the Insurance Account is not sufficient to make any
distribution to the Borrower referred to in the previous sentence of this
Section 3.03(b), the Bank shall cause to be liquidated as promptly as
practicable such Liquid Investments in the Insurance Account designated by
the Borrower as are required to obtain sufficient cash to make such
distribution and, notwithstanding any other provision of this Article III,
such distribution shall not be made until such liquidation has taken
place. Upon the occurrence and continuation of an Event of Default, the
Bank may (in its sole discretion) apply or cause to be applied (subject to
collection) any or all of the balance from time to time standing to the
credit of the Insurance Account in the manner specified in Section 5.04.
(c) Investment of Funds in Insurance Account. Amounts on
deposit in the Insurance Account shall be invested and re-invested from
time to time in such Liquid Investments as the Borrower shall determine,
which Liquid Investments shall be held in the name and be under the
control of the Bank, provided that, if an Event of Default has occurred
and is continuing, the Bank may liquidate any such Liquid Investments and
apply or cause to be applied the proceeds thereof in the manner specified
in Section 5.04. For this purpose, "Liquid Investments" means Cash
Equivalents; provided that (i) each Liquid Investment shall mature within
30 days after it is acquired by the Bank and (ii) in order to provide the
Bank with a perfected security interest therein, each Liquid Investment
shall be either:
(i) evidenced by negotiable certificates or
instruments, or if non-negotiable then issued in the name of the Bank,
which (together with any appropriate instruments of transfer) are
delivered to, and held by, the Bank or an agent thereof (which shall
not be the Borrower or any of its Affiliates) in the State of Maryland;
or
(ii) in book-entry form and issued by the United
States and subject to pledge under applicable state law and Treasury
regulations and as to which (in the opinion of counsel to the Bank)
appropriate measures shall have been taken for perfection of the
Security Interests.
SECTION 3.04 CASH PROCEEDS ACCOUNTS.
(a) Creation of Cash Proceeds Accounts. There is hereby
established with the Bank (i) a cash collateral account in the name of
"Lunn Industries, Inc. - First Union National Bank of Maryland", and (ii)
a cash collateral account in the name of "Alcore, Inc. - First Union
National Bank of Maryland" (each, a "Cash Proceeds Account" and
collectively, the "Cash Proceeds Accounts"), and under the exclusive
control of the Bank into which there shall be deposited from time to time
the cash proceeds of the Collateral required to be delivered to the Bank
pursuant to paragraph (b) of this Section or any other provision of the
Loan Documents. Any income received by the Bank with respect to the
balance from time to time standing to the credit of a Cash Proceeds
Account, including any interest, shall remain, or be deposited, in the
applicable Cash Proceeds Account. All right, title and interest in and to
the cash amounts on deposit from time to time in the Cash Proceeds
Accounts shall vest in the Bank, shall constitute part of the Collateral
and shall not constitute payment of the Obligations until applied thereto
as hereinafter provided.
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(b) Deposits to Cash Proceeds Account. The Borrower shall
instruct all Account Debtors and other Persons obligated in respect of
Accounts and other Collateral to make all payments in respect of the
Accounts or other Collateral directly to the Bank (by instructing that
such payments be remitted to a post office box which shall be in the name
and under the control of the Bank). Upon the earlier of (i) notification
by the Bank and (ii) the occurrence of a Default or an Event of Default,
all such payments made to the Bank shall be deposited in the applicable
Cash Proceeds Account. In addition to the foregoing, the Borrower agrees
that if the proceeds of any Collateral (including the payments made in
respect of Accounts) shall be received by it, the Borrower shall as
promptly as possible deposit such proceeds to the applicable Cash Proceeds
Account. Until so deposited, all such proceeds shall be held in trust by
the Borrower for and as the property of the Bank and shall not be
commingled with any other funds or property of the Borrower. The Borrower
hereby irrevocably authorizes and empowers the Bank, its officers,
employees and authorized agents to endorse and sign its name on all
checks, drafts, money orders or other media of payment so delivered, and
such endorsements or assignments shall, for all purposes, be deemed to
have been made by the Borrower prior to any endorsement or assignment
thereof by the Bank. The Bank may use any convenient or customary means
for the purpose of collecting such checks, drafts, money orders or other
media of payment.
(c) Withdrawals from Cash Proceeds Account. Collected funds on
deposit in the Cash Proceeds Accounts shall be withdrawn by the Bank on
the Business Day following the day on which the Bank considers the funds
deposited therein to be collected funds and applied to repay the
Obligations which are then due and payable. Until a Default shall occur,
all collected funds remaining on deposit in the Cash Proceeds Account
after the application required by the preceding sentence shall then be
deposited in each Borrower's respective Operating Account, as applicable.
ARTICLE IV
COVENANTS
The Borrower covenants and agrees with the Bank that until the
payment in full of all Obligations and until there is no Commitment by the Bank
to make further advances, incur obligations or otherwise give value, the
Borrower will comply with the following:
SECTION 4.01 DELIVERY OF PERFECTION CERTIFICATE; FILING OF
FINANCING STATEMENTS AND DELIVERY OF SEARCH REPORTS. On or prior to the
Effective Date, the Borrower shall deliver the Perfection Certificate to the
Bank and shall cause all filings and recordings and other actions specified in
Schedule 4.01 hereto to have been completed. The information set forth in the
Perfection Certificate shall be correct and complete. Not later than 60 days
following the Closing Date, the Borrower shall furnish to the Bank file search
reports from each UCC filing office set forth in Schedule 4.01 confirming the
filing information set forth in such Schedule.
SECTION 4.02 CHANGE OF NAME, IDENTITY OR STRUCTURE; LOCATIONS
OF PLACES OF BUSINESS, CHIEF EXECUTIVE OFFICE AND COLLATERAL. The Borrower will
not change its name, identity or corporate structure in any manner unless it
shall have given the Bank not less than 30 days' prior notice thereof. The
Borrower will not change the location of (i) its place or places of business,
its chief executive office or its chief place of business or (ii) the locations
where it keeps or holds any Collateral or any records relating thereto from the
applicable location described in the Perfection Certificate unless it shall have
given the Bank not less than 30 days' prior notice thereof. The Borrower shall
not in any event change the location of its place or places of business, its
chief executive office or any Collateral if such change would cause the Security
Interests in such Collateral to lapse or cease to be perfected.
SECTION 4.03 FURTHER ASSURANCES. The Borrower will, from time
to time, at its expense, execute, deliver, file and record any statement,
assignment, instrument, document, agreement or other paper and take any other
action, (including, without limitation, any filings of financing or continuation
statements under the UCC and
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any filings with the United States Patent and Trademark Office) that from time
to time may be necessary or desirable, or that the Bank may request, in order to
create, preserve, perfect, confirm or validate the Security Interests or to
enable the Bank to obtain the full benefit of this Agreement, or to enable the
Bank to exercise and enforce any of its rights, powers and remedies created
hereunder or under applicable law with respect to any of the Collateral. To the
extent permitted by applicable law, the Borrower hereby authorizes the Bank to
execute and file financing statements or continuation statements without the
Borrower's signature appearing thereon. The Borrower agrees that a carbon,
photographic, photostatic or other reproduction of this Agreement or of a
financing statement is sufficient as a financing statement. The Borrower shall
pay the costs of, or incidental to, any recording or filing of any financing or
continuation statements concerning the Collateral.
SECTION 4.04 COLLATERAL IN POSSESSION OF OTHER PERSONS. If any
Collateral is at any time in the possession or control of any warehouseman,
bailee or any of the Borrower's agents or processors, the Borrower shall notify
such warehouseman, bailee, agent or processor of the Security Interests created
hereby and to hold all such Collateral for the Bank's account subject to the
Bank's instructions. The Borrower agrees that if any warehouse receipt or
receipt in the nature of a warehouse receipt is issued with respect to any of
its Inventory, such warehouse receipt or other receipt in the nature thereof
shall not be "negotiable" (as -104 of the Uniform Commercial Code in any
relevant jurisdiction or under other relevant law).
SECTION 4.05 BOOKS AND RECORDS. The Borrower shall keep full
and accurate books and records relating to the Collateral, including, without
limitation, the originals of all documentation with respect thereto, records of
all payments received, all credits granted thereon, all merchandise returned and
all other dealings therewith, and the Borrower will make the same available to
the Bank for inspection, at the Borrower's own cost and expense, at any and all
reasonable times upon demand. Upon direction by the Bank, the Borrower shall
stamp or otherwise mark such books and records in such manner as the Bank may
reasonably require in order to reflect the Security Interests.
SECTION 4.06 DELIVERY OF INSTRUMENTS. The Borrower will
immediately deliver each Instrument, certificated security and uncertificated
security to the Bank indorsed (as applicable) to the Bank; provided that so long
as no Event of Default shall have occurred and be continuing and except as
provided by any other Loan Document, the Borrower may retain for collection in
the ordinary course of business any Instruments (other than certificated
securities, checks, drafts and other Instruments constituting payments in
respect of Accounts and other Collateral, as to which the provisions of Section
2.08(c) of the Credit Agreement and Section 3.04 hereof shall apply) received by
it in the ordinary course of business and the Bank shall, promptly upon request
of the Borrower, make appropriate arrangements for making any other Instrument
pledged by the Borrower available to it for purposes of presentation, collection
or renewal (any such arrangement to be effected, to the extent deemed
appropriate to the Bank, against trust receipt or like document).
SECTION 4.07 MODIFICATION OF ASSIGNED AGREEMENTS, ETC. The
Borrower shall keepssigned Agreements. The Borrower will not, except with the
consent of the Bank amend, modify, extend, renew, cancel or terminate any
Assigned Agreement, waive any default under or breach of any Assigned Agreement,
compromise or settle any material dispute, claim, suit or legal proceeding
relating to any Assigned Agreement, sell or assign any Assigned Agreement or
interest therein, consent to or permit or accept any prepayment of amounts to
become due under or in connection with any Assigned Agreement, except as
expressly provided therein, or take any other action in connection with any
Assigned Agreement which would impair the value of the interests or rights of
the Borrower thereunder or which would impair the interests or rights of the
Bank under this Agreement, except that, unless the Bank shall have notified the
Borrower upon the occurrence of a Default or Event of Default that this
exception is no longer applicable, the Borrower may modify, make adjustments
with respect to, extend or renew any Assigned Agreements in the ordinary course
of business. The Borrower will duly fulfill all of its obligations under or in
connection with the Assigned Agreements.
SECTION 4.08 CERTIFICATES OF TITLE; FIXTURES. The Borrower
shall (i) on or prior to the date of
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the first Loan advance, in the case of Equipment constituting one or more titled
vehicles now owned and (ii) within 10 days of acquiring any other Equipment
constituting one or more titled vehicles, deliver to the Bank any and all
certificates of title, applications for title or similar evidence of ownership
of such Equipment and shall cause the Bank to be named as lienholder on any such
certificate of title or other evidence of ownership. The Borrower shall promptly
inform the Bank of any additions to or deletions from the Equipment and shall
not permit any such items to become a fixture to real estate or an accession to
other personal property.
SECTION 4.09 DISPOSITION OF COLLATERAL. Without the prior
written consent of the Bank, the Borrower will not sell, lease,
exchange, assign or otherwise dispose of, or grant any option with respect to,
any Collateral except that, subject to the rights of the Bank hereunder if an
Event of Default shall have occurred and be continuing, the Borrower may sell,
lease or exchange Inventory and obsolete, unused or unnecessary Equipment in the
ordinary course of business, whereupon, in the case of such a sale or exchange,
the Security Interests created hereby in such item (but not in any Proceeds
arising from such sale or exchange) shall cease immediately without any further
action on the part of the Bank.
SECTION 4.10 INSURANCE. Prior to the Closing Date, the
Borrower will cause the Bank to be named as an insured party and loss payee on
each insurance policy covering risks relating to any of its Inventory and
Equipment. The Borrower will deliver to the Bank, upon its request, the
insurance policies for such insurance or certificates of insurance evidencing
such coverage. Each such insurance policy shall include effective waivers by the
insurer of all claims for insurance premiums against the Bank, provide for
coverage to the Bank regardless of the breach by the Borrower of any warranty or
representation made therein, not be subject to co-insurance, provide that all
insurance proceeds in excess of $50,000 per claim shall be adjusted with and
payable to the Bank and provide that no cancellation, termination or material
modification thereof shall be effective until at least 30 days after receipt by
the Bank of notice thereof. The Borrower hereby appoints the Bank as its
attorney-in-fact to make proof of loss, claim for insurance and adjustments with
insurers, and to execute or endorse all documents, checks or drafts in
connection with payments made as a result of any insurance policies. The
Borrower assumes all liability and responsibility in connection with the
Collateral acquired by it and the liability of the Borrower to pay the
Obligations shall in no way be affected or diminished by reason of the fact that
such Collateral may be lost, destroyed, stolen, damaged or for any reason
whatsoever unavailable to the Borrower.
SECTION 4.11 INFORMATION REGARDING COLLATERAL. The Borrower
will, promptly upon request, provide to the Bank all information and evidence it
may reasonably request concerning the Collateral to enable the Bank to enforce
the provisions of this Agreement.
SECTION 4.12 COVENANTS REGARDING PATENT, TRADEMARK AND
COPYRIGHT COLLATERAL.
(a) The Borrower (either itself or through licensees) will,
for each Patent, not do any act, or omit to do any act, whereby any Patent
which is material to the conduct of the Borrower's business may become
invalidated or dedicated to the public, and shall continue to mark any
products covered by a Patent with the relevant patent number or indication
that a Patent is pending as required by the Patent laws.
(b) The Borrower (either itself or, if permitted by law,
through its licensees or its sublicensees) will, for each Trademark
material to the conduct of the Borrower's business, (i) maintain such
Trademark in full force free from any claim of abandonment or invalidity
for non-use, (ii) maintain the quality of products and services offered
under such Trademark, (iii) display such Trademark with notice of federal
registration to the extent required by applicable law, (iv) not knowingly
use or knowingly permit the use of such Trademark in violation of any
third party rights and (v) not permit any assignment in gross of such
Trademark.
(c) The Borrower (either itself or through licensees) will,
for each work covered by a material copyright, continue to publish,
reproduce, display, adopt and distribute the work with appropriate
copyright notice.
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(d) The Borrower shall notify the Bank immediately if it knows
or has reason to know that any Patent, Trademark or copyright (or any
application or registration relating thereto) material to the conduct of
its business may become abandoned or dedicated to the public, or of any
adverse determination or development (including, without limitation, the
institution of, or any such determination or development in, any
proceeding in the United States Patent and Trademark Office, United States
Copyright Office or any court) regarding the Borrower's ownership of any
Patent, Trademark or copyright, its right to register the same or to keep
and maintain the same.
(e) The Borrower will take all necessary steps to file,
maintain and pursue each material application relating to the Patents,
Trademarks and/or copyrights (and to obtain the relevant grant or
registration) and to maintain each registration of the Patents, Trademarks
and copyrights which is material to the conduct of the Borrower's
business, including filing of applications for renewal, affidavits of use,
affidavits of incontestability and maintenance fees, and, if consistent
with good business judgment, to initiate opposition, interference and
cancellation proceedings against third parties.
(f) In the event that any rights to any Patent, Trademark,
copyright or License relating thereto material to the conduct of the
Borrower's business is believed infringed, misappropriated or diluted by a
third party, the Borrower shall notify the Bank promptly after it learns
thereof and shall, if consistent with good business judgment, promptly sue
for infringement, misappropriation or dilution and to recover any and all
damages for such infringement, misappropriation or dilution, and take such
other actions as the Borrower shall reasonably deem appropriate under the
circumstances to protect such Patent, Trademark, copyright or License.
(g) In no event shall the Borrower, either itself or through
any agent, employee, licensee or designee, file an application for any
Patent, Trademark or copyright with the United States Patent and Trademark
Office, United States Copyright Office or any office or agency in any
political subdivision of the United States or in any other country or any
political subdivision thereof, unless not less than 10 days prior thereto
it informs the Bank, and, upon request of the Bank, executes and delivers
any and all agreements, instruments, documents and papers as the Bank may
request to evidence the Security Interests in such Patent, Trademark or
copyright and the goodwill or accounts and general intangibles of the
Borrower relating thereto or represented thereby, and the Borrower hereby
appoints the Bank its attorney-in-fact to execute and file such writings
for the foregoing purposes.
ARTICLE V
REMEDIES; RIGHTS UPON DEFAULT
SECTION 5.01 GENERAL AUTHORITY. The Borrower hereby
irrevocably appoints the Bank its true and lawful attorney, with full power of
substitution, in the name of the Borrower, the Bank or otherwise, for the sole
use and benefit of the Bank, but at the Borrower's expense, to the extent
permitted by law to exercise at any time and from time to time while an Event of
Default has occurred and is continuing, all or any of the following
powers with respect to all or any of the Collateral, all acts of such attorney
being hereby ratified and confirmed; such power, being coupled with an interest,
is irrevocable until the Obligations are paid in full and until there is no
Commitment by the Bank to make further advances, incur obligations or otherwise
give value:
(a) to demand, sue for, collect, receive and give
acquittance for any and all monies due or to become due thereon or
by virtue thereof,
(b) to settle, compromise, compound, prosecute or
defend any action or proceeding with respect thereto,
(c) to sell, transfer, assign or otherwise deal in or
with the same or the proceeds or
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avails thereof, including without limitation for the implementation of
any assignment, lease, License, sublicense, grant of option, sale or
other disposition of any Patent, Trademark or copyright or any action
related thereto, as fully and effectually as if the Bank were the
absolute owner thereof, and
(d) to extend the time of payment of any or all
thereof and to make any allowance and other adjustments with
reference thereto;
provided that the Bank shall give the Borrower not less than ten days' prior
notice of the time and place of any sale or other intended disposition of any of
the Collateral, except any Collateral which is perishable or threatens to
decline speedily in value or is of a type customarily sold on a recognized
market. The Bank and the Borrower agree that such notice constitutes "reasonable
notification" within the meaning of Section 9-504(3) of the UCC. Except as
otherwise provided herein, the Borrower hereby waives, to the extent permitted
by applicable law, notice and judicial hearing in connection with the Bank's
taking possession or the Bank's dispositions of any of the Collateral,
including, without limitation, any and all prior notice and hearing for any
prejudgment remedy or remedies and any such right which the Borrower would
otherwise have under the Constitution or any statute of the United States or of
any state.
SECTION 5.02 REMEDIES UPON EVENT OF DEFAULT.
(a) If any Event of Default has occurred and is continuing,
the Bank may exercise all rights of a secured party under the UCC (whether or
not in effect in the jurisdiction where such rights are exercised) and, in
addition, the Bank may, without being required to give any notice, except as
herein provided or as may be required by mandatory provisions of law, (i)
withdraw all cash and Liquid Investments in the Collateral Accounts and apply
such cash and Liquid Investments and other cash, if any, then held by it as
Collateral as specified in Section 5.04 and (ii) if there shall be no such cash
or Liquid Investments or if such cash and Liquid Investments shall be
insufficient to pay all the Obligations in full or cannot be so applied for any
reason, sell the Collateral or any part thereof at public or private sale, for
cash, upon credit or for future delivery, and at such price or prices as the
Bank may deem satisfactory. The Bank may be the purchaser of any or all of the
Collateral so sold at any public sale (or, if the Collateral is of a type
customarily sold in a recognized market or is of a type which is the subject of
widely distributed standard price quotations, at any private sale). The Borrower
will execute and deliver such documents and take such other action as the Bank
deems necessary or advisable in order that any such sale may be made in
compliance with law. Upon any such sale, the Bank shall have the right to
deliver, assign and transfer to the purchaser thereof the Collateral so sold.
Each purchaser at any such sale shall hold the Collateral so sold to it
absolutely and free from any claim or right of whatsoever kind, including any
equity or right of redemption of the Borrower which may be waived, and the
Borrower, to the extent permitted by law, hereby specifically waives all rights
of redemption, stay or appraisal which it has or may have under any law now
existing or hereafter adopted. The notice (if any) of such sale required by
Section 5.01 shall (he time ad place fixed for such sale, and (ii) in the case
of a private sale, state the day after which such sale may be consummated. Any
such public sale shall be held at such time or times within ordinary business
hours and at such place or places as the Bank may fix in the notice of such
sale. At any such sale the Collateral may be sold in one lot as an entirety or
in separate parcels, as the Bank may determine. The Bank shall not be obligated
to make any such sale pursuant to any such notice. The Bank may, without notice
or publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place fixed for the
sale, and such sale may be made at any time or place to which the same may be so
adjourned without further notice. In the case of any sale of all or any part of
the Collateral on credit or for future delivery, the Collateral so sold may be
retained by the Bank until the selling price is paid by the purchaser thereof,
but the Bank shall not incur any liability in the case of the failure of such
purchaser to take up and pay for the Collateral so sold and, in the case of any
such failure, such Collateral may again be sold upon like notice. The Bank,
instead of exercising the power of sale herein conferred upon it, may proceed by
a suit or suits at law or in equity to foreclose the Security Interests and sell
the Collateral, or any portion thereof, under a judgment or decree of a court or
courts of competent jurisdiction.
(b) For the purpose of enforcing any and all rights and
remedies under this Agreement the Bank may (i) require the Borrower to, and the
Borrower agrees that it will, at its expense and upon the request of the Bank,
forthwith assemble all or any part of the Collateral as directed by the Bank and
make it available at a place
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designated by the Bank which is, in the Bank's opinion, reasonably convenient to
the Bank and the Borrower, whether at the premises of the Borrower or otheower's
obligation so to deliver the Collateral is of the essence of this Agreement and
that, accordingly, upon application to a court of equity having jurisdiction,
the Bank shall be entitled to a decree requiring specific performance by the
Borrower of such obligations; (ii) to the extent permitted by applicable law,
enter, with or without process of law and without breach of the peace, any
premise where any of the Collateral is or may be located, and without charge or
liability to the Bank seize and remove such Collateral from such premises; (iii)
have access to and use the Borrower's books and records relating to the
Collateral; and (iv) prior to the disposition of the Collateral, store or
transfer it without charge in or by means of any storage or transportation
facility owned or leased by the Borrower, process, repair or recondition it or
otherwise prepare it for disposition in any manner and to the extent the Bank
deems appropriate and, in connection with such preparation and disposition, use
without charge any Patent, Trademark, copyright, License relating thereto or
technical process used by the Borrower. The Bank may also render any or all of
the Collateral unusable at the Borrower's premises and may dispose of such
Collateral on such premises without liability for rent or costs.
(c) Without limiting the generality of the foregoing, if any
Event of Default has occurred and is continuing:
(i) the Bank may license, or sublicense, whether
general, special or otherwise, and whether on an exclusive or
non-exclusive basis, any Patents, Trademarks or copyrights included in
the Collateral throughout the world for such term or terms, on such
conditions and in such manner as the Bank shall in its sole discretion
determine;
(ii) the Bank may (without assuming any obligations
or liability thereunder), at any time and from time to time, enforce
(and shall have the exclusive right to enforce) against any licensee or
sublicensee all rights and remedies of the Borrower in, to and under
any Patent License, Trademark License or license with respect to
copyrights and take or refrain from taking any action under any
provision thereof, and the Borrower hereby releases the Bank from, and
agrees to hold the Bank free and harmless from and against any claims
arising out of, any lawful action so taken or omitted to be taken with
respect thereto; and
(iii) upon request by the Bank, the Borrower will use
its best efforts to obtain all requisite consents or approvals by the
licensor or sublicensor of each Patent License, license with respect to
copyrights or Trademark License to effect the assignment of all of the
Borrower's rights, title and interest thereunder to the Bank or its
designee and will execute and deliver to the Bank a power of
attorney, in form and substance satisfactory to the Bank, for the
implementation of any lease, assignment, license, sublicense, grant of
option, sale or other disposition of a Patent, Trademark or copyright;
and
(iv) the Bank may direct the Borrower to refrain, in
which event the Borrower shall refrain, from using or practicing any
Trademark, Patent or copyright in any manner whatsoever, directly or
indirectly and shall, if requested by the Bank change the borrower's
name to eliminate therefrom any use of any Trademark and will execute
such other and further documents as the Bank may request to further
confirm this and transfer ownership of the Trademarks, Patents,
copyrights and registrations and any pending applications therefor to
the Bank.
(d) In the event of any disposition of any Patent, Trademark
or copyright pursuant to this Article V, the Borrower shall supply its know-how
and expertise relating to the manufacture and sale of the products or services
bearing Trademarks or the products, services or works made or rendered in
connection with or under Patents, Trademarks or copyrights, and its customer
lists and other records relating to such Patents, Trademarks or copyrights and
to the distribution of said products, services or works, to the Bank.
SECTION 5.03 LIMITATION ON DUTY OF THE BANK IN RESPECT OF
COLLATERAL. Beyond the exercise of reasonable care in the custody thereof, the
Bank shall have no duty to exercise any rights or take any steps to preserve the
rights of the Borrower in the Collateral in its or the Borrower's possession or
control or in the
- 9 -
<PAGE>
possession or control of any agent or bailee or any income thereon or as to the
preservation of rights against prior parties or any other rights pertaining
thereto, nor shall the Bank be liable to the Borrower or any other Person for
failure to meet any obligation imposed by Section 9-207 of the
UCC or any successor provision. The Bank shall be deemed to have exercised
reasonable care in the custody and preservation of the Collateral in its
possession if the Collateral is accorded treatment substantially equal to that
which it accords its own property, and shall not be liable or responsible for
any loss or damage to any of the Collateral, or for any diminution in the value
thereof, by reason of the act or omission of any warehouseman, carrier,
forwarding agency, consignee or other agent or bailee selected by the Bank in
good faith.
SECTION 5.04 APPLICATION OF PROCEEDS. The proceeds of any sale
of, or other realization upon, all or any part of the Collateral and any cash
held in the Collateral Accounts shall be applied by the Bank in the following
order of priorities:
(a) to payment of the expenses of such sale or other
realization, including reasonable compensation to agents and counsel
for the Bank, and all expenses, liabilities and advances incurred or
made by the Bank in connection therewith, and any other Obligations
owing to the Bank in respect of sums advanced by the Bank to preserve
the Collateral or to preserve its security interest in the Collateral;
(b) an amount equal to (A) the unpaid principal of
and accrued but unpaid interest on all Loans and all other Obligations
which arise or are incurred in connection with the Loan Documents; plus
(B) all unpaid fees owing to the Bank under the Credit Agreement; plus
(C) to the extent not covered by paragraph (i) above, all unreimbursed
expenses for which the Bank is to be reimbursed pursuant to Section
8.03 of the Credit Agreement or Section 7.03 hereof shall be applied to
payment of the Obligations;
(c) an amount equal to the Derivatives Obligations
shall be applied to the payment thereof;
(d) to the payment of all other Obligations, until
all Obligations shall have been paid in full; and
(e) to payment to the Borrower or its successors or
assigns, or as a court of competent jurisdiction may direct, of any
surplus then remaining from such proceeds.
SECTION 5.05 ASSIGNED AGREEMENTS. The Borrower hereby
irrevocably authorizes and empowers the Bank, in the Bank's sole discretion, if
an Event of Default has occurred and is continuing, to assert, either directly
or on behalf of the Borrower, any claims the Borrower may have, from time to
time, against any other party to any Assigned Agreement or to otherwise exercise
any right or remedy of the Borrower under any Assigned Agreement (including
without limitation, the right to enforce directly against any party to an
Assigned Agreement all of the Borrower's rights thereunder, to make all demands
and give all notices and make all requests required or permitted to be made by
the Borrower under any Assigned Agreements) as the Bank may deem proper. The
Borrower hereby irrevocably makes, constitutes and appoints the Bank (and all
officers, employees or agents designated by the Bank) as the Borrower's true and
lawful attorney-in-fact for the purpose of enabling the Bank, to assert and
collect such claims and to exercise such rights and remedies.
ARTICLE VI
MISCELLANEOUS
- 10 -
<PAGE>
SECTION 6.01 NOTICES. Unless otherwise specified herein, all
notices, requests or other communications to any party hereunder shall be in
writing (including bank wire, telex, facsimile transmission or similar writing)
and shall be given to such party (i) at its address set forth on the signature
pages hereto or (ii) other address, facsimile number or telex number as such
party shall hereafter specify for the purpose of communications hereunder by
notice to the other parties hereto. Each such notice, request or other
communication shall be effective (i) if given by telex, when such telex is
transmitted to the telex number specified in this Section and the appropriate
answerback is received, (ii) if given by facsimile transmission, when
transmitted to the facsimile number specified in this Section and confirmation
of receipt is received, (iii) if given by mail, 72 hours after such
communication is deposited, certified mail, return receipt requested, in the
mails with appropriate first class postage prepaid, addressed as aforesaid or
(iv) if given by other means, when delivered at the address specified in this
Section 6.01. Rejection or refusal to accept, or the inability to deliver
because of a changed address of which no notice was given shall not affect the
validity of notice given in accordance with this Section.
SECTION 6.02 NO WAIVERS; NON-EXCLUSIVE REMEDIES. No failure or
delay on the part of the Bank to exercise, no course of dealing with respect to,
and no delay in exercising any right, power or privilege under this Agreement or
any other Loan Document or any other document or agreement contemplated hereby
or thereby shall operate as a waiver thereof nor shall any single or partial
exercise of any such right, power or privilege preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies provided herein and in the other Loan Documents are
cumulative and are not exclusive of any other remedies provided by law. Without
limiting the foregoing, nothing in this Agreement shall impair the right of the
Bank to exercise any right of set-off or counterclaim it may have and to apply
the amount subject to such exercise to the payment of indebtedness of the
Borrower other than its indebtedness under the Credit Agreement and the other
Loan Documents.
SECTION 6.03 COMPENSATION AND EXPENSES OF THE BANK;
INDEMNIFICATION.
(a) Expenses. The Borrower shall pay (i) all out-of-pocket
expenses of the Bank, including fees and disbursements of special and
local counsel for the Bank, in connection with the preparation and
administration of this Agreement or any document or agreement contemplated
hereby, any consent or waiver hereunder or any amendment hereof or any
Default or alleged Default and (ii) if an Event of Default occurs, all
out-of-pocket expenses incurred by the Bank, including (without
duplication) the fees and disbursements of outside counsel in connection
with such Event of Default and collection, bankruptcy, insolvency and
other enforcement proceedings resulting therefrom.
(b) Protection of Collateral. If the Borrower fails to comply
with the provisions of the Credit Agreement, this Agreement or any other
Loan Document, such that the value of any Collateral or the validity,
perfection, rank or value of any Security Interest is thereby diminished
or potentially diminished or put at risk, the Bank may, but shall not be
required to, effect such compliance on behalf of the Borrower, and the
Borrower shall reimburse the Bank for the costs hereof on demand. All
insurance expenses and all expenses of protecting, storing, warehousing,
appraising, insuring, handling, maintaining and shipping the Collateral,
any and all excise, property, sales and use taxes imposed by any state,
federal or local authority on any of the Collateral, or in respect of
periodic appraisals and inspections of the Collateral to the extent the
same may be requested by the Bank from time to time, or in respect of the
sale or other disposition thereof shall be borne and paid by the Borrower.
If the Borrower fails to promptly pay any portion thereof when due, the
Bank may, at its option, but shall not be required to, pay the same and
charge the Borrower's account therefor, and the Borrower agrees to
reimburse the Bank therefor on demand. All sums so paid or incurred by the
Bank for any of the foregoing and any and all other sums for which the
Borrower may become liable hereunder and all costs and expenses (including
attorneys' fees, legal expenses and court costs) reasonably incurred by
the Bank in enforcing or protecting the Security Interests or any of its
rights or remedies under this Agreement, shall, together with interest
thereon until paid at the rate applicable to the Loans plus 2%, be
additional Obligations hereunder.
(c) Indemnification. The Borrower agrees to indemnify each
Indemnitee and hold each
- 11 -
<PAGE>
Indemnitee harmless from and against any and all liabilities, obligations,
losses, damages, penalties, claims, demands, actions, suits, judgments,
costs and expenses of any kind, including, without limitation, the
reasonable fees and disbursements of counsel, which may be incurred by,
imposed on or asserted against such Indemnitee in connection with any
investigation or administrative or judicial proceeding (whether or not
such Indemnitee shall be designated a party thereto) brought or threatened
relating to or arising out of this Agreement or in any other way connected
with the enforcement of any of the terms of, or the preservation of any
rights hereunder, or in any way relating to or arising out of the
manufacture, ownership, ordering, purchasing, delivery, control,
acceptance, lease, financing, possession, operation, condition, sale,
return or other disposition or use of the Collateral (including, without
limitation, latent or other defects, whether or not discoverable) the
violation of the laws of any country, state or other governmental body or
unit, any tort (including, without limitation, any claims, arising or
imposed under the doctrine of strict liability, or for or on account of
injury to or the death of any Person (including any Indemnitee), or
property damage), or contract claim; provided that no Indemnitee shall
have the right to be indemnified hereunder for such Indemnitee's own gross
negligence or willful misconduct as determined by a court of competent
jurisdiction. The Borrower agrees that upon written notice by any
Indemnitee of the assertion of such a liability, obligation, loss, damage,
penalty, claim, demand, action, judgment or suit, the Borrower shall
assume full responsibility for the defense thereof. Each Indemnitee agrees
to use its best efforts to notify the Borrower of any such assertion of
which such Indemnitee has knowledge.
(d) Obligations; Survival. Any amounts paid by any
Indemnitee as to which such Indemnitee has the right to reimbursement
shall constitute Obligations. The indemnity obligations of the Borrower
contained in this Section 6.03 shall continue in full force and effect
notwithstanding the full payment of all Note and all of the other
Obligations and notwithstanding the discharge thereof.
SECTION 6.04 AMENDMENTS AND WAIVERS. Any provision of this
Agreement may be amended, changed, discharged, terminated or waived if, but only
if, such amendment or waiver is in writing and is signed by the Borrower and the
Bank.
SECTION 6.05 SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon each of the parties hereto and inure to the benefit of the Bank and
its successors and assigns. The Borrower shall not assign or delegate any of its
rights and duties hereunder without the prior written consent of the Bank.
SECTION 6.06 LIMITATION OF LAW; SEVERABILITY.
(a) All rights, remedies and powers provided in this Agreement
may be exercised only to the extent that the exercise thereof does not
violate any applicable provision of law, and all the provisions of this
Agreement are intended to be subject to all applicable mandatory
provisions of law which may be controlling and be limited to the extent
necessary so that they will not render this Agreement invalid,
unenforceable in whole or in part, or not entitled to be recorded,
registered or filed under the provisions of any applicable law.
(b) If any provision hereof is invalid or unenforceable in any
jurisdiction, then, to the fullest extent permitted by law, (i) the other
provisions hereof shall remain in full force and effect in such
jurisdiction and shall be liberally construed in favor of the Bank in
order to carry out the intentions of the parties hereto as nearly as may
be possible; and (ii) the invalidity or unenforceability of any provision
hereof in any jurisdiction shall not affect the validity or enforceability
of such provisions in any other jurisdiction.
SECTION 6.07 GOVERNING LAW. This Agreement shall be governed
by and construed in accordance with the laws of the State of Maryland except as
otherwise required by mandatory provisions of law and except to the extent that
remedies provided by the laws of any jurisdiction other than such states are
governed by the laws of such jurisdictions.
SECTION 6.08 COUNTERPARTS; EFFECTIVENESS. This Agreement may
be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon
- 12 -
<PAGE>
the same instrument. This Agreement shall become effective when the Bank shall
receive counterparts hereof executed by itself and the Borrower.
SECTION 6.09 TERMINATION. Upon full, final and irrevocable
payment and performance of all Obligations and the termination of the Commitment
under the Credit Agreement, the Security Interests shall terminate and all
rights to the Collateral shall revert to the Borrower. In addition, at any time
and from time to time prior to such termination of the Security Interests, the
Bank may release any of the Collateral. Upon any such termination of the
Security Interests or release of Collateral, the Bank will, upon request by and
at the expense of the Borrower, execute and deliver to the Borrower such
documents as the Borrower shall reasonably request to evidence the termination
of the Security Interests or the release of such Collateral, as the case may be.
Any such documents shall be without recourse to or warranty by the Bank.
SECTION 6.10 ENTIRE AGREEMENT. This Agreement and the other
Loan Documents constitute the entire agreement and understanding among the
parties hereto and supersedes any and all prior agreements and understandings,
oral or written, and any contemporaneous oral agreements and understandings
relating to the subject matter hereof and thereof.
- 13 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
WITNESS/ATTEST: LUNN INDUSTRIES, INC.
________________________ By:________________________________________
Name: Alan W. Baldwin
Title: Chief Executive Officer and Chairman
1 Garvies Point Road
Glen Cove, New York 11542-2828
Facsimile No.: ____________________
WITNESS: ALCORE, INC.
________________________ By:__________________________________(SEAL)
Name: Edward A. Kiley
Title: President/General Manager
1324 Brass Mill Road
Belcamp, Maryland 21017
Facsimile No.: ___________________
WITNESS/ATTEST: FIRST UNION NATIONAL BANK OF MARYLAND
________________________ By:________________________________________
Name: Robert Linthicum
Title: Vice President
7 East Baltimore Street
2nd Floor
Baltimore, Maryland 21202
Attn: Robert Linthicum
Facsimile No.: (410) 244-1236
- 14 -
<PAGE>
SCHEDULE 4.01
TO
SECURITY AGREEMENT
SCHEDULE OF FILINGS
TO PERFECT SECURITY INTERESTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Time for Filing of
Filing Type of File Date of Periodic Continuation
Name of Debtor Jurisdiction Filing Number Filing Statements
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- 1 -
<PAGE>
EXHIBIT A
TO
SECURITY AGREEMENT
PERFECTION CERTIFICATE
- 1 -
<PAGE>
SCHEDULE B
TO
SECURITY AGREEMENT
DESCRIPTION OF COLLATERAL
Description for Face of UCC-1:
All of the Debtor's now existing or hereafter arising, right, title and interest
in and to all personal property, tangible or intangible, whether now or
hereafter in existence, including, without limitation, all accounts, accounts
receivable, contract rights, money, instruments, documents, chattel paper,
general intangibles, inventory, equipment and fixtures, as more fully described
in Schedule A hereto which is made a part hereof. Products and proceeds of the
foregoing, including any of the foregoing which are acquired with any cash
proceeds of the foregoing, are included.
Text of Schedule A to UCC-1:
This financing statement covers the types of property
described on the face of the Financing Statement of which this Schedule is a
part and all right, title and interest of the Debtor in and to the following
types (or items) of property whether now owned or existing or hereafter
acquired, created or arising (all being collectively referred to as the
Collateral):
(a) Accounts;
(b) Inventory;
(c) General Intangibles;
(d) Documents;
(e) Instruments;
(f) Equipment;
(g) the Collateral Accounts, all cash deposited therein from
time to time, the Liquid Investments and other monies and property
(including deposit accounts) of any kind of the Debtor maintained with or
in the possession or under the control of the Secured Party;
(h) all books and records (including, without limitation,
customer lists, credit files, computer programs, printouts and other
computer materials and records) of the Debtor pertaining to any of the
Collateral; and (g) all Proceeds of all or any of the Collateral described
in clauses (a) through (g) hereof.
As used in this Schedule A, the following terms have the
following meanings:
"Accounts" means all "accounts" now owned or hereafter
acquired by the Debtor, and shall also mean and include all accounts receivable,
contract rights, book debts, notes, drafts and other obligations or indebtedness
owing to the Debtor arising from the sale, lease or exchange of goods or other
property by it and/or the performance of services by it (including, without
limitation, any such obligation which might be characterized as an account,
contract right or general intangible under the Uniform Commercial Code in effect
in any jurisdiction) and all of the Debtor's rights in, to and under all
purchase orders for goods, services or other property, and all of the Debtor's
rights to any goods, services or other property represented by any of the
foregoing (including returned or repossessed goods and unpaid sellers' rights of
rescission, replevin, reclamation and rights to stoppage in transit) and all
monies due to or to become due to the Debtor under all contracts for the sale,
lease or exchange of goods or other
- 1 -
<PAGE>
property and/or the performance of services by it (whether or not yet earned by
performance on the part of the Debtor), in each case whether now in existence or
hereafter arising or acquired including, without limitation, the right to
receive the proceeds of said purchase orders and contracts and all collateral
security and guarantees of any kind given by any Person with respect to any of
the foregoing.
"Cash Equivalents" means (i) direct obligations of the United
States or any agency thereof, or obligations guaranteed by the United States or
any agency thereof, (ii) commercial paper rated in the highest grade by a
nationally recognized credit rating agency or (iii) time deposits with,
including certificates of deposit issued by, any office located in the United
States of any bank or trust company which is organized under the laws of the
United States or any state thereof and has capital, surplus and undivided
profits aggregating at least $250,000,000; provided, in each case that such
investment matures within one year from the date of acquisition thereof by the
Debtor.
"Collateral Accounts" means one or more deposit accounts
established with or in the possession or under the control of the Secured Party
into which cash or cash proceeds (including cash proceeds of insurance policies,
awards of condemnation or other compensation) of any Collateral are deposited
from time to time.
"Documents" means all "documents" or other receipts covering,
evidencing or representing goods, now owned or hereafter acquired by the Debtor.
"Equipment" means all "equipment" now owned or hereafter
acquired by the Debtor, including all items of machinery, equipment, fur,
trucks, trailers, railcars, barges and vehicles of every description, trailers,
handling and delivery equipment, all additions to, substitutions for,
replacements of or accessions to any of the foregoing, all attachments,
components, parts (including spare parts) and accessories whether installed
thereon or affixed thereto and all fuel for any thereof.
"General Intangibles" means all "general intangibles" now
owned or hereafter acquired by the Debtor, including, without limitation, (i)
all obligations and indebtedness owing to the Debtor (other than Accounts), from
whatever source arising (ii) all Patents, Trademarks, copyrights, Licenses,
rights in intellectual property, goodwill, trade names, trade secrets,
confidential or proprietary technical and business information, know-how,
show-how, software, customer lists, subscription lists, data bases and related
documentation, registration, franchises and all other intellectual or other
similar property rights, (iii) all rights or claims in respect of refunds for
taxes paid and (iv) all rights in respect of any pension plans or similar
arrangements maintained for employees of the Debtor or any member of the ERISA
Group and (v) all "uncertificated securities".
"Instruments" means all "instruments", "chattel paper",
"certificated securities" or "letters of credit" evidencing, representing,
arising from or existing in respect of, relating to, securing or otherwise
supporting the payment of, any of the Accounts or General Intangibles, including
(but not limited to) promissory notes, drafts, bills of exchange and trade
acceptances, now owned or hereafter acquired by the Debtor.
"Inventory" means all inventory now owned or hereafter
acquired by the Debtor, wherever located, and shall also mean and include,
without limitation, all raw materials and other materials and supplies,
work-in-process and finished goods and any products made or processed therefrom
and all substances, if any, commingled therewith or added thereto.
"Licenses" means any Patent License, Trademark License or
other license or sublicense as to which the Debtor is a party (other than those
license agreements which by their terms prohibit assignment or a grant of a
security interest by such Debtor as licensee thereunder); provided that the
rights to payments under any such Licenses shall be included in the Collateral
to the extent permitted thereby or by Section 9-318 of the Uniform Commercial
Code.
"Liquid Investments" means Cash Equivalents; provided that (i)
each Liquid Investment shall
- 2 -
<PAGE>
mature within 30 days after it is acquired by the Secured Party and (ii) in
order to provide the Secured Party with a perfected security interest therein,
each Liquid Investment shall be either:
(i) evidenced by negotiable certificates or
instruments, or if non-negotiable then issued in the name of
the Secured Party, which (together with any appropriate
instruments of transfer) are delivered to and held by, the
Secured Party or an agent thereof (which shall not be the
Debtor or an affiliate) in the State of Maryland; or
(ii) in book-entry form and issued by the
United States and subject to pledge under applicable state law
and United States Treasury regulations and as to which (in the
opinion of counsel to the Secured Party) appropriate measures
shall have been taken for perfection of the security
interests.
"Patent License" means any agreement now or hereafter in
existence granting to the Debtor, or pursuant to which the Debtor has granted to
any other person, any right with respect to any Patent or any invention now or
hereafter in existence, whether patentable or not, whether a Patent or
application for Patent is in existence on such invention or not, and whether a
Patent or application for Patent on such invention may come into existence.
"Patents" means all of the following:
(a) all letters patent and design letters patent of
the United States or any other country, all applications for letters
patent and design letters patent of the United States or any other
country including, without limitation, applications in the United
States Patent and Trademark Office or in any similar office or agency
of the United States, any State thereof or any other country or
political subdivision thereof;
(b) all reissues, divisions, continuations,
continuations-in-part, renewals or extensions thereof;
(c) all claims for, and rights to sue for, past or
future infringement of any of the foregoing; and
(d) all income, royalties, damages and payments now
or hereafter due or payable with respect to any of the foregoing,
including, without limitation, damages and payments for past or future
infringements thereof.
