<PAGE>
Schedule 14A Information
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
VECTRA TECHNOLOGIES, INC.
(Name of Registrant as Specified in its Charter)
VECTRA TECHNOLOGIES, INC.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box): $6,145
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
Not Applicable
----------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
Not Applicable
----------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
$30,723,000.00(1)
----------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
$30,723,000.00(1)
----------------------------------------------------------------------
(1) The value of the transaction is the aggregate cash sale price for
the assets described in this proxy statement and the fee is based on
section (c)(2) of Exchange Act Rule 0-11.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount previously paid:
----------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------------------
3) Filing Party:
----------------------------------------------------------------------
4) Date Filed:
----------------------------------------------------------------------
<PAGE>
[LOGO]
VECTRA TECHNOLOGIES, INC.
5000 Executive Parkway
Suite 500
San Ramon, California 94583
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
VECTRA Technologies Inc. (the "Company") to be held at the offices of VECTRA
Fuel Services, L.L.C., 6203 San Ignacio Avenue, Suite 100, San Jose, California
95119 on _________________, 1996 at _________. At the meeting, you will be
asked to approve a proposal to sell the Company's nuclear engineering services
business, power services business, government services business (collectively,
the "Engineering Businesses") to Duke Engineering & Services, Inc. ("Buyer").
The form of the transaction is a sale of assets pursuant to an Asset Purchase
Agreement among the Company, the Company's wholly owned subsidiary, VECTRA
Government Services, Inc. (the "Subsidiary"), and the Buyer, dated May 23, 1996
(the "Agreement"). A complete copy of the Agreement is contained in the
enclosed Proxy Statement and I encourage you to study it carefully. In
connection with the sale, we will vote on a proposal to amend the articles of
incorporation to provide that a sale of substantially all of the assets of the
Company requires a majority vote of outstanding shares. In addition, at the
meeting we will elect directors and consider a proposal to ratify the selection
of Ernst & Young LLP as independent public accountants for 1996.
The Board has unanimously determined that the sale of the Engineering
Businesses is in the best interest of the shareholders. Although the Board is
frustrated and disappointed with the necessity of selling the Engineering
Businesses, the Board believes there is no viable alternative and, for the
reasons discussed in the enclosed Proxy Statement, the Board recommends that you
vote "FOR" the proposal to sell the Engineering Businesses. In addition, the
Board recommends that you vote "FOR" the proposal to amend the articles of
incorporation, "FOR" the director nominees and "FOR" the ratification of Ernst &
Young LLP as independent public accountants for 1996. These matters are
described more fully in the formal notice of annual meeting and proxy statement
that appear on the following pages.
YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend the
meeting, it is important that your shares be represented. Therefore, we urge
you to sign, date and promptly return the enclosed proxy in the enclosed postage
paid envelope. If you attend the meeting, you will, of course, have the
privilege of voting in person.
As of May 1, 1996, the Directors and Officers of the Company beneficially
own 9.9% of the outstanding shares of the Company's common stock. It is
anticipated that all of these shares will be voted in favor of the proposal to
sell the Engineering Businesses.
We would like to express our appreciation for your continuing interest in
and support of VECTRA Technologies, Inc.
Sincerely,
---------------------------------
RAY A. FORTNEY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
June , 1996
-----
<PAGE>
VECTRA TECHNOLOGIES, INC.
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
------------------------
TO THE SHAREHOLDERS:
The Annual Meeting of Shareholders of VECTRA Technologies, Inc. (the
"Company") will be held at the offices of VECTRA Fuel Services, L.L.C., 6203
San Ignacio Avenue, Suite 100, San Jose, California 95119 on _________________,
1996 at _________ for the following purposes:
1. To consider and act upon a proposal to amend the Company's articles of
incorporation to provide that a merger, share exchange or sale of all
or substantially all of the assets of the Company requires a majority
approval of all outstanding shares of the Company.
2. To consider and act upon a proposal to sell substantially all of the
properties of the Company and all of the properties (or the stock) of
VECTRA Government Services, Inc., a wholly owned subsidiary of the
Company, pursuant to an Asset Purchase Agreement dated May 23, 1996
among the Company, VECTRA Government Services, Inc., and Duke
Engineering & Services, Inc.
3. To elect eight (8) directors for a term of one year;
4. To act on a proposal to ratify the selection of Ernst & Young LLP as
independent public accountants for 1996; and
5. To transact such other business as may properly come before the
meeting or any adjournments thereof.
Only shareholders of record at the close of business on May 15, 1996 are
entitled to notice of, and to vote at, this meeting.
BY ORDER OF THE BOARD OF DIRECTORS
------------------------------
THOMAS B. PFEIL, CORPORATE SECRETARY
San Ramon, California
June , 1996
-----
IMPORTANT
EACH SHAREHOLDER IS URGED TO SIGN AND RETURN PROMPTLY THE ACCOMPANYING
PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
<PAGE>
TABLE OF CONTENTS
Page
----
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. . . . . . . . . .3
SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
FUTURE DIRECTION OF THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . .9
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Alternative A: Continued Operations of the Company After the Closing. . 10
Alternative B: Sale of the Remaining Businesses; Liquidation of the
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Consequences of Failure to Approve Proposal 2 . . . . . . . . . . . . . 12
PROPOSAL 1 -- TO AMEND THE COMPANY'S ARTICLES OF INCORPORATION TO PROVIDE
THAT A MERGER, SHARE EXCHANGE OR SALE OF ALL OR SUBSTANTIALLY ALL OF
THE ASSETS OF THE COMPANY REQUIRES A MAJORITY APPROVAL OF ALL
OUTSTANDING SHARES OF THE COMPANY . . . . . . . . . . . . . . . . . . . . 12
PROPOSAL 2 -- TO SELL THE NUCLEAR ENGINEERING BUSINESS, THE POWER SERVICES
BUSINESS, AND THE GOVERNMENT SERVICES BUSINESS. . . . . . . . . . . . . . 13
Background of the Transaction . . . . . . . . . . . . . . . . . . . . . 13
Business Relationship with Buyer. . . . . . . . . . . . . . . . . . . . 16
Recommendation of the Board of Directors. . . . . . . . . . . . . . . . 16
Interests of Certain Persons. . . . . . . . . . . . . . . . . . . . . . 17
Rights of Security Holders. . . . . . . . . . . . . . . . . . . . . . . 17
Market Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
THE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Assets to be Acquired; Assumed Liabilities. . . . . . . . . . . . . . . 18
Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Representations and Warranties of the Company and Subsidiary. . . . . . 19
Representations and Warranties of the Buyer . . . . . . . . . . . . . . 19
Covenants of the Company. . . . . . . . . . . . . . . . . . . . . . . . 19
Negative Covenants of the Company . . . . . . . . . . . . . . . . . . . 20
Covenants of Buyer. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Mutual Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Closing Conditions. . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Amendment and Termination; Break-Up Fee . . . . . . . . . . . . . . . . 23
Related Agreements and Filings. . . . . . . . . . . . . . . . . . . . . 23
Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . 23
U.S. Federal Income Tax Consequences. . . . . . . . . . . . . . . . . . 23
Shareholder Vote. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
PRO FORMA FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . 24
MARKET PRICES AND PER SHARE DATA . . . . . . . . . . . . . . . . . . . . . . 31
RIGHTS TO DISSENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Requirements for Perfecting Dissenters' Rights. . . . . . . . . . . . . 32
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND APRIL 2,
1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Acquisition and Divestitures. . . . . . . . . . . . . . . . . . . . . . 35
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . 35
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . 36
PROPOSAL 3 -- ELECTION OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . 39
Audit and Finance Committee . . . . . . . . . . . . . . . . . . . . . . 39
Human Resources and Compensation Committee. . . . . . . . . . . . . . . 39
Board Nominating Committee. . . . . . . . . . . . . . . . . . . . . . . 39
-i-
<PAGE>
Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Biographies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
EXECUTIVE OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Biographies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Report of Human Resources and Compensation Committee. . . . . . . . . . 43
Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . . . 45
Option Grants During 1995 Fiscal Year . . . . . . . . . . . . . . . . . 47
Option Exercises During 1995 And Year End Option Values . . . . . . . . 49
Human Resources and Compensation Committee Report on Option Repricing . 49
Compensation of Directors and Stock Options for Non-Employee Directors. 50
Executive Employment Agreements . . . . . . . . . . . . . . . . . . . . 51
STOCK PRICE PERFORMANCE GRAPH. . . . . . . . . . . . . . . . . . . . . . . . 51
PROPOSAL 4 -- RATIFICATION OF SELECTION OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
PROPOSALS FOR FUTURE MEETINGS. . . . . . . . . . . . . . . . . . . . . . . . 53
OTHER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Form 10-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Index to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . .F-1
Annex A -- Asset Purchase Agreement
Annex B -- RCW Chapter 23B.13
-ii-
<PAGE>
[LOGO]
VECTRA TECHNOLOGIES, INC.
5000 Executive Parkway
Suite 500
San Ramon, California 94583
---------------------------
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD , 1996
----------------
---------------------------
INTRODUCTION
This proxy statement, which was first mailed to shareholders on
__________________, 1996, is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of VECTRA Technologies, Inc. (the
"Company") to be voted at the Annual Meeting (the "Meeting") of the Shareholders
of the Company to be held at the offices of VECTRA Fuel Services, L.L.C., 6203
San Ignacio Avenue, Suite 100, San Jose, California 95119 on _________________,
1996 at _________ for the purposes set forth in the accompanying Notice of
Special Meeting of Shareholders.
REVOCATION OF PROXIES. Shareholders who execute proxies retain the right
to revoke them at any time before they are voted. A proxy may be revoked: (i)
by written notice to the Corporate Secretary of the Company at 5000 Executive
Parkway, Suite 500, San Ramon, California 94583; (ii) by submission of a proxy
with a later date; (iii) by a written request delivered in person to return the
executed proxy; or (iv) by attending the Meeting and voting at the Meeting. A
shareholder's right to revoke his or her proxy is not limited by or subject to
compliance with a specified formal procedure, but written notice should be given
to the Secretary of the Company at or before the meeting so that the number of
shares represented by proxy can be recomputed.
VOTING OF PROXIES. When proxies are returned properly executed, the shares
represented thereby will be voted, and will be voted in accordance with the
shareholders' directions. Shareholders are urged to specify their choices by
marking the appropriate box on the enclosed proxy card; if no choice has been
specified, the shares will be voted as recommended by the Board of Directors. A
shareholder may vote for, against, or abstain from voting on, any matter that
may properly come before the meeting.
CUMULATIVE VOTING FOR DIRECTORS. The Company's Articles of Incorporation
entitle shareholders eligible to vote to cumulate votes at any election of
directors. The maximum number of votes that a shareholder may cast equals the
number of shares of common stock owned by a shareholder multiplied by the number
of directors (eight) to be elected. Any shareholder may cast all votes for a
single director or may distribute them among the number of director nominees as
the shareholder may see fit. The proxy will grant discretionary authority to
cumulate votes unless otherwise specified.
QUORUM. Shares represented by proxies containing an abstention as to any
matter will be treated as shares that are present and entitled to vote for
purposes of determining a quorum. Similarly, shares held by brokers or nominees
for the accounts of others as to which voting instructions have not been given
("Broker Non-Votes") will be treated as shares that are present and entitled to
vote for purposes of determining a quorum.
EFFECT OF ABSTENTIONS AND BROKER NON-VOTES. Both abstentions and Broker
Non-Votes with respect to Proposals 1 and 2 will have the practical effect of a
vote cast against the proposals, since Proposal 1 must be approved by a majority
of the outstanding shares of the Company's common stock and Proposal 2,
depending on
<PAGE>
the outcome of Proposal 1, must be approved by either a majority (if Proposal 1
is adopted) or two-thirds (if Proposal 1 is not adopted) of the outstanding
shares. Similarly, abstentions and Broker Non-Votes with respect to Proposal 3
will have no effect in the election of directors.
RECORD DATE. Shareholders of record at the close of business on May 15,
1996 are entitled to vote at the Meeting on the basis of one vote for each share
of common stock held, except for cumulative voting in the election of directors.
On May 1, 1996, there were 7,833,527 shares of common stock outstanding.
DISCRETIONARY AUTHORITY. If any nominee for director is unable to serve or
for good cause will not serve, or if any matters not specified in this Proxy
Statement come before the meeting, eligible shares will be voted as specified by
the named proxies pursuant to discretionary authority granted in the proxy. At
the time this Proxy Statement was printed, management was not aware of any other
matters to be voted on.
SOLICITATION OF PROXIES. Proxies may be solicited by officers, directors
and regular supervisory and executive employees of the Company, none of whom
will receive any additional compensation for their services. The Company has
retained the services of W.F. Doring & Co., Inc., Jersey City, New Jersey, in
connection with the solicitation of proxies. W.F. Doring & Co., Inc. will
solicit known significant shareholders (generally owners of 1,000 shares or
more) and brokerage houses which hold the Company's common stock in street name
to vote and to return their proxies. W.F. Doring & Co., Inc. will be paid on
the basis of hourly fees for persons working on the account a total of
approximately $____________ for its services, together with reimbursement for
reasonable out-of-pocket expenses incurred. The cost of solicitation of proxies
will be borne by the Company.
FORWARDING OF PROXY MATERIALS. The Company will also arrange with
brokerage firms and other custodians, nominees and fiduciaries to forward proxy
solicitation material to certain beneficial owners of the Company's common stock
and the Company will reimburse such brokerage firms, custodians, nominees and
fiduciaries for reasonable out-of-pocket expenses incurred by them in connection
therewith.
EXECUTIVE OFFICES. The principal executive office of the Company is 5000
Executive Parkway, Suite 500, San Ramon, California 94583. The phone number
for the Company is (510) 275-4500.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K (the "1995 Form 10-K") for the
fiscal year ending December 31, 1995 has been filed under the Securities
Exchange Act of 1934, as amended, with the Securities and Exchange Commission
("SEC") and the following items therein are incorporated herein by reference:
Item 1. Business;
Item 6. Selected Financial Data;
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations; and
Item 8. Financial Statements and Supplementary Data.
The 1995 Form 10-K was mailed to all shareholders of the Company on May 1,
1996.
-2-
<PAGE>
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the
beneficial ownership of the Company's common stock as of May 1, 1996 by (i) each
person who is known by the Company to own beneficially more than five percent of
the Company's common stock; (ii) the Company's Chief Executive Officer and the
four highest paid executive officers of the Company other than the Chief
Executive Officer; (iii) the Company's directors; and (iv) all officers and
directors of the Company as a group.
As required by SEC regulations, beneficial ownership includes shares
issuable upon the exercise of options that vest on or before July 1, 1996.
NUMBER OF PERCENT OF
NAME AND ADDRESS SHARES(1) CLASS(1)
---------------- ------ -----
OWNERS OF MORE THAN 5%
Combustion Engineering, Inc. 1,714,503(2) 21.9%
900 Long Ridge Road
Stamford, Connecticut 06904
Heartland Advisors, Inc. 1,299,500(3) 16.6%
Heartland Group, Inc.
790 North Milwaukee Street
Milwaukee, WI 53202
Orien Ventures 634,885(4) 8.1%
5520 SW MacAdam Avenue, Suite 112
Portland, Oregon 97201
Cable & Howse Ventures 559,597(5) 7.1%
Security Pacific Bank Plaza
777-108th Avenue N.E., Suite 2300
Bellevue, Washington 98004
DIRECTORS
J.E. (Ted) Ardell, III 15,500(6) *
Albert J. Baciocco, Jr. 25,000(7) *
E. Linn Draper, Jr. 16,700(7) *
Ray A. Fortney 33,500(8) *
Fruzsina Harsanyi 4,500(10) *
Elwood D. Howse, Jr. 559,597(5) 7.1%
Edward J. Keith 40,500(6) *
Roy Kirkorian -- *
EXECUTIVE OFFICERS
Kristin L Allen 57,481(6) *
Jeffrey W. Cummings 23,750(6) *
Walter R. Bak 1,000(6) *
Vince Franceschi -- *
Thomas B. Pfeil -- *
All Directors and Officers as a group
(13 persons)(1), (5), (9), (10) 777,528 9.9%
NOTES TO SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND
EXECUTIVE OFFICERS TABLES
*Less than 1%.
(1) Represents beneficial ownership computed in accordance with Rule 13d-3
which includes shares deemed to be outstanding for purposes of the
percentage of ownership by the deemed owner or group but not for
purposes of determining the percentage of ownership of any other person
or group.
-3-
<PAGE>
(2) Combustion Engineering, Inc. is an indirect wholly-owned subsidiary of ABB
Asea Brown Boveri Ltd., a Swiss company.
(3) Heartland Advisors, Inc. has sole disposition power with respect to these
shares and sole voting power with respect to 21,000 shares, while
Heartland Group, Inc. has sole voting power with respect to 1,202,000
shares.
(4) Includes 615,385 shares held by Orien II, L.P., and 17,500 shares which may
be purchased by Mr. Anthony Miadich, a former director of the Company,
within 60 days of May 1, 1996, pursuant to outstanding stock options.
Mr. Miadich may be deemed a beneficial owner of such shares by reason of
his position as a partner in Orien II, L.P. Mr. Miadich shares the
power to dispose of and vote the shares held by that partnership with the
other general partner. Mr. Miadich disclaims beneficial ownership of the
615,385 shares owned by Orien II, L.P.
(5) Includes 520,625 shares held by CH Partners III and 18,472 shares held by
CH Partners II and 10,500 shares which may be purchased by Mr.Howse
pursuant to outstanding stock options within 60 days of May 1, 1996.
Mr. Howse may be deemed a beneficial owner of the shares owned by CH
Partners II and III by reason of his position as a general partner of
such entities. Mr. Howse has the sole power to vote 539,097 of these
shares, including the shares held by CH Partners III and CH Partners II.
Mr. Howse shares the power to dispose of the shares held by those
partnerships with the other general partners.
(6) Represents shares which may be purchased within 60 days of May 1, 1996,
pursuant to outstanding stock options.
(7) Includes 10,000 shares which may be purchased within 60 days of May 1,
1996, pursuant to outstanding stock options.
(8) Includes 12,500 shares which may be purchased within 60 days of May 1,
1996, pursuant to outstanding stock options, 20,000 shares owned by
Mr. Fortney and 1,000 shares owned by Mr. Fortney's parents. Mr.
Fortney may be deemed a beneficial owner of such shares.
(9) Includes a total of 157,250 shares which may be purchased within 60 days
of May 1, 1996, pursuant to outstanding stock options.
(10) Represents shares which may be purchased within 60 days of May 1, 1996,
pursuant to outstanding stock options. Does not include 1,714,503
shares owned by Combustion Engineering, Inc., which is a wholly owned
subsidiary of Asea Brown Boveri, Inc., of which Dr. Harsanyi is Vice
President and Corporate Officer, Public Affairs and Corporate
Communications, but not a beneficial owner of such shares.
On May 1, 1996, Cede & Co., the nominee of the Depository Trust Company, held of
record 4,315,216 shares or 55.1 percent of the outstanding shares of common
stock, all of which were held for the accounts of member firms of the New York
Stock Exchange, the American Stock Exchange and various institutions
participating in the facilities of the Depository Trust Company. The Company
has no knowledge that any person, other than Heartland Advisors, Inc. and
Heartland Group, Inc., owns beneficially five percent or more of the
outstanding shares of common stock which are held in the name of Cede & Co.
-4-
<PAGE>
SUMMARY
The following summary of the matters to be voted upon at the Meeting is not
a complete statement of all facts material to a shareholder's decision with
respect to such matters. This summary should be read only in conjunction with,
and is qualified in its entirety by reference to, the more detailed information
contained in the remainder of this Proxy Statement and the attached Annexes.
PROPOSAL 1.AMENDMENT OF ARTICLES OF INCORPORATION
Under the Washington Business Corporation Act (the "Act"), a merger, share
exchange or sale of all or substantially all of the assets of a company requires
the approval of two-thirds of all the votes entitled to be cast on the
transaction, unless the articles of incorporation provide for a lesser
percentage. Under the Company's existing articles of incorporation, approval of
Proposal 2 would require the approval of holders of two-thirds of the
outstanding common stock. Proposal 1 would amend the articles of incorporation
so that, if Proposal 1 is adopted, the vote required to approve Proposal 2 would
be reduced from two-thirds to a majority of the outstanding common stock. See
"Proposal 1".
- - - --------------------------------------------------------------------------------
RECOMMENDATION OF THE BOARD OF DIRECTORS. THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT THE SHAREHOLDERS APPROVE PROPOSAL 1.
- - - --------------------------------------------------------------------------------
PROPOSAL 2. SALE OF ENGINEERING BUSINESSES
THE SALE. On May 23, 1996, the Company, its wholly owned subsidiary,
VECTRA Government Services, Inc. (the "Subsidiary"), and Duke Engineering &
Services, Inc. ("Duke" or the "Buyer") entered into an Asset Purchase Agreement
(the "Agreement") pursuant to which Duke agreed to purchase the Company's
nuclear engineering services business, power services engineering business, and
government services engineering business (collectively, the "Engineering
Businesses"). The form of the transaction is the sale of substantially all of
the assets of the Engineering Businesses, including all of the assets of the
Subsidiary (collectively, the "Assets"), although Duke may elect to purchase the
stock of the Subsidiary. A copy of the Agreement is attached as Annex A to this
Proxy Statement. See "The Agreement - General."
PURCHASE PRICE. The purchase price to be received by the Company for the
sale of the Engineering Businesses is $27,500,000 (the "Base Purchase Price"),
plus or minus certain balance sheet adjustments (the "Purchase Price
Adjustment"). The Purchase Price Adjustment is the amount, if any, by which the
book value of certain current assets (primarily accounts receivable) and
tangible property, plant and equipment used in the Engineering Businesses
(collectively, the "Valuation Assets") at the closing date (the "Closing
Date") exceeds, or is less than, the sum of
$10,000,000 and the value of the liabilities to be assumed by Duke. If the sale
were effective as of March 31, 1996, the Company estimates the purchase price
would have been approximately $30.7 million, subject to audit adjustments.
Since the Purchase Price Adjustment is based on a balance sheet at the
Closing Date, the purchase price will vary. See
"The Agreement -- Purchase Price" and "Notes To Unaudited Pro Forma Financial
Information."
ESCROWED FUNDS. At Closing, Buyer will deposit not less than $1 million,
plus the amount of any estimated Purchase Price Adjustment payable to the
Company upon closing (if any), into an escrow fund, which amounts will be
payable to the Company upon acceptance by the Buyer of an audited balance sheet
as of the Closing Date, subject to any adjustments determined by the audit. See
"The Agreement -- Purchase Price."
