As filed with the Securities and Exchange Commission on September 12, 1997
Registration No. 333-30009
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
LUNN INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
Delaware 3469 11-1581582
<S> <C> <C>
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
------------------
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.
------------------
================================================================================
<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 offices of Dechert Price &
Rhoads located at 30 Rockefeller Plaza, New York, New York 10112.
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, as amended by the amendment dated
August 22, 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"); and
(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. 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, subject to the cancellation of any of the
Combined Company Common Stock held in escrow for the TPG stockholders
if TPG fails to achieve a certain financial goal (the "Escrowed Stock")
as more fully described in the attached Proxy Statement/Prospectus, 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 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 8.3028, subject to the cancellation of any of the
Escrowed Stock that is reserved for issuance upon exercise of such
options as more fully described in the attached Proxy
Statement/Prospectus, and 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 0.1. The foregoing is sometimes hereinafter collectively
referred to as the "Joint Proxy Proposal";
(2) a proposal to approve and adopt a new stock option plan to become
the 1997 Stock Option Plan of the Combined Company at the effective
time of the Merger ("Joint Proxy Proposal 2"). Notwithstanding the
foregoing, Joint Proxy Proposal 2 is contingent upon approval of the
Joint Proxy Proposal;
(3) 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 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;
(4) 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").
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
(5) the transaction of such other business as may properly come before
the Lunn Annual Meeting or any adjournment thereof.
It is intended that the Merger is structured to be a tax-free
reorganization and recapitalization in which neither Lunn and its stockholders
nor TPG and its holders of TPG Common Stock 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. TPG will not receive any tax
opinion or IRS ruling with respect to the tax consequences to the holders of the
TPG Preferred Stock upon the exchange of their stock for Combined Company
Preferred Stock in the Merger. The Lunn Board of Directors has unanimously
approved the Joint Proxy Proposal and Joint Proxy Proposal 2 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 and Joint Proxy Proposal 2. 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, subject to adjustment in the event of
cancellation of any of the Escrowed Stock as more fully described in the
attached Proxy Statement/Prospectus. 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, approval of Lunn
Proxy Proposal 1 requires a plurality of the votes of the shares of Lunn Common
Stock present in person or represented by proxy at the Lunn Annual Meeting and
entitled to vote and approval of Joint Proxy Proposal 2 and Lunn Proxy Proposal
2 requires a majority of the votes of the shares of Lunn Common Stock present in
person or represented by proxy at the Lunn Annual Meeting and entitled to vote.
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 Annual 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 Reports on Form 10-QSB
for the quarters ended March 31, 1997 and June 30, 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
<PAGE>
"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
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
3O ROCKEFELLER PLAZA
NEW YORK, NEW YORK 10112
-------------------
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 offices of
Dechert Price & Rhoads located at 30 Rockefeller Plaza, New York, New York 10112
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, as amended by the amendment dated
August 22, 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"); and
(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. 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, subject to the cancellation of any of the
Combined Company Common Stock held in escrow for the TPG stockholders
if TPG fails to achieve a certain financial goal (the "Escrowed Stock")
as more fully described in the attached Proxy Statement/Prospectus, 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 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 8.3028, subject to the cancellation of any of the
Escrowed Stock as more fully described in the attached Proxy
Statement/Prospectus, and 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 0.1. The foregoing is sometimes hereinafter collectively
referred to as the "Joint Proxy Proposal";
(2) a proposal to approve and adopt a new stock option plan to become
the 1997 Stock Option Plan of the Combined Company at the effective
time of the Merger ("Joint Proxy Proposal 2").
<PAGE>
Notwithstanding the foregoing, Joint Proxy Proposal 2 is contingent
upon approval of the Joint Proxy Proposal;
(3) 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 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;
(4) 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
(5) 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, approval of Lunn Proxy Proposal 1
requires a plurality of the votes of the shares of Lunn Common Stock present in
person or represented by proxy at the Lunn Annual Meeting and entitled to vote
and approval of Joint Proxy Proposal 2 and Lunn Proxy Proposal 2 requires a
majority of the votes of the shares of Lunn Common Stock present in person or
represented by proxy at the Lunn Annual Meeting and entitled to vote.
<PAGE>
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>
SUBJECT TO COMPLETION, DATED SEPTEMBER 12, 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
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.
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, as amended by the amendment dated August 22, 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"), and (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 (sometimes
hereinafter collectively referred to as the "Joint Proxy Proposal"); (ii) a
proposal to approve and adopt a new stock option plan to become the 1997 Stock
Option Plan of the Combined Company (the "Option Plan") at the Effective Time of
the Merger (sometimes hereinafter referred to as "Joint Proxy Proposal 2");
(iii) 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 (iv) 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.
Notwithstanding the foregoing, Joint Proxy Proposal 2 is contingent upon
approval of the Joint Proxy Proposal. 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 offices of Dechert Price &
Rhoads located at 30 Rockefeller Plaza, New York, New York 10112, 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,
Joint Proxy Proposal 2, 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
- 1 -
<PAGE>
offices of TPG located at 3353 Peachtree Road, Suite 920, Atlanta, Georgia
30326, and at any 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, Joint Proxy Proposal 2 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"), subject to the
cancellation of any of the Combined Company Common Stock held in escrow for the
TPG stockholders if TPG fails to achieve a certain financial goal (the "Escrowed
Stock") as more fully described in this Proxy Statement/Prospectus, 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 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,
subject to the cancellation of any of the Escrowed Stock that is reserved for
issuance upon exercise of such options as more fully described in this Proxy
Statement/Prospectus, and 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.
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."
- 2 -
<PAGE>
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 Stock issuable upon exercise of the TPG Options. Although
management of TPG expects the 1997 TPG Net Income (as defined) will be
approximately $4,000,000 to $4,400,000, in the unlikely event that the 1997 TPG
Net Income does not exceed $0, all of the Escrowed Stock will be cancelled and
upon consummation of the Merger (assuming exercise of all of the Lunn Options,
Lunn Warrants and TPG Options) 3, 534,294 shares of Combined Company Common
Stock will be outstanding. Based on the Lunn Exchange Ratio and the TPG Exchange
Ratio (assuming exercise of all of the Lunn Options, Lunn Warrants and TPG
Options, and assuming cancellation of all of the Escrowed Stock) the current
holders of Lunn Common Stock will collectively own 1,458,593 shares of Combined
Company Common Stock, which will constitute 1.27% of the Combined Company Common
Stock outstanding, and the current holders of TPG Common Stock will collectively
own 2,075,701 shares of Combined Company Common Stock, which will constitute
58.73% of the Combined Company Common Stock outstanding. Such number of shares
of Combined Company Common Stock to be held by the current holders of Lunn
Common Stock and TPG Common Stock (and the corresponding percentages and total
amount of the Combined Company Common Stock outstanding) is subject to
adjustment based upon the number of shares of Escrowed Stock that are cancelled.
See "Summary--The Joint Proxy Proposal--Conversion of Lunn Common Stock, TPG
Common Stock and TPG Preferred Stock" and "The Joint Proxy Proposal--Terms of
the Merger Agreement--Merger Consideration." The current 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 21 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 REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
--------------------
The date of this Proxy Statement/Prospectus is , 1997
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<PAGE>
TABLE OF CONTENTS
PAGE
----
AVAILABLE INFORMATION.........................................................1
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.............................1
SUMMARY.......................................................................3
The Companies........................................................3
Lunn........................................................3
TPG.........................................................4
Industry Overview....................................................4
Operations of the Combined Company...................................5
The Meetings.........................................................6
Annual Meeting of Stockholders of Lunn......................6
Special Meeting of Stockholders of TPG......................6
The Joint Proxy Proposal.............................................7
General.....................................................7
Conversion of Lunn Common Stock, TPG Common
Stock and TPG Preferred Stock.............................7
Recommendation of the Lunn Board of Directors...............8
Recommendation of the TPG Board of Directors................8
Effective Time..............................................9
Procedure for Converting Shares.............................9
Interests of Certain Persons in the Merger..................9
Conditions to the Merger; Termination and
Amendment of the Merger Agreement.........................9
Representations, Warranties and Covenants..................10
Effects Of Termination; Termination Fee....................10
Charter Amendments in Connection with the Merger...........10
Management of the Combined Company after the Merger........11
Listing of Combined Company Common Stock...................11
Accounting Treatment.......................................11
Certain Federal Income Tax Consequences....................11
Dissenters' Rights of Appraisal............................12
Regulatory Matters.........................................12
Market Price Data..........................................12
Risk Factors...............................................12
Financial Information...............................................13
Summary Financial Data of Lunn.............................13
Summary Financial Data of TPG..............................14
Unaudited Pro Forma Combined Summary Financial Data........15
Pro Forma Per Share Data...................................16
Joint Proxy Proposal 2..............................................17
Lunn Proxy Proposal 1...............................................17
Lunn Proxy Proposal 2...............................................17
RISK FACTORS.................................................................19
Risk Factors Applicable to the Businesses of Lunn and TPG...........19
Risk Factors Applicable to the Merger................................21
(i)
<PAGE>
THE MEETINGS, VOTING AND PROXIES.............................................23
Annual Meeting of Stockholders of Lunn..............................23
Date, Time and Place of Lunn Annual Meeting................23
Purpose of the Meeting.....................................23
Record Date and Outstanding Shares.........................23
Voting of Proxies..........................................23
Vote Required..............................................23
Expenses; Solicitation of Proxies..........................24
Special Meeting of Stockholders of TPG..............................24
Date, Time and Place of TPG Special Meeting................24
Purpose of the Meeting.....................................24
Vote Required..............................................24
THE JOINT PROXY PROPOSAL.....................................................25
The Merger..........................................................25
Background of the Merger............................................25
Reasons for the Merger; Recommendations of the Lunn and
TPG Boards of Directors...........................................26
Lunn Reasons for the Merger................................26
Lunn's Board Recommendation................................27
TPG Reasons for the Merger.................................27
TPG's Board Recommendation.................................27
Interests of Certain Persons in the Merger..........................28
Fairness Opinion of Allen & Company Incorporated....................28
Accounting Treatment................................................31
Certain Federal Income Tax Consequences.............................31
Resale of Combined Company Common Stock; Affiliates.................33
Dissenters' Rights of Appraisal.....................................34
Preemptive Rights...................................................36
Charter Amendments in Connection with the Merger....................36
General....................................................36
Amendment of Certificate of Incorporation to
Increase the Number of Authorized Shares
of Lunn Preferred Stock..................................36
Amendment of Certificate of Incorporation to
Change the Par Value of the Lunn Preferred Stock.........36
Amendment of Certificate of Incorporation to
Designate New Series of Preferred Stock..................36
Amendment of Certificate of Incorporation to
Change the Name of Lunn..................................37
Management of the Combined Company after the Merger.................37
General....................................................37
Board of Directors after the Merger........................37
Officers after the Merger..................................37
Operations of the Combined Company..................................37
General....................................................37
Commercial Aircraft Expansion..............................38
Aluminum Honeycomb Products................................38
Composite-to-Metal Bonding.................................38
Acquisitions...............................................38
Terms of the Merger Agreement.......................................38
(ii)
<PAGE>
General....................................................38
Merger Consideration.......................................39
No Fractional Shares.......................................39
Treatment of Lunn Options and Lunn Warrants................39
Treatment of TPG Options...................................40
Effective Time of the Merger...............................40
Procedure for Converting Shares............................40
Conditions to the Merger; Termination and
Amendment of the Merger Agreement........................41
Termination Fee............................................43
Representation, Warranties and Covenants...................43
Listing of Combined Company Common Stock...................44
Certain Regulatory Matters..........................................44
Unaudited Pro Forma Condensed Combined Financial Statements.........46
Description of Capital Stock of Combined Company....................51
General....................................................51
Surviving Corporation Common Stock.........................51
Surviving Corporation Preferred Stock......................51
Undesignated Preferred Stock...............................52
Transfer Agent and Registrar...............................52
Comparison of Rights Under Corporate Documents......................52
Limitation of Liability and Indemnification
Matters..................................................53
Delaware Law and Certain Charter and
By-Law Provisions........................................54
Market Data.........................................................56
Information Concerning TPG..........................................57
TPG Selected Financial Data................................57
Management's Discussion and Analysis of Financial
Condition and Results of Operations of TPG...............58
Business of TPG............................................62
TPG Management.............................................69
TPG Executive Compensation.................................72
TPG Security Ownership of Certain Beneficial
Owners and Management....................................74
Certain Relationships of TPG...............................75
JOINT PROXY PROPOSAL 2.......................................................75
General.............................................................75
The Option Plan.....................................................75
Shares Subject to the Option Plan..........................75
Type of Options............................................76
Administration.............................................76
Eligibility................................................76
Option Contracts...........................................76
Terms and Conditions of Options............................76
Adjustment in Event of Capital Changes.....................77
Duration and Amendment of the Option Plan..................77
Federal Income Tax Treatment...............................77
Recommendation of Board of Directors................................78
(iii)
<PAGE>
LUNN PROXY PROPOSAL 1: ELECTION OF DIRECTORS................................79
Nominees for Election as Directors..................................79
Directors...........................................................79
Meeting and Committees of the Board of Directors....................80
Compensation of Directors...........................................81
Executive Officers..................................................81
Security Ownership of Certain Beneficial Owners
and Management....................................................82
Certain Relationships and Related Transactions......................83
Executive Compensation..............................................84
Long-Term Incentive Plan Awards.....................................85
Employment Contracts and Termination of Employment
and Change in Control Arrangements................................85
Compensation Committee Interlocks and Insider
Participation.....................................................85
Legal Proceedings...................................................85
Compliance with Section 16(a) of the Exchange Act...................86
Stockholder Proposals...............................................87
LUNN PROXY PROPOSAL 2: RATIFICATION OF ACCOUNTANTS..........................87
SECURITIES AND EXCHANGE COMMISSION POSITION ON INDEMNIFICATION...............88
EXPERTS......................................................................88
LEGAL MATTERS................................................................88
ANNEX A - Acquisition Agreement and Plan of Merger, as amended
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
(iv)
<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 Reports on Form 10-QSB for the quarters
ended March 31, 1997 and June 30, 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.