"Proceeds" means all proceeds of, and all other profits,
products, rents or receipts, in whatever form arising from the collection, sale,
lease, exchange, assignment, licensing or other disposition of or other
realization upon or payment for the use of, collateral, including (without
limitation) all claims of the Debtor against third parties for loss of, damage
to or destruction of, or for proceeds payable under, or unearned premiums with
respect to, policies of insurance in respect of, any collateral, and any
condemnation or requisition payments with respect to any collateral, in each
case whether now existing or hereafter arising.
"Trademark License" means any agreement now or hereafter in
existence granting to the Debtor, or pursuant to which the Debtor has granted to
any other person, any right to use any Trademark.
- 3 -
<PAGE>
"Trademarks" means all of the following:
(i) the following registered Trademarks and
Trademark applications:
(ii) all other trademarks, trade names, corporate
names, company names, business names, fictitious business names, trade
styles, service marks, logos, brand names, trade dress, prints and
labels on which any of the foregoing have appeared or appear, package
and other designs, and any other source or business identifiers, and
general intangibles of like nature, and the rights in any of the
foregoing which arise under applicable law,
(iii) the goodwill of the business symbolized
thereby or associated with each of them,
(iv) all registrations and applications in connection
therewith, including, without limitation, registrations and
applications in the United States Patent and Trademark Office or in any
similar office or agency of the United States, any State thereof or any
other country or any political subdivision thereof,
(v) all reissues, extensions and renewals
thereof,
(vi) all claims for, and rights to sue for,
past or future infringements of any of the foregoing; and
(vii) all income, royalties, damages and payments now
or hereafter due or payable with respect to any of the foregoing,
including, without limitation, damages and payments for past or future
infringements thereof.
As used in this Schedule A, the uncapitalized terms "account",
"account debtor", "certificated securities", "uncertificated securities",
"chattel paper", "contract right", "document", "equipment", "letter of credit",
"instrument", "warehouse receipt", "bill of lading", "document of title",
"inventory", "general intangibles", "money" and "proceeds" have the meanings of
such terms as defined in the Uniform Commercial Code.
- 4 -
<PAGE>
Independent Auditors' Consent
The Board of Directors and Stockholders
Lunn Industries, Inc.:
We consent to the incorporation by reference in the Registration Statement
No.333-19759 on Form S-8 and No.333-12905 on Form S-3 of Lunn Industries, Inc.
of our report dated April 2, 1997, relating to the consolidated balance sheet of
Lunn Industries, Inc. and subsidiary as of December 31, 1996 and the related
consolidated statements of income, stockholders' equity, and cash flows for the
year ended December 31, 1996, which report appears in the December 31, 1996
annual report on Form 10-KSB of Lunn Industries, Inc.
KPMG PEAT MARWICK LLP
Jericho, New York
April 10, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 5176
<SECURITIES> 0
<RECEIVABLES> 3193638
<ALLOWANCES> 177000
<INVENTORY> 4765817
<CURRENT-ASSETS> 8163314
<PP&E> 14027155
<DEPRECIATION> 4812731
<TOTAL-ASSETS> 17914987
<CURRENT-LIABILITIES> 2484615
<BONDS> 4785174
0
0
<COMMON> 113970
<OTHER-SE> 10531228
<TOTAL-LIABILITY-AND-EQUITY> 17914987
<SALES> 18098473
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EXHIBIT 13.2
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended: December 31, 1995
___ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to __________.
Commission File Number 0-1298
LUNN INDUSTRIES, INC.
Name of Registrant as specified in its charter)
Delaware 11-1581582
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1 Garvies Point Road, Glen Cove, New York 11542-2828
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 671-9000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Common Stock
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B (229.405 of this chapter) is not contained herein, and will
not be contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
The aggregate market value of the shares of Common Stock held by non-affiliates
of Lunn Industries, Inc. based on the average closing bid and asked prices as
reported by NASDAQ on April 10, 1996 was $21,932,236.
The aggregate number of shares of Common Stock outstanding as of April 10, 1996
was 11,309,359.
Documents incorporated by reference to the Form 10-KSB: None
<PAGE>
Part I
Item 1. DESCRIPTION OF BUSINESS
Lunn Industries, Inc., ("Lunn", the "Registrant" or the "Company") is a
Delaware Corporation, originally incorporated in New York in 1948. Lunn
Industries has two primary operating divisions, Lunn Composites and Alcore Inc.,
("Alcore") a wholly owned subsidiary. Lunn Composites produces a wide range of
composite products including metal bonded panels, composite assemblies which
utilize honeycomb, high performance fiber and resin laminates and filament wound
assemblies. Alcore produces aluminum honeycomb, a lightweight cellular material
composed of hexagonal cells with high strength-to-weight ratios. Alcore also
provides value added honeycomb, selling semi- finished parts to it's
customers.
In January 1995, the Company purchased the assets of the metal bonding
business of Limco Manufacturing located in Glen Cove, New York, and relocated
and consolidated the Company's fiber and resin laminated composite
businesses from Newtown, Connecticut and Wyandanch, New York to the newly leased
facilities containing the metal bonded business in Glen Cove, New York.
The Company' s products are sold principally to commercial customers,
both domestic and international, and to agencies of the United States
Government. The Company's products are generally manufactured to
customer's specifications.
Products - Manufacturing
Lunn Composites
Lunn Composites manufactures structures made of both fiber reinforced
plastics assembled into complex structures as well as a wide variety of metal
bonded structures utilizing various core and skin materials. Lunn Composites has
developed a number of specialized processes whereby layers of glass, graphite,
Kevlar or other fibers are impregnated with specially selected polyester, epoxy
or other resins. These processes enable Lunn Composites to manufacture products
with unique properties such as high resistance to corrosion, complex contours,
light-weight, high chemical and abrasion resistance, dimensional stability, high
strength and high impact resistance. Lunn Composite's metal bonded
composites are generally made to customer specifications and frequently employ
customer provided tooling. Various alloy aluminum sheets are progressively
processed through brake, shear, layout and routing, heat treatment, cleaning and
acid anodizing operations to produce complex panels and skins that are autoclave
bonded into finished assemblies. Lunn Composites has been qualified by and is a
licensee of Boeing Aircraft Company ("Boeing") to operate a phosphoric
acid anodized ("PAA") clean line for all metal products.
<PAGE>
Typical applications of Lunn Composites' products are as follows:
Radar: radomes, antenna housings, parabolic reflectors, antenna masts,
antennas, and electronic cabinets.
Marine: sonar buoys, submarine masts and mast fairings, pressure vessels,
sonar domes and ship deck structures.
Advanced Composite Structures: tank hull parts, fairings, ducts, and fuel
tanks.
Aerospace & Aircraft: wing panels, hatches, fairings, electronic cabinets,
metal details, slats and other missile and aircraft assemblies.
Alcore
Alcore manufactures aluminum honeycomb products with a variety of strengths,
densities, thicknesses, span lengths, core orientations and contoured shapes.
The most prominent characteristics of the aluminum honeycomb products are high
strength-to-weight ratio, fatigue resistance, energy absorption, sound
dampening, heat exchange, radio frequency shielding, machinability, airflow
directionalization and corrosion resistance. Alcore is recognized as having
superior "node bond" adhesives which afford excellent honeycomb cell
configuration due to the nature of the adhesive utilized and the manner in which
it is applied. The above characteristics make this material ideal for the
aerospace and aircraft industries, the preeminent market for Alcore, Inc.,
products.
Alcore's, product line is broadly divided into two main segments, Block
and Panel and value-added Special Processing or SP. All honeycomb products are
produced by first manufacturing a block of non-expanded honeycomb material. The
block is either sold as a full block or alternately sliced into various
thicknesses depending on customer requirements. The slices may be sold to
customers unexpanded or further processed into fully expanded honeycomb panels.
The panels may then be sold to customers as complete panels or processed further
into Special Processing Assemblies.
The Block and Panel segment of the business consists of honeycomb products
sold as either block, slice or expanded panel. This segment represents
approximately 55% of Alcore's total business. The value-added Special
Processing or SP segment of the business consists of honeycomb products that
have been further processed by forming, rolling, routing, and cutting the
aluminum core to customer specifications, as well as splicing several densities
of core together to form a bonded core "blanket". These engineered parts are
often shipped as ready-to-assemble kits. Special Processing represents
approximately 45% of Alcore's total sales.
<PAGE>
One of the company's most promising products is PAA-CORE(Trademark) a
phosphoric acid anodized product produced exclusively by Alcore.
PAA-CORE(Trademark), is a trademark of Lunn Industries. PAA-CORE(Trademark)
was qualified as a sole source product by Boeing Aircraft on their
BMS-4-4 specification in December 1994, and is the material of choice
for all new metal bonded structures. The main characteristic of
PAA-CORE(Trademark) is its superior node bond durability in hostile
environments due to the use of proprietary chemically treated aluminum
foil, proprietary primers and proprietary node bond adhesives. This
product sells at a premium to regular aluminum core. Currently
PAA-CORE(Trademark) represents 15% of Alcore's aluminum honeycomb sales,
but is expected to grow significantly in the future, possibly to a
majority of Alcore's sales volume within the decade.
Beginning in 1994, Alcore expanded beyond the aerospace market into a number
of non-aerospace markets. Applications for high performance, low cost commercial
products were developed for manufacturers of "clean rooms" for computer
chip manufacturing and bio-medical research centers, laminated panels for luxury
cruise ship cabins and numerous other architectural uses. Alcore's honeycomb
products are also utilized by manufacturers of rail car doors for municipal
transit systems, and, due to unique crush characteristics and energy absorbing
qualities, by the nuclear and energy absorption industries.
Sales - Customers
Lunn fiber reinforced composite product sales represented approximately
20% of the Company's consolidated sales in 1995. The Company sells fiber
reinforced composite products as both a prime contractor for agencies of
the U. S. Government and as a subcontractor to holders of government contacts.
The Company is a sole supplier of many of its fiber reinforce composite
products. Major customers of fiber reinforced composite products are the
U.S. Government, Raytheon, General Dynamics (Electric Boat), United
Defense, Westinghouse and Loral (previously Unisys).
Lunn metal bonded composite products, acquired January 1, 1995, represented
approximately 10% of Lunn's consolidated sales. Metal bonded products are
sold to major commercial aircraft original equipment manufacturers such as
Boeing, Northrop/Grumman, Lockheed Martin, McDonnell Douglas and others. The
Company has completed the process of formally transferring specific customer
qualifications and certifications necessary to be able to supply bonded products
to the aircraft industry and specific customers.
Honeycomb product sales represented approximately 70% of the Company's
consolidated sales in 1995. Major customers in the honeycomb segment include
such aerospace companies as Boeing, McDonnell Douglas, Lockheed Martin, Rohr,
Ciba Geigy, Vought (Northrup Grumman), Gulfstream, and Hispano Suiza of France.
Major industrial and transportation customers include DAW Technologies, Cupples
and the European firm Eurocomposite.
<PAGE>
Military business in 1995 represented approximately 29% of the Company's
consolidated sales compared to approximately 45% in 1994. With the purchase of
the assets of the metal bonded business and consolidation of the fiber
reinforced composite businesses into the Glen Cove facility subsequent to
December 31, 1994, military sales represent a declining share of the
Company's total sales. Aerospace and aircraft business represented
approximately 55% of 1995 consolidated sales, with industrial, transportation
and construction representing the remaining 16%. Aerospace and aircraft are
projected to represent increasing percentages of the Company's sales in
future years due to the addition of the metal bonded business. Industrial,
transportation and construction are also expected to represent increasing
percentages of the Company's sales due primarily to diversification of
honeycomb sales into these markets.
The backlog as of December 31, 1995 was $13.6 Million compared to $8.3
Million as of the end of 1994. Approximately $9.3 Million of backlog at year end
is anticipated to be released for shipment within fiscal 1996.
In 1995 the Company had one (1) identified customer who represented
greater than 10% of sales. The customer is :
U.S. Government $1,783,949 (12.1%)
In 1994 the Company had two (2) identified customers who represented greater
than 10% of sales. They were:
Raytheon $2.054,000 (13.5%)
U.S. Government $1,793,000 (11.8%)
The Company believes the loss of any of its principal customers could have a
materially adverse effect on the Company's business. Each of the
Company's prime contracts with an agency of the U. S. Government is
terminable by that agency without cause after having paid normal cancellation
and termination claims as authorized in the terminated contract. In the event of
termination by a U. S. Government agency of a prime contract for which the
Company is a subcontractor, the prime contractor can, in turn, terminate the
subcontract with the Company again subject to payment of termination claims.
Much of the Company's business is obtained through competitive bidding.
The Company advertises in Thomas' Register, through direct mailings and by
participation in industry trade shows and seminars. Additionally, the Company
invests substantial resources to maintain customer qualifications and
certifications and thereby insure active bidder's list participation and
receipt of all pertinent RFQ's (requests for quotation). Honeycomb products
are sold domestically and internationally by a direst sales force as well as
independent manufacturer's representatives outside of the United States. The
engineering staffs and executives of both the composite and honeycomb segments
of the business are utilized extensively in the marketing and sales process.
<PAGE>
The Company believes that Alcore is the second largest producer of aluminum
honeycomb products in the world and has the broadest product line. Domestically
Alcore competes with Hexcel, the largest worldwide producer of all types of
honeycomb, as well as Plascore. Internationally Alcore, Inc., competes with
Hexcel and Ciba Geigy. Alcore's PAA-CORE technology with it's improved
node bond strength and resistance to corrosion is anticipated to enable the
Company to compete more broadly and expand its served available market to
include applications dominated previously by non-metallic honeycomb materials
such as Nomex(Registered). Additionally, Alcore's expanded family of aluminum
products, including Trussgrid(Trademark), Shapegrid(Trademark),
Spiralgrid(Trademark), Flexgrid(Trademark), CGH (commercial grade honeycomb)
Higrid(Trademark), Plygrid(Trademark). In 1995 Alcore added Nomex(Registered)
Special Process core assemblies to its product line. Alcore has a long-term
preferred price agreement with a leading producer of Nomex(Registered)
honeycomb and converts the Nomex(Registered) honeycomb into complex
assemblies to customer specifications and drawings.
The Company's composite business, both metal bond and fiber reinforced
resin, competes with a number of different companies who have substantially
greater resources than the Company. Notwithstanding, the Company has positioned
itself in a number of "niche" situations where the Company is essentially the
vendor of choice and often sole source. The Company has excellent pattern and
tooling capabilities, comparable engineering and end-to-end capabilities that
enable the Company to offer "one-stop", high quality manufacturing of
complex composite products. The Company's metal bonded manufacturing line
offers Boeing qualified and licensed PAA clean line facilities, heat treatment
and aerospace qualified autoclave bonding capabilities comparable to those
offered by 8 to 10 major competitors located throughout the United States.
Other
The Company utilizes materials in all of its manufacturing operations which
are widely available from several sources, thus not posing any materially
adverse restraints on its operations in the event of loss of any one of these
suppliers. The primary exception to this statement concerns proprietary node
bond adhesives and aluminum foil primers used in the manufacture of Alcore's
PAA-CORE(Trademark) aluminum honeycomb products. The Company has a supply
agreement with Cytec (formerly American Cyanamid) for these materials on
an exclusive basis through 2002. The agreement with Cytec also provides
the Company be given formulations and know-how to be able to produce the
adhesive and primer materials in the event Cytec discontinues their
manufacture. The underlying patents for PAA-CORE(Trademark) technology
expired in 1994.
<PAGE>
Management believes expiration of the PAA patent will have minimal impact on
the Company's proprietary position for PAA-CORE(Registered)(Trademark).
PAA-CORE(Trademark) technology consists of three specific components: the
anodizing process itself covered by the patent; a proprietary primer
material to coat the anodized foil; and finally, proprietary node bond
adhesives to fabricate the honeycomb. As noted above, both the primer and
the node bond adhesive materials are supplied exclusively to the Company
by Cytec until the year 2002. Additionally, the anodizing process involves
a number of trade secret process steps developed by the Company and Cytec
over a 10 year period.
Compliance with federal, state and local provisions which have been enacted
to regulate the discharge of hazardous materials into the environment or
relating to safety in the work place have not to date had a material adverse
effect on the Company's business.
The Company is not subject to material seasonal variations.
As of December 31, 1995, 175 people were employed on a full-time basis
by the Company. Manufacturing labor at the Company's composite facilities
in Glen Cove, New York are unionized. The Company believes its employee
relations are good.
Research and Development
The Company conducted no research and development in 1995, and there are no
plans to spend any funds in research and development in 1996.
Recent Developments
On March 20, 1996 the Company sold 3.5 million shares of its common stock
for $.40 per share in a private placement through J.E. Sheehan & Company, Inc.
Net proceeds received by the Company was $1.247 Million. Use of proceeds
included a payment of $300 Thousand to retire a note owed to Fleet National Bank
of Connecticut (f/k/a Shawmut Bank) ("Fleet Bank"), a payment of $220
Thousand (including interest) to repay the balance due to bridge lenders and a
payment of $127 Thousand (including interest and fees) to retire a
shareholder's note. The balance of proceeds of approximately $600 Thousand
will be used for working capital.
In connection with the retirement of the Fleet Bank debt and bridge loans,
the Company issued warrants to purchase 635,000 shares of common stock, which
warrants were valued at $154 Thousand and expensed in 1995.
<PAGE>
Item 2. DESCRIPTION OF PROPERTY
The Company operates its business from three locations:
1. Glen Cove, New York - The Company has its corporate headquarters, as well as
its metal bonding and composite manufacturing at this site. The Company signed a
new five year lease for this 93,000 square foot facility at an initial annual
rental of $229,167, with incremental increases during the term of the lease,
bringing the annual rental in the final year of $275,000. Additionally, the
Company is responsible for the cost of real estate taxes and insurance related
to this property. The Company may exercise an option to extend this lease for
two additional five year terms at fair market value.
2. Belcamp, Maryland - The Company leases approximately 50,000 square feet in a
recently constructed industrial building under a lease which expires in February
2002. The annual rental amounted to $210,000 in 1995 with escalations throughout
the term of the lease to $254,000 in the lease's final year. Additionally,
the Company is liable for any increases in real estate taxes over the initial
base period. The Company's Alcore subsidiary manufactures its aluminum
honeycomb products at this site.
3. Jessup, Maryland - The Company leases approximately 43,000 square feet under
a lease that expires in 2006. The annual rental is presently $174,245 increasing
incrementally to $232,253 in the final year, plus real estate taxes and prorated
operating expenses. The Company's Alcore subsidiary produces aluminum
honeycomb at this plant.
Item 3. LEGAL PROCEEDINGS
A Demand for Arbitration was brought before the American Arbitration
Association (the "Association"), 111 Founders Plaza, East Hartford, CT.
06108, by a former employee, Dr. Andrew Bobkowicz (the "Claimant"),
under the terms of an employment agreement dated November 20, 1990 between the
Claimant and Norfield Corporation ("Norfield"). A hearing was held on
May 16 and 17, 1995 before an arbitrator selected by the Association. On August
2, 1995, the Arbitrator awarded Dr. Bobkowicz $85,516.00 plus costs and found
the Company and Norfield jointly and severally liable thereof. On September 1,
1995, the Company filed a Motion to Vacate Arbitration Award in the Superior
Court, Judicial District of Danbury, Connecticut. A hearing was held on the
Motion on November 16, 1995. Post hearing briefs were filed and the Court has
yet to render its decision. On October 11, 1995, the Company put Norfield on
notice of its claim for indemnification under the terms of the Stock Purchase
Agreement between the Company and Edwin F. Phelps, Jr. dated March 10, 1994,
against Edwin F. Phelps, Jr. and Norfield. Although the ultimate outcome of this
matter remains uncertain the Company intends to vigorously defend this suit.
<PAGE>
In June 1995, the Company was served with a complaint filed in U.S. District
Court (Connecticut District) by Diana Pisani Romaniello ("Romaniello"),
individually, and on behalf of the United States Government. Norfield
Corporation ("Norfield"), formerly a wholly owned subsidiary of the
Company, was also named as a defendant in the suit. This action was brought
under the False Claims Act (the "Act") alleging that Norfield had
falsified records in order to receive payments under a sub-contract with a prime
contractor for the construction of radar reflector equipment for the U.S.
Department of Defense. The falsification of records is allegedly to have taken
place in the last half of 1991 and the first half of 1992.
The complaint alleges that among other claims, the defendant Norfield
terminated Romaniello to silence her objection to the falsification of records.
The Company had acquired ownership of Norfield several days prior to the
termination of Romaniello and had previously sub-contracted work to Norfield for
the radar equipment for the U.S. Department of Defense. This association with
Norfield caused Romaniello to name the Company in the suit.
The plaintiff is seeking: (a) Punitive damages equal two times
Romaniello's back pay; (b) Damages equal to three times the damages the U.S.
Government has sustained; (c) A civil penalty of $5 to $10 Thousand for each
violation of the Act; (d) Between 15 and 30 percent of the damages and fines
assessed against the defendants be awarded to Romaniello. The U.S. Government
has decided not to directly prosecute this case, as is its right under the
statute, however, it remains a named plaintiff in the suit and would benefit
from any recovery.
On July 26, 1995, the Court entered a default against the Company. The
Company moved to set aside the default, which was objected to by the individual
Plaintiff. The Plaintiff subsequently filed a Motion for Judgment. Thereafter,
the Court granted the Company's Motion, set aside the default and by
inference, the subsequent Motion for Judgement. The Company has answered the
complaint and filed its cross-claims. The case is presently in the discovery
stage. The Company has responded to written interrogatories submitted by the
individual Plaintiff. The Company believes that the Plaintiff's claim is
without merit, and although the ultimate outcome of this matter remains
uncertain, the Company intends to vigorously defend this suit.
<PAGE>
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Bid Price ($)
-----------------
High Low
---- ---
1995
First Quarter .8125 .50
Second Quarter .625 .375
Third Quarter 1.75 .375
Fourth Quarter 1.4375 .625
1994
First Quarter 1.50 1.25
Second Quarter 1.25 .50
Third Quarter .6875 .5625
Fourth Quarter .6875 .375
The quarterly high and low bid quotations listed above were as quoted by
NASDAQ. The quotations reflect inter-dealer prices, without retail mark-up or
commission and may not represent actual transactions. The Company's common
stock trades on the NASDAQ SmallCap Market.
The number of record holders of the Company's common shares as of April
10, 1996 was 1,083.
The Company has never paid dividends on its common stock and is not expected
to do so in the foreseeable future. Payment of dividends is restricted by the
Company's bank financing agreement.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
During the fiscal year of 1995, management continued its program to turn the
Company around, and focus on profitability in each of the core businesses
(composite/bonded structures and assemblies and honeycomb manufacturing), and
set the stage for future growth based on improving the Company's backlog,
expanding its customer base and adding new technology. Additionally, management
concentrated extensively on improving cash flow from operations, and resolving
the issue of increased credit line availability from its bank or alternatively
taking the necessary action to establish an entirely new credit facility.
Management also focused on quickly integrating the Limco metal bonded assemblies
business together with the composite structures business transferred from
Wyandanch, New York to insure a smooth ramp-up of production during the first
half of 1995.
<PAGE>
Overall financial results for 1995 were materially improved over 1994, in
spite of a decline in net sales in 1995 to $14.7 Million, down $500 Thousand or
3% from 1994's level of $15.2 Million. The decline in net sales during 1995 was
due entirely to reduced military composite structure sales and the close down of
the Company's Newtown, Connecticut facility. Composite sales in 1995 were
$2.7 Million, down $4.1 Million or 60% compared to $6.8 Million during 1994.
These declines were partially offset by a $1.8 Million increase in honeycomb
product sales, and the addition of approximately $1.8 Million in metal bonded
assembly sales in the Company's Glen Cove, New York facility. Honeycomb
sales during 1995 were $10.2 Million, up $1.8 Million or 21% from 1994's level
of $8.4 million. This increase reflects a continuing recovery of the aerospace
and commercial aircraft market as well as continued development of non-aerospace
business in transportation, construction and industrial applications. There were
no comparable metal bonded sales during 1994.
The backlog of customer orders as of December 31, 1995 increased to $13.6
Million, a 64% gain compared to $8.3 Million as of December 31, 1994. The
increase in backlog was distributed uniformly across all segments of the Company
and resulted from increased orders for honeycomb products for aircraft and
aerospace, construction and transportation applications; increased orders for
metal bonded products for aircraft and aerospace applications; and increased
orders for composite structures for military fuel tank, radar and submarine
applications. Subsequent to December 31, 1995, the backlog has continued to
increase to $15.7 Million as of March 31, 1996, with significant new orders for
Nomex(Registered) as well as PAA-Core aluminum honeycomb products.
Consolidated gross profit for 1995 improved 102% to $2.9 Million compared to
$1.5 Million for 1994, with corresponding improvement in gross margin to 20% of
sales in 1995 compared to 9% of sales during 1994. The overall improvement was
due to higher contribution margins obtained from the mix of products sold and
lower factory overhead costs in both the honeycomb and composite/bonding
business segments.
Selling, general and administration expenses for the year ended December 31,
1995 were reduced $921 Thousand to $2.4 Million (16% of sales) compared to $3.3
Million (22% of sales) in 1994. This 28% decrease in SG&A expenses was
principally due to elimination of duplicate composite facilities and reduction
of personnel.
Amortization expense for the year ended December 31, 1995 increased to $61
Thousand compared to $10 Thousand during 1994 due to the good will and
intangible asset acquisition of the metal bonding business of Limco
Manufacturing.
Consolidated operating income in 1995 was $522 Thousand, an increase of
approximately $2.4 Million compared to a loss of approximately $1.9 Million
during 1994. Improved gross profit and reduced SG&A expenses contributed to the
improved operating income.
<PAGE>
Interest expense for 1995 was $414 Thousand, an increase of $59 Thousand
over 1994 interest expense of $355 Thousand. The increase resulted from new debt
incurred for the acquisition of the Limco Manufacturing metal bonding business
in January, 1995, as well as a $300 Thousand bridge loan in September, 1995 to
provide interim working capital prior to completing the Company's new credit
facility.
Consolidated net income for the year ended December 31, 1995 was $1.1
Million, or $.14 per share compared to a net loss of $2.9 Million, or $.43 per
share for the prior year. Included in the consolidated net income was an
extraordinary gain of $796 Thousand (net of income tax effect of $37,700)
related to debt extinguishment with Fleet Bank as part of the Company's
action to establish a new credit facility December 28, 1995. [See "Liquidity
and Capital Resources"].
The Company enters 1996 in substantially improved financial and operating
condition with sufficient capital resources and excellent prospects to meet its
business goals and complete the final stages of its turn-around program. Backlog
of new orders, totaling $15.7 million as of March 31, 1996, continues to grow
and the Company is expanding and enhancing production capabilities, quality and
process control systems and SG&A support to meet budget projections for 1996.
The Company anticipates increased sales revenues in each of its business
segments during 1996 and anticipates continued profitability on a consolidated
basis. A number of programs and projects are underway to enhance the
Company's ability to increase its participation in aircraft and aerospace
applications, and to add to its metal bonding and composite capabilities. It is
expected that this will be accomplished by securing FAA composite development of
new honeycomb core products based on the Company's PAA technology,
completing development and beginning full scale toll processing of hydrophilic
aluminum foils for air conditioning and heat exchanger applications, and working
to expand joint development and marketing relationships with a major
international company. [See "Forward Looking Statements - Cautionary
Factors"]
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided from operations during 1995 was $103 Thousand compared to
$989 Thousand provided in 1994. Net cash provided from operations in 1995 was
comprised of $1.1 Million net income plus $300 Thousand in non-cash items,
offset by $1.3 Million in changes in assets and liabilities related to increased
accounts receivable, accounts payable and inventory valuations. Net cash
provided from operations in 1994 was comprised of $2.9 Million loss offset by
gains for non-cash items of approximately $2.1 Million and $1.8 Million in
changes in assets and liabilities. The year 1994 benefited from the collection
of $1.2 Million in insurance proceeds receivable.
<PAGE>
Net cash used in investing activities during 1995 was $1.0 Million, with
$685 Thousand utilized for the purchase of machinery and equipment and leasehold
improvements at the Company's Glen Cove, New York and Maryland facilities.
Additionally, $359 Thousand net cash was paid for the acquisition of Limco metal
bonding assets less liabilities issued.
Net cash provided by financing activities was $1.1 Million comprised of $3.2
Million in new debt financing and the use of $2.1 Million proceeds to repay
Fleet Bank.
On September 8, 1995 the Company obtained $300 Thousand bridge financing to
provide interim working capital until the Company was able to refinance its
primary credit facility. The term of the bridge financing was three months,
September 8, 1995 through December 7, 1995, with an initial interest rate of 2%
per month (increased to 4% in default if not repaid by December 7, 1995). The
bridge lenders received a security interest in all of the Company's assets
subordinate to Fleet Bank. Additionally, the bridge lenders received a warrant
to purchase a total of 135,000 shares of the Company's common stock at $.50
per share for a term of five years.
During December 1995 the Company entered into a new two year $3.5 Million
credit facility with Gibraltar Corporation to replace the Company's present
line of credit with Fleet Bank. The new facility consists of a $2.75 Million
revolving line of credit and a $750 Thousand term loan. The revolving line of
credit bears interest at a rate of prime plus 2%, is subject to borrowing base
calculations set forth in the credit facility agreement and is collateralized by
substantially of the Company's inventory and accounts receivable assets. The
term loan bears interest at a rate of prime plus 2%, is amortized over
thirty-six months commending February 1, 1996, and is collateralized by
substantially all of the Company's fixed assets. The amortization schedule
requires six monthly payments of $30 Thousand, six monthly payments of $25
Thousand, twelve monthly payments of $23 Thousand, eleven monthly payments of
$12 Thousand and a final monthly payment of the balance due.
The availability of credit as of December 31, 1995 based on borrowing base
calculations was $835 Thousand. The Company is in full compliance with all
credit facility covenants.
Simultaneous with the Company obtaining the new credit facility in December
1995, the Company entered into an agreement with Fleet Bank to repay the $3.189
Million loan balance by making a one-time payment of $1.961 Million, issuing of
a warrant valid for ten years to purchase 500,000 shares of the Company's
common stock and a payment of $300 Thousand in March 1996.
Approximately $154 Thousand of the $200 Thousand balance of the bridge loan
was repaid in March 1996, with approximately $46,000 converted to equity.
<PAGE>
The Company believes it has sufficient capital resources to operate
successfully over the next twelve months. The Company's operating plan for
1996 calls for capital improvements and enhancements to equipment and facilities
located in New York and Maryland to support increased production, provide
environmental process control and continue to meet environmental compliance
requirements. The Company believes that operating cash flow and depreciation
will be sufficient to support its capital needs. However, should circumstances
arise effecting cash flow or require additional capital expenditures beyond
those anticipated by the Company, there can be no assurance that such funds will
be available. [See "Forward Looking Statements - Cautionary Factors"]
FORWARD LOOKING STATEMENTS - CAUTIONARY FACTORS
Except for the historical information and statements contained in this
Report, the matters and items set forth in this Report are forward looking
statements that involve uncertainties and risks some of which are discussed at
appropriate points in the Report and are also summarized as follows:
1. The U.S. Government is a significant customer of the Company representing
12.1 percent of its revenue. With the continuing pressure to reduce government
spending, in addition to the world-wide political climate creating an
environment of less visible military threats to the United States, the
de-emphasis in military spending is expected to continue. This could potentially
have a material adverse effect on future projects upon which the Company's
backlog is based, and upon programs the Company is pursuing.
2. Continued consolidation of major aerospace companies could result in program
cancellations as well as increased demand for price concessions. This together
with increased competition for available business could translate into downward
pressure on gross margins with resulting lower overall profit margins.
3. Vendor prices for production materials such as aluminum foil, resins, liquid
and film adhesives, reinforcing fiber materials and other materials and supplies
could increase as demand for aircraft parts and assemblies increase to match
higher build rates for commercial aircraft. Higher material prices and demand
for lower aircraft part and assembly prices could place increasing pressure on
the Company's operating margins and net income.
THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.
Item 7. FINANCIAL STATEMENTS
The Company's financial statements and schedules appear at the end of this
Report after Item 13.
THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.
<PAGE>
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act.
Name and Five Year Business Experience Age
- -------------------------------------- ---
Alan W. Baldwin 59
Chairman of the Board and Chief Executive Officer of the Corporation since March
1994. Vice President of the Corporation from December 1993 to March 1994.
Independent consultant, January 1990 to March 1994. President and CEO of Hytek
Microsystems, a manufacturer of hybrid electronic circuits, from September 1989
to December 1990. Mr. Baldwin was originally elected a director in 1993.
Warren H. Haber 55
For more than 20 years, Chairman of the Board and Chief Executive Officer of
Founders Equity, Inc., Founders Management Services, Inc., and affiliates
(collectively, "Founders") all private investment concerns engaged in
identifying businesses for acquisition by companies in which the principal
stockholders of Founders have a substantial equity interest and managing such
businesses for such principal stockholders' accounts. Since 1983, Chairman
of the Board of Batteries Batteries, Inc. Since 1993, Chairman of the Board and
Chief Executive Officer of HealthRite, Inc., a distributor and producer of
vitamins, natural nutritional and dietary supplements, herbal based products,
and weight-loss products. From 1986 through December 1992, Chairman of the Board
and Chief Executive Officer of International Power Machines. He served as a
Director until February 1995. Director of Realty Information Group, LP, a
privately held commercial real estate information provider. Mr. Haber has served
as an officer and a director of Founders Property, Inc. a private real estate
investment concern. Mr. Haber was originally elected a director of the Company
in 1994.
John F. Menzel 53
Chairman and majority shareholder of Fiberglass Industries, Inc., a
manufacturer of fiberglass products for the marine, sporting goods
and chemical tank industries from before 1989 to the present.
Mr. Menzel was originally elected a director in 1994.
Charles. W. Russell 59
President of F.C. Funding, Inc., a private investment firm, for more than five
years. Executive Vice President, COO and a Director of Fallek Chemical Group, an
international chemical marketing concern, from before 1989 to 1990. Mr. Russell
was originally elected a director in 1989.
<PAGE>
John Simon 53
Executive Vice President and Managing Director of Allen & Company,
Incorporated, for more than five years. Director of Immune Response
Corporation, Tcell Sciences, Inc., and Neurogen Corporation. Mr. Simon
was originally elected a director in 1993.
Samuel J. Dastin 65
Director of Advanced Products, Northrop-Grumman Corporation. Retired July 1995,
after thirty year career in advanced composite materials, structures and
manufacturing. Selected a Fellow by both the Society of Advanced Material
Processing Engineers (SAMPE) and the Society of Manufacturing Engineers (SME)
for his comprehensive work in advanced composites and reinforced plastics.
William R. Lewis 54
Financial consultant offering services to multiple corporate clients since
1994. Chief Financial Officer of Air & Water Technologies Corporation
in 1994. Chief Financial Officer of Jenny Craig, Inc. in 1994. Executive
Vice-President, Chief Financial Officer and Director of Nutri/System, Inc
from 1991-1993. Subsequent to Mr. Lewis leaving, Nutri/System, Inc.
filed for protection from creditors under Chapter 11 of the U.S. Bankruptcy
Code in 1993. Executive Vice President, chief administrative and
financial officer of Simplicity Holdings, Inc. from 1988-1991.
Lawrence Schwartz 61
Secretary of the Company since 1994. Vice President, Chief Financial
Officer, Treasurer and Assistant Secretary and Controller of the
Company, since 1990.
Edward Kiley 46
Vice President and General Manager of Alcore, Inc., a wholly owned subsidiary of
the Company, since November 1993. Vice President and General Manager of the
Company from January 1993 through October 1993. Director of Sales and Marketing
of Hexcel Corporation from April 1978 through December 1992.
Compliance with Section 16(a) of the Exchange Act
Alan W. Baldwin Untimely filing of Form 4 upon the grant of stock options in
June 1994. Filing has been made on Form 5.
Warren H. Haber Untimely filing of Form 5 for stock option grant in June 1994.
Required filing has been completed.
John F. Menzel Untimely filing of Form 5 for stock option grants in June 1994
and September 1995. Required filings have been completed.
<PAGE>
Charles. W. Russell Untimely filing of Form 5 for stock option grants in
June 1994 and September 1995. Required filings have been completed.
John Simon Untimely filing of Form 5 for stock option grants in June 1994 and
September 1995. Required filings have been completed.
Samuel J. Dastin Untimely filing of Form 5 for stock option grant in September
1995. Required filing has been completed.
Lawrence Schwartz Untimely filing of Form 4 upon the grant of stock option in
December 1994. Filing has been completed on Form 5.
Item 10. Executive Compensation
(b) Summary Compensation Table
SUMMARY COMPENSATION TABLE
Annual Compensation
-------------------
(a) (b) (c) (d)
Name
and
Principal Other
Position Year Salary($) Compensation($)
- -------- ---- --------- ---------------
Alan W. Baldwin(3) 1995 $150,000 $0
Chairman 1994 $127,257 $4,616 (1)
of the Board 1993 $0 $0
of Directors
and Chief Executive
Officer
Edward Kiley(3) 1995 $98,389 $7,500 (2)
Vice President 1994 $94,799 $0
and General 1993 $92,428 $0
Manager
- --------------------------
(1) Paid as consultant fee earned in 1993, paid in 1994 to a corporation
controlled by Mr. Baldwin.
(2) Paid in restricted stock in exchange for a 10 percent wage concession. Stock
valued at fair market value at time wage concession was implemented.
(3) No other form of compensation was paid the executive except as set forth
above.
<PAGE>
(c) Options/SAR Grants Table
No options were granted to the Executive Officers of the Company during the
fiscal year ended December 31, 1995.
(d) Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value Table
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs at
At FY-End (#) FY-End ($)
Shares Value
Acquired on Realized Exercisable/ Exercisable/
Name Exercise (#) ($) Unexercisable Unexercisable
- -----------------------------------------------------------------------------
Alan W. Baldwin None None 150,000/50,000 $51,000/$17,000
Edward Kiley None None 8,333/16,667 $3,667/$7,333
(e) Long-Term Incentive Plan Awards Table
The Company paid no long term compensation to the Executive Officers during
the fiscal year ended December 31, 1995.
(f) Compensation of Directors
Directors who are not employees of the Company earn a fee of $500 for each
meeting of the Board of Directors that is attended. Additionally, non-employee
Directors receive a grant immediately following the Company's Annual
Shareholder Meeting under the Company's 1994 Stock Incentive Plan for the
right to purchase 5,000 shares of the Company's common stock. Such grant
shall be at the fair market value of the common stock at the time of grant.
(g) Employment contracts and termination of employment and change in control
arrangements.
In November, 1994, the Company entered into an employment contract
commencing on March 14, 1994 with Alan W. Baldwin to serve as Chairman of the
Board and Chief Executive Officer of the Company, for an initial term of one
year, with automatic renewals for additional one year terms, at an annual salary
of $150,000.
<PAGE>
The contract provides for increases on an annual basis upon review by the
Board of Directors or the Compensation Committee. Additionally, an incentive
compensation program will be implemented on an annual basis by the Board of
Directors. The Company will provide Mr. Baldwin the normal employee benefits
provided to other employees, in addition to a company car. Additionally, the
Company is obligated to pay Mr. Baldwin a one time relocation expense of
$70,000. The contract provides for a grant to Mr. Baldwin of a non-statutory
stock option for 200,000 shares exercisable at $.60 per share.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
(a) Security ownership of certain beneficial owners.
- ----------------------------------------------------------------------------
(1) (2) (3) (4)
Title of Class Name and Amount and Percent of Class(1)
Address Nature of
Beneficial Beneficial
Owner Owner
- ----------------------------------------------------------------------------
Common Stock S. Daniel Abraham 900,000 6.77
777 South Flagler
Boulevard
West Tower
West Palm Beach,
FL. 33401
Common Stock Allen & Company 900,000(3) 6.77
711 Fifth Avenue
New York,
New York 10022
Common Stock Grange Nominees 760,000 5.72
Limited
P.O. Box 116
Commerce House
Les Banques
St Peter Port,
Guernsey
GWY1 3EZ
Common Stock Cooke & Cie, S.A. 1,612,000 12.13
7 Rue des Alps
Geneva 1, Switzerland
Common Stock Karin Lamotte 707,500(2) 5.32
16 Victoria Road
London W85RG England
<PAGE>
(1) Percentage is based upon a 13,294,355 shares as of April 11, 1996, comprised
of outstanding shares, options and warrants that are exercisable within
sixty days of this date, totaling 11,309,359, 265,833, and 1,719,163 shares,
respectively.
(2) Does not include warrants, expiring January 1997, to acquire 165,137 shares
of common stock for $.40 per share owned by Mrs. Lamotte's husband, in
which Mrs.
Lamotte disclaims any beneficial interest.
(3) Does not include beneficial ownership of John Simon who is a Managing
Director of Allen & Co., Inc.("Allen"). Allen disclaims beneficial
ownership of Mr. Simon's shares.
(b) Security ownership of management.
- ---------------------------------------------------------------------
(1) (2) (3) (4)
Title of Class Name and Amount and Percent of Class(8)
Address Nature of
Beneficial Beneficial
Owner Owner
- ----------------------------------------------------------------------------
Common Stock Alan W. Baldwin 202,500(1) 1.52
c/o Lunn Industries
1 Garvies Point Road
Glen Cove, NY. 11542
Common Stock Warren Haber 90,000(2)(3) .68
c/o Founders Equity
200 Madison Avenue
New York, NY. 10016
Common Stock John F. Menzel 10,000(2)(3) .08
c/o Fiber Glass
Industries, Inc.
RD #5 Edison Street
Amsterdam, NY. 12010
Common Stock Charles W. Russell 170,077(2)(3)(4)(5) 1.28
c/o F.C. Funding
770 Lexington Avenue
New York, NY. 10021
Common Stock John Simon 10,000(2)(3)(7) .08
c/o Allen & Co.
711 Fifth Avenue
New York, NY. 10022
<PAGE>
Common Stock Samuel Dastin 5,000(3) .04
c/o Dastin Associates
Company, Inc.
62 Wellesley Lane
Hicksville, NY. 11801
Common Stock William R. Lewis 5,000(3) .04
636 Black Rock Road
Bryn Mawr, PA. 19010
Common Stock Edward Kiley 27,833(6) .21
c/o Alcore, Inc.
1324 Brass Mill Road
Belcamp, MD. 21017
Common Stock Directors and 520,410 3.91
Executive Officers
as a group
(8 persons)
- ----------------------------
(1) Includes option to purchase 150,000 shares at $.60 which expires on June 9,
2004.
(2) Includes options to purchase 5,000 shares at $.625 which expires on June 8,
2004.
(3) Includes options to purchase 5,000 shares at $.1.50 which expires on
September 28, 2005.
(4) Includes warrants to purchase 10,000 shares at $1.50 which expires on June
16, 1999.
(5) Includes warrants to purchase 10,000 shares at $4.37 which expires on May
13, 2003.
(6) Includes options to purchase 8,333 shares at $.50 which expires on December
21, 1999.
(7) Does not include beneficial ownership of Allen, where John Simon is a
Managing Director. Allen disclaims beneficial ownership of Mr. Simon's
ownership.
(8) Percentage is based upon a 13,294,355 shares as of April 11, 1996, comprised
of outstanding shares, options and warrants that are exercisable within
sixty days of this date, totaling 11,309,359, 265,833, and 1,718,363 shares,
respectively.
<PAGE>
Item 12. Certain Relationships and Related Transactions.
(a) Alan W. Baldwin.
In November, 1994, the Company entered into an employment contract
commencing on March 14, 1994 with Alan W. Baldwin to serve as Chairman of the
Board and Chief Executive Officer of the Company, for an initial term of one
year, with automatic renewals for additional one year terms, at an annual salary
of $150,000.
The contract provides for increases on an annual basis upon review by the
Board of Directors or the Compensation Committee. Additionally, an incentive
compensation program will be implemented on an annual basis by the Board of
Directors. The Company will provide Mr. Baldwin the normal employee benefits
provided to other employees, in addition to a company car. Additionally, the
Company is obligated to pay Mr. Baldwin a one time relocation expense of
$70,000. The Company has granted Mr. Baldwin a non-statutory stock option for
200,000 shares exercisable at $.60 per share.
(b) Cook & Cie, S.A..
The Company borrowed $360,000 from Cook & Cie, S.A. payable in January, 1997
plus interest at 10% per annum payable in common stock.
(c) Private Placement
On March 21, 1996, the Company sold 3.5 million shares of common stock at
$.40 per share in a private placement, under Regulation D of the regulations
promulgated under the Securities Exchange Act of 1934 (the "Exchange
Act"). The following beneficial owners listed in Item 11 purchased shares in
the private placement:
S. Daniel Abraham 900,000 shares
Allen & Company, Inc. 900,000
Cook & Cie, S.A. 840,000
Grange Nominees Limited 460,000
John Simon, Director of the Company, is a Managing Director of Allen &
Company, Inc.
