<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 28, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to _______________
Commission File Number 0-14365
ALPHA TECHNOLOGIES GROUP, INC.
-------------------------------
(Exact name of registrant as specified in its charter)
Delaware 76-0079338
________ __________
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10880 Wilshire Boulevard, Suite 1400, Los Angeles, California 90024
-------------------------------------------------------------------
(Address, including zip code, of principal executive offices)
(310)-441-7038
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.03 par value 6,746,329
- ------------------------------ ---------
Class Outstanding at September 6, 1996
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC.
FORM 10-Q
JULY 28, 1996
TABLE OF CONTENTS
Page No.
--------
PART I FINANCIAL INFORMATION......................................... 3
CONSOLIDATED BALANCE SHEETS - OCTOBER 29, 1995 AND JULY 28, 1996...... 3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE QUARTERS AND
NINE MONTHS ENDED JULY 30, 1995 AND JULY 28, 1996..................... 4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED
JULY 30, 1995 AND JULY 28, 1996....................................... 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS............................ 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................................... 10
PART II - OTHER INFORMATION........................................... 15
2
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - OCTOBER 29, 1995 AND JULY 28, 1996
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
October 29, 1995 July 28, 1996
---------------- -------------
<S> <C> <C>
(Unaudited)
ASSETS
- ----------------------------------------
CURRENT ASSETS:
Cash $ 6,058 $ 4,219
Accounts receivable, net 11,982 11,083
Inventories, net 8,191 10,121
Prepaid expenses 1,119 1,494
-------- --------
Total current assets 27,350 26,917
PROPERTY AND EQUIPMENT, at cost 10,930 14,006
Less - Accumulated depreciation
and amortization 1,313 2,601
-------- --------
Property and equipment, net 9,617 11,405
GOODWILL, net 2,813 2,828
OTHER ASSETS, net 2,476 2,187
-------- --------
$ 42,256 $ 43,337
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------
CURRENT LIABILITIES:
Accounts payable, trade $ 5,166 $ 6,216
Accrued compensation and related
benefits 2,329 1,530
Other accrued liabilities 2,426 1,895
Current portion of long-term debt 850 947
Current portion of other long-term
liabilities 883 846
-------- --------
Total current liabilities 11,654 11,434
LONG-TERM DEBT 9,093 10,992
OTHER LONG-TERM LIABILITIES 1,010 516
MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARY 1,736 1,757
STOCKHOLDERS' EQUITY:
Preferred stock, $100 par value;
shares authorized 180,000 - -
Common stock, $.03 par value;
shares authorized 17,000,000;
issued 6,977,845 at October 29, 1995
and 7,136,177 at July 28, 1996 209 214
Additional paid-in capital 39,114 39,450
Retained deficit (17,459) (17,918)
Cumulative translation adjustment, - (7)
net of income taxes
Treasury stock, at cost (935,404
common shares at October 29, 1995
and July 28, 1996) (3,101) (3,101)
-------- --------
18,763 18,638
-------- --------
$ 42,256 $ 43,337
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE QUARTERS AND NINE MONTHS ENDED
JULY 30, 1995 AND JULY 28, 1996
(Unaudited)
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
-------------------- --------------------
July 30, July 28, July 30, July 28,
1995 1996 1995 1996
--------------------- -------------------
<S> <C> <C> <C> <C>
SALES $17,429 $ 16,811 $44,590 $ 51,600
COST OF SALES 12,621 13,264 32,555 40,307
------- -------- -------- --------
Gross profit 4,808 3,547 12,035 11,293
OPERATING EXPENSES
Research and development 293 366 838 1,073
Selling, general and administrative 3,294 3,266 8,658 9,559
Other - 455 - 455
------- -------- ------- --------
Total operating expenses 3,587 4,087 9,496 11,087
------- -------- ------- --------
OPERATING INCOME (LOSS) 1,221 (540) 2,539 206
INVESTMENT INCOME 169 - 241 -
INTEREST AND OTHER INCOME (EXPENSE), net (66) (211) (230) (583)
------- -------- ------- --------
INCOME (LOSS) BEFORE TAXES 1,324 (751) 2,550 (377)
PROVISION (BENEFIT) FOR INCOME TAXES (453) (67) (175) 61
------- -------- ------- --------
INCOME (LOSS) BEFORE MINORITY INTEREST 1,777 (684) 2,725 (438)
MINORITY INTEREST IN INCOME OF
CONSOLIDATED SUBSIDIARY (168) (56) (264) (21)
------- -------- ------- --------
NET INCOME (LOSS) $ 1,609 ($740) $ 2,461 ($459)
======= ======== ======= ========
PER COMMON AND COMMON EQUIVALENT SHARE:
Income (loss) before minority
interest $ 0.27 ($0.11) $ 0.42 ($0.07)
Minority interest ($0.03) ($0.01) ($0.04) -
------- -------- ------- --------
Net income (loss) $ 0.24 ($0.12) $ 0.38 ($0.07)
======= ======== ======= ========
SHARES USED IN COMPUTING NET INCOME
(LOSS) PER COMMON EQUIVALENT SHARE 6,591 6,200 6,533 6,156
======= ======== ======= ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED JULY 30, 1995
AND JULY 28, 1996
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
July 30, July 28,
1995 1996
--------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,461 ($459)
Adjustments to reconcile net
income (loss) to net cash (used)
by operating activities:
Deferred income taxes (535) -
Gain on sale of marketable
securities-available-for-sale (206) -
Depreciation and amortization 875 1,613
Minority interest in earnings
of subsidiary 264 21
Cumulative translation
adjustment 1 (7)
Changes in assets and liabilities:
(Increase) in marketable
securities -- trading
securities (36) -
Decrease in notes receivable 2,000 -
(Increase) decrease in
accounts receivable (2,469) 899
(Increase) in inventories (2,124) (1,930)
(Increase) in prepaid expenses (355) (375)
(Increase) in goodwill (790) (243)
Increase in accounts payable 635 1,050
Increase (decrease) in
accrued compensation and
related benefits 68 (799)
(Decrease) in other accrued
liabilities (207) (531)
(Decrease) in other long-term
liabilities (712) (531)
-------- -------
Total adjustments (3,591) (833)
-------- --------
Net cash (used) by operating
activities (1,130) (1,292)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments and expenditures for
business acquisitions (2,560) -
Purchase of marketable securities
- available-for-sale (767) -
Proceeds from sale of marketable
securities - available-for-sale 1,254 -
Purchase of property and
equipment, net (3,168) (3,086)
(Increase) decrease in other
assets, net (105) 202
Net cash (used) by investing -------- -------
activities (5,346) (2,884)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common
stock 340 341
Payments to repurchase common stock (2,118) -
Proceeds from debt, net of
repayments 4,537 1,996
-------- --------
Net cash provided by
financing activities 2,759 2,337
NET (DECREASE) IN CASH (3,717) (1,839)
-------- --------
CASH, beginning of period 7,406 6,058
-------- --------
CASH, end of period $ 3,689 $ 4,219
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION
The consolidated financial statements include the accounts of Alpha Technologies
Group, Inc. ("Alpha" or the "Company") and its wholly- and majority-owned
subsidiaries. All material intercompany transactions and balances have been
eliminated. The Company designs, manufactures and sells thermal management
products and connectors. Thermal management products, principally heat sinks,
are designed, manufactured and sold by Wakefield Engineering, Inc.
("Wakefield"), a wholly-owned subsidiary of the Company. Heat sinks remove
excess heat generated by electronic components. The thermal management products
serve the microprocessor, computer, consumer electronics, transportation and
power supply industries. The Company's connector products, which are sold
through Uni-Star Industries, Inc. ("Uni-Star"), include miniature, micro-
miniature and nano-miniature connectors designed and manufactured by the Company
to meet rigid industrial and military specifications. The connector products
serve the aerospace, telecommunications, medical electronics, automotive and
defense industries. See Note 5 to Financial Statements.
The Company was incorporated as Synercom Technology, Inc. in Texas in 1969, as a
software company, and was reincorporated in Delaware in 1983. On April 19,
1995, the Company changed its name to Alpha Technologies Group, Inc.
(2) CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
In the opinion of the Company, the accompanying interim unaudited consolidated
financial statements contain all material adjustments, consisting only of normal
recurring adjustments necessary to present fairly the financial condition, the
results of operations and the changes in cash flows of Alpha Technologies
Group, Inc. and subsidiaries for interim periods. The results for such interim
periods are not necessarily indicative of results for a full year.
Users of financial information produced for interim periods are encouraged to
refer to the footnotes contained in the Annual Report to Stockholders when
reviewing interim financial results.
6
<PAGE>
3. INVENTORIES
Inventories consisted of the following (in thousands):
October 29, July 28,
1995 1996
-------------- -------
Raw materials and
components $ 5,260 $ 5,608
Work in process 1,803 2,292
Finished goods 1,548 3,080
------- -------
8,611 10,980
Valuation reserve (420) (859)
------- -------
$ 8,191 $10,121
======= =======
4. LONG-TERM DEBT
Long-term debt consisted of the following on:
October 29, July 28,
1995 1996
-------------- -------
(In Thousands)
Variable-rate revolving $6,104 $ 7,965
credit facility (effective interest
rates of 8.25% and 8.75% at
July 28, 1996), interest payable
monthly, principal is borrowed
and repaid based on cash requirements
Variable-rate revolving 1,000 1,500
credit commitment (effective interest
rate of 8.75% at July 28, 1996),
interest payable monthly, principal
is borrowed and repaid based on
cash requirements
Variable-rate equipment 2,839 2,474
notes (effective interest rate of
9.00% at July 28, 1996), payable
in monthly installments ranging
from $3,444 to $20,833, plus
accrued interest, with maturities
ranging from October of 1997 through
June of 1999
------ -------
9,943 11,939
Less current portion 850 947
------ -------
$9,093 $10,992
====== =======
On January 30, 1996, Wakefield Engineering, Inc. entered into the Second
Amendment to its Loan and Security Agreement dated June 22, 1994 (the "Loan
Agreement"), to increase the revolving credit facility from $7,000,000 to
$9,000,000, to make Specialty Extrusion Corp. ("Specialty"), a wholly-owned
subsidiary of Wakefield, a co-borrower under the Loan Agreement and to extend
revolving loans to Specialty and make available to Specialty a $200,000
Equipment Facility Loan which will be used to repay, in part, borrowings from
Alpha. On March 29, 1996, Wakefield entered into the Third Amendment to the Loan
Agreement to allow for interest payable on the Revolving Credit Loans to be
computed based on a margin above the Prime Rate and/or a margin above the London
Interbank Offered Rate ("LIBOR"). At July 28, 1996, interest on $6,500,000 of
the revolving credit facility, accrues at the relevant adjusted LIBOR plus 275
basis points (8.25% per annum on July 28, 1996), and the remainder of the
revolving credit facility accrues at the bank's prime rate plus .50% (8.75%, per
annum on July 28, 1996). The equipment loans accrue interest at the banks prime
rate plus .75%
7
<PAGE>
(9% per annum on July 28, 1996). The obligations under the Loan Agreement are
secured by a first lien on and assignment of all of the assets of the thermal
management operations which in aggregate total $26,101,000. The Loan Agreement
includes various financial covenants with which, on July 28, 1996, Wakefield was
in compliance. On July 28, 1996, $7,965,000 was outstanding under the revolving
credit facility which expires on April 30, 1997.
Wakefield is currently negotiating an amendment to the Loan Agreement to
increase the revolving credit facility from $9,000,000 to $10,000,000, to make
available additional revolving loan borrowing availability of up to $2,500,000
for the purpose of acquiring businesses with eligible collateral, to consolidate
the outstanding term loans of approximately $1,780,000 into a $2,250,000 term
loan and to make available a $2,500,000 equipment acquisition line. Interest on
funds advanced on the revolving credit facility would accrue at the relevant
adjusted LIBOR rate plus 225 basis points or at the bank's prime rate plus .25%.
Interest on the term loans would accrue at the bank's prime rate plus .25%.
Uni-Star has available a revolving credit commitment of up to $2.5 million and
an equipment acquisition facility of $300,000, which must be borrowed prior to
August 31, 1996, under an accounts receivable loan agreement entered into on
August 31, 1995 and which expires August 31, 1996. The proceeds from the
equipment acquisition facility may be used only for the purchase of capital
equipment. Interest on the funds advanced under the revolving credit commitment
($1,500,000 on July 28, 1996) accrues at the bank's prime corporate rate plus
.50% (8.75% per annum on July 28, 1996) and interest on the equipment loans
accrues at the bank's prime rate plus .75% (9% per annum on July 28, 1996). All
Uni-Star credit facilities are secured by a first lien and assignment of
substantially all Uni-Star's assets, including its accounts receivable,
inventory, equipment and general intangibles which in aggregate total
$11,033,000. Uni-Star is currently working on extending its loan agreement.
5. SUBSEQUENT EVENTS
Lockhart Acquisition. On August 21, 1996, the Company, through a newly-
organized, wholly-owned subsidiary Lockie Acquisition Corp. ("LAC"), purchased
all of the outstanding stock of Lockhart Industries, Inc. ("LII"), a thermal
management company, pursuant to an Agreement and Plan of Merger dated as of
August 14, 1996 (the "Merger Agreement"). Pursuant to the Merger Agreement, the
Company issued 280,556 shares of its common stock in exchange for all of the
issued and outstanding common stock of LII which was owned by the Lockhart
Family Trust. Following the merger, the Company transferred all of LAC's shares
to Wakefield Engineering, Inc. ("Wakefield"), a wholly-owned subsidiary of the
Company and changed LAC's name to Lockhart Industries, Inc. In addition,
Wakefield paid off an aggregate of $506,000 of LII's debt, and LAC entered into
a three-year consulting agreement with E. H. Lockhart, LII's president and
founder, providing for consulting payments of $200,000 per year for three years.
The purchase price is subject to reduction based upon decreases in LII's working
capital and collection of accounts receivable. In addition, the number of shares
8
<PAGE>
issued to the Trust is subject to increase in the event that the Company's
common stock is not trading at $9 or more two years from the date of closing.
The acquisition will be accounted for as a purchase transaction.
Minority Interest Acquisition. The Company purchased 80% of Uni-Star in June
1994. On September 3, 1996, the Company purchased the remaining 20% interest in
exchange for 265,000 shares of its common stock.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
- ---------------------
Quarter to Quarter Comparison
- -----------------------------
Net Income. The Company reported a net loss of $740,000 or $0.12 per share for
the quarter ended July 28, 1996 compared to net income of $1,609,000 or $0.24
per share for the comparable quarter of fiscal 1995. Financial results for the
1996 quarter were negatively impacted by a decrease in sales volume, a decrease
in gross profit as a percentage of revenues and the inclusion in 1996 of
nonrecurring charges of $625,000 or $0.10 per share. These factors are discussed
in the following paragraphs.
Sales. Sales for the third quarter of fiscal 1996 were $16,811,000 compared to
sales of $17,429,000 for the third quarter of fiscal 1995. Thermal management
sales increased 3.3% to $11,681,000 for the 1996 quarter from $11,305,000 for
the quarter ended July 30, 1995. This increase was primarily due to the
inclusion of sales by Specialty Extrusion Corp., which was acquired in June 1995
and increased sales of Penguin Cooler heat sinks, which serve the high
performance microprocessor market. These increases were partially offset by
lower sales of active cooling components. Connector sales were $5,130,000
during the third quarter of fiscal 1996 compared to $6,124,000 during the prior
fiscal year period. This decrease was primarily attributable to the inclusion
in the 1995 period of a large contract that was completed in the fourth quarter
of 1995 and the exclusion in the 1996 period of a highly profitable product line
that reached its end-of-life.