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<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
"Summary--Conversion of Lunn Common Stock, TPG Common Stock and TPG Preferred
Stock," "Risk Factors," "The Joint Proxy Statement--Terms of the Merger--Merger
Consideration," "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.
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<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. Alcore has purchased its
headquarters in Belcamp, Maryland along with an odjoining parcel of unimproved
property, which purchase was financed by the issuance of tax exempt revenue
bonds in the aggregated principal amount of $2.6 million in a private placement.
Such tax exempt revenue bonds are supported by a letter of credit issued by
First Union National Bank of North Carolina in the aggregate principal amount of
$2.6 million. In addition, Alcore is currently expanding and renovating its
headquarters in Belcamp, Maryland which it intends to finance with a $810,000
loan recently received by it from the Maryland Industrial and Commercial
Redevelopment Fund and $90,000 received from Harford County, $30,000 of which is
a tax credit and $60,000 a loan. In addition to expanding its headquarters in
Belcamp, Maryland, Alcore intends to use some of the new space to manufacture
its honeycomb product for a more diversified customer base, including the
automobile, marine and construction industries, in addition to the aerospace
industry. Lunn will guarantee the obligations of Alcore with respect to the tax
exempt revenue bonds, the supporting letter of credit, the loan from the
Maryland Industrial and Commercial Redevelopment Fund and the loan from Harford
County.
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
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<PAGE>
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.
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
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<PAGE>
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 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 anticipate 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
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<PAGE>
manufacture and marketing of metal bond components. See "The Joint Proxy
Proposal--Operations of the Combined Company."
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 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 the offices of Dechert
Price & Rhoads located at 30 Rockefeller Plaza, New York, New York 10112. The
purpose of the Lunn Annual Meeting is to consider and vote upon the approval and
adoption of the Joint Proxy Proposal, Joint Proxy Proposal 2, 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 requires a plurality of the votes of the
shares of Lunn Common Stock present in person or represented by proxy at the
Lunn Annual Meeting and entitled to vote and approval of Joint Proxy Proposal 2
and Lunn Proxy Proposal 2 requires a majority of the votes of the shares of Lunn
Common Stock 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
Joint Proxy Proposal 2 and 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,
Joint Proxy Proposal 2 and Lunn Proxy Proposal 2 will have the effect of a vote
against the Joint Proxy Proposal, Joint Proxy Proposal 2 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
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<PAGE>
Proxy Proposal, Joint Proxy Proposal 2, 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, 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. Under the DGCL, approval and adoption of Joint Proxy Proposal 2
requires a majority of the votes of the shares of TPG Common Stock present in
person or represented by proxy at the TPG Special 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 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 of TPG Common Stock entitled to vote on such
matter and because Joint Proxy Proposal 2 must be approved by holders of a
majority of shares of TPG Common Stock present in person or represented by proxy
at the TPG Special Meeting and entitled to vote, a stockholder who abstains from
voting on the resolution to authorize and approve the Joint Proxy Proposal and
Joint Proxy Proposal 2 will have the effect of a vote against the Joint Proxy
Proposal and Joint 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. See "The Meetings, Voting And Proxies."
The Joint Proxy Proposal
General. Pursuant to the terms of the Merger Agreement, a copy of
which is attached hereto as Annex A and incorporated herein by this reference,
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 the respective Board
of Directors 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, subject to the
cancellation of any of the Escrowed Stock (see "The Joint Proxy Proposal--Terms
of the Merger Agreement--Merger Consideration") 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 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, subject to
the cancellation of any of the Escrowed Stock that is reserved for issuance upon
exercise of such options as more fully described in this Proxy
Statement/Prospectus, and 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,
and rounded downward, and the exercise price thereof will be
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<PAGE>
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. Although management of TPG expects the 1997 TPG Net Income will be
approximately $4,000,000 to $4,400,000, in the unlikely event that the 1997 TPG
Net Income does not exceed $0, all of the Escrowed Stock will be canceled and
upon consummation of the Merger (assuming exercise of all of the Lunn Options,
Lunn Warrants and TPG Options) 3,534,294 shares of Combined Company Common Stock
will be outstanding. Based on the Lunn Exchange Ratio and the TPG Exchange Ratio
(assuming exercise of all of the Lunn Options, Lunn Warrants and TPG Options,
and assuming cancellation of al of the Escrowed Stock) the current holders of
Lunn Common Stock will collectively own 1,458,593 shares of Combined Company
Common Stock, which will constitute 1.27% of the Combined Company Common Stock
outstanding, and the current holders of TPG Common Stock will collectively own
2,075,701 shares of Combined Company Common Stock, which will constitute 8.73%
of the Combined Company Common Stock outstanding. Such number of shares of
Combined Company Common Stock to be held by the current holders of Lunn Common
Stock and TPG Common Stock (and the corresponding percentages and total amount
of the Combined Company Common Stock outstanding) is subject to adjustment based
upon the number of shares of Escrowed Stock that are canceled. The current
holders of TPG Preferred Stock will own all of the Combined Company Preferred
Stock. See "The Joint Proxy Proposal--Terms of the Merger Agreement--Merger
Consideration."
At the Effective Time, the Combined Company shall retain, in
its capacity as escrow agent, the Escrowed Stock, which will be equal to an
aggregate number of shares of Combined Company Common Stock equal to 50% of (i)
the shares of Combined Company Common Stock to be delivered to each of the
holders of TPG Common Stock and (ii) the number of shares of Combined Company
Common Stock reserved for issuance upon exercise of the TPG Options, such number
of shares to be rounded down to the nearest whole number.
If the net income after taxes, as calculated in accordance
with generally accepted accounting principles, of the business of TPG and its
subsidiaries, as constituted on August 22, 1997, for the fiscal year ending
December 31, 1997 as determined by the Combined Company (the "1997 TPG Net
Income") is less than $4,000,000, then, within 30 days after the date the 1997
TPG Net Income is determined (the "Determination Date"), the Combined Company
shall (i) immediately cancel the Canceled Stock (as defined below), and (ii)
deliver to each of the holders of record as of the Effective Time of the TPG
Common Stock and of the TPG Options who have exercised all or any part of such
TPG Options, such person's pro rata share of the Escrowed Stock not constituting
the Canceled Stock, if any, (all such shares of Escrowed Stock not so canceled
is hereinafter referred to as the "Released Stock"), with the Combined Company
making, in good faith, any rounding determinations such that each such Person's
pro rata share of the Released Stock equals a whole number. Management of Lunn
and TPG currently anticipate that the Determination Date will occur on or about
March 31, 1998, but in any event no later than April 15, 1998.
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<PAGE>
The amount of the canceled stock (the "Canceled Stock") is
determined by the following formula:
4,000,000 X
--------------------------------------- + X = 4,151,402
4,000,000- 1997 TPG Net Income
(with X = the number of shares of Canceled Stock; provided
however that, for purposes of the calculation of the Canceled
Stock, if the 1997 TPG Net Income is greater than or equal to
$4,000,000, then the number of shares constituting the
Canceled Stock shall be deemed to be zero, and if the 1997 TPG
Net Income is less than zero, then the 1997 TPG Net Income
shall be deemed to be zero)
The following table illustrates the number of shares of
Canceled Stock and the beneficial ownership of shares of the Combined Company
Common Stock outstanding after the Determination Date based on various amounts
of TPG net income:
<TABLE>
<CAPTION>
Shares of Combined Company Common Stock Based on TPG Net Income
Shares of Combined Percent of Combined Company
Company Common Stock Outstanding Common Stock Owned After
After Cancellation Cancellation
-------------------------------- --------------------------------
Shares of Former TPG Former Lunn Former TPG Former Luun
TPG Net Income Canceled Stock Stockholders Stockholders Stockholders Stockholders
-------------- -------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
$ 4,000,000 0 4,151,402 1,458,593 74.00% 26.00%
3,500,000 461,267 3,690,135 1,458,593 71.67 28.33
3,000,000 830,280 3,321,122 1,458,593 69.48 30.52
2,500,000 1,132,201 3,019,201 1,458,593 67.43 32.57
2,000,000 1,383,801 2,767,601 1,458,593 65.49 34.51
1,500,000 1,458,593 2,692,809 1,458,593 64.87 35.13
1,000,000 1,779,172 2,372,230 1,458,593 61.92 38.08
500,000 1,937,192 2,214,210 1,458,593 60.29 39.71
0 2,075,701 2,075,701 1,458,593 58.73 41.27
</TABLE>
If the 1997 TPG Net Income is less than $4,000,000, then,
within 30 days after the Determination Date, the Combined Company shall (i)
immediately cancel the Canceled Stock, if any, and (ii) deliver to each of the
holders of record, as of the Effective Time, of the TPG Common Stock and of the
TPG Options who have exercised all or part of such TPG Options, such person's
pro rata share of Released Stock, if any, with the Combined Company making, in
good faith, any rounding determinations such that each such person's pro rata
share of the Released Stock equals a whole number.
Any shares of the Released Stock that are not delivered within
30 days of the Determination Date shall be held by the Combined Company in
escrow for the benefit of holders of TPG Options who have not yet exercised such
TPG Options until such time that such TPG Options shall be exercised or shall
expire or terminate. Upon exercise of any such TPG Options after the
Determination Date, the Combined Company shall issue to the holder thereof such
holder's pro rata share of the Released Stock.
Each holder of the TPG Common Stock as of the Effective Time
shall be considered the beneficial owner of his pro rata portion of the Escrowed
Stock and shall have all of the rights of the holders of Combined Company Common
Stock with respect thereto, including without limitation, the right to vote on
all matters and the right to receive any distributions until such time, if any,
that any of the Escrowed Stock is canceled.
- 8a -
<PAGE>
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
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"). See "The Joint Proxy Proposal--Reasons for the
Merger; Recommendations of the Lunn and the TPG Board of Directors. 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 that pursuing the proposed Merger would involve 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, 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 these other
considerations. 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."
- 8b -
<PAGE>
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 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 $420,000 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
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<PAGE>
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 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
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<PAGE>
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."
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 a
Notification of Listing of Additional Shares Form 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 obtain confirmation of acceptance of such notification form from the Nasdaq
SmallCap Market prior to the Effective Time. Lunn cannot provide assurance that
it will succeed in obtaining confirmation of acceptance of the Notification of
Listing of Additional Shares Form from the Nasdaq SmallCap Market.
Notwithstanding the foregoing, however, it is currently contemplated that the
Combined Company may apply for listing for trading on the Nasdaq National
Market, if it meets the market capitalization and other requirements for listing
for trading thereon. Lunn can not provide any assurances that the Combined
Company would be successful in obtaining listing for the Combined Company Common
Stock on the Nasdaq National Market. 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 holders of TPG Common Stock upon exchange of their shares of
TPG Common 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. at the Closing to the effect
that the Merger will qualify as a reorganization under Section 368(a) of the
Code and that no gain or loss will be recognized by the holders of the TPG
Common Stock (except to the extent set forth in the opinion). TPG will not
receive any tax opinion or IRS ruling with respect to the tax consequences to
the holders of the TPG Preferred Stock. Another opinion of Gardere & Wynne,
L.L.P. is filed as Exhibit 8.1 to the Registration Statement opining that the
statements in the Proxy Statement/Prospectus under the heading "The Joint Proxy
Proposal--Certain Federal Income Tax Consequences" are accurate to the extent
they constitute matters of law or legal conclusions. Such opinions, which will
be based on certain assumptions and representations stated therein, have 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 and in particular,
each holder of TPG Preferred Stock, should consult his or her own tax advisor
concerning the tax consequences of the Merger in his or her particular
individual circumstances. For a discussion of the federal
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<PAGE>
income tax consequences of the Merger to the holders of TPG Common Stock, opined
upon by Gardere & Wynne L.L.P., 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 September 1997, 5.45%) 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
$14.4 million for the outstanding stock of Lunn, Lunn and TPG estimate that the
annual Section 382 Limitation on the use of its net operating loss carryovers
would, in general, be approximately $780,000 if the Merger occurred during
September 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 21.