<PAGE>
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit
- -------
3.1 Certificate of Incorporation - incorporated by reference to the
Registrant's Form 10-K for the year ending December 31, 1992
3.2 By-Laws - incorporated by reference to the Registrant's Form 10-K
for the year ending December 31, 1991
10.1 Lease covering the Newtown, Connecticut Plant - incorporated by reference
to the Registrant's Form 10-K for the year ending December 31, 1992
10.2 Lease covering the Danbury, Connecticut Plant - incorporated by
reference to the Registrant's Form 10-K for the year ending
December 31, 1992
10.3 Lease covering the Jessup, Maryland Plant - incorporated by reference
to the Registrant's Form 10-K for the year ending December 31, 1992
10.4 Stock Purchase Agreement for the sale of Norfield Corporation to
Edwin F. Phelps, Jr. dated March 10, 1994 - incorporated by
reference to the Registrant's Report on Form 8-K dated March 10, 1994
10.5 Technology Royalty Agreement between the Company and Norfield
Corporation dated March 10, 1994 - incorporated by reference to
the Registrant's Report on Form 8-K dated March 10, 1994
10.6 Employment Resignation Agreement between the Company and Edwin F. Phelps,
Jr. dated March 10, 1994 - incorporated by reference to the
Registrant's Report on Form 8-K dated March 10, 1994
10.7 Forbearance Agreement between the Company and Shawmut Bank Connecticut,
N.A. dated March 11, 1994 - incorporated by reference to the
Registrant's Report on Form 8-K dated March 10, 1994
10.8 Commitment letter between the Company and J.E. Sheehan & Company, Inc.
dated March 16, 1994 - incorporated by reference to the Registrant's
Report on Form 8-K dated March 10, 1994
10.9 Form of Subscription Agreement pertaining to the issuance of 2,400,000
shares at $.60 per share dated March 31, 1994, incorporated by reference
to the Registrant's report on Form 10-Q/A Amendment 1, for the period
ended March 31, 1994.
10.10 Grant of Warrant for the purchase of 192,000 shares of the common stock
of the Registrant at $.70 per share to J.E. Sheehan & Company, Inc.
Dated March 31, 1994, incorporated by reference to the Registrant's
report on Form 10-Q/A Amendment 1, for the period ended March 31, 1994.
<PAGE>
10.11 Asset Purchase Agreement between Lunn Industries, Inc., Limco
Manufacturing Corporation and Alcore, Inc. Dated December 12, 1994.
10.12 Promissory Note dated January 16, 1995 Payable to the order of Limco
Manufacturing Corporation in the amount of $608,762.
10.13 Promissory Note dated January 17, 1995 payable to the order of Limco
Manufacturing Corporation in the amount of $96,238.
10.14 Guaranty Agreement dated January 17, 1995 between Alcore, Inc. And
Limco Manufacturing Corporation.
10.15 Subordination Agreement dated January 17, 995 by and among TAT
Technologies, Ltd., Limco Manufacturing Corporation and Lunn Industries,
Inc.
10.16 Assignment and Assumption of Obligations Agreement dated January 17,
1995 between Limco Manufacturing Corporation and Lunn Industries, Inc.
10.17 Amendment dated January 17, 1995 to the Asset Purchase Agreement by and
among Lunn Industries, Inc., Limco Manufacturing Corporation and Alcore,
Inc. dated December 12, 1994
10.18 Loan Agreement dated January 17, 1995 between Lunn Industries, Inc.
and Cook and Cie, S.A.
10.19 Promissory note dated January 17, 1995 payable to the order of Cook &
Cie, S.A. in the amount of $360,000.
10.20 Promissory note dated January 17, 1995 payable to the order of J.E.
Sheehan & Company, Inc. in the Amount of $100,000.
10.21 Letter dated January 10, 1995 subordinating the Commercial Revolving Loan,
Term Loan and Security Agreement dated May 21, 1993 with Shawmut Bank,
Connecticut, N.A. to the $100,000 promissory note payable to the order of
J.E. Sheehan & Company dated January 17, 1995.
10.22 Lease for the Company's headquarters located in Glen Cove, New York
dated January 1, 1995 between Grill Leasing Corp. and Lunn Industries,
Inc.
10.23 Moratorium Agreement dated February 24, 1995 between Grill Leasing
Corp. and Lunn Industries, Inc.
10.24 Agreement effective July 19, 1995, between the Company and J.E. Sheehan
& Company extending the maturity date of note held by J.E. Sheehan &
Company.
13.1 Form 10-QSB for the period ended March 31, 1995, previously filed with
the Commission, is herein incorporated by reference.
<PAGE>
13.2 Form 10-QSB for the period ended June 30, 1995, previously filed with
the Commission, is herein incorporated by reference.
13.3 Form 10-QSB for the period ended September 30, 1995, previously filed
with the Commission, is herein incorporated by reference.
21 List of Registrant's subsidiaries previously filed with the Commission in
the Annual Report on Form 10-K/A Amendment 1 for the fiscal year ended
December 31, 1993, is herein incorporated by reference
(b) Reports on Form 8-K.
None
<PAGE>
Lunn Industries, Inc. and Subsidiary
Index to Financial Statements
Page(s)
Report of Independent Accountants F-1
Consolidated Financial Statements:
Balance Sheet as of December 31, 1995 F-2
Statements of Operations for the years ended
December 31, 1995 and 1994 F-3
Statements of Stockholders' Equity for the years
ended December 31, 1995 and 1994 F-4
Statements of Cash Flows for the years ended
December 31, 1995 and 1994 F-5 - F-6
Notes to Consolidated Financial Statements F-7 - F-16
Report of Independent Accountants
To the Stockholders and Board of Directors of Lunn Industries, Inc.:
We have audited the accompanying consolidated balance sheet of
Lunn Industries, Inc. and Subsidiary (the "Company") as of December 31, 1995,
and the related consolidated statements of operations, stockholders' equity
and cash flows for each of the two years in the period ended December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Lunn
Industries, Inc. and Subsidiary as of December 31, 1995, and the results of
their operations and their cash flows for each of the two years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand LLP.
Melville, New York
April 4, 1996.
<PAGE>
Lunn Industries, Inc. and Subsidiary
Consolidated Balance Sheet
December 31, 1995
ASSETS: 1995
Current assets:
Cash $ 206,075
Accounts receivable - trade, net of allowance
for doubtful accounts of $125,000 2,265,421
Inventories 4,105,941
Prepaid expenses and other current assets 307,370
-----------
Total current assets 6,884,807
Property and equipment, net of accumulated
depreciation of $3,620,003 7,486,474
Other assets 629,399
-----------
Total assets $15,000,680
===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current portion of long-term debt $ 1,090,067
Accounts payable - trade 1,629,370
Accrued expenses 688,938
Obligation under capital lease 3,909
-----------
Total current liabilities 3,412,284
Long-term debt 2,998,087
Obligation under capital lease 9,471
-----------
Total liabilities 6,419,842
-----------
Commitments and contingencies (Note 12)
Stockholders' equity:
Common stock; par value $.01 per share;
authorized 20,000,000 shares; issued and
outstanding 7,527,333 shares 75,273
Additional paid-in capital 12,486,834
Accumulated deficit (3,980,932)
Treasury stock, at cost; 150 shares (337)
-----------
Total stockholders' equity 8,580,838
-----------
Total liabilities and stockholders' equity $15,000,680
===========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
Lunn Industries, Inc. and Subsidiary
Consolidated Statements of Operations
for the years ended December 31, 1995 and 1994
1995 1994
Net sales $14,720,718 $15,209,072
Cost of sales 11,821,324 13,774,459
----------- -----------
Gross profit 2,899,394 1,434,613
Selling, general and administrative expenses 2,377,365 3,298,148
----------- -----------
Operating income (loss) 522,029 (1,863,535)
----------- -----------
Other income (expense):
Interest expense (413,515) (354,555)
Loss on insurance claim -- (141,069)
Gain on sale of building -- 260,750
Other income (expense) 162,931 (183,574)
----------- -----------
(250,584) (418,448)
----------- -----------
Income (loss) from continuing operations
before income taxes and extraordinary item 271,445 (2,281,983)
Provision for income taxes 12,300 594,595
----------- -----------
Income (loss) from continuing operations 259,145 (2,876,578)
Discontinued operations - gain on disposal,
net of income tax provision of $12,538 -- 18,335
----------- -----------
Income (loss) before extraordinary item 259,145 (2,858,243)
Extraordinary item:
Gain on extinguishment of debt, net of
income tax effect of $37,700 796,165 --
----------- -----------
Net income (loss) $ 1,055,310 $(2,858,243)
=========== ===========
Income (loss) per share:
Before extraordinary item $ .03 (.43)
Extraordinary item .11 --
---------- -----------
Net income (loss) per share $ .14 $ (.43)
========== ===========
Weighted average number of common shares
outstanding 7,588,747 6,657,927
========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
Lunn Industries, Inc. and Subsidiary
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
Common Stock
-------------------- Additional
Number Paid-in Accumulated Treasury
of Shares Amount Capital Deficit Stock Total
--------- ------ ---------- ----------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 4,657,927 $46,579 $10,797,255 $(2,177,999) $(337) $ 8,665,498
Sale of common stock 2,400,000 24,000 1,264,664 -- -- 1,288,664
Net loss -- -- -- (2,858,243) -- (2,858,243)
--------- ------- ----------- ----------- ----- -----------
Balance at December 31, 1994 7,057,927 70,579 12,061,919 (5,036,242) (337) 7,095,919
Issuance of stock to employees 203,406 2,034 154,589 -- -- 156,623
Expenses paid through the issuance of stock 266,000 2,660 117,326 -- -- 119,986
Warrants issued in connection with debt
extinguishment (Note 6) -- -- 153,000 -- -- 153,000
Net income -- -- 1,055,310 -- 1,055,310
--------- ------- ----------- ----------- ----- -----------
Balance at December 31, 1995 7,527,333 $75,273 $12,486,834 $(3,980,932) $(337) $ 8,580,838
========= ======= =========== ============ ====== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
Lunn Industries, Inc. and Subsidiary
Consolidated Statements of Cash Flows
for the years ended December 31, 1995 and 1994
1995 1994
Cash flows from operating activities:
Net income (loss) $ 1,055,310 $(2,858,243)
Adjustments to reconcile net loss to cash
provided by (used in) operating activities:
Gain on extinguishment of debt (796,165) --
Depreciation and amortization 928,852 1,107,398
Deferred tax asset -- 604,629
Allowance for doubtful accounts (9,335) 77,450
Amortization of deferred gain on sale of
building -- (260,750)
Loss on insurance settlement -- 141,069
Unrealized loss on investment -- 126,100
Realized loss on investment -- 148,639
Inventory valuation allowance (99,987) 140,205
Issuance of stock to employees 156,623 --
Expenses paid through the issuance of stock 119,986 --
Other, principally discontinued operations -- (30,873)
Changes in assets and liabilities:
Accounts receivable - trade (753,551) 769,184
Inventories (711,781) 372,710
Prepaid expenses and other current assets 109,174 17,822
Insurance proceeds receivable -- 1,191,063
Security deposits and other assets (117,895) 189,703
Accounts payable - trade 426,617 (947,377)
Accrued liabilities (204,540) 377,666
Advances from customers -- (176,926)
----------- -----------
Net cash provided by operating activities 103,308 989,469
----------- -----------
Cash flows from investing activities:
Proceeds from termination of officers'
life insurance -- 69,316
Purchase of property and equipment (685,514) (872,927)
Proceeds from disposal of property and equipment -- 135,372
Purchase of assets from the Limco acquisition (358,861) --
----------- -----------
Net cash used in investing activities (1,044,375) (668,239)
----------- -----------
<PAGE>
Cash flows from financing activities:
Bank overdraft (27,745) 27,745
Repayment of related party payable -- (540,687)
Repayment of debt (2,160,245) (1,091,489)
Proceeds from sale of common stock -- 1,288,664
Proceeds from issuance of notes payable 3,321,752 --
Payments on capital lease obligations 13,380 (9,369)
----------- -----------
Net cash provided by (used in)
financing activities 1,147,142 (325,136)
----------- -----------
Net increase (decrease) in cash and
cash equivalents 206,075 (3,906)
Cash and cash equivalents, beginning of year -- 3,906
----------- -----------
Cash and cash equivalents, end of year $ 206,075 $ --
=========== ===========
Cash paid for:
Interest $ 474,830 $ 316,809
Non cash investing and financing activities:
Reduction of property and equipment held for sale -- 126,000
Cancellation of notes payable in connection with
the sale of a subsidiary -- 561,000
Issuance of warrants in connection with debt
extinguishment 153,000 --
Acquisitions:
Assets acquired 1,063,861 --
Notes payable 705,000 --
---------- -----------
Net cash paid for acquisitions $ 358,861 --
========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
Lunn Industries, Inc. and Subsidiary
Notes to Consolidated Financial Statements
1. Business as Basis of Presentation:
The Company manufactures a variety of composite products made of
metal, metal core, fiber and reinforced plastic, assembled into
complex structures to meet customer requirements. The Company also
produces honeycomb cores, some of which are used in its other
products. The Company's products are sold principally to commercial
customers, both domestic and international, and to agencies of the
U.S. government. Military business represented 29% and 45% of net
sales during 1995 and 1994, respectively.
2. Summary of Significant Accounting Policies:
Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, Alcore, Inc. and exclude
Norfield Corporation which has been accounted for as a discontinued
operation for fiscal 1994. All material intercompany balances and
transactions have been eliminated.
Cash and cash equivalents
The Company considers all liquid investments with an original
maturity of three months or less when purchased to be cash and cash
equivalents.
Inventories
Inventories of raw materials and finished goods are stated at the
lower of cost, determined by the first-in, first-out method, or
market. Inventories of work-in-process, substantially all of which
relate to short-term contracts, are stated at the actual production
cost, reduced by amounts relating to revenue recognized on units
delivered.
Property and equipment
Property and equipment are stated at cost. Expenditures for
maintenance and repairs are charged to operations as incurred.
Expenditures for betterments and major renewals are capitalized.
The cost of assets sold or retired and the related amounts of
accumulated depreciation are eliminated from the accounts in the
year of disposal, with any resulting profit or loss included in
income.
Depreciation and amortization of assets are provided using the
straight-line method over the estimated useful life of the asset.
<PAGE>
Notes to Consolidated Financial Statements, Continued
Net income (loss) per share of common stock
Net income (loss) per share of common stock is based on the weighted average
number of common shares outstanding during each period. Common stock
equivalents of 203,225 resulting from the effects of options and warrants
have been included in the calculation of weighted average shares outstanding
in 1995. Common stock equivalents have been excluded in 1994 from the
computation of net loss per share of common stock since the result would be
anti-dilutive.
Income taxes
The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized.
Reclassification
Certain 1994 amounts have been reclassified to conform to the 1995
presentation.
Intangible assets
Goodwill represents the excess of purchase price over the fair value of
identifiable net assets of companies acquired. Goodwill and other
intangibles are amortized on a straight-line basis over appropriate periods
not exceeding 25 years.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company's management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue and expenses
during the reporting period. The most significant estimates made are for
the recoverability of property and equipment, intangibles and accounts
receivable. Actual results could differ from those estimates.
<PAGE>
Prospective accounting change
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." Adoption of the new standard is required for
fiscal years beginning after December 15, 1995. Management estimates that
the new accounting principle will not have a material impact on the
Company's financial position or results of operations.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation," which establishes financial
accounting and reporting standards for stock based plans. The Statement,
which becomes effective in 1996, requires the Company to choose between
accounting for issuance of stock and other equity instruments to employees
based on their fair value or disclosing the pro forma effects such
accounting would have had on the Company's net income and earnings per
share. The Company has begun to gather the
Notes to Consolidated Financial Statements, Continued
documentation necessary to address the impact of this Statement, however,
it has not yet decided which method it will utilize relating to its stock
based employee plans.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of trade accounts receivable. The
Company grants credit to customers located throughout the United States.
The Company performs ongoing credit evaluations of its customers' financial
condition and generally requires no collateral from its customers. One
customer and two customers represent 12% and 25% of sales in 1995 and 1994,
respectively.
No one customer comprised more than 10% of outstanding accounts receivable
at December 31, 1995.
Financial instruments, which potentially subject the Company to
concentrations of credit risk, are primarily trade accounts receivable.
Ongoing credit evaluation of customers' financial condition are performed
and generally no collateral is required.
Cash and cash equivalent balances are held primarily at one financial
institution and may, at times, exceed insurable amounts. The Company
believes it mitigates its risks by investing in or through major financial
institutions. Recoverability of investment is dependent upon the performance
of the issuer.
<PAGE>
Fair value of financial instruments
Cash and cash equivalents, notes receivable and notes payable are reflected
in the accompanying consolidated balance sheets at amounts considered by
management to reasonably approximate fair value. The fair value of
long-term debt approximates recorded amounts as similar borrowings have been
offered to the Company at comparable rates and maturities.
3. Acquisitions:
On January 17, 1995, the Company purchased certain assets from the Limco
Aluminum Bonding Company for $358,861 in cash and notes payable of $705,000,
due in 48 equal monthly payments with interest at prime rate. Assets
acquired consisted of inventory ($75,000), machinery and equipment
($517,000), goodwill ($221,861), trademarks ($100,000) and covenant not to
compete ($150,000).
4. Inventories
Components of inventories are summarized as follows:
Raw materials $ 538,801
Work-in-process 2,469,267
Finished goods 1,097,873
-------------
$ 4,105,941
=============
Notes to Consolidated Financial Statements, Continued
5. Property and Equipment:
Property and equipment are summarized as follows:
Life
Machinery and equipment 5-10 years $ 10,236,768
Furniture and fixtures 5-10 years 538,072
Leasehold improvements 4-6 years 331,637
------------
11,106,477
Less, accumulated depreciation 3,620,003
------------
$ 7,486,474
============
<PAGE>
6. Long-Term Debt:
At December 31, 1995, long-term debt consists of:
Revolving line of credit, collateralized
by accounts receivable and inventory. Interest
is payable at 2% above the lender's base rate
(8.5% at December 31, 1995) (a) $ 1,763,952
Term loan, collateralized by property and equipment,
payable in 36 monthly installments. Interest
is payable at 2% above the lender's base rate (a) 750,000
Note payable to bank, with interest at varying rates
through maturity (a) 300,000
Note payable, due December 10, 1995. Interest
payable at 2% per month (b) 200,000
Note payable, due January 16, 1996. Interest is payable
at 10% per annum (c) 100,000
Note payable, due January 13, 1997. Interest is payable
at 10% per annum (c) 360,000
Note payable, due January 17,1997. Interest is payable at
8.5% per annum (d) 566,140
Note payable, due June 1, 2000. Interest is payable at
10.5% per annum 48,062
------------
4,088,154
Less: current maturities 1,090,067
------------
$ 2,998,087
============
(a) During December 1995, the Company entered into a
$3,500,000 credit facility with a new lending institution. The
new facility provides for a $2,750,000 revolving loan and a
$750,000 term loan with interest at 2% over the lender's base
rate. The term loan provides for the following payment
schedule, beginning February 1, 1996: 6 monthly payments of
$30,000, 6 monthly payments of $25,000, 12 monthly payments of
$23,000, 11 monthly payments of $12,000, with a final payment on
February 1, 1999. The new debt is collateralized by
Notes to Consolidated Financial Statements, Continued
substantially all accounts receivable and inventory. The agreement
contains certain restrictive covenants including net worth and minimum
debt service.
<PAGE>
Concurrent with the new credit facility, the Company entered into an
agreement with its existing lending institution to repay the
outstanding debt of $3,189,000 through a payment of $1,961,000 in cash
on December 28, 1995, the payment of $300,000 cash on March 20, 1996,
and the issuance of warrants to purchase 500,000 shares of common stock
(see Note 14).
As a result of the extinguishment of debt in the fourth quarter of
1995, the Company has recognized an extraordinary gain of $796,165.
(b) On September 8, 1995, the Company obtained $300,000 bridge financing
to provide interim working capital. The term of the bridge financing
was 3 months at an initial interest rate of 2% per month, increased to
4% if not repaid by December 7, 1995. The bridge lenders received
warrants to purchase a total of 135,000 shares of the Company's common
stock at $.50 per share for a term of 5 years (see Note 14).
(c) In January 1995, the Company borrowed $360,000 and issued a note for
repayment on or before January 13, 1997 with interest at 10% to be paid
semi-annually. In addition, the Company borrowed an additional
$100,000 for interim working capital purposes. The note is due on
January 16, 1996 and bears interest at 10% per annum.
(d) In connection with the Limco acquisition, the Company issued notes
collateralized by the assets acquired. The notes are payable in 48
monthly installments and bears interest at the prevailing prime rate.
Aggregate maturities of long-term debt are as follows:
Long-term
December 31, debt
----------
1996 $ 1,090,067
1997 2,587,994
1998 342,124
1999 61,446
2000 6,523
-----------
$ 4,088,154
===========
<PAGE>
Notes to Consolidated Financial Statements, Continued
7. Capital Leases:
Future minimum payments as of December 31, 1995, under capital leases for
equipment, are as follows:
1996 $ 4,655
1997 4,655
1998 4,655
-------
Total minimum lease payments 13,965
Less, amount representing interest 585
-------
Present value of minimum lease payments, including $3,909
currently payable at December 31, 1995 $ 13,380
========
8. Accrued Expenses:
Accrued expenses as of December 31, 1995 consist of the following:
Compensation and related taxes $ 241,549
Professional fees 79,940
Other 317,449
---------
$ 638,938
=========
9. Income Taxes:
The provision for federal and state income taxes before the extraordinary
charge is $6,535 and $5,765, respectively.
<PAGE>
The components of deferred taxes as of December 31, 1995 are as follows (in
thousands):
Deferred tax assets:
Accounts receivable $ 52,503
Employee benefits 22,212
Inventory 37,872
Accrued expenses 36,939
Miscellaneous 6,053
Net operating loss and credit carryforwards 3,308,617
---------
Total deferred tax asset 3,464,196
---------
Deferred tax liabilities:
Property and equipment 761,682
--------
Total deferred tax liability 761,682
--------
Net deferred tax asset 2,702,514
Valuation allowance (2,702,514)
----------
$ -
===========
Notes to Consolidated Financial Statements, Continued
The change in the net deferred tax asset for the year ended December 31,
1995 was a decrease of $376,718 related primarily to depreciation and
utilization of net operating loss carryforwards.
The following is a reconciliation of the reported income tax benefit
attributable to continuing operations to the expected income tax expense
(benefit) utilizing federal statutory tax rates:
1995 1994
Expected income tax provision (benefit) $ 375,805 $ (787,000)
State income tax provision (benefit), net of
federal income tax effect 20,000 (138,916)
Valuation allowance on deferred tax assets 1,520,511
Other 52,020
Utilization of net operating loss carryforward (397,825)
----------- ----------
$ 50,000 $ 594,595
=========== ==========
The Company has net operating loss carryforwards of approximately
$7,800,000 for federal income tax purposes which may be applied against
future taxable income and which will begin to expire in 2002. At December
31, 1995, the Company has $167,927 in federal tax credits available for use
in future years which expire in 1996 through 2000.
<PAGE>
10. Pension Plans:
The Company's union employees are covered by a defined contribution
retirement plan, the cost of which was $22,597 and $22,341 in 1995 and
1994, respectively.
The Company also maintains a 401(k) savings plan for its non-union
employees. In 1994, the Company amended the plan to add a matching
requirement to employee contributions. Employees may contribute up to 4% of
their annual salary not to exceed certain amounts established by the
Internal Revenue Code. Under this plan, the Company contributes up to 1% of
the employee's contribution to the plan with respect to employees who
contribute up to 4% of annual salary to the plan. These matching
contributions aggregated $17,636 and $34,267 for the years ended December
31, 1995 and 1994, respectively.
Notes to Consolidated Financial Statements, Continued
11. Lease Arrangements:
The Company leases property in Glen Cove, New York, Jessup, Maryland, and
Belcamp, Maryland under operating leases. The Company is required under the
lease agreements to pay certain costs, including insurance and property
taxes. The Company may exercise an option to extend its Glen Cove lease
for two additional five-year terms. Future minimum rental payments are as
follows:
1996 $ 662,405
1997 670,006
1998 691,817
1999 700,711
2000 454,423
Thereafter 1,438,420
-----------
$ 4,617,782
===========
Rent expense aggregated $613,412 and $868,585 for the years ended December
31, 1995 and 1994, respectively.
12. Discontinued Operations:
Effective February 28, 1994, the Company sold all of its interest in
Norfield Corporation, a subsidiary, to the former president and chief
executive officer of the Company and previous owner of Norfield
Corporation, for approximately $561,000, by cancellation of a like amount
of indebtedness and accrued interest owed by the Company to the former
president. The Company recognized a net gain on the sale of approximately
$18,000, net of taxes.
<PAGE>
13. Stock Plan:
In December 1994, the Board of Directors of the Company adopted the 1994
stock incentive plan (the "Plan") available to grant options, restricted
stock and other related benefits to employees and directors. The purpose
of the Plan is to promote the interests of the Company with additional
incentive and opportunity through stock ownership to increase employees'
and Directors' proprietary interests in the Company and their personal
interest in its continued success.
Under the terms of the Plan, the Company may grant incentive and
nonqualified stock options. The option price per share may not be less
than the fair market value of a share on the date the option is granted.
For those individuals who own shares in excess of 10% of the capital stock
of the Company, such price will be 110% of the fair market value. The
maximum term of an option may not exceed 10 years. In addition, shares of
restricted stock may be issued either alone or in addition to other awards
granted under the Plan.
The compensation committee shall determine the officers and key employees
of the Company, to whom and the time at which the grants of restricted
stock will be made, the number of shares to be awarded, the price and all
other conditions of the awards. The total number of stock reserves
available for distribution shall be 700,000.
Notes to Consolidated Financial Statements, Continued
The Plan also provides grants of options to non-employee directors. Each
director will be granted an option to purchase 5,000 shares of common stock
each year on the date of the annual meeting of shareholders. As of
December 31, 1995 and 1994, Options for 265,833 and 75,000 shares,
respectively, were exercisable under the Company's stock plan.
During fiscal 1995, the Company issued 203,406 restricted shares to
employees. As a result of the issuance, the Company recorded a charge to
income of approximately $157,000.
In connection with the Plan, the Company issued the following options:
1995 1994
Options, beginning of year 397,500
Options granted at exercise prices ranging
from $.50 to $1.50 40,000 397,500
------- -------
Options, end of year, ranging from $.50 to $1.50 437,500 397,500
======= =======
<PAGE>
14. Common Stock:
a. Stock offering
On March 31, 1994, the Company sold 2.4 million shares of its common stock
for $.60 per share in a private placement. Total proceeds, net of
underwriting commissions and expenses, were $1,288,664. The Company used
$300,000 of such proceeds to reduce the term loan portion of its bank loan
and the balance has been applied towards working capital.
During 1995, the Company issued 203,406 shares of stock to employees for
$.50 per share. (See Note 13.) In addition, the Company issued an
additional 266,000 shares to certain individuals and a financial
institution in settlement of debt obligations with a value of $119,986
which was expensed during fiscal 1995.
b. Warrants
In connection with the Company's debt financings, the Company granted
warrants to purchase 635,000 shares of common stock, which were valued at
$153,000 and expensed in 1995. In addition, the Company issued warrants to
purchase 20,000 shares to its legal counsel for services rendered. Warrants
outstanding, which are fully exercisable, are as follows:
1995 1994
Warrants, beginning of year 686,545 494,545
Warrants granted at exercise prices
ranging from $.40 to $6.00 in 1995 655,000 192,000
---------- --------
Warrants, end of year, ranging from
$.40 to $6.00 1,341,545 686,545
========== ========
<PAGE>
Notes to Consolidated Financial Statements, Continued
15. Industry Segment Information:
1995 1994
Net sales:
Industry segments:
Composites $ 4,536,816 $ 6,807,303
Honeycomb 10,183,902 8,401,769
------------ ------------
Total $ 14,720,718 $ 15,209,072
============ ============
Geographic:
United States $ 13,281,309 $ 14,117,581
Western Europe 1,439,409 1,091,491
------------ ------------
Total $ 14,720,718 $ 15,209,072
============ ============
Income (loss) from continuing
operations:
Industry segments:
Composites $ (113,644) $ (747,074)
Honeycomb 635,673 (1,025,530)
Other income (expense) (250,584) (509,379)
------------ -------------
$ 271,445 $ (2,281,983)
============ ============
Geographic:
United States $ 435,664 $ (1,668,219)
Western Europe 86,365 (137,684)
Other income (expense (250,584) (476,080)
------------ ------------
$ 271,445 $ (2,281,983)
============ ============
Depreciation and amortization
expense:
Composites $ 109,971 $ 732,694
Honeycombs 818,881 374,704
------------ -----------
$ 928,852 $ 1,107,398
============ ===========
Capital expenditures:
Composites $ 893,658 $ 513,457
Honeycombs 633,856 359,470
------------ ------------
$ 1,527,514 $ 872,927
============ ============
Identifiable tangible assets:
Composites $ 3,609,305 $ 2,248,896
Honeycombs 10,907,477 10,068,225
------------ ------------
$ 14,516,782 $ 12,317,121
============ ============
<PAGE>
16. Litigation:
During 1995, the Company was served with a complaint filed under the False
Claims Act alleging that certain records had been falsified, in connection
with its former Norfield operations, in order to receive payment under a
subcontract. In addition, the complaint also alleges that the individual
who has brought forward the claim was terminated due to this incident. This
case is presently in discovery and the ultimate outcome is uncertain.
In addition, in May 1995, the Company was named as a defendant in a demand
of arbitration of a former employee for a breach of an employment contract.
On August 12, 1995, the arbitration awarded the plaintiff $85,516 plus
costs and found the Company and Norfield (its former wholly-owned
subsidiary) jointly and severally liable. However, the award is not a
judgment and
Notes to Consolidated Financial Statements, Continued
the Company has moved to set aside the arbitrator's conclusions. The case
remains open and the ultimate outcome is uncertain.
17. Subsequent Events:
On March 20, 1996, the Company sold 3,500,000 shares of its common stock
for $.40 per share in a private placement. Total proceeds, net of
underwriting commissions and expenses were $1,247,000. The Company has
used approximately $647,000 of the proceeds to reduce its bank debt
obligations to paydown a portion of the outstanding balance due to its
bridge lenders and to reduce its obligation to a shareholder.
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
LUNN INDUSTRIES, INC.
By: /s/ Alan W. Baldwin April 12, 1996
Alan W. Baldwin Date
Chairman of the Board and ,
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
By: /s/ Alan W. Baldwin April 12, 1996
Alan W. Baldwin Date
Chairman of the Board and ,
Chief Executive Officer and Director
By: /s/ Lawrence Schwartz April 12, 1996
Lawrence Schwartz Date
Vice President, Secretary
and Chief Financial and
Accounting Officer
By: /s/ Samuel J. Dastin April 12, 1996
Samuel J. Dastin Date
Director
By: /s/ Warren H. Haber April 12, 1996
Warren H. Haber Date
Director
By: /s/ John F. Menzel April 12, 1996
John F. Menzel Date
Director
By: /s/ Charles W. Russell April 12, 1996
Charles W. Russell Date
Director
By: April 12, 1996
John Simon Date
Director
By: April 12, 1996
William R. Lewis Date
Director
<PAGE>
Exhibit Index
3.1 Certificate of Incorporation - incorporated by reference to the
Registrant's Form 10-K for the year ending December 31, 1992
3.2 By-Laws - incorporated by reference to the Registrant's Form 10-K for the
year ending December 31, 1991
10.1 Lease covering the Newtown, Connecticut Plant - incorporated by reference
to the Registrant's Form 10-K for the year ending December 31, 1992
10.2 Lease covering the Danbury, Connecticut Plant - incorporated by reference
to the Registrant's Form 10-K for the year ending December 31, 1992
10.3 Lease covering the Jessup, Maryland Plant - incorporated by reference to
the Registrant's Form 10-K for the year ending December 31, 1992
10.4 Stock Purchase Agreement for the sale of Norfield Corporation to Edwin
F. Phelps, Jr. dated March 10, 1994 - incorporated by reference to the
Registrant's Report on Form 8-K dated March 10, 1994
10.5 Technology Royalty Agreement between the Company and Norfield Corporation
dated March 10, 1994 - incorporated by reference to the Registrant's
Report on Form 8-K dated March 10, 1994
10.6 Employment Resignation Agreement between the Company and Edwin F. Phelps,
Jr. dated March 10, 1994 - incorporated by reference to the Registrant's
Report on Form 8-K dated March 10, 1994
10.7 Forbearance Agreement between the Company and Shawmut Bank Connecticut,
N.A. dated March 11, 1994 - incorporated by reference to the Registrant's
Report on Form 8-K dated March 10, 1994
10.8 Commitment letter between the Company and J.E. Sheehan & Company, Inc.
dated March 16, 1994 - incorporated by reference to the Registrant's
Report on Form 8-K dated March 10, 1994
10.9 Form of Subscription Agreement pertaining to the issuance of 2,400,000
shares at $.60 per share dated March 31, 1994, incorporated by reference
to the Registrant's report on Form 10-Q/A Amendment 1, for the period
ended March 31, 1994.
10.10 Grant of Warrant for the purchase of 192,000 shares of the common stock of
the Registrant at $.70 per share to J.E. Sheehan & Company, Inc. Dated
March 31, 1994, incorporated by reference to the Registrant's report
on Form 10-Q/A Amendment 1, for the period ended March 31, 1994.
10.11 Asset Purchase Agreement between Lunn Industries, Inc., Limco
Manufacturing Corporation and Alcore, Inc. Dated December 12, 1994.
<PAGE>
10.12 Promissory Note dated January 16, 1995 payable to the order of Limco
Manufacturing Corporation in the amount of $608,762.
10.13 Promissory Note dated January 17, 1995 payable to the order of Limco
Manufacturing Corporation in the amount of $96,238.
10.14 Guaranty Agreement dated January 17, 1995 between Alcore, Inc. and Limco
Manufacturing Corporation.
10.15 Subordination Agreement dated January 17, 1995 by and among TAT
Technologies, Ltd., Limco Manufacturing Corporation and Lunn Industries,
Inc.
10.16 Assignment and Assumption of Obligations Agreement dated January 17, 1995
between Limco Manufacturing Corporation and Lunn Industries, Inc.
10.17 Amendment dated January 17, 1995 to the Asset Purchase Agreement by and
among Lunn Industries, Inc., Limco Manufacturing Corporation and Alcore,
Inc. dated December 12, 1994.
10.18 Loan Agreement dated January 17, 1995 between Lunn Industries, Inc. and
Cook and Cie, S.A.
10.19 Promissory note dated January 17, 1995 payable to the order of Cook & Cie,
S.A. in the amount of $360,000.
10.20 Promissory note dated January 17, 1995 payable to the order of J.E.
Sheehan & Company, Inc. in the amount of $100,000.
10.21 Letter dated January 10, 1995 subordinating the Commercial Revolving Loan,
Term Loan and Security Agreement dated May 21, 1993 with Shawmut Bank,
Connecticut, N.A. to the $100,000 promissory note payable to the order of
J.E. Sheehan & Company dated January 17, 1995.
10.22 Lease for the Company's headquarters located in Glen Cove, New York
dated January 1, 1995 between Grill Leasing Corp. and Lunn Industries,
Inc.
10.23 Moratorium Agreement dated February 24, 1995 between Grill Leasing Corp.
and Lunn Industries, Inc.
10.24 Agreement effective July 19, 1995, between the Company and J.E. Sheehan &
Company extending the maturity date of note held by J.E. Sheehan &
Company.
10.25 Promissory Note dated December 28, 1995 payable to the order of Gibraltar
Corporation of America.
10.26 Security Agreement dated December 28, 1995 between the Company and
Gibraltar Corporation of America.
<PAGE>
10.27 Rider to the Financing Agreement dated December 28, 1995 between the
Company and Gibraltar Corporation of America.
10.28 Financing Agreement dated December 28, 1995 between the Company and
Gibraltar Corporation of America.
10.29 Security Agreement dated December 28, 1995 between the Company and
Gibraltar Corporation of America.
10.30 Amended and Restated Commercial Revolving Loan, Term Loan and Security
Agreement dated December 28, 1995, by and among the Company, Alcore, Inc.,
and Fleet National Bank of Connecticut.
10.31 Amended and Restated Subordinated Term Note date December 28, 1995 payable
to the order of Fleet National Bank of Connecticut.
10.32 Warrant dated December 28, 1995 issued to Fleet National Bank of
Connecticut.
13.1 Form 10-QSB for the period ended March 31, 1995, previously filed with the
Commission, is herein incorporated by reference.
13.2 Form 10-QSB for the period ended June 30, 1995, previously filed with the
Commission, is herein incorporated by reference.
13.3 Form 10-QSB for the period ended September 30, 1995, previously filed with
the Commission, is herein incorporated by reference.
21 List of Registrant's subsidiaries previously filed with the Commission in
the Annual Report on Form 10-K/A Amendment 1 for the fiscal year ended
December 31, 1993, is herein incorporated by reference.
<PAGE>
Exhibit 10.25
PROMISSORY NOTE
New York, New York
December 28, 1995
$750,000
FOR VALUE RECEIVED, each of the undersigned, jointly and severally,
LUNN INDUSTRIES, INC. and ALCORE, INC. ("Maker"), hereby unconditionally
promises to pay to the order of GIBRALTAR CORPORATION OF AMERICA (the "Payee"),
at its offices located at 350 Fifth Avenue, New York, New York 10118 or at such
other place as the Payee or any holder hereof may from time to time designate,
the aggregate principal sum of Seven Hundred Fifty Thousand ($750,000) Dollars
in lawful money of the United States and in immediately available funds, in
thirty-six (36) consecutive monthly installments (or earlier, as hereinafter
provided) commencing February 1, 1996 and on the first day of each month
thereafter, of which the first six (6) installments shall each be in the amount
of Thirty Thousand ($30,000) Dollars and the following six (6) installments
shall each be in the amount of Twenty-Five Thousand ($25,000) Dollars and the
following twelve (12) installments shall each be in the amount of Twenty-Three
Thousand ($23,000) Dollars and the following eleven (11) installments shall each
be in the amount of Twelve Thousand ($12,000) Dollars, and the last and
thirty-sixth (36th) installment shall be in the amount of the entire unpaid
balance hereof.
Maker hereby further promises to pay interest to the order of Payee in
like money at said office or place on the unpaid principal balance hereof
computed at a rate of two (2%) percent per annum in excess of the Base Rate (as
hereinafter defined), and at a rate, upon and after an Event of Default (as
hereinafter defined) or termination or non-renewal of the Financing Agreements
(as hereinafter defined), of four (4%) percent per annum in excess of the Base
Rate. Such interest shall be payable commencing on the first day of the month
next following the date hereof (i.e., February 1, 1996) and on the first day of
each month thereafter. Interest shall be calculated on the basis of a three
hundred sixty (360) day year and actual days elapsed. In no event shall the
interest charged hereunder exceed the maximum permitted under the laws of the
State of New York.
As used herein, the term "Base Rate" shall mean the rate of interest
publicly announced by United Jersey Bank from time to time as its base rate (the
Base Rate is not intended to be the lowest rate of interest charged by United
Jersey Bank to its borrowers) and the term "Event of Default" shall mean an
event of default under the Financing Agreements.
This Note is issued as evidence of certain indebtedness arising
pursuant to the terms and provisions of the Financing Agreement, dated of even
date herewith, executed and delivered by Maker in favor of Payee (the foregoing,
<PAGE>
together with all agreements, documents and instruments now or at any time
hereafter executed and/or delivered in connection therewith or otherwise related
thereto, as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced, being collectively
referred to herein as the "Financing Agreements"). This Note is entitled to the
benefits of the Financing Agreements and is secured by, and entitled to the
benefits of, any and all collateral security pledged or granted by Maker or
related parties to Payee as set forth in the Financing Agreements or otherwise.
At the time any payment is due hereunder, at its option, Payee may
charge the amount thereof to any account(s) of Maker, or any guarantors thereof,
maintained by Payee.
If any principal or interest payment is not made when due hereunder or
if any Event of Default shall occur for any reason under the Financing
Agreements, or if the Financing Agreements shall be terminable or be terminated
or not renewed for any reason, then and in any such event, in addition to all
rights and remedies of the Payee under the Financing Agreements, applicable law
and otherwise, all such rights and remedies being cumulative, not exclusive and
enforceable alternatively, successively and concurrently, Payee may, at its
option, declare any or all of Maker's obligations, liabilities and indebtedness
owing Payee under the Financing Agreements, including, without limitation, any
or all amounts owing under this Note (the "Obligations"), to be due and payable,
whereupon the then unpaid balance thereof together with all interest accrued
thereon shall forthwith become due and payable, together with interest accruing
thereafter at the highest rate provided for in this Note or the other Financing
Agreements until this Note and such other Obligations are fully paid, plus the
costs and expenses of collection thereof, including reasonable attorneys' fees
and legal expenses.
Maker hereby waives diligence, demand, presentment, protest and notice
of any kind and assents to extensions of the time of payment, release, surrender
or substitution of collateral security or forbearance or other indulgence,
without notice. Payee shall not be required to attempt to realize upon any
collateral security for payment, but may proceed against Maker and any
guarantors in such order or manner as Payee may choose, except as limited by the
Financing Agreement.
The provisions of this Note may not be changed, modified or terminated
orally, but only by an agreement in writing signed by the party to be charged,
nor shall any waiver be applicable except in the specific instance for which it
is given.
Maker hereby waives all rights to trial by jury in any action or
proceeding instituted by either Maker or Payee against the other arising on, out
of or by reason of this Note, any alleged tortious conduct by Maker or Payee or
in any way, directly or indirectly, arising out of or related to the
relationship between Maker and Payee. In no event will Payee be liable for lost
profits or other special or consequential damages.
Maker hereby waives all rights to interpose any claims, deductions,
setoffs or counterclaims of any kind, nature or description in any action or
proceeding instituted by Maker with respect to this Note or any matter arising
herefrom or relating hereto, except compulsory counterclaims.
<PAGE>
Maker hereby irrevocably submits and consents to the non-exclusive
jurisdiction of the State and Federal Courts located in the State of New York
with respect to any action or proceeding arising out of this Note or any matter
arising herefrom or relating hereto. Any such action or proceeding commenced by
Maker against Payee will be litigated only in a Federal Court or a State Court
located in New York City, New York and Maker waives any objection based on forum
non conveniens and any objection to venue in connection therewith.
Service of process or notice in connection with any proceedings may be
served (i) inside or outside the State in which the office of Payee indicated
above is located by registered or certified mail, return receipt requested,
addressed to the Maker at the address set forth below or of which Maker has
advised Payee in writing, as indicated in the records of Payee, and service or
notice so served shall be deemed complete five (5) days after the same shall
have been posted, or (ii) in such manner as may be permissible under the rules
of said Courts.
The execution and delivery of this Note has been authorized by the
Board of Directors of Maker. This Note and the other Financing Agreements, shall
be governed by and construed, and all rights and obligations hereunder
determined, in accordance with the internal laws of the State of New York and
shall be binding upon the successors and assigns of the Maker and inure to the
benefit of the Payee, its successors, endorsees and assigns. If the undersigned
are more than one, this Note shall be binding jointly and severally upon the
undersigned and their respective successors and assigns and the term "Maker"
shall mean, individually and collectively, all the undersigned and any one or
more of them and their successors and assigns. If any term or provision of this
Note shall be held invalid, illegal or unenforceable, the validity of all other
terms and provisions hereof shall in no way be affected thereby.
LUNN INDUSTRIES, INC.
By:
Title: Chief Executive Officer
ALCORE, INC.
By:
Title: Chief Executive Officer
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK)
On this 28th day of December, 1995, before me personally came Alan Baldwin,
to me known, who, being duly sworn, did depose and say, that he is the Chief
Executive Officer of LUNN INDUSTRIES, INC., the corporation described in and
which executed the foregoing instrument; and that he signed his name thereto by
order of the board of directors of said corporation.
Notary Public
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK)
On this 28th day of December, 1995, before me personally came Alan Baldwin,
to me known, who, being duly sworn, did depose and say, that he is the Chief
Executive Officer of ALCORE, INC., the corporation described in and which
executed the foregoing instrument; and that he signed his name thereto by order
of the board of directors of said corporation.
Notary Public
<PAGE>
Exhibit 10.26
SECURITY AGREEMENT - [EQUIPMENT]
LUNN INDUSTRIES, INC. (herein called "Debtor") and GIBRALTAR CORPORATION OF
AMERICA, a New York corporation (herein called "Secured Party") hereby agree as
follows:
1. Debtor grants to Secured Party a security interest in the following
Equipment (herein called "Collateral"):
a. All of Debtor's present machinery, equipment, fixtures, vehicles,
furniture, tools, dies, jigs, and attachments (including, but not limited to,
the items listed and described on the Schedule of Equipment annexed);
b. All of Debtor's additional Equipment, of like or unlike nature, to
be acquired hereafter, and all replacements, accessions, and improvements to any
of the foregoing; and
c. All of the proceeds and products of any or all of the foregoing.