Gross Profit. The Company's overall gross profit as a percentage of total
revenues ("gross profit percentage") for the quarter ended July 28, 1996 was
21.1% versus 27.6% for the quarter ended July 30, 1995. The decrease in gross
profit percentage was primarily due to the inclusion in the 1996 period of
Specialty's sales, which have lower gross profit margins than the Company's
other products. In addition, gross profit was adversely affected by the Company
incurring higher manufacturing costs reflecting capacity added in anticipation
of a substantial increase in demand for Penguin Cooler heat sinks which has not
yet materialized, and a change in the mix of products sold by Wakefield and Uni-
Star. In the third quarter of fiscal 1996, there was an inventory write down of
$170,000 related to products which were sold to two customers. Furthermore,
gross profits from connector revenues decreased in the third quarter as a result
of manufacturing inefficiencies and a decrease in sales of a particular high
margin product. The Company has implemented programs to improve manufacturing
efficiencies.
Research and Development Expense. Research and development expenses for the
third quarter of fiscal 1996 were $366,000 compared to $293,000 for the third
quarter of fiscal 1995. This increase was due primarily to an increase in
engineering staff as well as increased licensing costs for engineering software
in the thermal management business.
10
<PAGE>
Selling, General and Administrative Expense. Selling, general and
administrative expenses for the third quarter of fiscal 1996 were $3,266,000, or
19.4% of sales, compared to $3,294,000, or 18.9% of sales, for the third quarter
of fiscal 1995. Selling, general and administrative expenses as a percentage of
sales increased primarily as a result of the decrease in sales volume in the
fiscal 1996 quarter compared to the fiscal 1995 quarter.
Other Operating Expenses. Other operating expenses consisted of nonrecurring
charges of $455,000 which were recognized during the third quarter of fiscal
1996. These charges included the following: a reserve for a possible payment
related to a disputed purchase commitment, costs related to the termination of
an acquisition effort and severance payments.
Interest and Other Income (Net). Interest income, which was $63,000 in the
third quarter of fiscal 1996 and $59,000 in the third quarter of fiscal 1995,
was earned on excess cash. The Company holds cash at the parent level to help
fund future acquisitions. Interest expense was $295,000 and $205,000 for the
quarters ended July 28, 1996 and July 30, 1995, respectively. This increase was
due to a higher borrowing base.
Income Taxes. The income tax benefit for the quarter ended July 28, 1996 was
$67,000 which included a federal income tax benefit of $30,000, a state income
tax benefit of $41,000 and foreign income tax expense of $4,000. For the
quarter ended July 30, 1995, the Company recognized a net income tax benefit of
$453,000 which included a federal income tax benefit of $600,000 and state
income tax expense of $147,000. Because the Company generated taxable income
and was able to utilize net operating loss carryforwards, in addition to an
increase in the likelihood of future realization of the net deferred tax asset,
the Company reversed $950,000 of the valuation allowance during the third
quarter of 1995. During the 1996 quarter, there was no reversal of the valuation
allowance.
Minority Interest. The minority interest not acquired by the Company related to
the Uni-Star business was included in income before provision for income taxes
on the consolidated statement of operations and as a separate item on the
consolidated balance sheet and statement of cash flows. The Company purchased
80% of Uni-Star in June 1994. On September 3, 1996, the Company purchased the
remaining 20% interest in exchange for 265,000 shares of its common stock.
Nine Months to Nine Months Comparison
- -------------------------------------
Sales. Sales for the first nine months of fiscal 1996 increased $7,010,000, or
15.7%, to $51,600,000 from $44,590,000 for the comparable period of fiscal 1995.
Thermal management sales increased 23.2% to $36,150,000 for the 1996 period from
$29,353,000 for the first nine months of fiscal 1995. This increase was due to
internal growth and the inclusion of sales by Specialty Extrusion Corp., which
was acquired in June 1995. The internal growth of sales from the thermal
management business was due to increased sales of Penguin Cooler heat sinks,
which serve the high performance microprocessor market, and extruded heat sinks.
These increases were partially offset by lower sales of active cooling
components.
11
<PAGE>
Connector sales were $15,450,000 during the nine months ended July 28, 1996
compared to $15,237,000 during the first nine months of the prior fiscal year.
This increase was primarily attributable to sales by the Company's international
operations. International sales of connector products are supported by two
facilities located in England and France, which assemble and sell micro-
miniature connectors for the European market. These operations were established
in June and July of 1995.
Gross Profit. The Company's overall gross profit as a percentage of total
revenues for the nine months ended July 28, 1996 was 21.9% compared to 27.0% for
the nine months ended July 30, 1995. The decrease in gross profit percentage was
primarily due to the inclusion in the 1996 period of Specialty's sales, which
have lower gross profit margins than the Company's other products and a change
in the mix of products sold by Wakefield and Uni-Star. The Company also incurred
higher manufacturing costs to add capacity in anticipation of a substantial
increase in demand for Penguin Cooler heat sinks. Sales of Penguin Cooler heat
sinks were lower than anticipated as a result of elevated inventory levels
experienced throughout the personal computer industry. There was also a $170,000
inventory write down related to products which were sold to two customers.
Furthermore, gross profit from connector revenues decreased in the first nine
months as a result of manufacturing inefficiencies and a decrease in sales of a
particular high margin product. The Company has implemented programs to improve
the manufacturing efficiencies.
Research and Development Expense. Research and development expenses were
$1,073,000 and $838,000 for the first nine months of fiscal 1996 and 1995,
respectively. This increase was due primarily to an increase in engineering
staff as well as increased licensing costs for engineering software in the
thermal management business.
Selling, General and Administrative Expense. Selling, general and
administrative expenses for the nine months ended July 28, 1996 were $9,559,000,
or 18.5% of sales, compared to $8,658,000, or 19.4% of sales, for the nine
months ended July 30, 1995. The decrease of selling, general and administrative
expenses as a percentage of sales was primarily attributable to increased sales
volume without a proportional increase in selling, general and administrative
expenses.
Other Operating Expenses. Other operating expenses of $455,000 were recognized
during the nine months ended July 28, 1996. These expenses consisted of
nonrecurring charges which included the following: a reserve for a possible
payment related to a disputed purchase commitment, costs related to the
termination of an acquisition effort and severance payments.
Interest and Other Income (Net). Interest income, which was $175,000 in the
first nine months of fiscal 1996 and $216,000 in the comparable period of fiscal
1995, was earned on cash held at the parent level. The decrease in interest
income was primarily attributable to a decrease in the average cash balance
invested.
12
<PAGE>
Interest expense was $821,000 and $523,000 for the nine months ended
July 28, 1996 and July 30, 1995, respectively. This increase was due to a
higher borrowing base.
Income Taxes. The provision for income taxes for the nine months ended July 28,
1996, was $61,000 which consisted only of foreign income tax expense. For the
nine months ended July 30, 1995, the Company recognized a net income tax benefit
of $175,000 which included a federal income tax benefit of $489,000 and state
income tax expense of $314,000. Because the Company generated taxable income
and was able to utilize net operating loss carryforwards, in addition to an
increase in the likelihood of future realization of the net deferred tax asset,
the Company reversed $1,256,000 of the valuation allowance during the nine month
period ended July 30, 1995. There was no reversal of the valuation allowance
during the fiscal 1996 period.
Minority Interest. The minority interest not acquired by the Company related to
the Uni-Star business was included in income before provision for income taxes
on the consolidated statement of operations and as a separate item on the
consolidated balance sheet and statement of cash flows. The Company purchased
80% of Uni-Star in June 1994. On September 3, 1996, the Company purchased the
remaining 20% interest in exchange for 265,000 shares of its common stock.
Liquidity and Capital Resources
- -------------------------------
On July 28, 1996, the Company had cash of approximately $4,219,000 compared to
$6,058,000 on October 29, 1995. Existing cash plus advances under the Wakefield
and Uni-Star loan agreements and funds received from the issuance of common
stock upon the exercise of stock options were used for operating activities and
for purchases of capital equipment.
For the nine months ended July 28, 1996, $1,292,000 were used to fund
operations, primarily to increase inventories and prepaid expenses and to
decrease accrued liabilities. This use of funds was partially offset by
collections on accounts receivable. In addition to operating activities,
$3,086,000 were used to purchase capital equipment including machinery, to
increase manufacturing capacity in the thermal management business and to
improve efficiency in the connector business, and tooling to expand the low
power heat sink product line.
On January 30, 1996, Wakefield Engineering, Inc. entered into the Second
Amendment to its Loan and Security Agreement dated June 22, 1994 (the "Loan
Agreement"), to increase the revolving credit facility from $7,000,000 to
$9,000,000, to make Specialty Extrusion Corp., a wholly-owned subsidiary of
Wakefield ("Specialty"), a co-borrower under the Loan Agreement and to extend
revolving loans to Specialty and make available to Specialty a $200,000
Equipment Facility Loan which will be used to repay, in part, borrowings from
Alpha. On March 29, 1996, Wakefield entered into the Third Amendment to the Loan
Agreement to allow for interest payable on the Revolving Credit Loans to be
computed based on a margin above the Prime
13
<PAGE>
Rate and/or a margin above the London Interbank Offered Rate ("LIBOR"). At July
28, 1996, interest on $6,500,000 of the revolving credit facility, accrues at
the relevant adjusted LIBOR plus 275 basis points (8.25% per annum on July 28,
1996), and the remainder of the revolving credit facility accrues at the bank's
prime rate plus .50% (8.75% per annum on July 28, 1996). The equipment loans
accrue at the bank's prime rate plus .75% (9% per annum on July 28, 1996. The
obligations under the Loan Agreement are secured by a first lien on and
assignment of all of the assets of the thermal management operations which in
aggregate total $26,101,000. The Loan Agreement includes various financial
covenants with which, on July 28, 1996, Wakefield was in compliance. On July 28,
1996, $7,965,000 was outstanding under the revolving credit facility which
expires on April 30, 1997.
Wakefield is currently negotiating an amendment to its Loan Agreement to
increase the revolving credit facility from $9,000,000 to $10,000,000, to make
available additional revolving loan borrowing availability of up to $2,500,000
for the purpose of acquiring businesses with eligible collateral, to consolidate
the outstanding term loans of approximately $1,780,000 into a $2,250,000 term
loan and to make available a $2,500,000 equipment acquisition line. Interest on
funds advanced on the revolving credit facility would accrue at the relevant
adjusted LIBOR rate plus 225 basis points or at the bank's prime rate plus .25%.
Interest on the term loans would accrue at the bank's prime rate plus .25%.
Uni-Star has available a revolving credit commitment of up to $2.5 million and
an equipment acquisition facility of $300,000, which must be borrowed prior to
August 31, 1996, under an accounts receivable loan agreement entered into on
August 31, 1995 and which expires August 31, 1996. The proceeds from the
equipment acquisition facility may be used only for the purchase of capital
equipment. Interest on the funds advanced under the revolving credit commitment
($1,500,000 on July 28, 1996) accrues at the bank's prime corporate rate plus
.50% (8.75% per annum on July 28, 1996) and interest on the equipment loans
accrues at the bank's prime rate plus .75% (9% per annum on July 28, 1996). All
Uni-Star credit facilities are secured by a first lien and assignment of
substantially all Uni-Star's assets, including its accounts receivable,
inventory, equipment and general intangibles which in aggregate total
$11,033,000. Uni-Star is currently working on extending its loan agreement.
The Company believes that its currently available cash, anticipated cash flow
from operations and availability under credit facilities should be sufficient to
fund its operations in the near-term.
14
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
10.26 Agreement and Plan of Merger dated as of August 14, 1996 by and among
Alpha Technologies Group, Inc., Lockie Acquisition Corp., Lockhart
Industries, Inc., Eldon H. Lockhart and Marjorie D. Lockhart. (The
exhibits and schedules to the Agreement and Plan of Merger are listed
on page v of the Table of Contents of such Agreement. Such exhibits and
schedules have not been filed by the Issuer, who hereby undertakes to
file such exhibits upon request of the Commission.)
10.27 Agreement dated August 15, 1996 between the Company and Neal
Castleman. (1)
11.1 Statement re Computation of Per Share Earnings for the quarters and
nine months ended July 30, 1995 and July 28, 1996.
27 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
There were no reports for Form 8-K filed by the Company during the quarter
ended July 28, 1996.
_______________
(1) Incorporated herein by reference to the Company's S-3, filed August 16,
1996 (Reg. No. 333-10311).
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Alpha Technologies Group, Inc.
------------------------------
(Registrant)
Date: September 11, 1996 By: /s/ Lawrence Butler
---------------------------- ---------------------------------------
Lawrence Butler
President and Chief Executive Officer
(Principal Executive Officer)
Date: September 11, 1996 By: /s/ Johnny J. Blanchard
---------------------------- --------------------------------------
Johnny J. Blanchard
Chief Financial Officer
(Principal Financial and
Accounting Officer)
16
<PAGE>
EXHIBIT INDEX
Exhibit Page No.
- ------- --------
10.26 Agreement and Plan of Merger dated as of August 14, 1996
by and among Alpha Technologies Group, Inc., Lockie
Acquisition Corp., Lockhart Industries, Inc., Eldon H.
Lockhart and Marjorie D. Lockhart. (The exhibits and
schedules to the Agreement and Plan of Merger are listed
on page v of the Table of Contents of such Agreement.
Such exhibits and schedules have not been filed by the
Issuer, who hereby undertakes to file such exhibits upon
request of the Commission.)
10.27 Agreement dated August 15, 1996 between the Company and
Neal Castleman.(1)
11.1 Statement re Computation of Per Share Earnings for the
quarters and nine months ended July 30, 1995 and July 28,
1996.
27 Financial Data Schedule
___________
(1) Incorporated herein by reference to the Company's S-3, filed August 16,
1996 (Reg. No. 333-10311).
17
<PAGE>
EXHIBIT 10.26
AGREEMENT AND PLAN OF MERGER
dated as of August 14, 1996
by and among
ALPHA TECHNOLOGIES GROUP, INC.,
LOCKIE ACQUISITION CORP.
and
LOCKHART INDUSTRIES, INC.
<PAGE>
TABLE OF CONTENTS
This Table of Contents is not part of the Agreement to which it is
attached but is inserted for convenience only.
Page
No.