- 12 -
<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 June 30, 1996 and 1997
and the statements of operations data presented below for the six month periods
ended June 30, 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 Six Months Ended
December 31, June 30,
--------------------------------------- -----------------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales................................... $ 15,209 $ 14,720 $ 18,098 $ 8,855 $ 10,726
Cost of sales............................... 13,774 11,821 $ 13,749 6,943 8,239
----------- ---------- ------------ ------------ -----------
Gross profit................................ $ 1,435 $ 2,899 4,349 $ 1,912 $ 2,487
Selling, general and administrative expenses 3,298 2,377 3,077 1,394 1,629
----------- ---------- ------------ ------------ -----------
Operating (loss) income..................... $ (1,863) $ 522 $ 1,272 $ 518 $ 858
------------ ---------- ------------ ------------ -----------
Other (income) expense:
Interest expense............................ 355 414 507 248 232
Other (income) expense...................... 63 (163) (6) (25) (23)
----------- ----------- ------------- ------------- ------------
Total other expense......................... $ 418 $ 251 $ 501 $ 223 $ 209
----------- ---------- ------------ ------------ -----------
Income (loss) before income taxes and
extraordinary item........................ (2,281) 271 771 295 649
Provision for (benefit of) income taxes..... 595 12 (33) 0 1
----------- ---------- ------------- ------------ -----------
Income (loss) before extraordinary items.... $ (2,876) $ 259 $ 804 $ 295 $ 648
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 $ 295 $ 648
============ ========== ============= ============ ===========
Income (loss) per share:
Before extraordinary items.................. (.43) .03 .07 .03 .05
Extraordinary items......................... - .11 (.01) - -
----------- ---------- ------------- ----------- ----------
Net income (loss) per share................. $ (.43) $ .14 $ .06 $ .03 $ .05
=========== ========== ============ =========== ===========
Weighted average number of common
shares outstanding........................ 6,657,927 7,588,747 11,587,400 9,912,769 13,285,299
========== ========== ============ ============ ==========
At December 31, At June 30,
-------------------------- -----------------------------
1995 1996 1996 1997
---- ---- ---- ----
(unaudited)
(in thousands)
BALANCE SHEET DATA:
Current assets.............................. $ 6,885 8,164 $ 8,658 $ 8,138
Property and equipment, net................. 7,486 9,214 7,458 12,571
Other assets, net........................... 629 537 569 560
-------- ------- ------- --------
Total assets................................ $ 15,000 $17,915 $16,685 $ 21,269
======== ======= ======= ========
Current liabilities......................... $ 3,412 $ 2,485 $ 3,159 $ 1,621
Long-term liabilities ...................... 3,007 4,785 3,259 7,743
Stockholders' equity........................ 8,581 10,645 10,267 11,905
-------- ------- ------- --------
Total liabilities and stockholders' equity.. $ 15,000 $17,915 $16,685 $ 21,269
======== ======= ======= ========
</TABLE>
- 13 -
<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, 1995 and 1996 have been derived from audited financial statements of TPG
and Brunswick Technical Group. The balance sheet data presented below as of June
21, 1996 and July 4, 1997 and the statements of operations data presented below
for the six month periods ended June 21, 1996 and July 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>
Brunswick Technical TPG
Group
------------------------------------------------------------------------
Four | Eight Six Months
Year Months | Months Year Ended
Ended Ended | Ended Ended -----------------------
Dec. 31, April 28, | Dec. 31, Dec. 31, June 21, July 4,
1994 1995 | 1995 1996 1996 1997
---- ---- | ---- ---- --------- --------
| (unaudited)
| (in thousands)
STATEMENTS OF OPERATIONS DATA: |
<S> <C> <C> <C> <C> <C> <C>
Revenues.................................. $118,660 $28,416 | $79,172 $126,534 $ 57,752 $ 51,932
Costs and expenses: |
Cost of goods sold....................... 112,950 27,354 | 61,738 94,365 43,456 39,940
Selling, general and administrative |
expenses............................... 3,923 1,350 | 12,123 21,758 9,788 9,620
-------- ------- | ------- ------- -------- --------
Income from operations.................... 1,787 (288) | 5,311 10,411 4,508 2,372
Interest and other expense................ - - | 1,892 2,377 1,210 985
-------- ------- | ------- ------- -------- --------
Income before income taxes and |
extraordinary item...................... 1,787 (288) | 3,419 8,034 3,298 1,387
Income tax provision (benefit)............ 683 (112) | 1,312 3,093 1,270 534
-------- ------ | ------- ------- -------- --------
Income (loss) before extraordinary |
item................................... 1,104 (176) | 2,107 4,941 2,028 853
Extraordinary item - loss on debt |
refinancing(1)......................... - - | - 667 - -
-------- ------- | ------- ------- -------- -----
Net income (loss)......................... $ 1,104 $ (176) | $ 2,107 $ 4,274 $ 2,028 $ 853
======== ====== | ======= ======= ======== ========
At December 31, At At
----------------------------- June 21, July 4,
1995 1996 1996 1997
--------- ---------- -------- ---------
BALANCE SHEET DATA:
Cash and cash equivalents...................... $ 1,176 $ 1,059 $ 164 $ 150
Other current assets........................... 35,312 38,886 44,222 41,139
Property and equipment, net.................... 2,223 4,409 2,693 4,271
Other assets, net.............................. 200 369 322 541
--------- ---------- -------- ---------
Total assets................................... $ 38,911 $ 44,723 $ 47,401 $ 46,101
========= ========== ======== =========
Current liabilities............................ $ 18,930 $ 21,483 $ 26,994 $ 23,230
Long-term liabilities.......................... 16,062 15,222 14,460 14,000
Preferred stock - mandatorily redeemable....... 1,000 1,000 1,000 1,000
Stockholders' equity........................... 2,919 7,018 4,947 7,871
--------- ---------- -------- ---------
Total liabilities and stockholders' equity..... $ 38,911 $ 44,723 $ 47,401 $ 46,101
========= ========== ======== =========
<FN>
- ---------------------------
(1) Reflects an extraordinary loss from debt refinancing, net of an income tax benefit of $418,000.
</FN>
</TABLE>
- 14 -
<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 six month periods ended June
21, 1996 and July 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 six month periods ended June 30, 1996 and June 30, 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 six month periods ended June 21, 1996 and July 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 (196) 11,487
Net income (loss) $ 652 $ 4,274 $ (198) $ 4,728
Maximum Shares Issued
Income (loss) per share $ 0.06 $ 8.74 $ - $ 0.91
Weighted average shares outstanding 11,587,400 489,250 5,220,885
Minimum Shares Issued
Income (loss) per share $ 0.06 $ 8.74 $ 1.48
Weighted average shares outstanding 11,587,400 489,250 3,189,812
<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>
Six Months Ended (unaudited)
---------------------------------------------------------
June 30, 1996 June 21, 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 $ 8,855 $ 57,752 $ - $ 66,607
Gross profit 1,912 14,296 - 16,208
Income (loss) from operations 518 4,508 (98) 4,928
Net income (loss) $ 295 $ 2,028 $ (83) $ 2,240
Maximum Shares Issued
Income (loss) per share $ 0.03 $ 4.25 $ 0.45
Weighted average shares outstanding 9,912,769 477,250 4,953,788
Minimum Shares Issued
Income (loss) per share $ 0.03 $ 4.25 $ 0.75
Weighted average shares outstanding 9,912,769 477,250 2,972,533
<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>
- 15 -
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended (unaudited)
---------------------------------------------------------
June 30, 1997 July 4, 1997
Historical Historical Pro Forma
Lunn TPG(1) Adjustments(2) Pro Forma
---- --- -------------- ---------
(in thousands, except per share data)
STATEMENTS OF OPERATIONS DATA:
<S> <C> <C> <C> <C>
Revenues $ 10,726 $ 51,932 $ - $ 62,658
Gross profit 2,487 11,992 - 14,579
Income (loss) from operations 858 2,372 (98) 3,132
Net income (loss) $ 648 $ 853 $ (274) $ 1,227
Maximum Shares Issued
Income (loss) per share $ 0.05 $ 1.71 - $ 0.22
Weighted average shares outstanding 13,285,299 500,000 - 5,479,930
Minimum Shares Issued
Income (loss) per share $ 0.05 $ 1.71 - $ 0.36
Weighted average shares outstanding 13,285,299 500,000 - 3,404,230
<FN>
- ------------------
(1) See "Information concerning TPG--Management's Discussion and Analysis of Financial Conditions and Results
of Operations of TPG--General" for a discussion of historical sales and operating earnings.
(2) 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>
Six Months Ended (unaudited)
-----------------------------------------------------------------
As of June 30, As of July 4,
1997 1997
Historical Historical Pro Forma
Lunn TPG Adjustments(1) Pro Forma
------------ ------------ -------------- ---------
(in thousands)
BALANCE SHEET DATA:
<S> <C> <C> <C> <C>
Working capital............................... $ 6,517 $ 18,059 $ (1,200) $ 23,376
Total assets.................................. 21,269 46,101 4,900 72,270
Long-term liabilities......................... 7,743 14,000 - 21,743
...... Preferred stock-mandatorily redeemable 1,000 - 1,000
Stockholders' equity.......................... $ 11,905 $ 7,871 $ 3,700 $ 23,476
<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>
<CAPTION>
Combined Lunn TPG
Company Lunn Equivalent TPG Equivalent
Pro Forma Historical Pro Forma Historical Pro Forma
--------- ---------- --------- ---------- ---------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Maximum Shares Issued:
Net income (loss) per share:
Year ended December 31, 1996 $ 0.91 $ 0.06 $ 0.09 $ 8.74 $ 7.56
Six months ended July 4, 1997
(unaudited) 0.22 0.05 0.02 1.71 1.83
Book value per share:
At December 31, 1996 $ 4.09 $ 0.92 $ 0.41 $ 14.34 $ 33.97
At July 4, 1997 (unaudited) 4.28 0.89 0.43 13.64 33.55
Minimum Shares Issued:
Net income (loss) per share:
Year ended December 31, 1996 $ 1.48 $ 0.06 $ 0.15 $ 8.74 $ 6.15
Six months ended July 4, 1997 0.36 0.05 0.04 1.71 1.50
(unaudited)
Book value per share:
At December 31, 1996 $ 6.70 $ 0.92 $ 0.67 $ 14.34 $ 27.80
At July 4, 1997 (unaudited) 6.90 0.89 0.69 13.64 28.63
</TABLE>
- 16 -
<PAGE>
Joint Proxy Proposal 2
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 employees, and non-employee consultants and advisors of
the Combined Company and its subsidiaries. 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 "Joint Proxy Proposal
2--The Option Plan."
The Lunn Board of Directors and the TPG Board of Directors have
each unanimously approved Joint Proxy Proposal 2 and each recommends that its
respective stockholders vote "FOR" Joint Proxy Proposal 2. Notwithstanding the
foregoing, approval of Joint Proxy Proposal 2 is contingent upon approval of the
Joint Proxy Proposal.
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.
- 17 -
<PAGE>
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.
- 18 -
<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, and many of Lunn's customers, 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
government represented approximately 12.7% of Lunn's sales in 1996. 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 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.
- 19 -
<PAGE>
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.
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 400 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
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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.
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 and assuming cancellation of
all of the Escrowed Stock) 3,534,294 shares of Combined Company Common Stock
will be outstanding. Based on the Lunn Exchange Ratio and the TPG Exchange Ratio
(assuming exercise of all of the Lunn Options, Lunn Warrants and TPG Options and
assuming cancellation of all of the Escrowed Stock) the current holders of Lunn
Common Stock will collectively own 1,458,593 shares of Combined Company Common
Stock, which will constitute 41.27% of the Combined Company Common Stock
outstanding, and the current holders of TPG Common Stock will collectively own
2,075,701 shares of Combined Company Common Stock, which will constitute 58.73%
of the Combined Company Common Stock outstanding. Such number of shares of
Combined Company Common Stock to be held by the current holders of Lunn Common
Stock and TPG Common Stock (and the corresponding percentages and total amount
of the Combined Company Common Stock outstanding) is subject to adjustment based
upon the number of shares of Escrowed Stock that are cancelled. If none of the
Escrowed stock is cancelled (assuming exercise of all of the Lunn Options, Lunn
Warrants and TPG Options) 5,609,995 shares of Combined Company Common Stock will
be outstanding. If none of the Escrowed Stock is cancelled, based on the Lunn
Exchange Ratio and the TPG Exchange Ratio (assuming exercise of all of the Lunn
Options, Lunn Warrants and TPG Options), the current holders of Lunn Common
Stock will collectively own 1,458,593 shares of Combined Company Common Stock,
which will constitute 26% of the Combined Company Common Stock outstanding, and
the current holders of TPG Common Stock will collectively own 4,151,402 shares
of Combined Company Common Stock, which will constitute 74% of the Combined
Company Common Stock outstanding. The current 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 $0.89 at
December 31, 1996 and June 30, 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 a book value per share of $0.41 and $0.43 at December 31, 1996
and July 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."
Control by TPG Affiliates. Upon consummation of the Merger, Equus
will own approximately 48% of the issued and outstanding Combined Company Common
Stock, subject to adjustment in the event of cancellation of any of the Escrowed
Stock. By virtue of such stock ownership, subject to adjustment in the event of
cancellation of any of the Escrowed Stock 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.
Management and Operations of the Combined Company. Upon
consummation of the Merger, the management of the Combined Company would consist
primarily of the current management of TPG. There can be no assurance that this
new management team will be effective in managing the operations of TPG and Lunn
or managing a public entity. In addition, the new management will not have a
total knowledge of the operations of Lunn and there can be no assurance that
they will be successful at merging the two entities. See "The Joint Proxy
Proposal--Management of the Combined Company after the Merger."
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
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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, and assuming cancellation of all of the Escrowed
Stock) there will be approximately 3,534,294 shares of Combined Company Common
Stock outstanding. Such number of shares of Combined Company Common Stock
ouststanding is subject to upward adjustment based upon the number of shares of
Escrowed Stock that are cancelled. 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 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."