ASSUMPTION OF LIABILITIES. In addition to payment of the purchase price,
the Buyer shall assume current liabilities (excluding payroll related
liabilities) of the Company that are related to the Engineering Businesses and
the current liabilities (excluding payroll related liabilities) of the
Subsidiary. The Buyer will also generally assume the leases for office space
occupied by the Engineering Businesses. See "The Agreement -- Assets to be
Acquired; Assumed Liabilities" and "Notes To Unaudited Pro Forma Financial
Information."
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REASONS FOR ENGAGING IN THE TRANSACTION. In recent periods, based on the
Company's financial performance, the Company has been under steadily increasing
pressure from its lenders to reduce its outstanding debt of approximately $16.9
million as of May 31, 1996 (including amounts drawn on the Company's revolving
line of credit and long term debt, collectively, the "Bank Debt") and to pay
deferred bank fees of $1.45 million (the "Bank Fees"). The Company has been
unable to refinance the Bank Debt and Bank Fees and the lenders have, in
connection with extensions or amendments of loan and credit agreements with the
Company, imposed new conditions in order to force the Company to pay in full the
outstanding principal amount of the Bank Debt and the Bank Fees. Specifically,
significant penalties will apply if the Bank Debt and Bank Fees are not paid by
August 31, 1996, with payment due in full in any event no later than January 2,
1997. The lenders have indicated to the Company that they will not grant any
further extensions. While the sale of the Engineering Businesses represents the
transfer of most of the Company's employees and revenues, the Board believes
that the negotiated purchase price for the Assets represents an optimal value
for the Engineering Businesses and reluctantly has concluded that the sale is
the only viable transaction that will allow the Company to pay off the Bank Debt
and Bank Fees at or prior to maturity, avoid incurring additional bank fees, and
allow the Board to consider options for the two remaining businesses. See
"Proposal 2 - Background of the Transaction," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and 1995 Form 10-K -
Item 7.
USE OF PROCEEDS. The Company anticipates paying the Bank Debt, Bank
Fees, transaction costs, and liabilities of the Engineering Businesses not
assumed by the Buyer from the proceeds of the sale. If the sale had been
effective as of March 31, 1996, the Company estimates that the aggregate
purchase price would have been approximately $30.7 million, subject to audit
adjustments. At March 31, 1996, Bank Debt, Bank Fees, transaction costs and
liabilities of the Engineering Businesses not assumed by the Buyer are
estimated at approximately $23.3 million. The Company incurred an additional
$0.8 million in obligations to the Banks during April 1996 for additional
fees and borrowing, net of repayments. After payment of all Bank Debt and
Bank Fees and other amounts owing, net proceeds will be approximately $6 to
$7 million. Net proceeds will be reduced by the aggregate amount the Company
is required to pay to shareholders who exercise their dissenters' rights
under Washington law. See "Future Direction of the Company," "Pro Forma
Financial Information," and "Rights to Dissent."
FUTURE OPERATIONS. The Company is currently evaluating alternatives for
its two remaining operating businesses, providing dry storage, transport
systems, and related services for spent nuclear fuel ("Fuel Services") and
processing and packaging low level radioactive wastes ("Waste Services" and,
together with Fuel Services, the "Remaining Businesses"). See 1995 Form 10-
K-Item 1. The Company has for many months been exploring the sale of both of
the Remaining Businesses; however, the negotiations with the companies that
expressed interest have not made significant progress. To date, the Company has
not reached any agreement with prospective purchasers regarding the Remaining
Businesses. As a result, the Company is also examining the feasibility and
viability of continuing operations of one or both Remaining Businesses, either
as stand-alone businesses or through joint ventures or strategic alliances with
other companies. The Board of Directors has made no decision on the sale or
continued operation of the Remaining Businesses. It is the intent of the Board
of Directors to further examine the alternatives with the goal of maximizing
shareholder value. However, there can be no assurance that the Remaining
Businesses can be sold at prices that the Board of Directors believes
reasonable, or that the Company can operate the Remaining Businesses profitably,
or that, if profitable, the Remaining Businesses will be sufficiently profitable
to create shareholder value, or that any strategic partner can be identified.
Each shareholder should evaluate these risks in deciding whether to vote for the
sale of the Engineering Businesses and also in deciding whether to remain a
shareholder if the sale is approved and consummated in comparison with the risk
to shareholder value if the sale is not approved and the Bank Debt cannot be
refinanced or timely repaid. See "Future Direction of the Company."
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DETERMINATION OF THE PURCHASE PRICE. The purchase price was determined by
arms-length negotiations. The Company did not retain an independent financial
advisor. See "Proposal 2 -- Background of the Transaction."
CONDITIONS TO CLOSING. The consummation of the transaction (the "Closing")
is subject to the satisfaction of certain conditions on or before the closing
date (the "Closing Date"), including without limitation the approval of VECTRA's
shareholders. See "The Agreement -- Closing Conditions."
GUARANTEE OF ACCOUNTS RECEIVABLE. The Company will transfer to the Buyer,
and the Buyer will collect, all the accounts receivable of the Engineering
Businesses. The Company is obligated to pay the Buyer the uncollected amount of
accounts receivable that are Valuation Assets that are not collected within five
months after the Closing Date, less any amounts collected by the Buyer on
accounts receivable that are not Valuation Assets (accounts receivable more than
120 days past due), and the Company will receive back an assignment from the
Buyer of such uncollected accounts receivable. See "The Agreement -- Mutual
Covenants."
INDEMNIFICATION. The Agreement requires the the Company and the Buyer,
subject to certain limitations, to indemnify and hold harmless each other from
and against certain damages. See "The Agreement -- Indemnification."
EXCLUSIVITY. Under the Agreement, the Company will not, directly or
indirectly through any agents or representatives, solicit, initiate or encourage
any proposal or offer from a third party to acquire either any capital stock or
other voting securities of the Company or the Subsidiary or any substantial
portion of the Assets, or participate in any discussions or negotiations
regarding such a proposal or offer. However, this provision does not prevent
the Company's Board of Directors from taking any such actions if required by the
Board's fiduciary duties under Washington law. See "The Agreement -- Negative
Covenants of the Company."
BREAK-UP FEE. If the Company's shareholders fail to approve Proposal 2,
the Company will be required to pay Duke a break-up fee of $500,000 if the Board
of Directors fails to recommend the approval of the sale of the Engineering
Businesses to Duke, or recommends another transaction involving the sale of the
Engineering Businesses, or if the Company effects another transaction within six
months. See "The Agreement -- Amendment and Termination; Break-Up Fee."
INTERESTS OF CERTAIN PERSONS. John R. Holding, formerly the Company's
chief financial officer and currently a consultant to the Company, will receive
as compensation for his services in negotiating the sale of any of the Company's
businesses that are sold between April 1 and August 15, 1996 a commission equal
to one percent (1%) of the sales price; provided that the aggregate fee payable
to Mr. Holding shall not exceed $100,000. Under this arrangement, Mr. Holding
will receive up to $84,269 for the sale of the Engineering Businesses. The
Company also reimburses Mr. Holding for his reasonable expenses incurred in
connection with the sale of the businesses.
OTHER REPRESENTATIONS, WARRANTIES AND COVENANTS. The Company, Subsidiary
and Buyer made other customary representations, warranties and covenants. See
"The Agreement -- Representations and Warranties of the Company and the
Subsidiary," "-- Representations and Warranties of the Buyer," " --Covenants of
the Company," "-- Covenants of Buyer," and "-- Mutual Covenants."
AMENDMENT AND TERMINATION. The Agreement may be amended by the mutual
written agreement of the the Company and Buyer, and shall automatically be
terminated if the Closing has not occurred by September 30, 1996. See "The
Agreement -- Amendment and Termination; Break-up Fee."
ACCOUNTING TREATMENT. The sale of the Engineering Businesses, if
consummated, will be reported as a sale of assets. Based on the letter of
intent executed with Duke, the Company wrote down for financial statement
purposes the goodwill value of the Engineering Businesses as of December 31,
1995. The Company anticipates a loss on the sale, primarily due to selling
expenses. See "The Agreement --Accounting Treatment," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
1995 Form 10-K - Item 7.
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FEDERAL INCOME TAX CONSEQUENCES. The proposed sale of Assets will not
result in any federal income tax consequences to the Company's shareholders
in their capacity as shareholders. The Company estimates that it will report
a loss for tax purposes on the sale in an amount to be determined. The
benefit of this tax loss, if any, is dependent on the Company's generation of
future earnings. See "The Agreement -- U.S. Federal Income Tax Consequences."
REGULATORY FILINGS. Under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act"), and the rules promulgated thereunder by the
Federal Trade Commission (the "FTC"), certain transactions, including the sale
of the Engineering Businesses, may not be consummated unless certain waiting
period requirements have been satisfied. On May 28, 1996, the Company and Duke
submitted the required filings to the FTC and requested early termination of the
applicable waiting period. At any time before or after the Closing, the FTC,
the Department of Justice ("DOJ") or others could take action under the
antitrust laws with respect to the sale of Assets, including seeking to enjoin
the consummation of the sale or seeking the divestiture by the Buyer of all or
any part of the Assets. See "The Agreement -- Related Agreements and Filings."
SHAREHOLDER APPROVAL. The Act requires that a sale of "all or
substantially all" of a corporation's property be approved by the corporation's
shareholders. While the sale of the Engineering Businesses under Proposal 2 may
not constitute a "sale of all or substantially all" of the Company's property as
provided in the Act, the Board of Directors has determined to treat Proposal 2
as covered by such provisions of the Act. Accordingly, if Proposal 1 is adopted
and approved by the shareholders, the sale of the Engineering Businesses will
require the approval of shareholders owning a majority of the Company's
outstanding common stock. If Proposal 1 is not adopted and approved by the
shareholders, the approval of Shareholders owning two-thirds (2/3) of the
Company's outstanding common stock is required for the sale of the Engineering
Businesses. See "The Agreement -- Shareholder Vote."
DISSENTERS' RIGHTS. Under the Washington Business Corporation Act,
shareholders who perfect their dissenters' rights will have the right to receive
fair value for their shares upon Closing if the sale of Assets under Proposal 2
is approved by the shareholders, unless the Board of Directors approves a plan
to distribute all or substantially all of the net proceeds of the sale to the
Company's shareholders within one year after the sale. See "Rights to
Dissent" and Annex B.
- - - --------------------------------------------------------------------------------
RECOMMENDATION OF THE BOARD OF DIRECTORS. THE BOARD OF DIRECTORS BELIEVES THAT
THE TERMS AND CONDITIONS OF THE PROPOSED SALE AS SET FORTH IN THE AGREEMENT ARE
FAIR TO, AND IN THE BEST INTERESTS OF, THE COMPANY'S SHAREHOLDERS, AND
UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS APPROVE THE SALE.
- - - --------------------------------------------------------------------------------
PROPOSAL 3. ELECTION OF DIRECTORS
The Board of Directors has nominated for election to the Board for a one
year term all current directors.
PROPOSAL 4. RATIFY SELECTION OF ACCOUNTANTS
The Board of Directors is seeking the shareholders' ratification of the
Board's decision to select Ernst & Young LLP as independent public accountants
for the fiscal year 1996.
- - - --------------------------------------------------------------------------------
RECOMMENDATION OF THE BOARD OF DIRECTORS. THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT THE SHAREHOLDERS VOTE TO ELECT ALL DIRECTORS AND TO APPROVE
PROPOSAL 4.
- - - --------------------------------------------------------------------------------
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FUTURE DIRECTION OF THE COMPANY
The Board of Directors and management of the Company are currently
evaluating alternatives for the future direction of the Company. The Company
has been exploring the sale of both of the Remaining Businesses, but to date has
not reached any agreement with prospective purchasers. The Company is currently
reviewing the alternatives of selling the Remaining Businesses or continuing
operations of one or both Remaining Businesses, including entering into
strategic alliances for their expansion. If the Company continues the
operations of the Remaining Businesses, the Company anticipates it will incur a
loss from the Remaining Businesses through the remainder of 1996 as it reduces
expenses to bring them in line with the Remaining Businesses' sales and gross
margins. There can be no assurance that the Company can operate the Remaining
Businesses profitably in future periods, that any strategic partner can be
identified, or that the Remaining Businesses can be sold at prices that the
Board of Directors believes reasonable. Each shareholder should evaluate these
risks in deciding whether to vote for the sale of the Engineering Businesses and
also in deciding whether to remain a Shareholder if the sale is approved and
consummated, in comparison with the risks to shareholder value if the sale of
the Engineering Businesses is not approved and the Bank Debt is not repaid or
refinanced prior to maturity.
USE OF PROCEEDS
The Company intends to pay all of its Bank Debt and Bank Fees from the
proceeds of the sale of the Engineering Businesses. Out of the estimated total
proceeds of $30.7 million from the sale of Assets, approximately $18.4 million
will be used for the payment of Bank Debt (approximately $16.9 million) and Bank
Fees, as described in the following table:
SUMMARY OF BANK DEBT AND BANK FEES AS OF MAY 31, 1996
-----------------------------------------------------
AMOUNT
ITEM (IN THOUSANDS)
---------------------------------------------- --------------
Bank Debt as of May 31, 1996:
Term loan $ 5,493
Credit agreement 11,420
----------
Total Bank Debt 16,913
Bank Fees (deferred):
Credit Agreement extension fee $ 100
Tranche B closing fee 150
Tranche C closing fee 125
Extension, waiver, amendment fee - Term loan 950
Payment deferral fee - Credit Agreement 125
----------
Total Bank Fees $ 1,450
----------
----------
Total Due to Banks $ 18,363
----------
----------
In addition, the Company estimates the transaction costs (including legal
and accounting expenses, retention and other bonuses, allocated expenses of
employees for the transaction, and travel and other expenses related to the
transaction) for the sale of the Engineering Business will be approximately
$1.9 million. Liabilities of the Engineering Businesses that are not assumed by
the Buyer (including severance expenses, accrued vacation and other payments)
are estimated to be approximately $3.2 million at March 31, 1996, which would
result in net proceeds on a pro forma basis to the Company of approximately $6
to $7 million.
In the event that any shareholders exercise their dissenters' rights
pursuant to the procedures specified under Washington law and the Board of
Directors do not adopt a plan to distribute the net proceeds to shareholders
within one year after the sale, the Company will be
obligated to pay in cash to such shareholders the fair value of their
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shares (as determined, ultimately, by a judicial hearing), which amount, if a
significant percentage of shareholders exercise such rights, could be
substantial. See "Rights to Dissent."
On January 2, 1997, the indebtedness to the lenders under the Bank Debt
could amount to as much as $17.2 million (assuming additional borrowings) plus
deferred fees of up to $2.4 million. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
If the Company completes the sale of the Engineering Businesses and
continues the operations of the Remaining Businesses, although there can be
no assurances, the Company believes that it could secure new credit
facilities or other debt financing. If the Company continues the operations
of the Remaining Businesses, the Company expects that it would need to invest
approximately $0.7 million and $1.1 million annually in capital expenditures
for Fuel Services and Waste Services, respectively. The Company may consider
paying to shareholders a dividend of amounts remaining after payment of the
fair value to shareholders who exercise their dissenters' rights under
Washington law and not needed (i) if the Company determines to continue to
operate the Remaining Businesses, for working capital, (ii) if the Company
liquidates, for outstanding or contingent obligations of the Company or,
(iii) if the Company enters into strategic alliances for the Remaining
Businesses, required follow-on investments in the strategic alliances. The
Company cannot predict the amount of any dividend. See "Pro Forma Financial
Information."
The following describes the two fundamental alternatives for the Remaining
Businesses.
ALTERNATIVE A: CONTINUED OPERATIONS OF THE COMPANY AFTER THE CLOSING
DESCRIPTION OF THE BUSINESSES. Fuel Services, located in San Jose,
California, is a leading provider of systems for the dry storage of spent
nuclear fuel based on its NUHOMS-Registered Trademark- technology. This
technology has been selected by seven nuclear utilities, and is currently the
U.S. industry leader based on the number of utility customers and the amount of
fuel stored in canisters. The Company has submitted for regulatory approval
enhancements to this technology that will allow utilities to store fuel on site
in NUHOMS canisters that are also licensed for transportation. If the license
is granted, which the Company expects during the third quarter of 1996, NUHOMS
will be the first canister-based licensed technology for both transportation and
storage in the United States. The Company believes its technology has
applications in the U.S. Departments of Energy and Defense spent nuclear fuel
storage markets. If the Company continues to operate the Remaining Businesses,
corporate operations, currently located in San Ramon, California, will likely be
combined with the San Jose, California Fuel Services operations and relocated.
See 1995 Form 10-K - Item 1.
Waste Services, with offices located in Columbia, South Carolina, provides
processing, treatment, packaging and transportation services for low level
radioactive and mixed wastes. The Company has developed new technologies for
Waste Services' processing and treatment of low level radioactive waste,
including the Company's reverse osmosis, and EnviroGlass-Registered Trademark-,
its vitrification technology for reducing the volume of low level radioactive
and mixed wastes. See 1995 Form 10-K - Item 1.
PRO FORMA FINANCIAL INFORMATION. The Remaining Businesses generated losses
on a pro forma basis of approximately $514 thousand in the first quarter of
1996, and $18.1 million in 1995. The Company anticipates implementing
significant streamlining of corporate operations and the Remaining Businesses to
reduce costs and expenses and achieve profitability. Following the sale of the
Engineering Businesses, the Company would employ approximately 100 personnel.
See "Pro Forma Financial Information," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and 1995 Form 10-K - Item 7.
RISK FACTORS. If the Company continues the operations of the Remaining
Businesses, the Company's business operations will be subject to numerous risks,
including the following:
COMPETITION. The Remaining Businesses will compete with other companies
with substantially greater financial and marketing resources than those of the
Company. In recent years, Fuel Services has lost market share, while Waste
Services, which competes in a shrinking market, does not provide as
comprehensive services as its competitors who can both package and bury low-
level wastes at their own licensed disposal sites.
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SIZE DISADVANTAGES. The Company's relatively small size following the
Closing and payment of Bank Debt, Bank Fees, retained liabilities and
transaction costs (approximately $30-32 million in total assets) could be a
significant disadvantage in marketing its services and products to nuclear
utilities because the Company may be perceived as not having the financial
strength to support and warranty its products over the life of the products (up
to 50 years in the case of NUHOMS).
CONTINUING CAPITAL INVESTMENTS REQUIRED; WORKING CAPITAL REQUIREMENTS.
Capital investment will be needed to maintain the competitiveness of and enhance
the technologies used by the Remaining Businesses. The Company may be unable to
raise additional capital to make such investments. Failure to make such
investments may diminish the competitiveness of the Remaining Businesses,
especially in Waste Services where the Company has invested substantial amounts
in, but has not yet brought to operational status, EnviroGlass-Registered
Trademark-. See 1995 Form 10-K - Item 1. In addition, the Company will need
sufficient working capital to continue the business. The availability of
working capital, however, will be affected by numerous factors, including the
number of shareholders who exercise dissenters' rights, the determination of the
"fair value" of their shares, the Company's decision whether to pay, and the
amount of, a dividend to the shareholders.
GOVERNMENTAL REGULATION. The markets in which the Remaining Businesses
compete are heavily regulated and require various types of governmental licenses
and permits. Denials of, or delays in obtaining, or changes in requirements
for, required licenses or permits may adversely affect the Company's business,
operations and financial results. In addition, initiatives by the U.S.
Government with respect to spent fuel storage (such as the 1995 proposal to
develop a multipurpose canister for use by all utilities, which was canceled in
1996) have in the past caused significant customer confusion and delayed the
development and expansion of the market for Fuel Services' NUHOMS system.
MANAGEMENT AND RESTRUCTURING. The Company's management must
significantly reduce corporate expenses to bring them in line with the
Remaining Businesses' sales and gross margins. In 1995, the Company's
revenues were $123.5 million; pro forma revenues for the Remaining Businesses
in 1995 would have been $26.3 million, a reduction of approximately 79%,
while its pro forma loss was $18.1 million. The Company will need to take
major steps to streamline its operations in order to reduce its expenses. In
addition, the Company must consolidate and reassign management
responsibilities.
PAYMENTS TO DISSENTING SHAREHOLDERS. If a substantial number of
shareholders dissent and demand payment for their shares, the Company may not
have sufficient cash to pay such amounts, or to pay such amounts and continue
the Remaining Businesses.
ALTERNATIVE B: SALE OF THE REMAINING BUSINESSES; LIQUIDATION OF THE COMPANY
If the Board of Directors determines to sell the Remaining Businesses, the
Company would proceed to negotiate purchase agreements for the sale of the
Remaining Businesses as soon as practicable, while continuing to operate the
Remaining Businesses in the ordinary course of business pending sale. The
Company would attempt to negotiate cash purchase prices for the Remaining
Businesses. In this liquidation scenario, the Company's bargaining position is
likely to be significantly impaired, so that the purchase price for the
Remaining Businesses may be adversely impacted.
In this alternative, following sale of the Remaining Businesses, the
Company would pay outstanding creditors. In addition, the Company would likely
form a liquidating trust, deposit amounts sufficient to pay known and unknown,
contingent and noncontingent obligations, including amounts needed to
decontaminate or otherwise provide for the decommissioning or disposal
obligations of radioactive assets remaining with the Company after any such
sale, as well as amounts needed to fund continuing obligations of the Company
under indemnity provisions of various agreements, including for example sale of
the Engineering Businesses, sale of VECTRA Technologies Ltd, and any sale of
Fuel Services and/or Waste Services. The Company has not estimated the
potential amounts of any such reserves or costs. Following a determination by
the Board of the appropriate amount
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of reserves, the Company would pay to its
shareholders a cash dividend of remaining cash (if any).
CONSEQUENCES OF FAILURE TO APPROVE PROPOSAL 2
The Board does not believe there are any viable alternatives to the sale of
the Engineering Businesses that would allow the Company to pay timely the Bank
Debt and Bank Fees. If the shareholders do not approve the sale of Assets, the
following will likely occur:
* The Company will attempt to sell Fuel Services and/or Waste Services as
soon as possible, but there is little likelihood that any sale could be
completed by August 31, 1996 and there is significant risk that a sale
would not occur by January 2, 1997.
* The Company will attempt to refinance the Bank Debt and Bank Fees, but the
likelihood of achieving any refinancing is directly related to the ability
of the Company to sell either or both Remaining Businesses.
* If the Bank Debt and Bank Fees are not paid by August 31, 1996, the Company
will be obligated to pay the lenders additional fees of $600,000, payment
of which is deferred until January 2, 1997, reprice warrants to purchase
830,060 shares of the Company's common stock from $2.94 per share to $0.01
per share and issue to the lenders rights to purchase approximately
550,000 shares of the Company's common stock at $0.01 per share. The
Company would also likely defer $750,000 and $625,000 payments due in
September 1996 under the Company's agreements with its lenders to
January 2, 1997, by incurring fees of $150,000 and $100,000, respectively,
payment of which is also deferred to January 2, 1997.