ARTICLE I
THE MERGER
1.1 The Merger...........................................-2-
1.2 Effective Time......................................-2-
1.3 Closing; Escrow. ....................................-2-
1.4 Articles of Incorporation and Bylaws of the
Surviving Corporation................................-3-
1.5 Directors and Officers of the Surviving Corporation..-3-
1.6 Effects of the Merger. ..............................-3-
1.7 Further Assurances...................................-3-
ARTICLE II
CONVERSION OF SHARES; ADJUSTMENTS; ADDITIONAL PARENT SHARES
2.1 Conversion of Capital Stock. ........................-3-
2.2 Post-Closing Adjustment to Number of Parent Shares...-5-
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
3.1 Organization and Good Standing of the Company. ......-6-
3.2 Capital Stock. ......................................-6-
3.3 Authority. ..........................................-7-
3.4 Financial Statements.................................-8-
3.5 Real Property. ......................................-8-
3.6 Tangible Personal Property...........................-8-
3.7 Intellectual Property Rights.........................-8-
3.8 Litigation. ........................................-9-
3.9 Compliance with Laws. ..............................-10-
3.10 Contracts.........................................-10-
3.11 Absence of Certain Changes. ........................-12-
3.12 Permits.............................................-12-
3.13 Payments............................................-12-
3.14 Insurance...........................................-13-
3.15 Environmental Matters...............................-13-
3.16 Inventories. .......................................-14-
3.17 Books and Records of the Company. ..................-15-
3.18 Accounts Receivable; Accounts and Other Liabilities
Payable.............................................-15-
3.19 Taxes...............................................-15-
-i-
<PAGE>
3.20 Affiliate Transactions..............................-16-
3.21 Employees; Labor Relations; Benefits................-16-
3.22 Absence of Undisclosed Liabilities. ................-18-
3.23 Substantial Customers and Suppliers.................-18-
3.24 Vehicles............................................-19-
3.25 No Guarantees.......................................-19-
3.26 Brokers.............................................-19-
3.27 Disclosure..........................................-19-
3.28 Investment Intent. .................................-19-
3.29 Sole Vehicle. ......................................-20-
3.30 Bank and Brokerage Accounts. ......................-20-
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS OF PURCHASER
4.1 Organization........................................-20-
4.2 Authority...........................................-20-
4.3 Brokers.............................................-21-
4.4 Disclosure..........................................-21-
4.5 Parent Shares. ....................................-21-
4.6 Parent SEC Reports. ................................-21-
4.7 Absence of Undisclosed Liabilities. ................-22-
ARTICLE V
FURTHER COVENANTS AND AGREEMENTS
5.1 Conduct of Business.................................-22-
5.2 Consents; Permits. .................................-22-
5.3 Access; Information. ...............................-23-
5.4 No Shopping. .......................................-24-
5.5 Reasonable Efforts..................................-24-
5.6 Pre-Closing Employment Costs. ......................-24-
5.7 Environmental Audit. ...............................-24-
5.8 Auditable Financial Statements for 8-K. ............-25-
5.9 Lockhart Consulting Agreement. .....................-25-
5.10 Affiliate Contracts.................................-25-
5.11 Monthly Financial Statement. .......................-25-
5.12 Bank Debt. .........................................-26-
5.13 Cash. ..............................................-26-
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
6.1 Opinion of Counsel..................................-26-
6.2 Performance by the Company Group....................-26-
6.3 Representation and Warranties.......................-26-
6.4 No Actions or Proceedings...........................-26-
-ii-
<PAGE>
6.5 No Certain Material Adverse Change..................-26-
6.6 Satisfaction of Counsel.............................-26-
6.7 Third Party Consents; Permits and Approvals.........-26-
6.8 Filing of Officer's Certificate and Merger
Certificate.........................................-27-
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
7.1 Performance by Parent and Sub. .....................-27-
7.2 Representations and Warranties. ....................-27-
7.3 No Actions or Proceedings...........................-27-
7.4 Satisfaction of Counsel.............................-27-
7.5 Opinion of Counsel..................................-27-
7.6 No Material Adverse Change..........................-27-
ARTICLE VIII
DOCUMENTS TO BE DELIVERED AT THE CLOSING
8.1 The Company Group Closing Documents and Actions.....-28-
8.2 Documents to be Delivered by Parent and Sub. ......-29-
ARTICLE IX
SURVIVAL AND INDEMNIFICATIONS
9.1 Survival of Representations.........................-29-
9.2 Indemnification by the Company Group................-30-
9.3 Indemnification by the Surviving Corporation........-30-
9.4 Notices, etc........................................-31-
9.5 Limitations.........................................-31-
ARTICLE X
POST CLOSING AGREEMENTS
10.1 Business Covenant...................................-31-
10.2 Further Assurances..................................-32-
10.3 Use of Names........................................-32-
10.4 Financial Records...................................-32-
10.5 Tax Matters. ......................................-32-
ARTICLE XI
DEFINITIONS
11.1 Defined Terms.......................................-33-
11.2 Accounting Terms....................................-38-
11.3 Other Rules of Construction.........................-38-
-iii-
<PAGE>
ARTICLE XII
MISCELLANEOUS
12.1 Amendments and Waivers..............................-39-
12.2 Transferability.....................................-39-
12.3 Notices.............................................-39-
12.4 Remedies............................................-40-
12.5 Partial Invalidity..................................-40-
12.6 Expenses. ..........................................-40-
12.7 Confidentiality. ...................................-41-
12.8 Counterparts........................................-41-
12.9 Section Headings. ..................................-41-
12.10Entire Agreement....................................-41-
12.11Publicity...........................................-42-
12.12Joint and Several Obligations.......................-42-
-iv-
<PAGE>
SCHEDULES & EXHIBITS
Exhibit A - Escrow Agreement
Exhibit B - Lockhart Consulting Agreement
Exhibit C - Opinion of Counsel to Company Group
Exhibit D - Opinion of Greenberger & Forman
Exhibit E - Company Officer's Certificate
Exhibit F - Company Secretary's Certificate
Exhibit G - Parent & Sub Officer's Certificate
Exhibit H - Secretary Certificate of Parent and Sub
Exhibit I - April Balance Sheet
-v-
<PAGE>
This AGREEMENT AND PLAN OF MERGER, dated as of August 14, 1996, is
made and entered into by and among Alpha Technologies Group, Inc., a Delaware
corporation ("Parent" or "Alpha"), Lockie Acquisition Corp., a California
corporation wholly owned by Parent ("Sub"), Lockhart Industries, Inc., a
California corporation (the "Company" and, collectively with Sub, the
"Constituent Corporations") wholly owned by the Lockhart Family Trust, created
pursuant to the Declaration of Trust, dated January 2, 1974 (the "Trust" and
collectively with the Company and the Indirect Shareholders, as defined below,
the "Company Group"), Eldon H. Lockhart, an individual and a beneficiary and
trustee of the Trust ("Lockhart"), and Marjorie D. Lockhart, an individual and a
beneficiary and trustee of the Trust (collectively with Lockhart, the "Indirect
Shareholders"). Terms used and not otherwise defined have the meanings set forth
in Article XI.
RECITALS
A. The Company is engaged in the business (the "Business") of
designing and manufacturing (a) heat exchangers, cold plates and avionic chassis
for enclosing and cooling electronic and hydraulic equipment for the aerospace
industry and (b) cryogenic heat exchanger for air separation equipment and
automotive and motorcycle oil coolers.
B. The Boards of Directors of Parent, Sub and the Company have each
determined that it is advisable and in the best interests of their respective
stockholders to consummate, and have approved, the business combination
transaction provided for herein in which the Company would merge with and into
Sub (the "Merger").
C. Parent, Sub and the Company desire to make certain
representations, warranties and agreements in connection with the Merger and
also to prescribe various conditions to the Merger.
D. For federal income tax purposes, the parties intend that the
Merger will qualify as a reorganization within the meaning of Section
368(a)(2)(D) of the Internal Revenue Code of 1986, as amended (the "Code").
<PAGE>
AGREEMENT
In consideration of the mutual covenants and agreements set forth in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time, upon the terms and subject to
the conditions of this Agreement, the Company shall be merged with and into Sub
in accordance with the General Corporation Law of the State of California (the
"GCL") and the separate existence of the Company shall thereupon cease. Sub
shall be the surviving corporation in the Merger (the "Surviving Corporation").
As a result of the Merger, the outstanding shares of capital stock of the
Constituent Corporations shall be converted or canceled in the manner provided
in Article II.
1.2 Effective Time. Prior to the Closing, an agreement of merger (the
"Agreement of Merger") shall be duly prepared and executed by Parent, the
Company and the Surviving Corporation and thereafter delivered with an Officers'
Certificate from each of the Constituent Corporations to the Secretary of State
of the State of California (the "Secretary of State") for filing, as provided in
Section 1103 of the GCL, on the Closing Date. The Merger shall become effective
at the time of the filing of the Agreement of Merger with the Secretary of State
(the date and time of such filing being referred to herein as the "Effective
Time"). Immediately following the Effective Time, Parent will transfer all
outstanding shares of the Surviving Corporation to Wakefield Engineering, Inc.,
its wholly owned subsidiary.
1.3 Closing; Escrow. The closing of the transactions contemplated
hereby (the "Closing") will take place at the offices of Latham & Watkins, 650
Town Center Drive, Suite 2000, Costa Mesa, California 92626, at 10:00 a.m.,
local time, as soon as practical after the date hereof, but in no event later
than August 31, 1996. At the Closing (a) the Trust shall deliver to Parent for
exchange certificates representing all issued and outstanding shares of capital
stock of the Company, (b) Parent shall issue to the Trust the Parent Shares in
exchange for the Exchange Shares and the certificates representing such Parent
Shares issued to the Trust shall be delivered to the Escrow Agent to be held and
applied pursuant to an escrow agreement to be entered into on the Closing Date
by Parent, Sub, the Escrow Agent, the Trust and the Indirect Shareholders,
substantially in the form of Exhibit A (the "Escrow Agreement"), (c) the Trust
shall execute and deliver to the Escrow Agent ten (10) blank stock powers
separate from certificate with respect to the Parent Shares issued to the Trust
and (d) the parties shall execute and deliver to each other the certificates and
other documents and instruments required to be delivered under Article VIII.
-2-
<PAGE>
1.4 Articles of Incorporation and Bylaws of the Surviving Corporation. At
Closing, (a) the Articles of Incorporation of the Sub as in effect immediately
prior to the Closing shall be the Articles of Incorporation of the Surviving
Corporation until thereafter amended as provided by law and such Articles of
Incorporation, and (b) the Bylaws of the Sub as in effect immediately prior to
the Closing shall be the Bylaws of the Surviving Corporation until thereafter
amended as provided by law, the Articles of Incorporation of the Surviving
Corporation and such Bylaws.
1.5 Directors and Officers of the Surviving Corporation. The directors
and officers of Sub immediately prior to the Closing shall, from and after the
Closing, be the directors and officers of the Surviving Corporation until their
successors shall have been duly elected or appointed and qualified or until
their earlier death, resignation or removal in accordance with the Surviving
Corporation's Articles of Incorporation and Bylaws. The employees of the
Company shall become employees of the Surviving Corporation.
1.6 Effects of the Merger. Subject to the foregoing, the effects of the
Merger shall be as provided in the applicable provisions of the GCL.
1.7 Further Assurances. Each party hereto will execute such further
documents and instruments and take such further actions as may reasonably be
requested by one or more of the others to consummate the Merger, to vest the
Surviving Corporation with full title to all assets, properties, rights,
approvals, immunities and franchises of either of the Constituent Corporations
or to effect the other purposes of this Agreement.
ARTICLE II
CONVERSION OF SHARES; ADJUSTMENTS; ADDITIONAL PARENT SHARES
2.1 Conversion of Capital Stock. At the Closing:
(a) OMITTED.
(b) Cancellation of Treasury Stock. All shares of common stock, par value
$100 per share, of the Company ("Company Common Stock") that are owned by the
Company as treasury stock shall be canceled and retired and shall cease to exist
and no stock of Parent or other consideration shall be delivered in exchange
therefor.
(c) Exchange Ratio for Company Common Stock. Each share of Company Common
Stock issued and outstanding at the Closing (each such share, an "Exchange
Share"), other than shares to be canceled in accordance with Section 2.1(b),
shall be exchanged for and converted into the right to receive a number (the
"Conversion Number") of fully paid and nonassessable shares of common stock, par
value $.03 per share ("Parent
-3-
<PAGE>
Common Stock"), of Parent equal to the quotient of (i) 280,556 (the "Aggregate
Conversion Amount) divided by (ii) the number of shares of Company Common Stock
outstanding at the Closing, subject to adjustment in accordance with the next
sentence (such shares of Parent Common Stock to be issued in the Merger shall
hereinafter be referred to as "Parent Shares"). If, prior to the Closing, Parent
shall pay a dividend on, subdivide, combine into a smaller number of shares or
issue by reclassification of its shares, any shares of Parent Common Stock, the
Conversion Number shall be multiplied by a fraction, the numerator of which
shall be the number of Parent Shares outstanding immediately after, and the
denominator of which shall be the number of Parent Shares outstanding
immediately before, the occurrence of such event, and the resulting product
shall from and after the date of such event be the Conversion Number, subject to
further adjustment in accordance with this sentence. All Exchange Shares shall
no longer be outstanding and shall be canceled automatically and retired, and
shall cease to exist, and each holder of a certificate representing any such
shares shall cease to have any rights with respect thereto, except the right to
receive the Parent Shares.
(d) Working Capital Adjustment; Closing Date Balance Sheet. (i) Parent
shall be entitled to instruct the Escrow Agent, in accordance with the
provisions of the Escrow Agreement, to return to Parent a number of Parent
Shares (rounded to the nearest whole number) equal to the quotient of (1) the
amount by which the Working Capital shown on the April Balance Sheet exceeds the
Working Capital on the Closing Date Balance Sheet (the "Working Capital
Shortfall") divided by (2) $9 (such quotient, the "Working Capital Adjustment").
For the purposes hereof, "Working Capital" shall mean the difference between (x)
the Company's current assets (other than cash and the amounts itemized under the
line item "Employee & Other Receivables" shown on the April Balance Sheet before
adjustment pursuant to this clause (d)) and (y) the Company's current
liabilities (including accrued expenses, but excluding the Note Payable to
Shareholder as shown on the April Balance Sheet before adjustment pursuant to
this clause (d), which is to be canceled at Closing) and all debt whether
classified as current or long term. For purposes of determining Working
Capital, (A) only inventory complying with Section 3.16, Account Receivable
complying with Section 3.18, and prepaid expenses which can reasonably be
expected to have value after the Closing shall be reflected on the April Balance
Sheet and the Closing Date Balance Sheet, and (B) the long-term portion of
deferred compensation shall be included as a current liability on the Closing
Date Balance Sheet; provided, however, that adjustments made to the April
Balance Sheet pursuant to this Section 2.1(d) shall be for the purpose of
determining the Working Capital Adjustment only, and shall not affect the
Company Group's representations and warranties in Article III .
(ii) Not more than 45 days after the Closing Date, Parent shall prepare and
deliver to Lockhart (1) a balance sheet with respect to the Company as of the
day immediately before the Closing Date (the "Closing Date Balance Sheet") and
(2) the computation of the Working Capital Adjustment, if any. The Closing Date
Balance Sheet shall be (A) audited, (B) prepared in accordance the Books and
Records of the Company,
-4-
<PAGE>
(C) a fair presentation of the financial condition of the Company as of the date
thereof, and (D) prepared in accordance with GAAP consistently applied. To the
extent required for a fair comparison, the Working Capital shown on the April
Balance Sheet shall be adjusted to take into account any changes in estimates or
assumptions made in the Closing Date Balance Sheet.
(iii) Lockhart shall notify Parent in writing within 30 days (time being
of the essence) after he receives the Closing Date Balance Sheet of any
disagreements he may have with the Closing Date Balance Sheet or the computation
of any Working Capital Adjustment, setting forth in reasonable detail the basis
for, and (if computable by Lockhart) the amount of, such disagreements. The
parties shall, during the 30 days after the delivery of such notice, negotiate
in good faith to resolve any such disagreements. If, at the end of such 30-day
period, no resolution is reached, such disagreements shall be resolved by a "big
six" accounting firm (other than Arthur Anderson, LLP or Ernst & Young, LLP)
chosen by the parties, which determination shall be limited solely to the
disagreements identified by Lockhart and which shall be final and binding on the
parties hereto. The fees and disbursements of such firm shall be borne by the
party whose position is not substantially upheld.
(e) Accounts Receivable Adjustment. At Closing, Lockhart shall deliver to
Parent a schedule of all Accounts Receivable as of the close of business on the
day immediately prior to the Closing Date. The Surviving Corporation shall use
their best efforts to collect the Accounts Receivable during the 120 days
following the Closing Date (the "Collection Period"), but shall not be obliged
to threaten or institute legal proceedings in connection therewith. All amounts
collected from customers shall be first applied to the oldest receivable of such
customer, unless the payment identifies the invoice for which payment is being
made or disputes the validity or amount of any receivable due to the Company.
If the amount of the Accounts Receivables collected by the Surviving Corporation
during the Collection Period is less than the amount thereof reflected as
Accounts Receivable (net of reserves for uncollectible accounts) on the Closing
Date Balance Sheet, Parent shall provide Lockhart with a report, within 135 days
after Closing, of all uncollected accounts (the "Accounts Receivable Shortfall"
and collectively with the Working Capital Shortfall, the "Shortfalls"). Parent
shall be entitled to instruct the Escrow Agent, in accordance with the
provisions of the Escrow Agreement, to return to Parent a number of Parent
Shares (rounded to the nearest whole number) equal to the quotient of the
Accounts Receivable Shortfall divided by $9 (the "Accounts Receivable
Adjustment"). Upon receipt of such shares, the Company shall assign such
uncollected Accounts Receivable to the Trust, and the Trust shall have the right
to undertake such collection efforts as the Trust, in its discretion, may elect.