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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 the offices of Dechert Price & Rhoads located at 30
Rockefeller Plaza, New York, New York 10112 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, Joint Proxy Proposal 2, 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; "Joint Proxy Proposal 2"; "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"
approval and adoption of Joint Proxy Proposal 2, "FOR" approval and adoption of
Lunn Proxy Proposal 1 and "FOR" approval and adoption 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, Joint Proxy Proposal 2, 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 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. The persons named in the proxies will vote in favor of such adjournment
those proxies which direct them to vote in favor of the Joint Proxy Proposal,
Joint Proxy Proposal 2, Lunn Proxy Proposal 1 and Lunn Proxy Proposal 2 and will
vote against any such adjournment those proxies to be voted against such
proposals. Under the DGCL, approval of Lunn Proxy Proposal 1 requires a
plurality of the votes of the shares of Lunn Common Stock present in person or
represented by proxy at the Lunn Annual Meeting and entitled to vote and
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approval of Joint Proxy Proposal 2 and Lunn Proxy Proposal 2 requires a majority
of the votes of the shares of Lunn Common Stock present in person or represented
by proxy at the Lunn Annual Meeting and entitled to vote.
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, Joint Proxy Proposal 2, 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, Joint Proxy Proposal 2, and Lunn Proxy
Proposal 2 would in effect be voting against the Joint Proxy Proposal, Joint
Proxy Proposal 2, 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,
Joint Proxy Proposal 2, 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, Joint Proxy Proposal 2 and such other
business as may properly come before the TPG Special Meeting. See "The Joint
Proxy Proposal--The Merger" and "Joint Proxy Proposal 2."
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 entitled to vote thereon and approval
of Joint Proxy Proposal 2 requires a majority of the votes of the shares of TPG
Common Stock present in person or represented by proxy at the TPG Special
Meeting and 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. To the extent proxies are
solicited the persons named therein will vote in favor of such adjournment those
proxies which direct them to vote in favor of the Joint Proxy Proposal and Joint
Proxy Proposal 2 and will vote against any such adjournment those proxies to be
voted against such proposals. Abstentions are counted for purposes of
determining the
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existence of a quorum for the transaction of business and will have the effect
of a vote against the Joint Proxy Proposal and Joint Proxy Proposal 2 because a
stockholder who abstains from voting on the resolution to authorize and approve
the Joint Proxy Proposal and Joint Proxy Proposal 2 would in effect be voting
against the Joint Proxy Proposal and Joint Proxy Proposal 2 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 of the Joint Proxy Proposal and Joint Proxy
Proposal 2 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, subject to the
cancellation of any of the Escrowed Stock 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 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, subject to
the cancellation of any of the Escrowed Stock, and and 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, 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 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,
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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 Acquisition Agreement and Plan of
Merger. The terms of the Merger Agreement are the result of the arm's-length
negotiations between the Lunn Board of Directors and the TPG Board of Directors
and their respective advisors.
In early August, the Lunn Board of Directors requested a meeting
with TPG's management to review the recent financial performance of TPG and to
discuss any material events which may have occurred since the execution of the
Acquisition Agreement and Plan of Merger Agreement dated as of June 6, 1997.
Subsequent to that meeting among TPG and the management of Lunn held on August
10, 1997, a meeting of the Lunn Board of Directors was held on August 15, 1997
to discuss TPG's recent financial performance and its future prospects. With
advice from counsel, the Lunn Board of Directors determined that differences
between the recent financial performance of TPG and its budget were not material
and that it would be in the best interest of the stockholders of Lunn to proceed
with the Merger as a result of, among other reasons, the stability the Merger
would provide to Lunn over the long term by broadening its customer and product
base. Based on the relative financial performance of Lunn and TPG during the
first six months of 1997, Lunn proposed and the Board of Directors of TPG agreed
to amend the Merger Agreement to provide that 50% of the Combined Company Common
Stock to be issued in exchange for the TPG Common Stock and to be reserved for
issuance upon exercise of the TPG Options shall be placed in escrow and that a
number of shares of Escrowed Stock be cancelled in the event that 1997 TPG Net
Income is below a certain threshold. Assuming all of the Escrowed Stock is
canceled, the pro forma net income per share for Lunn, TPG and the Combined
Company for the six months ended July 4, 1997 would be $0.05, $1.71 and $0.36,
respectively. See "--Unaudited Pro Forma Condensed Combined Financial
Statements." The Lunn Board of Directors unanimously approved amending the
Acquisition Agreement and Plan of Merger to provide for an adjustment of the
amount of Combined Company Common Stock issued to TPG stockholders based upon
1997 TPG Net Income and proceeding with the Merger, as amended.
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.
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
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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
$420,000 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 August 25, 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. The consideration paid by Lunn in the Merger was determined
through negotiation between TPG and the Lunn Board of Directors, and was not
determined or recommended by Allen.
Allen is a nationally recognized investment banking firm and, 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. Furthermore, Lunn selected
Allen to render the Fairness Opinion with respect to the Merger because of
Allen's familiarity with Lunn. John Simon, a Managing Director at Allen, has
served on the Lunn Board of Directors since 1993, and in that role he has become
familiar with Lunn's operations. For his service as a director of Lunn, Mr.
Simon receives $500 for each meeting attended and 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. As of August 25, 1997, Mr.
Simon owned 15,000 Lunn Options and Allen owned 320,500 shares of Lunn Common
Stock.
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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."
In conducting its analysis and preparing the Fairness Opinion,
Allen, among other things, (i) reviewed the Merger Agreement and the preliminary
Proxy Statement/Prospectus contained in the Registration Statement filed with
the Commission on June 25, 1997; (ii) reviewed certain financial and other
information of Lunn and TPG that was publicly available or furnished to Allen 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; (iii) held discussions with various members of senior
management of Lunn and TPG concerning each company's historical and current
operations, financial condition and prospects; (iv) held discussions with senior
management of TPG concerning the strategic and operating benefits anticipated
from the Merger; (v) reviewed the price and trading histories of Lunn Common
Stock and compared that price and trading history with those of other publicly
traded companies Allen deemed relevant; (vi) compared the financial positions
and operating results of Lunn and TPG with those of other publicly traded
companies Allen deemed relevant; (vii) compared certain financial terms of the
Merger to certain financial terms of selected other business combinations Allen
deemed relevant; (viii) reviewed the potential pro forma financial effects of
the Merger on Lunn and TPG; (ix) assisted in Lunn's deliberations regarding the
material terms of the Merger and Lunn's negotiations with TPG and their
financial and legal advisors; and (x) conducted such other financial studies,
analyses and investigations and reviewed such other factors as Allen deemed
appropriate for purposes of the Fairness Opinion. No limitations were imposed by
the Lunn Board of Directors upon the scope of Allen's analyses in rendering the
Fairness Opinion. Certain projected information included in the non-public
business and financial records of Lunn and TPG provided to Allen by the
respective managements and representatives of Lunn and TPG included projections
of net income for Lunn and TPG as of May 1997 for the year ending December 31,
1997 of approximately $912,000 (on a fully-taxed basis) and $4,600,000,
respectively. None of the assumptions which form the basis for the projected
information give effect to the Merger or the potential combined operations of
Lunn and TPG after consummation of the Merger. Lunn and TPG have advised that
the foregoing projections were prepared for internal purposes only, were not
prepared with a view to compliance with the Commission's published guidelines
for disclosure of forward-looking information or the guidelines established by
the American Institute of Certified Public Accountants regarding projections,
and were not intended for public dissemination. Such projections are subject to
significant uncertainties and contingencies and necessarily make numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond Lunn's and TPG's control.
Accordingly, such projections are not necessarily indicative of future
performance. No assurance can be given that such projections will prove to be
accurate to any extent and neither of Lunn nor TPG assumes any responsibility
for the accuracy of the projections provided to Allen.
Allen assumed and relied upon the accuracy and completeness of the
financial and other information used in arriving at its opinion without
independent verification and has 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, Allen relied upon the assurances of the 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 its opinion, Allen 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, Allen was
not authorized to, nor has Allen solicited, any indications of interest from any
third party with respect to the purchase of all or a part of Lunn.
The following paragraphs summarize the significant qualitative and
quantitative analyses performed by Allen in arriving at the opinion presented to
the Lunn Board of Directors. The information presented below is based on the
financial condition of Lunn and TPG as of March 31, 1997.
Merger Overview. Allen reviewed and analyzed the terms of the
Merger and the implied value of the Merger based on Lunn's closing bid price on
May 20, 1997 of $1 1/32 per share. Allen noted that the Lunn shares to be
delivered to TPG represent in the aggregate 74% of the pro forma ownership of
the Combined Company on a fully diluted basis. As a result, the current
stockholders of Lunn would own
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26% of the Combined Company, upon the consummation of the Merger, on a fully
diluted basis.
Pro Forma Combined and Contribution Analysis. Allen analyzed the
revenue, earnings before interest, taxes, depreciation and amortization
("EBITDA"), pretax income and after tax income of TPG and Lunn on an historical
and projected basis with regard to the percentage of contribution from each of
Lunn and TPG, which estimates of future performance were prepared by the
respective managements of Lunn and TPG. Based on revenue, Lunn contributed or is
expected to contribute between 12.0% and 16.7% of the revenue of the Combined
Company for 1995, 1996, estimated 1997 and estimated 1998. Based on EBITDA, Lunn
contributed or is expected to contribute between 18.2% and 26.9% of EBITDA
of the Combined Company for 1995, 1996, estimated 1997 and estimated 1998. Based
on pretax income, Lunn contributed or is expected to contribute between 8.8% and
22.3% of the pretax income of the Combined Company for 1995, 1996, estimated
1997 and estimated 1998. Based on net income after tax (assuming both companies
are fully taxed), Lunn contributed or is expected to contribute between 8.8% and
22.3% of the revenue of the Combined Company for 1995, 1996, estimated l997 and
estimated 1998. Furthermore, Allen noted that on a fully taxed basis, the Merger
is projected to increase the fully diluted earnings per share ("EPS") of the
Combined Company, as compared to the EPS of Lunn alone, by approximately 58.8%
in 1997 and 16.8% in 1998.
Comparable Public Company Analysis. Allen reviewed various
historical and expected financial measures of Lunn using various multiples. In
particular, such analysis indicated that the market price of the shares of Lunn
as of May 20, 1997 as a multiple of the latest twelve months ("LTM") earnings
was 14.4x, and the enterprise value (defined as the equity market value plus
debt less cash) of Lunn as a multiple of revenue, EBITDA and earnings before
interest and taxes ("EBIT"), in each case based on LTM, were 1.0x, 6.8x, and
13.3x, respectively. Allen also reviewed certain financial, operational,
statistical and stock market information for the following selected publicly
traded companies, which were judged by Allen to be reasonably comparable to Lunn
and TPG in one or more respects: Tracor, Inc., AAR Corporation, Ducommun, Inc.,
EDO Corporation, Engineered Support Systems, Inc., Cade Industries, Inc., Baltek
Corporation, American Materials & Technologies Corporation, and CPI
Aerostructures, Inc. ("the Comparable Companies"). Allen reviewed various
historical and expected financial measures of the Comparable Companies using
various multiples. In particular, such analysis indicated that the market price
of the shares as a multiple of LTM earnings and research analyst estimated
earnings for 1997 and 1998, ranged from 8.4x to 31.9x, 10.4x to 20.7x, and 8.2x
to l6.8x, respectively, with averages of 22.0x, 15.6x, and 13.1x, respectively.
The analysis also indicated that the aggregate value (defined as the equity
market value plus debt less cash) of the Comparable Companies as a multiple of
revenue, EBITDA and EBIT, in each case based on LTM, ranged from 0.5x to l.8x,
5.1x to 13.1x, and 6.6x to 20.6x, respectively, with averages of l.0x, 8.8x, and
13.3x, respectively. Based on multiples for Lunn and the Comparable Companies,
Allen approximated a range of value for TPG and compared this valuation and
Lunn's market valuation with respect to the number of shares to be owned by TPG
stockholders (74% on a fully diluted basis and the number of shares to be owned
by Lunn stockholders (26% on a fully diluted basis after the Merger.
Comparison With Other Transactions. Allen reviewed publicly
available information regarding certain comparable merger and acquisition
transactions over the past four years ("Comparable Transactions"). Allen
analyzed the aggregate considerations paid in such transactions as a multiple of
LTM revenues, LTM EBITDA, LTM EBIT and LTM net income after tax. Allen compared
these multiples with multiples computed based on the aggregate consideration
paid by Lunn and certain corresponding financial information of TPG. Allen's
analysis of the Comparable Transactions indicated multiples of revenue ranging
frown 0.5x to 1.6x, with a median of 1.0x, compared to a corresponding multiple
of 0.5x for Lunn's acquisition of TPG; multiples of EBITDA ranging from 4.9x to
13.1x, with a median of 9.5x, compared to a corresponding multiple of 6.6x;
multiples of EBIT ranging from 6.0x to 24.4x, with a median of 12.lx, compared
to a corresponding multiple of 7.1x; and multiples of net income after tax
ranging from 9.7x to 96.3x, with a median of 16.8x, compared to a corresponding
multiple of 10.4x.
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<PAGE>
No company used in the comparable company analyses summarized
above is identical to Lunn or TPG, and no transaction used in the comparable
transaction analysis summarized above is identical to the Merger. Accordingly,
any such analysis of the value of the consideration to be paid by Lunn pursuant
to the Merger involves complex considerations and judgements concerning
differences in the potential financial and operating characteristics of the
Comparable Companies and transactions and other factors in relation to the
trading and acquisition values of the Comparable Companies.
The preparation of a fairness opinion is a complex process and is
not susceptible to partial analysis or summary description. Selecting portions
of the analyses described above, without considering the analyses as a whole,
could create an incomplete view of the process underlying Allen's opinion. In
arriving at its opinion, Allen considered the results of all such analyses and
did not assign any particular weight to the results of any particular analysis.
The analyses were prepared for the purpose of Allen providing its opinion as to
the fairness, from a financial point of view, of the terms of the Merger to the
Lunn stockholders and does not purport to be appraisals or to necessarily
reflect the prices at which businesses or securities of Lunn or TPG actually may
be sold. The Fairness Opinion is necessarily based upon market, economic and
other conditions as they exist on, and can be evaluated as of, the date thereof.