* As a result of the most recent extensions and modifications in April 1996,
the Bank Debt and Bank Fees are due on January 2, 1997. The lenders have
indicated to the Company that they will not grant any further extensions.
If the Company is unable to sell Fuel Services and/or Waste Services and
obtain financing to pay the Bank Debt, Bank Fees and additional fees
payable to the lenders by January 2, 1997, the Company may have to seek
protection under the reorganization provisions of the federal bankruptcy
laws. See "Proposal 2 -- Recommendation of the Board of Directors."
PROPOSAL 1 -- TO AMEND THE COMPANY'S ARTICLES OF INCORPORATION TO
PROVIDE THAT A MERGER, SHARE EXCHANGE OR SALE OF ALL OR SUBSTANTIALLY ALL OF
THE ASSETS OF THE COMPANY REQUIRES A MAJORITY APPROVAL OF ALL OUTSTANDING
SHARES OF THE COMPANY
Under the Washington Business Corporation Act, a merger, share exchange or
sale of all or substantially all of the assets of a company requires the
approval of two-thirds of all the votes entitled to be cast on the transaction,
unless the articles of incorporation provide for a lesser percentage. The
Company's existing articles of incorporation do not provide for a lesser
percentage. Thus, unless Proposal 1 is adopted, approval of Proposal 2 would
require the affirmative vote of holders of two-thirds of the outstanding common
stock.
Under the Act, a public corporation can amend its articles of incorporation
by a majority vote of the shares entitled to vote. Consequently, if the holders
of a majority of the Company's common stock approve Proposal 1, the percentage
voting requirement for Proposal 2 can be reduced, even in the absence of a two-
thirds vote approving Proposal 1. If holders of a majority of the common stock
approve the amendment to the articles of incorporation, the required vote to
approve Proposal 2 would be reduced from two-thirds to a majority of the
outstanding common stock. If holders of a majority of the common stock do not
approve Proposal 1, the required vote to approve Proposal 2 would be two-thirds
of the outstanding common stock.
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PROPOSAL 2 -- TO SELL THE NUCLEAR ENGINEERING BUSINESS, THE POWER SERVICES
BUSINESS, AND THE GOVERNMENT SERVICES BUSINESS
The following discussion outlines certain aspects of the proposed sale by
the Company and the Subsidiary of the Engineering Businesses. The form of the
transaction is the sale of substantially all of the assets of the Engineering
Businesses, including all of the assets of the Subsidiary (or at the Buyer's
option, the stock of the Subsidiary). This discussion is not intended to be
complete and is subject to, and qualified in its entirety by reference to, the
Asset Purchase Agreement by and among the Company, the Subsidiary, and the Buyer
attached as Annex A hereto (the "Agreement"). Capitalized terms used and not
otherwise defined in this discussion will have the same meaning as defined in
the Agreement.
BACKGROUND OF THE TRANSACTION
THE COMPANY. In early January 1994, the Company (then known as Pacific
Nuclear Systems, Inc.) acquired the business and operations of ABB Impell
Corporation, ABB Government Services Inc., ABB Impell Ltd., an English limited
liability company, from affiliates of ABB Asea Brown Boveri Ltd. The Company
paid $17.55 million in cash and issued 1,714,503 shares (valued at $8.17 per
share, a total of $14 million) of the Company's common stock. In connection
with the acquisition, the Company refinanced its existing debt and obtained
financing for the acquisition and future operations through senior bank debt
from Banque Paribas and Banque Nationale de Paris (collectively, the "Banks") in
the form of a $15 million term loan and a $25 million revolving credit facility.
As additional consideration, the Company issued to the Banks warrants to
purchase 8.75% of the Company's then outstanding common stock (830,060 shares)
at $8.17 per share, subsequently adjusted to 830,060 shares at $2.9375 per share
(the "Warrants"), which Warrants are subject to further adjustment in price
based on the timing of repayment of the Bank Debt. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and 1995 Form
10-K - Item 7.
PRINCIPAL REASONS FOR THE SALE. In recent periods, based on the Company's
financial performance and its failure to comply with covenants contained in the
Bank Debt documents, the Company has been under steadily increasing pressure
from the Banks to reduce and pay in full the outstanding Bank Debt
(approximately $16.9 million at the date of this Proxy Statement) and the Bank
Fees that total as of the date of this Proxy Statement $1.45 million that the
Banks have required the Company to pay in connection with amendments and
extensions of the loan and credit agreements with the Company. The Company has
been unable to refinance the Bank Debt and the Banks have required the Company
to pay additional fees, reprice the Warrants and sell significant assets of the
Company. The Company has been actively seeking purchasers of its various
businesses in the past year, as reflected by the sale of the Company's Plant
Services business to Westinghouse Corporation in 1995 and the sale of the
Company's United Kingdom operations to Amey, plc in April 1996.
The Company engaged Robertson Stephens & Co. in June 1995 to assist the
Company in selling the Company's Waste Services business, while the Company's
management sought a strategic partner for the Fuel Services business. The
Company has had discussions with a number of companies that have expressed
interest in acquiring either Fuel Services or Waste Services, but negotiations
have not made significant progress and the Company has not reached any agreement
with any prospective purchaser.
The Board of Directors has concluded that the negotiated purchase price for
the Assets, $27.5 million, plus or minus the Purchase Price Adjustment,
represents an optimal value for the Engineering Businesses. The Board made this
determination based upon its experience in acquiring the engineering businesses
of the Impell companies in 1993 and its familiarity with the nuclear and power
engineering industry generally. In addition, the Board believes that the number
of potential buyers is limited due to the shrinking market for engineering
services to nuclear utilities, which is reflected by the lack of interest shown
in the Company's informal discussions with major U.S. and international reactor
vendors, architect and engineering firms and suppliers of radioactive waste
services and the absence of other parties in approaching the Company to discuss
buying the Engineering Businesses after the Company disclosed publicly its need
to sell assets of the Company. The Board of Directors also believes that the
purchase price is an attractive price considering the pressure from the Banks
and the time pressures in completing a transaction. The Board believes the sale
is in the best interest of the shareholders
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because it will allow the Company to timely pay off the outstanding Bank Debt
and Bank Fees and retain options regarding the future of the Remaining
Businesses. The Board of Directors believes that, in the absence of payment in
full, the Banks will not extend the Bank Debt and if any extension is granted it
is likely the Banks would continue to impose and require payment of significant
fees for any extensions of credit or other amendment of the credit agreements,
which fees adversely affect the Company's profitability and reduce shareholders'
equity. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
INFORMATION CONCERNING THE BUYER. The principal business of Duke consists
of providing full-scope engineering, technical and professional services to
government, utility, industrial and other business clients worldwide,
specializing in energy and environmental projects. Headquartered in Charlotte,
North Carolina, the Buyer was formed in 1987 and is an unregulated subsidiary of
Duke Power Company, one of the nation's largest electric utilities. The Buyer
currently has approximately 700 employees serving clients in 30 countries. It
assists clients with all phases of hydroelectric, nuclear and renewable power
generation projects, from conceptual design through full life-cycle operation.
The Buyer also provides power delivery and energy services to utility,
industrial, commercial and institutional clients. Through its environmental
business unit, the Buyer offers environmental site characterization and
remediation planning as well as petroleum exploration and production consulting
services. See "-- Business Relationship with the Buyer."
HISTORY OF THE TRANSACTION. The Company engaged Robertson Stephens & Co.
in June 1995 to assist the Company in selling the Company's Waste Services
business. In addition, the Company's management undertook to find a strategic
partner for the Fuel Services business. The Company's Finance Committee met
from time to time to review progress in selling selected assets in order to
satisfy requirements imposed by the Banks. During those meetings, management
discussed with the Finance Committee developments in the potential sale or
strategic partnership of Fuel Services and/or Waste Services. In the fall of
1995, the Finance Committee also considered the possible sale of substantially
all of the Company and certain informal exploratory discussions were held with
companies within the nuclear industry. During the late fall of 1995, certain
key managers (not involved in the efforts to sell Fuel Services or Waste
Services) of the Company's Engineering Businesses developed, in consultation
with legal counsel and an investment banker, a proposal to purchase the
Company's engineering operations (similar to the Engineering Businesses but
excluding the government services business and portions of the power services
business). The Finance Committee at its February 8, 1996 meeting reviewed the
possible sale and valuation of the engineering operations. The Finance
Committee also discussed the prospects for sale of Fuel Services or Waste
Services at prices sufficient to pay the Bank Debt. The Board at its meeting on
February 9, 1996 authorized the Finance Committee and the Company's officers to
continue to negotiate for the potential sale of various segments of the
Company's businesses, including the Engineering Businesses. Representatives of
the management group and the Finance Committee met on February 12, 1996. The
management group's proposed purchase price was approximately $14.5 million,
subject to financing and other contingencies. The Finance Committee did not
regard the managers' offer as adequate.
At the February 9, 1996 Board Meeting, the Finance Committee asked
individual directors to identify potential buyers of the Engineering Businesses
or the Company as a whole and to use their personal contacts to inquire whether
those potential buyers would be interested in acquiring the Company's
Engineering Businesses or the Company as a whole. As a result, Dr. E. Linn
Draper, Jr., a Director, contacted Mr. R.B. Priory, President and Chief
Operating Officer of Duke Power Company. Mr. Priory expressed interest and
asked that contacts be conducted through Mr. John F. Norris, Jr., president and
chief executive officer of Duke Engineering & Services, Inc., an indirect
wholly-owned subsidiary of Duke Power Company.
During the week of February 12, 1996, Mr. Norris and Mr. Ray A. Fortney,
President and Chief Executive Officer of the Company, discussed by telephone the
possible purchase of the Engineering Businesses. Following the discussions, the
parties executed a confidentiality agreement on February 14, 1996, and the
Company thereafter provided the Buyer with a business plan and financial
materials regarding the Company, including the Engineering Businesses.
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On March 5, 1996, Mr. Norris and Mr. Wayne Henry, Senior Vice President of
the Buyer, met with Messrs. Fortney and Mr. John R. Holding, former chief
financial officer and now a consultant to the Company, at the Company's offices
in San Ramon, California. The parties discussed the Company's businesses.
Following clarification that Duke was interested in the Engineering Businesses,
Messrs. Fortney and Holding answered questions concerning the business
conducted by the various engineering offices. The Company indicated its belief
that the value of the Engineering Businesses was in "the low thirties" (in
millions). At the conclusion of the meeting Mr. Norris reiterated the Buyer's
interest in acquiring the Engineering Businesses, subject to obtaining
authorization from Duke Power Company. A few days later, Mr. Norris called
Mr. Fortney to confirm that the Buyer was interested in pursuing discussions.
Mr. Fortney then discussed the Buyer's interest in acquiring the
Engineering Businesses with the members of the Finance Committee. The Finance
Committee members authorized Mr. Fortney and Mr. Holding to proceed with
negotiations.
On March 14, 1996, Messrs. Fortney, Holding, Norris and Henry met in
Charlotte, North Carolina at the Buyer's offices. The Company's representatives
provided additional information and answered questions concerning the
Engineering Businesses. The purchase price was discussed at the meeting, with
the Buyer offering $25 million. After further negotiations and discussions, the
parties reached tentative agreement on the purchase price of $27.5 million, plus
or minus a balance sheet adjustment. Other terms, including assumption of
leases for office space occupied by the Engineering Businesses, were also
discussed and an oral understanding reached. The parties agreed to proceed with
drafting and execution of a letter of intent and completion of due diligence by
the Buyer.
On March 19, 1996, Mr. Robert Lilien, in-house counsel for the Buyer,
contacted the Company's legal counsel and discussed the terms of a proposed
letter of intent. The parties exchanged drafts of a proposed letter of intent.
The Company's Finance Committee approved the execution of the letter of intent
at a meeting on March 20, 1996. The parties executed the nonbinding letter of
intent dated March 21, 1996. The parties announced in a press release the
execution of the letter of intent on March 27, 1996.
On March 27, the Buyer commenced its due diligence review of the
Engineering Businesses, reviewing all aspects of the businesses, including
contracts, finance, human resources, operations and legal matters. The Buyer's
outside legal counsel submitted to the Company's legal counsel an initial draft
of an Asset Purchase Agreement on April 18, 1996. Legal counsel exchanged
comments, drafts, schedules and related agreements over several weeks, and
conducted negotiations by numerous telephone conference calls. On May 23, 1996,
the parties executed the Agreement, and, on June 4, 1996, the Buyer
confirmed to the Company satisfaction of the Buyer's due diligence review.
DETERMINATION OF THE PURCHASE PRICE. The purchase price was determined by
arms-length negotiations between the parties. As noted above, certain managers
of the Company's Engineering Businesses approached the Company with an offer to
purchase the Company's engineering operations for approximately $14.5 million
(without assuming accounts payable), subject to financing and other
contingencies. The negotiations with Duke were based on the Company's analysis
of the operating profit from the Engineering Businesses. The Company proposed a
purchase price in the low $30 millions based on a multiple of the operating
profitability. Duke analyzed the after-tax income of the Engineering
Businesses, applied certain assumptions and its own operating model, and
proposed a price of $25 million. The parties discussed their respective
analyses and reached agreement on a purchase price of $27.5 million, plus or
minus a balance sheet adjustment, based on the November 1995 unaudited balance
sheet provided to the Buyer. After reaching agreement on the price with Duke,
the Board decided not to conduct an auction for the sale of the Engineering
Businesses since the Board believed that protracted publicity would
significantly diminish the value of a services business by diverting employee
attention and reducing profitability. In addition, the Board believed that the
Company had made informal contact with many of the potential purchasers in
discussions regarding purchase of all of the Company or Fuel Services or Waste
Services and had not received interest that the Engineering Businesses
constituted a strategic fit for such parties. The Board believed that, with the
public announcement of the letter of intent, other interested parties, if any
existed, would likely have contacted the Company. The Board did not retain an
independent financial advisor, but instead relied on the Directors' collective,
long-term familiarity with the Engineering Businesses, the analysis
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done in connection with and the terms of the Impell acquisition in January,
1994, the industry in general and likely buyers, and the terms of the proposed
management buy-out. At its meeting on April 19, 1996, the Board confirmed the
authority of the Finance Committee to approve the final form of the Agreement
and to authorize the officers to execute the Agreement on behalf of the Company.
The Finance Committee at its meeting on May 14, 1996 approved the proposed
transaction in substantially the form of the draft Agreement at such date and
authorized the officers to finalize certain details and to execute the
Agreement. The Board reached a subjective judgment that the Company was
unlikely to receive a superior offer to the Duke offer. The Agreement provides,
nonetheless, that the Board of Directors could consider another offer if
required by its fiduciary duties under Washington law.
BUSINESS RELATIONSHIP WITH BUYER
The Buyer is an indirect, wholly-owned unregulated subsidiary of Duke Power
Company, a public utility based in North Carolina ("Duke Power"). Duke Power
has been a customer of the Company and its predecessors for approximately 10
years, with sales revenues of $1.7 million, $1.5 million and $1.4 million in
1995, 1994, and 1993, respectively. The Company sold Duke Power its NUHOMS dry
storage product for the Oconee Station in 1987.
The Company has not done business directly with the Buyer.
RECOMMENDATION OF THE BOARD OF DIRECTORS
On April 19, 1996, the Board unanimously confirmed the actions of the
Finance Committee in negotiating the sale of the Engineering Businesses and,
conditioned upon finalization of the Agreement in form and substance
satisfactory to the Finance Committee and the Company's officers, unanimously
recommended the proposed transaction to the Company's shareholders for their
approval as required under the Act.
As previously discussed, the Board's conclusion to approve the sale of the
Engineering Businesses was based on the collective, subjective judgments of its
individual members, a majority of whom have been directors or officers of the
Company for over four years and three of whom were either founders or officers
of Impell Corporation prior to its acquisition by Combustion Engineering Inc.
and the eventual acquisition by the Company. All other members of the Board
concurred in this judgment. The factors considered at various meetings
included, without limitation, the following:
* The Company's need to repay timely the Bank Debt and Bank Fees and the
Company's examination of and inability to obtain financing from alternative
sources.
* The results of the Company's efforts in actively marketing Fuel Services
and Waste Services leading to the conclusion that the prices offered to date for
Fuel Services and Waste Services would not achieve the Company's objectives.
* The Duke offer being consistent with the Company's valuation of the
Engineering Businesses and that it would allow timely repayment of Bank Debt and
Bank Fees as well as options for the Remaining Businesses.
* The Duke offer providing an excellent opportunity for the Company's
employees and responding to the needs of the Company's engineering customers,
many of whom are customers of the Remaining Businesses.
* The Duke offer being the best opportunity under the circumstances to
maximize shareholder value.
The Board did not find it practicable to, and did not, quantify or
otherwise attempt to assign relative weights to the specific factors considered
in making its determination.
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The sale of the Engineering Businesses will affect all shareholders in the
same way. The Board concluded that the transaction is fair to and in the best
interests of all of the shareholders since in its judgment the negotiated
consideration represents optimal value for the Engineering Businesses.
The Board also recognized the negative impact of the sale on the Company
and its shareholders. Following the sale, the Company's revenues, employees and
customers will be dramatically reduced, which could limit the opportunity for
the Company to generate acceptable, if any, operating income in the future.
Further, if the Company continues to operate the Remaining Businesses, the
Company may be unable to cut its expenses sufficiently to operate profitably.
The Board considered these various factors and concluded that in its best
judgment the sale of the Engineering Businesses was, given the alternatives, in
the best interest of shareholders.
INTERESTS OF CERTAIN PERSONS
John R. Holding, formerly the Company's chief financial officer and
currently a consultant to the Company, will receive as compensation for his
services in negotiating the sale of any of the Company's businesses that are
sold between April 1 and August 15, 1996 a commission equal to one percent (1%)
of the sales price; provided that the aggregate fee payable to Mr. Holding shall
not exceed $100,000. Under this arrangement, Mr. Holding will receive $15,731
in connection with the sale of VECTRA Technologies Ltd. and up to $84,269 for
the sale of the Engineering Businesses. The Company also reimburses Mr. Holding
for his reasonable expenses incurred in connection with the sale of the
businesses.
RIGHTS OF SECURITY HOLDERS
The Act requires that a sale of "all or substantially all" of a
corporation's property be approved by the corporation's shareholders. While the
sale of the Engineering Businesses under Proposal 2 may not constitute a sale of
"all or substantially all" of the Company's property as provided in the Act, the
Board of Directors has determined to treat Proposal 2 as covered by such
provisions of the Act. Accordingly, shareholders who oppose the sale of the
Engineering Businesses may exercise their rights to dissent under the Act and be
paid the fair value of their shares, unless the Board of Directors approves a
plan to distribute all or substantially all of the net proceeds of the sale
to the Company's shareholders within one year after the sale. See "Rights to
Dissent."
The rights of the holders of the Company's common stock will not change as
a result of the sale of assets. The Company has never declared or paid any cash
dividends on its common stock.
MARKET ACTIVITY
The closing price of the Company's common stock as reported on the Nasdaq
Stock Market, National Market System on March 26, 1996, the last business day
preceding the public announcement of the proposed sale of Assets, was $1.50. On
June __, 1996, the last day prior to the printing of this Proxy Statement, the
closing price of the Company's common stock was $___. See "Market Prices and
Per Share Data."
THE AGREEMENT
GENERAL
The Agreement provides for the sale by the Company and the Subsidiary
(collectively, the "Sellers") of the Assets, free and clear of all liens and
encumbrances. The Assets include all accounts receivable, fixed assets, leases,
permits, proprietary rights and software, customer and other contracts, books
and records, prepaid items, and certain trademarks (other than "VECTRA" and
"Pacific Nuclear") that are currently used in connection with or relate to the
operation of any of the Engineering Businesses. Closing shall occur on such
date as the parties may agree after satisfaction or waiver of the conditions to
Closing. See "The Agreement -- Closing Conditions."
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ASSETS TO BE ACQUIRED; ASSUMED LIABILITIES
The Assets to be acquired under the Agreement include all accounts
receivable, fixed assets, leases, permits, proprietary rights and software,
customer and other contracts, books and records, prepaid items, and the
trademarks "Government Services, Inc." and "Impell" that are currently used in
connection with or relate to the operation of any of the Engineering Businesses,
except as specifically excluded. The specifically excluded Assets ("Excluded
Assets") include cash, marketable securities and short-term investments of cash;
intercompany receivables; the office leases in San Ramon and Fort Worth (except
that these offices will be partially subleased to the Buyer pursuant to a
separate agreement); the names "VECTRA" and "Pacific Nuclear" and derivatives
and similar names (except that the Buyer may use these names for limited
purposes during an initial 90-day period); certain identified patents; certain
identified contracts ("Excluded Contracts"), and certain identified other
assets. The Excluded Contracts include contracts as to which the Sellers, after
exercising their best efforts, have failed to obtain all required third-party
consents to effect their assignment to the Buyer, whether or not the Sellers
have identified such contracts to the Buyer; contracts with various business
services providers; all employment agreements; and several customer contracts
that will remain in whole or in part with the Sellers. In the event that, after
Closing, either Seller identifies any contract that it should have identified to
the Buyer prior to Closing, the Buyer will have the option whether or not to
take assignment of such contract.
Certain liabilities of the Sellers will be assumed by the Buyer ("Assumed
Liabilities"). The Assumed Liabilities are the current liabilities of the
Company related to the operation of the Engineering Businesses and the current
liabilities of the Subsidiary; and the obligations arising under customer
contracts after the effective date of the Agreement, subject to certain
exceptions. Assumed Liabilities do not include the current portion of any long-
term indebtedness, liabilities relating to taxes (except sales or use taxes due
in connection with the transaction, which will be paid by the Buyer),
liabilities relating to breach of contract, breach of warranty, tort,
infringement or violation of law, intercompany payables, environmental
liabilities, liabilities under any employee benefit plan, arising from
termination of any employee prior to Closing, or otherwise related to employees
and employee benefits, and certain other identified liabilities. See "Pro Forma
Financial Information -- Note 1."
PURCHASE PRICE
The purchase price to be received by the Company for the sale of the
Engineering Businesses is $27,500,000 (the "Base Purchase Price"), plus or minus
an adjustment amount (the "Purchase Price Adjustment"). The Purchase Price
Adjustment is the amount, if any, by which the value of the assets used in the
operation of the Engineering Businesses (the "Valuation Assets") exceeds the sum
of $10,000,000 and the value of the Assumed Liabilities. The Valuation Assets
are defined as those Assets that are used by the Sellers in any of the
Engineering Businesses and that are either current assets or equipment,
machinery, furniture and fixtures and vehicles (excluding real property
improvements with respect to leases that the Buyer is not assuming). The
Valuation Assets do not include Excluded Assets (other than certain contracts
retained by Sellers), any intangible assets, the going concern value of the
Engineering Businesses, rights relating to taxes, accounts receivable that have
been outstanding for more than 120 days past the invoice date, and certain other
identified accounts receivable.