All payments received by the Surviving Corporation after the Collection Period
for which it has been reimbursed, shall promptly be paid to the Trust.
2.2 Post-Closing Adjustment to Number of Parent Shares. If, on the
second anniversary of the Closing Date (the "Second Anniversary"), the Market
Price of Parent's
-5-
<PAGE>
Shares, giving effect to any stock splits, recapitalizations and like changes to
Parent's Common Stock, is less than $9 per share, Parent will issue to the Trust
additional shares of Parent's Common Stock valued at the greater of the Market
Price or the Closing Date Price, sufficient to cause the aggregate Parent Share
Value to equal $2,525,000 less the amount of any Working Capital Shortfall and
Accounts Receivable Shortfall. As used herein, "Market Price" means the
arithmetic average of the Closing Sales Price on each of the 20 trading days
immediately preceding the Second Anniversary; "Closing Date Price" means the
arithmetic average of the Closing Sales Price on each of the 20 trading days
immediately preceding the Closing Date and on each of the 40 trading days
immediately following the Closing Date; "Closing Sales Price" on any trading day
means the closing sales price of Parent Shares reported on the National
Association of Securities Dealers Automated Quotation System ("Nasdaq") on such
day; and "Parent Share Value" means the product of the (x) 280,556 plus the
shares of Parent Common Stock to be issued to the Trust under this Section 2.2
and (y) the greater of the Market Price and the Closing Date Price.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Each member of the Company Group, jointly and severally, represents
and warrants to Parent and Sub as follows:
3.1 Organization and Good Standing of the Company. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the state of California and has full corporate power and authority to conduct
its business as and to the extent now conducted and to own, use and lease its
Assets and Properties. The Company is not required to be qualified to do
business in any jurisdiction other than California. The Company does not
directly or indirectly own any equity or similar interest in, or any interest
convertible into or exchangeable or exercisable for, any equity or similar
interest in, any corporation, partnership, joint venture or other business
association or entity.
3.2 Capital Stock. (a) The authorized capital stock of the Company
consists solely of 750 shares of Common Stock, of which 251 are issued and
outstanding and owned beneficially and of record by the Trust, and none of which
were reserved for issuance under any Contract. Except pursuant to this Agreement
and as set forth in Section 3.2(a) of the Disclosure Schedule, there are no
outstanding subscriptions, options, warrants, rights (including "phantom" stock
rights), preemptive rights or other contracts, commitments, understandings or
arrangements, including any right of conversion or exchange under any
outstanding security, instrument or agreement (together, "Options"), obligating
the Company to issue or sell any shares of capital stock of the Company or to
grant, extend or enter into any Option with respect thereto. Any such
outstanding Options will be canceled at or before Closing at no cost to the
Company.
-6-
<PAGE>
(b) Except as disclosed in Section 3.2(b) of the Disclosure Schedule, all
outstanding shares of the Company Common Stock are duly authorized, validly
issued, fully paid and nonassessable and are owned, beneficially and of record,
by the Trust, free and clear of any liens, claims, mortgages, encumbrances,
pledges, security interests, equities and charges of any kind (each, a "Lien").
(c) Except as disclosed in Section 3.2(c) of the Disclosure Schedule,
there are no outstanding contractual obligations of the Company to repurchase,
redeem or otherwise acquire any shares of Company Common Stock or to provide
funds to, or make any investment (in the form of a loan, capital contribution or
otherwise) in, any person.
3.3 Authority. (a) Section 3.3 of the Disclosure Schedule lists the
name of each director and officer of the Company on the date hereof, and the
position with the Company each holds. Prior to the date hereof, the Company has
delivered to Parent true and complete copies of the Articles of Incorporation
and By-Laws of the Company as in effect on the date hereof.
(b) This Agreement has been approved by the Board of Directors and
shareholders of the Company and by the Trustee on the part of the Trust, and no
other corporate or trust proceedings on the part of the Company or its
stockholders are necessary to authorize the execution, delivery and performance
of this Agreement by the Company and the Trust, and the consummation of the
transactions contemplated hereby. This Agreement has been duly executed by each
member of the Company Group and constitutes, and the Operative Agreements and
such other agreements and instruments to which a member of the Company Group is
a party, when duly executed and delivered by such member, will constitute,
legal, valid and binding obligations of such member, enforceable in accordance
with their terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
(c) The execution and delivery by the Company Group of this Agreement, and
the consummation of the transactions contemplated hereby will not (i) violate
any law (ii) conflict with, result in any breach of, or constitute a default (or
an event which with notice or lapse of time or both would become a default)
under, the Company's Articles of Incorporation or By-laws, or any material
indenture, mortgage, lease, agreement or other instrument to which a member of
the Company Group is a party or by which it, or its properties or assets, is
bound, or (iii) result in the creation of a claim or Lien on the Company or any
of its Assets and Properties which would have a material adverse effect on the
Company or its assets or properties.
(d) Section 3.3(d) of the Disclosure Schedule lists all Required Approvals
and Permits.
-7-
<PAGE>
3.4 Financial Statements. (a) Prior to the execution of this Agreement,
the Company has delivered to Parent true and complete copies of the Financial
Statements.
(b) The Financial Statements (i) were prepared in all material respects in
accordance with the Books and Records of the Company, (ii) fairly present the
financial condition of the Company as of the date thereof in all material
respects and (iii) were prepared in accordance with GAAP.
3.5 Real Property. (a) Section 3.5 of the Disclosure Schedule contains
a true and complete description of each parcel of real property leased by the
Company, as lessor or lessee ("Real Property"). Each lease pursuant to which the
Real Property is currently leased (the "Real Property Leases") is valid, binding
and in full force and effect without any default thereunder by the Company.
Except as set forth in Section 3.5 of the Disclosure Schedule, no real property
other than that covered by the Real Property Leases is, or has been, used by the
Company Group in connection with the business or operation of the Company. To
the Knowledge of the Company, there are no pending or threatened condemnation,
eminent domain or similar proceeding with respect to the Real Property or the
improvements thereon. Prior to the execution of this Agreement, the Company has
delivered to Parent true and correct copies of the Real Property Leases.
(b) The Real Property and the buildings and structures thereon are in
conformity with all local and municipal ordinances and with all applicable
rules, policies, and regulations of all Bodies having jurisdiction over the Real
Property, except failures so to conform which, individually or in the aggregate,
are not having and could not be reasonably expected to have a material adverse
effect on the Condition of the Company.
3.6 Tangible Personal Property. The Company is in possession of and has
good title to all tangible personal property used in or reasonably necessary for
the conduct of its business, including all tangible personal property reflected
on the June Balance Sheet and tangible personal property acquired since June 30,
1996, other than property disposed of since such date in the ordinary course of
business consistent with past practice. All such tangible personal property is
free and clear of all Liens, other than Liens disclosed in Section 3.6 of the
Disclosure Schedule, and its use complies in all material respect with all
applicable Laws.
3.7 Intellectual Property Rights. (a) The Company has an interest in
or uses only the Intellectual Property disclosed in Section 3.7 of the
Disclosure Schedule, each of which the Company has all right, title and interest
in. No other Intellectual Property is used or necessary in the conduct of the
Business of the Company. Except as disclosed in Section 3.7 of the Disclosure
Schedule, (i) the Company has the exclusive right to use the Intellectual
Property disclosed in Section 3.7 of the Disclosure Schedule, (ii) all
registrations with and applications to Bodies in respect of such Intellectual
Property are valid and in full force and effect and are not subject to the
payment of any taxes or maintenance fees or the taking of any other actions by
the Company to maintain their
-8-
<PAGE>
validity or effectiveness, (iii) there are no restrictions on the direct or
indirect transfer of any Contract, or any interest therein, held by the Company
in respect of such Intellectual Property, (iv) the Company has delivered to
Parent prior to the execution of this Agreement documentation with respect to
any invention, process, design, computer program or other know-how or trade
secret included in such Intellectual Property, which documentation is accurate
in all material respects and reasonably sufficient in detail and content to
identify and explain such invention, process, design, computer program or other
know-how or trade secret and to facilitate its full and proper use without
reliance on the special knowledge or memory of any Person, (v) the Company has
taken reasonable security measures to protect the secrecy, confidentiality and
value of its trade secrets, (vi) the Company is not, nor has it received any
notice that it is, in default (or with the giving of notice or lapse of time or
both, would be in default) under any Contract to use such Intellectual Property
and (vii) to the Knowledge of the Company, no such Intellectual Property is
being infringed by any other Person. The Company has not received notice that
the Company is infringing any Intellectual Property of any other Person, no
claim is pending or, to the Knowledge of the Company, has been made to such
effect that has not been resolved and, to the Knowledge of the Company, the
Company is not infringing any Intellectual Property of any other Person.
3.8 Litigation.
(a) No suit, action, arbitration or governmental investigation or
audit, or legal, administrative or other proceeding (a "Legal Proceedings") is
pending or, to the Knowledge of the Company, threatened against the Company
relating to or affecting the Company or its Assets and Properties, or by the
Company relating to the Business and there has been no Legal Proceeding
previously resolved against the Company which remains unsatisfied;
(b) there are no facts or circumstances Known to the Company that
could reasonably be expected to give rise to any Legal Proceeding which would
have a material adverse effect on the Company that would be required to be
disclosed pursuant to clause (a) above; and
(c) The Company is not subject to any judgment, writ, injunction,
decree or similar order ("Orders") of any court, arbitration agency or panel,
governmental department, commission, board, bureau, authority, agency, tribunal,
official or other or instrumentality of the United States of America, any
foreign country or any domestic or foreign state, country, city or other
political subdivision (a "Body").
Prior to the execution of this Agreement, the Company has delivered to Parent
all responses of counsel for the Company to auditors' requests for information
delivered in connection with the Financial Statements (together with any updates
provided by such counsel) regarding Legal Proceedings pending or threatened
against, relating or affecting the Company.
-9-
<PAGE>
3.9 Compliance with Laws. Except as disclosed in Section 3.9 of the
Disclosure Schedule, the Company is not, nor at any time within the last five
years has been, nor has it received any notice that it is, or has at any time
within the last five years been, in violations of or in default under any Law or
Order applicable to the Company or any of its assets or properties, except to
the extent such violation would not have a material adverse effect on the
Condition of the Company.
3.10 Contracts. (a) Except as set forth in Section 3.10(a) of the
Disclosure Schedule, the Company is not a party to any:
(i) Contract for the employment of any officer, director, employee or
consultant, or with any labor union or association;
(ii) Contract pursuant to which any Person who is or was an officer,
director, employee, consultant, or an Affiliate or Associate of any such Person
has a material interest;
(iii) Contract relating to the borrowing or lending of money, or the
guarantee of any obligations for borrowed money, excluding trade payables or
endorsements made for purposes of collection in the ordinary course of business;
(iv) Contract having an unexpired term of more than six months after the
Closing or involving payments after the Closing in excess of $10,000 in any
year;
(v) Contract for the production or supply by it of goods or services having
unexpired terms (including any periods covered by options to renew exercisable
by other parties) of more than 90 days after the Closing;
(vi) Contract for capital expenditures or the purchase by it of materials,
supplies, equipment or services which requires payments by the Company in excess
of $5,000 after the Closing;
(vii) licenses or royalty agreements;
(viii) distributor, dealer, manufacturer's representative, sales agency,
franchise or advertising Contracts;
(ix) Contract relating to (A) the future disposition or acquisition of any
Assets and Properties of the Company, other than dispositions or acquisitions in
the ordinary course of business consistent with past practice, and (B) any
merger or other business combination;
(x) Contract with respect to the discharge or removal of effluent wastes,
pollutants or Hazardous Materials of any nature;
-10-
<PAGE>
(xi) Contract containing covenants not to compete in any business or
geographical area or restricting it from the use or disclosure of any
information in its possession;
(xii) Contract not made in the ordinary course of business consistent with
past practices;
(xiii) Contract that (A) limits or contains restrictions on the ability of
the Company to declare or pay dividends on, to make any other distributions in
respect of or to issue or purchase, redeem or otherwise acquire its capital
stock, to incur Indebtedness, to incur or suffer to exist any Lien, to purchase
or sell any Assets and Properties, to change to lines of business in which it
participates or engages or to engage in any business combination or (B) requires
the Company to maintain specified financial ratios or levels of net worth or
other indicia of financial condition; or
(xiv) Contract between or among the Company, on the one hand, and the
Company, or any officer, trustee, Affiliate (other than the Company) or
Associate of the Company or any Associate of any such officer, trustee or
Affiliate, on the other hand.
(b) Except as set forth in Section 3.10(b) of the Disclosure Schedule:
(i) each Contract required to be disclosed in Section 3.10(a) of the
Disclosure Schedule (each, a "Material Contract") is in all material respects
valid and in full force and effect;
(ii) the Company has performed in all material respects all obligations
required to be performed by it and is not in default (and with the giving of
notice on the lapse of time will not be in default), and will not be in default
as a result of the consummation of the transactions contemplated by this
Agreement, under any Material Contract;
(iii) the Company has not received notice that any party to any Material
Contract intends or may intend to cancel or terminate any such Contract or to
exercise or not exercise options or rights under any such Material Contract;
(iv) all liabilities and obligations of the Company required to be paid or
performed by the Company on or before the Closing under all Material Contracts
have been, or will have been on the Closing, duly paid in full or performed by
the Company in all material respects; and
(v) the consummation of the transactions contemplated by this Agreement (1)
does not require any consent under any Contract, and (2) will not result in the
rightful termination of any material right or privilege now enjoyed by the
Company under any Material Contract.
-11-
<PAGE>
3.11 Absence of Certain Changes. Except for the execution and delivery
of this Agreement and the transactions to take place pursuant hereto, on or
before the Closing, since June 30, 1996, there has not been any material adverse
change, or any event or development which, individually or together with other
such events, could reasonably be expected to have a material adverse change in
the condition of the Company. Without limiting the foregoing, and except as set
forth in Section 3.11 of the Disclosure Schedule, since June 30, 1996, the
Company has been operated in the ordinary course consistent with past practices,
and has not:
(a) entered into any transaction or incurred any liability or obligation
other than in the ordinary course of business or which was unusual in nature or
amount;
(b) had any change in the Condition of the Company;
(c) granted or agreed to grant any increase in compensation to any of its
employees or to any agent, or paid or agreed to pay any bonus to any employee;
(d) waived any rights or claims having value, except rights or claims not
material in amount and waived in the ordinary course of business consistent with
past practice;
(e) violated any Law applicable to the Company or its Assets and
Properties, the violation of which could have a material adverse effect on the
Condition of the Company; or
(f) sold or otherwise disposed of any of the Assets and Properties, except
in the ordinary course of business consistent with past practice.
3.12 Permits. The Company has all Permits required by Law for the
business or operation of the Company and the use of its Assets and Properties
except those permits (other than those relating to Environmental Laws) which are
immaterial to the Condition of the Company. Section 3.12 of the Disclosure
Schedule contains and complete and correct description of all Permits possessed
by the Company. Except as set forth in Section 3.12 of the Disclosure Schedule,
all such Permits are valid and in full force and effect and will not be effected
by the Closing. There are no pending or, to the Knowledge of the Company,
threatened Legal Proceedings that could result in the termination or impairment
of any Permit.
3.13 Payments. No member of the Company Group, in connection with the
Business or the Company, has directly or indirectly: (a) made any unlawful
domestic or foreign political contribution; (b) made or received any payment, or
provided or received any service which were not legal to make, receive or
provide; or (c) had any transactions or payments which are not recorded in its
accounting books and records or disclosed in its financial statements.