Furthermore, analyses based upon forecasts of future results are not necessarily
indicative of actual future results, which may be significantly more or less
favorable than suggested by such analyses.
The full text of the written opinion of Allen, which sets forth
the assumptions made and matters considered is attached as Annex C to this Proxy
Statement/Prospectus and is incorporated herein by reference. Holders of Lunn
Common Stock are urged to read this opinion carefully and in its entirety.
Allen's opinion is directed to the fairness from a financial point of view of
the terms of the Merger, does not address any other aspect of the Merger or any
related transaction, and does not constitute a recommendation to any holder of
Lunn Common Stock as to how such stockholder should vote at the Special Meeting.
The summary of the opinion of Allen set forth in this Proxy Statement/Prospectus
is qualified in its entirety by reference to the full text of such opinion.
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 58.73% of the Combined Company Common Stock and the former stockholders of
Lunn will hold 41.27% of the Combined Company Common Stock (assuming
cancellation of all of the Escrowed Stock and subject to adjustment in the event
of the Escrowed Stock is not canceled), 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 $4.9 million of goodwill will be
recorded on the financial statements of the Combined Company in connection with
the Merger. In the event that any shares of the Escrowed Stock are canceled and
the maximum number of shares are not issued, there could be an adjustment to the
purchase price based on the market value of the Combined Company Common Stock at
such time as the resolution is determined.
Certain Federal Income Tax Consequences
Reorganization. In the opinion of Gardere & Wynne, L.L.P., which
opinion is filed as Exhibit 8.1 to the Registration Statement, based on the
assumptions and subject to the qualifications and limitations set forth herein,
the following discussion accurately lists the material federal income tax
consequences of the Merger to holders of TPG Common Stock to the extent the
discussion relates to statements of law or legal conclusions. The following
discussion does not address the tax consequences to stockholders of Lunn or to
the holders of TPG Preferred Stock 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 holders
of TPG Common Stock as described herein.
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The Merger is structured to qualify as a reorganization under
Section 368(a) of the Code for federal income tax purposes so that no gain or
loss would be recognized by the holders of TPG Common Stock upon exchange of
their shares of TPG Common Stock in 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 at the Closing 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 and with the possible exception that a holder of TPG
Common Stock might recognize as ordinary income a portion of a holder's Escrowed
Stock upon release of such shares to the holder as discussed below, no gain or
loss will be recognized by the holders of TPG Common Stock upon their receipt of
Combined Company Common Stock (including the Escrowed Stock) in exchange for TPG
Common Stock in the Merger;
(3) The tax basis of the Combined Company Common Stock received
(including the Escrowed Stock) and fractional share interests deemed received in
the Merger by each holder of TPG Common Stock will equal the tax basis at the
time of the Merger of the stockholder's TPG Common Stock exchanged in the
Merger;
(4) The holding period for tax purposes of the Combined Company
Common Stock (including the Escrowed Stock) received by each holder of TPG
Common Stock 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;
(5) Neither TPG nor Lunn will recognize income, gain, or loss
solely as a result of the Merger; and
(6) A holder of TPG Common Stock 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 holder of TPG Common Stock who perfects
his appraisal rights under Delaware law and who receives payment in cash for a
share of TPG Common Stock (exclusive of any portion comprised of interest) will
be treated as having received such payment in a redemption of such TPG Common
Stock, subject to the provisions of Section 302 of the Code.
If shares of Escrow Stock received by a holder of TPG Common Stock
are returned to the Combined Company pursuant to the terms of the escrow
arrangement, the holder will not recognize gain or loss on the returned shares
and the holder's tax basis in such returned shares should be reallocated among
the holder's remaining Combined Company Common Stock. A risk exists, however,
that when the Escrowed Stock is released from escrow, a portion of the Escrowed
Stock received by a holder of TPG Common Stock may be taxed as ordinary income
upon receipt equal to an imputed interest factor multiplied by the value of the
Escrowed Stock received. Based on existing authorities, TPG believes, however,
that a recipient will not recognize income, gain or loss on the release of
shares of Escrowed Stock.
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 (including the Escrowed Stock released to the holders of
the TPG 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 (including the Escrowed Stock
released to the holders of the TPG 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 discussion 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.
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This discussion does not discuss tax consequences under the 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 who received such shares as
employee compensation or pursuant to the exercise of an employee stock option.
Each holder of TPG Common Stock and each holder of the 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 by 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 $14.4 million for the
outstanding stock of Lunn, Lunn and TPG estimate that the annual Section 382
Limitation on the use of its net operating loss carryovers would, in general, be
approximately $780,000 if the Merger occurred during September 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 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
Combined Company Common Stock without restrictions under the Securities Act and
without the need to deliver this Proxy Statement/Prospectus.
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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 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
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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. 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.
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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.
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
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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.
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 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."
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
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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 anticipate 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 with Lunn
being the surviving corporation. As a result of the
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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 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.
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, subject to the
cancellation of any of the Escrowed Stock 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.
At the Effective Time, the Combined Company shall retain, in its
capacity as escrow agent, the Escrowed Stock, which will be equal to an
aggregate number of shares of Combined Company Common Stock equal to fifty
percent (50%) of (i) the shares of Combined Company Common Stock to be delivered
to each of the holders of TPG Common Stock and (ii) the number of shares of
Combined Company Common Stock reserved for issuance upon exercise of the TPG
Options, such number of shares to be rounded down to the nearest whole number.
If the 1997 TPG Net Income is less than $4,000,000, then, within
thirty days after the Determination Date, the Combined Company shall (i)
immediately cancel the Canceled Stock, and (ii) deliver to each of the holders
of record as of the Effective Time of the TPG Common Stock and of the TPG
Options who have exercised all or any part of such TPG Options, such person's
pro rata share of the Released Stock, with the Combined Company making, in good
faith, any rounding determinations such that each such Person's pro rata share
of the Released Stock equals a whole number. Management of Lunn and TPG
currently anticipate that the Determination Date will occur on or about March
31, 1998, but in any event no later than April 15, 1998. The amount of the
Canceled Stock is determined by the following formula:
4,000,000X
------------------------------ + X = 4,151,402
4,000,000- 1997 TPG Net Income
(with X = the number of shares of Canceled Stock;
provided however that, for purposes of the
calculation of Canceled Stock, if the 1997 TPG Net
Income is greater than or equal to $4,000,000, then
the number of shares constituting the Canceled Stock
shall be deemed to be zero, and if the 1997 TPG Net
Income is less than zero, then the 1997 TPG Net
Income shall be deemed to be zero)
If the 1997 TPG Net Income, is less than $4,000,000, then, within
thirty days after the Determination Date, the Combined Company shall (i)
immediately cancel the Canceled Stock, if any, and (ii) deliver to each of the
holders of record, as of the Effective Time, of the TPG Common Stock and of the
TPG Options who have exercised all or any part of such TPG Options, such
person's pro rata share of Released Stock, if any, with the Combined Company
making, in good faith, any rounding determinations such that each such person's
pro rata share of the Released Stock equals a whole number.
Any shares of the Released Stock that are not delivered within
thirty days of the Determination Date shall be held by the Combined Company in
escrow for the benefit of holders of TPG Options who have not yet exercised such
TPG Options until such time that such TPG Options shall be exercised or shall
expire or terminate. Upon exercise of any such TPG Options after the
Determination Date, the Combined Company shall issue to the holder thereof such
holder's pro rata share of the Released Stock.
Each holder of the TPG Common Stock as of the Effective Time shall
be considered the beneficial owner of his pro rata portion of the Escrowed Stock
and shall have all of the rights of the holders of Combined Company Common Stock
with respect thereto, including without limitation, the right to vote on all
matters and the right to receive any distributions until such time, if any, that
any of the Escrowed Stock is canceled.
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
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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 "Joint Proxy Proposal 2--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, subject to the cancellation of any of the Escrowed Stock 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. See "--Merger Consideration."
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 "Joint Proxy Proposal 2--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 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
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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.
If the 1997 TPG Net Income, is less than $4,000,000, then, within
thirty days after the Determination Date, the Combined Company shall (i)
immediately cancel the Canceled Stock, if any, and (ii) deliver to each of the
holders of record, as of the Effective Time, of the TPG Common Stock and of the
TPG Options who have exercised all or any part of such TPG Options, such
person's pro rata share of Released Stock, if any, with the Combined Company
making, in good faith, any rounding determinations such that each such person's
pro rata share of the Released Stock equals a whole number.
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.
Conditions to the Merger; Termination and Amendment of the Merger
Agreement. In addition to the requisite approval of the stockholders of Lunn and
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
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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 who is an affiliate of Lunn; (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 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.
- 43 -
<PAGE>
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 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
- 44 -
<PAGE>
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 has made certain covenants with respect
to the operation of its business 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.
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 $420,000, 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 a
Notification of Listing of Additional Shares form with the Nasdaq SmallCap
Market for the purpose of listing the Combined Company Common Stock which will
be issuable upon consummation of the Merger (including the Escrowed Stock) 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 obtain confirmation of acceptance of such notification form from
the Nasdaq SmallCap Market prior to the Effective Time. Assuming that the Nasdaq
SmallCap Market confirms acceptance of such notification, 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". Lunn cannot provide any assurance that it will succeed in obtaining
confirmation of acceptance of the Notification of Listing of Additional Shares
Form. Notwithstanding the foregoing, however, it is currently contemplated that
the Combined Company may apply for listing for trading on the Nasdaq National
Market, if it meets the market capitalization and other requirements for trading
thereon. Lunn can not provide any assurances that the Combined Company would be
successful in obtaining listing for the Combined Company Common Stock on the
Nasdaq National Market.
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 July 11, 1997. On July 22, 1997, Lunn
and TPG were notified by the FTC in writing that the waiting period had been
terminated.
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".
- 45 -
<PAGE>
Unaudited Pro Forma Condensed Combined Financial Statements
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JULY 4, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma Combined
TPG Lunn Adjustments Company
--------------------------------------------------------------
(in thousands)
ASSETS
Current assets:
<S> <C> <C> <C> <C>
Cash $ 150 $ 12 $ - $ 162
Accounts receivable, net 15,317 3,012 - 18,329
Inventories 25,027 4,640 - 29,667
Prepaid expenses, deferred taxes and other current assets 795 474 - 1,269
------------ ---------- ------------- -----------
Total current assets $ 41,289 $ 8,138 $ - $ 49,427
Property, plant and equipment, net 4,271 12,571 - 16,842
Goodwill and other intangibles, net - 396 4,900(1) 5,296
Deferred income taxes and other assets 541 164 - 705
------------ ---------- ------------- -----------
Total assets $ 46,101 $ 21,269 $ 4,900 $ 72,270
============ ========== ============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,727 $ 949 $ - $ 6,676
Accrued expenses and other liabilities 5,457 672 - 6,129
Short-term debt 12,046 - 1,200 (2) 13,246
------------ ---------- ------------- -----------
Total current liabilities $ 23,230 $ 1,621 $ 1,200 $ 26,051
Long-term debt, net of current portion 14,000 7,743 - 21,743
------------ ---------- ------------- -----------
Total liabilities $ 37,230 $ 9,364 $ 1,200 $ 47,794
------------ ---------- ------------- -----------
Preferred stock-mandatorily redeemable $ 1,000 $ - $ - $ 1,000
Total stockholders' equity:
Common stock $ 5 $ 128 $ (81)(1) $ 52
Additional paid-in-capital 995 14,458 1,100 (1) 16,553
Retained earnings (deficit) 7,101 (2,681) 2,681 (1) 7,101
Less: Notes receivable from officers (135) - - (135)
Additional minimum pension liability (95) - - (95)
------------ ---------- ------------- ------------
Total stockholders' equity $ 7,871 $ 11,905 $ 3,700 $ 23,476
------------- ---------- ------------- -----------
Total liabilities and stockholders' equity $ 46,101 $ 21,269 $ 4,900 $ 72,270
============ ========== ============= ===========
<FN>
- -----------------------
(1) Adjustments to reflect the net effects of the Merger based on the
application of purchase accounting. The purchase price of $16.8 million
is based on the aggregate of (i) the issuance of 12.8 million shares of
Lunn stock outstanding at market value of $1.125 per share (the price per
share on the date that the terms of the Merger were announced to the
public), (ii) estimated transaction costs of $1.2 million and (iii) the
estimated fair value ($1.2 million) of the options and warrants issued in
exchange for the outstanding Lunn options and warrants. Goodwill of
approximately $4.9 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 $1.2 million.
(3) The allocation of the purchase price is preliminary and there are no
significant liabilities, tangible or intangible assets that have been
identified that are likely to be recognized.
</FN>
</TABLE>
- 46 -
<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 3,077 196(1) 25,031
------------ ------------ --------- ----------
Operating income $ 10,411 $ 1,272 $ (196) $ 11,487
Interest expense and other 2,377 501 108(2) 2,986
------------ ------------ --------- ----------
Income before taxes and extraordinary item $ 8,034 $ 771 $ (304) $ 8,501
Provision for (benefit of) income taxes 3,093 (33) (93)(3) 2,967
------------ ------------- ---------- ----------
Income before extraordinary items $ 4,941 $ 804 $ (211) $ 5,534
Extraordinary loss for debt refinancing 667 152 (13)(3) 806
------------ ------------ ---------- ----------
Net income (loss) $ 4,274 $ 652 $ (198) $ 4,728
============ ============ ========== ==========
Maximum Shares Issued:
Earnings (loss) per share:
Before extraordinary item $ 10.10 $ 0.07 $ 1.06
Extraordinary item (1.36) (0.01) (0.15)
------------ ------------ ----------
Net earnings per share $ 8.74 $ 0.06 $ 0.91
============ =========== ==========
Weighted average number of common shares outstanding 489,250 11,587,400 5,220,885
Minimum Shares Issued:
Earnings (loss) per share:
Before extraordinary item $ 10.10 $ 0.07 $ 1.73
Extraordinary item (1.36) (0.01) (0.25)
------------ ------------ ----------
Net earnings per share $ 8.74 $ 0.06 $ 1.48
============ =========== ==========
Weighted average number of common shares outstanding 489,250 11,587,400 3,189,812
<FN>
- -----------------------
(1) Net increase in general and administrative and other expenses results from an increase in goodwill
amortization of $196,000.