2. Said security interest shall always secure all of the following:
a. the payment of all of Debtor's present and future liabilities,
indebtedness and obligations due Secured Party, including, but not
limited to, the "Obligations" as defined in the Financing Agreement
between Debtor and Secured Party dated of even date herewith (the
"Financing Agreement"), however arising, and under the other "Loan
Agreements", as defined in the Financing Agreement, and any other
related documents, instrument, note, agreement or guaranty creating or
evidencing indebtedness or granting collateral security in favor of
Secured Party, all as the same may now exist or hereafter be amended,
modified, supplemented, renewed or extended; all other existing debts
and liabilities of Debtor to Secured Party; all future advances made
by Secured Party to or for the account of Debtor, including advances
for rent, insurance, storage, repairs to and maintenance of the
Collateral, taxes, and discharge of any other lien, security interest
or encumbrance; all other indebtedness, liabilities, undertakings and
obligations, however created direct or contingent (including
guarantees), arising or acquired by Secured Party, which Debtor may now
or hereafter owe to Secured Party; all costs and expenses incurred in
the collection of any of the foregoing, including reasonable attorneys'
fees, as hereinafter mentioned; and without limiting any of the
foregoing, all undertakings, guarantees, debts, liabilities and
obligations of Debtor to Secured Party.
3. Until default hereunder, Debtor shall be entitled to possession of the
Collateral, which shall be kept only at: 1 Garvies Point Road, Glen Cove,
New York 11542 and the following additional address (if any): 1324 Brass
Mill Road, Belcamp. Maryland 21017; Patuxent Range Road, Jessup, Maryland
20794.
<PAGE>
4. Debtor warrants, covenants, and agrees that: Debtor is the sole owner
of the Collateral free from any lien, security interest or encumbrance, has
the right to grant Secured Party a security interest therein, and will
defend the Collateral against the claims and demands of all persons; Debtor
shall not sell, lease, encumber, remove, conceal or grant or permit any
further security interest in the Collateral, nor part with possession of any
thereof, nor permit the same to be used for hire nor in violation of any law
or ordinance; Debtor shall maintain the Collateral in good condition and
repair at Debtor's sole expense; Debtor will pay all taxes levied on the
Collateral, and will make due and timely payment or deposit of all Federal,
State, and local taxes, assessments or contributions required by law and
will execute and deliver to Secured Party, on demand, appropriate
Certificates attesting to the payment or deposit thereof; No financing
statement covering the Collateral, or any part thereof, is on file in any
public office, except as disclosed in the Financing Agreement, and Debtor's
present or hereafter acquired Collateral is and shall not be or become
subject to any purchase-money or other lien or security interest except in
favor of Secured Party; Debtor shall procure and maintain insurance on the
Collateral for the full term of this security agreement, against the risks
of fire, theft and such other risks as Secured Party may require (including
the risk of collision in case any part of the Collateral is a motor vehicle)
by insurers satisfactory to Secured Party, and shall deliver to Secured
Party a fully paid policy or policies of insurance properly endorsed in
favor of Secured Party. The Debtor hereby irrevocably appoints the Secured
Party as its attorney-in-fact, to institute any action or proceeding
necessary or proper for the recovery and collection of any moneys that may
become due under the aforesaid policies of insurance and to discharge,
compound or release any claims and to execute, acknowledge and deliver any
instruments under said policies of insurance and further to endorse the name
of the Debtor to any check, draft or other instrument given in payment or in
liquidation of any claim under the said policies of insurance, and to
perform every other act and thing under said policies of insurance; Debtor
will permit Secured Party to inspect the Collateral at any time; Loss,
theft, damage, destruction or seizure of the Collateral shall not relieve
the Debtor from the payment of any indebtedness secured hereby; The
Collateral is not now and will not hereafter be so affixed to realty as to
become a part thereof or a fixture except as may be set forth on the
schedule annexed; The execution and delivery hereof, if Debtor is a
corporation, has been duly authorized by all necessary action of Debtor's
directors and shareholders; Secured Party is authorized to execute on
Debtor's behalf and file, at Debtor's cost, such financing statements and
other instruments or documents as may be necessary to perfect and protect
Secured Party's security interest; and In case of Debtor's default in
performing any warranty, covenant or undertaking hereunder, Secured Party
may (but shall not be obliged to) procure the performance thereof and add
the cost thereof, with interest, to the indebtedness secured hereby.
5. The occurrence of any of the following events or conditions shall, at
the option of Secured Party and without notice or demand, constitute an
event of default hereunder: Default in the due payment of any indebtedness
secured hereby; or Failure of Debtor to perform any covenant or undertaking
<PAGE>
on Debtor's part herein or in any other agreement now existing or hereafter
made with Secured Party, or now or hereafter held by Secured Party; or
Breach of any warranty or falsity of any representation made by Debtor to
Secured Party; or Attachment or seizure of or levy upon the Collateral; or
institution of any proceeding by or against Debtor or Debtor's business
under any bankruptcy or insolvency statute, or Debtor's assignment for
benefit of creditors, or the appointment of a receiver for Debtor or the
Collateral, or the filing of a tax lien notice against Debtor by any taxing
authority; or Reasonable insecurity of Secured Party; or Loss, theft,
substantial damage, destruction, sale, encumbrance, concealment, removal, or
forfeiture of the Collateral or any material portion thereof; or an Event
of Default under the Financing Agreements.
6. Upon the occurrence of any event of default, Secured Party may declare
all Debtor's indebtedness secured hereby immediately due and payable, and
thereupon Secured Party shall have the right to take possession of the
Collateral and shall have all other rights and remedies of a Secured Party
under the Uniform Commercial Code. Unless the Collateral is perishable or
threatens to decline speedily in value or is of a type customarily sold on a
recognized market, Secured Party shall give Debtor reasonable notice of the
time and place of any public sale thereof or of the time after which any
private sale or other intended disposition thereof is to be made. Debtor
agrees that the requirements of reasonable notice shall be met if notice is
mailed to Debtor at the address of Debtor shown below not less than five (5)
days prior to the sale or other disposition. Secured Party may require
Debtor to assemble the Collateral and make it available to Secured Party at
a place to be designated by Secured Party which is reasonably convenient to
both parties. Secured Party is authorized to maintain, sell, or dispose of
the Collateral on the premises of the Debtor. Secured Party's rights and
remedies shall be cumulative and not alternative. Debtor agrees that
Secured Party may be the purchaser at any public or private sale.
7. If Debtor defaults hereunder or if any of the Secured Party's rights
hereunder are challenged or contested or if Debtor fails to make payment of
any of the Obligations when required of it, or fails to make any payment
required by this Agreement or commits any breach of this Agreement, or any
present or future supplement hereto, or any other agreement between Debtor
and Secured Party and/or upon termination of this agreement, the Debtor will
repay upon demand all Obligations then owing to Secured Party, whether due
or not, and in addition thereto upon the occurrence of any of the above
contingencies Secured Party is hereby given the unqualified right to retain
counsel for any of the following purposes: To protect its interest in this
Security Agreement; To protect, assemble, sell, or foreclose any of the
equipment chattels, inventory, instruments, documents, chattel paper,
general intangibles or other collateral now or hereafter pledged to it; To
collect any money which may become due under this or any other security
agreement or Obligation from Debtor, or any guarantor, or anyone else
against whom Secured Party may have any direct or contingent claim pursuant
to the terms hereunder or pursuant to the terms of any guarantee or
assignment or security agreement; and To otherwise seek in any manner to
protect, defend and enforce Secured Party's rights hereunder or elsewhere
contained, or collect any moneys or obligations due Secured Party from
<PAGE>
Debtor. If Secured Party retains counsel for any of the purposes
aforementioned, Debtor agrees to pay reasonable counsel fees, such counsel
fees and all disbursements incurred by Secured Party including but not
limited to all costs, charges, premiums, fees of Court and Public Officers
and other disbursements and expenses incurred by Secured Party in connection
with the enforcement, proceeding, collection, sale or suit involving any of
the aforementioned purposes shall be paid by Debtor on demand; and the
amount thereof shall be added to the indebtedness secured by this Security
Agreement and shall be secured by the lien given Secured Party by this and
any other security instrument in the same manner as if said amount were a
part of the principal sum due from Debtor to Secured Party.
8. That the Debtor as further additional collateral security, by these
presents assigns to the Secured Party all of the Debtor's present and future
rights to any and all payments, checks and drafts, now made or hereafter to
be made by any insurance company pursuant to any contract of insurance or
indemnity now or hereafter in existence regardless of whether or not the
Secured Party is named as Secured Party and/or Mortgagee, and/or Loss Payee
in said present or future insurance policy or policies. The rights given to
the Secured Party hereunder are coupled with an interest and cannot be
revoked by the Debtor. Each present and future insurance carrier is hereby
authorized and directed to make all payments, drafts and checks payable to
Secured Party with the same force and effect as if the same were paid
directly to the Debtor.
9. That as further additional collateral security for the repayment of all
present and future obligations of Debtor to Secured Party, the Debtor agrees
that any security interest (including the security interest created
hereunder) and/or mortgage and/or pledge of any property, whether of like or
unlike nature, which Secured Party may now or hereafter have in, to and of
any of Debtor's present or future property or assets, of any type or nature,
shall at all times be and remain additional collateral for the prompt
fulfillment by Debtor of all its present and future obligations hereunder or
elsewhere contained.
a. The words "debts", "liabilities", "indebtedness", "obligations", or
"undertakings", whether singular or plural, whether capitalized or not
and whether used alone or collectively, whenever used herein shall be
deemed to include without limitation all loans, advances, debts,
liabilities, undertakings, obligations, guarantees, covenants and
duties owing by Debtor to Secured Party or Secured Party's subsidiaries
of every kind and description (whether or not evidenced by any note or
other instrument and whether or not for the payment of money), direct
or indirect, absolute or contingent, due or to become due, now existing
or hereafter arising, including without limitation any undertaking,
guarantee, debt, liability or obligation owing from Debtor to others
which Secured Party or Secured Party's subsidiaries may have obtained
by assignment or otherwise, and further including without limitation,
all interest, fees, charges, expenses and attorneys' fees chargeable to
Debtor's account or incurred by Secured Party or Secured Party's
subsidiaries in connection with Debtor's account whether provided for
herein or elsewhere or in any other agreement between Debtor and
<PAGE>
Secured Party.
10. This Security Agreement shall be made, construed and enforced according
to the laws of the State of New York. Waiver of any default shall not
constitute waiver of any subsequent or other default. All rights of Secured
Party shall inure to the benefit of its successors and assigns, and all
obligations of Debtor shall bind his or its heirs, executors, personal
representatives, successors and assigns.
11. So long as Debtor is indebted to Secured Party, Debtor will make no
loans, advances and guarantees to or for anyone, nor shall Debtor purchase
the stock or assets of any other business, nor shall Debtor purchase any of
its own stock without first obtaining the written consent of Secured Party.
Furthermore, as long as Debtor is indebted to Secured Party, Debtor will not
terminate any security agreement that it may now have or hereafter enter
into with Secured Party. All security interests now or hereafter held by
Secured Party whether, of like or unlike nature, shall always remain as
collateral for all present and future obligations of Debtor to Secured Party
and Secured Party shall be under no obligation to terminate any of its liens
or security interests or surrender any collateral until all obligations of
Debtor to Secured Party are paid to Secured Party in full. In the event of
litigation over any matter connected with this Agreement or resulting from
transactions hereunder, the right to a trial by jury is hereby waived by
both parties.
12. Nothing herein contained shall be deemed to change, vacate, modify or
terminate any of the obligations of Debtor to Secured Party, or extend the
time of payment of any of said obligations wheresoever or howsoever said
obligations arise, or decrease or impair any rights or remedies Secured
Party may have under any other lien or security instrument or any collateral
therein mentioned.
<PAGE>
13. This Security Agreement is executed and delivered by Debtor to Secured
Party in connection with the Financing Agreement. In the event of any
conflict between any term or provision of this Agreement and any term or
provision of the Financing Agreement, the term or provision of the Financing
Agreement shall control.
Dated: December 28, 1995 Debtor: LUNN INDUSTRIES, INC.
Attest: By:
Signature
Alan Baldwin
Typed or Printed Name of Signatory
Secretary
Chief Executive Officer
Title of Signatory
Debtor's Mailing Address: 1 Garvies Point Road
Glen Cove, New York 11542
Secured Party: GIBRALTAR
CORPORATION OF AMERICA
By:
Signature
Typed or Printed Name of Signatory
Title of Signatory
Secured Party's Mailing Address:350 Fifth Avenue
New York, New York 10118
<PAGE>
Exhibit 10.27
RIDER TO
FINANCING AGREEMENT
between
GIBRALTAR CORPORATION OF AMERICA ("Gibraltar")
and
LUNN INDUSTRIES, INC.("Borrower")
In addition to and not in limitation of any and all rights granted to
Gibraltar and obligations incurred by Borrower in the printed portion of this
Agreement, Borrower further warrants, covenants and agrees as follows:
14. DEFINITIONS
a. Affiliate. The term "Affiliate" or "affiliate" shall mean and
include any Person (as hereinafter defined) which, directly or
indirectly, is controlled by or is under common control with the
Borrower, including the officers, directors, or partners of the
Borrower, whether through ownership, voting securities, contracts or
otherwise.
b. Borrower Agreements. The term "Borrower Agreements" shall
mean and include, without limitation, this Agreement, the Security
Agreement-Inventory, the Security Agreement [Equipment], and the
Trademark and Patent Security Agreement each executed and delivered by
Borrower in favor of Gibraltar, the Guaranty executed and delivered by
ALCORE, INC. ("Other Borrower"), and all other related present and
future agreements, documents, notes, including the "Term Note" (as said
quoted term is defined below), instruments, mortgages and guaranties
creating or evidencing indebtedness or granting collateral security
therefor, executed and delivered in favor of Gibraltar, as all of the
foregoing may now exist or may hereafter be amended, modified,
supplemented, renewed or extended.
c. Collateral. The term "Collateral" or "collateral" shall mean and
include, without limitation, the "Receivables" described in paragraph 1
of the printed portion of this Agreement and any and all other items of
personal property, in which Borrower has granted or may in the future
grant a security interest to Gibraltar under the Loan Agreements or in
any supplement or supplements thereto or under any other agreement or
document executed and delivered in connection therewith, including, but
not limited to, any and all of the Borrower's inventory and equipment,
all of Borrower's right, title and interest in and to the goods or
other property represented by or securing any of the Collateral, all of
Borrower's rights as an unpaid vendor or lienor, including stoppage in
transit, replevin and reclamation, all additional amounts due to
Borrower from any customer or account debtor, irrespective of whether
such additional amounts have been specifically assigned to Gibraltar,
all guaranties and other agreements or property securing or relating to
any of the items referred to above or acquired for the purpose of
securing or enforcing any of such items, all present and future general
intangibles (including, but not limited to, all of Borrower's
<PAGE>
now-existing or hereafter-acquired tax refunds, patents, trademarks,
trade names and tradestyles and license agreements relative to the
rendering of services or the sale or manufacture of goods, choses in
action, rights to sue any Person (as hereinafter defined) and proceeds
of any lawsuits or proceedings brought by Borrower against any Person),
chattel paper, documents, monies, deposits, securities, instruments,
credits and letters of credit, and all property now or hereafter held
by Gibraltar or any entity which at any time participates in
Gibraltar's financing transactions with Borrower, and all proceeds and
products of all of the foregoing in whatever form, together with all
present and future books and records relating to any of the above
including, without limitation, all tapes, cards, computer programs,
runs and computer data in the possession or control of Borrower, any
computer service bureau or other third party. Borrower hereby grants
Gibraltar a continuing security interest in and general lien upon all
of the Collateral to secure payment and performance of all of the
Obligations (as hereinafter defined).
d. Effective Net Worth. The term "Effective Net Worth" shall mean,
for any period, Tangible Net Worth plus any liability of Borrower and
Other Borrower to any party, the payment of which liability is
subordinated to the payment of the Obligations.
e. GAAP. The term "GAAP" shall mean generally accepted
accounting principles in the United States of America.
f. Liabilities. The term "Liabilities" shall mean, at any given time,
all liabilities of Borrower and Other Borrower on a consolidated basis
which would be classified as liabilities under GAAP.
g. Tangible Net Worth. The term "Tangible Net Worth" shall mean,
for any period, stockholders' equity less the aggregate amount of
intangible assets, less the aggregate principal amount of all unsecured
loans outstanding from Borrower and/or Other Borrower to any officer,
director and/or shareholder, less advances to Borrower's trade
suppliers or to any trade suppliers of Other Borrower constituting
prepayment for merchandise purchases, all as determined on a
consolidated basis for Borrower and Other Borrower in accordance with
GAAP.
h. Net Income. The term "Net Income" shall mean for any given
period, the net income of Borrower and Other Borrower, determined on a
consolidated basis, computed in accordance with GAAP.
i. Long Term Liabilities. The term "Long Term Liabilities" shall
mean, at any given time, all Liabilities of Borrower and Other Borrower
determined on a consolidated basis, which would be classified as long
term liabilities under GAAP.
j. Loan Agreements. The term "Loan Agreements" shall collectively
mean the Borrower Agreements and the Other Borrower Agreements.
<PAGE>
k. Obligations. The term "Obligations" or "obligation" shall mean and
include, without limitation, that which is set forth in Paragraph 5 of
the printed portion of this Agreement and any and all of the Borrower's
indebtedness and/or liabilities to Gibraltar of every kind, nature and
description, direct or indirect, secured or unsecured, joint or
several, absolute or contingent, due or to become due, now existing or
hereafter arising, regardless of how they arise or by what agreement or
instrument they may be evidenced, including, but not limited to, all
amounts owing by Borrower to Gibraltar under this Agreement, the other
Loan Agreements, or any other security agreement or note, and all
obligations to perform acts or refrain from taking any action.
l. Other Borrower Agreements. The term "Other Borrower
Agreements" shall mean and include, without limitation, the Financing
Agreement, the Security Agreement-Inventory and the Security Agreement
[Equipment] executed and delivered by Other Borrower in favor of
Gibraltar, the Guaranty of Other Borrower's Obligations to Gibraltar
executed and delivered by Borrower in favor of Gibraltar and all other
related agreements, documents, notes, instruments, mortgages,
guaranties and deeds of trust creating or evidencing indebtedness or
granting collateral security therefor, executed and delivered in favor
of Gibraltar, as all of the foregoing may now exist or may hereafter be
amended, modified, supplemented, renewed or extended.
m. Participant. The term "Participant" shall mean and include any
person which, at any time, participates with Gibraltar in respect of
the Obligations of Borrower.
n. Person. The term "Person" or "person" shall mean and include any
individual, sole proprietorship, partnership, joint venture, trust,
unincorporated organization, association, corporation, institution,
entity, party or government, whether national or federal, state,
county, city, municipal or otherwise, including without limitation any
instrumentality, division, agency, body or department thereof.
o. Uniform Commercial Code. All capitalized terms and other terms used
herein or in the other Loan Agreements which are defined in the Uniform
Commercial Code, shall have the meanings set forth in such Uniform
Commercial Code, unless otherwise defined herein or therein.
p. Value. The term "Value" or "value" shall mean the lower of cost or
market, as determined by Gibraltar in its sole discretion in accordance
with generally accepted accounting principles, consistently applied.
15. ADDITIONAL SECURITY
In addition to any other security interest granted in the Loan
Agreements, and not in limitation of any of the foregoing, and to secure the
payment and performance of all of the Obligations, Borrower hereby pledges and
assigns to Gibraltar, and grants to Gibraltar a continuing first priority
general security interest in all of the Collateral, and all of Borrower's ledger
sheets, files, records and documents relating to the Collateral and all
equipment containing or relating to said ledger sheets, files, records and
documents, which shall, until delivered to or removed by Gibraltar, be kept by
<PAGE>
Borrower in trust for Gibraltar and without cost to Gibraltar in appropriate
containers in safe places, bearing suitable legends disclosing Gibraltar's
security interest. Each confirmatory assignment schedule or other form of
assignment hereafter executed by Borrower shall be deemed to include the
foregoing, whether or not same appears therein.
16. ADVANCES
a. Inventory Advances. In addition to the advances made with
reference to the formula set forth in paragraph 2 of the printed
portion of this Agreement (the "Accounts Advances"), Gibraltar shall
make additional advances to Borrower, in such amounts from time to time
determined by Gibraltar in its sole discretion, of up to twenty-five
(25%) percent of the value of Borrower's eligible and acceptable
inventory ("Inventory Advances"). For purposes hereof, "value" shall
mean the lower of cost or market value, as determined by Gibraltar in
its sole discretion.
b. Inventory Advances Sublimit. Except in Gibraltar's sole
discretion, the aggregate principal amount of Inventory Advances made
by Gibraltar to Borrower shall not, at any time outstanding, exceed the
principal sum of $600,000.
c. [Intentionally Deleted].
d. [Intentionally Deleted].
e. Term Loan. In addition to the Accounts Advances and Inventory
Advances, Gibraltar has contemporaneously herewith made an additional
advance to Borrower in the sum of $750,000 (the "Term Loan"). The
Term Loan shall be evidenced by a Promissory Note in the principal sum
of $750,000 dated of even date herewith, executed and delivered by
Borrower in favor of Gibraltar (the "Term Note"). The indebtedness
evidenced by the Term Note shall be payable as set forth therein.
f. Maximum Credit. Except in Gibraltar's sole discretion, the
aggregate principal amount of the Accounts Advances and Inventory
Advances plus the outstanding principal amount due under the Term Loan
(collectively, the "Loan") plus the outstanding principal amount of the
obligations from time to time due and owing Gibraltar by Other
Borrower under the Other Borrower Agreements shall not exceed the
aggregate principal sum of $3,500,000 outstanding at any one time
("Maximum Credit").
g. Interest. All Loans, including the Accounts Advances, by Gibraltar
pursuant to the Loan Agreement shall bear interest at the rate of two
(2%) percent per annum in excess of the Base Rate, publicly announced
from time to time by United Jersey Bank at its principal office as its
"base rate", whether or not said rate is the best available rate at
said Bank, and shall be calculated on the basis of a 360-day year.
Such interest, as well as any other fees due and payable hereunder to
Gibraltar, shall be payable on the first day of each month for the
immediately preceding month while this Agreement is in effect, and may,
at Gibraltar's option, be charged to any of Borrower's accounts
<PAGE>
(maintained by Gibraltar). On or after the occurrence of any Event of
Default (as defined below), or termination or non-renewal of the Loan
Agreements, interest on all outstanding unpaid Obligations shall accrue
at a rate equal to two (2%) percent per annum in excess of the
pre-default rate set forth above from the date of such Event of Default
or termination or non-renewal, and all interest accruing hereunder
shall thereafter be payable on demand.
h. Over Formula Provision. Without limiting Gibraltar's rights to
demand payment of the Obligations or any portion thereof in accordance
with other provisions hereof, in the event that the Maximum Credit or
any components thereof at any time exceed the respective maximum
amounts set forth in paragraphs C.1, C.2, C.5, C.6, or in paragraph 2
of the printed portion of this Agreement, the entire amount of such
excess(es) shall, at Gibraltar's option, become immediately due and
payable upon Gibraltar's demand.
i. Non-Refundable Facility Fee. Borrower and Other Borrower,
jointly and severally, shall pay to Gibraltar an annual facility fee in
the aggregate amount of one (1%) percent of the Maximum Credit
("Facility Fee"), payable simultaneously with the execution of this
Agreement and yearly thereafter on the anniversary date hereof for the
term, including all renewal terms of this Agreement or so long as any
of the Obligations are outstanding. Such Facility Fee, which shall be
fully earned as of the date hereof for the first year of this Agreement
and on each anniversary date of this Agreement for each subsequent year
of this Agreement, is in addition to all other amounts due hereunder
and may, at Gibraltar's option, be charged to any account(s) of
Borrower maintained with Gibraltar.
j. Loan Administration Fee. Borrower and Other Borrower, jointly and
severally, agree to pay Gibraltar a loan administration fee in the
aggregate amount of SEVEN HUNDRED ($700.00) DOLLARS per month. The loan
administration fee shall be fully earned as of the first day of each
month and shall be due and payable on the first day of each successive
month during the term of this Agreement.
k. Other Costs and Expenses. Borrower will pay all costs and
expenses and all recording and filing fees and taxes payable upon
filing or recording (including Uniform Commercial Code financing
statement filing taxes and fees) in connection with the preparation,
execution, delivery, administration and enforcement of this Agreement,
all other Loan Agreements, and all other documents contemplated herein
or therein or related hereto or thereto, including any amendments,
supplements or consents which may be hereafter made or entered into in
respect hereof or thereof, and all title insurance premiums, appraisal
fees, audit fees and personal and real property searches in connection
herewith and therewith, and the fees and disbursements of in-house and
outside counsel to Gibraltar. Gibraltar is hereby authorized to charge
any amounts payable hereunder (including principal, interest, fees,
charges and expenses) directly to any account(s) of Borrower maintained
with Gibraltar.
l. Reserve Provision. Without limiting any other rights and remedies
<PAGE>
of Gibraltar under the printed portion of this Agreement, hereunder or
under the other Loan Agreements, the aggregate amount of loans,
advances or financial accommodations made or otherwise available to
Borrower shall be subject to Gibraltar's continuing right, in its sole
discretion, to withhold a reserve, and to increase and decrease such
reserve from time to time, if and to the extent that, in Gibraltar's
sole judgment, such reserve is necessary to protect Gibraltar against
possible non-payment of the Obligations, possible non-payment of any
indebtedness owed to third parties, or in respect of any state of facts
which does or would with notice or passage of time or both constitute
an Event of Default hereunder or under any of the other Loan
Agreements.
m. Application of Payments. All payments made by or on behalf of
Borrower with respect to the Obligations may be applied by Gibraltar in
such order and manner as Gibraltar shall determine.
n. Maintenance of Accounts. Gibraltar may maintain one or more
accounts reflecting the advances, repayments and any notes contemplated
under this Agreement. At Gibraltar's option, all principal, interest,
fees, costs, expenses or other charges with respect to this Agreement
and any and all loans and advances to Borrower may be charged directly
to any account of Borrower maintained with Gibraltar. All Collateral
held by Gibraltar and granted to Gibraltar by Borrower (or any third
party) pursuant to the Loan Agreements shall be security for the
payment and performance of any and all Obligations of Borrower to
Gibraltar, notwithstanding the maintenance of separate accounts by
Gibraltar or the existence of any notes.
o. Promissory Notes. Borrower shall, from time to time at Gibraltar's
request, execute and deliver to Gibraltar one or more promissory notes,
in form and substance satisfactory to Gibraltar, evidencing the Loan or
portions thereof, made to Borrower pursuant to this Agreement, as
Gibraltar may specify.
p. Use of Proceeds. The initial loans and advances made by
Gibraltar to Borrower and Other Borrower hereunder shall be used by
Borrower and Other Borrower to pay, inter alia, Borrower's outstanding
indebtedness due Shawmut Bank Connecticut, National Association; J.E.
Sheehan & Co. not to exceed the amount of $115,000; and Jonas Aircraft
and Arms Pension Plan and Trust, Elliot Levine, James McNeil and Mark
B. Senders Retirement Plan, collectively, not to exceed the aggregate
amount of $122,000. Borrower shall use all future loans and advances
solely for general operating and working capital purposes in the
conduct of its business.
q. Participants. Gibraltar may, from time to time, sell, issue or
acquire, on such terms as Gibraltar shall deem appropriate,
participations with respect to all or any part of its right, title and
interest in this Agreement, the other Loan Agreements, the Obligations
and the Collateral thereunder or related thereto.
r. Unacceptable Receivables. Notwithstanding anything to the
contrary contained in the printed portion of this Agreement, and
<PAGE>
without in any manner limiting Gibraltar's ability, in its sole
discretion, to determine whether any Receivable is acceptable, the
Borrower and the Other Borrower acknowledge, confirm and agree that:
(w) any Receivable with respect to any account debtor whose chief
executive office or principal place of business is located outside the
United States ("Foreign Account") and such Foreign Account is not
either insured by a foreign credit insurance policy in form, substance
and amount satisfactory to Gibraltar, which insurance policy, together
with the proceeds thereof, shall be duly assigned to Gibraltar or
secured by a letter of credit issued by a bank acceptable to Gibraltar
in form, substance and amount satisfactory to Gibraltar, which letter
of credit, together with the proceeds thereof shall be duly assigned to
Gibraltar; (x) any Receivable with respect to which exists contra
relationships, setoffs, counterclaims or disputes; (y) any Receivable
which is owed by an account debtor not deemed to be creditworthy at any
time by Gibraltar in its sole and absolute discretion; and (z) any
Receivable with respect to which exists any facts (actual or
threatened) which would impair or delay the collectibility of all or
any portion thereof, shall be deemed unacceptable Receivables under the
Loan Agreements.
s. Audit Fees. Borrower and Other Borrower, jointly and severally,
shall pay to Gibraltar all expenses and costs hereafter incurred by
Gibraltar during periodic field examinations of the Collateral and
Borrower and Other Borrower's operations, plus a per diem charge at a
rate of $500.00 per person per day for Gibraltar's auditors in the
field and office.
17. ADDITIONAL REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Gibraltar the following,
each of which shall be a continuing representation and warranty, the truth and
accuracy of which shall be a continuing condition of financing by Gibraltar:
a. Organization. Borrower is a duly organized and validly existing
corporation in good standing under the laws of the State of Delaware
with perpetual corporate existence, and has the corporate power and
authority to own its properties and to transact the business in which
it is engaged or presently proposes to engage. Borrower has qualified
as a foreign corporation in all states or other jurisdictions where the
nature of its business or the ownership or use of property requires
such qualification or where the failure to so qualify as a foreign
corporation would not have an adverse effect upon the Borrower's
business as presently conducted.
b. Authorization. Borrower has the corporate power to borrow and
to execute, deliver and carry out the terms and provisions of this
Agreement and the other Loan Agreements, and all other instruments and
documents delivered by it pursuant hereto and thereto, and Borrower has
taken or caused to be taken all necessary corporate action to authorize
the execution, delivery and performance of this Agreement and the other
Loan Agreements and such other agreements, the borrowings hereunder and
the execution, delivery and performance of the instruments and
documents delivered and to be delivered by it pursuant hereto and
<PAGE>
thereto, and this Agreement and the other Loan Agreements constitute
and will constitute legal, valid and binding obligations of Borrower,
enforceable in accordance with their respective terms.
c. Compliance with Other Agreements. Borrower is not in default
in any material respect under any indenture, mortgage, deed of trust,
agreement or other instrument to which it is a party or by which it or
its properties may be bound, except that, Borrower is in default under
that certain Lease dated November 23, 1993 between Borrower and First
Danbury Properties, Inc. Neither the execution and delivery of this
Agreement and the other Loan Agreements, or any of the instruments and
documents to be delivered by Borrower pursuant hereto or thereto, nor
the consummation of the transactions herein or therein contemplated,
nor compliance with the provisions hereof or thereof, has violated any
law or regulation, or any order or decree of any court or governmental
instrumentality in any respect, or does or will conflict with, or
result in a breach of, or constitute a default in any material respect
under, any indenture, mortgage, deed of trust, agreement or other
instrument to which Borrower is a party or by which it or its
properties may be bound, or result in the creation or imposition of any
lien, charge or encumbrance upon any of the property of Borrower
(except as contemplated hereunder or under the other Loan Agreements)
or violate any provision of the Certificate of Incorporation or By-Laws
of Borrower.
d. Compliance with Applicable Law. Borrower is in compliance in
all material respects with the requirements of all applicable licenses,
laws, rules, regulations and orders of any governmental authority
relating to its business, including, without limitation, those embodied
in or promulgated pursuant to the Employee Retirement Income Security
Act of 1974, the Internal Revenue Code of 1986, the Securities Act of
1933, the Securities Exchange Act of 1934, the Federal Food, Drug and
Cosmetic Act, the Americans with Disabilities Act of 1990, the Resource
Conservation and Recovery Act of 1976, the Environmental Cleanup
Responsibility Act and any other Federal or State environmental
statute, all as amended to date.
e. Governmental Approval. No action of, or filing with, any
governmental or public body or authority (other than the filing or
recording of Uniform Commercial Code financing statements, mortgages or
other instruments typically required to perfect security interests or
liens in the types of property constituting Collateral) is required in
connection with the execution, delivery and performance of this
Agreement, the other Loan Agreements, or any of the instruments or
documents to be delivered by Borrower pursuant hereto or thereto.
f. Title To Properties. Borrower has good and marketable title
to all of its properties and assets and such properties and assets are
not subject to any liens, mortgages, pledges, security interests,
encumbrances or charges of any kind, except those in favor of Gibraltar
and such others as are specifically disclosed under the provisions of
this Agreement and the other Loan Agreements, as set forth in Schedule
A.
<PAGE>
g. Principal Office; Collateral Locations. The address of the
principal place of business and chief executive office of Borrower is 1
Garvies Point Road, Glen Cove, New York 11542, which address is a
mailing address for said principal place of business and chief
executive office. All books and records of Borrower with respect to
the Collateral and the Collateral itself are maintained at the
addresses set forth on Schedule B annexed hereto and Borrower agrees
not to change such principal place of business or Collateral locations
without providing Gibraltar with ten (10) days prior written notice
and, prior to making such change, to execute any additional documents,
Uniform Commercial Code financing statements or notices which Gibraltar
may require.
h. Priority Of Liens. The security interests and liens granted by
Borrower to Gibraltar under this Agreement and the other Loan
Agreements constitute valid and perfected first priority liens and
security interests in and upon the property described herein and
therein, subject to the existing liens and security interests, if any,
set forth in the Loan Agreements and those set forth on Schedule A.
i. No Misrepresentation. None of the information contained in the
representations and warranties made by Borrower in this or the other
Loan Agreements, or in any other instrument, document, list,
certificate, statement, schedule or exhibit heretofore delivered or to
be delivered to Gibraltar as contemplated in this Agreement or in the
other Loan Agreements contains or will contain any untrue statement of
a material fact or omits or will omit to state a fact necessary in
order to make the statements contained herein or therein not
misleading.
j. No Event of Default. After giving effect to the transactions
contemplated by this Agreement, the other Loan Agreements and the other
instruments or documents delivered in connection herewith and
therewith, there does not exist, as of the date hereof, any condition
or event which constitutes an Event of Default (as herein defined) or
which, after notice or passage of time or both, would constitute such
an Event of Default.
k. Related Entities. Borrower has no parents or subsidiaries or
affiliates which Borrower makes loans or advances to or otherwise
transacts business with, except for the subsidiaries and affiliates
noted on Schedule C.
18. ADDITIONAL COVENANTS
Borrower covenants and agrees that, until all of the Obligations have
been indefeasibly paid in full, it shall comply with the following covenants,
each of which shall be a continuing condition of financing by Gibraltar, unless
Gibraltar shall otherwise consent in writing:
a. Tradestyles. Certain Receivables may be and/or certain of
Borrower's invoices may be, from time to time, rendered to customers
under the tradestyles listed on Schedule D annexed hereto (which,
together with any new tradestyles used after the date hereof are
<PAGE>
referred to collectively as the "Tradestyles" and individually as a
"Tradestyle"). As to such Tradestyles and the related Accounts (as
such term is defined in the printed portion of this Agreement),
Borrower hereby warrants and agrees that:
i. each Tradestyle is a trade name and style (and not the
name of an independent corporation or other legal entity) by which
Borrower may identify and sell certain of its goods or services and
conduct a portion of its business;
ii. all Receivables and proceeds thereof and returned merchandise
which arise from the sale of goods invoiced under the Tradestyles
are and shall be (i) owned solely by Borrower and (ii) subject to
the security interest and other terms of this Agreement and the
other Loan Agreements;
iii. any dispute which may arise with customers with respect to the
products invoiced under the name of any of the Tradestyles are to
be subject to the terms of this Agreement and the other Loan
Agreements as though the Tradestyle did not exist;
iv. all confirmation sheets on assignments of accounts
delivered to Gibraltar by Borrower, whether such accounts are
invoiced in the name of any of the Tradestyles or Borrower, shall
be executed by Borrower as the owner of such assigned accounts;
v. new Tradestyles may only be used by Borrower after
Gibraltar is given fifteen (15) days prior written notice of the
use of any such new Tradestyle, which notice shall set forth the
name of such new Tradestyle; and
vi. Borrower does not currently use any Tradestyle other than
the Tradestyles listed on Schedule D hereto.
b. Sale of Assets, Consolidation, Merger, etc. Borrower will not
directly or indirectly sell, lease, transfer, abandon or otherwise
dispose of all or any substantial portion of its property or assets or
consolidate with or merge with or into any other entity or Person, or
permit any other entity to consolidate with or merge with or into it,
without the prior written consent of Gibraltar.
c. Maintenance of Existence. Borrower will, at all times, preserve,
renew and keep in full force and effect its existence as a Delaware
corporation and its rights and franchises with respect thereto,
continue to engage in business of the same type as it is now engaged,
and maintain, in full force and effect, all permits, licenses,
copyrights, trademarks, trade names, patents, approvals,
authorizations, leases and contracts necessary to carry on the business
as the same is being operated as of the date hereof.
d. Loans, Investments, Distributions and Inter-Company
Transactions. Borrower will not, directly or indirectly, during any
fiscal year of Borrower commencing with Borrower's current fiscal year:
lend or advance money or property to, or invest (by capital
<PAGE>
contribution or otherwise) in any firm, corporation or Person; declare
or pay any cash dividends, or dividends in property, or make any other
distribution on account of any shares of any class of capital stock of
Borrower now or hereafter outstanding, or set apart any sums for such
purpose, or directly or indirectly, retire, purchase, redeem, or
otherwise acquire any such capital stock for any consideration other
than stock or apply or set apart any sums or other assets therefor, or
make any other distribution (by reduction of capital or otherwise) in
respect of any such capital stock, or agree to do any of the forgoing
until all the Obligations to Gibraltar have been fully and indefeasibly
paid; make any payment of the principal amount of or interest on any
indebtedness owing to any officer, director, shareholder, Affiliate or
other related Person of Borrower; make any loans or advances to any
officer, director, shareholder, Affiliate or other related Person of
Borrower, except that, Borrower may make inter-company transactions
with Other Borrower; directly or indirectly, enter into any sale, lease
or other transaction with any officer, director, shareholder, Affiliate
or other related Person of Borrower which is not in the ordinary course
of business and at arm's length, including terms no less favorable than
would be available if the sale, lease or other transaction were with an
unrelated Person; become a guarantor, surety or otherwise liable for
the debts or obligations of any Affiliate; or make or incur any
liability to make any investment by means of purchase or other
acquisition of stock or other securities, capital contributions, loans
or otherwise in any Affiliate. Notwithstanding anything to the contrary
contained herein, provided that no event of default then exists or is
continuing upon the prior written consent of Gibraltar, which consent
shall not be unreasonably withheld, Borrower may make any payment
permitted under the intercreditor agreements dated of even date hereof
between Gibraltar and the parties listed on Schedule E annexed hereto;
upon the prior written consent of Gibraltar, which consent shall not be
unreasonably withheld, Borrower may make payments to the parties listed
on Schedule E from the proceeds of sale of the Borrower's capital
stock; and Borrower and Other Borrower may make payments on an
unmatured, unaccelerated basis to Allan Baldwin not to exceed the
aggregate amount of $56,000.
e. Compliance with Other Agreements and Applicable Law. Borrower will
comply with the requirements of all applicable laws, rules,
regulations, orders of any governmental authority, and all agreements
to which Borrower is a party, the noncompliance of which would
adversely affect its business, properties or credit.
f. Limitation on Liens. Borrower will not create, assume, or suffer
to exist any liens or encumbrances with respect to its real or personal
property, whether now owned or hereafter acquired, except: tax,
mechanics and other like liens arising in the ordinary course of
business securing obligations which are not overdue or (unless or until
foreclosure or other similar proceedings shall have been commenced) are
being contested in good faith by appropriate proceedings and are
adequately reserved against, liens arising in connection with worker's
compensation, unemployment insurance, appeal and release bonds and
securities pledged as collateral for any of the foregoing, the liens,
encumbrances, or security interests in favor of Gibraltar and the
<PAGE>
liens, security interests, claims and encumbrances set forth in the
other Loan Agreements.
g. Further Assurances. Borrower will duly execute and deliver, or
will cause to be duly executed and delivered, such further instruments
and documents, including, without limitation, additional security
agreements, mortgages, collateral assignments, Uniform Commercial Code
financing statements or amendments or continuations thereof,
subordination agreements from Affiliates to whom monies are owed by
Borrower, including shareholders, officers and/or directors of
Borrower, landlord's or mortgagee's waivers of liens and consents to
the exercise by Gibraltar of all its rights and remedies hereunder or
under the other Loan Agreements with respect to the Collateral, and do
or cause to be done such further acts as may be necessary or proper in
Gibraltar's opinion to effectuate the provisions or purposes of this
Agreement or the other Loan Agreements.
h. Additional Financial Reports. In addition to the financial
information and schedules of Collateral to be delivered by Borrower to
Gibraltar as provided in the Loan Agreements, and not in limitation
thereof, Borrower shall provide Gibraltar with the following financial
reports: daily sales reports; daily collection reports; within
twenty (20) days after the end of each month, copies of Borrower's
internally prepared schedules pertaining to accounts receivable aging,
accounts payable aging and inventory designation in a form and
substance satisfactory to Gibraltar; quarterly compilation financial
statements prepared by management in a form and substance satisfactory
to Gibraltar; annual certified financial statements in a form and
substance satisfactory to Gibraltar; and any other financial
information and reports which may be reasonably required or requested
by Gibraltar.
19. ADDITIONAL DEFAULT AND REMEDY PROVISIONS
a. In addition to any default or event of default hereunder or under
any of the other Loan Agreements, including, without limitation, any
default set forth in the printed portion of this Agreement, the
occurrence of any of the following shall each constitute an Event of
Default hereunder and under all of the other Loan Agreements
(collectively, "Events of Default"): if, at any time, the Borrower and
the Other Borrower, on a consolidated basis, fail to maintain a
Tangible Net Worth of at least $6,800,000; if, at any time, for the
Borrower and Other Borrower on a consolidated basis, the ratio of
Liabilities, less any Liabilities the payment of which is subordinated
to the payment of the Obligations, to Effective Net Worth is greater
than 1.5 to 1; if, for any fiscal year for the Borrower and the Other
Borrower on a consolidated basis, the ratio of Net Income (computed
before net interest expense, taxes, depreciation and amortization) to
the sum of interest expense plus that portion of Long Term Liabilities
(including capitalized lease payments) which have become due and
payable during such fiscal year is less than 1.2 to 1; if, for any
fiscal year, the Net Income for Borrower and Other Borrower, on a
consolidated basis, is less than $1.00; or any change in the chief
executive officer, chief operating officer, chief financial officer or
<PAGE>
controlling ownership of Borrower or Other Borrower; or in the event
that the Borrower is required to expend in excess of $250,000 in
connection with the removal, restoration or clean-up of any hazardous
substances, waste or other materials under any federal, state or local
environmental or similar laws, statutes, ordinances or regulations,
unless the same is adequately insured, as determined by Gibraltar in
its sole discretion; or any guarantor revokes, terminates or fails to
perform any of the terms of any guaranty, endorsement or other
agreement of such party in favor of Gibraltar or any affiliate of
Gibraltar; or upon the occurrence of any event which, with notice,
lapse of time or both, would constitute a default under any of the
other Loan Agreements or a default by Borrower on any indebtedness for
borrowed money or with respect to any material contract, lease or other
obligation owed to any Person or entity other than Gibraltar.
b. Upon the occurrence of an Event of Default (other than a payment
default or a default as expressly designated in paragraph F.2(b) below)
which remains uncured for ten (10) days after notice to Borrower, or
immediately upon the occurrence of a default in payment when due of
any of the Obligations, or if a tax lien is filed against Borrower and
remains unvacated for forty-five (45) days or if a case or proceeding
is commenced by or against the Borrower under Title 11 of the United
States Code or under any Federal or State bankruptcy or insolvency
statute and which, solely in the case of such petition or application
filed against Borrower remains undismissed for forty-five (45) days
after the filing thereof, of if Borrower fails, suspends or goes out of
business, or if any present or future warranty or representation or
other statement now or hereafter made or furnished to Gibraltar by
Borrower herein or in any document or instrument furnished in
connection herewith proves to have been false or misleading in any
material respect when made or furnished, or if any such Event of
Default consists of a failure to maintain, protect or preserve a
material portion of the Collateral as provided in any of the Loan
Agreements, or immediately upon the termination or non-renewal of this
Agreement or any of the other Loan Agreements, then Gibraltar shall
have all rights and remedies against Borrower available to Gibraltar
pursuant to paragraph 8 of the printed portion of this Agreement, as
well as all other rights and remedies hereunder and under applicable
law, including without limitation, the right to declare any and all of
the Obligations to be immediately due and payable together with
interest at the rate set forth in paragraph 3 of the printed portion of
this Agreement and the right to terminate the Loan Agreements pursuant
to paragraph 7 of the printed portion of this Agreement, and Gibraltar
shall have the right to immediately exercise all of its rights and
remedies hereunder or under any of the other Loan Agreements, without
notice to Borrower, which notice is hereby expressly waived by
Borrower.