-12-
<PAGE>
3.14 Insurance. Section 3.14 of the Disclosure Schedule contains a true
and complete list (including the names and addresses of the insurers, the names
of the Persons to whom such insurance policies have been issued, the expiration
dates thereof, the annual premiums and payment terms thereof, whether it is a
"claims made" or an "occurrence" policy and a brief description of the interests
insured thereby) of all liability, property, workers' compensation and other
insurance policies currently in effect that insure the Company, its Assets and
Properties, or the employees of the Company. Each such insurance policy is
valid and binding and in full force and effect, no premiums due thereunder have
not been paid and the Company has not received any notice of cancellation or
termination in respect of any such policy or is in default thereunder. Neither
the Company nor the Person to whom such policy has been issued has received
notice that any insurer under any policy referred to in this Section is denying
liability with respect to a claim thereunder or defending under a reservation of
rights clause.
3.15 Environmental Matters. The Company has obtained all Licenses which
are required under applicable Environmental Laws. Each such License is in full
force and effect. The Company has conducted its business and operations in
compliance in all material respects with the terms and conditions of all such
Licenses and with any applicable Environmental Law. In addition, except as set
forth in Section 3.15 of the Disclosure Schedule (with paragraph references
corresponding to those set forth below):
(a) No Order has been issued, no Environmental Claim has been filed, no
penalty has been assessed and no investigation or review is pending or, to the
Knowledge of the Company Group, threatened by any Body with respect to any
alleged failure by the Company to have any License required under applicable
Environmental Laws in connection with the business or operation of the Company
or with respect to any generation, treatment, storage, recycling,
transportation, discharge, disposal or Release of any Hazardous Material in
connection with the business or operation of the Company, and there are no facts
or circumstances in existence which could reasonably be expected to form the
basis for any such Order.
(b) The Company does not own, operate or lease a treatment, storage or
disposal facility on any of the Real Property requiring a permit under the
Resource Conservation and Recovery Act, as amended, or under any other
comparable state or local Law; and (i) no polychlorinated biphenyl is or has
been present, (ii) no asbestos or asbestos-containing material is or has been
present, (iii) there are no underground storage tanks or surface impoundments
for Hazardous Materials, active or abandoned, and (iv) no Hazardous Material has
been Released in a quantity reportable under, or in violation of, any
Environmental Law or otherwise Released in the cases of clauses (i) through
(iv), at, on or under any such site or facility used in connection with the
business or operation of the Company during any period that the Company Group
owned, operated or leased such property.
-13-
<PAGE>
(c) The Company has not transported or arranged for the transportation of
any Hazardous Materials in connection with the business or operation of the
Company to any location that is (i) listed on the NPL under CERCLA, (ii) listed
for possible inclusion on the NPL by the Environmental Protection Agency in
CERCLIS or on any similar list issued by any Body having jurisdiction over the
Company or for its Assets and Properties, or (iii) the subject of and Legal
Proceedings that may lead to Environmental Claims against the Company.
(d) No Hazardous Material generated in connection with the Company or
operation of the Business has been recycled, treated, stored, disposed of or
Released by the Company at any location.
(e) No oral or written notification of a Release of a Hazardous Material in
connection with the business or operation of the Company has been filed by or on
behalf of the Company, and no site or facility now or previously owned, operated
or leased by the Company on any of the Real Property is listed or, to the
Knowledge of the Company Group, proposed for listing on the NPL, CERCLIS or any
similar list of sites issued by any Body having jurisdiction over the Company or
its assets and property requiring investigation or clean-up.
(f) No Liens have arisen under or pursuant to any Environmental Law on any
site or facility owned, operated or leased by the Company on any of the Real
Property, and no Body has taken action and, to the Knowledge of the Company, no
such action is in process that could subject any such site or facility to such
Liens, and the Company would not be required to place any notice or restriction
relating to the presence of Hazardous Materials at any such site or facility in
any deed to the Real Property on which such site or facility is located.
(g) There have been no environmental investigations, studies, audits,
tests, reviews or other analyses conducted by, or that are in the possession of,
the Company in relation to any site or facility now or previously owned,
operated or leased by the Company on any of the Real Property which have not
been delivered to Parent prior to the execution of this Agreement.
3.16 Inventories. Section 3.16 of the Disclosure Schedule is a summary
of Inventory of the Company as of June 30, 1996 which accurately reflects then
current inventory levels. Such Schedule will be updated as of the close of
business on the day immediately prior to Closing and delivered to Parent at the
Closing (the "Inventory Schedule"). All Inventory reflected on the Financial
Statements and the Closing Date Balance Sheet consists, or will consist, of
current and marketable Products, raw materials, work-in-process and packaging
materials and sundry items which are usable, and, in the case of finished
products saleable at the Company's regular prices, in the ordinary course of the
business consistent with past practices.
-14-
<PAGE>
3.17 Books and Records of the Company. The minute books and other
similar records of the Company as made available to Parent prior to the
execution of this Agreement contain a true and complete record of all action
taken by meetings of the stockholders, the boards of directors and committees of
the boards of directors of the Company. The stock transfer ledgers and other
similar records of the Company as made available to Parent prior to the
execution of this Agreement accurately reflect all transfers prior to the
execution of this Agreement in the capital stock of the Company. None of the
Company's Books and Records are recorded, stored, maintained, operated or
otherwise wholly or partly dependent upon or held by any means which are not
under the exclusive ownership and direct control of the Company.
3.18 Accounts Receivable; Accounts and Other Liabilities Payable. (a)
Section 3.18 of the Disclosure Schedule is an Accounts Receivable aging report
as of June 30, 1996 which accurately reflects the collection experience of all
Accounts Receivable of the Company, and the aging experience shown thereon is
consistent with that of prior periods. Such Schedule will be updated as of the
close of business on the day immediately prior to Closing and delivered to
Parent at the Closing (the "Accounts Receivable Schedule").
(b) Except as set forth in Section 3.18 of the Disclosure Schedule, the
Accounts Receivable to be reflected on the Closing Date Balance Sheet (i) arose
from bona fide sales transactions in the ordinary course of business and are
payable on ordinary trade terms, (ii) are legal, valid and binding obligations
of the respective debtors enforceable in accordance with their terms, (iii) are
not subject to any valid set-off or counterclaim, (iv) do not represent
obligations for goods sold on consignment, on approval or on a sale-or-return
basis or subject to any other repurchase or return arrangement, (v) are
collectible in the ordinary course of business consistent with past practice in
the aggregate recorded amounts thereof, net of any applicable reserve reflected
in the balance sheet included in the Financial Statements, (vi) have not been
outstanding for more than 90 days, and (vii) are not the subject of any Legal
Proceedings brought by or on behalf of the Company.
(c) Section 3.18(c) of the Disclosure Schedule lists all the creditors of
the Company as of June 30, 1996 and such Schedule will be updated as of the
Closing to accurately describe the amounts, nature, and payment due dates of all
the Company's Liabilities as of the close of business on the day immediately
prior to Closing. The updated Schedule (the "Payables Schedule") shall be
delivered to Parent at the Closing.
3.19 Taxes. (a) The Company has filed all Tax returns and reports
required to be filed by it, all such returns and reports are accurate and comply
with applicable laws, and all Taxes due from the Company have been paid and all
Taxes for all periods prior to the Closing shall either be paid by the Company
or accrued on the face of the Closing Date Balance Sheet.
-15-
<PAGE>
(b) There are no outstanding waivers or comparable consents regarding the
application of the statute of limitations with respect to any Taxes that have
been given by the Company.
(c) Except as set forth in Schedule 3.19(c) of the Disclosure Schedule
(which shall set forth the nature of the proceeding, the type of return, the
deficiencies proposed or assessed and the amount thereof, and the taxable year
in question), no federal, state, local or foreign audits or other administrative
proceedings or court proceedings are presently pending with regard to any Taxes.
(d) The Company is not a party to any tax-sharing or allocation agreement,
nor does the Company owe any amount under any tax-sharing or allocation
agreement.
(e) The Company has complied (and until the Effective Time will comply) in
all respects with all applicable laws, rules and regulations relating to the
payment and withholding of Taxes (including, without limitation, withholding of
Taxes pursuant to Section 1441 or 1442 of the Code or similar provisions under
any foreign laws) and have, within the time and in the manner prescribed by law,
withheld from the employee wages and paid over to the proper governmental
authorities all amounts required to be so withheld and paid over under all
applicable laws.
3.20 Affiliate Transactions. Except with respect to wages paid to
Employees in the ordinary course of business or as disclosed in Section 3.20 of
the Disclosure Schedule, (i) no officer, director, Affiliate or Associate of the
Company or any Associate of any such officer, director or Affiliate provides or
causes to be provided any assets, services or facilities used or held for use by
the Company, (ii) the Company does not provide or cause to be provided any
assets, services or facilities to any such officer, director, Affiliate or
Associate (other than as officer, director or employer), and (iii) the Company
has not engaged in any transaction or entered into any agreement with, or
guaranteed any obligation of any Affiliate or Associate of a member of the
Company Group. Except as disclosed in Section 3.20 of the Disclosure Schedule,
each of the transactions listed in Section 3.20 of the Disclosure Schedule is
engaged in on an arm's-length basis.
3.21 Employees; Labor Relations; Benefits.
(a) Section 3.21(a) of the Disclosure Schedule contains a list of the name
of each Employee as at the date hereof, together with such Employee's position
or function, annual base salary or wages and any incentive or bonus arrangement
with respect to such Employee in effect on such date. The Company has not
received any information that would lead it to believe that a material number of
Employees will or may cease to be Employees, because of the consummation of the
transactions contemplated by this Agreement.
-16-
<PAGE>
(b) Except as disclosed in Section 3.21 (b) of the Disclosure Schedule, (i)
no Employee is presently a member of a collective bargaining unit and, to the
Knowledge of the Company, there are no threatened or contemplated attempts to
organize for collective bargaining purposes any of the Employees, and (ii) no
unfair labor practice complaint or gender, age, race or other discrimination
claim has been brought during the last five years against the Company before the
National Labor Relations Board, the Equal Employment Opportunity Commission or
any other Governmental or Regulatory Authority. Since June 30, 1991, there has
been no work stoppage, strike or other concerted action by employees of the
Company. During that period, the Company has complied in all material respects
with all applicable Laws relating to the employment of labor, including, without
limitation those relating to wages, hours and collective bargaining.
(c) All Employees who have had access to any Intellectual Property Rights
are bound, by written contract, to not disclose or use such rights other than in
the course of their employment for the Business.
(d) The Company has received no notices of claims or findings of violations
under OSHA.
(e) Section 3.21(e) of the Disclosure Schedule contains a true and complete
list of each employee benefit plan within the meaning of Section 3(3) of ERISA
and any other pension, retirement, profit-sharing, deferred compensation,
option, bonus, welfare, medical, disability, insurance, severance, incentive or
other benefit plan) maintained by the Company, or to which the Company
contributes, for any of the Company's employees (each a "Plan" and,
collectively, the "Plans"), setting forth the name and address of the Plans and
the trustees, and the basis of the Company's contributions. True and complete
copies of each of the Plans and related trusts have been furnished to Parent.
There has also been furnished or made available to Parent with respect to each
of the Plans, the most recent actuarial report required to be prepared with
respect to any of such Plans, the most recent Internal Revenue Service
("Service") determination letter, the most recent Summary Plan Description and
the most recent Annual Report on Form 5500 series. With respect to each of the
Plans on Section 3.21(e) of the Disclosure Schedule:
(i) With respect to each Plan intended to be qualified under Section 401(a)
of the Code, a determination letter from the Service has been received to the
effect that the Plan is qualified under Section 401 of the Code and any trust
maintained pursuant thereto is exempt from federal income taxation under Section
501 of the Code, and the Company knows of no event which will occur through the
Closing Date (including without limitation the transactions contemplated by this
Agreement) which would cause the loss of such qualification or exemption or the
imposition of any penalty or tax liability;
(ii) all contributions required by the Plan or by law with respect to all
periods through the Closing Date shall have been made by such date (or provided
for by the Company by adequate reserves on its financial statements);
-17-
<PAGE>
(iii) no "reportable event" as described in Section 4043(c) of ERISA and
with respect to which the 30-day notice requirement has not been waived has
occurred and is continuing with respect to the Plan;
(iv) except as disclosed on Section 3.21(c) of the Disclosure Schedule, no
claim, lawsuit, arbitration or other action has been threatened in writing,
asserted or instituted against the Plan, any trustee or fiduciaries thereof, the
Company, other than routine claims for benefits;
(v) all amendments required to bring the Plan into conformity with any of
the applicable provisions of ERISA have been obtained and are in full force and
effect;
(vi) any bonding required with respect to the Plan in accordance with
applicable provisions of ERISA has been obtained and is in full force and
effect;
(vii) the Plan has been maintained in all material respects in accordance
with its terms and the terms and the provisions of ERISA (including rules and
regulations thereunder) applicable thereto;
(viii) the Company has not engaged in a "prohibited transaction," as such
term is defined in Section 4975 of the Code and Section 406 of ERISA, with
respect to the Plan (and the transactions contemplated by this Agreement will
not constitute or directly or indirectly result in such a "prohibited
transaction"); and
(ix) the Company has not been notified of an audit of any Plan by the
Service or the Department of Labor.
3.22 Absence of Undisclosed Liabilities. Except for matters reflected or
reserved against in the June Financial Statements or as disclosed in Section
3.22 of the Disclosure Schedule, and except for obligations and liabilities of
the Company under Contracts not required to be performed prior to the Closing,
the Company did not have at June 30, 1996, nor has it incurred since that date,
any liabilities or obligations (whether absolute, accrued, contingent, fixed or
otherwise, or whether due or to become due) of any nature, except liabilities or
obligations which were incurred in the ordinary course of business consistent
with past practice taken as a whole and which are to be reflected on the face of
the Closing Date Balance Sheet as a current liability.
3.23 Substantial Customers and Suppliers. Section 3.23(a) of the
Disclosure Schedule lists the ten largest customers of the Company, on the basis
of revenues for goods sold or services provided for the most recently-completed
fiscal year. Section 3.23(b) of the Disclosure Schedule lists the ten largest
suppliers of the Company, on the basis of cost of goods or services purchased
for the most recently-completed fiscal year. Except as disclosed in Section
3.23(c) of the Disclosure Schedule, no such customer or supplier has ceased or
materially reduced its purchases from, use of the services of, sales to or
provision
-18-
<PAGE>
of services to the Company since April 30, 1996 or, to the Knowledge of the
Company Group, has threatened to cease or materially reduce such purchases, use,
sales or provision of services after the date hereof. Except as disclosed in
Section 3.23(d) of the Disclosure Schedule, to the Knowledge of the Company
Group, no such customer or supplier is threatened with bankruptcy or insolvency.
3.24 Vehicles. Section 3.24 of the Disclosure Schedule contains a true
and complete list of all motor vehicles owned or leased by the Company. Except
as disclosed in Section 3.24 of the Disclosure Schedule, the Company has good
and valid title to, or has valid leasehold interests in or valid rights under
Contract to use, each Vehicle, free and clear of all Liens.
3.25 No Guarantees. None of the Liabilities of the Company is guaranteed
by or subject to a similar contingent obligation of any other Person, nor has
the Company guaranteed or become subject to a similar contingent obligation in
respect of the Liabilities of any customer, supplier or other Person to whom the
Company sells goods or provides services or with whom the Company otherwise has
significant business relationships.
3.26 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by the Company Group
directly with Parent without the intervention of any Person on behalf of the
Company in such manner as to give rise to any valid claim by any Person against
Parent for a finder's fee, brokerage commission or similar payment.
3.27 Disclosure. All material facts relating to the Company have been
disclosed to Parent in or in connection with this Agreement. No representation
or warranty contained in this Agreement, and no statement contained in the
Disclosure Schedule or in any other schedule, certificate, list or other writing
furnished to Parent pursuant to any provision of this Agreement (including the
Financial Statements), contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements herein or
therein, in the light of the circumstances under which they were made, not
misleading.
3.28 Investment Intent. (a) The Parent Shares being issued to the Trust
are being acquired by it for investment for its own account, not as a nominee or
agent for any other person. No member of the Company Group has any contract,
undertaking, agreement or arrangement with any Person to sell, transfer or grant
participations to such Person in the Parent Shares or to sell or pledge any
interest therein.