The final purchase price is as yet undetermined because it is based in part
on the actual value of the Valuation Assets. Determining the purchase price
requires a balance sheet of the Engineering Businesses as of the date of Closing
("Closing Balance Sheet"). Since the Closing Balance Sheet cannot be prepared
until after the Closing, the Buyer will pay an estimate of the purchase price at
Closing based on a balance sheet prepared as of a date approximately thirty days
before Closing ("Pre-Closing Balance Sheet"), and the parties will "settle up"
after the preparation of the Closing Balance Sheet. Specifically, at Closing,
the parties will estimate the Purchase Price Adjustment on the basis of the Pre-
Closing Balance Sheet. The payment at Closing will consist of the Base Purchase
Price of $27,500,000, less an escrowed holdback of $1,000,000 and less the
estimated Purchase Price Adjustment, if the estimated Purchase Price Adjustment
is negative. If the estimated Purchase Price Adjustment is positive, that
amount will be escrowed with the holdback amount. After Closing, the Closing
Balance Sheet will be prepared and, upon its approval by both parties, the
difference between the estimated amount paid at Closing and the actual purchase
price will be paid to the appropriate party and the escrowed funds will be
released.
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REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SUBSIDIARY
The Agreement contains certain representations and warranties of the
Sellers, including, without limitation, representations and warranties with
respect to (i) the Sellers' due organization, qualification, and corporate
authority for the sale of the Assets; (ii) possession of all required consents
and approvals of governmental authorities; (iii) compliance with both Sellers'
articles of incorporation and bylaws and applicable laws; (iv) possession of and
compliance with all permits necessary for the conduct of the Engineering
Businesses; (v) the Sellers' good and marketable title to the Assets and the
Assets' sufficiency for the conduct of the Engineering Businesses;
(vi) compliance with all real property leases of the Sellers; (vii) Sellers'
possession, free of all undisclosed liens and encumbrances, of rights with
respect to registered trademarks, copyrights, and patents, and the absence of
undisclosed claims or infringement with respect thereto; (viii) Sellers'
possession, free of all undisclosed liens and encumbrances, of rights with
respect to all software used in the Engineering Businesses, including both
Sellers' proprietary software and software owned by third parties, and the
absence of undisclosed claims or infringement with respect thereto; (ix) the
absence of undisclosed liabilities; (x) the identity, enforceability, and
assignability of and Sellers' compliance with all contracts of the Sellers
relating to the Engineering Businesses; (xi) the accuracy and completeness of
the financial statements for all periods required to be provided by the
Agreement; (xii) the due maintenance of books and records of the Engineering
Businesses; (xiii) due payment of all taxes; (xiv) the absence of undisclosed
litigation involving either Seller; (xv) the nature of any employment agreements
and policies of the Sellers and of bonus and other obligations to employees, and
the Sellers' compliance with employment laws; (xvi) Sellers' compliance with
laws and plans relating to employee benefits; (xvii) Sellers' insurance
policies; (xviii) the absence of undisclosed adverse changes in the business
relationships of the Sellers with any of their customers or suppliers as a
result of consummation of the Agreement; (xix) compliance with laws regulating
hazardous materials and other environmental laws; (xx) Sellers' conduct of the
Engineering Businesses in the ordinary course consistent with past practices
since November 26, 1995; (xxi) the absence of undisclosed obligations to pay
commissions in connection with the sale of the Assets; and (xxii) the absence of
any material misstatements or omissions by either Seller in the Agreement or any
document furnished to the Buyer in connection with the execution of the
Agreement.
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Agreement also contains certain representations and warranties by the
Buyer including, without limitation, representations and warranties with respect
to (i) its due organization and corporate authority for the acquisition of the
Assets; (ii) possession of all required consents and approvals of governmental
authorities; (iii) compliance with Buyer's articles of incorporation and bylaws
and applicable laws; (iv) the absence of undisclosed litigation involving Buyer;
(v) the absence of undisclosed obligations to pay commissions in connection with
the sale of the Assets; and (vi) the Buyer's intention to offer employment to
substantially all of the Sellers' employees on the Closing Date, unless less
than substantially all of the Sellers' customer contracts are assigned to the
Buyer, or any significant customers are unwilling to continue on with the Buyer,
or the operations, financial condition or prospects of the Engineering
Businesses are not substantially the same on the Closing Date as they are on the
date of the Agreement.
COVENANTS OF THE COMPANY
The Agreement contains customary covenants by the Company and the
Subsidiary including without limitation the following: (i) the Company will
conduct the Engineering Businesses prior to Closing in the ordinary course
consistent with past practice, with all reasonable efforts consistent with past
practices to preserve the goodwill of the Engineering Businesses and the
Seller's relationships with customers, suppliers, and others and to keep
available the services of its officers and employees; (ii) the Company will give
Buyer reasonable access to the employees, books, records, offices and other
facilities and properties of the Subsidiary and, to the extent related to the
Assets or the Engineering Businesses, of the Seller, permit Buyer to perform
inspections and environmental assessments of the leased real property, furnish
Buyer financial and operating data, and underlying records and workpapers
relating to the Engineering Businesses, including information relating to
intercompany charges and information related to taxes, as Buyer may request to
evaluate and assess the accuracy of Sellers' financial records; (iii) the
Sellers will use their best efforts (at no additional out-of-pocket costs to
Sellers) to assist Buyer in hiring
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those employees that Buyer desires to employ; (iv) the Company will pay to those
employees of the Engineering Businesses severance or similar obligations (if
any) owing at Closing, included vacation leave accrued prior to the close of
business on the Closing Date; (v) the Company will terminate the confidentiality
obligations of employees who become employees of Duke, except with respect to
information relating to the Remaining Businesses (Fuel Services and Waste
Services); (vi) the Sellers will maintain or terminate their employee benefit
plans in accordance with law and the terms of such plans, and will treat former
employees who maintain 401(k) accounts with Sellers in the usual manner;
(vii) the Sellers will not use or license any proprietary rights transferred to
the Buyer, nor use or disclose any trade secrets or other confidential
information for a period of five years following the Closing Date, or use any of
the trademarks being transferred to Buyer, in any manner inconsistent with the
transfer of proprietary rights under the Agreement; (viii) the Sellers will
conduct lien searches in jurisdictions where the Assets are located; (ix) the
Sellers will deliver by June 15, 1996 a schedule listing each of Seller's Assets
that is tangible personal property with an original purchase price in excess of
$1,000, and an updated schedule of assets that will be shared by Buyer and
Sellers after Closing; (x) the Sellers shall provide evidence to the Seller of
the release of all security interests in the Assets; and (xi) the Board of
Directors of the Company shall recommend approval of this Agreement to its
shareholders and use all reasonable efforts to obtain the consent of its
shareholders to the transaction, unless the Board determines that such actions
would be contrary to the Board's fiduciary obligations under Washington law.
In addition to the foregoing covenants, the Sellers are committed to a
transition period for both the satisfaction of warranty claims and the
performance of quality assurance programs. Regarding warranty claims, the
Sellers and the Buyer will immediately notify the other of any claim or demand
arising because of the actual or asserted failure of either Seller adequately or
properly to perform the services rendered in connection with a customer
contract. The Buyer will have the option to perform the work or otherwise
satisfy the claim, and the Company will reimburse the Buyer for the costs of
such work to the extent either Seller would have been liable for such claim or
would have, pursuant to its customary practices prior to Closing, performed such
work without charge to the customer. Regarding quality assurance for customers
of the Engineering Businesses, for the period from Closing through October 1,
1996, the Sellers shall allow the Buyer to perform work for such customers under
the applicable quality assurance programs in effect between the Sellers and
customers as of the Closing Date. The Sellers shall make available copies of
these programs and allow the Buyer to work with customers to effect the
transition to the Buyer's performance of such programs.
NEGATIVE COVENANTS OF THE COMPANY
Sellers have agreed that, prior to Closing, except as provided in the
Agreement or pursuant to the prior consent of the Buyer, neither Subsidiary nor
the Company, with respect to the Engineering Businesses, will do any of the
following: (i) amend its articles of incorporation or bylaws in any manner that
would affect the ability to consummate the transaction; (ii) grant to any
employee any increase in compensation other than increases in the ordinary
course of business, or pay any bonus, severance, or termination payment; (iii)
incur in connection with the Engineering Businesses liabilities for borrowed
money or guarantee any liabilities, other than in the ordinary course of
business consistent with past practice; (iv) incur any material change in
overhead costs, backlog, or accounts receivable or payable; (v) cancel any
indebtedness owing to it or waive any claims or rights of substantial value;
(vi) change any method of accounting or accounting practice or policy, including
recognition of income and profit with respect to any contracts; (vii) in
connection with the Engineering Businesses, acquire or agree to acquire the
stock of, merge or consolidate with, or purchase a substantial portion of the
assets of any person; (viii) sell, lease, license or otherwise dispose of any of
its Assets; (ix) take any action that would make any of the representations or
warranties of either Seller untrue or incorrect or result in any of the
conditions of the Agreement not being satisfied; (x) enter into, cancel or
modify any obligation or agreement or assume any liability other than in the
ordinary course of business; (xi) take any action with respect to any employee
benefit plan that could result in successor liability to Buyer; or (xii) bill or
collect any accounts receivable in advance of the ordinary course of business.
The Sellers have agreed not to use or disclose any trade secrets or other
confidential information in any manner that would compromise the value of trade
secrets or confidential information transferred to the Buyer, and they have
agreed not to use the names "Government Services, Inc." or "Impell" or
derivatives thereof.
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The Company has also agreed that, prior to the Closing Date, it will not,
directly or indirectly, solicit, initiate, or encourage any proposal or offer
relating to the acquisition of any capital stock or any substantial portion of
the Assets of either Seller (including any acquisition structured as a merger,
consolidation or share exchange), or participate in any discussions or
negotiations, furnish information with respect to, assist or participate in or
facilitate in any other manner any such acquisition. The Agreement provides,
however, that nothing will prohibit the Company from taking any actions if its
Board of Directors determines that such actions are required by the Board's
fiduciary duties under Washington law.
COVENANTS OF BUYER
The Buyer has agreed that, of the employees hired from Sellers upon
Closing, it will not terminate the employment of any number of such employees to
the extent that, when combined with the number of employees that are not hired
by Buyer, such termination would result in any liability to Sellers under the
Worker Adjustment and Retraining Notification Act of 1988 and regulations
thereunder (the "WARN Act"). The Buyer has also agreed to allow former
employees of the Sellers to take unpaid vacation during the remainder of 1996 to
the extent such vacation accrued during their employment with either Seller in
1996 and Sellers have paid the employee for such accrued vacation.
MUTUAL COVENANTS
Both Buyer and Sellers have agreed (i) to use their reasonable efforts to
fulfill or perform all conditions and obligations to be fulfilled or performed
by them in order to consummate the transaction; (ii) to use their best efforts
to agree on an allocation of the purchase price among the Assets and to report
the transaction for income tax purposes in accordance with the agreed
allocation; (iii) to use their reasonable efforts to obtain all necessary
consents, approvals, and notices; (iv) to hold in strict confidence all
documents and information provided by the other party in connection with the
Agreement except to the extent such information is public knowledge or is
required to be disclosed by securities laws; and (v) to negotiate in good faith
regarding the text, form, content, and timing of any news release regarding the
transaction.
Both Buyer and Sellers have also agreed not to solicit the other side's
employees for a period of two years commencing on the Closing Date, and for a
period of one year commencing on the Closing Date not to employ any person who
has been an employee of the other during such period. However, the foregoing
restrictions do not prohibit the Buyer from employing any person identified in
the Agreement as an employee of the Engineering Businesses.
Regarding Sellers' accounts receivable that are being transferred to Buyer
under the Agreement, the parties have agreed that the Buyer shall attempt to
collect such accounts pursuant to its normal collection practices and
procedures, which do not include filing suit or hiring collection agencies.
Upon Buyer's request at any time at least five months after the Closing Date,
the Company shall pay to the Buyer the uncollected amount of such accounts
receivable, other than retention amounts relating to projects on which work is
continuing, less any amounts collected by the Buyer on any accounts receivable
that are not included in the Valuation Assets (i.e., accounts receivable that
have been outstanding for more than 120 days past the invoice date and certain
other identified accounts receivable). Thereafter, on Buyer's request, the
Company shall pay to the Buyer the face amount of any retention account that is
not collected within sixty days after the completion of the work. The Buyer
shall assign back to the Company all uncollected accounts receivable for which
the Company has paid the Buyer under the foregoing provisions, and shall forward
to the Company any amounts received by the Buyer on such accounts. If the Buyer
collects an amount on the accounts receivable that exceeds the value of such
accounts, net of reserves, on the Closing Balance Sheet, the Buyer shall pay to
the Company the amount of such excess.
The Sellers have agreed to pay to the Buyer, within seven days after the
Closing Date, the total amount of payments that the Sellers have received in
connection with the Valuation Assets (i.e., amounts received in connection with
accounts receivable) after the close of business on the effective date of the
Agreement through the Closing Date, and, after the Closing Date, the Sellers
shall pay, within three business days after receipt by Sellers,
-21-
<PAGE>
the amount of all such payments that the Sellers receive. Likewise, the Buyer
has agreed to pay to the Sellers, within seven days after the Closing Date, the
total amount of payments that the Sellers have made in connection with the
Assumed Liabilities after the close of business on the effective date of the
Agreement through the Closing Date, and, after the Closing Date, the Buyer shall
pay, within three business days after payment by Sellers, the amount of all such
payments made by Sellers. Upon Buyer's request, the Sellers are to provide
detailed records to Buyer regarding such payments received or made by the
Sellers.
INDEMNIFICATION
The Agreement provides that all representations, warranties, covenants, and
agreements of the parties survive the Closing, and the parties agreed to
indemnify one another as follows: The Sellers agreed to indemnify the Buyer
against all claims, losses, costs, and expenses, including attorneys fees,
arising out of (i) any breach of any covenant, agreement, representation, or
warranty, if Buyer gives notice to Sellers regarding the same within two years
after the Closing Date; (ii) any liability relating to the Engineering
Businesses or the Sellers that is not an Assumed Liability, if Buyer gives
notice within six years after the Closing Date or the applicable statute of
limitations has tolled during such six years; or (iii) any liability or alleged
liability arising out of any violation or alleged violation of any environmental
law in connection with the Remaining Businesses, without regard to when the
Buyer gives the Sellers notice of such liability. The Buyer may not make any
claim for indemnification in connection with a breach of Sellers'
representations and warranties until the cumulative amount of the Buyer's
damages exceeds $250,000, but indemnification for other damages is not so
limited. The Buyer agreed to indemnify the Sellers against all claims, losses,
costs, and expenses, including attorneys fees, arising out of any breach of any
covenant, agreement, representation or warranty if Sellers give notice of its
damages within two years after the Closing Date. The Buyer may not make any
claim for indemnification in connection with a breach of Buyer's representations
and warranties until the cumulative amount of the Sellers' damages exceeds
$250,000, but indemnification for other damages is not so limited. Both Buyer
and Sellers agreed to notify the other of damages resulting from the claims of a
third party and agreed that each may undertake the defense of such claims that
it would be required to indemnify, under certain conditions, and that each may
participate in the defense of claims as to which it would be indemnified, under
certain conditions.
CLOSING CONDITIONS
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY. The Company's
obligations under the Agreement are subject to the satisfaction or waiver, at or
prior to Closing, of each of the following conditions: (i) the accuracy of the
Buyer's representations and warranties as of the Closing Date; (ii) the
performance by the Buyer of all its respective obligations, covenants and
conditions contained in the Agreement; (iii) the Company's having secured Board
authority and shareholder consent with respect to the sale of the Assets;
(iv) expiration of all applicable waiting periods with respect to the HSR Act
filing and no action having been instituted by the DOJ or the FTC; (v) agreement
by the parties as to the Pre-Closing Balance Sheet and the amount of the
estimated Purchase Price Adjustment; (vi) receipt of the Closing payment, as
described above (see "The Agreement -- Purchase Price"); and (vii) receipt of an
opinion in suitable form by counsel for the Buyer.
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER. The obligations of the Buyer
are subject to the satisfaction or waiver, at or prior to Closing, of each of
the following conditions: (i) the accuracy of the Company's and Subsidiary's
representations and warranties as of the Closing; (ii) the material performance
by the Company and Subsidiary of all obligations, covenants and conditions
contained in the Agreement to be performed at or prior to Closing (iii) the
Company's having received requisite Board and shareholder authority to
consummate the Agreement; (iv) expiration of all applicable waiting periods with
respect to the HSR Act filing and no action having been instituted by the DOJ or
the FTC; (v) agreement by the parties as to the Pre-Closing Balance Sheet and
the amount of the estimate Purchase Price Adjustment; (vi) receipt of a bill of
sale and assignment agreement in connection with the conveyance of the Assets;
and (vii) receipt of an opinion in suitable form by counsel for the Company.
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<PAGE>
AMENDMENT AND TERMINATION; BREAK-UP FEE
The Agreement may be amended by the mutual written agreement of the Company
and the Buyer. The Company is not presently aware of any reason to amend the
Agreement. The Agreement shall be terminated if the Closing has not occurred by
September 30, 1996 or if certain other conditions occur. The Company must pay a
break-up fee of $500,000 in the event that the Agreement is terminated due to a
failure of the Company's shareholders to approve the sale of the Assets and any
of the following conditions apply: The Board of Directors fails to recommend
approval of the sale, or the Board recommends another transaction for the sale
of the Engineering Businesses, or the Company consummates any such other
transaction within six months after termination of the Agreement.
RELATED AGREEMENTS AND FILINGS
ESCROW AGREEMENT. At Closing, the Company and the Buyer will enter into an
Escrow Agreement, pursuant to which Buyer will at Closing deposit into the
escrow account the amount of $1,000,000 plus the estimated Purchase Price
Adjustment, if it is a positive amount (the "Escrow"). Subject to adjustment as
provided in the Agreement, the Escrow will be payable to the Company upon the
parties' acceptance of the Closing Balance Sheet for the Engineering Businesses.
See "The Agreement -- Purchase Price."
PREMISES SUBLEASE AGREEMENT. At Closing, the Company and the Buyer will
enter into an agreement pursuant to which the Buyer will sublease from the
Company, at the Company's actual lease cost per square foot with no mark-up,
such portions of the offices of the Company at San Ramon, California and Fort
Worth, Texas as the Buyer may determine.
TRANSITION SERVICES AND SHARED ASSETS AGREEMENT. At Closing, the Company
and the Buyer will enter into an agreement regarding the interim operating
services to be provided by the parties to each other in connection with the
transition of the Engineering Businesses after Closing. The agreement will
specify the scope and terms of services to be provided by either party to the
other. In addition, under this agreement, the Buyer will grant to the Company a
royalty-free, perpetual, non-exclusive license to use certain software that is
included in the transferred Assets and that the Company desires to use in the
Remaining Businesses.
REGULATORY FILINGS. Under the HSR Act and the rules promulgated thereunder
by the FTC, certain transactions, including the sale of Assets, may not be
consummated unless certain waiting period requirements have been satisfied. On
May 28, 1996 the Company and Duke filed applicable documents with the FTC and
requested early termination of the waiting period. If the request is not
granted, the applicable waiting period expires on June 28, 1996. At any time
before or after the Closing the FTC, the DOJ or others could take action under
the antitrust laws with respect to the sale of Assets, including seeking to
enjoin the consummation of the sale or seeking the divestiture by the Buyer of
all or any part of the Assets acquired.
ACCOUNTING TREATMENT
The sale of the Engineering Businesses, if consummated, will be reported as
a sale of assets and the loss to the Company on the sale will be reported on the
Company's statement of operations in 1996.
U.S. FEDERAL INCOME TAX CONSEQUENCES
The proposed sale of Assets will not result in any federal income tax
consequences to the Company's shareholders as shareholders. The Company
estimates that it will report a loss for tax purposes on the sale in an
amount to be determined. The benefit of this tax loss, if any, is dependent
on the Company's generation of future earnings.
SHAREHOLDER VOTE
The Washington Business Corporation Act requires that a sale of "all or
substantially all" of a corporation's property be approved by the corporation's
shareholders. While the sale of the Engineering Businesses
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<PAGE>
under Proposal 2 may not constitute a "sale of all or substantially all" of the
Company's property as provided in the Act, the Board of Directors has determined
to treat Proposal 2 as covered by such provisions of the Act. Accordingly, if
Proposal 1 is adopted, pursuant to the Act, an affirmative vote of a majority of
the outstanding shares of the Company entitled to vote is required to approve
Proposal 2. If Proposal 1 is not approved, an affirmative vote of two-thirds of
the outstanding shares of the Company entitled to vote is required to approve
Proposal 2. The Board of Directors unanimously recommends a vote to approve the
proposed sale described in Proposal 2. Unless the proxy is marked to indicate
that such authority is expressly withheld, the persons named in the enclosed
proxy intend to vote the shares represented thereby "FOR" approval of
Proposal 2.
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated balance sheets
as of March 31, 1996 gives effect to the proposed sale of the Engineering
Businesses and the completed sale of VECTRA UK as if the sales had been
consummated on March 31, 1996. The following unaudited pro forma
consolidated statement of operations for the fiscal year ended December 31,
1995 and the three months ended March 31, 1996 gives effect to the sales as
if the sales had been consummated at the beginning of such periods. The
unaudited pro forma financial statements are not necessarily indicative of
the results that actually would have occurred if the sale had taken place
during such periods or that may be attained in the future. The unaudited pro
forma financial statements should be read in conjunction with the Company's
consolidated financial statements and notes thereto. See "Index To Financial
Statements" and 1995 Form 10-K.