(2) Net increase in interest expense related to increased indebtedness of approximately $1.2 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>
- 47 -
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JULY 4, 1997
(UNAUDITED)
Pro Forma Combined
TPG Lunn Adjustments Company
--------------------------------------------------------------
(in thousands, except share data)
Revenues $ 51,932 $ 10,726 $ - $ 62,658
Cost of sales 39,940 8,239 - 48,179
------------ ------------ ------------- -----------
Gross profit $ 11,992 $ 2,487 $ - $ 14,479
General and administrative and other expenses 9,620 1,629 98(1) 11,347
------------ ------------ ------------- -----------
Operating income $ 2,372 $ 858 $ (98) $ 3,132
Interest expense and other 985 209 54 (2) 1,248
------------ ------------ ------------- -----------
Income before taxes $ 1,387 $ 649 $ (152) $ 1,884
Provision for (benefit of) income taxes 534 1 122 (3) 657
------------ ------------ ------------- -----------
Net (loss) income $ 853 $ 648 $ (274) $ 1,227
============ ============ ============== ===========
Maximum Shares Issued:
Net (loss) earnings per share $ 1.71 $ 0.05 $ 0.22
============ ============ ===========
Weighted average number of common shares outstanding 500,000 13,285,299 5,479,930
Minimum Shares Issued:
Net (loss) earnings per share $ 1.71 $ 0.05 $ 0.36
============ ============ ===========
Weighted average number of common shares outstanding 500,000 13,285,299 3,404,230
<FN>
- -----------------------
(1) Net increase in general and administrative and other expenses results from an increase in goodwill
amortization of $98,000.
(2) Net increase in interest expense related to increased indebtedness of approximately $1.2 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>
- 48 -
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 21, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma Combined
TPG Lunn Adjustments Company
--------------------------------------------------------------
(in thousands, except share data)
<S> <C> <C> <C> <C>
Revenues $ 57,752 $ 8,855 $ - $ 66,607
Cost of sales 43,456 6,943 - 50,399
------------ ------------ --------- -----------
Gross profit $ 14,296 $ 1,912 $ - $ 16,208
General and administrative and other expenses 9,788 1,394 98 (1) 11,280
------------ ------------ --------- -----------
Operating income $ 4,508 $ 518 $ (98) $ 4,928
Interest expense and other 1,210 223 54 (2) 1,487
------------ ------------ --------- -----------
Income before taxes $ 3,298 $ 295 $ (152) $ 3,441
Provision for (benefit of) income taxes 1,270 - (69) (3) 1,201
------------ ------------ ---------- -----------
Net income (loss) $ 2,028 $ 295 $ (83) $ 2,240
============ ============ =========== ===========
Maximum Shares Issued:
Net earnings per share $ 4.25 $ 0.03 $ 0.45
============ ============ ===========
Weighted average number of common
shares outstanding 477,250 9,912,769 4,953,788
Minimum Shares Issued:
Net earnings per share $ 4.25 $ 0.03 $ 0.75
============ ============ ===========
Weighted average number of common
shares outstanding 477,250 9,912,769 2,972,533
<FN>
- -----------------------
(1) Net increase in general and administrative and other expenses results from an increase in goodwill
amortization of $98,000.
(2) Net increase in interest expense related to increased indebtedness of approximately $1.2 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
</FN>
</TABLE>
- 49 -
<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 six month periods ended
July 4, 1997 and June 21, 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 six month periods
ended July 4, 1997 and June 21, 1996 include the consolidated statements of
operations of Lunn for the six month periods ended June 30, 1997 and 1996 and
the consolidated statements of income of TPG for the six month periods ended
July 4, 1997 and June 21, 1996.
The unaudited pro forma condensed combined balance sheet as of
July 4, 1997 gives effect to the proposed Merger of TPG with and into Lunn as if
such transaction occurred on July 4, 1997. Such unaudited pro forma condensed
combined balance sheet includes the consolidated balance sheet of Lunn as of
June 30, 1997 and the consolidated balance sheet of TPG as of July 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.
In the event that TPG does not meet a specified level of net
income for the year ending December 31, 1997, a certain number of shares of
Combined Company Common Stock that have been issued and held in escrow, on
behalf of the TPG stockholders, will be canceled. The pro forma earnings per
share data has been presented for both the maximum and minimum number of shares
of Combined Company Common Stock that ultimately could be issued. If any of the
Escrowed Stock is not issued, they will be retained and canceled. In the event
that the shares are canceled and the maximum number of shares are not issued,
there could be an adjustment to the purchase price based on the market value of
the Combined Company Common Stock at such time as the resolution is determined.
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.
- 50 -
<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, subject to adjustment in the event of cancellation of any of the
Escrowed Stock 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 (including the Escrowed Stock) 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 December
31 of each year. Dividends on shares of the Combined Company Preferred Stock
- 51 -
<PAGE>
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 become stockholders of the Combined Company, and from and
after the Effective Time their rights as stockholders
- 52 -
<PAGE>
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 recisions based upon a director's breach of
his 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.
- 53 -
<PAGE>
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 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
- 54 -
<PAGE>
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 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.
- 55 -
<PAGE>
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.................................. $1.25 $ .75
Third Quarter through September 5, 1997......... $1.5625 $1.25
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 September 5, 1997, there were 1,038 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.
- 56 -
<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 six months ended July
4, 1997 and June 21, 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
six months ended July 4, 1997 are not necessarily indicative of the results that
may be expected for the entire year ending December 31, 1997.
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.
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Brunswick Technical Group TPG
====================================================================================================================================
As of and | As of and
As of and for the | for the for the Year Ended for the Six Months Ended
for the Year Ended Four Months |Eight Months -------------------------------------------
------------------------------- Ended | Ended
Dec. 31, Dec. 31, Dec. 31, April 28, | Dec. 31, Dec. 31, June 21 , July 4,
1992 1993 1994 1995 | 1995 1996 1996 1997
--------- --------- --------- --------- | -------- --------- --------- --------
(unaudited) | (unaudited)
|
(in thousands) | (in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data: |
Net sales $ 143,747 $ 122,244 $ 118,660 $ 28,416 | $ 79,172 $ 126,534 $ 57,725 $ 51,932
Cost of sales 131,999 116,155 112,950 27,354 | 61,738 94,365 43,456 39,940
--------- --------- --------- --------- | -------- --------- --------- ---------
Gross profit 11,748 6,089 5,710 1,062 | 17,434 32,169 14,269 11,992
General and administrative |
and other expenses 8,888 13,675 3,923 1,350 | 12,123 21,758 9,788 9,620
--------- --------- --------- --------- | -------- --------- --------- ---------
Operating income (loss)(3) 2,860 (7,586) 1,787 (288) | 5,311 10,411 4,481 2,372
Interest expense(1) - - - - | 1,892 2,377 1,210 985
--------- --------- --------- --------- | -------- --------- --------- ---------
Income (loss) before income |
taxes and extraordinary items 2,860 (7,586) 1,787 (288) | 3,419 8,034 3,271 1,387
|
Income tax provision (benefit) 1,133 (2,959) 683 (112) | 1,312 3,093 1,270 534
--------- --------- --------- ---------- | -------- --------- --------- ---------
Income (loss) before extra- |
ordinary items 1,727 (4,627) 1,104 (176) | 2,107 4,941 2,001 853
Extraordinary item (2) - - - - | - 667 - -
--------- --------- --------- --------- | -------- --------- --------- ---------
Net income (loss) $ 1,727 $ (4,627) $ 1,104 $ (176) | $ 2,107 $ 4,274 $ 2,001 $ 853
========= ========= ========= ========= | ======== ========= ========= =========
|
Balance Sheet Data: |
Working capital 20,565 20,426 29,882 26,868 | 17,558 18,462 18,059
Total assets 64,564 53,413 54,995 53,358 | 38,911 44,723 46,101
Long-term debt, including |
current portion(1) - - - - | 17,926 17,222 16,000
Redeemable 8% cumulative |
preferred stock - - - - | 1,000 1,000 1,000
Common stockholders' equity - - - - | 2,919 7,018 7,871
<FN>
- -----------------------
(1) Prior to April 29, 1995, 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.
(2) Reflects an extraordinary loss from debt refinancing, net of an income tax
benefit of $418,000.
(3) The loss from operations for 1993 was partially the result of (i) a write
down of certain impaired fixed assets included as part of general and
administrative and other expenses, (ii) severance expenses recorded in
connection with a reduction in work force program implemented by Brunswick
and (iii) start up costs incurred in connection with the Natural Gas
Vehicle (NGV) fuel tank business.
</FN>
</TABLE>
- 57 -
<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
- -------
TPG was formed in 1995 to acquire the business and assets of the
Brunswick Technical Group, which was completed on April 28, 1995. The selected
financial data for 1995 presents the four month period prior to the Brunswick
Acquisition and the eight month period subsequent to the Brunswick Acquisition.
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 perform necessary design work, procure material and begin
production is generally several months, which creates a period of low
production, revenue and profits, generally in the first few months of the year.
Over the last 5 years, the percentage of sales and operating earnings (excluding
corporate G&A) generated in the second half of the year have been as follows:
Earnings before
Year Sales Interest & Taxes
---- ----- ----------------
1996 54% 62%
1995 56% 134%
1994 57% 80%
1993 57% 97%
1992 49% 42%
-58-
<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. See
"--Business of TPG--General."
<TABLE>
<CAPTION>
Four Eight
Year Months Months Year Six Months Ended
Ended Ended Ended Ended ----------------------
December April December December June 21, July 4,
31, 1994 28, 1995 31, 1995 31, 1996 1996 1997
-------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales 95.2 96.3 78.0 74.6 75.2 76.9
----- ----- ----- ----- ----- -----
Gross profit 4.8 3.7 22.0 25.4 24.8 23.1
General and administrative
and other expenses 3.3 4.7 15.3 17.2 17.0 18.5
----- ----- ----- ----- ----- -----
Operating income 1.5 (1.0) 6.7 8.2 7.8 4.6
Interest expense - - 2.4 1.9 2.1 1.9
----- ----- ----- ----- ----- -----
Income (loss) before income
taxes and extraordinary items 1.5 (1.0) 4.3 6.3 5.7 2.7
Income tax provision (benefit) 0.6 (0.4) 1.6 2.4 2.2 1.0
----- ----- ----- ----- ----- -----
Income (loss) before extra-
ordinary items 0.9 (0.6) 2.7 3.9 3.5 1.7
Extraordinary item - loss on
debt refinancing - - - 0.5 - -
----- ----- ----- ----- ----- -----
Net income (loss) 0.9% (0.6) 2.7 3.4% 3.5% 1.7%
===== ===== ===== ===== ===== =====
</TABLE>
Six Months Ended July 4, 1997 compared with the Six Months Ended June 21, 1996
- --------------------------------------------------------------------------------
Revenues decreased $5.8 million, or 10.1%, from $57.7 million in
1996 to $51.9 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 increased $0.6 million, or 7.0%, from $8.5 million in 1996 to $9.1 million
in 1997.
Gross profit decreased $2.3 million, or 16.1%, from $14.3 million
in 1996 to $12.0 million in 1997, reflecting the revenue reduction. Gross profit
as a percent of sales decreased from 24.8% in 1996 to 23.1% in 1997 primarily
because of an aerospace/defense sales mix of lower margin products. Commercial
margins increased from approximately 22% in 1996 to 25% in 1997.
Interest expense decreased $0.1 million during 1997, reflecting
lower interest rates and lower average loan balances.
Net income decreased by $1.1 million, from $2.0 million in 1996 to
$0.9 million in 1997 as a result of timing of sales.
- 59 -
<PAGE>
Year Ended December 31, 1996 Compared with the Year Ended December 31, 1995
- ---------------------------------------------------------------------------
Revenues on a combined basis 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.
Year Ended December 31, 1996 Compared with the Eight Months Ended
December 31, 1995
- ------------------------------------------------------------------
Gross profit as a percent of sales increased from 22% in 1995 to
25.4% in 1996 as a result of (i) a more favorable sales mix of higher profit
contracts in 1996, and (ii) an increase in production efficiency attributable to
the commercial segment.
Operating income increased as a percentage of sales from 6.7% in
1995 to 8.2% in 1996, as result of higher annualized sales absorbing more fixed
general and administratove costs.
Interest expense decreased from an average of approximately
$240,000 a month in 1995 to approximately $200,000 a month in 1996 based
primarily on a lower average loan balance outstanding.
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 compared with the Year Ended December 31, 1994
- ---------------------------------------------------------------------------
Revenues on a combined basis 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.
Four Months Ended April 28, 1995 Compared with the Year Ended December 31, 1994
- -------------------------------------------------------------------------------
Gross pofit as a percent of sales decreased from 4.8% in 1994 to
3.7% in 1995 primarily as a result of the product mix.