<PAGE>
c. In the event Gibraltar institutes an action to recover any Collateral
or seeks recovery of any Collateral by way of prejudgment remedy or
otherwise, Borrower waives the posting of any bond which might
otherwise be required.
20. CURING OF CERTAIN DEFAULTS BY GIBRALTAR
Gibraltar may, at its option, cure any default by Borrower under any
agreement with a third party which constitutes, or with notice or lapse of time
or both would constitute, an Event of Default hereunder or under any other
agreement between Gibraltar and Borrower, or pay or post bond on appeal with
respect to any judgment entered against Borrower (irrespective of the amount of
said judgment or the time elapsed since entry thereof), and Gibraltar may add
any amounts so expended to the Obligations and charge Borrower's account
therefor, such amounts to be repayable by Borrower on demand; Gibraltar shall be
under no obligation to effect such cure, payment or bonding and shall not, by
making any payment for Borrower's account, be deemed to have assumed any
obligation or liability of Borrower.
21. NOTICES
All notices, requests and demands to or upon the respective parties
hereto shall be deemed to have been duly given or made: if by hand, immediately
upon delivery; if by telex, telecopier, facsimile or telegram, immediately upon
sending, provided it is sent on a business day, but if not, then immediately
upon the beginning of the first business day after being sent; if by Federal
Express, Express Mail or any other overnight delivery service, one (1) day after
dispatch; and if mailed by certified mail, return receipt requested, five (5)
days after mailing. All notices, requests and demands are to be given or made to
the respective parties at the following addresses (or to such other addresses as
either party may designate by notice in accordance with the provisions of this
paragraph):
If to Borrower: LUNN INDUSTRIES, INC.
1 Garvies Point Road
Glen Cove, New York 11542
Attention: Mr. Lawrence Schwartz
If to Gibraltar: GIBRALTAR CORPORATION OF AMERICA
350 Fifth Avenue
New York, New York 10118
Attention: Mr. Irwin Schwartz
22. CONTROLLING LAW
This Agreement, the other Loan Agreements, and any other document
referred to herein or therein are being executed and delivered in New York, New
York and shall be, together with the obligations and rights thereunder,
construed and interpreted in accordance with the laws of the State of New York.
<PAGE>
23. JURISDICTION/WAIVER OF JURY TRIAL
Borrower hereby agrees that the Supreme Court for the County of New
York, State of New York and the United States District Court for the Southern
District of New York shall have non-exclusive jurisdiction to hear and determine
any claims or disputes pertaining directly or indirectly to this Agreement and
the other Loan Agreements. Borrower expressly and irrevocably submits and
consents in advance to such jurisdiction in any action or proceeding commenced
by Gibraltar in any of such courts, and agrees that service of such summons and
complaint, or other process or paper shall be made inside or outside the State
of New York by registered or certified mail, return receipt requested, addressed
to Borrower at its address as set forth in the printed portion of the Agreement,
or in such other manner as may be permissible under the rules of said courts.
Should Borrower fail to appear or answer any summons, complaint, process or
papers so served within thirty (30) days after the mailing thereof, Borrower
shall be deemed in default and an order and/or judgment may be entered by
Gibraltar against Borrower as demanded or prayed for in such summons.
Borrower hereby waives trial by jury in any action or proceeding
pertaining directly or indirectly to this Agreement and the other Loan
Agreements, and further agrees not to assert any offset or counterclaim, except
for compulsory counterclaims, in any such action or proceeding.
24. PARTIAL INVALIDITY
If any provision of this Agreement or the other Financing Agreements is
held to be invalid or unenforceable, such invalidity or unenforceability shall
not invalidate this Agreement or the other financing Agreements as a whole, but
this Agreement or the particular Financing Agreement, as the case may be, shall
be construed as though it did not contain the particular provision or provisions
held to be invalid or unenforceable and the rights and obligations of the
parties shall be construed and enforced only to such extent as shall be
permitted by law.
25. TERMINATION/PREPAYMENT
a. In addition to, and not in limitation of, paragraph 7 of the
printed portion of this Agreement, Borrower shall have the right, in
its sole discretion, to pay and prepay in full, but not in part, the
outstanding Obligations and to terminate this Agreement in accordance
with the terms and provisions of paragraph 7 of the printed portion of
this Agreement; provided that, (a) the other Loan Agreements are
terminated simultaneously herewith, (b) in any such case, Borrower
provides Gibraltar with sixty (60) days prior written notice of its
intent to terminate this Agreement (the sixtieth (60th) day following
such written notice being hereinafter the "Termination Date"), (c)
Borrower complies with the other provisions of paragraph 7 of the
printed portion of this Agreement, and (d) Borrower pays to Gibraltar
the amount of all principal, interest, charges, fees and expenses owed
to Gibraltar by the Borrower under this Agreement, the other Loan
Agreements, or otherwise, including but not limited to the early
termination fee as set forth in paragraph L.2. below.
b. If Gibraltar terminates this Agreement upon the occurrence of a
<PAGE>
default or any Event of Default, or if this Agreement is terminated at
Borrower's request in accordance with paragraph L.1. above, in view of
the impracticability and extreme difficulty of ascertaining actual
damages and by mutual agreement of the parties as to a reasonable
calculation of Gibraltar's lost profits as a result thereof, Borrower
and Other Borrower shall, jointly and severally, pay to Gibraltar, upon
the effective date of such termination, an early termination fee in an
amount equal to (any such amount as calculated below, an "Early
Termination Fee"):
(a) If such termination occurs on or prior to the first anniversary
of this Agreement, three (3%) percent of the Maximum Credit; and
(b) If such termination occurs after the first anniversary of this
Agreement or any renewal period, two (2%) percent of the Maximum Credit.
Such Early Termination Fee shall be presumed to be the amount of
damages sustained by such termination and Borrower agrees that it is reasonable
under the circumstances currently existing. The Early Termination Fee shall be
deemed included in the Obligations.
26. CONFLICTS
In the event that any term or provision of this Rider conflicts with
any term or provision of the printed portion of this Agreement or any of the
other Loan Agreements to which Borrower is a party, or any document or
instrument delivered in connection herewith or therewith, the term or provision
of this Rider shall control.
LUNN INDUSTRIES, INC.
By:
Title: Chief Executive Officer
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE>
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
ACCEPTED:
GIBRALTAR CORPORATION OF AMERICA
By:
Title:
<PAGE>
SCHEDULE A
EXISTING LIENS
Liens upon and security interest in certain of the Borrower's assets in favor
of:
a. Bernard Grill
b. Fleet National Bank of Connecticut
c. Jones Aircraft and Arms Pension Plan and Trust
d. Elliot Levine
e. James McNeil
f. Mark B. Senders Retirement Plan
SCHEDULE B
EXISTING LOCATIONS OF COLLATERAL
1 Garvies Point Road
Glen Cove, New York 11542
1324 Brass Mill Road
Belcamp, Maryland 21017
8280 Patuxent Range Road
Jessup, Maryland 20794
SCHEDULE C
RELATED ENTITIES
Alcore Inc.
<PAGE>
SCHEDULE D
TRADESTYLES
None
SCHEDULE E
Parties to Intercreditor Agreement
Cook & Cie
Bernard Grill
Jonas Aircraft and Arms Pension Plan and Trust
Elliot Levine
James McNeil
Mark B. Senders Retirement Plan
Fleet National Bank of Connecticut
ACKNOWLEDGEMENT AND AGREEMENT
The undersigned, being the Other Borrower referred to in the within and
foregoing Financing Agreement and Rider (collectively, the "Loan Agreement"),
hereby acknowledge each of the terms and provisions of the foregoing Loan
Agreement and agree to be bound by the terms of paragraph the Loan Agreement and
agree to be bound by and, jointly and severally, agree to pay, the fees set
forth in paragraphs C.9, C.10 and L.2 of the Rider to the Financing Agreement.
<PAGE>
The undersigned each acknowledge and agree that although it may
acknowledge this Loan Agreement, it is not a party thereto and does not and will
not receive any right, benefit, priority or interest under or because of the
existence of the Loan Agreement.
ALCORE, INC.
By:
Title: Chief Executive Officer
<PAGE>
Exhibit 10.28
FINANCING AGREEMENT
GIBRALTAR CORPORATION OF AMERICA
350 Fifth Avenue
New York, New York 10118
Gentlemen:
This Agreement, effective as of the date of acceptance by you, states the
terms and conditions under which you will make revolving loans to us.
27. As security for Obligations (as herein defined) at any time owing by us to
you or your subsidiaries, we hereby assign to you and grant to you a
security interest in all of our Receivables (as herein defined) whether now
existing or hereafter arising or in which we now have or may hereafter
acquire any rights. The term "Receivables" means and includes accounts,
contract rights, instruments, documents, chattel paper, general intangibles
and all forms of obligations owing to us, all proceeds thereof and all of
our rights to any merchandise which is represented thereby. From time to
time, we shall provide you with schedules describing all Receivables created
or acquired by us and shall execute and deliver written assignments of such
Receivables to you, provided, however, that our failure to execute and
deliver such schedules and/or assignments shall not affect or limit your
security interest or other rights in and to Receivables. Together with each
schedule, we shall furnish copies of customers' invoices or the equivalent,
and original shipping or delivery receipts for all merchandise sold and we
warrant the genuineness thereof. We further warrant that all Receivables are
and will be bona fide existing obligations created by the sale and delivery
of merchandise or the rendition of services to customers in the ordinary
course of business, free of liens, encumbrances and security interests and
unconditionally owed to us without defense, offset or counterclaim.
28. You will lend to us at your discretion up to eighty-five (85%) percent of
the net amount of Receivables which you deem acceptable, and you will credit
the amount thereof to our account. The balance of said net amount, less any
moneys remitted, paid or otherwise advanced by you to or for the account of
the undersigned, including any amounts which you may be obligated to pay in
the future, and less the compensation specified in Paragraph "3", shall be
remitted to us when all said Receivables shall be collected. You or your
designee may notify customers or account debtors at any time that
Receivables have been assigned to you or of your security interest therein,
collect them directly and charge the collection costs and expenses to our
account but, unless and until you do so or give us other instructions, we
shall make collection of all Receivables for you, receive in trust all
payments thereon as your trustee and immediately deliver them to you in
their original form. After allowing two (2) business days for collection of
checks and other instruments, you will credit (conditional upon final
collection) all such payments to our account.
29. Interest will accrue at the rate set forth in the Rider attached hereto,
upon any balance of our account owing to you at the close of each day and
will be due and payable to you at the close of each month. In the event the
<PAGE>
United Jersey Bank base rate prevailing on the effective date hereof is
subsequently changed, then an equivalent change will be made in the rate of
interest which will be charged to us, effective as of the date of each such
change. You will account monthly and each monthly accounting will be fully
binding on us unless we give you written notice of exceptions within thirty
(30) days. In no event shall the interest charged hereunder exceed the
maximum permitted by law.
30. If any warranty is breached as to any Receivable, or any Receivable is not
paid by the customer or account debtor within ninety (90) days from the date
of the invoice, or the customer or account debtor disputes liability or
makes any claim with respect thereto, or a petition in bankruptcy or other
application for relief under the Bankruptcy Code or any other insolvency
law, is filed with respect to the customer or account debtor or the customer
or account debtor assigns for the benefit of creditors, becomes insolvent,
fails, suspends or goes out of business, then you may deem unacceptable any
or all Receivables owing by that customer or account debtor and we shall pay
you promptly the amount thereof; but you shall retain your title to all
Receivables, acceptable and unacceptable and/or your security interest
therein until all Obligations have been fully satisfied. Any merchandise
which is returned by a customer or account debtor or otherwise recovered
shall be set aside, marked with your name and held by us as your trustee,
and shall remain a part of your security. We shall notify you promptly of
all returns and recoveries and on request deliver the merchandise to you. We
shall also notify you promptly of all disputes and claims and settle or
adjust them at no expense to you, but no discount, credit or allowance shall
be granted to any customer or account debtor and no returns of merchandise
shall be accepted by us without your consent. You may, at all times, settle
or adjust disputes and claims directly with customers or account debtors for
amounts and upon terms which you consider advisable, and in all cases you
will credit our account with only the net amounts received by you in payment
of Receivables, after deducting all costs and legal expenses.
31. All sums at any time standing to our credit on your books and all of our
property at any time in your possession, or upon or in which you have a lien
or security interest shall be security for all Obligations. The term
"Obligations" (as used in this Agreement) means and includes all loans,
advances, debts, liabilities, obligations, guarantees, covenants and duties
owing by us to you or your subsidiaries, of every kind and description
(whether or not evidenced by any note or other instrument and whether or not
for the payment of money), direct or indirect, absolute or contingent, due
or to become due, now existing or hereafter arising, whether arising prior
to or subsequent to the commencement of any bankruptcy case, including,
without limitation, any debt, liability or obligation owing from us to
others which you or your subsidiaries may have obtained by assignment or
otherwise, and further including, without limitation, all interest, fees,
charges, expenses and attorneys' fees chargeable to our account or incurred
by you or your subsidiaries in connection with our account whether provided
for herein or in any other agreement between us. At the request of any of
your subsidiaries, you may pay over to it the amounts of all such
Obligations owing to such subsidiaries. Any corporation which is at least
fifty percent owned by you shall be deemed your subsidiary.
32. During the term of this Agreement, we shall not sell or assign or grant any
<PAGE>
security interest in any Receivables to anyone other than you, nor shall we
mortgage, pledge or grant any security interest in any of our inventory or
equipment to anyone other than you. We shall place notations upon our books
of account to disclose the assignment of all Receivables to you or your
security interest therein and shall perform all other steps requested by you
to create and maintain in your favor a valid first security interest,
assignment or pledge in, of or on all Receivables and all other security
held by or for you. We waive presentment and protest of any instrument and
notice thereof, notice of default and all other notices to which we might
otherwise be entitled. You may at all times, have access to, inspect, audit
and make extracts from all of our records, files and books of account and
you may at any time remove from our premises all of them pertaining to our
Receivables; and we shall furnish you quarterly statements showing our
financial condition and the results of our operations and you may obtain
such information directly from our accountants. We shall deliver to you
within ninety days after the end of our fiscal year, our year-end financial
statement prepared by an independent Certified Public Accountant in a form
acceptable to you. We appoint you or any other person whom you may designate
as our attorney, with power: to endorse our name on any checks, notes,
acceptances, money orders, drafts or other forms of payment or security that
may come into your possession; to sign our name on any invoice or bill of
lading relating to any Receivables, on drafts against customers, on
schedules and assignments of Receivables, on notices of assignment,
financing statements and other public records, on verifications of accounts
and on notices to customers; to notify the post office authorities to change
the address for delivery of our mail to an address designated by you; to
receive, open and dispose of all mail addressed to us; to send requests for
verification of Receivables to customers or account debtors, and to do all
things necessary to carry out this Agreement. We ratify and approve all acts
of the attorney. Neither you nor the attorney will be liable for any acts or
omissions nor for any error of judgment or mistake of fact or law. This
power, being coupled with an interest, is irrevocable so long as any
Receivables assigned to you or in which you have a security interest remain
unpaid or until the Obligations have been fully satisfied. You may file one
or more financing statements disclosing your security interest without our
signature appearing thereon.
33. This Agreement is deemed to be made and accepted by you in the State of New
York and it and all transactions hereunder shall be governed by and
interpreted in accordance with the laws of that state. It shall have an
initial term of two (2) years from its effective date and shall be
automatically renewed for successive periods of one year unless terminated
by either party on the anniversary of its effective date (such anniversary
date, a "Renewal Date") in any year by giving the other at least sixty (60)
days' prior written notice. Termination shall be effected by the mailing of
a registered or certified letter of notice addressed by either of us to the
other at the address set forth herein and the termination shall be effective
as of the date so fixed in such notice. Notwithstanding the foregoing,
should we become insolvent or unable to meet our debts as they mature, or
fail, suspend or go out of business or commit an act of bankruptcy or make a
general assignment or if a case in bankruptcy or any insolvency or
reorganization case be commenced by or against us, or if you shall be
insecure as to any of the Collateral or as to the prospect of our payment or
performance of any of the Obligations, or if a Federal, State or any other
<PAGE>
tax lien be filed against us or judgment rendered against us, you shall have
the right to terminate at any time without notice. Upon the effective date
of termination, all Obligations whether or not incurred under this Agreement
or any supplement hereto or otherwise shall become immediately due and
payable without notice or demand. Notwithstanding termination, until all
Obligations have been fully satisfied, you shall retain your security
interest in and title to all existing Receivables and those arising
thereafter, and we shall continue to assign Receivables to you and turn over
all proceeds to you. Termination by us shall not be effective if there are
any other Loan Agreements (as defined in the Rider attached hereto)
outstanding.
34. If we default hereunder or if any of your rights hereunder are challenged or
contested or if we fail to make payment of any of the Obligations when
required of us, or fail to make any payment required by this Agreement or
commit any breach of this Agreement, or any present or future supplement
hereto, or any other agreement between us and/or upon termination of this
agreement, the undersigned will repay upon demand all Obligations then owing
to you, whether due or not, and in addition thereto upon the occurrence of
any of the above contingencies you are hereby given the unqualified right to
retain counsel for any of the following purposes to protect your interest in
this Agreement, to protect, assemble, sell, or foreclose any of the
equipment, chattels, inventory, instruments, documents, chattel paper,
general intangibles or other collateral now or hereafter pledged to you, to
collect any money which may become due under this or any other Agreement or
Obligation from us or any account debtor, or any guarantor, or anyone else
against whom you may have any direct or contingent claim pursuant to the
terms hereunder or pursuant to the terms of any guarantee or assignment or
security agreement, to otherwise seek in any manner to protect, defend and
enforce your rights hereunder or elsewhere contained, or collect any monies
or obligations due from us. If you retain counsel for any of the purposes
aforementioned, we agree to pay reasonable counsel fees and all
disbursements incurred by you including, but not limited to, all costs,
charges, premiums, fees of Court and Public Officers and other disbursements
and expenses incurred by you in connection with the enforcement, proceeding,
collection, sale or suit involving any of the aforementioned purposes shall
be paid by us on demand; and the amount thereof shall be added to the
indebtedness secured by this Agreement and shall be secured by the lien
given you by this and any other security instrument in the same manner as if
said amount were a part of the principal sum due from us to you. You shall
have, in addition to all other rights provided herein, the rights and
remedies of a secured party under the Uniform Commercial Code of the State
of New York, and further, you may, without demand and without advertisement
or notice, all of which we waive, at any time or times, sell and deliver any
or all Receivables and any or all other security and collateral held by or
for you at public or private sale, for cash, upon credit or otherwise, at
such prices and upon such terms as you deem advisable, at your sole
discretion. Any requirement of reasonable notice shall be met if such notice
is mailed postage prepaid to us at our address as set forth herein at least
ten (10) days before the time of sale or other disposition. You may be the
purchaser at any such sale, if it is public, free from any right of
redemption, which we also waive. The proceeds of sale shall be applied first
to all costs and expenses of sale, including attorneys' fees, and second to
the payment (in whatever order you elect) of all Obligations. You will
<PAGE>
return any excess to us and we shall remain liable to you for any
deficiency. Failure by you to exercise any right, remedy or option under
this Agreement or any present or future supplement hereto or in any other
agreement between us or delay by you in exercising the same will not operate
as a waiver; no waiver by you will be effective unless it is in writing and
then only to the extent specifically stated. Your rights and remedies under
this Agreement will be cumulative and not exclusive of any other right or
remedy which you may have. Both of us waive all right to a trial by jury in
any litigation relating to transactions under this Agreement.
35. That we, as further additional collateral security, by these presents assign
to you all our present and future rights to any and all payments, checks and
drafts, now made or hereafter to be made by any insurance company pursuant
to any contract of insurance or indemnity now or hereafter in existence,
regardless of whether or not you are named as Secured Party and/or
Mortgagee, and/or Loss Payee in said present or future policy or policies.
The rights given to you hereunder are coupled with an interest and cannot be
revoked by us. Each present and future insurance carrier is hereby
authorized and directed to make all payments, drafts and checks payable to
you with the same force and effect as if the same were paid directly to us.
36. We will furnish you with proof satisfactory to you of our making the payment
or deposit of F.I.C.A. and withholding taxes required of us by applicable
law. Such proof shall be furnished within five (5) days after the due date
for each payment or deposit established by law.
a. Should we fail to make any such payment or deposit or furnish such
proof, you may, in your sole and absolute discretion, and without
notice to us, make payment of the same or any part thereof, or set up
such reserves in our account as you deem necessary to satisfy the
liability therefor. Each amount so deposited or paid by you shall
constitute an advance under this Agreement and shall be secured by all
collateral now or hereafter held by you.
b. Nothing herein contained shall obligate you to make such deposit or
payment or set up such reserve, nor shall the making of one or more
such deposits or payment or the setting up of any such reserve
constitute an agreement on your part to take any further or similar
action, or a waiver of any default by us under the terms thereof or of
the security agreement.
c. Upon the expiration or termination of this Agreement or any
transactions hereunder or relating hereto, you shall retain your
security interests in all collateral held by you until we shall have
paid or discharged all such obligations, accrued to the date of such
expiration or termination, or shall have supplied you with evidence
satisfactory to you that due provision has been made therefor.
37. That as further additional collateral security for the repayment of all our
present and future Obligations to you, we agree that any security interest
(including the security interest created hereunder) and/or mortgage and/or
pledge of any property, whether of like or unlike nature, which you may now
or hereafter have in, to and of any of our present or future property or
assets, of any type or nature, shall at all times be and remain additional
<PAGE>
collateral for the prompt fulfillment by us of all our present and future
Obligations hereunder or elsewhere contained.
38. All security interests now or hereafter held by you whether of like or
unlike nature, shall always remain as collateral for all our present and
future Obligations to you. You shall be under no obligation to terminate any
of your liens or security interests or surrender any collateral until all
our Obligations are paid in full to you.
39. This Agreement cannot be changed or terminated orally. All of the rights,
privileges, remedies and options given to you hereunder shall inure to the
benefit of your successors and assigns; and all the terms, conditions,
promises, covenants, provisions and warranties of this Agreement shall inure
to the benefit of and shall bind the representatives, successors and assigns
of each of us.
40. Reference is made to the Rider annexed hereto, the terms of which are
incorporated herein.
Very truly yours,
ATTEST: (SEAL) LUNN INDUSTRIES, INC.
By:
Secretary Chief Executive Officer
1 Garvies Point Road, Glen Cove,
New York 11542
Accepted at New York, New York
on December 28, 1995
GIBRALTAR CORPORATION OF AMERICA
By:_____________________________
Vice President
<PAGE>
Exhibit 10.29
SECURITY AGREEMENT-INVENTORY
GIBRALTAR CORPORATION OF AMERICA
350 Fifth Avenue
New York, New York 10118
Gentlemen:
We hereby pledge, assign, consign, transfer and set over to you, and you
shall at all times have a continuing general lien upon, and we hereby grant you
a continuing security interest in, all of our present and hereafter acquired
Inventory and the proceeds thereof. We further grant you a continuing security
interest in your favor in all general intangibles, including all patents,
trademarks and trade names now owned or hereafter acquired by us, whether or not
registered, together with the good will of the business associated with each of
said Trademarks and Trade Names. "Inventory" shall include, but not be limited
to, raw materials, work in process, finished goods and all wrapping, packing and
shipping materials wheresoever located, and all additions and accessions
thereto, the resulting product or mass and any documents representing all or any
part thereof. Upon your request, we will at any time and from time to time, at
our expense, deliver such Inventory to you or such person as you may designate,
cause the same to be stored in your name at such place as you may designate,
deliver to you documents of title representing the same or otherwise evidence
your security interest in such manner as you may require.
The aforementioned pledge, assignment, consignment, transfer, lien and
security interest shall secure any and all of our obligations to you, matured or
unmatured, absolute or contingent, now existing or that may hereafter arise, and
howsoever acquired by you, whether arising directly between us or acquired by
you by assignment and whether relating to this agreement or independent hereof
and any and all guaranties, indemnities or endorsements at any time delivered by
us to you, together with all interest, charges, commissions, expenses,
attorneys' fees and other items chargeable against us in connection with any of
said obligations.
We agree that the making of advances is always wholly discretionary on your
part, and that you shall be the sole judge of the amount of such advances and of
the total of such advances to be outstanding at any particular time. All such
advances shall be repayable on demand, and shall bear interest at the same rate
specified in the Financing Agreement between us.
We agree, at our expense, to keep all Inventory insured to the full value
thereof against such risks and by policies of insurance issued by such companies
as you may designate or approve, and the policies evidencing such insurance
shall be duly endorsed in your favor with a long form lender's loss payable
rider or such other document as you may designate and said policies shall be
delivered to you. Should we fail for any reason to furnish you with such
insurance, you shall have the right to effect the same and charge any costs in
connection therewith to us. You shall have no risk, liability or responsibility
in connection with payment or nonpayment of any loss, your sole obligation being
to credit our account with the net proceeds of any such insurance payments
received on account of any loss. We, as further additional collateral security,
<PAGE>
by these presents, assign to you all our present and future rights to any and
all payments, checks and drafts, now made or hereafter to be made by any
insurance company pursuant to any contract of insurance or indemnity now or
hereafter in existence, regardless of whether or not you are named as Secured
Party and/or Mortgagee, and/or Loss Payee in said present or future policy or
policies. The rights given to you hereunder are coupled with an interest and
cannot be revoked by us. Each present and future insurance carrier is hereby
authorized and directed to make all payments, drafts and checks payable to you
with the same force and effect as if the same were paid directly to us. Any and
all assessments, taxes or other charges that may be assessed upon or payable
with respect to the Inventory or any part thereof shall forthwith be paid by us,
and we agree that you, in your discretion, may effect such payment and charge
the amount thereof to us. We further agree that except for the pledge,
assignment, consignment, transfer, lien and security interest granted to you
hereby, we shall not permit said Inventory to otherwise become liened or
encumbered nor shall we grant any security interest therein to any other party.
We shall not, without your written consent first obtained, remove or dispose of
any of such Inventory except to bona fide purchasers thereof in the ordinary
course of our business on orders first approved in writing by you. All such
sales shall be reported to you promptly and the accounts or other proceeds
thereof shall be subject to the security interests in your favor. You shall have
the right at all times to the immediate possession of all Inventory and its
products and proceeds and we shall make such Inventory and all our records
pertaining thereto available to you for inspection at any time requested by you.
Each month we shall deliver to you a written signed statement setting forth the
Inventory subject to your Security Interest. You shall have the right, in your
discretion, to pay any liens or claims upon said Inventory, including, but not
limited to, warehouse charges, dyeing, finishing and processing charges,
landlords' claims, etc. and the amount of any such payment shall be charged to
our account and secured hereby. You shall not be liable for the safekeeping of
any of the Inventory or for any loss, damage or diminution in the value thereof
or for any act or default of any warehouseman, carrier or other person dealing
in and with said Inventory, whether as your agent or otherwise, or for the
collection of any proceeds thereof but the same shall at all times be at our
sole risk. All warehousemen and bailees are authorized and directed to furnish
you with such information as you may request concerning our account and all
warehouse receipts issued by them.
Upon our default in the payment, performance or discharge of any of our
obligations and liabilities to you as and when the same become due, or in the
event of our insolvency, or if a receiver or trustee is appointed for our assets
or affairs, or if we discontinue doing business, or if a petition in bankruptcy
or for arrangement or reorganization is filed by or against us, or if we make an
assignment for the benefit of our creditors, or suspend the operation of our
business or commence the liquidation thereof, or make any offer of settlement,
extension or composition with our creditors, or upon the appointment of a
committee of our creditors or a liquidating agent for us, or the issuance of any
attachment or execution against us, or the filing of a judgment or other lien
against us, or upon our any default hereunder or under any other agreement
between us you shall have the right, upon reasonable notice to us, to sell all
or any part of our Inventory, at public or private sale, or make other
disposition thereof, at which sale or disposition you may be a purchaser. We
agree that written notice sent to us by postpaid mail, at least ten (10) days
before the date of any intended public sale or the date after which any private
<PAGE>
sale or other intended disposition of the Inventory is to be made, shall be
deemed to be reasonable notice thereof. We do hereby waive all notice of any
such sale or other intended disposition if said Inventory is perishable or
threatens to decline speedily in value or is of a type customarily sold on a
recognized market. Upon the occurrence of any of the events referred to in the
first sentence of this paragraph, you may require us to assemble all or any part
of the Inventory and make it available to you at a place to be designated by
you, which is reasonably convenient to both parties. In addition, you may
peaceably, by your own means or with judicial assistance, enter our or any other
premises and take possession of the Inventory and remove or dispose of it on our
premises and we agree that we will not resist or interfere with any such action.
We hereby expressly waive demand, notice of sale (except as herein provided),
advertisement of sale and redemption before sale. The net proceeds of any such
public or private sale or other disposition as far as needed shall be applied
toward the payment and discharge of any and all of our obligations to you,
together with all interest thereon and all reasonable costs, charges, expenses
and disbursements in connection therewith, including the reasonable fees of your
attorneys.
This agreement is deemed made in the State of New York and is to be
governed, interpreted and construed in accordance with the laws of the State of
New York. No modification, waiver or discharge of this agreement shall be
binding upon you unless in writing, signed and subscribed by you. If you should
at any time fail to exercise any right or privilege hereunder, the same shall
not constitute a waiver on your part of exercising any right or privilege at any
subsequent time. If any taxes are imposed or if you shall be required to
withhold or pay any tax because of any transactions between us, we agree to
indemnify you and hold you harmless in respect thereto. It is agreed between us
that trial by jury is hereby waived in any action, proceeding or counterclaim
brought by either of us against the other on any matters whatsoever arising out
of or in any way connected with this agreement or our relationship created
hereby and we hereby consent to the non-exclusive jurisdiction of the Supreme
Court of the State of New York and any federal court located in the Southern
District of New York for a determination of any dispute as to any such matters
and authorize the service of process on us by registered mail sent to us at our
address hereinbelow set forth.
<PAGE>
This Agreement shall constitute a security agreement pursuant to the Uniform
Commercial Code and, in addition to any and all of your other rights hereunder,
you shall have all of the rights of a secured party pursuant to the provisions
of the Uniform Commercial Code. We agree to execute a financing statement and
any and all other instruments and documents that may now or hereafter be
provided for by the Uniform Commercial Code or other law applicable thereto,
reflecting the security interests granted to you hereunder. We do hereby
authorize you to file a financing statement without our signature, signed only
by you as secured party, to reflect the security interests granted to you
hereunder.
Very truly yours,
Attest: LUNN INDUSTRIES, INC.
By:
on December 28, 1995 Chief Executive Officer
GIBRALTAR CORPORATION OF AMERICA 1 Garvies Point Road, Glen Cove,
New York 11542
By:
Vice President
<PAGE>
Exhibit 10.30
AMENDED AND RESTATED COMMERCIAL REVOLVING LOAN, TERM LOAN
AND SECURITY AGREEMENT
AGREEMENT made December 28, 1995, among LUNN INDUSTRIES, INC., a
Delaware corporation, with a place of business located at 1 Garvies Point Road,
Glen Cove, New York ("Lunn"), ALCORE INC., a Delaware corporation with a place
of business located at 1324 Brass Mill Road, Belcamp, Maryland 21017 ("Alcore")
(Lunn and Alcore each a "Borrower" and collectively, "Borrowers") and FLEET
NATIONAL BANK OF CONNECTICUT (f/k/a SHAWMUT BANK CONNECTICUT, NATIONAL
ASSOCIATION), a national banking association with an office located at One
Corporate Center, Hartford, Connecticut 06120 (the "Lender").
Background
Borrowers and Lender have previously entered into a Commercial
Revolving Loan, Term Loan and Security Agreement dated May 21, 1993 (as amended
and modified from time to time, the "Loan Agreement").
Various Events of Default are now existing under the Loan Agreement by
reason of which Lender has no obligation to make any additional Loans and has
full legal right to exercise all remedies under the Loan Agreement. Borrower has
requested that the Lender amend and restate the Loan Agreement in order to
permit (i) certain of the Obligations to be paid and (ii) Borrower to enter into
financing transactions with Gibraltar and Lender is willing to do so upon the
terms and conditions contained herein.
AMENDMENT AND RESTATEMENT
As of the date of this Agreement, the terms, conditions, covenants,
agreements, representations and warranties contained in the Loan Agreement shall
be deemed amended and restated in their entirety provided, however, that nothing
contained in this Agreement shall impair, limit or affect the Liens heretofore
granted, pledged and/or assigned to Lender as security for the Obligations to
Lender under the Loan Agreement.
Agreement
In consideration of the Background, which is incorporated by reference
and the mutual considerations contained in this Agreement, the Borrowers and the
Lender, intending to be bound legally, agree as follows:
ARTICLE I.
Definitions
(a) Unless otherwise defined, all accounting terms set forth in this
Agreement shall be construed, and all computations or classifications of assets,
liabilities, income and expenses shall be made or determined in accordance with
GAAP, as defined below. As used herein, or in any certificate, document or
report delivered pursuant to this Agreement or any other Financing Agreement, as
defined below, the following terms shall have the following meanings:
<PAGE>
(a) "Accounts" shall have the definition assigned in Section 8.1(i).
(b) "Account Debtor" and "Account Debtors" shall mean the person or
entity or persons or entities obligated to the Borrower upon the Accounts.
(c) "Agreement" shall mean this Amended and Restated Commercial
Revolving Loan, Term Loan and Security Agreement as the same may be amended,
supplemented or otherwise modified from time-to-time.
(d) "Base Rate" shall mean the interest rate publicly announced by the
Lender from time-to-time as its Base Rate. The Base Rate may not be the Lender's
lowest or most favorable rate.
(e) "Borrower" and "Borrowers" shall have the meaning ascribed to such
term in the Preamble of this Agreement.
(f) "Business Day" shall mean any day other than a day on which
commercial banks in the state of Connecticut are required or permitted by law to
close.
(g) "Closing Date" shall mean December 28, 1995 or such other date as
may be agreed to by the parties hereto.
(h) "Code" shall mean the Internal Revenue Code of 1986, as the same
may be amended from time to time.
(i) "Collateral" means the property of the Borrowers described in
Article VIII hereof.
(j) "Contract Rate" shall mean (i) for the First Period, the Base Rate,
and (ii) for the Second Period, ten percent (10%) per annum subject to increase
upon exercise by Borrower of the Interest Rate ("Fixed Rate") Option, provided,
however, that the maximum Fixed Rate shall not exceed twenty percent (20%) per
annum.
(k) "Debt" shall mean all indebtedness, liabilities and obligations
arising under and in any way related to the financing accommodations set forth
in this Agreement including, without limitation, the indebtedness of the Note.
(l) "Default Rate" shall mean the then applicable Contract Rate plus
four percent (4%) per annum.
(m) "Dollar" and the sign "$" shall mean lawful money of the United
States of America.
(n) "Effective Net Worth" shall mean, for any period, Tangible Net
Worth plus any liability of Borrowers to any party, the payment of which is
subordinated to the payment of the Gibraltar Indebtedness.
(o) "Equipment" shall have the definition assigned in Section 8.1(v)
hereof.
<PAGE>
(p) "Excess Cash Flow Payment" shall have the definition assigned in
Section 2.1 hereof.
(q) "ERISA" shall mean the Employee Retirement Income Security Act of
1974 and all rules and regulations promulgated pursuant thereto, as the same may
be supplemented or amended from time-to-time.
(r) "Event of Default" shall have the definition assigned in
Section 9.1 hereof.
(s) "Excess Cash Flow" shall mean, for any fiscal period, for Lunn
and its Subsidiaries on a consolidated basis, the sum of (a) net income plus
taxes, interest, depreciation and amortization less (b) regularly scheduled
payments of principal and interest on Gibraltar Indebtedness (exclusive of
repayments of outstanding revolving loans), Grill Leasing Indebtedness and Limco
Indebtedness, (c) capital expenditures not more than $250,000 in any fiscal year
and (d) $350,000.
(t) "Financing Agreement" or "Financing Agreements" shall mean this
Agreement, the Note, the Warrant and all other agreements or documents executed
in connection herewith, together with any amendments, supplements or
modifications hereto or thereto.
(u) "First Period" shall mean the period commencing on the Closing
Date and ending on December 27, 1997.
(v) "GAAP" means generally accepted accounting principles.
(w) "Gibraltar" shall mean Gibraltar Corporation of America.
(x) "Gibraltar Indebtedness" shall mean Indebtedness for money
borrowed due and owing to Gibraltar under the Gibraltar Loan Agreement.
(y) "Gibraltar Loan Agreement" shall mean the Financing Agreement
dated the date hereof between Lunn and Gibraltar.
(z) "Governmental Body" shall mean any nation or government, any
state or other political subdivision thereof, any entity exercising executive,
legislative judicial, regulatory or administrative functions of or pertaining to
government any court arbitrator.
(aa) "Grill Leasing Indebtedness" shall mean Indebtedness due and
owing to Grill Leasing in connection with the Asset Purchase Agreement dated
December, 1994 between Lunn and Limco.
(bb) "Insolvent" or "Insolvency" shall mean the failure to pay
debts as they mature or when the fair market value of assets is less than the
Person's liabilities.
(cc) "Intercreditor Agreement" shall mean the Intercreditor and
Subordination Agreement dated as of December 28, 1995 between Lender and
Gibraltar.
<PAGE>
(dd) "Interest Rate Option" shall mean the option of Borrower to omit
payment of the Excess Cash Flow Payment on any Required Payment Date by electing
instead to increase the then current Contract Rate by an additional two and one
half percent per annum (2.50%).
(ee) "Inventory" shall have the definition assigned in Section
8.1 (viii) hereof.
(ff) "Lender" shall have the meaning ascribed to such terms in the
Preamble.
(gg) "Liabilities" shall mean, at any given time, all liabilities
of Borrowers on a consolidated basis which would be classified as liabilities
under GAAP.
(hh) "Limco" shall mean Limco Manufacturing, Inc.
(ii) "Limco Indebtedness" shall mean Indebtedness due and owing to
Limco in connection with the Asset Purchase Agreement dated December 12, 1994
between Lunn and Limco.
(jj) "Loan" shall mean the Term Loan.
(kk) "Long Term Liabilities" shall mean, at any given time, all
Liabilities of Borrowers determined on a consolidated basis which would be
classified as long term liabilities under GAAP.
(ll) "Net Income" shall mean for any given period, the net income
of Borrowers determined on a consolidated basis, computed in accordance with
GAAP.
(mm) "Note" shall mean the Amended and Restated Subordinated Term
Note described in Section 2.1 hereof.
(nn) "Obligations" shall mean all loans, advances, interest,
indebtedness, liabilities, obligations, guaranties, covenants and duties of
every kind and description at any time owing by the Borrowers to the Lender,
whether or not evidenced by any note or other instrument, whether or not for the
payment of money, whether direct or indirect, absolute or contingent, due or to
become due, now existing or hereafter arising including, but not limited to, the
indebtedness, liabilities and obligations arising under this Agreement, the Note
and the other Financing Agreements, and all reasonable costs, expenses, fees,
charges, and attorneys, paralegals and other professional fees incurred in
connection with any of the foregoing, or in any way connected with, involving or
relating to the preservation, enforcement, protection and defense of this
Agreement, the Note, the other Financing Agreements, any related agreement,
document or instrument, the Collateral and the rights and remedies. hereunder or
thereunder.
(oo) "PBGC" shall mean the Pension Benefit Guaranty Corporation.
(pp) "Person" shall mean an individual, a partnership, a corporation,
a business trust, a joint stock company, a trust, an unincorporated association,
a joint venture, a Governmental Body or any other entity of whatever nature.
<PAGE>
(qq) "Plan" shall mean any employee benefit plan or other plan
maintained for employees covered by Title 10 of ERISA.
(rr) "Required Payment Date" shall have the meaning assigned to such
term in Section 2.2(b) hereof.
(ss) "Security Interests" shall mean a valid and enforceable second
priority lien upon, pledge of, and security interest in the Collateral.
(tt) "Second Period" shall mean the period commencing on December 28,
1997 and at all times thereafter.
(uu) "Subsidiary" and "Subsidiaries" shall mean any corporation or
corporations of which more than 50% of the outstanding shares of stock of each
class having ordinary voting power is at the time owned by the Borrower or by
one or more Subsidiaries.
(vv) "Tangible Net Worth" shall mean, for any period, stockholders'
equity, less the aggregate amount of intangible assets, less the aggregate
principal amount of all loans outstanding from Borrowers to any officer,
director and/or shareholder, less advances to Borrowers' trade suppliers
constituting prepayment for merchandise purchases, all as determined on a
consolidated basis for Borrowers in accordance with GAAP.
(ww) "Term" shall mean from December 28, 1995 through December 27,
2005.
(xx) "Term Loan" shall have the definition assigned in Section 2.1
hereof.
(yy) "Term Note" shall have the definition assigned in Section 2.1
hereof.
(zz) "Transaction Expenses" shall mean all reasonable legal, search
and filing fees, and all other reasonable expenses that may be incurred or
sustained by the Lender or any of its authorized agents in connection with the
transaction contemplated herein, whether or not the transaction is consummated,
including, without limitation, expenses related to due diligence efforts and the
negotiation and preparation of this Agreement and the other Financing
Agreements, in perfecting, preserving and enforcing the Lender's Security
Interest, in rendering advice with respect to this Agreement, the other
Financing Agreements and the Term Loan.
(aaa) "Warrant" shall mean the Warrant issued by Lunn to Lender to
purchase 400,000 shares of the common stock of Lunn attached hereto as Exhibit
1.1.
1.2 Uniform Commercial Code Terms. All terms used herein and defined in
the Uniform Commercial Code as adopted in the State of Connecticut shall have
the meaning given therein unless otherwise defined herein; provided, however,
that to the extent that the creation, validity, attachment, perfection,
priority, maintenance or continuation of a security interest in any Collateral
(or the effect of any such matters) is governed by the laws of any other
<PAGE>
jurisdiction, such terms shall have the meanings given to them in the Uniform
Commercial Code as adopted in such other jurisdiction for the purposes of the
provisions hereof pertaining to the creation, validity, attachment, perfection,
priority, maintenance or continuation of a security interest in such Collateral
(or the effect of any such matters).
1.3 Other Terms and Computation of Time Periods. Wherever appropriate
in the context, terms used herein in the singular also include the plural, and
vice versa, and each masculine, feminine or neuter pronoun shall also include
other genders. The words "include", "includes" and "including" shall be deemed
to be followed by the phrase "without limitation". The computation of periods of
time from a specified date to a later specified date, the word "from" means
"from and including" and the words "to" and "until" each means "to but
excluding".
ARTICLE II.
Loans
2.1 Acknowledgment. Subject to the terms and conditions set forth in
this Agreement prior to its restatement, Lender has made advances to Borrowers.
Borrowers hereby affirm and acknowledge that as of December 28, 1995 there were
outstanding loans and advances in the aggregate principal amount of
$3,365,197.73 including accrued interest thereon and costs and expenses
(collectively, the "Amount") and that the Amount was due and owing without
defense, setoff or counterclaim of any kind or nature. As of December 28, 1995,
Gibraltar entered into financing arrangements with Borrowers pursuant to which
Gibraltar has agreed upon certain terms and conditions to make loans and provide
other financial accommodations to Borrowers as a result of which the Amount has
been reduced to $500,000. Such sum of $500,000 (the "Term Loan") is now
represented by the Amended and Restated Subordinated Term Note (the "Term
Note"), the principal amount of which is payable at the end of the Term subject
to acceleration upon the occurrence of an Event of Default under this Agreement
and subject to prepayment as set forth below. Subject to the terms and
conditions contained in this Agreement, the Lender has recast the Amount into a
$500,000 term loan as evidenced by and on the terms and conditions of the Term
Note, a copy of which is attached hereto as Exhibit 2.1.
2.2 Mandatory Prepayments.
(a) When Borrowers sell or otherwise dispose of any Collateral
(other than Inventory in the ordinary course of business) Borrowers shall,
subject to the terms of the Intercreditor Agreement, repay the principal amount
of the Obligations and the interest thereon and other Obligations if not
otherwise paid in an amount equal to the net proceeds of such sale (i.e., gross
proceeds less the reasonable costs of such sales or other dispositions), such
repayments to be made promptly but in no event more than one (1) Business Day
following receipt of such net proceeds, and until the date of payment, such
proceeds shall be held in trust for Lender. The foregoing shall not be deemed to
be implied consent to any such sale otherwise prohibited by the terms and
conditions hereof.