-24-
<PAGE>
VECTRA TECHNOLOGIES, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
AS OF MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Pro Forma Adjustments
------------- ---------------------------- ------------
Proposed Duke
Historical Accomplished Dispostion
As Previously Dispositions (See Notes Pro Forma
Reported (See Note 1) 2 and 3) As Adjusted
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,228 $ 500 $ 14,212 $ 16,940
Securities available for sale 1,031 -- -- 1,031
Accounts receivable 21,133 (1,914) (14,202) 5,017
Costs and estimated earnings in excess of
billings on uncompleted contracts 1,521 -- (1,040) 481
Inventories 1,672 (263) -- 1,409
Prepaids 931 (415) (413) 103
------------- ------------- ------------- ------------
Total Current Assets 28,516 (2,092) (1,443) 24,981
------------- ------------- ------------- ------------
PROPERTY, PLANT AND EQUIPMENT, AT COST 21,788 (425) (2,544) 18,819
Less accumulated depreciation (9,030) 208 1,610 (7,212)
------------- ------------- ------------- ------------
Net Property, Plant and Equipment 12,758 (217) (934) 11,607
COSTS IN EXCESS OF NET ASSETS OF ACQUIRED
BUSINESSES, NET OF ACCUMULATED
AMORTIZATION 14,780 -- (14,780) --
LICENSES, PATENTS AND OTHER INTANGIBLES, AT
COST, NET OF ACCUMULATED AMORTIZATION 1,207 -- -- 1,207
INVESTMENTS AND LONG-TERM COSTS 3,203 -- (2,720) 483
OTHER ASSETS 62 -- -- 62
------------- ------------- ------------- ------------
TOTAL ASSETS $ 60,526 $ (2,309) $ (19,877) $ 38,340
------------- ------------- ------------- ------------
------------- ------------- ------------- ------------
LIABILITIES
CURRENT LIABILITIES
Note payable to banks $ 12,389 $ (1,080) $ (11,309) $ --
Accounts payable 9,276 (929) (2,093) 6,254
Accrued payroll and related expenses 7,062 (161) -- 6,901
Other accrued liabilities (See Note 4) 6,567 (603) (589) 5,375
Accrued Duke selling expenses
(See Note 5) -- -- 1,925 1,925
Billings in excess of costs and estimated
earnings on uncompleted contracts 2,582 -- (1,059) 1,523
Long-term debt due within one year 4,827 -- (4,827) --
------------- ------------- ------------- ------------
Total Current Liabilities 42,703 (2,773) (17,952) 21,978
Deferred lease incentive 409 -- -- 409
------------- ------------- ------------- ------------
TOTAL LIABILITIES 43,112 (2,773) (17,952) 22,387
------------- ------------- ------------- ------------
------------- ------------- ------------- ------------
SHAREHOLDERS' EQUITY
Common Stock 44,960 - 44,960
Accumulated deficit (See Note 6) (27,546) 464 (1,925) (29,007)
------------- ------------- ------------- ------------
TOTAL SHAREHOLDERS' EQUITY 17,414 464 (1,925) 15,953
------------- ------------- ------------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 60,526 $ (2,309) $ (19,877) $ 38,340
------------- ------------- ------------- ------------
------------- ------------- ------------- ------------
</TABLE>
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<PAGE>
VECTRA TECHNOLOGIES, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Pro Forma Adjustments
----------------------------
Historical Accomplished Proposed Duke Pro Forma
As Previously Dispositions Disposition As Adjusted
Reported (See Note 7) (See Note 8) (See Note 9)
- - - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 24,497 $ (2,505) $ (16,634) $ 5,358
Cost of sales 17,478 (1,678) (12,151) 3,649
------------------------------------------------------------
Gross profit 7,019 (827) (4,483) 1,709
Research and development expenses 17 (9) -- 8
Selling, general and administrative expenses 6,493 (600) (3,678) 2,215
------------------------------------------------------------
Operating income (loss) 509 (218) (805) (514)
Interest expense, net 463 -- (463) --
------------------------------------------------------------
Income (loss) before income taxes 46 (218) (342) (514)
Provision for income taxes 6 (2) (4) --
------------------------------------------------------------
Net income (loss) $ 40 $ (216) $ (338) $ (514)
------------------------------------------------------------
------------------------------------------------------------
Number of shares used to calculate
net income (loss) per share 7,833,527 7,833,527
-------------- ---------------
Net income (loss) per share $ 0.01 $ (0.07)
-------------- ---------------
</TABLE>
-26-
<PAGE>
VECTRA TECHNOLOGIES, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Pro Forma Adjustments
----------------------------
Historical Accomplished Proposed Duke Pro Forma
As Previously Dispositions Disposition As Adjusted
Reported (See Note 10) (See Note 11) (See Note 12)
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 123,501 $ (19,123) $ (78,094) $ 26,284
Cost of sales 89,444 (10,237) (57,262) 21,945
-------------------------------------------------------------
Gross profit 34,057 (8,886) (20,832) 4,339
Research and development expenses 3,257 (21) (1) 3,235
Selling, general and administrative expenses 38,210 (4,059) (20,388) 13,763
Write downs of property, plant and
equipment and intangible assets 14,319 -- (8,886) 5,433
-------------------------------------------------------------
Operating income (loss) (21,729) (4,806) 8,443 (18,092)
Interest expense, net 3,105 (46) (3,059) --
Gain on sale of subsidiary 12,731 (12,731) -- --
-------------------------------------------------------------
Loss before income taxes (12,103) (17,491) 11,502 (18,092)
Provision for income taxes 110 (321) (211) --
-------------------------------------------------------------
Net income (loss) $ (12,213) $ (17,170) $ 11,291 $ (18,092)
-------------------------------------------------------------
-------------------------------------------------------------
Number of shares used to calculate
net income (loss) per share 7,840,038 7,840,038
--------------- ----------------
Net income (loss) per share $ (1.56) $ (2.31)
--------------- ----------------
</TABLE>
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<PAGE>
VECTRA TECHNOLOGIES, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1996, AND THE
FISCAL YEAR ENDED DECEMBER 31, 1995
1. Reflects the April 1996 disposition of VECTRA UK as if it had occurred
on March 31, 1996, including the disposition of the net sale proceeds to
reduce Bank Debt and increase cash and the related effects upon retained
earnings.
2. Pro forma adjustments related to the pro forma condensed balance
sheet are computed assuming the transaction was consummated on March 31,
1996, and includes adjustments that give effect to events that are directly
attributable to the transaction and factually supportable regardless of
whether they have a continuing impact or are nonrecurring.
3. The cash balance reflects the gross proceeds of $30.7 million based
on sales price of $27.5 million plus balance sheet adjustments (as applicable
to March 31, 1996) of $3.2 million less reduction of Bank Debt and Bank Fees
amounting to $16.5 million (an amount based on actual March 31, 1996,
balances net of the pro forma adjustment for the VECTRA UK disposition). The
cash balance does not reflect the payment of approximately $3.7 million
(based on the March 31, 1996, balance sheet) of engineering employee related
liabilities (i.e., payroll, health, and vacation) retained by VECTRA from the
Duke disposition; approximately $1.9 million liability to be accrued for Duke
related selling expenses; and approximately $1.9 million of additional Bank
Fees and borrowings incurred in April 1996.
4. The Duke related adjustment for other accrued liabilities includes
$214,000 liabilities transferred to Duke and $375,000 deferred Bank Fees payable
upon the close of the Duke transaction.
5. Accrued Duke selling expense liabilities are approximated as follows
($ in thousands):
Employee related expenses (including termination costs) $ 1,091
Lease termination costs 144
Legal fees 200
Audit fees 50
Purchase price adjustments 250
Other expenses 190
---------
Total Duke selling expense $ 1,925
---------
---------
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<PAGE>
VECTRA TECHNOLOGIES, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1996, AND THE
FISCAL YEAR ENDED DECEMBER 31, 1995
6. The loss on the sale to Duke is calculated as follows:
Total
-----------
Proceeds: $30,723
LESS: NET ASSETS OF DIVISIONS SOLD
Accounts receivable 14,202
Costs and estimated earnings in excess of billings 1,040
Prepaid expenses 413
Property and equipment, net 934
Investments and long-term prepaid 17,500
Accounts payable (2,093)
Other accrued liabilities (214)
Billings in excess of costs (1,059)
-----------
Net assets of divisions sold 30,723
-----------
Accrued selling expenses 1,925
-----------
Gain (loss) on sale before income taxes (1,925)
Income tax expense (benefit) --
-----------
Gain (loss) on sale $ (1,925)
-----------
The loss on the sale of the Engineering Businesses is not reflected in the
pro forma condensed consolidated statements of operations for the three months
ended March 31, 1996 or the fiscal year ended December 31, 1995, but will be
reflected in the quarter in which the sale is consummated.
7. Reflects the April 1996 disposition of VECTRA UK as if it had
occurred at the beginning of 1996.
8. Pro forma adjustments related to Duke transaction are computed
assuming the transaction was consummated at the beginning of the fiscal period
presented and include adjustments that give effect to events that are
(i) directly attributable to the transaction, (ii) expected to have a continuing
impact on the registrant, and (iii) factually supportable. Revenue and cost of
sales were determined on an individual invoice by invoice basis as related to
the Engineering Businesses. Research and development and selling, general and
administrative expenses were determined on an employee and item basis for the
Engineering Businesses. All actual interest incurred is allocated to the Duke
adjustment, since the effect of the transaction is to remove all debt, and,
consequently, the related interest.
9. Pro forma historical earnings are not indicative of possible future
performance. No assurances can be given, express or implied, that the Remaining
Businesses can be restructured to be sufficiently profitable to create
shareholder value.
10. Reflects the June 1995 disposition of Plant Services and the April
1996 disposition of VECTRA UK as if they had occurred at the beginning of
1995; the disposition of the net sale proceeds to reduce Bank Debt and
increase working capital; and the related effects upon retained earnings.
11. Pro forma adjustments related to Duke transaction are computed
assuming the transaction was consummated at the beginning of the fiscal year
presented and includes adjustments that give effect to events that are
(i) directly attributable to the transaction, (ii) expected to have a continuing
impact on the registrant, and (iii) factually supportable. Revenue and cost of
sales were determined on an individual invoice by invoice basis as related to
the Engineering Businesses. Research and development and selling, general and
administrative expenses were determined on an individual invoice by invoice
basis for the Engineering Businesses. The $8,886,000 write down of intangible
assets related to the 1995 adjustment of the carrying value of costs in excess
of net assets of acquired businesses as a reflection of the Duke transaction.
All actual interest incurred is allocated to the Duke adjustment, since the
effect of the transaction is to remove all debt, and, consequently, the related
interest.
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<PAGE>
VECTRA TECHNOLOGIES, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1996, AND THE
FISCAL YEAR ENDED DECEMBER 31, 1995
12. Pro forma historical earnings are not indicative of possible future
performance. No assurances can be given, express or implied, that the Remaining
Businesses can be restructured to be sufficiently profitable to create
shareholder value. The $3.2 million research and development expense; the $5.4
million write down of property, plant and equipment and intangible assets; a
$1.2 million establishment of an allowance for decommissioning; and higher
levels of corporate overhead expenses before streamlining contributed
significantly to the pro forma net loss in 1995.
-30-
<PAGE>
MARKET PRICES AND PER SHARE DATA
The Company's common stock is traded over-the-counter on The Nasdaq Stock
Market, National Market System, under the symbol VCTR.
The following table sets forth the range of the high and low bid prices
for the Company's Common Stock for the years 1994 and 1995 by quarter and 1996
to date, as reported by the Nasdaq Stock Market.
<TABLE>
<CAPTION>
PERIOD HIGH LOW
------ ---- ---
<S> <C> <C>
1994
First Quarter 10 1/4 7 1/2
Second Quarter 8 1/4 3 3/4
Third Quarter 4 7/8 3 3/8
Fourth Quarter 3 7/8 2 1/2
1995
First Quarter 3 1/2 2 7/8
Second Quarter 3 3/8 2 3/8
Third Quarter 3 25/32 2 5/8
Fourth Quarter 2 7/8 1 7/8
1996
First Quarter 2 7/8 1 3/8
Second Quarter (through
June __, 1996)
</TABLE>
At May 1, 1996, the Company had 7,833,527 shares of Common Stock issued
and outstanding and 323 known shareholders of record. The Company has not paid
dividends on its Common Stock and does not expect to pay dividends in the
foreseeable future.
The following table sets forth certain unaudited historical and pro forma
per share financial information for the three months ended March 31, 1996 and
for the fiscal year ended December 31, 1995. The following information should
be read in conjunction with and is qualified in its entirety by the consolidated
financial statements of the Company and notes thereto. See "Index to Financial
Statements" and the pro forma financial statements and notes thereto set forth
under "Pro Forma Financial Information."
Book Value per share at March 31, 1996:
Historical $2.22
Pro forma 2.04
Three Months Fiscal Year
Ended Ended
March 31, 1996 March 31, 1996
--------------- --------------
Income (loss) per share from continuing
operations:
Historical $0.01 ($1.56)
Pro forma (0.07) ( 2.31)
Cash dividends declared per share None None
-31-
<PAGE>
RIGHTS TO DISSENT
GENERAL
Each shareholder has the right to dissent from the proposed sale of the
Engineering Businesses and to obtain payment of the fair value of such
shareholder's shares, unless the Board of Directors approves a plan to
distribute all or substantially all of the net proceeds of the sale to the
shareholders within one year after the sale. These dissenters' rights, and the
procedures required to exercise such rights, are specified in the Revised Code
of Washington ("R.C.W.") Chapter 23B.13, a copy of which is attached as Annex B.
Shareholders of the Company who assert such rights in compliance with R.C.W.
Ch. 23B.13 are entitled to judicial determination of the fair value of their
shares of the Company and to payment in cash of such value. The procedural
requirements for exercising dissenters' rights are not satisfied simply by
refusing to execute the proxy or to vote at the Meeting or by voting "No" at
the Meeting. ANY SHAREHOLDER WHO WISHES TO DISSENT AND TO OBTAIN PAYMENT FOR
SUCH SHAREHOLDER'S SHARES (1) MUST FILE WITH THE COMPANY, PRIOR TO THE MEETING,
A WRITTEN NOTICE OF INTENTION TO DEMAND THAT THE SHAREHOLDER BE PAID FAIR VALUE
FOR THE SHAREHOLDER'S SHARES IF THE PROPOSED SALE IS EFFECTUATED AND (2) MUST
REFRAIN FROM VOTING THE SHAREHOLDER'S SHARES IN APPROVAL OF THE SALE (WHETHER
THROUGH THE PROXY OR IN PERSON AT THE MEETING). A SHAREHOLDER WHO FAILS TO TAKE
EITHER ACTION FORFEITS SUCH SHAREHOLDER'S DISSENTERS' RIGHTS.
The term "fair value" of the shares means their value immediately before
the effective date of the corporate action to which the dissenter objects,
excluding any appreciation or depreciation in anticipation of the corporate
action unless such exclusion would be inequitable. A record shareholder may
assert dissenters' rights as to fewer than all the shares registered in the
shareholder's name only if the shareholder dissents with respect to all shares
beneficially owned by any one person and notifies the Company in writing of the
name and address of each person on whose behalf the shareholder asserts
dissenters' rights. A beneficial shareholder may assert dissenters' rights as
to shares held on such beneficial shareholder's behalf if the beneficial
shareholder (1) submits to the corporation the record shareholder's written
consent to the dissent no later than the time the beneficial shareholder asserts
dissenters' rights, and (2) does so with respect to all of the shares of which
such shareholder is the beneficial shareholder or over which such shareholder
has power to direct the vote.
The following is a summary of the principal steps that a shareholder must
take to exercise dissenters' rights. This summary does not purport to be
complete and is qualified in its entirety by reference to R.C.W. Ch. 23B.13, a
copy of which is attached hereto as Annex B. Failure to take any one of the
required steps may terminate a shareholder's dissenters' rights under R.C.W. Ch.
23B.13. BECAUSE OF THE COMPLEXITY OF THE PROCEDURES IN EXERCISING DISSENTERS'
RIGHTS, ANY SHAREHOLDER WHO WISHES TO EXERCISE SUCH RIGHTS SHOULD SEEK THE
ADVICE OF LEGAL COUNSEL.
REQUIREMENTS FOR PERFECTING DISSENTERS' RIGHTS
In order to exercise dissenters' rights with respect to the proposed sale
of Assets, a shareholder must satisfy all of the following requirements:
(1) The shareholder must file with the Company, prior to the vote, a
written notice of intention to demand payment for the shareholder's shares if
the proposed sale is effectuated.
(2) The shareholder must refrain from voting such shareholder's
shares in approval of the proposed sale of Assets, either in person or by
executing the proxy.
(3) Upon approval of the sale of Assets, a shareholder who has
complied with the preceding two requirements will receive from the Company a
notice stating the procedures for demanding payment and depositing share
certificates. The dissenting shareholder must demand payment and deposit share
certificate(s) in compliance with the procedures set out in the notice.
(4) Within thirty days of the later of (a) the effective date of the
sale of Assets or (b) the date the payment demand is received, the Company shall
remit to the dissenting shareholder the amount that the Company
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estimates to be the fair value of the shareholder's shares, plus interest
accrued from the effective date to the date of payment, together with certain
financial and other information. If the dissenting shareholder is not satisfied
with the payment, the shareholder must within thirty (30) days of the date of
payment provide to the Company the shareholder's own estimate of the fair value
of the shares and applicable interest and demand payment for the deficiency.
(5) If the dissenting shareholder does not file such an estimate
within thirty (30) days after the Company mailed the remittance, the dissenting
shareholder shall be entitled to no more than the amount remitted.
If the Company and the dissenting shareholder are unable to agree as to
the fair value of the shareholder's shares, the Company must petition a court of
competent jurisdiction in King County, Washington, within sixty days of the
dissenting shareholder's demand for payment, to determine the fair value of the
shares and interest. If the Company does not file this petition, the Company
will pay each dissenter whose demand remains unsettled the amount demanded.
Under Washington law, the term "fair value" of the shares means their
value immediately preceding the effective date of the sale of Assets, excluding
any appreciation or depreciation in anticipation of the sale unless the
exclusion would be inequitable. Interest is payable from the effective date of
the sale of Assets until the date of payment, at the average rate currently paid
by the Company on its principal bank loans or, if none, at a rate that is fair
and equitable under all the circumstances.
If the Company files a petition to determine the fair value of the shares
and the court awards a judgment in excess of the amount previously determined by
the Company to be the fair value of the shares plus interest, then each
dissenter made a party to the proceeding is entitled to judgment for the amount
by which the court finds the fair value of the dissenter's shares plus interest
exceeds the amount paid by the Company. The costs of any proceeding determining
the fair value of the shares, including the costs of appraisers appointed by the
court, will be determined by the court and assessed against the Company, except
that the court may assess such costs against all or some of the dissenters, in
amounts the court finds equitable, to the extent the court finds the dissenters
acted arbitrarily, vexatiously, or not in good faith in demanding payment.
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<PAGE>
BUSINESS
The Company operates in one business segment, which is the nuclear
market. In this market, the Company provides high level and low level
radioactive waste systems and services; and specialized engineering services to
commercial nuclear power plants worldwide and to the DOE in the U.S. The
Company offers technology-based solutions for the maintenance and operation of
commercial nuclear power plants through: (1) the handling, transportation, and
dry storage of high level radioactive material; (2) the packaging and
transportation of low level radioactive waste; and (3) engineering analysis of
mechanical, electrical, and operational systems and procedures.
As of December 31, 1995, the Company leased approximately 250,675 square
feet of office and warehouse space which constitutes most of its facilities. It
owns facilities comprising 3,600 square feet. Combustion Engineering, which
subleases to the Company the San Ramon, California office, has agreed, effective
July 1, 1996, to terminate the sublease. In addition, if the transaction is
approved, the Buyer would assume approximately 197,776 square feet of office
space and Management believes the Company's facilities following the sale of the
Engineering Business will be adequate and suitable for its needs, but will
continue to periodically review its leased facilities for economic optimization.
The Company will lease approximately 52,899 square feet of office and
warehouse space. See "The Agreement - Related Agreements and Filings."
At December 31, 1995, the Company had 872 employees. Since December 31,
1995, the number of Company employees has been reduced through layoffs or
attrition by 94 (net). The Company expects the Buyer to offer employment to
substantially all of the 629 employees of the Engineering Business. The
Company expects the Remaining Businesses to employ approximately 100 persons.
The Company expects to terminate approximately 28 persons following the sale
of the Engineering Business.
For additional information, please refer to 1995 Form 10-K distributed
previously to each shareholder of the Company, which described the Company's
business prior to the divestiture of the Engineering Businesses.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND APRIL 2, 1995
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in the
Company's 1995 Form 10-K. In addition, each shareholder is referred to the 1995
Form 10-K previously mailed to each shareholder for the Management's Discussion
and Analysis of Financial Condition and Results of Operations for the Three
Years Ending December 31, 1995.
ACQUISITION AND DIVESTITURES
Effective April 26, 1996, the Company sold all of the outstanding capital
stock of its wholly owned subsidiary, VECTRA Technologies Ltd. ("VECTRA UK"), to
Amey plc. The sale price was approximately $1.9 million. The net proceeds were
approximately $1.6 million after paying expenses associated with the
transaction. The net proceeds were used to reduce the Company's revolving
credit facility by $1.1 million and the balance was added to working capital.
For the three months ended March 31, 1996, VECTRA UK generated revenues of
approximately $2.5 million and operating income of approximately $0.2 million.
Effective June 30, 1995, the Company sold all of the outstanding capital
stock of its wholly owned subsidiary, Plant Services, Inc., to Westinghouse
Electric Corporation. The sale price was $17.4 million after final adjustments
including environmental remediation and earnout provisions. The proceeds from
the sale were used to reduce notes payable and long-term debt payable to banks,
pay retained liabilities, and pay expenses associated with the transaction. For
the six months ended June 30, 1995, Plant Services generated revenues of
approximately $11 million and operating income of approximately $4 million.
In September 1995, the Company sold its 10% ownership in Recytec America,
Inc. to Recytec, S.A. for $1.15 million resulting in a loss of $156,000, which
includes selling, general and administrative expense. These shares had been
issued to VECTRA in connection with the sale of Alaron Corporation to Recytec
S.A. in August 1991.
On January 6, 1994, the Company's shareholders approved the purchase of
all of the stock of ABB Impell Corporation, ABB Government Services Inc. and ABB
Impell Ltd. (the "Impell Companies") from affiliates of ABB Asea Brown Boveri
Ltd. of Zurich, Switzerland. The acquisition, effective as of midnight December
31, 1993, was completed on January 7, 1994, and was accounted for as a purchase
in 1994. The purchase price of $32.3 million, together with the direct costs of
the acquisition were allocated to the fair market value of the assets acquired
and liabilities assumed. The seller received $14.0 million in common stock
(1,714,503 shares) and the remainder of the purchase price in cash.
Immediately following the acquisition, the Company commenced integration
of the U.S. commercial engineering services of the predecessor companies into
one organizational unit. Operations were combined and are managed as a single
entity. Due to this integration, management is unable to assess the separate
performance of the Impell Companies' domestic engineering services (or the
Company's engineering services prior to the acquisition) compared to prior
periods.
RESULTS OF OPERATIONS
REVENUES. Total revenues decreased $14.2 million (36.6%) to $24.5
million in the three month period ended March 31, 1996, from $38.7 million in
the comparable period in 1995. The decrease in revenues for the quarter is
attributable to the sale of the Plant Services operations in June 1995;
decreased activity in nuclear engineering; and lower sales in the fuel services
operations relating to the completion of a large contract during 1995. Revenues
may significantly differ from period to period as a result of varying
contractual terms that relate to
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<PAGE>
the timing and amount of progress payments for some of the Company's multi-year,
multi-million dollar contracts. This variability is expected to continue in
future periods.