The loss from operations in 1995 is primarily the result of the
low gross profit margin and the seasonal nature of the business as discussed in
the General section above.
Financial Condition and Liquidity
Working capital was $18.1 million at July 4, 1997, down $0.4
million from $18.5 million at December 31, 1996. Cash flow from operating
activities for the first six months of 1997 compared to the first six months of
1996 increased by $3.1 million as a result of a $4.0 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.
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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.
TPG's total backlog of contracts as of August 1, 1997, was
approximately $368 million as compared to a backlog of $311 million as of August
1, 1996. These backlogs include options or unreleased orders of $254 million in
1997 versus $169 million in 1996. The released orders from the August 1, 1997
backlog represent approximately 84% of projected sales for the remainder of
1997, and 35% for 1998.
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 88% of TPG's consolidated revenues, while sales of
TPG's commercial products accounted for approximately 12% 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.
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,
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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 the 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.
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
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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 which 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.
Sales of this product have 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 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.
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TPG's electrical products are currently utilized by all major motor home
original equipment manufacturer's and all but one of the major van converters.
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 feet 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-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
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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.
Backlog
TPG's total backlog of contracts as of August 1, 1997, was
approximately $368 million as compared to a backlog of $311 million as of August
1, 1996. These backlogs include options or unreleased orders of $254 million in
1997 and $169 million in 1996.
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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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<TABLE>
<CAPTION>
Approximate Leased
Square or
Footage Owned
------- -----
<S> <C> <C>
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
</TABLE>
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 August 1, 1997, TPG had 955 employees. Approximately 400 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
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years or until their successors are duly elected and qualified at the next
annual meeting of stockholders; officers will serve at the discretion of the
Board of Directors of the Combined Company.
Name Position
Age
James S. Carter ......... ......... 61 Chairman of the Board, President,
Chief Executive Officer and
Director
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, New 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 Northrop Corporation 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.
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.
- 70 -
<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 $ 51,962(3)
Executive Vice President and 1995 $ 98,109 $ -0- $ 840(4)
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)
- -------------------
(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.
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 September 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 Owner, Shares Beneficially Shares Beneficially
- ------------------------------------- --------------------- -------------------------
Identity of Group Owned Percent 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 - -
3353 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 3.7
</TABLE>
- -----------------------
(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.
(footnotes continued on next page)
- 71 -
<PAGE>
(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.
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.
JOINT PROXY PROPOSAL 2
General
On June 9, 1997, the Lunn Board of Directors voted to approve 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.
Lunn and TPG have agreed, pursuant to the Merger Agreement, that
the Combined Company will adopt the Option Plan at the Effective Time. See
"--The Joint Proxy Proposal--Terms of the Merger Agreement--Treatment of Lunn
Options and Lunn Warrants." No options have been granted under the Option Plan,
nor will any options be granted thereunder prior to the consummation of the
Merger.
The approval of Joint Proxy Proposal 2 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 and at the TPG Special Meeting,
respectively. Notwithstanding the foregoing, Joint Proxy Proposal 2 is
contingent upon approval of the Joint Proxy Proposal.
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.
The Option Plan
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 Combined Company Common Stock. Upon
expiration, cancellation or termination of unexercised options, the shares of
Combined Company Common Stock subject to such options will again be available
for the
- 72 -
<PAGE>
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 Combined Company
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 the Combined Company 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 Combined Company 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 the Combined Company).
(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 the Combined Company.
(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 the Combined Company, 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 Combined
Company 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 Combined Company
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.
- 73 -
<PAGE>
(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) The Combined Company may withhold cash and/or shares of
Combined Company Common Stock having an aggregate value equal to the amount
which the Combined Company 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, the Combined Company may require the holder to pay the
Combined Company 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 Combined Company Common Stock by reason of any stock dividend,
recapitalization or merger in which the Combined Company 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 Combined Company Board of Directors may at any time terminate or
amend the Option Plan; provided, however, that, without the approval of the
Combined Company'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 the
Combined Company 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 18 months.
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 the Combined Company 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 the Combined Company 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.
Recommendation of Board of Directors
The Lunn Board of Directors and the TPG Board of Directors have
each unanimously approved Joint Proxy Proposal 2 and each recommends that its
respective stockholders vote "FOR" Joint Proxy Proposal 2. Notwithstanding the
foregoing, approval of Joint Proxy Proposal 2 is contingent upon approval of the
Joint Proxy Proposal.
- 74 -
<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, Inc. and Chief Executive Officer since
July 1996. Since 1993, Mr. Haber has been Chairman of the Board of HealthRite,
Inc., a producer and
- 75 -
<PAGE>
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
with Messrs. Menzel and Simon, as
- 76 -
<PAGE>
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: Messrs. Alan W. Baldwin,
Warren H. Haber and John M. 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 was 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.
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<PAGE>
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth the beneficial ownership of Lunn
Common Stock as of September 5, 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.
Shares of Lunn Common Stock
-----------------------------------
Name and Address of
Beneficial Owner Number(1) Percent
- ---------------- ---------- -------
Cook & Cie, S.A................. 1,369,000 10.73
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.................... 16,666(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 (7 persons).......... 609,357(8)(9) 4.60
- ----------------------------
* 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. Alan Baldwin, Edward Kiley
and Lawrence Schwartz have each been granted 100,000, 208,334 and 27,309
additional options, respectively, which are not considered to be
beneficially owned by them pursuant to Rule 13d-3 because such options have
not vested and will not vest within 60 days and are therefore not reflected
in this table.
(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.
- 78 -
<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.
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 $.40 per share in a private placement, under Regulation D of the
regulations promulgated under the Exchange Act. Such shares of Lunn Common Stock
were subsequently registered on a Registration Statement on Form S-3, filed with
the Commission on September 27, 1996. The following beneficial owners of Lunn
Common Stock listed in "--Security Ownership of Certain Beneficial Owners and
Management" purchased shares in the private placement:
Name Shares
---- ------
Allen & Company Incorporated 320,500 (1)
Cook & Cie, S.A 840,000
Grange Nominees Limited 460,000
- -------------
(1) John Simon, a Director of Lunn, is a Managing Director of Allen.
Alan Baldwin, Chairman of the Board and Chief Executive Officer of
Lunn, has been employed by Lunn pursuant to an employment agreement, dated March
14, 1994. See "--Employment Contracts and Termination of Employment and Change
in Control Arrangements."
- - 79 -
<PAGE>
Executive Compensation
The following summary compensation table sets forth the cash, as
well as certain other compensation, for the years ended December 31, 1996, 1995
and 1994, paid to Lunn's three executive officers (including its Chief Executive
Officer).
Annual
Compensation Other
Name and Principal Position Year Salary($) Compensation($)
- --------------------------- ---- --------- ---------------
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 -
- --------------------------
(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.
Option/SAR Grants in Last Fiscal Year
-------------------------------------
Individual Grants
-----------------
Number of $ of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise or Base
Name Granted (#) Fiscal Year Price ($/Share) Expiration Date
- ---- ----------- ----------- --------------- ---------------
Alan Baldwin 200,000 100% $.75 2/25/06
Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value Table
Number of Value of
Securities Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
Shares FY-end (#) FY-end ($)
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized Unexercisable Unexercisable
- ---- ------------ ---------------------- -------------
Alan W. Baldwin None None 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
- 80 -
<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
- 81 -
<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. The parties have agreed to a
settlement whereby Lunn shall pay Romaniello $45,000 subject to agreement
regarding the payment terms.
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 stockholders are
required by Commission regulations to furnish Lunn with copies of all such
reports that they file.
- 82 -
<PAGE>
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 on
June, 1998, would need to be received at Lunn's principal executive offices
located at 1 Garvies Point Road, Glen Cove, New York, 11542-2828 within a
reasonable time before the solicitation of proxies for such meeting 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 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
- 83 -
<PAGE>
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.
- 84 -
<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>
<TABLE>
<CAPTION>
TPG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of July 4, 1997, and December 31, 1996 and 1995
Dollars in thousands, except per share amounts)
(unaudited) December December
ASSETS July 4, 1997 31, 1996 31, 1995
- ------ ------------ -------- --------
CURRENT ASSETS:
<S> <C> <C> <C>
Cash $ 150 $ 1,059 $ 1,176
Accounts receivable (net of allowance for doubtful
accounts of $273, $179 and $171 as of
July 4, 1997 and December 31, 1996 and 1995) 15,317 17,148 14,875
Inventories and costs relating to long-term contracts
and programs in process, net of progress
payments 25,027 20,350 19,364
Prepaid expenses 486 1,079 987
Current deferred income taxes 309 309 86
------ ------ -----
Total current assets 41,289 39,945 36,488
------ ------ ------
PROPERTY, PLANT AND EQUIPMENT:
Buildings and improvements 257 256 103
Machinery and equipment 4,890 3,400 1,044
Construction in progress 374 1,460 1,214
Less-Accumulated depreciation (1,250) (707) (138)
------ ----- -----
Net property, plant and equipment 4,271 4,409 2,223
----- ----- -----
DEFERRED INCOME TAXES 191 191 -
OTHER ASSETS 350 178 200
------- ------- -------
Total assets $46,101 $44,723 $38,911
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 5,727 $ 5,219 $ 6,711
Accrued expenses 5,457 6,640 5,559
Short-term debt 12,046 9,624 6,660
------ ------ ------
Total current liabilities 23,230 21,483 18,930
LONG-TERM LIABILITIES:
Long-term debt 14,000 15,222 15,640
Deferred income taxes - - 422
--------------------- ------ ------ ------
Total liabilities 37,230 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 July 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 7,101 6,248 2,054
Less -
Notes receivable from officers (135) (135) (135)
Additional minimum pension liability (95) (95) -
------ ------ -----
Total shareholders' equity 7,871 7,018 2,919
-------- ------- -------
Total liabilities and shareholders' $46,101 $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 Six Months Ended July 4, 1997 and June 21, 1996
(Dollars in thousands)
Six Months Six Months
Ended Ended
July 4, 1997 June 21, 1996
------------ -------------
Revenues $ 51,932 $ 57,752
Cost of sales 39,940 43,456
General and administrative and other expenses 9,620 9,788
--------- ---------
Operating income 2,372 4,508
Interest expense 985 1,210
--------- ---------
Income before taxes 1,387 3,298
Income tax provision 534 1,270
Net income $ 853 $ 2,028
========= =========
Earnings per share $ 1.71 $ 4.25
========= =========
Weighted average number of shares outstanding 500,000 477,250
========= =========
The accompanying notes are an integral part of these statements.
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)
Eight
1996 Months 1995
--------- -----------
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, 667 -
net of income tax benefit of $418 --------- --------
Net income 4,274 2,107
========= ========
Per Share Data:
Earnings per common and common 10.10 4.44
equivalent share before extraordinary
item
Extraordinary loss 1.36 -
--------- ---------
Earnings per common and common $ 8.74 4.44
equivalent share ========= =========
Weighted average number of common 489,250 475,000
========= =========
The accompanying notes are an integral part of these statements.
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)
Four Months 1995 1994
---------------- ---------
Revenues $28,416 $ 118,660
Cost of sales 27,354 112,950
General and administrative and other 1,350 3,923
expenses ------- ---------
Operating (loss) income before (288) 1,787
taxes
Income tax (benefit) provision (112) 683
-------- ---------
Net (loss) income $ (176) $ 1,104
======== =========
Note: The earnings per share calculation is not presented for these periods
because the Brunswick Technical Group was a division of Brunswick
Corporation and there were no shares of stock outstanding relating to
this division.
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
TPG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Six Months Ended July 4,1997 and June 21, 1996
(Dollars in thousands)
Six Months Six Months
Ended Ended
July 4, 1997 June 21,1996
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 853 $ 2,028
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities -
Depreciation and amortization 577 202
Decrease (increase) in amounts 1,831 (2,064)
receivable
Increase in inventories (4,677) (6,990)
Decrease in prepaid expenses 593 105
Increase in trade accounts payable 508 1,121
(Decrease) increase in accrued expenses (1,143) 924
Increase in other noncurrent assets (204) (59)
------- ------
Total Adjustments (2,515) (6,761)
------- ------
Net cash provided by (used in)
operating activities (1,662) (4,733)
------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (407) (696)
------- -------
Net cash used in investing (407) (696)
activities ------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds of borrowings 1,200 4,470
Cash dividends paid (40) (53)
------- -------
Net cash provided by financing 1,160 4,417
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (909) (1,012)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,059 1,176
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 150 $ 164
======= =======
The accompanying notes are an integral part of these statements.
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.
Revenue Recognition
Revenues and anticipated profits under long-term fixed-price
production contracts are recorded on a percentage of completion
method, principally using units-of-delivery as the measurement basis
for effort accomplished. Delivery of units are generally made upon
acceptance by the customer in accordance with contract terms.
F-11
<PAGE>
Revenues under certain long-term fixed-price contracts which require a
significant amount of development effort in relation to total contract
value are recorded based on the accomplishment of milestones as
specified by contract terms. Revenue under cost reimbursable type
contracts are recorded as costs are incurred.
Amounts representing contract change orders or claims are included in
estimates of future contract revenues used for preparing estimates of
contract profitability at completion only when realization is probable
and amounts can be reasonably estimated. Claims are not material for
the years presented in the accompanying financial statements.
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.
Research and Development Costs
Company-sponsored research and development costs are reported as part
of general and administrative and other expenses. Revenues and costs
incurred in connection with customer-sponsored research and
development contracts are accounted for as contract revenues and
costs.
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.