(b) Borrowers shall prepay the outstanding principal amount of
the Term Note and the interest thereon in an amount equal to thirty percent
<PAGE>
(30%) of Excess Cash Flow for the fiscal year ending December 31, 1998 and for
each fiscal year thereafter until the Loan is paid in full (the "Excess Cash
Flow Payment") payable upon delivery of the financial statements to Lender
referred to in and required by Section 7.1(a)(ii) but in any event not later
than ninety (90) days after the end of each such fiscal year (the "Required
Payment Date"). In the event that any financial statement is not so delivered,
then a calculation based upon estimated amounts shall be made by Lender upon
which calculation Borrower shall make the prepayment required by this Section
2.2, subject to adjustment when the financial statement is delivered to Lender
as required hereby. The calculation made by Lender shall not be deemed a waiver
of any rights Lender may have as a result of the failure by Borrowers to deliver
such financial statement.
(c) In the alternative, and in lieu of making the Excess Cash
Flow Payment, Borrowers shall have the right to exercise the Interest Rate
Option. The exercise of the Interest Rate Option shall be (i) in writing, (ii)
delivered to Lender no later than five (5) Business days prior to any applicable
Required Payment Date, (iii) irrevocable, with respect to each Cash Flow Payment
as to which it is being exercised and (iv) effective as to an increase in the
then current Contract Rate retroactive to January 1 of each such fiscal year.
2.3 Voluntary Prepayments
(a) Borrowers may prepay the principal amount of the Term Loan in
part or in full at any time without premium or penalty except as provided in (b)
below.
(b) The Borrowers may prepay the Term Loan in full on or prior
to March 31, 1996 upon (a) payment to Lender of Three Hundred Thousand dollars
($300,000) and (b) issuance to Lender of warrants to purchase 100,000 shares of
the common stock of Lunn pursuant to a warrant agreement in the form attached
hereto as Exhibit 2.3.
ARTICLE III.
Interest, Terms, Repayments and Fees
3.1 Interest.
(a) Interest Rate. Subject to the next succeeding sentence, interest on
the Loan shall be payable in arrears on the last day of each month. During the
First Period, interest on the Loan shall accrue at the Contract Rate and shall
be added to and become part of the principal balance of the Term Loan. Interest
charges shall be computed at a rate per annum equal to the Contract Rate;
provided, however, that after the occurrence of an Event of Default and for so
long as such Event of Default continues, interest charges shall, at Lender's
option, be computed at a rate per annum equal to the Default Rate.
(b) Computation of Interest and Fees. Interest and fees hereunder
shall be computed on the basis of a year of 360 days and for the actual number
of days elapsed. If any payment to be made hereunder becomes due and payable on
a day other than a Business Day, the due date thereof shall be extended to the
next succeeding Business Day and interest thereon shall be payable at the
applicable Contract Rate during such extension.
<PAGE>
(c) Lawful Interest. The Borrowers and the Lender intend that the
rate of interest and all other charges to the Borrowers be lawful. If for any
reason the payment of a portion of interest, fees or charges required by this
Agreement or the Note would exceed the limit established by applicable law which
the Lender may charge to the Borrowers, then the Borrowers' obligation to pay
interest or charges shall automatically be reduced to such limit and, if the
Borrowers shall pay any amounts in excess of such limits, then the Lender shall
(i) apply such amounts to the unpaid principal amount of the Obligations or (ii)
refund such amounts to the Borrowers, so that under no circumstances shall the
interest or charges required hereunder exceed the maximum rate allowed by law.
3.2 Term.
(a) Term Loan. Unless the Lender accelerates payment as the result of
an occurrence of an Event or Default, the Term Loan shall be repaid at the end
of the Term, subject to prepayments as set forth herein.
3.3 Repayments. The Lender shall credit any payments made by the
Borrowers to the Lender first to late charges, costs and expenses, then to
accrued and unpaid interest and then to the outstanding principal balances due
under the Term Loan in the inverse order of maturity, in the Lender's sole
discretion.
ARTICLE IV.
Funding and Yield Protection
4.1 Increased Costs. In the event that any applicable law, treaty,
regulation or official directive from any government, governmental agency or
regulatory authority, or the interpretation or application thereof by any court
or governmental authority, or compliance by the Lender with any request or
directive, whether or not having the force of law, from any central bank or
government, governmental agency or regulatory authority, shall:
(a) subject the Lender to any tax with respect to this Agreement or the
Loan, except taxes on the overall net income of the Lender, or change the basis
of taxation of payments to the Lender of principal, interest or any other amount
payable hereunder, except for change" in the rate of tax on the overall net
income of the Lender;
(b) impose, modify or hold applicable any deposit, insurance, reserve,
special deposit, capital maintenance or similar requirements against assets held
by, or deposits in or for the account of, or advances or loans or commitments to
make the Loan, or other credit extended by, the Lender including, without
limitation, pursuant to Regulations of the Board of Governors of the Federal
Reserve System; or
(c) impose on the Lender any other condition with respect to this
Agreement, the Note or the Loan and the result of any of the foregoing is (i) to
increase the cost to the Lender of making, renewing or maintaining the Loan, or
any part thereof, by an amount that the Lender reasonably deems to be material,
or (ii) to reduce the income receivable by or return on equity of the Lender by
an amount that the Lender reasonably deems to be material, or (iii) to impose
<PAGE>
any expense upon the Lender with respect to the Loan, then, in any case, the
Borrowers agree to pay promptly to the Lender, upon its demand, such additional
amount that will compensate the Lender for such additional costs, reduction in
income or expenses as the case may be (collectively the "Additional Costs"). The
Lender shall certify the amount of such Additional Costs to the Borrowers, and
such certification, absent demonstrable error, shall be deemed conclusive.
4.2 Capital Adequacy Protection. If the Lender shall have determined
that (i) the adoption of any applicable law, governmental rule, regulation or
order regarding capital adequacy of banks or bank holding companies, or any
change therein, or (ii) any change in the interpretation or administration
thereof by any applicable governmental authority, central bank or comparable
agency, or (iii) compliance by the Lender with any request or directive
regarding capital adequacy, whether or not having the force of law and whether
or not failure to comply therewith would be unlawful, so long aa the Lender
believes in good faith that such has the force of law or that the failure to so
comply would be unlawful, has or would have the effect of reducing the rate of
return on the Lender's capital as a consequence of the Lender's obligations
hereunder to a level below that which the Lender could have achieved but for
such adoption, change or compliance, taking into consideration the Lender's
policies with respect to capital adequacy immediately before such adoption,
change or compliance and assuming that the Lender's capital was fully utilized
prior to such adoption, change or compliance, by an amount deemed by the Lender
in its reasonable judgment to be material, then, upon demand, the Borrowers
shall pay immediately to the Lender, from time-to-time as specified by the
Lender, such additional amount. as shall be sufficient to compensate the Lender
for such reduced return, together with interest on each such amount from the
date of such specification by the Lender until payment in full thereof at the
then current rate of interest due under the Term Loan. A certificate of the
Lender setting forth the amount to be paid to it shall, in the absence of
demonstrable error, be deemed conclusive. In determining such amount, the Lender
shall use any reasonable averaging and attribution methods. The Borrowers may,
however, avoid paying such amounts for future rate of return reductions if,
within the maximum borrowings permitted herein, the Borrowers borrow such
amounts as will cause the Lender to avoid any such future rate of return
reductions which would otherwise be caused by such changed capital adequacy
requirements or the Borrowers agree to a reduction in the Loan to achieve the
same result.
ARTICLE V.
Conditions of Lending
5.1 The Borrowers agree that the Lender's obligation to extend the Term
Loan is subject to fulfillment by the Borrowers of the following conditions
precedent, all in form, scope and substance reasonably satisfactory to the
Lender and its counsel:
(a) Evidence of Corporate Action. The Lender shall have received
certified copies of all corporate action taken by each of the Borrowers to
authorize the execution, delivery and performance of this Agreement, the Note,
<PAGE>
the Warrant, the other Financing Agreements, and the borrowings to be made
hereunder, together with copies of the Borrowers' Certificates of Incorporation
and Bylaws, all amendments thereto, and such other papers as the Lender or its
counsel may reasonably require, including, without limitation, certificates of
good standing, qualification and tax clearance.
(b) Note. The Lender shall have received the duly executed Term Note
drawn to its order.
(c) Financing Statements. The Lender shall have received from the
Borrowers (i) duly executed Financing Statements on Form UCC-1 and (ii) such
other documents as the Lender deems reasonably necessary or proper to perfect
its security interest in the Collateral.
(d) Insurance. The Lender shall have received evidence of insurance in
such amounts and with such companies reasonably satisfactory to the Lender, and
the Lender shall be named as a loss payee on all such insurance.
(e) Senior Financing. The Borrowers shall have closed its financing
arrangements with Gibraltar.
(f) Warrant. The Lender shall have received a duly executed Warrant.
(g) Opinion of Counsel. The Lender shall have received a written
opinion of counsel to the Borrowers in the state of New York, accompanied by
such supporting documents as the Lender or its counsel may reasonably require.
(h) Transaction Expenses. The Borrowers shall have paid the
Transaction Expenses incurred through the date of this Agreement.
(i) Material Adverse Change. Since September 5, 1995, (i) there shall
have occurred no material depreciation in the value of the Collateral, (ii)
there shall have occurred no material adverse change in the operation, financial
condition or business prospects of the Borrowers, (iii) no litigation shall have
been commenced or threatened which, if successful, would have any material
adverse effect on the operation or challenge the transactions contemplated by
this Agreement, financial condition or business prospects of the Borrowers, (iv)
no event which with the giving of notice or passage of time or both, would
constitute an Event of Default, if any, shall have occurred or be continuing,
and (v) no representations made or information supplied to the Lender shall have
proven to be inaccurate or misleading in any material respect.
(j) Other. The Lender shall have received such other documents as the
Lender deems reasonably necessary.
ARTICLE VI.
Representations and Warranties
6.1 Each of the Borrowers represents and warrants to the Lender that:
(a) Good Standing and Qualification. Each of the Borrowers is a
corporation duly organized, validly existing and in good standing under the laws
of the state of Delaware. Each of the Borrowers has all requisite corporate
<PAGE>
power and authority to own and operate its properties and to carry on its
business as presently conducted and is qualified to do business and is in good
standing as a foreign corporation in each jurisdiction wherein the character of
the properties owned or leased by it therein or in which the transaction of its
business therein makes such qualification necessary.
(b) Corporate Authority. The Borrowers have full corporate power and
authority to enter into and perform the obligations contained in this Agreement,
to make the borrowings contemplated herein, to execute and deliver the Note, the
Warrant and the other Financing Agreements and to incur the obligation. provided
for herein and therein, all of which have been duly authorized by all necessary
and proper corporate action. No other consent or approval or the taking of any
other action in respect of shareholders or of any public authority is required
as a condition to the validity or enforceability of this Agreement, the Note,
the Warrant or any of the other Financing Agreements. The execution and delivery
of this Agreement is for valid corporate purposes and will not violate the
Borrowers' certificates of incorporation or bylaws.
(c) Binding Agreements. This Agreement constitutes, and the Note, the
Warrant and the other Financing Agreements shall constitute, legal, valid and
legally binding Obligations of the Borrowers, enforceable in accordance with
their respective terms, except as enforcement may be limited by bankruptcy,
insolvency or similar laws affecting the enforcement of creditors' rights
generally.
(d) Governmental Approvals. No action, consent or approval of,
registration or filing with or any other action by any Governmental Authority is
or will be required in connection with the transactions contemplated by this
Agreement, the Note, the Warrant and the other Financing Agreements, except such
as have been made or obtained and are in full force and effect, and except for
the filing of the notices of assignment in accordance with the compliance with
the Assignment of Claims Act, the filing of Financing Statements on Form UCC-1
and the filing with the Office of Patents and Trademarks.
(e) Brokers. No broker or finder acting on behalf of the Borrowers'
brought about the obtaining, making or closing of the Loan made pursuant to this
Agreement or the transactions contemplated by the Financing Agreements and the
Borrowers have no obligation to any Person in respect of any finder's or
brokerage fees in connection therewith.
(f) Litigation. Except as otherwise provided in Schedule 6.1(f), there
are no actions, suits, proceedings or investigations pending or, to the
knowledge of the officers of the Borrowers, threatened against the Borrowers
before any court or administrative agency, which either in any case or in the
aggregate, if adversely determined, would materially and adversely affect the
financial condition, assets or operations of the Borrowers, or which question
the validity of this Agreement, the Note, the Warrant, or any other Financing
Agreement, or any action to be taken in connection with the transactions
contemplated hereby.
(g) No Conflicting Law or Agreements. The execution, delivery and
performance by the Borrowers of this Agreement, the Note, the Warrant and the
other Financing Agreements do not (i) violate any order, decree or judgment, or
any provision of any statute, rule or regulation, (ii) violate or conflict with,
<PAGE>
result in a breach of or constitute, with notice or lapse of time, or both, a
default under any shareholder agreement, stock preference agreement, mortgage,
indenture or contract to which any of the Borrowers is a party, or by which any
of their properties are bound, or (iii) result in the creation or imposition of
any lien, charge or encumbrance of any nature whatsoever upon any property or
assets of the Borrowers except as contemplated herein.
(h) Taxes. With respect to all taxable periods of the Borrowers, the
Borrowers have filed all tax returns required to be filed by them other than
their 1994 federal and state tax returns and have paid all federal, state,
municipal, franchise and other taxes shown on such filed returns or have
reserved against the same, as required by GAAP. The Borrowers are not the
subject of any audit and have not applied for, or been granted, any extension
within which to file their tax returns or for an audit to be completed and the
Borrowers know of no unpaid assessments against them.
(i) Financial Statements. The Borrowers have delivered to the Lender
the audited balance sheet of the Borrowers as of December 31, 1994, and the
related statements of income, retained earnings and cash flows for the fiscal
year then ended. Such statements fairly present the consolidated financial
condition of the Borrowers as of the dates and for the periods referred to
therein and have been prepared in accordance with GAAP applied on a consistent
basis throughout the periods involved. There are no liabilities, direct or
indirect, fixed or contingent, of the Borrowers as of the date of the balance
sheet which are not reflected therein or in the notes thereto, other than
liabilities or obligations not material in amount which are not required to be
reflected in corporate balance sheets prepared in accordance with GAAP. There
has been no material adverse change in the financial condition, business,
operations, affairs or prospects of the Borrowers since the date of such
financial statements. The Borrowers represent that (i) they are and, after
giving effect to the transactions contemplated by this Agreement, they shall not
be Insolvent, (ii) they do not have, and shall not have after giving effect to
the transactions contemplated by this Agreement, unreasonably small capital, and
(iii) they do not intend to incur, and do not believe that they will incur,
debts that would be beyond their ability to pay as such debts mature.
(j) Existence of Assets and Title Thereto. The Borrowers have good and
marketable title to its properties and assets, including the properties and
assets reflected in the financial statements referred to above. These properties
and assets are not subject to any mortgage, pledge, lien, lease, encumbrance,
restriction or charge except those permitted under the terms of this Agreement
or as set forth in Schedule 6.1(j), and none of the foregoing prohibit or
interfere with the Borrowers' ownership of its assets or the operation of its
business.
(k) Regulations G, T, U and X. The proceeds of the Loan will not be
used, directly or indirectly, for any consumer purchases, or for the purposes of
purchasing or carrying any margin stock in contravention of Regulations G, T, U
or X promulgated by the Board of Governors of the Federal Reserve System.
(l) Compliance. The Borrowers are not in default with respect to or
in violation of any order, writ, injunction or decree of any court or of any
Governmental Body, or in violation of any law, statute, rule or regulation to
which they or their properties are subject, where such default or violation
<PAGE>
would materially and adversely affect the financial condition of the Borrowers.
The Borrowers represent that they have not received notice of any such default
from any party which has not been cured. The Borrowers are not in default in the
payment or performance of any of their obligations to any third parties or in
the performance of any mortgage, indenture, lease, contract or other agreement
to which they are a party or by which any of their assets or properties are
bound.
(m) Leases. The Borrowers enjoy quiet and undisturbed possession
under all leases under which they are operating, and all such leases are valid
and existing and the Borrowers are not in default under any of their leases. The
leases to which the Borrowers are currently a party are set forth on the
attached Schedule 6.1(m).
(n) Pension Plans. (i) To the best of the Borrowers' knowledge, no fact
exists in connection with any Plan of the Borrowers which might constitute
grounds for termination of any such Plan by the Pension Benefit Guaranty
Corporation or for the appointment by the appropriate United States District
Court of a trustee to administer any Plan. A list of all of the Borrowers' Plans
are set forth on Schedule 6.1(n);
(ii) No "prohibited transaction" within the meaning of ERISA
or the Code exists or will exist upon the execution and delivery of this
Agreement, or the performance by the Borrowers of their obligations hereunder;
(iii) The Borrowers agree to do all acts including, but not
limited to, making all contributions necessary to maintain compliance with
ERISA and the Code and agree not to terminate any Plan in a manner or do or
fail to do any act which could result in the imposition of a lien on any of
their property pursuant to ERISA;
(iv) The Borrowers do not sponsor or maintain, and have
never contributed to, and have not incurred any withdrawal liability under a
"multi-employer plan" as defined by ERISA and the Borrowers do not have any
written or verbal commitment to establish, maintain or contribute to any
"multi-employer plan" under the Multi-employer Pension Plan Amendment Act of
1980;
(v) The Borrowers have no unfunded liability in
contravention of ERISA and the Code;
(vi) The Plan complies currently, and has complied in the
past, both as to form and operation, with the terms and provisions of the Code
and ERISA, and all applicable regulations thereunder and all rules issued by the
Internal Revenue Service, U.S. Department of Labor and the PBGC and as such, is
and remains a "qualified" plan under the Code;
(vii) No actions, suits or claims are pending against any
Plan, or the assets of any Plan;
(viii) The Borrowers have performed all obligations required
to be performed by it under the Plans and the Borrowers are not in default, or
in violation of any Plan, and has no knowledge of any such default or violation
by any other party to the Plans;
<PAGE>
(ix) No liability has been incurred by the Borrowers to the
PBGC or to participants or beneficiaries on account of any termination of a Plan
subject to Title IV of ERISA, no notice of intent to terminate a Plan has been
filed by, or on behalf of, the Borrowers pursuant to Section 4041 of ERISA and
no proceeding has been commenced by the PBGC pursuant to Section 4042 of ERISA;
(x) The reporting and disclosure provisions of the
Securities Act of 1933 and Securities Exchange Act of 1934 have been complied
with for all such Plans.
(o) Deferred Compensation Arrangements. Except as set forth in
Schedule 6.1(o), the Borrowers have not entered into employment contracts or
deferred compensation plans, incentive compensation plans, executive
compensation plans, arrangements or commitments, other than normal policies
regarding holidays, vacations and salary continuation during short periods of
illness. With respect to any such plan, arrangement or commitment:
(i) Each plan, arrangement, or commitment complies
currently, and has complied in the past, both as to form and operation with the
terms and provisions of the Code and ERISA and all applicable laws, rules and
regulations;
(ii) The disclosure and reporting provisions of the
Securities Act of 1933 and the Securities Exchange Act of 1934 have been
satisfied;
(iii) Each plan and arrangement set forth in Schedule 6.1(o)
is legally valid and binding and is in full force and effect;
(iv) The Borrowers have made all contributions required to
be made under such plan, arrangement, or commitment and no contributions are
currently due and owing;
(v) There are no actions, suits or claims pending, or, to
the best of the Borrowers' knowledge which could be reasonably expected to be
asserted against any such plan, arrangement, or commitment;
(vi) The Borrowers have performed all obligations required
to be performed by it under each plan, arrangement, or commitment and the
Borrowers are not in default or in violation of, and the Borrowers have no
knowledge of any such default or violation by any other party to any and all
such plans or arrangements.
(p) Office. The chief executive office and principal place of
business of the Borrowers, and the office where their records concerning the
Collateral are kept are as set forth on the attached Schedule 6.1(p).
(q) Places of Business. The Borrowers have no other places of
business and locate no Collateral, specifically including books and records, at
any location other than those set forth on the attached Schedule 6.1(q).
(r) Contingent Liabilities. The Borrowers are not a party to any
suretyship, guarantyship, or other similar type agreement; and they have not
<PAGE>
offered their endorsement to any Person or acted or failed to act in any manner
which would in any way create a contingent liability that does not appear in the
financial statements referred to above.
(s) Contracts. The Borrowers are not a party to any contract,
governmental or otherwise, which is currently subject to renegotiation, and the
Borrowers are not in default of any material contract.
(t) Union Contracts. The Borrowers are not a party to any collective
bargaining or union agreement, except as set forth on the attached Schedule
6.1(t). The union contracts set forth on Schedule 6.1(t) are in full force and
effect and are not currently subject to renegotiation. The Borrowers are in
material compliance with the terms and conditions of all such union contracts
and know of no threatened work stoppage by any union members.
(u) Stock Matters. There are no options or rights outstanding to
purchase any of the Borrowers' capital stock except as set forth on the attached
Schedule 6.1(u). The authorized capital stock of Lunn consists of 20,000,000
shares of common stock, $.01 par value per share, 7,508,650 of which shares are
outstanding. The authorized capital stock of Alcore consists of 1000 shares of
common stock, no par value per share, 1000 of which shares are outstanding. All
of such shares are fully paid and non-assessable, are not and will not have
been, issued in violation of any federal or state law pertaining to the issuance
of any securities or any preemptive rights. No issued, no authorized but
unissued and no treasury shares of capital stock of any Borrower are subject to
any preemptive rights, irrevocable proxy, shareholder or voting agreement,
option, warrant, right of conversion or purchase or any similar right except as
set forth in Schedule 6.1(u).
(v) Licenses. The Borrowers have all licenses, permits, approvals and
other authorization required by any Governmental Body, or from any licensing
entity necessary for the conduct of their businesses, all of which the Borrowers
represent to be current, valid and in full force and effect.
(w) Collateral. a. The Borrowers are and shall continue to be the
sole owner of the Collateral free and clear of all liens, encumbrances, security
interests and claims, except (X) the Security Interests and (Y) the security
interests of Gibraltar and as listed on the attached Schedule 6.1(w). The
Borrowers are fully authorized to sell, transfer, pledge or grant to the Lender
the Security Interest in the Collateral. All documents and agreements relating
to the Collateral shall be true and correct and in all respects what they
purport to be. All signatures and endorsements that appear thereon shall be
genuine and all signatories and endorsers shall have full capacity to contract.
None of the transactions underlying or giving rise to the Collateral shall
violate any applicable laws or regulations of any Governmental Body. All
documents relating to the Collateral shall be legally sufficient under such laws
or regulations and shall be legally enforceable in accordance with their terms;
and each of the Borrowers agrees to defend the Collateral against the claims of
all persons other than the Lender.
(ii) The Financing Statements on Form UCC-l in appropriate
form have been filed in the offices specified in Schedule 6.1(w)(ii) and the
Security Interests constitute valid and perfected security interests in the
Collateral to the extent that a security interest therein may be perfected by
<PAGE>
filing pursuant to the UCC, prior to all other liens and rights of others
therein other than Gibraltar.
(iii) If any Collateral is at any time in the possession or
control of any warehouseman, bailee or any of the Borrowers' agents or
processors, the Borrowers shall (X) notify such warehouseman, bailee, agent or
processor of the Security Interests created hereby, and (Y) instruct such
warehouseman, bailee, agent or processor to hold all such Collateral for the
Lender's account subject to the Lender's instructions and subject to the
Intercreditor Agreement.
(x) Accounts. Each Account is, or at the time it comes into
existence, will be, a true and correct statement of: (A) the bona fide
indebtedness of each Account Debtor; and (B) the amount of the account for
merchandise sold and delivered to, or for services performed for and accepted
by, such Account Debtor, net of any charges, adjustments, discounts or other
reductions whatsoever.
(y) Financial information. All financial information submitted by the
Borrowers to the Lender, whether previously or in the future, is and will be
true and correct in all material respects, and is and will be complete insofar
as may be necessary to give the Lender a true and accurate knowledge of the
subject matter.
(z) Environmental Health and Safety Laws. The Borrowers have not
received any notice, order, petition, or similar document in connection with or
arising out of any violation or possible violation of any environmental health
or safety law, regulation or order which violation has not been cured, and the
Borrowers know of no basis for any such violation or threat thereof for which it
may become liable, except as set forth on the attached Schedule 6.1(z).
(aa) Parent, Affiliate or Subsidiary Corporations. Lunn has no
parent corporation and is the parent corporation of Alcore. Except as set forth
on the attached Schedule 6.1(aa), the Borrowers have no other affiliate or
subsidiary corporations.
(bb) Officers and Directors. The officers and directors of the
Borrowers are as set forth on the attached Schedule 6.1(ab).
(cc) Intellectual Property. Each Borrower and its Subsidiaries
owns, or is licensed to use, all trademarks tradenames, copyrights, technology,
know-how and processes believed to be necessary for the conduct of its business
as currently conducted except for those the failure to own or license which
could not reasonably be expected to have a material adverse affect on its
business. No claim has been asserted or is pending by any Person challenging or
questioning the use of any of the foregoing or the validity or effectiveness of
any of the foregoing, and the Borrowers do not know of any valid basis for any
such claim. To the best of their knowledge, the use of the foregoing by the
Borrowers and their Subsidiaries does not infringe on the valid intellectual
property rights of any Person, except for ouch claims and infringements that, in
the aggregate, could not reasonably be expected to have a material adverse
affect on their businesses.
(dd) No Material Representations and Omissions. No information,
<PAGE>
report, financial statement, exhibit or schedule furnished by or on behalf of
the Borrowers to the Lender in connection with the negotiation of any of the
Financing Agreements or included therein or delivered pursuant thereto
contained, contains or will contain any material misstatement of fact or
omitted, omits or will omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were, are or
will be made not misleading.
ARTICLE VII.
Covenants
7.1 Affirmative Covenants. Each of the Borrowers covenants and agrees
that from the date hereof until payment and performance in full of all
Obligations and the termination of this Agreement, the Borrowers shall:
(a) Financial Statements. Deliver or cause to be delivered to the
Lender:
(i) within (45) days after the end of each calendar
quarter, commencing with the calendar quarter and ending March 31, 1996, a
balance sheet of the Borrowers as of the close of each quarter and statements of
income and retained earnings for that portion of the fiscal year-to-date then
ended, prepared in conformity with GAAP, applied on a basis consistent with that
of the preceding period or containing disclosure of the effect on financial
position or results of operations of any change in the application of GAAP
during the period, and certified by the president or the chief financial officer
of the Borrowers as being accurate and fairly presenting the financial condition
of the Borrowers;
(ii) within 90 days after the close of each fiscal year of
the Borrowers consolidated and consolidating audited financial statements
including a balance sheet as of the close of such fiscal year and statements of
income and retained earnings and statement of cash flows for the year then
ended, prepared in conformity with GAAP, applied on a basis consistent with that
of the preceding year or containing disclosure of the effect on financial
position or results of operations of any change in the application of GAAP
during the year and accompanied by a report thereon containing an audit opinion
of independent public accountants selected by the Borrowers and reasonably
acceptable to the Lender, which opinion shall state that subject to the comments
contained therein such financial statements fairly present the financial
condition and results of operations of the Borrowers in accordance with GAAP;
(iii) together with the statements referred to in
subparagraph (ii) above, a written statement from the financial and operating
officers of the Borrowers certifying that there exists no Event of Default by
the Borrowers in the performance of any of its Obligations;
(iv) simultaneously with the filing thereof with the
Securities and Exchange Commission copies of all documents filed with such
Commission; and
(v) promptly upon the Lender's written request from
time-to-time, such other information about the financial condition and
<PAGE>
operations of the Borrowers as the Lender may reasonably request.
(b) Insurance and Endorsement. (i) Keep its properties and business
insured against fire and other hazards (so-called "All Risk" coverage) in
amounts and with companies reasonably satisfactory to the Lender covering such
risks as are herein set forth; maintain public liability coverage, including
without limitation, products liability coverage against claims for personal
injuries or death; and maintain all worker's compensation, employment or similar
insurance as may be required by applicable law.
(ii) All insurance shall be in amounts reasonably
satisfactory to the Lender and shall contain such terms, be in such form, be for
such periods, and be written by carriers duly licensed by the state of New York
or such other jurisdiction in which the Borrowers operate and reasonably
satisfactory to the Lender. Without limiting the generality of the foregoing,
such insurance must provide that it may not be cancelled without 30 days prior
written notice to the Lender. With respect to the Collateral, and on the
Borrowers' All Risk coverage, the Borrowers shall cause the Lender to be
endorsed as a loss payee with a long form Lender's Loss Payable Clause, in form
and substance reasonably acceptable to the Lender. If the Borrowers fail to
provide and maintain the insurance provided for herein, the Lender may, at its
option, provide such insurance and charge the amount thereof to the Revolving
Loans. The Borrowers shall furnish to the Lender certificates or other
satisfactory evidence of compliance with the foregoing insurance provisions. The
Borrowers irrevocably appoint the Lender as its attorney-in-fact, coupled with
an interest, to make proofs of loss and claims for insurance, and to receive
payments of the insurance and execute all documents, checks and drafts in
connection with payment of the insurance.
(c) Taxes and Other Liens. Comply with all statutes and government
regulations and pay all taxes, assessments, governmental charges or levies, or
claims for labor, supplies, rent and other obligations made against them or
their property which, if unpaid, might become a lien or charge against the
Borrowers or their properties, except liabilities being contested in good faith
and against which, if requested by the Lender, the Borrowers shall set up
reserves in amounts and in form reasonably satisfactory to the Lender. Borrowers
shall file their 1994 federal and state tax returns no later than January 31,
1996.
(d) Places of Business. Maintain their chief places of business and
chief executive offices and the Collateral at the addresses set forth in the
beginning of this Agreement and in Schedule 6.1(p), unless, the Borrowers shall
have given the Lender 30 days prior written notice of any change in such places
of business.
(e) Inspections. Allow the Lender by or through any of its officers,
attorneys, accountants or other agents designated by the Lender, for the purpose
of ascertaining whether or not each and every provision hereof and of the other
Financing Agreements, is being performed, to enter the offices and plants of the
Borrowers to examine or inspect any of the properties, books and records or
extracts therefrom, to make copies of such books and records or extracts
therefrom, and to discuss the affairs, finances and accounts thereof with the
Borrowers and its accountants all at such times and as often as the Lender or
any representative of the Lender may reasonably request.
<PAGE>
(f) Litigation. Advise the Lender of the commencement or threat of
litigation, including arbitration proceedings and any proceedings before any
Governmental Body, which is instituted against any of the Borrowers and is
reasonably likely to have a material adverse effect upon the condition,
financial, operating or otherwise, of the Borrowers or where the amount involved
or claimed is Twenty Five Thousand Dollars ($25,000), or more.
(g) Maintain Existence. Maintain their corporate existence and comply
with all applicable statutes, rules and regulations.
(h) Maintain Assets. Maintain their properties in good repair,
working order and operating condition. The Borrowers shall immediately notify
the Lender of any event causing material loss in the value of its assets.
(i) Inventory. Allow the Lender to examine and inspect the Inventory
at reasonable times and intervals after receipt of reasonable notice. The
Borrowers shall immediately notify the Lender of any event causing material loss
or depreciation in value of Inventory and the amount of such loss or
depreciation.
(j) ERISA. Immediately notify the Lender of any event which cause. it
to become subject to ERISA and, upon becoming subject thereto, they shall comply
in all material respects with ERISA.
(k) Notice of Certain Events. Give prompt written notice to the Lender
of:
(i) any material dispute that arises between the Borrowers
and any Governmental Body or law enforcement agency;
(ii) any labor controversy resulting or likely to result in
a strike or work stoppage against the Borrowers;
(iii) any proposal by any public authority to acquire the
assets or business of the Borrowers;
(iv) the location of any Collateral other than at the
Borrowers' places of business disclosed in this Agreement other than Collateral
in transit in the ordinary course of the Borrowers' business;
(v) any proposed or actual change of the name, identity or
corporate structure of the Borrowers;
(vi) any other matter which has resulted or is likely to
result in a material adverse change in the financial condition or operations of
the Borrowers;
(vii) any notice of default received from any landlord where
the Borrowers locate Collateral; and
(viii) any information received by the Borrowers with respect
to Accounts that may materially affect the aggregate value thereof or the
rights and remedies of the Lender with respect thereto.
<PAGE>
(l) Defaults. Give prompt written notice to the Lender upon the
occurrence of any default or of any event which, but for giving of notice or
passage of time or both, would constitute an Event of Default, signed by the
president or chief financial officer of the Borrowers describing such occurrence
and the steps, if any, being taken to cure the default.
(m) Account Duties. Comply with all laws affecting their business,
including, but not limited to, payment of all federal and state taxes with
respect to the sales to Account Debtors by the Borrowers and disclosures in
connection therewith. The Borrowers agree to indemnify the Lender against and
hold the Lender harmless from all claims, actions and losses, including
reasonable attorney's fees and costs actually incurred by the Lender arising
from any contention, that there has been a failure to comply with such laws.
(n) Collateral Duties. Do whatever the Lender may reasonably request
from time-to-time by way of obtaining, executing, delivering and filing
financing statements, assignments, landlord's or mortgagee's waivers, and other
notices and amendments and renewals thereof, and take any and all steps and
observe such formalities as the Lender may reasonably request in order to create
and maintain a valid and enforceable first lien upon, pledge of, and security
interest in, the Collateral subject only to the prior security interest of
Gibraltar. If the Borrowers fail to timely provide financing statements, the
Borrowers authorize the Lender to file financing statements without the
signature of the Borrowers and to execute and file such financing statements on
behalf of the Borrowers as specified by the Uniform Commercial Code to perfect
or maintain its security interest in all of the Collateral. All charges,
expenses and fees which the Lender incurs in filing any of the foregoing,
together with costs and expenses of any lien search required by the Lender, and
any taxes relating thereto, shall be charged to the balance of the Revolving
Loans and added to the Obligations.
(o) Audit by Lender: Fees. Permit the Lender to audit their books and
records at such time" and in such manner and detail as the Lender deems, in the
Lender's reasonable discretion, are necessary. Without limiting the generality
of the foregoing, the Lender shall be allowed to verify the Accounts and
Inventory of the Borrowers and to confirm with Account Debtors the validity and
amount of Accounts. The Borrowers shall promptly pay the Lender reasonable audit
fees and any reasonable out of pocket expenses incurred in connection with any
such audit.
(p) Officers and Directors. Promptly notify the Lender in writing upon
any changes or additions to the Borrowers' officers or directors.
(q) Payment of Principal Interest and Fees. Pay, when due, the
payments of principal, interest and other charges under the Note.
(r) Transaction Expenses. Upon demand, the Borrowers agree to pay all
Transaction Expenses to the Lender.
7.2 Negative Covenants. Each of the Borrowers covenants and agrees that
from the date hereof until payment and performance in full of all Obligations
and the termination of this Agreement, the Borrowers shall not without the prior
written consent of the Lender:
<PAGE>
(a) Encumbrances. Incur or permit to exist any lien, mortgage, charge
or other encumbrance against any of their properties or assets, whether now
owned or hereafter acquired, except: (i) the Security Interest; (ii) pledges or
deposits in connection with or to secure worker's compensation, unemployment or
liability insurance; (iii) tax lien which are being contested in good faith and
in compliance with this Agreement; (iv) the liens set forth on the attached
Schedule 6.1(w); (v) liens in favor of existing customers which are subordinate
to the Lender's lien in the Collateral and secure the products specified in
their purchase orders and (vi) liens in favor of Gibraltar.
(b) Limitation on Indebtedness. Create, incur or guarantee any
indebtedness or obligation for borrowed money from, or issue or sell any
obligations of the Borrowers to any lender other than the Lender and Gibraltar.
(c) Contingent Liabilities. Assume, guarantee, endorse or otherwise
become liable upon the obligations of any person, firm or corporation, or enter
into any purchase or option agreement or other arrangement having substantially
the same effect as such a guarantee, except by the endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business.
(d) Acquisition. Consolidation or Merger. Acquire or merge into or
consolidate with or into any corporation.
(e) Loans. Advances. Investments. Use the proceeds of the Term Loan,
either directly or indirectly, to make or permit to exist any loans or advances
to, or purchase any stock, other securities or evidences of indebtedness of, or
make or permit to exist any investment, including without limitation the
acquisition of stock of a corporation, or acquire any interest whatsoever in,
any other Person.
(f) Acquisition of Stock of the Borrowers; Dividends. Purchase,
acquire, redeem or retire, or make any commitment to purchase, acquire, redeem
or retire any of the capital stock of the Borrowers, whether now or hereafter
outstanding, or declare or pay any dividend, or make any distribution to any of
their stockholders except as required under the Warrant.
(g) Sale and Lease of Assets. Sell, lease or otherwise dispose of any
of its assets, in excess of Fifteen Thousand Dollars ($15,000) per event or
Fifty Thousand Dollars ($50,000) per annum, except for sales of inventory or
replacement of equipment having an equal or greater value than the equipment
replaced, in the ordinary course of business.
(h) Name Changes. Change their corporate name" or conduct their
businesses under any trade name or style other than as set forth in this
Agreement.
(i) Capital Expenditures. Make any expenditure for any asset which
would be a fixed asset, or any expenditures for any leases, including but
without limitation capitalized or conditional sales contracts, in excess of
$1,000,000 in any fiscal year, on a non-cumulative basis. For the purpose of
this covenant, the entire amount paid over the life of any capitalized lease or
conditional sales contract shall be deemed to be paid in the first year of such
lease or sales contract.
<PAGE>
(j) Prohibited Transfers. Transfer, in any manner, either directly or
indirectly, any cash, property, or other assets of the Borrowers to any parent
or any of their affiliates or subsidiaries, except to other entities comprising
the Borrowers, other than sales made in the ordinary course of business and for
fair consideration on terms no less favorable than if such sale had been an
arms-length transaction between the Borrowers and an unaffiliated entity.
(k) No Management Change. Suffer any change in the management of the
Borrowers which the Lender deems, in its reasonable discretion, to be a material
adverse change.
(l) Leasebacks. Lease any real estate or other capital asset from any
lessor who shall have acquired such property from the Borrowers.
(m) Business Operations. Engage in any business other than the
business in which they are currently engaged or businesses reasonably related
thereto.
(n) Assignment of Claims Act. Take any action or fail to take any
action, either directly or indirectly, or cooperate in any way, so as to allow
any Person, other than the Lender, to comply with the Federal Assignment of
Claims Act.
7.3 Financial Covenants. Each of the Borrowers agrees and covenants
that from the date hereof until the payment and performance in full of the
Obligations, and the termination of this Agreement, the Borrowers shall not at
any time:
(a) Debt to Equity Ratio. Permit the ratio of (i) Liabilities less any
Liabilities the payment of which is subordinated to the payment of the Gibraltar
Indebtedness, to (ii) Effective Tangible Net Worth to exceed 1.50 to 1.00.
(b) Tangible Net Worth. Permit the Tangible Net Worth of Borrowers on a
consolidated basis to fall below $6,800,000 at any time.
(c) Net Income. For any fiscal year of Borrowers, permit the Net Income
of Borrowers on a consolidated basis to fall below $1.00.
(d) Cash Flow. For any fiscal year of Borrowers on a consolidated
basis, permit the ratio of (i) Net Income (computed before net interest expense,
taxes, depreciation and amortization) to (ii) the sum of interest expense plus
that portion of Long-Term Liabilities (including capitalized lease payments)
which have become due and payable during such fiscal year to fall below 1.2 to
1.0.
<PAGE>
All financial covenants shall be calculated in accordance with GAAP, applied on
a consistent basis with prior years. For purposes of calculating compliance with
the financial covenants, all revolving loans outstanding from Gibraltar shall be
included in the current liabilities of the Borrowers, except that such revolving
loans shall not be included as a current maturity in calculating the cash flow
described in subparagraph (d) above.
ARTICLE VIII.
Grant of Collateral
8.1 To secure the prompt payment and performance of the Obligations,
the Borrowers pledge, assign, transfer and grant to the Lender a continuing,
security interest in, and hereby confirm their prior assignment and grant to
Lender of a continuing security interest in the following property of the
Borrowers (the "Collateral"):
(i) All accounts (the "Accounts"), as that term is defined
in the Uniform Commercial Code as in effect from time-to-time in the state of
Connecticut (the "UCC"), including, without limitation, all accounts receivable,
contract rights, book debts, notes, drafts and other forms of obligations, other
than forms of obligations or indebtedness evidenced by Chattel Paper or
Instruments, as those terms are defined below, now owned or hereafter received
or acquired by or belonging or owing to the Borrowers, including, without
limitation, under any trade name, style or division thereof, whether arising out
of goods sold or services rendered by the Borrowers or from any other
transaction, whether or not the same involves the sale of goods or services by
the Borrowers, including, without limitation, any such obligation which may be
characterized as an account or contract right under the UCC, and all of the
Borrowers' rights in, to and under all purchase orders or receipts now owned or
hereafter acquired by them for goods or services, and all of the Borrowers'
rights to any goods represented by any of the foregoing, including, without
limitation, unpaid seller's rights of rescission, replevin, reclamation and
stoppage in transit and rights to returned, reclaimed or repossessed goods, and
all monies due or to become due to the Borrowers under all purchase orders and
contracts for the sale of goods or the performance of services or both by the
Borrower, whether or not yet earned by performance on the part of the Borrowers
or in connection with any other transaction, now in existence or hereafter
occurring, including, without limitation, the right to receive the proceeds of
said purchase orders and contracts, and all collateral security and guarantees
of any kind given by any person with respect to any of the foregoing;
(ii) All chattel paper (the "Chattel Paper"), as that term
is defined in the UCC, now owned or hereafter acquired by the Borrowers;
(iii) All contracts, undertakings, franchise agreements or
other agreements (collectively, the "Contracts), other than rights evidenced by
Chattel Paper, Documents or Instruments, as those terms are defined below, in or
under which the Borrowers may now or hereafter have any right, title or
interest, including, without limitation, with respect to an Account, any
agreement relating to the terms of payment or the terms of performance thereof;
(iv) All documents (the "Documents"), as that term is
defined in the UCC, or other receipts covering, evidencing or representing
<PAGE>
goods, now owned or hereafter acquired by the Borrowers;
(v) All equipment (the "Equipment"), as that term is
defined in the UCC, now or hereafter owned or acquired by the Borrowers
including, without limitation, all machinery, tools, dyes, equipment,
furnishings, vehicles and computers and other electronic data processing and
other office equipment, any and all additions, substitutions and replacements of
any of the foregoing, wherever located, together with all attachments,
components, parts, equipment and accessories installed thereon or affixed
thereto;
(vi) All general intangibles (the "General Intangibles"), as
that term is defined in the UCC, now owned or hereafter acquired by the
Borrowers including, without limitation, all right, title and interest which the
Borrowers may now or hereafter have in or under any Contract, all customer
lists, Trademarks (as defined below), Patents (as defined below), right" in
intellectual property, interests in partnerships, joint ventures and other
business associations, licenses, permits, copyrights, trade secrets, proprietary
or confidential information, inventions, whether or not patented or patentable,
technical information, procedures, designs, knowledge, know-how, software, data
bases, data, skill, expertise, experience, processes, models, drawings,
blueprints, catalogs, materials and records, goodwill including, without
limitation, the goodwill associated with any Trademark, Trademark registration
or Trademark licensed under any Trademark License, as defined below, claims in
or under insurance policies, including unearned premiums, uncertificated
securities, deposit accounts, rights to receive tax refunds and other payments
and right" of indemnification;
(vii) All instruments (the "Instruments"), as that term is
defined in the UCC, now owned or hereafter acquired by the Borrowers, including,
without limitation, all notes and other evidences of indebtedness, other than
instruments that constitute, or are a part of a group or writings that
constitute, Chattel Paper;
(viii) All inventory (the "Inventory"), as that term is
defined in the UCC, wherever located, now or hereafter owned or acquired by the
Borrowers including, without limitation, all inventory, merchandise, goods and
other personal property which are held by or on behalf of the Borrowers for sale
or lease or are furnished or are to be furnished under a contract of service or
which constitute raw materials, work in process or materials used or consumed or
to be used or consumed in the Borrowers' business, or the processing, packaging,
promotion, delivery or shipping of the same, and all finished goods, whether or
not such inventory is listed on any schedules, assignments or reports furnished
to the Lender from time-to-time and whether or not the same is in transit or in
the constructive, actual or exclusive occupancy or possession of the Borrowers
or is held by the Borrowers or by others for the Borrowers' account, including,
without limitation, all goods covered by purchase orders and contracts with
suppliers and all goods billed and held by suppliers and all inventory which may
be located on premises of the Borrowers or of any carriers, forwarding agents,
truckers, warehousemen, vendors, selling agents or other persons;
(ix) All Patent Licenses, as defined below, Trademark
Licenses, or other licenses of rights or interests now held or hereafter
acquired by the Borrowers (collectively, the "Licenses");
<PAGE>
(x) Any written agreement granting any right with respect to
any invention on which a Patent, as defined below, is in existence, whether now
owned or hereafter acquired by the Borrowers (collectively, the "Patent
Licenses");
(xi) (a) all letters patent of the United States or any other
country, all registrations and recordings thereof, and all applications for
letters patent of the United States or any other country, including, without
limitation, registrations, recordings and applications in the United States
Patent and Trademark Office or in any similar office or agency of the United
States, any State thereof or any other country and (b) all reissues,
continuations, continuations-in-part or extensions thereof (individually, a
"Patent" and collectively, the "Patents"), whether the Borrowers now hold or
hereafter acquire any interest;
(xii) Any written agreement granting any right to use any
Trademark or Trademark registration, whether now owned or hereafter acquired by
the Borrowers (collectively, the "Trademark Licenses");
(xiii) (a) all trademarks, tradenames, corporate names,
business names, trade styles, service marks, logos, other source or business
identifiers, prints and labels on which any of the foregoing have appeared or
appear, designs and general intangibles of like nature, now existing or
hereafter adopted or acquired, all registrations and recordings and applications
in the United States Patent and Trademark Office or in any similar office or
agency of the United States, any State thereof or any other country or any
political subdivision thereof and (b) all reissues, extensions or renewals
thereof, (collectively, "Trademarks"), whether such Trademarks are now owned or
hereafter acquired by the Borrowers; and
(xiv) All proceeds (the "Proceeds"), as that term is defined
in Section 9-306(1) of the UCC, and in any event shall include, without
limitation, (a) all Accounts, Chattel Paper, Instruments, cash and other
proceeds payable to the Borrowers from time-to-time in respect of any of the
foregoing collateral security, (b) all proceeds of any insurance, indemnity,
warranty or guaranty payable to the Borrowers from time-to-time with respect to
any of the collateral security, (c) all payments, in any form whatsoever, made
or due and payable to the Borrowers from time-to-time in connection with any
requisition, confiscation, condemnation, seizure or forfeiture of all or any
part of the collateral security by any governmental body, authority, bureau or
agency, or any person acting under color of governmental authority, (d) all tax
refunds, and (e) all other amounts from time-to-time paid or payable under or in
connection with any of the Collateral.