(b) Each member of the Company Group has received all information it
considers necessary or appropriate to decide whether to participate in the
merger, and has received a copy of Parent's Form 10-KSB for the fiscal year
ended October 29, 1995 and its Forms 10-Q for the for the quarters ended January
28, 1996 and April 27, 1996.
-19-
<PAGE>
(c) The certificates representing the Parent Shares, and the
certificates for any securities issued in respect thereof or exchange therefor,
shall bear the following legends:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. IT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO
THE SECURITY UNDER SUCH ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED
OR UNLESS SOLD PURSUANT TO RULE 144 OF THE ACT."
3.29 Sole Vehicle. The Company is the sole vehicle through which the
Company Group conducts the Business.
3.30 Bank and Brokerage Accounts. Section 3.30 of the Disclosure
Schedule sets forth (a) a true and complete list of the names and locations of
all banks, trust companies, securities brokers and other financial institutions
at which the Company has an account or safe deposit box or maintains a banking,
custodial, trading or other similar relationship, and (b) a true and complete
list of and description of each such account, box and relationship, indicating
in each case the account number and the names of the respective officers,
employees, agents or other similar representatives of the Company having
signatory power with respect thereto.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS OF PURCHASER
Each of Parent and Sub, jointly and severally, represents and warrants to,
and covenants with, the Company Group as follows:
4.1 Organization. Each of Parent and Sub is a corporation duly
organized, validly existing and in good standing under the laws of Delaware and
California, respectively.
4.2 Authority. (a) Parent and Sub each have full corporate power and
authority to conduct its business as and to the extent now conducted and to own,
use and lease its Assets and Properties and to execute and deliver this
Agreement and the other agreements and instruments to be executed and delivered
by it pursuant hereto and to consummate the transactions contemplated hereby and
thereby. All corporate acts and other proceedings required to be taken by or on
the part of Parent or Sub to authorize such execution, delivery and consummation
have been or, as of the Closing, will be duly and properly taken.
-20-
<PAGE>
(b) This Agreement has been duly executed by each of Parent and Sub and
constitutes, and the Operative Agreements and such other agreements and
instruments to which each of Parent or Sub is a party, when duly executed and
delivered by Parent or Sub, as applicable, will constitute, legal, valid and
binding obligations of Parent or Sub, as applicable, enforceable in accordance
with their terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
(c) The execution and delivery by Parent and Sub of this Agreement and the
execution and delivery by Parent and Sub of the Operative Agreements and such
other agreements and instruments and the consummation of the transactions
contemplated hereby and thereby will not (i) violate any law, or (ii) conflict
with, result in any breach of, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under the Certificate of
Incorporation or By-laws of Parent or Sub or any indenture, mortgage, lease,
agreement or other instrument to which it is a party or by which it or its
assets or properties is bound.
(d) No approval, authorization, consent or other order or action of or
filing with any court, administrative agency or other governmental authority is
required for the execution and delivery by Parent or Sub of this Agreement and
the execution and delivery by Parent or Sub of the Operative Agreements and such
other agreements and instruments or the consummation by Parent of the
transactions contemplated hereby or thereby.
4.3 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by Parent on behalf of
Parent and Sub directly with the Company Group without the intervention of any
Person on behalf of Parent or Sub in such manner as to give rise to any valid
claim by any Person against the Company for a finder's fee, brokerage commission
or similar payment.
4.4 Disclosure. No representation or warranty of Parent or Sub in this
Agreement (including the Schedules) and no statement in any other schedule,
certificate or other list delivered to the Company Group pursuant to this
Agreement (including the Parent Reports) contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained herein or therein not misleading.
4.5 Parent Shares. The Parent Shares to be issued will be duly
authorized, validly issued, fully paid and nonassessable, and upon release from
the Escrow Account and delivery to the Trust in accordance with the terms of the
Escrow Agreement, will vest in the Trust good and valid title, free and clear of
all liens, claims, encumbrances and restrictions.
4.6 Parent SEC Reports. Parent has delivered or made available to the
Company Group for its inspection each registration statement, report, proxy
statement or
-21-
<PAGE>
information statement prepared by it since October 29, 1995, including (i) its
Annual Reports on Form 10-KSB, (ii) its Quarterly Reports on Form 10-Q, (iii)
its Current Reports on Form 8-K, and (iv) its Proxy Statements for its Annual
Meetings of Stockholders, each in the form (including exhibits and amendments
thereto) filed with the Securities and Exchange Commission (the "SEC"), and each
annual and quarterly report sent to its stockholders (collectively, the "Parent
Reports"). As of their respective dates, the Parent Reports (x) were prepared in
all material respects in accordance with applicable requirements of the
Securities Act, the Exchange Act, and the rules and regulations promulgated
thereunder and (y) 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 therein, in light of the circumstances under which they were
made, not misleading. Each of the consolidated balance sheets of Parent included
in or incorporated by reference into the Parent Reports (including the related
notes and schedules) fairly presents the consolidated financial position of
Parent as of its date and each of the consolidated statements of income,
retained earnings and cash flows of Parent included in or incorporated by
reference into the Parent Reports (including the related notes and schedules)
fairly presents the results of operations, retained earnings or cash flows, as
the case may be, of Parent for the periods set forth therein, in each case in
accordance with generally accepted accounting principles consistently applied
during the periods involved, except as may be noted therein. There have been no
material adverse changes in the condition of Parent since the date of its most
recent Quarterly Report on Form 10-Q, except as set forth in the draft press
release transmitted to the Company Group on August 13, 1996.
4.7 Absence of Undisclosed Liabilities. Except for immaterial claims
incurred in the ordinary course of business, and liabilities incurred in the
ordinary course of business (including fluctuations in borrowings), Parent did
not have at April 27, 1996, nor has it incurred since that date, any liabilities
or obligations for the payment of money that were not adequately reflected in
the financial statements contained in the latest Parent Report.
ARTICLE V
FURTHER COVENANTS AND AGREEMENTS
5.1 Conduct of Business. Except as otherwise expressly provided herein,
from the date hereof until the Closing, the Company Group shall:
(a) conduct Business only in the ordinary course consistent with the
Company's past practices and in compliance with this Agreement;
(b) take all reasonable efforts to preserve intact the business
organization and reputation of the Company, keep available the services of the
Company's management and
-22-
<PAGE>
employees, and preserve the goodwill of suppliers, customers and others having
business relations with the Company;
(c) continue the Company's existing practices relating to maintaining and
keeping its Assets and Properties in as good repair and working order;
(d) promptly notify Parent of any material adverse change subsequent to
June 30, 1996 in the Condition of the Company;
(e) not take any action or engage in any transaction which would render any
representation and warranty of the Company inaccurate in any material respect as
of the date hereof or as of the Closing;
(f) not, except in the ordinary course of business and consistent with past
practice, modify, amend or waive any provisions of, or terminate or decline to
enforce, any Contract without the prior written consent of Parent which consent
shall not be unreasonably withheld; and
(g) provide access to designated representatives of Parent to observe the
day-to-day conduct of management and the Company.
5.2 Consents; Permits. Each of Parent and the Company will cooperate
to obtain promptly all consents, governmental authorizations, estoppel
certificates and filings required to be obtained or made by it or which may be
reasonably necessary to the consummation of the transactions contemplated by
this Agreement or which are reasonably requested by the other party.
5.3 Access; Information. Through the Closing, the Company Group shall:
(a) afford to the authorized representatives of Parent reasonable access,
during normal business hours, to the employees, offices, plants, properties,
books and records of the members of the Company Group in order that Parent may
have full opportunity to make such engineering, environmental, legal, financial,
accounting and other reviews or investigations of the Company and the Business
as Parent shall desire to make;
(b) instruct and use their best efforts to cause the Company's Auditors to
permit Parent's independent public accountants to inspect the accounting work
papers and other records relating to the Company;
(c) furnish to Parent and its authorized representatives such additional
financial and operating data and other information regarding the Business and
operations of the Company and its Assets and Properties as Parent shall
reasonably request; and
-23-
<PAGE>
(d) permit a representative of Parent's accountants to observe the physical
inventory of the Company as of the Closing Date.
5.4 No Shopping. No member of the Company Group shall, directly or
indirectly, contact, initiate, solicit, enter into or conduct any discussions or
negotiations, or enter into any agreement with any Person with respect to the
direct or indirect sale of all or any part of the Company or its Assets and
Properties (except in the ordinary course of business consistent with past
practice).
5.5 Reasonable Efforts. Each member of the Company Group shall use all
reasonable efforts to fulfill the conditions to its obligations hereunder and to
cause its representations and warranties to remain true and correct in all
material respects as of the Closing.
5.6 Pre-Closing Employment Costs. At the Closing, the Company shall
deliver to Parent Schedule 5.6 (the "Accrued Employment Cost Schedule"), which
shall list and describe all amounts accruable (the "Accrued Employment Costs")
with respect to the benefits of each Employee (including for accrued vacation,
personal leaves and health benefits) as of the day prior to the Closing and
unpaid as of said time. All such accrued employment costs shall be adequately
provided for in the Closing Date Balance Sheet.
5.7 Environmental Audit. (a) Following execution and delivery of this
Agreement, Parent may retain an environmental audit firm (the "Environmental
Auditor") to evaluate the Company's compliance with all Environmental Laws and
regulations applicable to the Company, its business or operations or its Assets
and Properties and the accuracy of the representations and warranties contained
in Section 3.15. Parent shall instruct the Environmental Auditor to issue a
report (the "Environmental Report") to the Company Group and Parent, which shall
contain its findings with respect to compliance with Environmental Laws and the
accuracy of said representations and warranties and the estimated cost, if any,
to cure any non-compliance or inaccuracy or any condition the Environmental
Auditor deems appropriate to cure in order to prevent future non-compliance
("Cleanup Costs"). The Environmental Report shall also contain a plan to cure
all non-complying conditions. If the Environmental Report concludes that
Cleanup Costs are less than $50,000, the Company shall promptly implement and
complete the actions set forth in the Environmental Report. If the
Environmental Report concludes that Cleanup Costs are more than $50,000, the
Company may (x) promptly implement and complete the actions set forth in the
Environmental Report, or (y) may, by written notice, elect to terminate this
Agreement, subject to the next sentence. If the Company elects to terminate
this Agreement pursuant to clause (y), Parent may elect to waive the provisions
of the preceding sentence and the Conversion Number shall be reduced by $50,000
divided by $9.00 (rounded to the nearest whole number).
-24-
<PAGE>
(b) Notwithstanding the foregoing, if Parent is not satisfied, in its sole
discretion, with the Environmental Report, Parent may cancel this Agreement by
written notice to the Company within 14 days of receipt of the Environmental
Report.
5.8 Auditable Financial Statements for 8-K. Parent Shares are
registered under the Securities Exchange Act of 1934, and, after Closing, it may
be required to file a current report on Form 8-K to report the Merger. In such
Form 8-K, Parent will be required to include an audited balance sheet of the
Company for the fiscal year ended December 31, 1995 and 1994, and the Company's
statements of income, cash flow and changes in stockholders' equity for the
three fiscal years preceding the 1995 balance sheet, and certain interim
financial statements (the "Required Financial Statements"). From and after the
date hereof, the Company Group shall cooperate, and cause its independent
accountants to cooperate, at Parent's expense, with Parent and its accountants
in the preparation and audit (if necessary) of the Required Financial Statements
and shall provide Parent and its accountants with full access to the Books and
Records of the Company, and the Company Group shall cause its independent
accountants to give it and Parent's accountants full access to its records and
staff, for the purpose of preparing and auditing the Required Financial
Statements.
5.9 Lockhart Consulting Agreement. At Closing, Lockhart and the
Surviving Corporation shall enter into a consulting agreement, substantially in
the form attached as Exhibit B (the "Lockhart Consulting Agreement").
5.10 Affiliate Contracts. Prior to Closing, the Company shall cause all
agreements with, or obligations to, any member of the Company Group or any
Affiliates of such Person to be terminated without any cost to the Company.
5.11 Monthly Financial Statement. As promptly as practicable and in any
event no later than 15 days after the end of each month ending after the date
hereof and before the Closing Date, the Company will deliver to Parent true and
complete copies of the unaudited balance sheet, and the related consolidated
statements of operations, stockholders' equity and cash flows, of the Company as
of and for each such month and the portion of the fiscal year then ended,
together with the notes, if any, relating thereto (the "Monthly Financial
Statements"), which financial statements shall (i) fairly present the financial
condition and results of operation of the Company as of the date thereof and for
the respective periods covered thereby, and (ii) will be compiled from the Books
and Records of the Company.
-25-
<PAGE>
5.12 Bank Debt. The Company Group shall cause the Company's bank debt to
not exceed $500,000 as of the Closing Date.
5.13 Cash. The Company may distribute to Lockhart or the Trust all cash
held by the Company immediately prior to Closing.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
All obligations of Parent and Sub to effect the Closing hereunder are, at
the option of Parent, subject to the conditions precedent that, at the Closing:
6.1 Opinion of Counsel. Parent and Sub shall have received the
favorable opinion of Latham & Watkins, counsel for the Company Group, and the
favorable opinion of Bewley, Lassleben & Miller, counsel to the Trust, addressed
to Parent and Sub and dated as of the Closing, substantially in the form of
Exhibit C.
6.2 Performance by the Company Group. All the terms, covenants,
agreements and conditions of this Agreement to be complied with and performed by
a member of the Company Group at or before the Closing shall have been complied
with and performed in all material respects.
6.3 Representation and Warranties. The representations and warranties
made by members of the Company Group in this Agreement shall be true and correct
in all material respects as of the Closing.
6.4 No Actions or Proceedings. No Legal Proceeding shall have been
instituted or threatened to restrain, prohibit or invalidate the transactions
contemplated by this Agreement or which may affect the Surviving Corporation, or
its right to own, operate or control the Company's Business, assets or
properties or any portion thereof.
6.5 No Certain Material Adverse Change. There shall have been no
material adverse change in Condition of the Condition since June 30, 1996.
6.6 Satisfaction of Counsel. All corporate and other actions and
proceedings in connection with the transactions contemplated hereby, all
resolutions, documents and instruments incidental thereto, and all other related
legal matters, shall be reasonably satisfactory in form and substance to counsel
for Parent.
6.7 Third Party Consents; Permits and Approvals. The Company shall have
delivered to Parent consents from all third parties required to consummate the
transactions contemplated hereby and by the Operative Agreements ("Required
Consents"). All Permits and Approvals used, or required by Law to be used, in
connection with the Business or
-26-
<PAGE>
operation of the Company, or the Company's use or ownership of its Assets and
Properties, or required in connection with the consummation by the Company Group
of the transactions contemplated by this Agreement or the Operative Agreements
(collectively, "Required Permits and Approvals") shall have been obtained by the
Company Group on or prior to the Closing and effectively transferred to the
Surviving Corporation.
6.8 Filing of Officer's Certificate and Merger Certificate. Parent
shall have received evidence satisfactory to it that the Agreement of Merger has
been filed with the California Secretary of State, along with the certificates
of officers of the Constituent Corporations.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
All obligations of the Company Group to effect the Closing hereunder are,
at its option, subject to the conditions precedent that, at the Closing:
7.1 Performance by Parent and Sub. All the terms, covenants, agreements
and conditions of this Agreement to be complied with and performed by Parent and
Sub on or before the Closing shall have been complied with and performed in all
material respects.
7.2 Representations and Warranties. The representations and warranties
made by Parent and Sub in this Agreement shall be true and correct in all
material respects as of the Closing.
7.3 No Actions or Proceedings. No Legal Proceeding shall have been
instituted or threatened to restrain, prohibit or invalidate the transactions
contemplated by this Agreement.
7.4 Satisfaction of Counsel. All corporate and other actions and
proceedings in connection with the transactions contemplated hereby, all
resolutions, documents and instruments incidental thereto, and all other related
legal matters, shall be reasonably satisfactory in form and substance to counsel
for the Company.