GROSS PROFIT. Total gross profit remained relatively consistent in the
1996 and 1995 periods, 28.7% and 29.0%, respectively. Excluding the effect of
the Plant Service operations that were sold in June 1995, gross profit increased
to 28.7% in the first quarter of 1996 from 25.4% in the first quarter of 1995.
Gross profit increased in all areas, but the increase was strongest in the
Company's Waste Services and Fuel Services operations. Each of the Company's
contracts is negotiated independently and varies as to profitability and, due to
changes in the mix of contracts, the Company's gross profit may vary
significantly from quarter to quarter. The timing and actual performance by the
Company in fulfilling its major contracts also affect the Company's gross
profit.
EXPENSES. The Company's overhead expenses decreased $3.7 million (36.4%)
to $6.5 million in the first quarter of 1996 from $10.2 million in the first
quarter of 1995. The primary cause of this reduction in overhead expenses was
an approximate $2.6 million decrease in general and administrative expense as a
result of lower staff levels and other cost cutting measures. Overhead
expenses decreased approximately $0.6 million as a result of the sale of the
Plant Services operations in June 1995. Amortization expense decreased $0.5
million primarily as a result of the Company's write off of intangible assets in
December 1995 based upon negotiations regarding the potential sale of the
Company's engineering operations.
NET INCOME. Net income decreased $0.1 million to approximately $40,000
in the first quarter of 1996 from $163,000 in the first quarter of 1995. This
decrease is primarily due to reductions in revenue offset by curtailed overhead
costs, as indicated above, and to reduced interest expense reflecting lower
levels of bank debt.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities decreased to $0.2 million in
the three months ended March 31, 1996 from $1.4 million in the three months
ended April 2, 1995. This $1.2 million decrease is primarily the result of
decreased net cash provided by operating activities in 1996 as a result of
reduced net income, as detailed above, and lower levels of depreciation and
amortization, non-cash items reflected in the calculation of net income, due to
asset sales and write-offs in the last three quarters of 1995. Operating
working capital in 1996 reflects an approximate aggregate $0.3 million shortfall
of accounts receivable reductions keeping pace with increased levels of
inventory and overall reductions in the level of accounts payable.
Accounts receivable and billings balances differ from period to period as
a result of varying contractual terms that relate to the timing and amount of
progress payments for some of the Company's multi-year, multi-million dollar
contracts. This variability is expected to continue in future periods.
The $0.8 million cash used by investing activities in the first three
months of 1996 was primarily the result of capital expenditures for equipment
acquired to fulfill new contracts won by the Company's Waste Services
operations.
The Company's loan covenants with Banque Paribas and Banque Nationale de
Paris (the "Banks") restrict capital expenditures to a maximum amount of $3.3
million during 1996. The majority of the Company's capital expenditures in 1996
are expected to be incurred for equipment used for processing radioactive waste
volume reduction and dewatering systems in its Waste Services operations.
Additionally, the Company's Fuel Services
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<PAGE>
operations have capital requirements primarily for licenses and high-level waste
transportation equipment and the Company's engineering services operations have
modest capital requirements mainly for computer equipment. The Company
anticipates that it will need to devote significant capital resources to
technology development in the future in order to remain competitive and make
significant investments in capital equipment to increase its revenue. The
Company anticipates that much of its 1996 capital equipment acquisitions will be
financed through cash flows from then new, concurrent customer contracts. The
Company had contractual capital acquisition commitments of approximately $40,000
as of March 31, 1996, and expects to fund these commitments from cash generated
through operations.
In the first quarter of 1996, the Company had no funds used or provided
by financing activities. As detailed below, the Company has negotiated with its
Banks to defer principal payments in the first and second quarter of 1996 under
its term loan agreement.
TERM LOAN. The Company borrowed $15.0 million from the Banks on January
6, 1994, maturing on December 31, 1998 (the "Term Loan"). In connection with
this loan, the Company paid the Banks a $375,000 closing fee and issued warrants
to the Banks to purchase 830,060 shares of the Company's common stock at $8.17
per share, exercisable through January 7, 1999 (the "Original Warrants"). The
agreement with the Banks specifies certain negative, affirmative and financial
covenants including, without limitation, covenants with respect to debt/capital
ratio, interest coverage, fixed charge coverage and minimum net worth, and
restrictions on dividends and activities of the Company.
In September 1995, the Company failed to meet certain measures of
financial performance as required by covenants contained in the Term Loan
agreement and received a waiver of the Term Loan's financial covenants and a
waiver of the scheduled September 30 and December 31, 1995 principal payments.
Additionally, the Banks acquired the rights to reprice the Original Warrants to
$0.01 per share if, among other things, all obligations to the Banks were not
repaid in full by March 31, 1996. Also at this time, the Banks made available
to the Company an additional $3.0 million facility associated with the Term Loan
for capital expenditures ("Tranche B"). Tranche B was initially scheduled to
mature on March 31, 1996 and provided for warrants expiring September 20, 2000,
equal to a maximum (based on the Company's usage and repayment of this facility)
of 6% of the Company's outstanding common stock at $0.01 per share. By the end
of the fourth quarter of 1995, the Company had fully used this facility by
borrowing $3.0 million and then repaying $1.1 million obtained from the final
escrow payment from the Plant Services sale, resulting in a balance outstanding
under Tranche B of $1.9 million at March 31, 1996. Based on this usage, the
Banks acquired the rights to warrants to purchase 392,431 shares of the
Company's common stock at $0.01 per share.
In December 1995, the Banks made available to the Company an additional
$1.0 million working capital facility associated with the Term Loan which was
scheduled to mature on March 31, 1996 ("Tranche C"). Tranche C had an
associated fee of $125,000, payment of which is deferred, and provided for
warrants expiring December 26, 2000, equal to a maximum (based on the Company's
usage and repayment of this facility) of 2% of the Company's outstanding common
stock at $0.01 per share. The Company did not use this facility through March
31, 1996. At December 31, 1995, the Banks had acquired the rights to purchase
78,335 shares of the Company's common stock at $0.01 per share, and such
warrants were valued at $107,000. Warrants for another 78,335 shares of common
stock at $0.01 are due to the Banks if the loan is used and not repaid by a
specific date.
In March 1996, the Banks extended the due date of the borrowings under
Tranche B and Tranche C through April 15, 1996.
In April 1996, the Banks extended the due date of the borrowings under
Tranche B and Tranche C through January 2, 1997; waived the scheduled March 31
and June 30, 1996 Term Loan principal payments; reset the financial covenants
for the quarters ending December 31, 1995, through the terms of the loans; and
restored the Original Warrants to an exercise price of $2.94 per share. For
these actions, the Banks required a fee of $950,000, payment of which is
deferred until January 2, 1997. If, among other things, the Company's total
obligation to the Banks is not repaid in full before August 31, 1996, this
agreement contains maximum penalties of $600,000 which will also be deferred to
January 2, 1997. This will also trigger the repricing of the Original
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Warrants to $0.01 per share and issuing the Banks' rights to purchase
approximately 550,000 shares of the Company's common stock at $0.01 per share.
The Company may also elect to defer the $750,000 payment due September 30, 1996,
to January 2, 1997, by incurring a fee of $150,000, payment of which is
deferred. The Company anticipates that the proceeds from the sale of the
Engineering Businesses will be sufficient to avoid these penalties.
REVOLVING CREDIT AGREEMENT. The Company entered into a $25.0 million
revolving credit agreement (the "Credit Agreement") with the Banks on January
6, 1994, which originally matured on December 31, 1995. Borrowings under the
Credit Agreement are limited by the lesser of a percentage of eligible trade
accounts receivable (the "Borrowing Base") or the maximum amount of the
facility. The amount of funds available is subject to fluctuation of accounts
receivable. In October 1994, the maximum amount of the facility was reduced to
$22.5 million.
In June 1995, utilizing a portion of the proceeds from the sale of the
Plant Services operations, the Company repaid $6.6 million of the amount then
outstanding under the Credit Agreement. The maximum amount of the Credit
Agreement was reduced to $12.5 million and the Banks were paid a fee of
$100,000.
In December 1995, the Credit Agreement's maturity was extended to March
31, 1996, in consideration for an amendment fee of $125,000, of which the
payment of $100,000 was deferred.
In March 1996, the Credit Agreement's maturity was extended to April 15,
1996.
In April 1996, the Credit Agreement's maturity was extended to January 2,
1997 and its applicable interest rate was increased by approximately three
percentage points to the Banks' prime rate plus 1.5% and the Eurodollar rate
option was eliminated. If the Company does not reduce the outstanding balance
of the Credit Agreement and its maximum amount by a minimum of $1.0 million from
the sale of assets by May 31, 1996, this agreement contains a penalty of
$200,000, payment of which is also deferred: The Company complied with this
requirement by remitting $1.0 million of the sale proceeds of VECTRA UK on April
30, 1996. Additionally, the Company has the requirement of either reducing the
amount outstanding and maximum amount of the Credit Agreement by $600,000 by
June 30, 1996, or incurring a fee of $100,000, payment of which is also
deferred. Similarly, the Company may elect to defer a $625,000 payment due on
September 15, 1996, to January 2, 1997, by incurring a fee of $100,000, payment
of which is deferred. For these actions, the Company incurred a fee of
$125,000, payment of which is deferred until January 2, 1997.
SUMMARY OF INTEREST, FEES (PAID & DEFERRED) AND WARRANTS ISSUED TO THE BANKS
<TABLE>
<CAPTION>
NUMBER OF AMOUNT
ITEM NOTE SHARES ($000)
- - - ------------------------------------------ ------ ----------- ----------
<S> <C> <C> <C>
Interest Paid, Inception to April 15, 1996 na $ 4,054
Fees Billed, Inception to April 15, 1996 1 na 1,865
Fees Deferred, Inception to April 15, 1996 2 na 1,450
Warrants exercisable at $2.9375 3 830,060 822
Warrants exercisable at $0.01 3 470,917 1,232
----------- ----------
Total 1,300,977 $ 9,423
----------- ----------
----------- ----------
</TABLE>
Notes:
1 Includes fees paid to the Banks and the Banks' attorneys and accountants.
2 Fees deferred until the earlier of the liquidation of all obligations to
the Banks or January 2, 1997.
3 Warrants valued by management using Black Scholes valuation model with
April 9, 1996, market data.
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<PAGE>
On January 2, 1997, the indebtedness to the Banks under the Term Loan and
revolving Credit Agreement, which could amount to as much as $18.2 million plus
deferred fees of up to $2.4 million, will become due.
The Company believes that cash and cash equivalents at March 31, 1996,
together with cash generated from operations will be adequate to meet its cash
needs through December 31, 1996. Management is committed to decreasing costs in
order to bring the Company to profitable operations and will continue to make
substantial expense reductions in 1996.
PROPOSAL 3 -- ELECTION OF DIRECTORS
The presently authorized size of the Company's Board of Directors is eight
directors.
Six regular meetings and two special meetings of the Board of Directors
were held in 1995. In addition, the Company has three standing committees:
the Audit and Finance Committee, the Human Resources and Compensation
Committee and the Board Nominating Committee. In 1995, each director,
attended at least 75% of the aggregate number of meetings of the Board of
Directors and meetings of the committees of the Board on which he or she
served. The present members of the Audit and Finance Committee are Roy
Kirkorian (Chairman), Elwood D. Howse, Jr. and Albert J. Baciocco, Jr.; the
members of the Human Resources and Compensation Committee are J.E. (Ted)
Ardell, III (Chairman); Dr. E. Linn Draper, Jr. and Fruzsina M. Harsanyi; and
the members of the Board Nominating Committee are Dr. E. Linn Draper, Jr.,
(Chairman), J.E. (Ted) Ardell, III and Elwood D. Howse, Jr.
AUDIT AND FINANCE COMMITTEE
The Audit and Finance Committee makes recommendations to the Board of
Directors concerning the selection, engagement and termination of the Company's
independent public accountants and reviews with the independent public
accountants and the Board of Directors the scope and status of the audit, the
fees for services to be performed by the firm, and the results of the audit when
completed. The Audit and Finance Committee establishes and maintains
communication between the Board and the Company's independent accountants and
financial management personnel. The Audit and Finance Committee also reviews
and discusses with management and the Board of Directors such matters as
accounting policies, internal controls, and procedures for preparation of
financial statements. The committee met four times as an Audit Committee and
four times as an Audit and Finance Committee in 1995.
HUMAN RESOURCES AND COMPENSATION COMMITTEE
The functions of the Human Resources and Compensation Committee are to
review the Company's Human Resources Development and Administration Programs, to
review the Company's policies and programs relating to compensation arrangements
for officers of the Company, to make awards under the Company's incentive
compensation plan, to make recommendations to the Board of Directors with
respect to officers' and directors' compensation and to serve as the plan
administrator of the Company's stock option plans. The committee met once
in 1995.
BOARD NOMINATING COMMITTEE
The function of the Board Nominating Committee is to recommend to the Board
of Directors possible candidates for election as directors. The Board
Nominating Committee was established in June, 1995. The Board Nominating
Committee will consider nominees for directors recommended by the shareholders.
See "Proposals for Future Meetings" for the procedures to be followed by
shareholders in submitting recommendations.
The Board of Directors consists of eight directors and all directors are to
be elected at the Annual Meeting of Shareholders.
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<PAGE>
The Board of Directors has unanimously approved the following nominees for
director positions, all of whom are currently directors:
J.E. (Ted) Ardell, III
Albert J. Baciocco, Jr.
E. Linn Draper, Jr.
Ray A. Fortney
Fruzsina M. Harsanyi
Elwood D. Howse, Jr.
Edward J. Keith
Roy Kirkorian
Unless otherwise instructed, it is the intention of the persons named in
the accompanying form of proxy to vote shares of common stock represented by
properly executed proxies for the nominees. Although the Board of Directors
anticipates that all of the nominees will be available to serve, it is intended
that the proxies will be voted for the election of a substitute nominee or
nominees designated by the Board of Directors. Information with respect to the
right to cumulate votes for the election of directors is set forth under
"Introduction" at the beginning of this Proxy Statement.
The following table lists the names and ages of the nominees. For the
nature and amount of their beneficial ownership of common stock, and the amount
and nature of the ownership of the Company's common stock by all directors and
officers as a group, see "Security Ownership of Certain Beneficial Owners,
Directors and Executive Officers."
DIRECTORS
The following table lists as of May 1, 1996 the names and ages of the
directors:
<TABLE>
<CAPTION>
POSITIONS HELD
NAME AGE (DIRECTOR SINCE)
- - - -------------------------- ----- -------------------------------------------
<S> <C> <C>
Edward J. Keith 60 Chairman of the Board, Director (1994)
Roy Kirkorian 51 Vice Chairman of the Board, Director (1995)
J.E. (Ted) Ardell, III 56 Director (1992)
Albert J. Baciocco, Jr. 65 Director (1989)
E. Linn Draper, Jr. 54 Director (1986)
Ray A. Fortney 50 Director, President and CEO (1994)
Fruzsina Harsanyi 53 Director (1995)
Elwood D. Howse, Jr. 56 Director (1983)
</TABLE>
In February 1995, the Board of Directors amended the bylaws to remove the
staggered election of board members, so beginning at the 1995 Annual Meeting,
all directors are elected annually.
BIOGRAPHIES
Mr. Keith was elected Chairman of the Board in June 1995. He is also
Chairman of the Board of Directors of The Failure Group, a consulting firm
specializing in the analysis and prevention of engineering failures, and a
former Director of Inlex Corporation, which provides computer automation systems
to libraries. From 1969 until 1983, Mr. Keith served as Chairman of the
principal operating subsidiary, Executive Vice President and Director of Impell
Corporation. Mr. Keith was also the co-founder of the Commercial Bank of San
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Francisco. He is a licensed professional engineer and structural engineer in
the state of California. Mr. Keith received his B.S. and M.S. in Engineering in
1961 and 1964, respectively, from the University of California, Berkeley.
Mr. Kirkorian was elected to the Board of Directors in August 1995, and was
elected Vice Chairman in October 1995. Mr. Kirkorian, is an active partner in
El Rancho Farms and is currently active in various Sand Hill Financial Company
capital investments. He was President of C.P. National (NYSE) and former
President of Contel Corp.'s Contel Business Systems. Mr. Kirkorian received his
B.S. degree in Business Administration in 1967 from California State Polytechnic
University and his J.D. degree from Hastings College in 1970. He has been a
member of the Cal Poly Business School Advisory Board since 1988.
Mr. Ardell is a general partner with Technology Partners, a venture capital
firm, and a Director of a number of private companies. From 1968 to 1971, Mr.
Ardell was with Bechtel Power Corporation. From 1971 to 1984, he was a Director
of Impell Corporation and held various other positions with Impell Corporation
and its principal operating subsidiary; and from 1984 to 1986, he was President
and Chief Executive Officer of Impell Corporation. From 1961 to 1968, he served
in the U.S. Navy nuclear submarine force. Mr. Ardell is a registered nuclear
engineer in California and received a B.S. degree in Engineering from the U.S.
Naval Academy in 1961.
Mr. Baciocco is President of The Baciocco Group, Inc., a technical and
management consulting practice, providing service in the areas of strategic
planning, technical investment and application and business planning and
development. He is a Director of Honeywell, Inc., and Giddings & Lewis, Inc.
He retired from the U.S. Navy as a Vice Admiral in 1987 after 34 years of
service which included over 18 years of experience in the direct supervision of
nuclear power plant operations and maintenance, and over seven years in the most
senior executive positions in the Navy's R&D organization. Mr. Baciocco is a
member of the Army Science Board and the Naval Studies Board of the National
Research Council. In addition, he serves on the Boards of Directors of Oak
Ridge Associated Universities, the Research Development Foundation for the
Medical University of South Carolina, and the Board of Visitors to the Software
Engineering Institute, Carnegie Mellon University. He received his B.S. degree
in Engineering from the U.S. Naval Academy in 1953 and has completed graduate
level studies in the field of nuclear engineering.
Dr. Draper is Chairman of the Board, President and Chief Executive Officer
of American Electric Power Inc. (AEP) and the American Electric Power Service
Corporation. He also holds the positions of Chairman of the Board of Directors
and Chief Executive Officer of various affiliates of AEP. From 1979 to 1992,
Dr. Draper served in various executive positions with Gulf States Utilities, an
electric utility company, serving from 1987 to 1992, as Chairman, President, and
Chief Executive Officer. Both AEP and Gulf States Utilities have been and are
customers of the Company. Dr. Draper is a Member of the Board of Directors and
the Executive Committee of the Nuclear Energy Institute and the Edison Electric
Institute. He received his B.A. degree in 1964 and his B.S. degree in 1965,
both in Chemical Engineering, from Rice University. He received his Ph.D.
degree in Nuclear Engineering from Cornell University in 1970. He is a member
of the National Academy of Engineering.
Mr. Fortney was appointed as President and Chief Executive Officer in July
1994. Prior to his appointment, he served as Executive Vice President of the
Company from August 1993, and was President of the Cygna Group of ICF Kaiser
Engineers, an engineering consulting firm, and a Senior Vice President of ICF
Kaiser from 1992 to 1993. He previously served as Vice President and General
Manager of the Power Services Business at Combustion Engineering and
ABB/Combustion Engineering from 1988 through 1990, and President and Chief
Executive of Impell Corporation from 1986 to 1988. Mr. Fortney is a registered
professional engineer in over 10 states. He received his B.S. degree from the
U.S. Naval Academy in 1967, his M.S.M.E. degree from Stanford University in 1972
and attended the Stanford University Business School Executive Program in 1989.
Dr. Harsanyi was elected to the Board in June 1995. She is Vice President,
Public Affairs and Corporate Communications, and a Corporate officer of Asea
Brown Boveri Inc. ABB is a Connecticut-based company, providing products and
services for power generation, transmission and distribution, and industrial
processes. She joined the Company in 1980 after working for two years for the
Continental Group and prior to that for the U.S. Government. Dr. Harsanyi
received B.A. and M.A. degrees in International Relations and a Ph.D. in
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Government from the American University. She has served as an adjunct professor
of International Business at Georgetown University's School of Foreign Service
and is a member of the Business-Government Relations Council, the Council for
Excellence in Government, the Bryce Harlow Foundation, the Public Affairs
Council, and Georgetown University's Landegger Program Advisory Board.
Mr. Howse served as Chairman of VECTRA's Board from 1991 to 1995. He is
President of Cable & Howse Ventures, a venture capital management firm he
co-founded in 1977. He is also a general partner of CH Partners II and CH
Partners III, major shareholders of the Company, and a Director of OrthoLogic
Corporation and Applied Microsystems Corporation. From 1970 to 1974, he served
as Treasurer of Data Science Ventures, a venture capital firm, and from 1974 to
1976, as the Chief Financial Officer for Seattle Stevedore and Miller Produce
companies. Mr. Howse served in the U.S. Navy nuclear submarine force until
1968. Mr. Howse received his B.S. degree in Engineering in 1961 and his M.B.A.
degree in 1970, both from Stanford University.
EXECUTIVE OFFICERS
The following table, as of May 1, 1996, sets forth the names, titles and
ages of the Company's executive officers. All executive officers serve until
removed by the Board of Directors:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
--------------------- ----- -------------------------------------------
<S> <C> <C>
Ray A. Fortney 50 President and Chief Executive Officer
Thomas B. Pfeil 49 Vice President, Chief Financial Officer and
Secretary
Kristin L. Allen 46 Vice President
Walter R. Bak 41 Vice President
Jeffrey W. Cummings 44 Vice President
Vincent Franceschi 37 Vice President
</TABLE>
BIOGRAPHIES
Mr. Fortney's biography is included with the directors.
Mr. Allen was appointed to his current position in April 1992 upon the
Company's acquisition of his firm, Semper Technologies, Inc., a management
consulting firm for utilities. He co-founded Semper in 1990. From 1979
until 1990 he was with Advanced Technology Engineering Systems, Inc. and its
parent, Advanced Technology, Inc., an engineering and management consulting
firm for nuclear utilities and government agencies holding progressively more
senior positions. From 1972 to 1979 he served in the U.S. Navy nuclear
submarine force and taught at the U.S. Naval Academy. He is a registered
professional engineer in the Commonwealth of Virginia. Mr. Allen received his
B.S. degree in Nuclear Engineering from the University of Virginia in 1972
and his M.S. degree in High Energy Physics from the Naval Postgraduate School
in 1973.