ARTICLE IX.
Default
9.1 Events of Default. (a) The Obligations shall, at the option of the
Lender, become immediately due and payable without notice or demand upon the
occurrence of any of the following events (collectively, "Events of Default" and
individually, an "Event of Default"):
<PAGE>
(i) failure of the Borrowers to pay any installment of
principal or interest or any other Obligations or such failure by any guarantor
of any of the Obligations;
(ii) breach of any of the Obligations by the Borrowers or any
guarantor including, without limitation, any covenant, representation or
warranty contained herein, or the Borrowers' failure to perform any act, duty or
obligation as required by this Agreement or any of the other Financing
Agreements which breach or failure continues for 10 days;
(iii) the making by the Borrowers of any material
misrepresentation of a material fact to the Lender;
(iv) Insolvency of the Borrowers or any guarantor or surety
for the Obligations, or business failure, appointment of a receiver or
custodian, or assignment for the benefit of creditors or the commencement of any
proceedings under any bankruptcy or insolvency law by or against the Borrowers
or any guarantor for the Obligations; appointment of a committee of creditors or
liquidating banks, or offering of a composition or extension to creditors by,
for or of the Borrowers; however, if an involuntary bankruptcy petition is
filed, an event of default shall not occur unless such petition is not dismissed
within 75 days of filing;
(v) the loss, revocation or failure to renew any license
and/or permit now held or hereafter acquired by the Borrowers which materially
affects the ability of the Borrowers to continue its operations as presently
conducted;
(vi) a default, after the expiration of any
applicable grace period, in any other Financing Agreement or any other
agreements between the Lender and the Borrowers or any guarantors;
(vii) the filing of any lien, voluntary or
involuntary, on the Collateral, which in the case of an involuntary lien
is not discharged of record within 30 days of filing;
(viii) dissolution of any of the Borrowers;
(ix) the Lender, in its reasonable discretion, deems
itself insecure; or
(x) the occurrence of an Event of Default (as such
term is defined in the Gibraltar Loan Agreement) under the Gibraltar
Loan Agreement.
(b) The Borrowers expressly waive any presentment, protest, notice of
protest or other notice of any kind. Subject to the terms of the Intercreditor
Agreement, the Lender may proceed to enforce its rights whether by suit in
equity or by action at law, whether for specific performance of any covenant or
agreement contained in this Agreement or the Note, or in aid of the exercise of
any power granted in either this Agreement, the Note or the other Financing
Agreements, or it may proceed to obtain judgment or any other relief whatsoever
appropriate to the enforcement of such rights, or proceed to enforce any legal
or equitable right which the Lender may have by reason of the occurrence of any
Event of Default hereunder.
<PAGE>
9.2 Declared Default. Subject to the terms of the Intercreditor
Agreement: (a) Upon demand after the occurrence of an Event of Default, the
Lender shall have in any jurisdiction where enforcement hereof is sought, in
addition to all other rights and remedies which Lender may have under law and
equity, the following rights and remedies, all of which may be exercised with or
without further notice to the Borrowers and without a prior judicial or
administrative hearing or notice, which notice and hearing are expressly waived
by the Borrowers: (i) to enforce or foreclose the liens and security interests
created under the Financing Agreements, this Agreement or under any other
agreement relating to the Collateral by any available judicial procedure or
without judicial process, (ii) to enter any premises where any Collateral may be
located for the purpose of taking possession or removing the same, (iii) to
sell, assign, lease, or otherwise dispose of Collateral or any part thereof,
either at public or private sale, in lots or in bulk, for cash, on credit or
otherwise, with or without representations or warranties, and upon such terms as
shall be acceptable to Lender, all at the Lender's sole option and as the Lender
in its reasonable discretion may deem advisable, (iv) to bid or become purchaser
at any such sale if public, free from any right of the Borrowers of redemption
after sale, which is expressly waived by the Borrowers, and (v) at the option of
the Lender, to apply or be credited with the amount of all or any part of the
Obligations against the purchase price bid by the Lender at any such sale.
(b) The Lender may at any time, after demand after the occurrence of
an Event of Default, at the Lender's sole discretion: (i) give notice of
assignment to any Account Debtor; (ii) collect Accounts directly and charge
Borrowers the reasonable collection costs and expenses; (iii) settle or adjust
disputes and claims directly with Account Debtor for amounts and upon terms
which the Lender considers advisable; (iv) exercise all other rights granted in
this Agreement and the other Financing Agreements; (v) receive, open and dispose
of all mail addressed to the Borrowers and notify the Post Office authorities to
change the address for delivery of the Borrowers' mail to an address designated
by the Lender; (vi) endorse the name of the Borrowers on any checks or other
evidence of payment that may come into possession of the Lender and on any
invoice, freight or express bill, bill of lading or other document; (vii) in the
name of the Borrowers or otherwise, demand, sue for, collect and give
acquittance for any and all monies due or to become due on Accounts; (viii)
compromise, prosecute or defend any action, claim or proceeding concerning
Accounts; and (ix) do any and all things necessary and proper to carry out the
purposes contemplated in this Agreement, the other Financing Agreements and any
other agreement between the parties.
(c) The Lender and any person acting as its attorney hereunder shall
not be liable for any acts or omissions or for any error of judgment or mistake
of fact or law, except for bad faith and willful misconduct. The Borrowers agree
that the powers granted hereunder, being coupled with an interest, and shall be
irrevocable so long as any Obligation remains unsatisfied. Notwithstanding the
foregoing, the Borrowers acknowledges that the Lender is under no duty to take
any of the foregoing actions and that after having made demand upon the Account
Debtors for payment, the Lender shall have no further duty as to the collection
or protection of Accounts or any income therefrom and no further duty to
preserve any rights pertaining thereto, other than the safe custody thereof.
9.3 Duties After Demand or Default. Subject to the terms of the
<PAGE>
Intercreditor Agreement: (a) The Borrowers will, at the Lender's request,
assemble all Collateral and make it available to the Lender at places which the
Lender may reasonably select and will make available to the Lender all premises
and facilities of the Borrowers for the purpose of the Lender taking possession
of Collateral or of removing or putting the Collateral in salable form. In the
event any goods called for in any sales order, contract, invoice or other
instrument or agreement evidencing or purporting to give rise to any Account
shall not have been delivered or shall be claimed to be defective by any
customer, the Lender shall have the right in its discretion to use and deliver
to such customer any goods of the Borrowers to fulfill such order, contract or
the like so as to make good any such Account. If any Collateral shall require
repairing, maintenance, preparation, or the like, or is in process or other
unfinished state, the Lender shall have the right, but shall not be obligated,
to do such repairing, maintenance, preparation, processing or completion of
manufacturing for the purpose of putting the same in such salable form as the
Lender shall deem appropriate, but the Lender shall have the right to sell or
dispose of such Collateral without such processing;
(b) The net cash proceeds resulting from the collection, liquidation,
sale, lease or other disposition of Collateral shall be applied first to the
expenses, including all reasonable attorney's and professional fees, of
retaking, holding, storing, processing and preparing for sale, selling,
collecting, liquidating the Collateral and then to the satisfaction of all
Obligations, application as to particular Obligations or against principal or
interest to be at the Lender's sole discretion and the balance of the proceeds,
if any, shall be paid to the Borrowers. The Borrowers shall be liable to the
Lender and shall pay to the Lender on demand any deficiency which may remain
after such sale, disposition, collection or liquidation of Collateral.
9.4 Borrowers Indemnification. The Lender shall not, under any
circumstances or in any event whatsoever, have any liability for any error or
omission or delay of any kind occurring in the liquidation of any of the
Collateral, including the settlement, collection or payment of any of the
Collateral accounts or any instrument received in payment thereof, or any damage
resulting therefrom, provided that the Lender acted in a commercially reasonable
manner in its liquidation of any of the Collateral. The Borrowers agree to
indemnify and hold harmless the Lender against any claim, loss or damage arising
out of the liquidation of any of the Collateral, including the settlement,
collection or payment of any of the Collateral accounts or any instrument
received in payment thereof, provided that the Lender acted in a commercially
reasonable manner in its liquidation of any of the Collateral.
9.5 Cumulative Remedies. The enumeration of the Lender's rights and
remedies set forth in this Article is not intended to be exhaustive and the
exercise by the Lender of any right or remedy shall not preclude the exercise of
any other rights or remedies, all of which shall be cumulative and shall be in
addition to any other right or remedy given hereunder or under any other
agreement between the parties or which may now or hereafter exist in law or at
equity or by suit or otherwise. The Lender's delay or failure to take action in
exercising any right, power or privilege shall not operate as a waiver thereof,
and any single or partial exercise of any such right, power or privilege shall
not preclude other or further exercise thereof or the exercise of any other
<PAGE>
right, power or privilege or shall be construed to be a waiver of any event of
default. No course of dealing between the Borrowers and the Lender or their
employees shall be effective to change, modify or discharge any provision of
this Agreement or to constitute a waiver of any default.
ARTICLE X.
Miscellaneous
10.1 Expenses. Whether or not the transactions contemplated
herein shall be consummated, the Borrowers agree to pay all reasonable
out-of-pocket expenses, including reasonable fees and expenses of the
Lender's counsel, of the Lender incurred in connection with the
preparation of this Agreement, the Note, the Warrant, the other
Financing Agreements and any amendments or supplements hereto and
thereto, and all expenses, including reasonable fees and expenses of the
Lender or the Lender's counsel, incidental to the collection of monies
due hereunder or under the Note or the other Financing Agreements and/or
the enforcement of the rights, including the protection thereof, of the
Lender under any provisions of this Agreement, and the Note and the
other Financing Agreements.
10.2 Set-off. The Borrowers give the Lender a lien and right of setoff
for all the Obligations upon and against all its deposits, credits, collateral
and property now or hereafter in the possession or control of the Lender or in
transit to it. The Lender may, upon the occurrence of any Event of Default,
apply or set off the same, or any part thereof, to any Obligations of the
Borrowers to the Lender.
10.3 Covenants to Survive. Binding Agreement. All covenants,
agreements, warranties and representations made herein, in the Note, in
the other Financing Agreements, and in all certificates or other
documents of the Borrowers shall survive the advances of money made by
the Lender to the Borrowers hereunder and the delivery of the Note and
the other Financing Agreements until the Obligations are satisfied in
full. All such covenants, agreements, warranties and representations
shall be binding upon and inure to the benefit of the Lender and its
successors and assigns, whether or not so expressed. In the event that
the Lender is forced to disgorge any monies which the Lender receives,
directly or indirectly, in payment of the Debt, all of the Financing
Agreements shall be deemed reinstated to the extent of any such
disgorged amount and the Lender shall be entitled to all rights and
remedies at law, in equity or under this Agreement. The last sentence of
this provision shall remain in effect for six years after the
satisfaction of the Obligations.
10.4 Cross-Collateralization. All Collateral which the Lender
may at any time acquire from the Borrowers or from any other source in
connection with the Obligations arising under this Agreement and the
other Financing Agreements shall constitute collateral for each and
every Obligation, without apportionment or designation as to particular
Obligations. All Obligations, however and whenever incurred, shall be
secured by all Collateral however and whenever acquired. The Lender
shall have the right, in its sole discretion, to determine the order in
<PAGE>
which the Lender's rights in or remedies against any Collateral are to
be exercised and which type of Collateral or which portions of
Collateral are to be proceeded against and the order of application of
proceeds of Collateral as against particular Obligations.
10.5 Amendments and Waivers. This Agreement, the Note, the Warrant, the
other Financing Agreements, and any term, covenant or condition hereof or
thereof may not be changed, waived, discharged, modified or terminated except by
a writing executed by the parties hereto or thereto.
10.6 Notices. All notices, requests, consents, demands and other
communication" hereunder shall be in writing and shall be mailed by registered
or certified first class mail or delivered by an overnight courier or by
facsimile, to the respective parties to this Agreement as follows:
If to the Borrowers: Lunn Industries, Inc.
1 Garvies Point Road
Glen Cove, New York 11542
Attn: Alan Baldwin
With a copy to: Muenz & Meritz, PC
3 Hughes Place
Dix Hills, New York 11746
Attn: Lawrence Muenz, Esq.
If to the Lender: Fleet National Bank
of Connecticut
One Corporate Center MSN 921
Hartford, Connecticut 06120
Attn: Mr. Theodore Maniatis
With a copy to: Hahn & Hessen LLP
350 Fifth Avenue
New York, New York 10118
Attn: Daniel J. Krauss, Esq.
All such notices and communications shall be deemed to have been delivered on
the date of delivery thereof, one day after receipt of facsimile or on the third
business day after the mailing thereof.
10.7 Transfer of Lender's Interest. The Borrowers agree that
the Lender, in its sole discretion and upon prior written notice to the
Borrowers, may freely sell, assign or otherwise transfer participations,
portions, co-lender interests or other interests in all or any portion
of the indebtedness, liabilities or obligations arising in connection
with or in any way related to the financing transactions of which this
Agreement is a part. In the event of any such transfer, the transferee
may, in Lender's sole discretion, have and enforce all the rights,
remedies and privileges of Lender. Each of the Borrowers consents to the
release by Lender to any potential transferee, so long as such
transferee is a financial institution, of any and all information
including, without limitation, financial information pertaining to the
Borrowers as Lender, in its sole discretion, may deem appropriate. If
<PAGE>
such transferee so participates with Lender in making loans or advances
hereunder or under any other agreement between Lender and the Borrowers,
each of the Borrowers grants to such transferee and such transferee
shall have and is hereby given a continuing lien and security interest
in any money, securities or other property of the Borrowers in the
custody or possession of such transferee, including the right of set
off, to the extent of such transferee's participation in the
Obligations.
10.8 Section Headings. Severability. Entire Agreement. Section and
subsection headings have been inserted herein for convenience of reference only
and shall not be construed as part of this Agreement. Every provision of this
Agreement, the Note and the other Financing Agreements is intended to be
severable; if any term or provision of this Agreement, the Note, the other
Financing Agreements, or any other document delivered in connection herewith
shall be invalid, illegal or unenforceable for any reason whatsoever, the
validity, legality and enforceability of the remaining provisions hereof or
thereof shall not in any way be affected or impaired thereby. All Exhibits and
Schedules to this Agreement shall be deemed to be part of this Agreement. This
Agreement, the other Financing Agreements, and the Exhibits and Schedules
attached hereto and thereto embody the entire agreement and understanding among
the Borrowers and the Lender and supersede all prior agreements and
understandings relating to the subject matter hereof unless otherwise
specifically reaffirmed or restated herein.
10.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when so executed and delivered shall be an
original, and it shall not be necessary when making proof of this Agreement to
produce or account for more than one counterpart.
10.10 Governing Law; Consent to Jurisdiction. This Agreement and the
other Financing Agreements, and all the rights of the parties, shall be governed
as to validity, construction, enforcement and in all other respects by the laws
of the state of Connecticut. The Borrowers expressly submit and consent in
advance to the jurisdiction of the appropriate courts within the state of
Connecticut in any action or proceeding.
10.11 Uniform Commercial Code. The Borrowers shall comply with, and the
Lender shall have all the rights and remedies of a secured party under the
Uniform Commercial Code, as enacted in Connecticut, as amended.
10.12 Further Assurances. At the request of the Lender, the Borrowers
agree that at their expense, they shall promptly execute and deliver all further
instruments and documents, and take all further action, that may be necessary or
desirable, or that the Lender may request, in order to perfect and protect the
Security Interests, including, but not limited to financing statements on Form
UCC-1, or to enable the Lender to exercise and enforce its rights and remedies
hereunder.
10.13 Prejudgment Remedy Waiver: Waivers. EACH OF THE BORROWERS
ACKNOWLEDGES THAT THE LOANS EVIDENCED HEREBY ARE A COMMERCIAL TRANSACTION AND
WAIVES ITS RIGHT TO NOTICE AND HEARING UNDER CHAPTER 9038 OF THE CONNECTICUT
GENERAL STATUTES, OR AS OTHERWISE ALLOWED BY ANY STATE OR FEDERAL LAW WITH
RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE LENDER MAY DESIRE TO USE, AND
<PAGE>
FURTHER WAIVES DILIGENCE, DEMAND, PRESENTMENT FOR PAYMENT, NOTICE OF NONPAYMENT,
PROTEST AND NOTICE OF ANY RENEWALS OR EXTENSIONS. EACH OF THE BORROWERS
ACKNOWLEDGES THAT IT MARES THIS WAIVER KNOWINGLY, WILLINGLY AND VOLUNTARILY AND
WITHOUT DURESS, AND ONLY AFTER EXTENSIVE CONSIDERATION OF THE RAMIFICATIONS OF
THIS WAIVER WITH ITS ATTORNEYS.
10.14 Jury Trial Waiver. EACH OF THE BORROWERS WAIVES TRIAL BY JURY IN
ANY COURT IN ANY SUIT, ACTION OR PROCEEDING ON ANY MATTER ARISING IN CONNECTION
WITH OR IN ANY WAY RELATED TO THE FINANCING TRANSACTIONS OF WHICH THIS AGREEMENT
IS A PART OR THE ENFORCEMENT OF ANY OF LENDER'S RIGHTS. EACH OF THE BORROWERS
ACKNOWLEDGES THAT IT NARES THIS WAIVER KNOWINGLY, WILLINGLY AND VOLUNTARILY AND
WITHOUT DURESS, AND ONLY AFTER EXTENSIVE CONSIDERATION OF THE RAMIFICATIONS OF
THIS WAIVER WITH ITS ATTORNEYS.
<PAGE>
The parties have executed this Agreement on the date first written above.
SIGNED IN THE PRESENCE OF: LUNN INDUSTRIES, INC.
By:______________________
Alan Baldwin,
Chairman and Chief
Executive Officer
ALCORE, INC.
By:______________________
Alan Baldwin,
Chairman and Chief
Executive Officer
FLEET NATIONAL BANK OF
CONNECTICUT
By:______________________
Theodore Maniatis,
Vice President
STATE OF NEW YORK )
)ss.:
COUNTY OF NEW YORK)
Before me, the undersigned, this ___ day of December, 1995 personally
appeared Alan Baldwin, known to me to be the Chairman and Chief Executive
Officer of Lunn Industries, Inc., and that he as such officer, signer and sealer
of the foregoing instrument, acknowledged the execution of the same to be his
free act and deed individually and as such officer and the free act and deed of
the corporation.
IN WITNESS WHEREOF, I hereunto set my hand.
---------------------------
Notary Public
<PAGE>
STATE OF NEW YORK )
)ss.:
COUNTY OF NEW YORK)
Before me, the undersigned, this ___ day of December, 1995 personally
appeared Alan Baldwin, known to me to be the Chairman and Chief Executive
Officer of Alcore, Inc., and that he as such officer, signer and sealer of the
foregoing instrument, acknowledged the execution of the same to be his free act
and deed individually and as such officer and the free act and deed of the
corporation.
IN WITNESS WHEREOF, I hereunto set my hand.
---------------------------
Notary Public
STATE OF NEW YORK )
)ss.:
COUNTY OF NEW YORK)
Before me, the undersigned, this ___ day of December, 1995 personally
appeared Theodore Maniatis, known to me to be the Vice President of Fleet
National Bank of Connecticut, and that he as such officer, signer and sealer of
the foregoing instrument, acknowledged the execution of the same to be his free
act and deed individually and as such officer and the free act and deed of the
corporation.
IN WITNESS WHEREOF, I hereunto set my hand.
---------------------------
Notary Public
<PAGE>
Exhibit 10.31
AMENDED AND RESTATED SUBORDINATED TERM NOTE
$500,000.00 December 28, 1995
(1) For value received, the undersigned, LUNN INDUSTRIES, INC., a
Delaware corporation and ALCORE, INC., a Delaware Corporation (collectively, the
"Makers"), jointly and severally, promise to pay to the order of FLEET NATIONAL
BANK OF CONNECTICUT (f/k/a SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION) (the
"Lender"), at its office at One Corporate Center, Hartford, Connecticut, or at
such other place as the holder hereof (including the Lender, hereinafter
referred to as the "Holder") may designate, the principal sum of FIVE HUNDRED
THOUSAND DOLLARS ($500,000), together with interest on the unpaid balance of
this Note.
(2) This Note is issued pursuant to the Amended and Restated Commercial
Revolving Loan, Term Loan and Security Agreement dated the same date as this
Note, between the Makers and the Lender (as amended, restated, supplemented or
otherwise modified from time-to-time, the "Loan Agreement"), and is entitled to
the benefit and security of the Financing Agreements (as defined therein).
(3) The principal amount of the indebtedness evidenced hereby shall be
payable in accordance with the provisions of the Loan Agreement, and subject to
acceleration upon the occurrence of an Event of Default under the Loan Agreement
or earlier repayment as set forth in the Loan Agreement. If not sooner paid, all
sums outstanding under this Note shall be paid in full on December 27, 2005 (the
"Maturity Date").
(4) Interest shall be computed daily and payable, in arrears, at the
applicable Contract Rate in accordance with the terms of the Loan Agreement, on
the basis of a 360 day year and the actual days elapsed, together with all taxes
levied or assessed against Holder on this Note or the debt evidenced hereby, and
together with all reasonable costs, expenses, attorneys' and professionals' fees
incurred in any action to collect the indebtedness of this Note, to foreclose
any security agreement securing the indebtedness of this Note, or in protecting
or sustaining the lien of any security agreement, or in any litigation or
controversy arising from or connected with this Note or any security agreement
or other agreement securing the indebtedness of this Note.
(5) Makers hereby agree that (a) if they shall fail to make payments
required under this Note within five (5) days of the date when same are due and
Makers do not exercise the Interest Rate Option within such time period or (b)
upon and after the occurrence of an Event of Default, Holder may, without
demand, notice or legal process of any kind, declare this Note to become due and
payable.
(6) This Note is subject to mandatory prepayment and may be voluntarily
prepaid, in whole or in part, on the terms and conditions set forth in the Loan
Agreement.
(7) This Note is subject to the terms and conditions contained in the
Intercreditor and Subordination Agreement between Lender and Gibraltar
Corporation of America dated the date hereof.
<PAGE>
(8) Makers agree that upon the occurrence of an Event of Default, after
judgment or the Maturity Date, the indebtedness of this Note shall bear interest
at the Default Rate.
(9) Holder may collect a late charge of 5% of any installment of
principal, interest or other amount due to Holder which is not paid by Maker
within ten (10) days after the due date thereof to cover the extra expense
involved in handling such delinquent payment. The minimum late charge shall be
$15.
(10) Makers give Holder a lien and right of set off for all of Makers'
liabilities upon and against all the deposits, credits, collateral and property
of Makers now or hereafter in the possession or control of Holder, or any parent
or subsidiary corporation or any other entity affiliated with Holder, or in
transit to any of them. Holder may, upon and after the occurrence of an Event of
Default, apply or set off the same, or any part therefor, to any liability of
Makers.
(11) This Note amends and restates in their entirety and is given in
substitution for (but not in satisfaction of) that certain (i) Revolving
Promissory Note dated May 21, 1993 issued by Makers and Norfield Corporation
("Norfield") in favor of Lender in the original principal amount of $2,500,000
and (ii) Term Promissory Note dated May 21, 1993 issued by Makers and Norfield
in favor of Lender in the original principal amount of $2,000,000.
(12) Makers waive any diligence, presentment, protest and notice of
nonpayment, protest and any renewals or extension of this Note. The failure of
Holder to insist upon the strict performance of Makers of the terms of this Note
shall not be deemed to be a waiver of any term herein, and Lender shall retain
the right thereafter to insist upon strict performance by Makers of the terms of
this Note.
(13) This Note shall be governed by and construed in accordance with
the laws of the State of Connecticut. Makers consent in advance to the
jurisdiction of the appropriate courts within such state.
(14) Prejudgment Remedy Waiver. MAKERS ACKNOWLEDGE THAT THE
TRANSACTIONS OF WHICH THIS NOTE IS A PART ARE COMMERCIAL TRANSACTIONS AND WAIVE
THEIR RIGHT TO NOTICE AND A HEARING AS PROVIDED BY CHAPTER 903 OF THE
CONNECTICUT GENERAL STATUTES OR UNDER ANY OTHER FEDERAL OR STATE LAW WITH
RESPECT TO ANY PREJUDGMENT REMEDY WHICH HOLDER MAY DESIRE TO USE. MAKERS
ACKNOWLEDGE THAT THEY MAKE THIS WAIVER KNOWINGLY, VOLUNTARILY, WITHOUT DURESS
AND ONLY AFTER EXTENSIVE CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH
THEIR ATTORNEYS.
<PAGE>
(15) Jury Trial Waiver. MAKERS WAIVE TRIAL BY JURY IN ANY COURT AND IN
ANY SUIT, ACTION OR PROCEEDING ON ANY MATTER ARISING IN CONNECTION WITH OR IN
ANY WAY RELATED TO THE FINANCING TRANSACTIONS TO WHICH THIS NOTE IS A PART OR
THE ENFORCEMENT OF ANY OF HOLDER'S RIGHTS AND REMEDIES. MAKERS ACKNOWLEDGE THAT
THEY MAKE THIS WAIVER KNOWINGLY, VOLUNTARILY, WITHOUT DURESS AND ONLY AFTER
EXTENSIVE CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH THEIR
ATTORNEYS.
LUNN INDUSTRIES, INC.
[CORPORATE SEAL]
By:_____________________
Alan Baldwin, Chairman
and Chief Executive
Officer
ALCORE, INC.
[CORPORATE SEAL]
By:______________________
Alan Baldwin, Chairman
and Chief Executive
Officer
STATE OF NEW YORK )
)ss.:
COUNTY OF NEW YORK)
Before me, the undersigned, this ___ day of December, 1995 personally
appeared Alan Baldwin, known to me to be the Chairman and Executive Officer of
Lunn Industries, Inc., and that he as such officer, signer and sealer of the
foregoing instrument, acknowledged the execution of the same to be his free act
and deed individually and as such officer and the free act and deed of the
corporation.
IN WITNESS WHEREOF, I hereunto set my hand.
---------------------------
Notary Public
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK)
Before me, the undersigned, this ___ day of December, 1995 personally
appeared Alan Baldwin, known to me to be the Chairman and Chief Executive
Officer of Alcore, Inc., and that he as such officer, signer and sealer of the
foregoing instrument, acknowledged the execution of the same to be his free act
and deed individually and as such officer and the free act and deed of the
corporation.
IN WITNESS WHEREOF, I hereunto set my hand.
---------------------------
Notary Public
<PAGE>
Exhibit 10.32
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF
ANY STATE, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND SECURITIES LAWS AND THE
RULES AND REGULATIONS THEREUNDER OR AN EXEMPTION THEREFROM AND IN COMPLIANCE
WITH THE RESTRICTIONS CONTAINED HEREIN.
WARRANT
To Subscribe for and Purchase
Common Stock of
LUNN INDUSTRIES, INC.
THIS IS TO CERTIFY THAT, for value received, Fleet National Bank of
Connecticut (f/k/a Shawmut Bank Connecticut, National Association) ("Lender")
having offices at One Corporate Center, Hartford, Connecticut 06103, or its
successors is entitled to subscribe for and purchase from Lunn Industries, Inc.,
a Delaware corporation (the "Company"), 400,000 shares of the duly authorized,
validly issued, fully paid and nonassessable shares of the Company's voting
Common Stock, $.01 par value per share (the "Common Stock"), at an exercise
price (the "Initial Exercise Price") of the lesser of (a) $1.00 per share and
(b) 75% of the price per share of the Common Stock as published in the Wall
Street Journal or as reflected by a comparable source ("Market Price") as of the
date which is two (2) Business days prior to the effective date of exercise of
this Warrant ("Warrant"). This Warrant is issued in connection with the Amended
and Restated Commercial Revolving Loan, Term Loan and Security Agreement dated
December 28, 1995 between the Company, Alcore, Inc. and Lender (as same has been
or may be amended, modified or supplemented from time to time, the "Loan
Agreement"). All capitalized terms used herein and not otherwise defined herein
shall have the meanings set forth in the Loan Agreement. This Warrant shall
expire on (x) December 27, 2005 or (y) the first anniversary of the indefeasible
payment in full of all Obligations under the Loan Agreement and the irrevocable
termination thereof.
This Warrant is subject to the following provisions, terms and conditions:
11. Exercise of Warrant.
11.1 Manner of Exercise. This Warrant may be exercised by the holder
hereof (the "Holder") at any time on or after March 31, 1996, during normal
business hours on any day other than a Saturday, Sunday or legal holiday in the
State of New York (a "Business Day"), by surrender of this Warrant, with the
form of subscription at the end of this Warrant as Exhibit A (or a reasonable
facsimile thereof) duly executed by the Holder, to the Company at its principal
office, accompanied by payment of the Exercise Price (as hereinafter defined)
for such shares, in cash, by certified or official bank check payable to the
order of the Company or, at the option of Lender, by reduction of the
outstanding Obligations payable to Lender; provided that this Warrant may only
be exercised in whole and may not be exercised in part. The Holder shall
thereupon be entitled to receive the number of duly authorized, validly issued,
fully paid and nonassessable shares of Common Stock determined as provided
<PAGE>
herein.
11.2 When Exercise Effective. Exercise of this Warrant shall be deemed
to have been effected immediately prior to the close of business on the Business
Day on which this Warrant shall have been surrendered to the Company as provided
in Section 1.1. At such time the person, corporation or other entity (a
"Person") in whose name or names any certificate or certificates for shares of
Common Stock shall be issuable upon such exercise as provided in Section 1.3
shall be deemed to have become the holder or holders of record thereof.
11.3 Delivery of Stock Certificates. As soon as practicable after the
exercise of this Warrant, in whole, and in any event within ten (10) Business
Days thereafter, the Company at its expense (including the payment by it of any
applicable taxes other than income or transfer taxes) will cause the following
to be issued in the name of and delivered to the Holder (bearing the applicable
legend specified in Article 5): a certificate or certificates for the number of
duly authorized, validly issued, fully paid and nonassessable shares of Common
Stock to which the Holder shall be entitled upon such exercise.
11.4 Shares to be Fully Paid; Reservation of Shares; Listing. The
Company covenants and agrees that: (i) all shares which may be issued upon the
exercise of the rights represented by this Warrant will, upon issuance, be fully
paid and nonassessable and free from all taxes, liens and charges with respect
to the issue thereof; (ii) without limiting the generality of the foregoing, it
will from time to time take all such action as may be required to assure that
the par value, if any per share of the Common Stock is at all times equal to or
less than the Exercise Price per share of the Common Stock issuable pursuant to
this Warrant; (iii) during the period within which the rights represented by
this Warrant may be exercised, the Company will at all times have a sufficient
number of shares of Common Stock authorized and reserved for the purpose of
issue or transfer upon exercise of the rights represented by this Warrant; (iv)
upon the exercise of this Warrant, it will, at its expense, promptly notify each
securities exchange on which any Common Stock is at the time listed of such
issuance, and maintain a listing of all shares of Common Stock from time to time
issuable upon the exercise of the Warrant, and, if applicable under the
provisions of Article 7 below, will register under the Securities Act of 1933
(or any similar statute then in effect) ("Securities Act") all shares of Common
Stock from time to time so issuable; provided, however, that the Company need
not list such shares of Common Stock so long as there are in the Treasury of the
Company a sufficient number of shares of Common Stock to provide for the
exercise of the rights represented by this Warrant.
12. Adjustments. The above provisions are, however, subject to the
following:
12.1 Initial Exercise Price; Adjustment of Warrant Purchase Price. The
Initial Exercise Price shall be subject to adjustment from time to time as
hereinafter provided (such price or price as last adjusted, as the case may be,
the "Exercise Price"). Upon each adjustment of the number of shares purchasable
pursuant hereto, the Exercise Price shall be adjusted by multiplying the
Exercise Price in existence immediately prior to such adjustment by a fraction,
the numerator of which is the total maximum number of Warrant Shares issuable
upon exercise of this Warrant prior to such adjustment and the denominator of
which is the total maximum number of Warrant Shares issuable upon exercise of
<PAGE>
this Warrant after such adjustment.
12.2 Adjustment for Additional Issuances. If and whenever after the
date hereof the Company shall in any manner (i) issue or sell any shares of any
class of its Common Stock, (ii) grant (whether directly or by assumption in a
merger or otherwise) any rights to subscribe for or to purchase, or any options
for the purchase of, any class of Common Stock or any stock or securities
convertible into or exchangeable for any class of Common Stock (such rights or
options being herein called "Options" and such convertible or exchangeable stock
or securities being herein called "Convertible Securities"), (iii) issue or sell
(whether directly or by assumption in a merger or otherwise) Convertible
Securities, whether or not the rights to exchange or convert thereunder are
immediately exercisable or (iv) declare a dividend or make any other
distribution upon any stock of the Company payable in any class of Common Stock,
Options or Convertible Securities (any of the matters referred to in clauses
(i), (ii), (iii) and (iv) being an "Event"), then the Holder shall thereafter be
entitled to purchase at the Exercise Price resulting from any such adjustment
the number of shares (as adjusted from time to time, the "Warrant Shares")
obtained by dividing the number of shares purchasable pursuant hereto
immediately prior to such Event (with respect to each class of Common Stock) by
the sum of the total number of shares of Common Stock outstanding immediately
prior to such Event plus the total maximum number of shares of Common Stock
issuable upon the exercise of any Options or upon the conversion or exchange of
all Convertible Securities, in each case outstanding immediately prior to such
Event, and multiplying the result by the sum of the total number of shares of
Common Stock outstanding immediately after such Event plus the total maximum
number of shares of Common Stock issuable upon the exercise of any Options or
upon the conversion or exchange of all Convertible Securities, in each case
outstanding immediately after such Event.
12.3 Subdivision or Combination of Stock. In case the Company shall at
any time subdivide its outstanding shares of any class of Common Stock into a
greater number of shares or, in case the outstanding shares of any class of
Common Stock of the Company shall be combined into a smaller number of shares,
then, the number of shares of Common Stock thereafter constituting Warrant
Shares shall be adjusted so as to consist of the number of shares of Common
Stock which a record holder of the number of shares of Common Stock constituting
Warrant Shares immediately prior to the happening of such event would own or be
entitled to receive after the happening of such event.
12.4 Reorganization, Reclassification, Consolidation, Merger or Sale.
In case the Company shall reorganize its capital, reclassify its capital stock,
merge or consolidate into another corporation, or sell, transfer or otherwise
dispose of all or substantially all of its property, assets or business to
another corporation, and, pursuant to the terms of such reorganization,
reclassification, merger, consolidation or disposition of assets, shares of
common stock of the successor or acquiring corporation are to be received by or
distributed to the holders of Common Stock, then the Holder shall have the right
thereafter to receive, upon exercise of such Warrant prior to the Expiration
Date, a number of Warrant Shares equal to the number of shares of common stock
of the successor or acquiring corporation receivable upon or as a result of such
reorganization, reclas- sification, merger, consolidation or disposition of
assets, by a holder of the number of shares of Common Stock constituting Warrant
Shares immediately prior to such event, subject to subsequent adjustments to the
<PAGE>
number of shares of common stock of the successor or acquiring corporation
constituting Warrant Shares as provided in this Article 2. If, pursuant to the
terms of such reorganization, reclassification, merger, consolidation or
disposition of assets, any cash, shares of stock or other securities or property
of any nature whatsoever (including warrants or other subscription or purchase
rights) are to be received by or distributed to the holders of Common Stock in
addition to common stock of the successor or acquiring corporation, the Holder,
upon exercise thereof prior to the Expiration Date, shall be entitled to receive
with respect to each Warrant Share cash in an amount equal to the amount of any
such cash applicable to the number of shares of Common Stock then constituting
Warrant Shares and the fair value (as determined in good faith by the Board of
Directors of the Company) of any and all such shares of stock or other
securities or property to be received by or distributed to the holders of Common
Stock of the Company. In case of any such reorganization, reclassification,
merger, consolidation or disposition of assets, the successor or acquiring
corporation shall expressly assume the due and punctual observance and
performance of each and every covenant and condition of this Warrant to be
performed and observed by the Company and all the obligations and liabilities
hereunder, subject to such modifications as may be deemed appropriate (as
determined by resolution of the Board of Directors of the Company) in order to
provide for adjustments of Warrant Shares which shall be as nearly equivalent as
practicable to the adjustments provided for in this Article 2. For the purposes
of this Article 2, common stock of the successor or acquiring corporation shall
include stock of such corporation of any class which is not preferred as to
dividends or assets over any other class of stock of such corporation and which
is not subject to redemption and shall also include any evidence of
indebtedness, shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the arrival of a
specified date or the happening of a specified event and any warrants or other
rights to subscribe for or purchase any such stock. The foregoing provisions of
this Article 2 shall similarly apply to successive reorganizations,
reclassifications, mergers, consolidations or dispositions of assets.
Notwithstanding the foregoing, if a purchase, tender or exchange offer is made
to and accepted by the holders of more than 50% of the outstanding shares of
Common Stock of the Company, (I) at the option of the Company, the Company may
purchase this Warrant for cash at a price equal to the excess of (i) the product
of the per share price paid in such purchase, tender offer or exchange offer
(taking any non-cash consideration into account at its fair market value) and
the Exercise Shares then in effect less (ii) the product of the then Exercise
Price and the Exercise Shares (as hereinafter defined) then in effect and (II)
the Company shall not effect any consolidation, merger or sale with the Person
having made such offer or with any Affiliate of such Person, unless prior to the
consummation of such consolidation, merger or sale the Holder shall have been
given a reasonable opportunity to then elect to receive upon the exercise of
this Warrant either the stock, securities or assets then issuable with respect
to the Common Stock of the Company or the stock, securities or assets, or the
equivalent, issued to previous holders of the Common Stock in accordance with
such offer.
12.5 Notice of Adjustment. Whenever the number of shares of Common
Stock constituting Warrant Shares shall be adjusted pursuant to this Article 2
or otherwise or upon any adjustment of the Exercise Price, then and in each such
<PAGE>
case the Company shall promptly obtain the opinion of a firm of independent
certified public accountants (which may be the regular auditors of the Company)
selected by the Company's Board of Directors, which opinion shall state the
Exercise Price resulting from such adjustment and specifying the increase or
decrease, if any, in the number of shares of Common Stock constituting Warrant
Shares, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. The Company will promptly mail a
copy of such accountants' opinion to the registered holder of this Warrant at
the address of such holder as shown on the books of the Company.
12.6 Other Provisions Applicable to Adjustments or Exercise. The
following provisions shall be applicable to the making of adjustments of the
number of shares of Common Stock constituting Warrant Shares hereinbefore
provided for in this Article 2 or upon exercise of this Warrant:
(a) When Adjustments Are To Be Made. The adjustments required by this
Article 2 shall be made whenever and as often as any specified event
requiring an adjustment shall occur. For the purpose of any adjustment, any
specified event shall be deemed to have occurred at the close of business on
the date of its occurrence.
(b) Fractional Interests. In computing adjustments under this Article
or shares of Common Stock upon an exercise of this Warrant, fractional
interests in Common Stock shall be taken into account to the nearest
one-thousandth of a share.
(c) Adjustments for Fractional Interests. No adjustments computed
pursuant to this Article 2 shall be made until such time as the fractional
interest is at least one-hundredth of a share.
12.7 Fractional Warrants and Fractional Warrant Shares.
(a) The Company may, but shall not be required to, issue fractions of
Warrant Shares upon the exercise of Warrants. In the event that the Company
elects not to issue fractions of Warrant Shares it shall make an adjustment in
respect of a fractional interest in a Warrant by paying in cash to the person or
entity entitled to a fractional interest in a Warrant an amount equal to the
corresponding fractional part of the then current Market Price.
(b) The Company may, but shall not be required to, issue fractions of
Warrants or distribute Warrant Certificates that evidence fractional Warrants.
In the event that it elects not to issue fractions of Warrants or fractional
Warrants it shall make an adjustment in respect of a fractional interest in a
Warrant Share by paying in cash to the person or entity entitled to a fraction
of a Warrant Share an amount equal to the corresponding fractional part of the
purchase price of a Warrant Share.
12.8 Record Date. In case the Company shall take record of the holders
of its Common Stock for the purpose of entitling them (i) to receive a dividend
or other distribution payable in Common Stock, Options or Convertible
Securities, or (ii) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date shall be deemed to be the date of
the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
<PAGE>
distribution or the date of the granting of such rights of subscription or
purchase, as the case may be.
12.9 Treasury Shares. The number of shares of Common Stock outstanding
at any given time shall not include shares owned or held by or for the account
of the Company, and the disposition of any such shares shall be considered an
issue or sale of Common Stock for the purposes of this Article 2.
13. Notices of Corporate Action; Certain Events.
13.1 In case at any time:
(a) the Company shall declare a cash dividend on its Common Stock
other than out of consolidated earnings for any fiscal year determined in
accordance with generally accepted accounting purposes;
(b) the Company shall pay any dividend payable in stock upon its
Common Stock or make any distribution (other than cash dividends) to the holders
of its Common Stock;
(c) the Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class or other
rights;
(d) there shall be any capital reorganization, or reclassification
of the capital stock of the Company, or consolidation or merger of the Company
with another corporation (other than a subsidiary of the Company in which the
Company is the surviving or continuing corporation and no change occurs in the
Company's Common Stock), or sale of all or substantially all of its assets to
another corporation); or
(e) there shall be voluntary or involuntary dissolution,
liquidation or winding-up of the Company; then, in any one or more of said
cases, the Company shall give written notice, by first class mail, postage
prepaid, addressed to the holder of this Warrant at
the address of such holder as shown on the books of the Company, of (a) the date
on which the books of the Company shall close or a record shall be taken for
such dividend, distribution or subscription rights, or (b) the date (or, if not
then known, a reasonable approximation thereof by the Company) on which such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up shall take place, as the case may be. Such notice
shall also specify (or, if not then known, reasonably approximate) the date as
of which the holders of Common Stock of record shall participate in such
dividend, distribution or subscription rights, or shall be entitled to exchange
their Common Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, as the case may be. Such written notice shall be
given at least 10 days prior to the action in question and not less than 10 days
prior to the record date or the date on which the Company's transfer books are
closed in respect thereof.
13.2 If any event occurs as to which in the opinion of the Board of
<PAGE>
Directors the other provisions of this Article 3 are not strictly applicable but
the lack of any adjustment would not in the opinion of the Board of Directors
fairly protect the purchase rights of this Warrant in accordance with the
essential intent and principles of such provisions, or if strictly applicable
would not fairly protect the purchase rights of the Warrant in accordance with
the essential intent and principles of such provisions, the Board of Directors
shall appoint a firm of independent certified public accountants (which may be
the regular auditors of the Company) which shall give their opinion as to the
adjustments,if any necessary to preserve, without dilution, on a basis
consistent with the essential intent and principles established in the other
provisions of this Article 3, the exercise rights of the registered holders of
this Warrant. Upon receipt of such opinion, the Board of Directors of the
Company shall forthwith make the adjustments described therein.