F-12
<PAGE>
Earnings Per Share
Earnings per share is based on the weighted average number of common
shares outstanding during each period. Common stock equivalents of
14,250 resulting from the effects of stock options have been included
in the calculation of weighted average shares outstanding for the year
ended December 31, 1996.
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 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). The book value of the net assets acquired was $14.8 million in
excess of the purchase price.
F-13
<PAGE>
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.
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
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.
F-14
<PAGE>
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-15
<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-16
<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
============================================================
</TABLE>
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
==========
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-17
<PAGE>
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.
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.
F-18
<PAGE>
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>
F-19
<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-20
<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, as determined using the Black Scholes option-pricing model
with the following
F-21
<PAGE>
assumptions: risk free interest rate of 6.82%, expected dividend yield
of 0%, expected stock volatility of 100% and an expected option life
of 10 years.
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 Company's 1996 net income and earnings
per share would have been reduced by $26,000 and $0.05, respectively.
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.
F-22
<PAGE>
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 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>
F-23
<PAGE>
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 - (465)
------------------------
Price allocation $ 500 $ (336)
========================
</TABLE>
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>
F-24
<PAGE>
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 $190,000
for the four months ended April 28, 1995 and $820,000 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.
F-25
<PAGE>
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. The activity in the advances due to related party
account for the four months ended April 28, 1995 and the year
ended December 31, 1994 is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
Four Months Year Ended
Ended April 28, 1995 December 31, 1994
--------------------------- -------------------------
<S> <C> <C>
Balance, beginning of period $ 39,754 $ 34,182
Cash receipts recorded at Corporate on
behalf of Business (37,620) (109,984)
Cash disbursements recorded at Corporate
on behalf of Business 28,780 91,421
Corporate expense allocation and other
costs incurred at Corporate and
charged to the Business 5,673 23,031
Current period net (loss) income (176) 1,104
=========================== =========================
Balance, end of period $ 36,411 $ 39,754
=========================== =========================
</TABLE>
The average balance due to related party was $38.1 million for
the four months ended April 28, 1995 and $36.9 million for the
year ended December 31, 1994.
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.
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
F-26
<PAGE>
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 July 4, 1997 and the consolidated statements of income and cash
flows for the six month period ended July 4, 1997 and June 21, 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-27
<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 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
II-1
<PAGE>
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.
<TABLE>
<CAPTION>
(a) Exhibits:
Exhibit No. Description
----------- -----------
<S> <C>
*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)
*2.2 Amendment to Acquisition Agreement and Plan of Merger, dated August 22, 1997, between Lunn
Industries, Inc. and TPG Holdings, Inc.
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 Opinion of Dechert Price & Rhoads
*8.1 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
*13.4 Quarterly Report for Lunn on Form 10-QSB for the period ended June 30, 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
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 Reports on Form 10-QSB for the
periods ended March 31, 1997 ad June 30, 1997 (File No. 0-1298) previously filed with the Commission)
*99.1 Form of Lunn proxy card
*99.2 Form of Letter of Transmittal to American Stock Transfer & Trust Co. from stockholders of Lunn
and TPG
*99.3 Consent of James S. Carter, designee to Board of Directors of Combined Company
*99.4 Consent of Sam P. Douglas, designee to Board of Directors of Combined Company
*99.5 Consent of Garrett L. Dominy, designee to Board of Directors of Combined Company
*99.6 Consent of Gary L. Forbes, designee to Board of Directors of Combined Company
*99.7 Consent of Robert C. Sigrist, designee to Board of Directors of Combined Company
*99.8 Consent of Lawrence E. Wesneski, designee to Board of Directors of Combined Company
- ------------------
* Previously filed.
</TABLE>
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.
(e) The undersigned Registrant hereby undertakes to:
(1) file, during any period in which it offers or
sells securities, a post-effective amendment to this registration
statement to:
(i) Include any prospectus required by
Section 10(a)(3) of the Securities Act;
(ii) Reflect in the prospectus any facts or
events which, individually or together, represent a
fundamental change in the information in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement.
II-3
<PAGE>
(iii) Include any additional or changed
material information on the plan of distribution.
(2) For determining liability under the Securities
Act, treat each post-effective amendment as a new registration
statement of the securities offered, and the offering of the securities
at that time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant has duly caused this Amendment No. 2 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Falston, State of Maryland, on the 12th day of
September, 1997.
LUNN INDUSTRIES, INC.
By: /s/ Alan W. Baldwin
----------------------------------
Name: Alan W. Baldwin
Title: Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 2 to the Registration Statement has been signed by the following
persons in the capacities at the above-named Registrant indicated on September
12, 1997.
Signature Title
--------- -----
/s/ Alan W. Baldwin Chief Executive Officer and Chairman of the
- --------------------------- Board (Principal Executive Officer)
Alan W. Baldwin
*
- --------------------------- Vice President, Secretary and Chief Financial
Lawrence Schwartz Officer (Principal Financial and Accounting
Officer)
*
- --------------------------- Director
Warren H. Haber
*
- --------------------------- Director
John F. Menzel
*
- --------------------------- Director
John Simon
*
- --------------------------- Director
William R. Lewis
/s/ Alan W. Baldwin
- --------------------------------
* By Alan W. Baldwin as attorney-in-fact
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
*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)
*2.2 Amendment to Acquisition Agreement and Plan of Merger, dated August 22, 1997, between Lunn
Industries, Inc. and TPG Holdings, Inc.
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 Opinion of Dechert Price & Rhoads
*8.1 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
*13.4 Quarterly Report for Lunn on Form 10-QSB for the period ended June 30, 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
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 Reports on Form 10-QSB for the
periods ended March 31, 1997 and June 30, 1997 (File No. 0-1298) previously filed with the Commission)
*99.1 Form of Lunn proxy card
*99.2 Form of Letter of Transmittal to American Stock Transfer & Trust Co. from stockholders of Lunn
and TPG
*99.3 Consent of James S. Carter, designee to Board of Directors of Combined Company
*99.4 Consent of Sam P. Douglas, designee to Board of Directors of Combined Company
*99.5 Consent of Garrett L. Dominy, designee to Board of Directors of Combined Company
*99.6 Consent of Gary L. Forbes, designee to Board of Directors of Combined Company
*99.7 Consent of Robert C. Sigrist, designee to Board of Directors of Combined Company
*99.8 Consent of Lawrence E. Wesneski, designee to Board of Directors of Combined Company
- ------------------
* Previously filed.
</TABLE>
<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.
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"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.
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"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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<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,
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<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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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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<PAGE>
(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
37
<PAGE>
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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<PAGE>
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>
AMENDMENT TO ACQUISITION AGREEMENT
AND
PLAN OF MERGER
This AMENDMENT is made as of the 22th day of August, 1997 by and
between TPG Holdings, Inc., a Delaware corporation ("TPG"), and Lunn Industries,
Inc., a Delaware corporation ("Lunn").
WHEREAS, TPG and Lunn are parties to that certain Acquisition Agreement
and Plan of Merger dated as of June 6, 1997 (the "Merger Agreement"); and
WHEREAS, TPG and Lunn have mutually agreed to amend certain terms of
the Merger Agreement in accordance with the terms thereof as set forth herein.
NOW, THEREAFTER, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereby agree with each other as follows:
1. Amendments. The Merger Agreement is hereby amended as follows:
(a) Section 1.1 is hereby amended by adding in the appropriate
alphabetical order the following definitions:
"1997 TPG Net Income" is defined in Section 4.5(b).
"Cancelled Stock" is defined in Section 4.3(b).
"Escrow Agent" is defined in Section 4.5(a).
"Escrowed Stock" is defined in Section 4.5(a).
"Determination Date" is defined in Section 4.5(b).
"Released Stock" is defined in Section 4.5(c).
(b) Section 4.1(b) is hereby amended by adding to the end of the first
sentence therein after the words "TPG Exchange Ratio" the
following:
", subject further to the retention of the Escrowed Stock by the
Escrow Agent in accordance with Section 4.5."
(c) Section 4.3(b) is hereby amended by adding in subsection (i)
thereof after the words "TPG Exchange Ratio" the following:
", subject further to the retention of the Escrowed Stock by the
Escrow Agent in accordance with Section 4.5."
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(d) Article 4 is hereby amended by adding a new Section 4.5 as
follows:
" 4.5 Escrowed Stock.
(a) Amount; Rights of Beneficial Owners. At the Closing, the
Surviving Corporation shall retain in its capacity as escrow agent
(the "Escrow Agent") an aggregate number of shares of the
Surviving Corporation Common Stock equal to fifty percent (50%) of
the shares of the Surviving Corporation Common Stock to be
delivered to each of the holders of TPG Common Stock and the
number of shares of Surviving Corporation Common Stock reserved
for issuance upon exercise of the TPG Options, such number of
shares to be rounded down to the nearest whole number (the
"Escrowed Stock"). From the Effective Time until the Determination
Date (i) holders of TPG Common Stock as of the Effective Time who
surrender their certificates evidencing shares of the TPG Common
Stock in accordance with the procedures set forth in Section 4.2
shall be entitled to delivery of certificate(s) representing
shares of the Surviving Corporation Common Stock to be issued to
such holder pursuant to Section 4.1(b), less such holder's pro
rata share of the Escrowed Stock, and (ii) except as otherwise set
forth herein, each holder of the TPG Common Stock as of the
Effective Time shall be considered the beneficial owner of his pro
rata portion of the Escrowed Stock and shall have all of the
rights of the holders of Surviving Corporation Common Stock with
respect thereto, including without limitation the right to vote on
all matters and the right to receive any distributions.
(b) 1997 TPG Net Income; Cancellation of Cancelled Stock. If
the net income after taxes, as calculated in accordance with
generally accepted accounting principles, of the business of TPG
and its Subsidiaries, as currently constituted, for the fiscal
year ending December 31, 1997, as determined by the Surviving
Corporation (the "1997 TPG Net Income"), is less than $4,000,000,
then the Surviving Corporation shall (i) immediately cancel the
Cancelled Stock, and (ii) deliver the number of shares of Escrowed
Stock not constituting the Cancelled Stock (the "Released Stock")
in accordance with Section 4.5(c). Upon cancellation, no person
shall have any interest in or rights to the Cancelled Stock. For
purposes of this Agreement, the term "Cancelled Stock" shall be
defined as that number of fully paid and nonassessable shares of
Surviving Corporation Common Stock calculated pursuant to the
following formula:
4,000,000 X
-------------------------------
4,000,000 - 1997 TPG Net Income + X = 4,151,402
(With X = the number of shares of Cancelled Stock);
provided, however, that if the 1997 TPG Net Income is $4,000,000
or
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more, then the number of shares constituting the Cancelled Stock
shall be shall be deemed to be 0, and if the 1997 TPG Net Income
is less than 0, then the 1997 TPG Net Income shall be deemed to be
0.
(c) Release. Within thirty (30) days after the date the 1997
TPG Net Income is finally determined (the "Determination Date"),
the Escrow Agent shall deliver to each of the holders of record as
of the Effective Time of the TPG Common Stock and to each of the
holders of record as of the Effective Time of the TPG Options
which have exercised all or any part of such TPG Options, a
certificate evidencing such Person's pro rata share of the
Released Stock, if any (with the Surviving Corporation making, in
good faith, any rounding determinations such that each such
Person's pro rata shares of the Released Stock equals a whole
number). Any shares of Surviving Corporation Common Stock that are
not delivered within thirty (30) days of the Determination Date
shall be held by the Surviving Corporation in escrow for the
benefit of holders of the TPG Options which have not yet exercised
such securities until such time that such TPG Options shall be
exercised or shall expire or terminate. Upon exercise of any such
TPG Options after the Determination Date, the Surviving
Corporation shall issue to the holder thereof such holder's pro
rata share of the Escrowed Stock as provided in this Section
4.3(c). Notwithstanding any provision of this Agreement, the
Released Stock shall be delivered only to those TPG Stockholders
of record as of the Effective Time and the holders of record of
the TPG Options as of the Effective Time and the right to receive
all or any part of the Released Stock may not be transferred or
assigned."
(e) Section 7.2(k) is hereby amended by deleting the number "$380,000"
in subsection (i) thereof and substituting in lieu of such number
the number "$420,000".
2. No Other Modifications. Except as amended hereby, the terms and conditions of
the Merger Agreement shall continue in full force and effect and are hereby in
all respects ratified and confirmed.
3. Counterparts. This Amendment may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
4. Governing Law. This Agreement shall be construed in accordance with the laws
of the State of Delaware without reference to the conflicts of law principles
therein.
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IN WITNESS WHEREOF, this Amendment has been executed as of the date and
year first above written.
TPG HOLDINGS, INC.
By:
--------------------------------------
Name: Garrett L. Dominy
Title: Executive Vice President
LUNN INDUSTRIES, INC.
By:
--------------------------------------
Name: Alan W. Baldwin
Title: Chairman of the Board and
Chief Executive Officer
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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.
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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.
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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
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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).
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(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
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<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
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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.
9
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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.
<PAGE>
The opinion contained herein relates to the fairness from a financial point of
view of the terms of the Transaction, and does not address any other aspect of
the Transaction or any related transaction, and 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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<PAGE>
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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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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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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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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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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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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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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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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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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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 Industries, Inc. and subsidiary as of and for the year ended December 31,
1996 dated April 2, 1997 incorporated herein be reference and to the reference
to our firm under the heading "Experts" in the registration statement.
KPMP Peat Marwick LLP
Jericho, New York
September 11, 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 a part of this registration statement.
Arthur Andersen LLP
Chicago, Illinois
September 11, 1997
<PAGE>
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. 33-30009) 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
September 12, 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
September 11, 1997
<PAGE>