Mr. Bak was appointed to Vice President, Business Development, in October
1995. Mr. Bak has held the positions of Manager, Power Services, and Manager,
Fuel Services, with VECTRA prior to his current assignment. Mr. Bak has been
involved in managing businesses in the commercial nuclear, government, and
non-nuclear sectors of Impell since 1987. Mr. Bak is a registered professional
engineer in California. He received his M.S. degree in Civil Engineering from
the University of California, Berkeley, in 1978, and his B.S. degree in Civil
Engineering from the University of Notre Dame in 1977.
Mr. Cummings was appointed to his current position in June 1992, with
responsibility initially for the Company's Chicago office consisting of over 220
engineering professionals. Since that time, he has assumed roles as Vice
President, Marketing and Business Development and most recently, Vice President,
Nuclear Engineering. Prior to his appointment, Mr. Cummings served in various
positions of increasing responsibility after joining the Company in 1985,
including General Manager, Chicago Operations. Mr. Cummings received a B.S.
degree in Operations Analysis in 1973 from the U.S. Naval Academy and a M.S. in
Operations Research in 1974 from the U.S. Naval Post Graduate School.
-42-
<PAGE>
Mr. Franceschi was appointed to his current position in January 1994
following the Company's acquisition of ABB Impell Corporation ("Impell"). From
1989 until his appointment, Mr. Franceschi was the Manager of projects for
Impell's Western Region. From 1980 to 1989 Mr. Franceschi served in various
positions of increasing responsibility, including Manager, Systems Engineering
and Manager of Business Development for the DOE market. Mr. Franceschi is a
registered professional engineer in California. He received his B.S. degree in
Civil Engineering from the University of California, Berkeley in 1980 and his
M.B.A. from Saint Mary's College in 1994.
Mr. Pfeil was appointed Vice President, Finance and Secretary in February
1996 and Chief Financial Officer in April 1996. From 1992 until his
appointment, Mr. Pfeil served as a director and officer of several start-up
manufacturing and small sales businesses. From 1985 to 1992, Mr. Pfeil served
in various positions, including Corporate Controller and Chief Financial Officer
during the restructuring and turnaround of WorldCorp Inc. and its predecessor,
World Airways Inc. Prior to 1985, he served for twelve years in various
positions of increasing responsibility with Baker Hughes, a multi-national
manufacturer of oil field equipment and provider of related engineering
services. He received his M.B.A. and B.S. degree in Business Administration
(Accounting) from California State University, Los Angeles.
REPORT OF HUMAN RESOURCES AND COMPENSATION COMMITTEE
The Human Resources and Compensation Committee ("Committee") of the Board
of Directors is composed entirely of outside directors and is responsible for
establishing compensation policies that apply to executives and managers of the
Company, including executive officers. All decisions by the Committee relating
to the compensation of the Company's executive officers are reviewed by the full
Board, except for decisions about awards under the Company's stock option plans,
which are made solely by the Committee.
PHILOSOPHY. The philosophy of the Company's executive compensation program
is that compensation of executive officers, and in particular that of the
President, should be directly and materially linked to both operating
performance of the Company and to the interests of the shareholders. In
implementing this philosophy, the Company's policies integrate annual base
compensation with incentive awards based upon corporate performance and
individual initiatives and performance. Measurement of corporate performance is
primarily based on Company-wide goals, while measurement of individual
initiatives is primarily based on review of individual and operations
performance goals.
In years in which performance goals are achieved or exceeded, executive
compensation tends to be higher than in years in which performance is below
expectations. Annual cash compensation, together with grants of stock options
and incentive compensation, is designed to attract and retain qualified
executives and to ensure that such executives have a continuing stake in the
long-term success of the Company. Annual increases may also be necessary at
times, without reference to performance, to adjust the Company's executive
salaries to remain competitive with salaries paid by comparable companies.
The Company's executive compensation program is composed of base salary,
annual cash incentive compensation, long-term incentive compensation in the form
of stock options and various benefits, including medical and profit sharing
plans generally available to employees of the Company.
BASE SALARY. Base salary levels for the Company's executive officers are
set in the context of the Company's total compensation philosophy which is to
align executive interests with the shareholders and make a significant portion
of their compensation opportunity contingent upon achieving performance goals.
Executive base salaries are generally targeted near the median of companies in
the power and environmental services markets and the service segment of general
industry companies of comparable revenue size. These companies, which are
selected with the help of a compensation consultant retained by the Committee,
differ from the broader group of companies included in the Piper Jaffray
Hazardous Remediation Disposal Index used in the stock performance graph that
follows this report. Competitive data taken from available private and
published survey sources is reviewed annually for this purpose. In determining
individual salary levels, the Committee takes into account the
-43-
<PAGE>
executive officer's experience, scope of responsibility, performance level, and
relative impact on the Company's success. In 1994, on an overall basis,
executive officers' base salaries were targeted at or slightly below the median
in the most recent survey. There were no significant changes for 1995.
ANNUAL INCENTIVE COMPENSATION. The annual incentive compensation plan is a
key element in the Company's pay for performance system and is the vehicle by
which executive officers can increase their total compensation. Annual
incentive compensation constitutes that portion of executive compensation that
is at risk and is dependent on achievement of individual and Company performance
objectives. The Company's objectives, which are not specifically weighted, are
a combination of operating, financial, and strategic goals (such as
profitability, revenue growth, productivity, and cash flow) that are considered
to be critical to the Company's short and long-term financial success and its
ability to build shareholder value. The Committee establishes Company-wide and
individual goals annually with the President. The President develops individual
performance goals for the other executives, which goals are approved by the
Committee. The amount of the awards paid to executive officers at the end of
the year varies depending upon the performance against the established
Company-wide, operations, and individual goals. In determining the size of the
awards, no single performance factor or formula is used because the Committee
believes that the rigid application of quantitative performance measures would
eliminate the consideration of qualitative factors critical to long-term
strategic performance. Determination of awards for the President and other
executive officers, however, emphasize overall Company performance. The
Company-wide performance goals included budgeted levels of revenue growth, net
income, and other strategic goals. The Committee determined that because the
primary goal of net income was not met in 1994 or 1995, none of the Company's
executive officers would receive any annual incentive compensation for 1994 or
1995.
The cash compensation for directors for 1995 was reinstated to the 1993
levels: $8,000 annual fee and a $750 meeting and committee meeting fee,
together with the automatic annual grant of options for 2,000 shares for each
director on the first day of business in January.
STOCK OPTIONS. The Company's stock option plans are the long-term
incentive for executive officers and key employees. The Committee believes that
stock options provide a strong incentive for executives to build shareholder
value. The Committee awards stock options to the President and, upon the
recommendation of the President, to other executive officers. Individual grants
are based upon competitive practices of companies in the service markets
described above, the amount of stock options previously granted to the
executive, and individual performance as evaluated by the Committee.
The Omnibus Budget Reconciliation Act of 1993 places a limit on the amount
of certain types of compensation for each of the executive officers which may be
tax deductible by the Company beginning in 1994. The Internal Revenue Service
recently issued proposed regulations on the deductibility limit. The Company's
policy is, primarily, to design and administer compensation plans which support
the achievement of long-term strategic objectives and enhance shareholder value
and, to the extent possible, to maximize the proportion of compensation expense
that is tax deductible by the Company. It is anticipated the new regulations
will not result in a limitation for the Company to fully deduct all compensation
expense. The Company will continue to monitor these proposed regulations.
-44-
<PAGE>
J.E. (Ted) Ardell, III, Chairman
E. Linn Draper, Jr.,
Fruzsina Harsanyi
Members of the Human Resources and
Compensation Committee, for fiscal 1995
EXECUTIVE COMPENSATION
The following tables set forth compensation paid by the Company for
services rendered in the Company's last three completed fiscal years ended
December 31, 1995, to the Company's chief executive officer and the four highest
paid executives whose total compensation exceeded $100,000.
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------------------- --------------
OTHER
ANNUAL
NAME AND PRINCIPAL BONUS COMPENSATION OPTIONS/ ALL OTHER
POSITION YEAR SALARY ($) ($) ($) SARS(#) COMPENSATION
- - - ---------------------- -------- ----------------- --------- ----------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Ray A. Fortney 1995 201,000 173,000
President and CEO 1994 194,074 17,574(2) 68,000 2,276(3)
1993 78,890(4)
John R. Holding 1995 150,749 60,000(12) 6,000
Former Vice 1994 138,219 32,377(5) 41,000 3,265(3)
President, CFO and 1993 68,750(6) 69,563(7) 25,000
Secretary
Lynne M. Heitman 1995 146,543(8) 55,000(12) 25,000 25,577(9)
Former CFO 1994 125,000
1993 76,667(11)
Kristin L. Allen 1995 125,865 36,000
Vice President 1994 124,431
1993 125,000
Walter R. Bak 1995 112,062 34,000
Vice President 1994 110,485 3,600(10)
Jeffrey W. Cummings 1995 130,650 46,000
Vice President 1994 118,688
28,492(13)
Vincent Franceschi 1995 114,810 36,000
Vice President 1994 110,255 17,605(2)
</TABLE>
-45-
<PAGE>
NOTES TO SUMMARY COMPENSATION TABLE
1 None of the named executives received compensation reportable under the
Restricted Stock Awards or Long-Term Incentive Plan Payouts columns.
2 One time payment of accrued vacation balances reflecting change in policy
whereby officers do not accrue vacation.
3 Matching contribution to the 401(k) and retirement plan.
4 For the period August 9, 1993, the date Mr. Fortney's employment with the
Company began, through December 31, 1993.
5 Reimbursement of federal income tax differential of $22,336 attributable to
relocation cost reimbursement, and payment of accrued vacation of $10,041.
6 For the period June 16, 1993, the date Mr. Holding's employment with the
Company began, through December 31, 1993.
7 Reimbursement of $24,670 moving expenses and $44,893 closing costs in
connection with the purchase of a home in the Puget Sound region.
8 For the period January 1, 1995 to November 18, 1995, the date Ms. Heitman
terminated employment with the Company.
9 Payment of outplacement fee of $8,750 and severance of $16,827.
10 Payment of car allowance.
11 For the period March 22, 1993, the date Ms. Heitman's employment with the
Company began, through December 31, 1993.
12 Relocation/Retention payments.
13 One time payment of accrued vacation (see note 2) and $19,000 employment
contract buyout.
-46-
<PAGE>
OPTION GRANTS DURING 1995 FISCAL YEAR
The following table provides information related to options granted to the named
executive officers during 1995.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
- - - ---------------------------------------------------------------------------------- --------------------------
% OF TOTAL
OPTIONS/
OPTIONS/ SARS GRANTED EXERCISE OR
SAR TO EMPLOYEES BASE PRICE EXPIRATION
NAME GRANTED (2) IN FISCAL YEAR ($/SH.)(3) DATE 5% ($) 10% ($)
- - - ------------ --------------- ------------------ --------------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Ray A. 18,000(4) 5.0% 4.50 2/16/05 11,644 71,027
Fortney 80,000(5) 22.1% 4.50 6/13/00 -- 34,874
45,000(5) 12.4% 4.50 6/13/00 -- 19,617
30,000(6) 8.7% 2.75 12/01/00 23,377 53,238
Kristin L. 6,000(4) 1.7% 4.50 2/16/05 3,881 23,757
Allen 30,000(6) 8.3% 2.75 12/01/00 23,377 53,238
John R. 6,000(4) 1.7% 4.50 2/16/05 3,881 23,757
Holding
Walter R. 5,000(4) 1.4% 4.50 2/16/05 3,250 19,800
Bak 4,000(4) 1.1% 4.50 2/16/05 2,600 15,840
25,000(6) 6.9% 2.75 12/01/00 19,481 44,365
Jeffrey W. 6,000(4) 1.7% 4.50 2/16/05 3,881 23,757
Cummings 20,000(6) 5.5% 3.25 7/31/00 24,835 50,172
20,000(6) 5.5% 2.75 12/01/00 15,585 35,492
Vincent 6,000(6) 1.7% 4.50 02/16/05 3,881 23,757
Franceschi 5,000(4) 1.4% 4.50 02/16/05 3,250 19,797
25,000(6) 6.9% 2.75 12/01/00 19,481 44,365
Lynne M. 10,000(4) 2.8% 4.50 06/13/00 -- 4,359
Heitman 15,000(4) 4.1% 4.50 06/13/00 -- 6,539
</TABLE>
-47-
<PAGE>
NOTES TO OPTIONS/SAR GRANTS IN LAST FISCAL YEAR TABLE
1 The potential realizable value portion of the table illustrates value that
might be realized upon exercise of the options immediately prior to the
expiration of their term, assuming the specified compounded rates of
appreciation on the Company's common stock over the term of the options.
These numbers do not take into account certain provisions of the options
providing for cancellation of the option following termination of
employment.
2 Options to acquire shares of common stock.
3 The option exercise price may be paid in shares of common stock owned by
the executive officer, in cash, or in any other form of valid consideration
or a combination of any of the foregoing, as determined by the Human
Resources and Compensation Committee in its discretion.
4 This represents the re-pricing of previously issued options, with a cliff
vest date of January 1, 1998.
5 Options are exercisable January 1, 1998.
6 Options are exercisable with respect to 25% of the shares covered thereby
on the anniversary of the exercise date in 1996, 1997, 1998 and 1999.
-48-
<PAGE>
OPTION EXERCISES DURING 1995 AND YEAR END OPTION VALUES
The following table provides information related to options exercised by the
named executive officers during the 1995 fiscal year and the number and value of
options held at fiscal year end. The Company does not have any outstanding
stock appreciation rights ("SARs").
AGGREGATE OPTION/SAR EXERCISES IN 1995 AND
YEAR END OPTION/SAR VALUE
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
AT DECEMBER 31, 1995(#) AT DECEMBER 31, 1995($)(1)
---------------------------------- ----------------------------------
SHARES
ACQUIRED ON VALUE
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - - ------------ ---------------- ---------------- --------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Ray A. -- -- 12,500 210,500 -- --
Fortney
Kristin L. -- -- 23,250 43,750 -- --
Allen
Walter R. -- -- 1,000 34,000 -- --
Bak
Jeffrey W. -- -- 23,750 47,250 -- --
Cummings
Vince -- -- 0 36,000 -- --
Franceschi
John R. -- -- 21,250 44,750 -- --
Holding
</TABLE>
NOTE TO AGGREGATE OPTION/SAR EXERCISES IN 1995 AND YEAR END OPTION/SAR VALUE
1 The closing price for the Company's common stock as reported by the Nasdaq
Stock Market on December 31, 1995, was $2.25. Since the option exercise
price for each officer is higher than the market price for the Company's
Common Stock, no value is reported in the table.
HUMAN RESOURCES AND COMPENSATION COMMITTEE REPORT ON OPTION REPRICING
In February 1995, the Committee recommended and the Board of Directors
approved (as required by the 1993 Stock Option Plan) a program for those
incentive stock options granted in 1994 to employees formerly with Impell and in
lieu of cash bonuses for 1994 performance. Under the repricing program which
was announced to the employees in March 1995, the options held by employees
still employed by the Company can be repriced at the employees' option at an
exercise price of $4.50 per share. The then current market price was $3.00 per
share. In consideration of the price change, the vesting schedule would be
changed from an eighteen months "cliff vesting" and proportional vesting over
four years to 100% "cliff vesting" at January 1, 1998. The Committee debated
the merits of repricing incentive options, noted its general opposition to
repricing and concluded that on balance the interests of the shareholders would
best be served by reinforcing the incentive to the employees with an exercise
-49-
<PAGE>
price within near term achievable levels and in turn receiving an extension of
the vesting period to encourage continuity with the Company.
J.E. (Ted) Ardell, III, Chairman
E. Linn Draper, Jr.,
Fruzsina Harsanyi
Members of the Human Resources and
Compensation Committee, for fiscal 1995
TEN-YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
NUMBER OF LENGTH OF ORIGINAL
SECURITIES MARKET PRICE OF OPTION TERM
UNDERLYING STOCK AT TIME OF EXERCISE PRICE AT NEW REMAINING AT DATE
OPTIONS/SARS REPRICING TIME OF EXERCISE OF REPRICING
NAME POSITION DATE REPRICED REPRICING PRICE (YEARS)
- - - ------------------ -------------- ------- ------------ ---------------- ----------------- -------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Kristin Allen Vice President 2/16/95 6,000 3.13 9.50 4.50 4
Walter Bak Vice President 2/16/95 5,000 3.13 9.25 4.50 4
2/16/95 4,000 3.13 9.50 4.50 4
Jeffrey Cummings Vice President 2/16/95 6,000 3.13 9.50 4.50 4
Ray Fortney President and 2/16/95 18,000 3.13 9.50 4.50 4
CEO 6/13/95 80,000 3.00 6.25 4.50 4
6/13/95 45,000 3.00 6.25 4.50 4
Vincent Franceschi Vice President 2/16/95 5,000 3.13 9.25 4.50 4
2/16/95 6,000 3.13 9.50 4.50 4
Lynne Heitman Former CFO 6/13/95 15,000 3.00 6.13 4.50 4
6/13/95 10,000 3.00 9.00 4.50 4
John Holding Former CFO 2/16/95 6,000 3.13 9.50 4.50 4
</TABLE>
COMPENSATION OF DIRECTORS AND STOCK OPTIONS FOR NON-EMPLOYEE DIRECTORS
During 1995, Directors of the Company, other than Mr. Fortney, were paid
a fee of $750 for each Board of Directors meeting they attended, $750 for each
committee meeting they attended, and a monthly retainer of $889 for the Chairman
of the Board and $667 for all others. Mr. Fortney received compensation as a
member of the management of the Company as indicated in the "Summary
Compensation Table." The Chairman of the Board received stock options for
47,000 shares and the Vice Chairman of the Board received stock options for
50,000 shares. All other members of the Board received stock options for 2,000
shares except one who received 4,500.
Each present director of the Company who is not an employee of the
Company is an "Eligible Director" for the grant of options under the Company's
stock option plans, which plans contain a provision for annual non-discretionary
option grants to all non-employee directors. On the first trading day of
January of each year, each individual, who is on such date an eligible director,
will be granted a nonqualified option to purchase 2,000 shares of the Company's
common stock at 100% of the fair market value of the stock on the date of such
grant. The grants for 1995 were made on January 3, 1995, at an option price of
$3.125.
-50-
<PAGE>
EXECUTIVE EMPLOYMENT AGREEMENTS
The Company has executed Executive Employment Agreements with its President
and Vice President Messrs. Fortney and Allen (for purposes of the following
discussion, each an "Executive"). The terms of the agreements, summarized
below, are substantially identical, except where noted and with respect to base
salary, which is disclosed under Compensation.
Each Executive's employment continues until terminated pursuant to the
terms of the agreement. Each Executive may be terminated by the Company if he
is disabled for more than 90 days, subject to payment of disability amounts, and
for cause, which includes the failure to follow reasonable directives of the
Board of Directors, gross malfeasance or flagrant disloyalty to the Company,
criminal conduct involving moral turpitude, or deficiency in job performance.
The Company may also terminate each Executive's employment without cause
upon sixty days notice. Each Executive has the right to terminate his
employment for good reason, which includes material breach by the Company of its
obligations, reduction of base salary or alteration of his duties or
responsibilities without his consent, geographic relocation of the Executive or
a change in control of the Company.
If the termination by the Company is for cause or by the Executive without
good reason, salary ceases upon termination. If the termination is without
cause by the Company or for good reason by the Executive, each Executive
receives severance payments equal to a minimum 70% of base salary (100% if more
than 8 years of service with the Company) for 12 months or until the time that
Executive is employed on a full-time basis by another employer, plus payment of
the prorated portion of incentive bonus that he would have received.
Mr. Fortney receives severance payments equal to 100% of base salary for 12
months.
Each Executive also agreed to refrain from engaging in other business
activities in the nuclear utility service industry while employed by the
Company. If the Executive terminates his employment without good reason (but
not for any other type of termination), the Executive is required to refrain for
12 months from competing with the Company or its subsidiaries on any pending
contract, proposal or bid on which the Executive participated while an employee
or with respect to which the Executive has confidential information. Each
Executive also agreed to maintain the confidentiality of information belonging
to, used by, or in the possession of the Company relating to its business,
except information available in the public domain.
COMPLIANCE WITH SEC REPORTING REQUIREMENTS
Officers and directors of the Company and greater than ten percent
shareholders are required to report to the Securities and Exchange Commission
(the "Commission") on a timely basis their beneficial ownership of and certain
changes to their beneficial ownership of the Company's stock. The Commission's
rules require the Company to disclose any reporting obligations that came to the
Company's attention during the past fiscal year based on a review of the
applicable filings with the Commission that report such changes in beneficial
ownership. The Company believes that during the fiscal year ended December 31,
1995, its directors, executive officers and principal shareholders filed all
required forms, except ________________________, who was late in filing
[describe applicable form].
STOCK PRICE PERFORMANCE GRAPH
The graph below compares the Company's five-year cumulative return on its
common stock to the similar returns for (a) all stocks traded under the Nasdaq
Stock Market Composite and (b) the Piper Jaffray Hazardous Waste
Remediation/Disposal Index of 38 stocks (including the Company) of companies in
the hazardous waste and environmental services industry.
-51-
<PAGE>
[GRAPH]
LEGEND
<TABLE>
<CAPTION>
Symbol Index Description 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95
- - - ------ ----------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
u PIPER JAFFRAY 100.0 105.9 92.1 69.5 51.0 41.2
n VECTRA 100.0 91.8 91.8 138.8 53.1 36.7
t NASDAQ STOCK 100.0 156.8 181.1 207.8 201.1 281.4
MARKET -
COMPOSITE
</TABLE>
PROPOSAL 4 -- RATIFICATION OF SELECTION OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS
The Board of Directors is seeking the shareholders' ratification of the
Board's decision to select Ernst & Young LLP as independent public accountants
of the company for the fiscal year 1996. The proposal must receive more votes
for than against after it is determined that a quorum is represented at the
Shareholders' Meeting. See "Introduction" for information regarding the effect
of abstentions and broker non-votes.
If the proposal is not adopted, the adverse vote will be considered as a
direction to the Board of Directors to select other independent public
accountants for the following year. Because of the difficulty and expense of
making any substitution of accountants so long after the beginning of the year,
it is contemplated that the appointment for the year 1996 will be permitted to
stand unless the Board of Directors finds other good reason for making a change.
A representative of Ernst & Young LLP is expected to be present at the
annual meeting to respond to appropriate questions and to make a statement if
desired.
During 1995 Ernst & Young LLP provided the Company with audit services
including the audit of the annual financial statements, filings with the
Securities and Exchange Commission and consultation regarding various tax and
accounting matters.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
PROPOSAL TO RATIFY THE SELECTION OF ERNST & YOUNG LLP AS INDEPENDENT PUBLIC
ACCOUNTANTS.