7.5 Opinion of Counsel. The Trust shall have received the favorable
opinion of Greenberger & Forman, counsel for Parent and Sub, addressed to the
Trust and dated as of the Closing, substantially in the form of Exhibit D.
7.6 No Material Adverse Change. There shall have been no material
adverse change in the condition of Parent since the date of Parent's most recent
Quarterly Report on Form 10-Q.
-27-
<PAGE>
ARTICLE VIII
DOCUMENTS TO BE DELIVERED AT THE CLOSING
8.1 The Company Group Closing Documents and Actions. At the Closing,
the Company Group shall deliver, or cause to be delivered, to Parent and Sub the
following, executed by all parties thereto other than Parent and Sub:
(a) a certificate of officer of the Company, substantially in the form
attached as Exhibit E;
(b) a certificate of the Company's Secretary, substantially in the form
attached as Exhibit F;
(c) a manually signed report of the Company's Auditors for the Company's
fiscal years ended 1994 and 1995.
(d) a certificate of good standing of the Company and a Tax Clearance
Certificate of recent date from the Secretary of State of California;
(e) the Inventory Schedule;
(f) the Accounts Receivable Schedule;
(g) the Payables Schedule;
(h) the Opinion of Counsel to the Company Group;
(i) Required Consents and Required Permits and Approvals;
(j) the Accrued Employment Costs Schedule;
(k) the Lockhart Consulting Agreement, executed by Lockhart;
(l) the Escrow Agreement, executed by the Trust, the Indirect Shareholders
and the Escrow Agent; and
(m) the Company's Officer's Certificate;
(n) certificates representing all outstanding Company shares;
(o) such other endorsements, instruments or documents as may be necessary
or appropriate to carry out the transactions contemplated by this
Agreement;
-28-
<PAGE>
(p) evidence of acknowledgment by Kenneth Smith to the revised payment
schedule under the Agreement by and between the Company and Kenneth Smith dated
August 30, 1982.
(q) the Agreement of Merger.
8.2 Documents to be Delivered by Parent and Sub. At the Closing, Parent
and Sub shall deliver, or cause to be delivered, to the Company Group the
following:
(a) the Purchase Price, in the manner and form required in Section 1.2;
(b) a certificate of officer of Parent and Sub, substantially in the form
attached as Exhibit G;
(c) a secretary's certificate of Parent and Sub, substantially in the form
attached as Exhibit H;
(d) the Escrow Agreement, executed by Parent and Sub;
(e) the Lockhart Consulting Agreement, executed by the Surviving
Corporation;
(f) Opinion of Counsel to Parent and Sub referred to in Section 7.5;
(g) the Agreement of Merger executed by the Sub; and
(h) such other instruments or documents as may be necessary or appropriate
to carry out the transactions contemplated hereby.
ARTICLE IX
SURVIVAL AND INDEMNIFICATIONS
9.1 Survival of Representations. The representations, warranties,
covenants and agreements contained in this Agreement, and in any agreements,
certificates or other instruments delivered pursuant to this Agreement, shall
survive the Closing and shall remain in full force and effect, subject to all
limitations and other provisions contained in this Agreement, for two years
following the Closing Date (except for the representations and warranties made
in Sections 3.2, 3.15, 3.19, 3.22 and 3.29, which will survive until the
expiration of the applicable statute of limitations, and the covenants in
Article X, which shall extend indefinitely unless otherwise limited by their
terms.
-29-
<PAGE>
9.2 Indemnification by the Company Group. The Indirect Shareholders and
the Trust hereby agree, jointly and severally, to indemnify and hold harmless
Parent, Sub, their Affiliates, and the Surviving Corporation and their
successors, assigns and Representatives (collectively, the "Parent Indemnities")
from and against any and all claims, damages, liabilities, fines, Liens, losses
or other obligations whatsoever, together with costs and expenses, including
fees and disbursements of counsel and expenses of investigation, incurred in
connection therewith or in connection with the enforcement of the indemnifying
parties' indemnification obligations hereunder (collectively, "Losses"):
(a) arising out of, based upon or caused by the inaccuracy of any
representation or the breach of any warranty or covenant of any member of the
Company Group contained in this Agreement or in any agreement, certificate or
other instrument delivered by any member of the Company Group pursuant to this
Agreement;
(b) any liability of the Surviving Corporation arising from any act or
omission of the Company, or accruing, prior to the Closing Date, to the extent
not reflected on the face of the Closing Date Balance Sheet as a Current
Liability, except bank debt conforming to Section 5.12; and
(c) for any Taxes due from the Company for any period prior to Closing to
the extent not reflected on the face of the Closing Date Balance Sheet as a
Current Liability
9.3 Indemnification by the Surviving Corporation. The Surviving
Corporation hereby agrees to indemnify and hold harmless the Indirect
Shareholders, the Trust and their respective successors, assigns and
Representatives from and against any and all Losses arising out of, based upon
or caused by the inaccuracy of any representation or the breach of any warranty,
covenant or agreement of Parent or Sub contained in this Agreement or in any
agreement, certificate or other instrument delivered by Parent or Sub pursuant
to this Agreement. Parent hereby agrees to indemnify and hold harmless the
Indirect Shareholders, the Trust and their respective successors, assigns and
Representatives from and against any and all Losses arising out of, based upon
or caused by the inaccuracy of any representation or the breach of any warranty
in Sections 4.5, 4.6, or 4.7 of this Agreement.
9.4 Notices, etc. Each indemnified party agrees to give the
indemnifying party prompt written notice of any action, claim, demand, discovery
of fact, proceeding or suit (collectively, "Claims") for which such indemnified
party intends to assert a right to indemnification under this Agreement,
identify all provisions of this Agreement under which the Claims arise, and set
forth the Claim in reasonable detail. The indemnifying party shall have the
right to participate jointly with the indemnified party in the indemnified
party's defense, settlement or other disposition of any Claim by a third party
which gives rise to Indemnification. With respect to such Claim relating solely
to the payment of money damages and which will not result in the indemnified
party's becoming subject to injunctive or other relief or otherwise adversely
affect the business of the indemnified party in any manner, and as to which the
indemnifying party shall have acknowledged in writing
-30-
<PAGE>
the obligation to indemnify the indemnified party hereunder, the indemnifying
party shall have the sole right to defend, settle or otherwise dispose of such
Claim, on such terms as the indemnifying party, in its sole discretion, shall
deem appropriate. The indemnifying party shall obtain the written consent of
the indemnified party, which shall not be unreasonably withheld, prior to
ceasing to defend, settling or otherwise disposing of any Claim if as a result
thereof the indemnified party would become subject to injunctive or other
equitable relief or the business of the indemnified party would be adversely
affected in any manner.
9.5 Limitations. (a) Notwithstanding anything to the contrary
contained herein and notwithstanding any statute of limitations, the obligation
of the Trust and Indirect Shareholders to indemnify the Parent Indemnities for
any Loss with respect to a Claim arising out of the breach of any representation
made by the Company Group (other than those contained in Sections 3.2, 3.15,
3.19, 3.22 and 3.29) shall terminate two years after the Closing, if no notice
of Claim is given prior to that time. The obligation of the Trust and the
Indirect Stockholders to indemnify the Parent Indemnities for any other Loss
shall survive until the expiration of applicable statutes of limitations.
Claims pending on, or asserted prior to, the expiration of the time period
specified above may continue to be asserted and shall be indemnified against.
(b) Notwithstanding anything to the contrary contained herein, neither
party shall be required to indemnify the other for Losses (i) arising from a
breach of a representation until, and to the extent, such Losses exceed $25,000,
or (ii) in excess of the lesser of (1) the product of (x) the Aggregate
Conversion Amount (as adjusted) multiplied by (y) the Market Price and (2)
$3,125,000.
ARTICLE X
POST CLOSING AGREEMENTS
10.1 Business Covenant. (a) Each member of the Company Group and each of
their Affiliates agrees that, for a period of five years from the Closing Date,
neither they nor any of their Affiliates will in any way, directly or
indirectly, take away or interfere or attempt to interfere with any custom,
trade, business or patronage of the Surviving Corporation and its Affiliates,
and will not, without the Surviving Corporation's prior written consent, (x)
engage in any business, directly or indirectly, that competes with the Business,
(y) hire any person that worked for the Company within one year of Closing or
that worked for the Surviving Corporation at anytime thereafter, or (z) disclose
or use, in any manner, any confidential information related to the business or
operations of the Company, or its Assets and Properties, or use of any
Intellectual Property used in connection with the Business.
-31-
<PAGE>
(b) Each member of the Company Group acknowledges that its failure to
comply with the provisions of Section 10.1(a) will result in irreparable and
continuing damage for which there will be no adequate remedy at law and that, in
the event of a failure to comply, the aggrieved party and their successors,
legal representatives and assigns shall be entitled to injunctive relief and to
such other and further relief as may be proper and necessary to ensure
compliance with the provisions of Section 10.1(a).
10.2 Further Assurances. From and after the Closing, upon request of
Parent, Sub or the Surviving Corporation, the members of the Company Group shall
execute, acknowledge and deliver all such further documents as may be reasonably
requested to further evidence of the transaction contemplated hereby.
10.3 Use of Names. After the Closing, no member of the Company Group or
any of its Affiliates, successors or assigns shall adopt or otherwise
commercially use the name "Lockhart" or any variation thereof or any trade name,
trademark or service mark used in connection with the Business, except that
Lockhart/Phillips, USA (the successor to Lockhart Consumer Products, Inc.) may
continue to use those names.
10.4 Financial Records. Each party hereby agrees that, after Closing, it
shall make available to the other all work papers, records and notes of any
kind, at all reasonable times, for the purpose of allowing the appropriate party
to complete tax returns, respond to audits, obtain refunds, make any
determination required under this Agreement, verify issues and negotiate
settlements with tax authorities or defend or prosecute tax claims.
10.5 Tax Matters. Parent shall prepare and file any Return of the
Company which is required to be filed after the Effective Time and which relates
to any period (or portion thereof) up to and including the Effective Time, and
Parent shall, within 45 days prior to the due date of any such Return, deliver a
draft copy to Lockhart. Within 30 days of the receipt of any such Return,
Lockhart may reasonably request changes, in which event Parent and Lockhart
shall attempt to agree on a mutually acceptable resolution of the issues in
dispute. If a resolution is reached, such Return shall be filed in accordance
therewith. If a resolution is not reached, then at the expense of Parent or
Lockhart (such expense to be borne by the party whose position is not upheld),
such Return shall be submitted to a big six accounting firm (other than Arthur
Andersen LLP and Ernst & Young LLP) selected by Parent, which shall be directed
to resolve the issues in dispute and prepare the Return for filing.
-32-
<PAGE>
ARTICLE XI
DEFINITIONS
11.1 Defined Terms. As used in this Agreement, the following terms have
the meanings indicated below:
"Affiliate" has the meaning ascribed to it under Rule 405 of the Securities
Act of 1933.
"All Material Respects," for the purposes of Sections 6.2, 6.3 and 7.2
means $25,000 in the aggregate.
"Approvals" means authorizations, consents or other orders or actions of or
filings with any Body or third party including landlords, lessors and lienors
required to be obtained or made by a member of the Company Group in connection
with the execution, delivery and performance of this Agreement or the
consummation by the members of the Company Group of the transactions
contemplated hereby.
"April Balance Sheet" means the Company's balance sheet as of April 30,
1996 and attached as Exhibit I (subject to adjustment as set forth in, and for
the purposes of, Section 2.1(d)).
"April Financial Statements" means the April Balance Sheet and statement of
income and changes in financial position for the four months ended April 30,
1996.
"Assets and Properties" of any Person means all assets and properties of
every kind, nature, character and description (whether real, personal or mixed,
whether tangible or intangible), including the goodwill related thereto,
operated, owned or leased by such Person, including, accounts and notes
receivable, chattel paper, documents, instruments, general intangibles, real
estate, equipment, inventory, goods and Intellectual Property, but excluding
cash and cash equivalents.
"Associate" has the meaning ascribed to it under Rule 405 of the Securities
Act.
"Benefit Plans" means all "employee pension benefit plans" (as defined in
Section 3(2) of ERISA) "employee welfare benefit plans" (as defined in Section
3(1) of ERISA), bonus, deferred compensation, incentive or other compensation
plans or arrangements, and other employee fringe benefit plans at any time
maintained, or contributed to, by the Company for the benefit of any employees,
officers or directors.
"Body" shall have the meaning set forth in Section 3.8.
-33-
<PAGE>
"Books and Records" means all files, documents, instruments, papers, books
and records relating to the Business or Condition of the Company, including
without limitation financial statements, Tax Returns and related work papers and
letters from accountants, budgets, pricing guidelines, ledgers, journals, deeds,
title policies, minute books, stock certificates and books, stock transfer
ledgers, Contracts, Licenses, customer lists, computer files and programs,
retrieval programs, operating data and plans and environmental studies and
plans.
.
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, and the rules and regulations promulgated
thereunder.
"CERCLIS" means the Comprehensive Environmental Response and Liability
Information System, as provided for by 40 C.F.R. (S)300.5.
"Closing" means the closing of the transactions contemplated hereby.
"Closing Date" means the date on which the Closing occurs.
"Compliance Matters" means any Law including OSHA, Environmental Laws, and
ERISA to which the Company, its Assets and Properties, or the Business may be
subject prior to the Closing.
"Condition of the Company" means the business, condition (financial or
otherwise), results or operations, assets and properties and prospects of the
Business.
"Contracts" means all agreements, leases, rental agreements, insurance
policies, collective bargaining agreements, union contracts, licenses, employee
plans, purchase orders, sales orders, commitments, confidentiality non-use or
non-disclosure agreements, and all other binding arrangements, whether written
or oral, express or implied, of the Company or relating to its Assets and
Properties or the Business.
"Disclosure Schedule" means the record delivered to Parent and Sub by the
Company Group herewith and dated as of the date hereof, containing all lists,
descriptions, exceptions and other information and material as are required to
be included therein by the Company Group pursuant to this Agreement.
"Environmental Claim" means, with respect to any Person, any written or
oral notice, claim, demand or other communication (collectively, a "claim") by
any other Person alleging or asserting such Person's liability for investigatory
costs, cleanup costs, governmental or regulatory authority response costs,
damages to natural resources or other property, personal injuries, fines or
penalties arising out of, based on or resulting from (a) the presence, or
Release into the environment, of any Hazardous Material at any location, whether
or not owned by such Person, or (b) circumstances forming the basis of any
violation, or alleged violation, of any Environmental Law. The term
"Environmental
-34-
<PAGE>
Claim" shall include, without limitation, any claim by any governmental or
regulatory authority for enforcement, cleanup, removal, response, remedial or
other actions or damages pursuant to any applicable Environmental Law, and any
claim by any third party seeking damages, contribution, indemnification, cost
recovery, compensation or injunctive relief resulting from the presence of
Hazardous Materials or arising from alleged injury or threat of injury to
health, safety or the environment.
"Environmental Law" means any Law or Order relating to the regulation or
protection of human health, safety or the environment or to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals or industrial, toxic or hazardous substances or wastes into the
environment (including, without limitation, ambient air, soil, surface water,
ground water, wetlands, land or subsurface strata), or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, chemicals or industrial,
toxic or hazardous substances or wastes.
"ERISA Affiliate" means any Person who is in the same controlled Group of
corporations or who is under common control with the Company (within the meaning
of Section 414 of the Code).
"Escrow Agent" has the meaning ascribed to it in the Escrow Agreement.
"Exchange Act" means the Securities Exchange Act of 1934.
"Exchange Shares" has the meaning ascribed to it in Section 2.1(c).
"Financial Statements" means the (i) balance sheets of the Company as of
December 31, 1994 and 1995, and statements of income and changes in financial
position of the Company for the years and the periods then ended, together with
a true and correct copy of the report by the Company's Auditors, and all letters
from such accountants with respect to the results of such audit; (ii) April
Financial Statements; (iii) the June Financial Statements and (iv) any other
financial statements delivered by the Company pursuant to this Agreement.