14. Actions Prohibited.
The Company will not (i) increase the par value of any shares
receivable upon the exercise of the rights represented hereby above the Exercise
Price then in effect, (ii) issue any capital stock of any class preferred as to
dividends or as to the distribution of assets upon voluntary or involuntary
liquidation, dissolution or winding-up of the Company unless the rights of the
holders thereof shall be limited to a fixed sum or percentage of par value in
respect of participation in dividends and in any such distribution of assets or
(iii) take any action which results in any adjustment of the Exercise Price if
the total number of shares of Common Stock issuable after such action upon the
exercise of the rights represented by all of the Warrants would exceed the total
number of shares of Common Stock then authorized by the Company's charter and
available for the purpose of issue upon such exercise.
15. Restrictive Legends. Each Warrant issued upon direct or indirect
transfer or in substitution for any Warrant shall be stamped or otherwise
imprinted with a legend in substantially the following form:
"This Warrant and the securities represented hereby have not been
registered under the Securities Act of 1933, as amended, or under the
securities laws of any State, and may not be sold or otherwise
transferred except pursuant to an effective registration under such Act
and securities laws and the rules and regulations thereunder or an
exemption therefrom. The holder of this certificate, by acceptance of
this certificate, agrees to be bound by the provisions of the Warrant."
Each certificate for Common Stock issued upon the exercise of any Warrant
and each Certificate issued upon the direct or indirect transfer of any such
Common Stock shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"The shares represented by this certificate have been acquired for
investment only and have not been registered under the Securities Act
of 1933, as amended (the "Act"), or under the securities laws of any
State. The shares represented by this certificate may not be sold or
transferred in absence of such registration or an exemption therefrom
under the Act and applicable state securities laws. Additionally, the
transfer of the shares represented by this certificate are subject to
the conditions specified in a certain Warrant (the "Warrant"), dated as
<PAGE>
of December 28, 1995, issued by Lunn Industries, Inc. Copies of the
Warrant are on file with the Secretary of the Company. The holder of
this certificate, by acceptance of this certificate, agrees to be bound
by the provisions of the Warrant."
16. Ownership of Warrants; Replacement of Warrants; Transfer of Warrants
and Exercise Shares.
16.1 Ownership of Warrants. The Company may treat the Person in whose
name a Warrant is registered on the books of the Company as the owner and holder
thereof for all purposes, notwithstanding any notice to the contrary.
16.2 Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of a
Warrant and, in the case of any such mutilation, upon surrender of such Warrant
for cancellation at the principal office of the Company, and, in the case of any
loss, theft or destruction, upon receipt by the Company of an indemnification
agreement reasonably satisfactory to the Company, the Company, at its expense,
will execute and deliver, in lieu thereof, a new Warrant of like tenor bearing
the applicable legend specified in Article 5.
16.3 Transfer of Warrants and Exercise Shares.
(a) Title to this Warrant and, in the event the Warrant is
exercised, any Common Stock issued upon such exercise (the "Exercise Shares"),
may be transferred by Lender without the approval of the Company at any time
after December 28, 1995 by surrender of this Warrant and certificates evidencing
the Exercise Shares at the principal office of the Company, together with a
written assignment of this Warrant substantially in the form of Exhibit B hereto
and/or stock powers, as the case may be, duly executed by the Holder or its
agent or attorney.
(b) Upon the surrender of this Warrant, the Company, at its
expense, will execute and deliver to or upon the order of the Holder a new
Warrant or Warrants of like tenor, bearing the applicable legend specified in
Article 5, in the name of the Holder or in the name or names of the permitted
assignee or assignees as the Holder may direct, representing in the aggregate
the right to subscribe for and purchase the number of shares of Common Stock
which may at such time be subscribed for and purchased hereunder. Each new
Warrant shall represent the right to subscribe for and purchase that number of
shares of Common Stock from time to time constituting such percentage of the
aggregate number of outstanding shares of Common Stock as shall be designated by
the Holder at the time of such surrender. Notwithstanding the foregoing, a
Warrant may be exercised by a new holder without first having a new Warrant
issued.
(c) Upon the surrender of stock certificates evidencing Exercise
Shares, the Company, at its expense, will execute and deliver to or upon the
order of the Holder, new stock certificates of like tenor, bearing the
applicable legends specified in Article 5, in the name of the Holder or in the
name or names of the permitted assignee or assignee as the Holder may direct,
representing the aggregate number of Exercise Shares of such surrendered stock
certificates.
<PAGE>
17. Registration and Take-Along Rights.
17.1. Demand Registration. Subject to the limitations and conditions
set forth below in this Section 7.1, until the expiration of this Warrant, each
holder of the Warrants and/or Exercise Shares (each hereinafter "Holder") may,
in its sole discretion, request Registration (a "Demand Registration") of the
Warrants and/or Exercise Shares (hereinafter "Holder Securities"), and upon
receiving such a request, the Company shall promptly prepare and make the
filings necessary for such Demand Registration and use its best efforts to cause
such Demand Registration and use its best efforts to cause Demand Registration
to become effective. As used herein, "piggy-back opportunity" means a
consummated sale of all Holder Securities requested to be registered by Holder
pursuant to Section 7.2 below. Notwithstanding the foregoing, the Holder may
only request a Demand Registration after September 30, 1996; provided, however,
if the Company files a registration statement under the Securities Act covering
an offering to the public for cash of any of the Company's common stock which
registration includes the Holder Securities on or before September 30, 1996 and
such offering is delayed due to reasons beyond the control of the Company, then
the right of Holder to request a Demand Registration hereunder shall not
commence until December 1, 1996.
(a) The request for a Demand Registration shall be given to the
Company in writing and shall state the kind, and number of shares (or other
units), of Holder Securities to be offered and sold pursuant to such
registration and the plan of distribution or disposition for such Holder
Securities (listing each state and/or other jurisdiction in which such
distribution or disposition is intended to be made).
(b) The Company may, within 20 days after receiving a request for
a Demand Registration, give written notice to Holder that it will instead
include the Holder Securities specified in such request in a larger Registration
of its securities under the Securities Act; in which event, provided that the
Company files such Registration within 60 days after receiving such request for
a Demand Registration and, after filing, diligently undertakes to have such
Registration declared effective (and provided that such Registration is declared
effective within four months after Holder's request for such Demand
Registration), the Company shall include (subject to the right of Holder to
withdraw from such Registration) all the Holder Securities specified in Holder's
request in such larger Registration in lieu of effecting a Demand Registration
under this Section 7.1. If in any such larger Registration there is a decrease
in the number of securities delivered proposed to be registered, Holder
Securities shall have priority over any securities of the Company or any third
party, provided, however, that if any of the holders of any securities of the
Company or any warrants to purchase securities of the Company who have demand
registration rights as of the date hereof with respect to such securities (the
"Other Securities") are to be included in such larger Registration and there is
a decrease in the number of securities proposed to be registered so that all the
Other Securities and the Holder Securities cannot be included in such
Registration, then Other Securities shall have priority over Holder Securities.
Subject to the foregoing, Holder shall have the right to request a Demand
Registration of Holder Securities regardless of whether Holder has yet exercised
for and purchased any of such Holder Securities hereunder, and to defer purchase
of any such unissued Holder Securities or its decision to withdraw from such
<PAGE>
Registration:
(i) Until close of the offering made pursuant to such
Registration, if such offering is made on the basis of a firm
underwriting, and if, concurrently with the execution of the
underwriting agreement for such offering, (A) Holder delivers to
the Company a binding undertaking to exercise the Warrant, for such
number of shares of unissued Holder Securities as may be required
(in addition to any already issued Holder Securities which are
subject to such offering) to fulfill the obligation for delivery of
Holder Securities which are subject to such offering, (B) if the
managing underwriter so requires, Holder delivers into escrow, with
the managing underwriter for such offering, its check (which need
not be a certified check), in an amount equal to the aggregate
Exercise Price for the maximum number of shares of unissued Holder
Securities which (together with any already issued Holder
Securities subject to such offering) may be required under the
terms of such underwriting agreement (such check to be replaced by
the closing of such offering with a certified check in the exact
amount of the aggregate Exercise Price for the number of unissued
Holder Securities to be purchased), (C) Holder delivers to the
Company and the managing underwriter for such offering such other
documents as the Company or such underwriter may reasonably require
(without materially enlarging the obligations or liability of
Holder beyond those contemplated hereby) provided, however, if the
Demand Registration does not result in the sale of all of the
Holder Securities subject to such offering, any check or other
documents delivered to the Company or the managing underwriter or
both shall promptly be returned to Holder and Holder shall still be
entitled to one Demand Registration, or Holder may direct the
managing underwriter to deliver the check to the Company and the
unissued Holder Securities shall be issued to Holder; or,
otherwise,
(ii) within five (5) business days following receipt of
written notice that such Registration has become effective.
The selection, if any, of a managing underwriter who will, or will
manage a group of underwriters who will, undertake the sale and distribution of
the Holder Securities to be included in the registration statement filed under
this Section 7.1 shall be made by the Company, subject to the prior approval of
the Holder, which approval will not be withheld unreasonably, provided, however,
that the approval of Holder is subject to the right of first refusal to be the
underwriter on the part of J.E. Sheenan & Company, Inc.
The Company shall have sole control in connection with preparing,
filing, amending or supplementing any registration statement under the
Securities Act to be filed on behalf of the Holders but Holders shall control
the compensation to be paid to the underwriters in connection with a Demand
Registration. The underwriters shall have sole control in connection with
determining whether withdrawal of any registration statement to be filed on
behalf of the Holders is appropriate. In the event that a Holder of Holders
shall have requested registration pursuant to the provisions of this Section 7.1
and the underwriters shall have thereafter withdrawn such registration
<PAGE>
statement, such withdrawn registration statement shall not be deemed one of the
demand registration statements which may be requested pursuant to this Section
7.1.
The Company will pay all registration expenses in connection with all
attempted registrations of Holder Securities under this Section 7.1 whether or
not such Demand Registration is successfully concluded for any reason
whatsoever. The rights on behalf of any Holder under this Section 7.1 shall be
exercisable by any successor Holder or Holder Securities (other than the
Company) who shall have acquired all Holder Securities held by its immediate
transferor,but only if and to the extent that such rights shall not previously
have been exercised by such Holder or by any other such successor Holder of such
Holder Securities. Holder may voluntarily withdraw at any time from any
registration covering shares demanded or requested to be registered.
17.2. Incidental (Piggy-Back) Registration. At any time until the
expiration of this Warrant, if the Company files or proposes to file a
registration statement under the Securities Act covering an offering, whether by
the Company or any of its other stockholders, of any of the Company's stock to
the public for cash (other than pursuant to any employee benefit plan or
employee option plan) and the registration form for such registration may also
be used for the registration of Holder Securities, then the Company shall
promptly give Holder written notice of such proposed registration (including a
list of the states and/or other jurisdictions, if any, in which the Company
intends to qualify such offering under "blue sky" or other applicable securities
laws). Subject to the limitations and conditions set forth below in this Section
7.2, the Company shall include in such registration (a "Piggy-Back
Registration"), whether as initially filed or by pre-effective amendment all of
the Holder Securities specified by Holder in a written request given the Company
within 20 days after Holder receives such notice from the Company.
(a) The Company shall not be obligated to include such Holder
Securities in a Piggy-Back Registration if, in the written opinion of its
counsel addressed to Holder, all such Holder Securities may be immediately sold
in public trading without registration.
(b) Except as set forth in (c) and (d) below, the Company shall
not be obligated to include in a Piggy-Back Registration any Holder Securities
which, in the opinion of its investment banker (stated in writing by such
investment banker to Holder) would materially interfere with the proposed
offering by the Company of its securities, provided, however, that the amount of
Holder Securities which shall be excluded from such Piggy-Back Registration
shall be determined on a pro rata basis with the securities of all persons other
than the Company and Other Securities to be included in such Piggy-Back
Registration.
(c) In any underwritten primary offering where the Company's
underwriter advises in writing that, in such underwriter's reasonable opinion,
the number of Holder Securities requested to be included in a Piggy-Back
Registration exceeds the number that effectively can be sold in such offer, the
Company shall give priority for inclusion in such registration, first, to the
securities the Company proposes to sell, second, to the Other Securities
requested to be included and third, on a pro rata basis, to the Holder
Securities and to other securities requested to be included.
<PAGE>
(d) In any underwritten secondary offering on behalf of any of the
Company's stockholders (other than Holder) where the underwriter advises the
Company in writing that,in such underwriter's opinion, the number of securities
requested to be included in such a registration exceeds the number that
effectively can be sold in such offering, the Company shall give priority to
Other Securities requested to be included and then shall reduce on a pro rata
basis the Holder Securities requested to be included and other securities
requested to be included in such registration.
Subject to the foregoing, Holder shall have the right to request inclusion of
Holder Securities in any Piggy- Back Registration regardless of whether any of
such Holder Securities have yet been exercised for and purchased hereunder, and
to defer the purchase of any such unissued Holder Securities, or its decision to
withdraw from such registration:
(i) Until close of the offering pursuant to such registration,
if such offering is made on the basis of a firm underwriting, and
if, concurrently with the execution of the underwriting agreement
for such offering, (A) Holder delivers to the Company a binding
undertaking to exercise the Warrant, for such number of shares of
unissued Holder Securities as may be required (in addition to any
already issued Holder Securities which are subject to such
offering) to fulfill the obligation for delivery of Holder
Securities under such underwriting agreement (but in no event for
more than the aggregate remaining number of shares of Holder
Securities purchasable under the Warrant),(B) if the managing
underwriter so requires, Holder delivers into escrow, with the
managing underwriter for such offering, its check (which need not
be a certified check), in an amount equal to the aggregate Exercise
Price for the maximum number of shares of unissued Holder
Securities (together with any already issued Holder Securities
subject to such offering) may be required under the terms of such
underwriting agreement (such check to be replaced by the closing of
such offering with a certified check in the exact amount of the
aggregate Exercise Price for the number of unissued Holder
Securities to be purchased), (C) Holder delivers to the Company and
the managing underwriter for such offering such other documents as
the Company or such underwriter may reasonably require (without
materially enlarging the obligations or liability of Holder beyond
those contemplated hereby) provided, however, if the Piggy- Back
Registration does not result in the sale of all of the Holder
Securities subject to such offering, any check or other documents
delivered to the Company or the managing underwriter or both shall
promptly be returned to Holder and Holder shall still be entitled
to further Piggy-Back Registrations, or Holder may direct the
managing underwriter to deliver the check to the Company and the
unissued Holder Securities shall be issued to the Holder; or,
otherwise.
(ii) Within five (5) business days following receipt of
written notice that such registration has become effective.
The Company will pay all registration expenses in connection with each
<PAGE>
registration of Holder Securities under the Section 7.2 and in connection with
all requests for such registrations. No registration effected under this Section
7.2 shall relieve the Company from its obligation to effect registrations upon
request under Section 7.1.
Holder may withdraw from a Piggy-Back Registration at any time without
consequence to its registration rights.
17.3. Registration Procedures. If and whenever the Company is required
to use its best efforts to effect the registration of any Holder Securities
under the Securities Act as provided herein, the Company will promptly:
(a) prepare and file with the Commission a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become effective;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
to comply with the provisions of the Securities Act with respect to the
disposition of all such securities covered by such registration statement until
such time as all of such securities have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof set forth in
such registration statement, but in no event for a period of more than nine
months after such registration statements becomes effective;
(c) furnish to each seller of such securities such number of
copies of such registration statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of copies of the
prospectus comprised in such registration statement (including each preliminary
prospectus), in conformity with the requirements of the Securities Act, and such
other documents, as such seller may reasonably request in order to facilitate
the disposition of the securities owned by such seller;
(d) use its best efforts to register or qualify such securities
covered by such registration statement under such other securities or blue sky
laws of such jurisdictions within the United States (including territories and
commonwealths thereof) as each seller shall reasonably request, except that the
Company shall not for any such purpose be required to qualify generally to do
business as a foreign corporation in any jurisdiction wherein it is not so
qualified, to subject itself to taxation in any such jurisdiction, or to consent
to general service of process in any such jurisdiction; and
(e) notify each seller of any securities covered by such
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act within the period mentioned in
subdivision (b) of this Section 7.3, of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing (and upon
receipt of such notice and until a supplemented or amended prospectus as set
forth below is available, each seller will not offer or sell any securities
covered by the registration statement and will return all copies of the
<PAGE>
prospectus to the Company if requested to do so by it), and at the request of
any such seller a reasonable number of copies of a supplement to or an amendment
of such prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing.
The Company may require each seller of any securities as to which any
registration or qualification is being effected to furnish the Company such
information regarding such seller and the distribution of such securities as the
Company may from time to time request in writing and as shall be required by law
in connection therewith.
17.4. Take-Along.
(a) If, during the period the Warrants are exercisable, the Company
proposes to sell any Common Stock or Convertible Securities (collectively,
"Securities") other than pursuant to a Registration, the Company shall cause the
proposed terms of the offering of such Securities (the "Offering") to be reduced
to writing (which writing shall include the purchase price of each of the
securities which is subject to the Offering, the identity of the proposed
purchaser or purchasers, or, if not so identifiable, the class of proposed
purchasers and a list of the states in which the Offering may be made) (the
"Offering Disclosure") and shall notify each Holder in writing (the "Offering
Notice") of its wish to make the Offering and shall otherwise comply with the
provisions of this Section 7.4, provided, however, that the provisions of this
Section shall not apply to sales or transfers of Common Stock pursuant to
Sections 7.1 and 7.2. The Offering Notice shall contain an irrevocable offer to
sell on behalf of each Holder such Securities as such Holder may designate, on
up to a pro rata basis (according to beneficial ownership of Common Stock,
assuming full exercise of Warrant and with the proportionate right of
oversubscription to the extent any other Holder does not elect to accept the
offer set forth in the Offer Notice), at a purchase price equal to the price
contained in, and on the same terms and conditions of, the Offering Disclosure,
and shall be accompanied by a true copy of the Offering Disclosure. If sales are
proposed to be made by the Company pursuant to a series of related sales, the
higher of (i) the average price in all such sales and (ii) the most recent sale,
shall apply. If the consideration stated in the Offering is not cash, then the
purchase price to be stated in the offer contained in the Offering Notice will
be determined pursuant to an appraisal of the value of such consideration, the
terms and conditions of which appraisal will be mutually agreed upon by the
Company on the one hand and the Holders on the other after the receipt by them
of the Offering Notice. To the extent that the sale of Securities contemplated
by the Disclosure Notice requires the qualification of such Securities for sale
in any state, the Company shall qualify the Securities to be sold in the
Offering for sale in such additional states as may be reasonably requested by
the Holders.
(b) Each of the Holders who wishes to sell Securities in the
Offering shall deliver to the Company, within 20 days of the delivery of the
Offering Notice, a written election (the "Take-Along Election") to include in
the sale pursuant to the Offering such Securities as are designated in the
Take-Along Election, subject to paragraph (c) below (the "Take- Along
<PAGE>
Securities"). The Company shall not be permitted to sell any Securities subject
to the Offering unless the Take-Along Securities are simultaneously sold in the
Offering, provided, however, in the event all of the Securities (including the
Take-Along Securities) proposed to be sold in the Offering cannot be sold, the
amount sold by the Company shall have priority over the amount sold by the
Holder.
(c) The number of Warrants or Exercise Shares, as the case may
be, which any Holder shall be entitled to include in its Take-Along Election
shall not exceed the product of (i) the number of Warrants or Exercise Shares,
as the case may be, owned by such Holder, multiplied by (ii) a percentage
calculated by dividing the aggregate number of Securities which the Company
proposes to sell pursuant to the Offering by the total number of Securities to
be outstanding after the Offering.
(d) Upon delivering a Take-Along Election, such Holder will, if
requested by the Company execute and deliver a custody agreement and power of
attorney (a "Custody Agreement and Power of Attorney") in form and substance
satisfactory to the Company with respect to the Securities which are to be sold
by such Holder pursuant hereto. The Custody Agreement and Power of Attorney will
provide, among other things, that such Holder will deliver to and deposit in
custody with the custodian and attorney-in-fact named therein a certificate or
certificates representing such Securities (duly endorsed in blank by the
registered owner or owners thereof or accompanied by duly executed stock powers
in blank) and irrevocably appoint said custodian and attorney-in-fact as such
Holder's agent and attorney-in-fact with full power and authority to act under
the Custody Agreement and Power of Attorney on such Holder's behalf with respect
to the matters specified herein relating to the sale of such Securities in
accordance with the provisions of this Warrant.
(e) The Company shall enter into agreements and take all other
appropriate actions to expedite or facilitate the Offering, including:
(i) making such representations and warranties to the Holders
and any purchasers of Take-Along Securities in form, substance and scope as
are customarily made by issuers in private placements;
(ii) obtaining opinions of counsel to the Company and updates
thereof addressed to each selling Holder and the underwriters, if any,
covering the matters customarily covered in opinions requested in private
placements and such other matters as may be reasonably requested by such
Holders and underwriters, which counsel and opinions shall be reasonably
satisfactory (in form, substance and scope) to the underwriters, if any, and
a majority in interest of the Holders of the Take-Along Securities being
sold, and
(iii) delivering such documents and certificates as may be
reasonably requested by a majority in interest of the Holders of Take-Along
Securities being sold or the underwriters, if any, to evidence compliance
with this paragraph (e) and with any customary conditions contained in any
agreement entered into by the Company in connection with the Offering.
(f) The Holders of the Take-Along Securities being so sold agree
to pay all of the underwriting discounts and commissions (but not fees) and
<PAGE>
transfer taxes on such Take-Along Securities. The Company agrees that the costs
and expenses which it is obligated to pay in connection with the Offering,
whether or not such Offering is successfully concluded for any reason
whatsoever, include, but are not limited to, the fees and expenses of counsel
for the Company, the fees and expenses of the Company's accountants, reasonable
fees and expenses of counsel to Holders in connection with such Offering, all
other costs and expenses incident to the preparation and printing of the
Offering Disclosure and any other documents furnished by the Company to Holders
or purchasers of the Take-Along Securities (the "Private Sale Documents"), the
costs incurred in connection with the qualification for sale under the "blue
sky" or other securities laws in the states and other jurisdictions determined
pursuant to Section 7.4(a) above, including fees and expenses of counsel for the
Company and the Holders in respect thereto, and the costs of supplying a
reasonable number of Private Sale Documents to the Holders.
17.5. Indemnification.
(a) In the event of any registration of any Warrants or restricted
securities under the Securities Act pursuant to paragraph 7.1 or 7.2 or sale of
Take-Along Securities pursuant to Section 7.4, the Company will indemnify and
hold harmless the seller of such securities and each underwriter of such
securities and each other person, if any, who controls such seller or
underwriter within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which such seller or
underwriter or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in any registration
statement under which such securities were registered under the Securities Act,
any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereto, or (ii) any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading; and the Company will reimburse such
seller and each such underwriter and each such controlling person for any legal
or any other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action,
provided that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, any such preliminary prospectus, final
prospectus, amendment or supplement in reliance upon and in conformity with
written information furnished to the Company through an instrument executed by
such seller, underwriter or controlling person specifically for use in the
preparation thereof.
(b) The Company may require, as a condition to including any
Holder Securities in any registration statement filed pursuant to Section 7.1 or
7.2 or any Take-Along Securities in any Offering pursuant to Section 7.4, that
the Company shall have received an undertaking satisfactory to it from the
prospective seller or underwriter of such securities, to indemnify and hold
harmless (in the same manner and to the same extent as set forth in paragraph
(a) of this Section 7.5) the Company, each director of the Company, each officer
of the Company who shall sign such registration statement or furnish the Private
Sale Documents, any person who controls the Company within the meaning of the
<PAGE>
Securities Act and any underwriter designated by the Company to manage the sale
of such securities, with respect to any statement in or omission from such
registration statement, Private Sale Document, any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement thereto, if
such statement or omission was made in reliance upon and in conformity with
written information furnished to the Company through an instrument executed by
such seller or underwriter specifically for use in the preparation of such
Private Sale Document, registration statement, preliminary prospectus, final
prospectus, amendment or supplement.
(c) Promptly after receipt by an indemnified party of notice of
the commencement of any action involving a claim referred to in the preceding
subdivisions of this Section 7.5, such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party, give written notice
to the latter of the commencement of such action, provided that the failure of
any indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under the preceding subdivisions of this
Section 7.5, except to the extent that the indemnifying party is actually
prejudiced by such failure to give notice. In case any such action is brought
against an indemnified party, the indemnifying party will be entitled to
participate in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof. No indemnifying party, in the
defense of any such claim or litigation, shall, except with the consent of each
indemnified party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from all liability
in respect to such claim or litigation.
18. Termination of Restrictions and Put and Call Options. The restrictions
imposed by this Warrant upon the transferability, and exercise, of Warrants and
restricted securities shall cease and terminate as to any particular Warrants or
restricted securities, (a) when such securities shall have been effectively
registered under the Securities Act and disposed of in accordance with the
registration statement covering such securities, or (b) when in the opinions of
both counsel for the holder thereof and counsel for the Company such
restrictions shall terminate as to any Warrants or restricted securities, the
holder thereof shall be entitled to receive from the Company, without expense,
new certificates of like tenor not bearing the respective legends set forth in
Article 5.
19. No Rights or Liabilities as Shareholder. Nothing contained in this
Warrant shall be construed as conferring upon the Holder any rights as a
shareholder of the Company or as imposing any liabilities on the Holder to
purchase any securities or as a shareholder of the Company, whether such
liabilities are asserted by the Company or by creditors or shareholders of the
Company or otherwise.
20. Notices. All notices and other communications under this Warrant shall
be in writing and shall be mailed by registered or certified mail, return
<PAGE>
receipt requested, addressed (a) if to the Holder or any holder of Common Stock,
at the registered address of such holder as set forth in the applicable register
kept at the principal office of the Company, or (b) if to the Company, to the
attention of its President at its principal office, provided that the exercise
of any Warrant shall be effected in the manner provided in Article 1.
21. Successors and Permitted Assigns. This Warrant and the rights evidenced
hereby shall inure to the benefits of and be binding upon the successors of the
Company and the successors and assigns of the Holder. The provisions of this
Warrant are intended to be for the benefit of all Holders from time to time of
this Warrant and shall be enforceable by any such Holder.
22. Amendment. This Warrant may be modified or amended or the provisions
thereof waived with the written consent of the Company and the Holder.
23. Governing Law. This Warrant shall be construed and enforced in
accordance with and governed by the laws of the State of New York.
24. Call Option.
14.1 The Company shall have the option, exercisable from December 28,
1995 through December 27, 1998 to call, in whole, the Warrants and Exercise
Shares issued hereunder and subject hereto (the "Call Option") at a price (the
"Call Price") equal to (i) $3,321,469.34 less (ii) $1,961,951.84 less (iii) the
aggregate amount of principal payments made with respect to the Term Loan (the
"Aggregate Amount"), provided, however, if the Term Loan has been paid in full
pursuant to Section 2.3(b) of the Loan Agreement, then the Aggregate Amount
shall be deemed to be $500,000. The Company shall pay the aggregate Call Price
within thirty (30) days after the Lender receives notice (the "Call Notice") of
exercise of the Call Option (but in no event sooner than three (3) days after
the Call Price is determined).
14.2 Payment. The Company shall pay when due the Call Price to Lender,
by wire transfer of immediately available funds to such bank accounts of the
Holder as shall be provided in writing to the Company, or to such other location
as Lender shall have given notice of to the Company pursuant to the provisions
of the Loan Agreement.
IN WITNESS WHEREOF, the Company has executed this instrument as of the day
and year first above written.
LUNN INDUSTRIES, INC.
By:________________________________
Alan Baldwin, Chairman and
Chief Executive Officer
<PAGE>
Exhibit A
FORM OF SUBSCRIPTION
(To be executed only upon exercise of Warrant)
To: _____________________
The undersigned registered holder of the enclosed Warrant hereby irrevocably
exercise such Warrant for, and purchases thereunder, _______ shares of Common
Stock of_________________, and herewith makes payment of $____________ therefor
and requests that the certificates for such shares be issued in the name of, and
delivered to the undersigned registered holder.
Dated:____________________
-------------------------------
(Signature must conform
in all respects to name
of holder as specified on
the face of the
Warrant)
-------------------------------
(Street Address)
-------------------------------
(City) (State) (Zip Code)
<PAGE>
Exhibit B
FORM OF ASSIGNMENT
(To be executed only upon transfer of Warrant)
For value received, the undersigned registered holder of the enclosed Warrant
hereby sells, assigns and transfers unto ______________________________ the
right represented by such Warrant to purchase ______ shares of Common Stock of
___________________, to which such Warrant relates, and appoints _____________
Attorney to make such transfer on the books of ____________________, maintained
for such purpose, with full power of substitution in the premises.
Dated:____________________
-------------------------------
(Signature must conform
in all respects to name
of holder as specified on
the face of the
Warrant)
-------------------------------
(Street Address)
-------------------------------
(City) (State) (Zip Code)
Signed in the presence of:
- ---------------------------
<PAGE>
EXHIBIT 13.3
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: March 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from____________________________________
to________________________________
Commission File number 0-1298
LUNN INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 11-1581582
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1 Garvies Point Road, Glen Cove, New York 11542-2828
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 671-9000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. YES [ X ] NO [ ]
The aggregate number of shares of Common Stock outstanding as of April 10, 1997
was 12,779,791.
Transitional Small Business Disclosure Format (check one)
Yes ________ No X
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LUNN INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEET
MARCH 31, 1997
- -------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------
March 31,
1997
(unaudited)
================================================================================
CURRENT ASSETS
Cash and cash equivalent $ 7,986
Trade accounts receivable - net of allowance for doubtful
accounts of approximately $171,000 3,139,208
Inventories 4,862,630
Prepaid expense and other current assets 275,267
-----------
TOTAL CURRENT ASSETS 8,285,091
-----------
Property and equipment - net of accumulated
depreciation of $5,148,200 9,914,149
-----------
Other Assets:
Security deposits and other assets 169,167
Goodwill and other intangibles, net of accumulated
amortization of $113,963 409,103
-----------
Total other assets 578,270
TOTAL ASSETS $18,777,510
===========
2
<PAGE>
LUNN INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEET
MARCH 31, 1997
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------
MARCH 31,
1997
(unaudited)
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Cash overdraft $ 89,378
Current portion of obligations under capital lease 98,624
Accounts payable - trade 1,492,946
Accrued liabilities 367,774
------------
TOTAL CURRENT LIABILITIES 2,048,722
------------
LONG-TERM LIABILITIES:
Long-term debt 5,030,696
Obligation under capital lease net of current portion 264,707
------------
TOTAL LONG TERM LIABILITIES 5,295,403
------------
TOTAL LIABILITIES 7,344,125
------------
STOCKHOLDERS' EQUITY:
Preferred stock $.01 par value; authorized 1,000,000
shares; no shares issued and outstanding --
Common stock: par value $.01 per share; authorized
30,000,000 shares; issued and outstanding 12,779,791 127,798
Additional paid-in capital 14,400,244
Accumulated deficit (3,094,320)
------------
11,433,722
Less treasury stock (150 shares) (337)
------------
TOTAL STOCKHOLDERS' EQUITY 11,433,385
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 18,777,510
============
3
<PAGE>
LUNN INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Sales $ 5,020,779 $ 4,213,310
Cost of sales 3,889,290 3,262,673
------------ ------------
Gross income 1,131,489 950,637
Selling, general and administrative expenses 815,525 740,935
------------ ------------
Operating income 315,964 209,702
Other income (expenses):
Interest expense, net (111,082) (126,345)
Other income, net 30,186 10,106
------------ ------------
(80,896) (116,239)
Income before provision for income taxes $ 235,068 $ 93,463
Provision for income taxes 0 0
------------ ------------
Net Income $ 235,068 $ 93,463
============ ============
Weighted average number of common shares outstanding 13,028,410 8,081,181
Income per share $ 0.02 $ 0.01
============ ============
</TABLE>
4
<PAGE>
LUNN INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 235,068 $ 93,212
Adjustments to reconcile net income
Provided by operating activities:
Depreciation and amortization 348,479 288,828
Allowance for doubtful accounts (5,431) (22,089)
Expenses paid through issuance of stock 18,000 50,800
Debt paid through issuance of stock -- 46,666
Changes in assets & liabilities:
Accounts receivable (117,139) (510,716)
Inventory (96,813) (350,908)
Prepaid exp & other assets 46,384 (88,405)
Accounts payable 147,863 (513,171)
Accrued liabilities (183,377) 273,323
Customer advances -- 71,260
----------- -----------
Net cash provided by (used in) operating activities 393,034 (661,200)
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property, plant & equipment (1,003,302) (254,764)
Leasehold improvements -- (35,094)
----------- -----------
Net cash used in investing activities (1,003,302) (289,858)
CASH FLOWS FROM FINANCING ACTIVITIES
Bank overdraft (35,551) --
Repayment of debt (15,000) (716,747)
Proceeds from long-term debt, net of repayments 511,573 377,189
Proceeds from issuance of common stock -- 1,243,976
Proceeds from exercise of warrants 175,118
Payment on capital lease obligations (23,062) (1,716)
----------- -----------
Net cash provided by financing activities 613,078 902,702
Net increase (decrease) in cash 2,810 (48,356)
Cash balance - beginning 5,176 206,075
----------- -----------
Cash balance - ending $ 7,986 $ 157,719
=========== ===========
5
<PAGE>
LUNN INDUSTRIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED
CONDENSED STATEMENTS
NOTE 1 - CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The information contained in the condensed consolidated financial
statements for the period ended March 31, 1997 is unaudited, but includes all
adjustments, consisting of normal recurring adjustments, which the Company
considers necessary for a fair presentation of the financial position and the
results of operations for these periods.
The financial statements and notes are presented as permitted by Form
10-QSB, and do not contain certain information included in the Company's annual
statements and notes. Those financial statements should be read in conjunction
with the Company's annual financial statement as reported in its most recent
Annual Report on Form 10-KSB.
The unaudited results of operations for the period ended March 31, 1997 are
not necessarily indicative of the results to be expected for the full year.
NOTE 2 - STOCK OFFERING
On March 21, 1996, the Company sold 3.5 million shares of its common stock
for $.40 per share in a private placement. Total proceeds, net of underwriting
commissions and expenses were approximately $1,244,000. Through the first
quarter of 1996, the Company had used $581,000 of the proceeds to reduce its
bank debt obligations, pay down a portion of the outstanding balance due to
bridge lenders, and reduce its obligation to a shareholder. The balance has been
applied toward working capital. In addition, during the first quarter of 1996,
the Company issued 229,666 shares of its common stock to pay expenses and reduce
debt valued at $97,000.
6
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Aided by strong gains in both the composite and aluminum honeycomb
segments, the Company reported a 153% increase in first quarter consolidated net
income, which rose to $235 thousand, or $.02 a share, up from $93 thousand or
$.01 per share in the year earlier period.
First quarter 1997 consolidated sales rose by 19% over the prior year
period, from $4.2 million to $5.0 million. In the composite segment, first
quarter 1997 sales were $1.7 million, an increase of $400 thousand or 31%
compared to sales of $1.3 million in the year earlier period. This increase in
composite product sales resulted from increased composite mast fairing, Seawolf
submarine and fuel tank shipments to the U.S. Government, as well as increased
metal bonded assembly shipments to the aerospace and commercial aircraft
markets. Aluminum honeycomb sales for the first quarter 1997 were $3.3 million,
an increase of $400 thousand or 14% compared to sales of $2.9 million in the
year earlier period. The increase in honeycomb product sales reflects the
continued recovery of the aerospace and commercial aircraft markets, development
of non-aerospace business and the broadening of Alcore's product line and
capabilities.
Backlog of customer orders as of March 31, 1997 increased to $29.5 million
compared to $15.7 million, an increase of $13.8 million or 88%.
The Company's consolidated operating income for the first quarter 1997 was
$316 thousand, an increase of $106 thousand or 50% compared to $210 thousand
during the first quarter 1996. First quarter operating income for the composite
segment for 1997 was $70 thousand, an increase of $56 thousand compared to $14
thousand during the first quarter 1996. The aluminum honeycomb segment operating
income was $246 thousand, an increase of $50 thousand or 25%, compared to $196
thousand during the first quarter of 1996. Improved consolidated operating
income for 1997 resulted from higher sales as well as reduced SG & A expenses,
which were 16.2% of sales in the first quarter 1997 compared to 17.6% during a
similar period in 1996.
Interest expense for the first quarter 1997 was $111 thousand, a decrease
of $15 thousand compared to the first quarter of 1996, despite expanded use of
the Company's $6 million credit facility with First Union Bank of Maryland, as a
result of a more favorable interest rate on the new agreement.
The Company strengthened its honeycomb manufacturing organization and
production process, increased its emphasis on value-added special process
production and initiated a program to acquire, expand and upgrade the honeycomb
manufacturing facility in Belcamp, Maryland. On March 17, 1997, the Company
agreed to purchase its Belcamp, Maryland facility. The purchase price for the
building and property is $2.025
7
<PAGE>
million. The Company intends to finance the purchase with bonds issued by the
Maryland Industrial Development Financing Authority, which is anticipated to be
consummated May 1997.
FINANCIAL CONDITION
Net cash provided from operations during the first three months of 1997 was
$393 thousand, compared to $661 thousand used during the corresponding period of
1996. Net cash provided from operations in the first three months of 1997 was
comprised of $235 thousand net income plus $361 thousand in non-cash items
offset by approximately $203 thousand in change in assets and liabilities
related to accounts receivable, inventory, accounts payable and other
liabilities. Net cash used from operations in the first three months of 1996 was
$661 thousand, and consisted of $93 thousand from net income, $364 thousand of
non-cash items and change in assets and liabilities of approximately $1.118
million.
Net cash used in investing activities during 1997 was $1.0 million,
comprised of $354 thousand utilized for the purchase of machinery and equipment
and $649 thousand for construction in progress at the Glen Cove, New York and
Belcamp, Maryland facilities.
Net cash provided by financing activities was approximately $613 thousand,
comprised of $512 thousand from additional financing from the Company's line of
credit and $175 thousand from the issuance of stock due to the exercise of
437,794 outstanding warrants due to expire in January, 1997, offset by repayment
of debit obligations and cash overdraft of $74 thousand.
In January 17, 1997, the Company converted a $360,000 note and accrued
interest into 945,000 shares of common stock. In January, 1995, the Company had
borrowed $360,000 and issued a note for repayment on or before January 17,1997,
with interest at 10% to be paid semi-annually in common stock. The note was
convertible into 900,000 shares of common stock at the option of the holder at
any time during the term of the note.
On January 31, 1997, 440,363 outstanding warrants were due to expire. These
warrants gave the holders the right to convert each warrant into one share of
Lunn Industries common stock at the exercise price of $.40 per share for each
warrant held. Before expiration, 437,794 warrants were exercised, and 2,569
warrants were not exercised and subsequently expired. Proceeds from the exercise
of the warrants was $175,118.
The Company believes it has sufficient capital resources to operate
successfully over the remainder of 1997. The Company is operating close to its
1997 plan, and capital improvements and enhancements to equipment and facilities
in New York and Maryland
8
<PAGE>
are under way to support the increased production, provide environmental process
controls and continue to meet environmental compliance requirements. The Company
believes, based on the current quarter results, that operating cash flow and
depreciation will be sufficient to support its capital needs. However, should
circumstances arise affecting cash flow or requiring additional capital
expenditures beyond those anticipated by the Company, there can be no assurance
that such funds will be available. (See "Forward-looking Statements - Cautionary
Factors.")
Recent Accounting Pronouncements:
The Financial Accounting Standards Board has issued Statement 128,
"Earnings per Share" (Statement 128). Statement 128 establishes standards for
computing and presenting earnings per share (EPS). The Statement simplifies the
standards for computing EPS and makes them comparable to international EPS
standards. The provisions of Statement 128 are effective for financial
statements issued for periods ending after December 15,1997, including interim
periods. The Statement does not permit early application and requires
restatement of all prior period EPS data presented. Adoption of Statement 128
will not affect the Company's consolidated financial position or results of
operations; however, the impact on previously reported EPS data is currently
unknown.
Forward Looking Statements - Cautionary Factors
Except for the historical information and statements contained in this
Report, the matters and items set forth in this Report are forward looking
statements that involve uncertainties and risks, some of which are discussed at
appropriate points in the Report and are also summarized as follows:
1. The U.S. Government is a significant customer of the Company,
representing 12.7 percent of its revenue. With the continuing pressure to
reduce government spending, in addition to the worldwide political climate
creating an environment of less visible military threats to the united
States, the de-emphasis in military spending is expected to continue. This
could potentially have a material adverse effect on future projects upon
which the Company's backlog is based and upon programs the Company is
pursuing.
2. Vendor prices for production materials such as aluminum foil,
resins, liquid and film adhesives, reinforcing fiber materials and other
materials and supplies could increase as demand for aircraft parts and
assemblies increase to match higher build rates for commercial aircraft.
Higher material prices and demand for lower aircraft part and assembly
prices could place increasing pressure on the Company's operating margins
and
9
<PAGE>
net income.
3. The Company currently sells honeycomb and bonded panel products to
the commercial aircraft industry. Future planning for the Company
anticipates continuing increases in demand for these products over the next
several years. To the extent these increases fail to materialize or fall
significantly below projections, the Company's business could be materially
affected.
Item 6. Exhibits and Reports
(a) Exhibits
Exhibit 27
Financial Data Schedule
(b) Reports on Form 8-K.
None
10
<PAGE>
LUNN INDUSTRIES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned duly authorized.
LUNN INDUSTRIES, INC.
Dated: May 15, 1997
By:/s/ Lawrence Schwartz
--------------------------
Lawrence Schwartz
Vice President, Secretary and Treasurer
(Chief Accounting Officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 7,986
<SECURITIES> 0
<RECEIVABLES> 3,310,665
<ALLOWANCES> 171,457
<INVENTORY> 4,862,630
<CURRENT-ASSETS> 8,285,091
<PP&E> 15,062,349
<DEPRECIATION> 5,148,200
<TOTAL-ASSETS> 18,777,510
<CURRENT-LIABILITIES> 2,048,722
<BONDS> 5,295,403
0
0
<COMMON> 127,798
<OTHER-SE> 11,305,587
<TOTAL-LIABILITY-AND-EQUITY> 18,777,510
<SALES> 5,020,779
<TOTAL-REVENUES> 5,020,779
<CGS> 3,889,290
<TOTAL-COSTS> 815,525
<OTHER-EXPENSES> (30,186)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 111,082
<INCOME-PRETAX> 235,068
<INCOME-TAX> 0
<INCOME-CONTINUING> 235,068
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 235,068
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
Exhibit 16.1
June 10, 1997
Securities and Exchange Commission
450 5th Street N.W.
Washington, D.C. 20549
Gentlemen:
We have read the statements made by Lunn Industries, Inc. included in this proxy
statement under the section "Lunn Proxy Proposal 2: Ratification of
Accountants." We agree with the statements concerning our Firm in such proxy
filing.
Very truly yours,
COOPERS & LYBRAND L.L.P.
EXHIBIT 23.1
The Board of Directors
and Shareholders
Lunn Industries, Inc.:
We consent to the use of our report on the consolidated financial statements
of Lunn Industires, Inc. and subsidiary as of and for the year ended
December 31, 1996 dated April 2, 1997 incorporated herein by reference and to
the reference to our firm under the heading "Experts" in the registration
statement.
KPMG PEAT MARWICK LLP
Jericho, New York
June 19, 1997
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated June 10, 1997 (and to all references to our Firm) included in or made part
of this registration statement.
ARTHUR ANDERSEN LLP
Chicago, Illinois
June 25, 1997
<PAGE>
EXHIBIT 23.5
CONSENT OF ALLEN & COMPANY INCORPORATED
We hereby consent to the use of our fairness opinion (and to all references to
such fairness opinion and to Allen & Company Incorporated) included in or made
part of this registration statement.
New York, New York ALLEN & COMPANY INCORPORATED
June 20, 1997
By: /s/ James W. Quinn
---------------------------------
Name: James W. Quinn
Title: VP
<PAGE>
Exhibit 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of Lunn Industries, Inc. on Form S-4 (File No. ) of our report dated April 4,
1996, on our audits of the consolidated financial statements of Lunn Industries,
Inc. as of December 31, 1995 and for the years ended December 31, 1995 and 1994,
which report is included in the Annual Report on Form 10-KSB.
COOPERS & LYBRAND L.L.P.
Melville, New York
June 11, 1997
<PAGE>
Exhibit 23.7
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated March 14, 1997 (and to all references to our Firm) included in or
made a part of this registration statement.
ARTHUR ANDERSEN LLP
Chicago, Illinois
June 25, 1997
<PAGE>