"GAAP" means generally accepted accounting principles, consistently applied
throughout the specified period and in the immediately prior comparable period.
"Hazardous Material" means (A) any petroleum or petroleum products,
flammable explosives, radioactive materials, asbestos in any form that is or
could become friable, urea formaldehyde foam insulation and transformers or
other equipment that contain dielectric fluid containing levels of
polychlorinated biphenyls (PCBs); (B) any chemicals or other materials or
substances which are now or hereafter become defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous materials,"
"extremely hazardous wastes," "restricted hazardous wastes," "toxic substances,"
"toxic pollutants" or
-35-
<PAGE>
words of similar import under any Environmental Law; and (C) any other chemical
or other material or substance, exposure to which is now or hereafter
prohibited, limited or regulated by any Body under any Environmental Law.
"Income Taxes" means (i) all federal, state, local or foreign income or
franchise taxes of a the Company or other taxes or charges imposed on or with
respect to the Company's net income or capital, together with any interest or
penalties or additions to tax imposed with respect thereto and (ii) any
obligations under any agreements with respect to any Income Taxes.
"Indebtedness" of any Person means all obligations of such Person (i) for
borrowed money, (ii) evidenced by notes, bonds, debentures or similar
instruments, (iii) for the deferred purchase price of goods or services (other
than trade payables or accruals incurred in the ordinary course of business),
(iv) under capital leases and (v) in the nature of guarantees of the obligations
described in clauses (i) through (iv) above of any other Person.
"Intellectual Property" means all Patents and patent rights, Trademarks and
trademark rights, Trade Names and trade name rights, service marks and service
mark rights, service names and service name rights, brand names, inventions,
processes, formulae, copyrights and copyright rights, trade dress, business and
product names, logos, slogans, trade secrets, industrial models, processes,
designs, methodologies, computer programs (including all source codes) and
related documentation, technical information, manufacturing, engineering and
technical drawings, Know-how and all pending applications for and registrations
of patents, trademarks, service marks and copyrights.
"Inventory" means all Products, work in process, finished goods, raw
materials, supplies and packaging materials of the Company, whether current,
excess or obsolete.
"June Financial Statements" mean the balance sheet of the Company as at
June 30, 1996 and the statement of income for the six months then ended.
"Knowledge of the Company Group" or "Known to the Company Group" means the
actual knowledge of any officer, director or executive level employee of the
Company.
"Know-how" means all laboratory journals, trade secrets (including, without
limitation, proprietary or confidential information and use and application
know-how), formulas, processes, product designs, manufacturing, engineering and
other drawings, computer databases and software, technology, technical
information, safety information, engineering and technical data and design and
engineering specifications, research records, market surveys and all promotional
literature, customer and supplier lists and information and similar data of the
Company.
-36-
<PAGE>
"Laws" means all laws, statutes, rules, regulations, ordinances and other
pronouncements having the effect of law of the United States of America, any
foreign country or any domestic or foreign state, county, city or other
political subdivision, or of any Body.
"Legal Proceeding" has the meaning ascribed to it in Section 3.8.
"Liabilities" means all Indebtedness, obligations and other liabilities of
a Person (whether absolute, accrued, contingent, fixed or otherwise, or whether
due or to become due).
"Licenses" means all licenses, permits, certificates of authority,
authorizations, approvals, registrations, franchises and similar consents
granted or issued by any Body.
"Liens" means any mortgage, pledge, assessment, security interest, lease,
lien, adverse claim, levy, charge or other encumbrance of any kind, or any
conditional sale Contract, title retention Contract or other Contract to give
any of the foregoing.
"NPL" means the National Priorities List under CERCLA.
"Operative Agreements" means, collectively, the Escrow Agreement, the
Lockhart Consulting Agreement, and any support or other agreements to be entered
into in connection with the transaction.
"Order" has the meaning ascribed to it in Section 3.8.
"Parent Shares" has the meaning ascribed to it in Section 2.1(c).
"Patents" means United States and foreign patents (including all reissues,
divisions, continuations, continuations in part and extensions thereof), patent
applications and patent disclosures, and all other patent and ancillary rights
of the Company (including those as licensee or licensor, or of Lockhart
pertaining to the Company, its Assets and Properties, or the Business).
"Pension Benefit Plan" means each Benefit Plan which is a pension benefit
plan within the meaning of Section 3(2) of ERISA.
"Permits" means the franchises, licenses, permits and governmental and
regulatory authorizations and approvals used, or which are required by Law to be
used, by the Company.
"Person" means any natural person, corporation, association, partnership,
joint venture or other entity.
-37-
<PAGE>
"Qualified Plan" means each Benefit Plan which is intended to qualify under
Section 401 of the Code.
"Release" means any release, spill, emission, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the indoor
or outdoor environment, including, without limitation, the movement of Hazardous
Materials through ambient air, soil, surface water, ground water, wetlands, land
or subsurface strata.
"Representatives" means with respect to any Person, such Person's officers,
directors, employees, agents, counsel, accountants, financial advisors,
consultants and other representatives.
"Required Permits and Approvals" shall have the meaning set forth in
Section 6.7.
"Securities Act" means the Securities Act of 1933.
"Taxes" means all taxes, customs duties or similar fees, assessments or
charges of any kind whatsoever required to be paid or collected and remitted by
a member of the Company Group, together with any interest and any penalties,
additions to tax or additional amounts imposed by any taxing authority, domestic
or foreign with respect to such Taxes and any obligations under any agreements
with respect thereto.
"Trademarks" means trademarks, registrations thereof, pending applications
therefor, and such unregistered rights as are used by the Company.
"Trade Names" means the trade names, brand marks, service marks, trade
dress, brand names, logos and all other names and slogans embodying goodwill of
the Company.
11.2 Accounting Terms. Any accounting terms used in this Agreement,
unless otherwise specifically provided, shall have the meanings customarily
given them in accordance with GAAP, and all financial computations, statements
and reports hereunder, unless otherwise specifically provided, shall be in
accordance with GAAP. An "audited" financial statement means one with an
independent auditor's report of audit thereon containing no qualification or
exception.
11.3 Other Rules of Construction. Unless the context of this Agreement
requires otherwise (a) references in this Agreement to Articles, schedules and
exhibits are to sections of, and schedules and exhibits to, this Agreement; (b)
words in the singular include the plural and in the plural include the singular;
(c) the word "or" connotes both the disjunctive and conjunctive of the terms
affected, unless otherwise expressly stated; (d) the terms "hereof," "herein,"
"hereby" and derivative or similar words refer to this entire agreement; (e) the
terms "include," "includes," "including" and derivative or similar words shall
be deemed to include the phrase "without limitation"; (f) the phrase "ordinary
course of business" and "ordinary course of business consistent with past
practice" refer to the
-38-
<PAGE>
business and practice of the Company; and (g) words of any gender including each
other gender. Whenever this Agreement refers to a number of days, such number
shall refer to calendar days unless Business Days are specified.
ARTICLE XII
MISCELLANEOUS
12.1 Amendments and Waivers. This Agreement may be modified or amended
only by written instrument signed by the parties hereto.
12.2 Transferability. (a) The respective rights and obligations of each
party hereto shall not be assignable by such party without the written consent
of the other parties hereto.
(b) This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assignees. Nothing
herein expressed or implied is intended to confer upon any person, other than
the parties hereto and their respective successors and permitted assignees, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
12.3 Notices. Any notice, request or other document to be given
hereunder to a party hereto shall be in writing and delivered in person or sent
by registered or certified mail, postage prepaid, or by Federal Express
(priority service), and by telephone facsimile transmission ("fax") confirmed by
telephone, as follows:
If to Parent or Sub to:
Lockie Acquisition Corp.
c/o Wakefield Engineering, Inc.
60 Audubon Road
Wakefield, MA 01880
Attention.: Harry Chase, President
Telephone No.: (617) 245-5900
Facsimile Transmission No.: 617-246-0874
with a copy to:
Greenberger & Forman
1370 Avenue of the Americas
New York, NY 10019
Fax No. (212) 757-4054
-39-
<PAGE>
Attention: Robert W. Forman, Esq.
If to a member of the Company Group, to:
Lockhart Industries, Inc.
15555 Texaco Avenue
Paramount, CA 90723
Attention.: E.H. Lockhart
Telephone No.: 213-774-2981
Facsimile Transmission No.: 310-531-0496
with a copy to:
Latham & Watkins
650 Town Center Drive
Cosa Mesa, CA 92626
Attention: Patrick T. Seaver, Esq.
Telephone No.: 714-540-1235
Facsimile Transmission No.: 714-755-8290
Any party hereto may change its address for receiving notices, requests and
other documents by giving written notice of such change to the other parties.
12.4 Remedies. Each party acknowledges and agrees that the other party
would be irreparably damaged in the event any of the provisions of this
Agreement were not performed by it in accordance with its specific terms or were
otherwise breached. It is accordingly agreed that each party hereto shall be
entitled to an injunction to prevent breaches of such provisions and to
specifically enforce such provisions, in addition to any other remedy to which
such party may be entitled, at law or in equity. If the transaction
contemplated by this Agreement fails to close as a result of any breach by
either party to this Agreement, in addition to any other remedies available to
it, the non-breaching party shall be entitled to receive from the breaching
party all costs and expenses incurred by it in connection with this Agreement
and the transactions contemplated hereby including, all legal fees and
disbursements, all accounting fees and disbursements, all environmental audit
fees and disbursements, and all other costs and expenses associated with the
non-breaching party's "due diligence" investigation.
12.5 Partial Invalidity. If any provision of this Agreement shall be
held invalid or unenforceable by any court of competent jurisdiction, such
holding shall not invalidate or render unenforceable any other provision hereof.
12.6 Expenses. Except as otherwise expressly provided in this Agreement
whether or not the transactions contemplated hereby are consummated, each party
will pay its own costs and expenses incurred in connection with the negotiation,
execution and
-40-
<PAGE>
closing of this Agreement and the Operative Agreements and the transactions
contemplated hereby and thereby.
12.7 Confidentiality. Unless (a) compelled to disclose by judicial or
administrative process (including without limitation in connection with
obtaining the necessary approvals of this Agreement and the transactions
contemplated hereby of Body) or by other requirements of Law or (b) disclosed in
a Legal Proceeding brought by a party hereto in pursuit of its rights or in the
exercise of its remedies hereunder, each party hereto will hold, and will use
its best efforts to cause its Affiliates, and their respective Representatives
to hold, in strict confidence from any Person (other than any such Affiliate or
Representative), all documents and information concerning the other party or any
of its Affiliates furnished to it by the other party or such other party's
Representatives in connection with this Agreement or the transactions
contemplated hereby, except to the extent that such documents or information can
be shown to have been (i) previously known by the party receiving such documents
or information, (ii) in the public domain (either before or after the furnishing
of such documents or information hereunder) through no fault of such receiving
party, or (iii) later acquired by the receiving party from another source if the
receiving party is not aware that such source is under an obligation to another
party hereto to keep such documents and information confidential; provided,
however, that following the Closing the foregoing restrictions will not apply to
Parent's or the Surviving Corporation's use of documents and information
concerning the Business, the Assets or the Assumed Liabilities furnished by the
Company hereunder. If the transactions contemplated hereby are not consummated,
upon the request of the other party, each party hereto will, and will cause its
Affiliates and their respective Representatives to, promptly redeliver or cause
to be redelivered all copies of documents and information furnished by the other
party in connection with this Agreement or the transactions contemplated hereby
and destroy or cause to be destroyed all notes, memoranda, summaries, analyses,
compilations and other writings related thereto or based thereon prepared by the
party furnished such documents and information or its Representatives.
12.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
12.9 Section Headings. The section headings and table of contents
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
12.10 Entire Agreement. This Agreement, together with the Schedules and
Exhibits and the agreements and instruments delivered pursuant hereto, contains
the entire agreement between the parties, and supersede all prior agreements and
understanding between them relating to the subject matter hereof.
-41-
<PAGE>
12.11 Publicity. No member of the Company Group shall issue any press
release or make any other public announcement with respect to this Agreement or
the transactions contemplated hereby without obtaining the prior approval of the
Parent (which shall not be unreasonably withheld or delayed), except as may be
required by law or the regulations of any securities exchange.
12.12 Joint and Several Obligations. Each member of the Company Group is
jointly and severally responsible for the agreements, covenants,
representations, warranties and obligations of any member of the Company Group
contained in this Agreement.
-42-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on and as of the day and year first above written.
LOCKHART INDUSTRIES, INC.
By:/s/ Eldon H. Lockhart
---------------------------------
Eldon H. Lockhart, President
By:/s/ Marjorie D. Lockhart
---------------------------------
Marjorie D. Lockhart, Secretary
/s/ Eldon H. Lockhart
---------------------------------
Eldon H. Lockhart, Individually
Marjorie D. Lockhart, Individually
LOCKHART FAMILY TRUST
By:/s/ Eldon H. Lockhart
----------------------------------
Eldon H. Lockhart, Trustee
By:/s/ Marjorie D. Lockhart
-----------------------------------
Marjorie D. Lockhart, Trustee
LOCKIE ACQUISITION CORP.
By /s/ Lawrence Butler
------------------------------------
Lawrence Butler, Vice President
By /s/ Johnny J. Blanchard
------------------------------------
Johnny J. Blanchard, Secretary
ALPHA TECHNOLOGIES CORP., INC.
By /s/ Lawrence Butler
------------------------------------
Lawrence Butler, President
By /s/ Johnny J. Blanchard
------------------------------------
Johnny J. Blanchard, Secretary
-43-
<PAGE>
Exhibit 11.1
ALPHA TECHNOLOGIES GROUP, INC., AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE
FOR THE QUARTERS AND NINE MONTHS ENDED JULY 30, 1995 AND JULY 28, 1996
(Unaudited)
(In Thousands, Except per Share Date)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
--------------------- -------------------
July 30, July 28, July 30, July 28,
1995 1996 1995 1996
--------------------- -------------------
<S> <C> <C> <C> <C>
Shares:
Weighted average common shares
outstanding 5,897 6,200 5,967 6,156
Net common shares issuable on
exercise of stock options 694 -- 566 --
------ ----- ------ ------
Weighted average common and common
equivalent shares outstanding 6,591 6,200 6,533 6,156
====== ===== ====== ======
Income (loss) before minority interest $1,777 ($684) $2,725 ($438)
Minority interest (168) (56) (264) (21)
------ ----- ------ ------
Net income (loss) $1,609 ($740) $2,461 ($459)
====== ===== ====== ======
Net income (loss) per common and common
equivalent share:
Income (loss) before minority interest $ 0.27 ($0.11) $ 0.42 ($0.07)
Minority interest (0.03) (0.01) (0.04) --
------ ----- ------ ------
Net income (loss) $ 0.24 ($0.12) $ 0.38 ($0.07)
====== ====== ====== ======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET-JULY 28, 1996 AND CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED JULY 28, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-27-1996
<PERIOD-START> OCT-30-1995
<PERIOD-END> JUL-28-1996
<CASH> 4,219
<SECURITIES> 0
<RECEIVABLES> 11,323
<ALLOWANCES> 240
<INVENTORY> 10,121
<CURRENT-ASSETS> 26,917
<PP&E> 14,006
<DEPRECIATION> 2,601
<TOTAL-ASSETS> 43,337
<CURRENT-LIABILITIES> 11,434
<BONDS> 10,992
0
0
<COMMON> 214
<OTHER-SE> 18,424
<TOTAL-LIABILITY-AND-EQUITY> 43,337
<SALES> 51,600
<TOTAL-REVENUES> 51,600
<CGS> 40,307
<TOTAL-COSTS> 40,307
<OTHER-EXPENSES> 11,087
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 583
<INCOME-PRETAX> (377)
<INCOME-TAX> 61
<INCOME-CONTINUING> (459)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (459)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> 0
</TABLE>