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<PAGE>
PROPOSALS FOR FUTURE MEETINGS
The 1997 Annual Meeting of Shareholders of VECTRA Technologies, Inc. will
be held in April, 1997. Any shareholder who would like to nominate a director
or submit a proposal for inclusion in the Company's proxy and proxy statement
for the 1997 annual meeting may do so by submitting a written proposal which
must be received at the principal executive offices of VECTRA Technologies, Inc.
on or before December 30, 1996. Any proposal received after that date will not
be considered for inclusion.
OTHER MATTERS
The Board of Directors has no knowledge of any other matter which may come
before the meeting and does not intend to present any other matters. If any
matters properly come before the meeting or any adjournment thereof, the persons
named as proxies will have discretionary authority to vote the shares
represented by the accompanying proxy in accordance with their best judgment.
FORM 10-K
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10K FOR FISCAL 1995 AS FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS AVAILABLE WITHOUT CHARGE BY
CONTACTING:
Chief Financial Officer
VECTRA Technologies, Inc.
5000 Executive Parkway
Suite 500
San Ramon, CA 94583
BY ORDER OF THE BOARD OF DIRECTORS
THOMAS B. PFEIL
CORPORATE SECRETARY
DATED: San Ramon, California, _____, 1996
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<PAGE>
FINANCIAL STATEMENTS TABLE OF CONTENTS
Page
--------
Condensed Consolidated Balance Sheets as of March 31, 1996, and
December 31, 1995 3 & 4
Condensed Consolidated Statements of Operations for the Three Months
Ended March 31, 1996, and April 2, 1995 5
Condensed Consolidated Statements of Cash Flow for the Three Months
Ended March 31, 1996, and April 2, 1995 6
Notes to Condensed Consolidated Financial Statements 7
F-1
<PAGE>
VECTRA TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
(unaudited)
------------- -------------
ASSETS
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 2,228 $ 2,834
Securities available for sale 1,031 1,274
Accounts receivable, net of allowance ($785 in 1996 and $785
in 1995) 21,133 21,065
Costs and estimated earnings in excess of billings on
uncompleted contracts 1,521 1,665
Refundable income tax prepayments -- 600
Inventories 1,672 1,176
Prepaid expenses 931 720
------------- -------------
Total Current Assets 28,516 29,334
------------- -------------
Property, Plant and Equipment, at cost
Land 94 94
Buildings 359 359
Machinery and equipment 8,742 8,707
Construction in progress 10,002 9,011
Furniture and fixtures 2,591 2,587
------------- -------------
Total Property, Plant and Equipment 21,788 20,758
Less accumulated depreciation 9,030 8,614
------------- -------------
Net Property, Plant and Equipment 12,758 12,144
------------- -------------
Costs in excess of net assets of acquired businesses, net of
accumulated amortization 14,780 14,780
Licenses, patents and other intangibles, at cost, net of
accumulated amortization 1,207 1,200
Investments and long-term prepaid costs 3,203 3,305
Other assets 62 66
------------- -------------
TOTAL ASSETS $ 60,526 $ 60,829
------------- -------------
------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
F-2
<PAGE>
VECTRA TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(in thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
(unaudited)
------------- -------------
<S> <C> <C>
LIABILITIES
Current Liabilities
Note payable to banks $ 12,389 $ --
Accounts payable 9,276 10,762
Accrued payroll and related expenses 7,062 6,011
Other accrued liabilities 6,567 6,742
Billings in excess of costs and estimated earnings on
uncompleted contracts 2,582 2,288
Long-term debt due within one year 4,827 --
------------- -------------
Total Current Liabilities 42,703 25,803
------------- -------------
Long-term debt -- 17,216
Deferred lease incentive 409 424
Commitments and contingencies -- --
------------- -------------
Total Liabilities 43,112 43,443
------------- -------------
SHAREHOLDERS' EQUITY
Class A Preferred Stock, 4,100,000 shares authorized, none
issued and outstanding -- --
Common Stock, $0.01 par value, 30,000,000 shares authorized;
7,833,527 shares issued and outstanding in 1996
7,833,527 shares issued and outstanding in 1995 44,960 44,960
Accumulated deficit (27,546) (27,574)
------------- -------------
Total Shareholders' Equity 17,414 17,386
------------- -------------
Total Liabilities and Shareholders' Equity $ 60,526 $ 60,829
------------- -------------
------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
F-3
<PAGE>
VECTRA TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------
March 31, April 2,
1996 1995
------------- -------------
<S> <C> <C>
Revenues $ 24,497 $ 38,651
Operating costs 17,478 27,450
------------- -------------
Gross profit 7,019 11,201
Research and development expenses 17 29
Selling, general and administrative expenses 6,493 10,214
------------- -------------
Operating income 509 958
Interest expense, net 463 755
------------- -------------
Income before income taxes 46 203
Provision for income taxes 6 40
------------- -------------
Net income $ 40 $ 163
------------- -------------
------------- -------------
Net income per share $ 0.01 $ 0.02
------------- -------------
------------- -------------
Number of shares used to calculate net income per share 7,833,527 7,888,445
------------- -------------
------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
F-4
<PAGE>
VECTRA TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------
March 31, 1996 April 2, 1995
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 40 $ 163
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and Amortization 514 1,589
Increase (decrease) in cash from changes in operating working
capital:
Accounts receivable and billings 970 (6,374)
Inventories and prepaid expenses (707) (480)
Accounts payable and accrued expenses (610) 6,545
------------- -------------
Net cash provided by operating activities 207 1,443
------------- -------------
Cash flows from investing activities:
(Decrease) increase in securities available for sale 231 (129)
Capital expenditures (1,048) (2,274)
Decrease in other assets 4 6
------------- -------------
Net cash used in investing activities (813) (2,397)
------------- -------------
Cash flow from financing activities:
Repayment of long-term debt -- (750)
------------- -------------
Net cash used in financing activities -- (750)
------------- -------------
Net decrease in cash (606) (1,704)
Cash and cash equivalents at beginning of period 2,834 3,427
------------- -------------
Cash and cash equivalents at end of period $ 2,228 $ 1,723
------------- -------------
------------- -------------
Cash paid for interest $ 430 $ 594
Cash paid for income taxes $ -- $ --
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
F-5
<PAGE>
VECTRA TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
VECTRA Technologies, Inc. ("VECTRA" or the "Company") have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Article 10 of
Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been
included. Operating results for the three month period ended March 31,
1996, are not necessarily indicative of the results that may be expected
for the full year. The unaudited consolidated financial statements should
be read in conjunction with the consolidated financial statements and
footnotes thereto included in the Company's 1995 Annual Report on
Form 10-K.
2. EARNINGS PER SHARE
Net income per share is based upon the weighted average number of common
shares outstanding during each period plus the dilutive effect of stock
options and warrants. Net income per share on a fully diluted basis was
the same as the primary income per share.
3. INDEBTEDNESS TO BANKS
At March 31, 1996, the Company had both a revolving credit facility and
long-term loans with banks. These facilities originally carried an
interest rate equal to the banks' base rate plus 1.0% to 1.5% or the
Eurodollar rate plus 2.0% to 2.5%. The Eurodollar option has been
eliminated for the revolving credit facility effective March 31, 1996.
On April 15, 1996, the Company entered into amendments to its revolving
credit facility and term loan agreements with the Banks. Under these
amendments, all outstanding borrowings under the revolving credit
facilities and the term loan agreements will be due on January 2, 1997.
These amendments also establish new financial covenants for 1996. As a
result of these amendments, the Company incurred additional bank fees of
approximately $1.1 million due January 2, 1997, or upon repayment of the
outstanding borrowings. The Company also agreed to issue warrants to the
Banks to purchase up to 6% of the Company's outstanding common stock on a
fully diluted basis at $0.01 per share, reprice previously earned warrants
to purchase 830,060 shares of common stock from $2.9375 to $0.01 per share
and pay fees to the bank, deferred until January 2, 1997, of up to $600,000
in the event that the Company does not achieve certain financial milestones
in 1996. The Company may elect to defer a $750,000 payment due September
30, 1996, to January 2, 1997, by paying a fee of $150,000. Under the
revolving credit facility, the Company may elect to defer a revolving
credit facility $600,000 payment due on June 30, 1996, to January 2, 1997,
by paying a fee of $100,000. In addition, the Company may elect to defer a
$625,000 payment due on September 15, 1996, to January 2, 1997, by paying a
fee of $100,000. The amendments also specify that any proceeds from the
sale of operations be used to repay indebtedness to the Banks
F-6
<PAGE>
VECTRA TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
3. Indebtedness to Banks (continued)
As of April 15, 1996, the Company has reserved 1,300,977 shares of common
stock for warrants earned by the Banks, and in the future, the Company may
be obligated to issue to the Banks warrants to purchase up to an additional
8% of the Company's fully diluted shares of outstanding common stock.
4. CONTINGENCIES
The Company is self-insured for general liability risk for $1 million per
occurrence and $2 million in the aggregate. Coverage above the self-insured
limits is provided for under an umbrella policy with a commercial insurance
company. The Company's general liability risk insurance excludes
professional errors and omissions. Such insurance is purchased on a
contract specific basis as required by the customer. As of March 31, 1996,
the Company has accrued approximately $613,000 for unreported and/or
potential losses. Actual self-insurance losses may differ from such
estimates and such differences could be material to the financial
statements.
The radioactive materials handled by the Company are the legal
responsibility of the Company's utility customers. The Company does not
take title to such materials. In the event of an accident or incident
involving such material, the Company is covered under insurance carried by
and provided to operators of nuclear plants or transporters of nuclear
materials.
5. SUBSEQUENT EVENTS
Effective April 26, 1996, the Company sold all of the outstanding capital
stock of its wholly owned subsidiary, VECTRA Technologies Ltd. ("VECTRA
UK"), to Amey, plc. The sale price was approximately $1.9 million. The
net proceeds were approximately $1.6 million after paying expenses
associated with the transaction. The net proceeds were used to reduce the
Company's revolving credit facility by $1.0 million and the balance was
added to working capital. For the three months ended March 31, 1996,
VECTRA UK generated revenues of approximately $2.5 million and operating
income of approximately $0.2 million.
F-7
<PAGE>
VECTRA TECHNOLOGIES, INC.
ANNUAL MEETING OF SHAREHOLDERS
, 1996
The undersigned hereby appoints Ray A. Fortney and Thomas B. Pfeil as proxies,
each with the power to appoint his substitute, and hereby authorizes each of
them to represent and vote, and for the election of directors to cumulate votes
at their discretion, all the shares of common stock of VECTRA Technologies,
Inc. which the undersigned would be entitled to vote at the Annual Meeting of
Shareholders to be held at the offices of VECTRA Fuel Services, L.L.C., 6203
San Ignacio Avenue, Suite 100, San Jose, California, on , 1996
at a.m. local time, and at any and all adjournments thereof. THE BOARD OF
DIRECTORS RECOMMENDS A VOTE "FOR" ALL PROPOSALS.
_______________________________________________________________________________
FOLD AND DETACH HERE
<PAGE>
Please mark
your votes as
indicated in
this example /X/
FOR AGAINST ABSTAIN
Proposal 1. To amend the Company's / / / / / /
articles of incorporation to provide
that a merger, share exchange or sale
of all or substantially all of the assets
of the Company requires a majority
approval of all outstanding shares of the
Company.
FOR AGAINST ABSTAIN
Proposal 2. To consider and act upon / / / / / /
a proposal to sell substantially all
of the properties of the Company and
all of the properties (or the stock)
of VECTRA Government Services, Inc.,
a wholly owned subsidiary of the Company,
pursuant to an Asset Purchase Agreement
dated May 23, 1996 among the Company,
VECTRA Government Services, Inc., and
Duke Engineering & Services, Inc.
FOR WITHHOLD
Proposal 3. The election as Directors of VOTE FOR
the nominees listed below (except as / / / /
marked to the contrary).
J.E. (Ted) Ardell, III Albert J. Baciocco, Jr.
E. Linn Draper, Jr. Ray A. Fortney
Fruzsina M. Harsanyi Elwood D. Howse, Jr.
Edward J. Keith Roy Kirkorian
(INSTRUCTION: TO WITHHOLD YOUR VOTE FOR ANY INDIVIDUAL NOMINEE,
WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW. TO DIRECT A
SPECIFIC ALLOCATION OF VOTES, INDICATE THE NUMBER OF VOTES TO BE
VOTED FOR A SPECIFIC NOMINEE AFTER HIS NAME. THE PROXIES MAY ACCUMULATE
THE REMAINDER OF THE VOTES AT THEIR DISCRETION.
________________________________________________________________________
FOR AGAINST ABSTAIN
Proposal 4. To ratify the selection / / / / / /
of Ernst & Young LLP as independent
public accountants for 1996.
Proposal 5. In their discretion, upon
such other business as may properly
come before the meeting.
THIS PROXY IS SOLICITED BY THE BOARD OF
DIRECTORS WHO RECOMMEND A VOTE FOR EACH
OF THE PROPOSALS.
This proxy, when properly executed, will be
voted and will be voted in the manner directed
on this proxy card. IF NO SPECIFICATION IS MADE,
THIS PROXY WILL BE VOTED FOR EACH OF
THE PROPOSALS WITH AUTHORITY TO CUMULATE VOTES
AND FOR THE ELECTION OF DIRECTORS.
PLEASE COMPLETE, DATE, SIGN, AND MAIL THIS PROXY
PROMPTLY IN THE ENCLOSED SELF-ADDRESSED
POSTAGE-PREPAID ENVELOPE.
Signature(s) _____________________________________ Dated ____________, 1996
IMPORTANT -- When shares are held by joint tenants, both should sign. When
signing as an attorney, executor, administrator, trustee or guardian,
please give full title as such. If a corporation, please sign in full
corporate name by the president or other authorized officer. If a partnership,
please sign in partnership name by an authorized person.
_______________________________________________________________________________
FOLD AND DETACH HERE
<PAGE>
- - - --------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
BETWEEN
DUKE ENGINEERING & SERVICES, INC.
AND
VECTRA TECHNOLOGIES, INC.
AND
VECTRA GOVERNMENT SERVICES, INC.
DATED AS OF MAY 23, 1996
- - - --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
Background Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Statement of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I
GLOSSARY OF DEFINITIONS AND TERMS. . . . . . . . . . 1
ARTICLE II
CONTEMPLATED TRANSACTIONS. . . . . . . . . . . . 8
2.1 Purchase of Assets. . . . . . . . . . . . . . . . . . . . . . 8
2.2 Included Assets . . . . . . . . . . . . . . . . . . . . . . . 8
2.3 Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . 9
2.4 Assumption of Liabilities . . . . . . . . . . . . . . . . . . 9
(a) Assumed Liabilities. . . . . . . . . . . . . . . . . . . 9
(b) Retained Contracts . . . . . . . . . . . . . . . . . . . 10
(c) No Other Assumed Liabilities . . . . . . . . . . . . . . 10
2.5 Optional Stock Purchase . . . . . . . . . . . . . . . . . . . 11
2.6 Additional Transactions . . . . . . . . . . . . . . . . . . . 11
(a) Premises Sublease Agreement. . . . . . . . . . . . . . . 11
(b) Transition Services and Shared Assets Agreement. . . . . 11
2.7 Unscheduled Contracts. . . . . . . . . . . . . . . . . . . . . 12
ARTICLE III
PURCHASE PRICE; ADJUSTMENTS AND PAYMENT . . . . . . . . 12
3.1 Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . 13
3.2 Purchase Price Adjustment . . . . . . . . . . . . . . . . . . 13
(a) Generally. . . . . . . . . . . . . . . . . . . . . . . . 13
(b) Valuation Assets Defined . . . . . . . . . . . . . . . . 13
3.3 Rules for Valuing Valuation Assets and Assumed Liabilities. . 13
(a) Valuation Assets . . . . . . . . . . . . . . . . . . . . 13
(b) Assumed Liabilities. . . . . . . . . . . . . . . . . . . 14
3.4 Pre-Closing Balance Sheet and Closing Payment Adjustment. . . 14
(a) Delivery of Pre-Closing Balance Sheet . . . . . . . . . 14
(b) Closing Payment Adjustment . . . . . . . . . . . . . . . 14
(c) Determination of the Closing Payment Adjustment. . . . . 14
3.5 Closing Payment and Deposit . . . . . . . . . . . . . . . . . 15
3.6 Closing Balance Sheets. . . . . . . . . . . . . . . . . . . . 15
(a) Delivery of Closing Balance Sheets . . . . . . . . . . . 15
(b) Determination of the Purchase Price Adjustment . . . . . 15
3.7 Post-Closing Payment. . . . . . . . . . . . . . . . . . . . . 16
(a) Calculation. . . . . . . . . . . . . . . . . . . . . . . 16
i
<PAGE>
(b) Payment from Escrow. . . . . . . . . . . . . . . . . . . 16
(c) Additional Payments. . . . . . . . . . . . . . . . . . . .16
ARTICLE IV
THE CLOSING; EFFECTIVE TIME AND DATE . . . . . . . . . 16
4.1 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.2 Closing Date. . . . . . . . . . . . . . . . . . . . . . . . . 16
4.3 Effective Time. . . . . . . . . . . . . . . . . . . . . . . . 16
4.4 Effective Date. . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF THE SELLERS. . . . . . . . . . . . . . . 17
5.1 The Sellers . . . . . . . . . . . . . . . . . . . . . . . . . 17
(a) Organization and Foreign Qualification . . . . . . . . . 17
(b) Compliance . . . . . . . . . . . . . . . . . . . . . . . 17
(c) Shares and Ownership of the Subsidiary . . . . . . . . . 17
5.2 Authority Relative to this Agreement. . . . . . . . . . . . . 18
5.3 Consents and Approvals; No Violations . . . . . . . . . . . . 18
5.4 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.5 Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(a) Title. . . . . . . . . . . . . . . . . . . . . . . . . . 19
(b) Sufficiency. . . . . . . . . . . . . . . . . . . . . . . 19
(c) Location . . . . . . . . . . . . . . . . . . . . . . . . 19
5.6 Real Property . . . . . . . . . . . . . . . . . . . . . . . . 19
(a) Leased Real Property . . . . . . . . . . . . . . . . . . 19
(b) Subleased Real Property. . . . . . . . . . . . . . . . . 19
(c) Lease Agreements . . . . . . . . . . . . . . . . . . . . 19
(d) No Other Real Property . . . . . . . . . . . . . . . . . 19
(e) Litigation . . . . . . . . . . . . . . . . . . . . . . . 19
(f) Compliance . . . . . . . . . . . . . . . . . . . . . . . 20
(g) Condition of Real Property . . . . . . . . . . . . . . . 20
5.7 Proprietary Rights Generally. . . . . . . . . . . . . . . . . 20
5.8 Liabilities.. . . . . . . . . . . . . . . . . . . . . . . . . 22
5.9 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.10 Financial Statements. . . . . . . . . . . . . . . . . . . . . 23
5.11 Books and Records . . . . . . . . . . . . . . . . . . . . . . 23
5.12 Taxes and Tax Returns . . . . . . . . . . . . . . . . . . . . 23
5.13 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.14 Labor and Employment Matters. . . . . . . . . . . . . . . . . 24
5.15 Employee Benefit Plans; ERISA . . . . . . . . . . . . . . . . 24
(a) Liabilities. . . . . . . . . . . . . . . . . . . . . . . .24
(b) Multiemployer Plans. . . . . . . . . . . . . . . . . . . 25
5.16 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.17 Business Relationships. . . . . . . . . . . . . . . . . . . . 25
ii
<PAGE>
(a) Generally. . . . . . . . . . . . . . . . . . . . . . . . 25
(b) Purchases and Sales from or to One Party . . . . . . . . 25
5.18 Environmental Matters . . . . . . . . . . . . . . . . . . . . 25
5.19 Absence of Changes or Events. . . . . . . . . . . . . . . . . 26
5.20 Commissions . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.21 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
OF THE BUYER . . . . . . . . . . . . . . . 27
6.1 Organization and Qualification. . . . . . . . . . . . . . . . 27
6.2 Authority Relative to this Agreement. . . . . . . . . . . . . 27
6.3 Consents and Approvals; No Violations . . . . . . . . . . . . 27
6.4 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.5 Commissions . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.6 Intent to Hire. . . . . . . . . . . . . . . . . . . . . . . . .28
ARTICLE VII
COVENANTS OF THE SELLERS . . . . . . . . . . . . 28
7.1 Operation of the Businesses . . . . . . . . . . . . . . . . . 28
7.2 Access to Information . . . . . . . . . . . . . . . . . . . . 29
7.3 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.4 Intellectual Property . . . . . . . . . . . . . . . . . . . . 31
(a) No Inconsistent Uses . . . . . . . . . . . . . . . . . . 31
(b) Nondisclosure. . . . . . . . . . . . . . . . . . . . . . 31
(c) Trade Names. . . . . . . . . . . . . . . . . . . . . . . 31
(d) Retained Trade Names . . . . . . . . . . . . . . . . . . 31
7.5 Searches Relating to Encumbrances . . . . . . . . . . . . . . 31
7.6 Stockholders' Meeting . . . . . . . . . . . . . . . . . . . . 31
7.7 Exclusivity . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.8 Tangible Assets Schedule. . . . . . . . . . . . . . . . . . . 32
7.9 Update of Shared Assets Schedule. . . . . . . . . . . . . . . 32
7.10 Warranty Claims . . . . . . . . . . . . . . . . . . . . . . . 32
7.11 Notice to Tax Authorities . . . . . . . . . . . . . . . . . . 33
7.12 Release of Liens. . . . . . . . . . . . . . . . . . . . . . . .33
7.13 Quality Assurance Program Transition. . . . . . . . . . . . . .33
ARTICLE VIII
COVENANTS OF THE BUYER. . . . . . . . . . . . . 34
8.1 Employee Matters. . . . . . . . . . . . . . . . . . . . . . . 34
(a) Termination Matters. . . . . . . . . . . . . . . . . . . 34
(b) Accrued Vacation . . . . . . . . . . . . . . . . . . . . 34
iii
<PAGE>
ARTICLE IX
MUTUAL COVENANTS . . . . . . . . . . . . . . 34
9.1 Consummation of Agreement . . . . . . . . . . . . . . . . . . 34
9.2 Allocation of Purchase Price. . . . . . . . . . . . . . . . . 35
(a) Preliminary Allocation . . . . . . . . . . . . . . . . . 35
(b) Final Allocation . . . . . . . . . . . . . . . . . . . . 35
(c) Tax Reporting. . . . . . . . . . . . . . . . . . . . . . 35
9.3 Consents and Authorizations . . . . . . . . . . . . . . . . . 35
9.4 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . 35
9.5 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.6 Solicitation of Employees . . . . . . . . . . . . . . . . . . 35
9.7 Accounts Receivable; Inactive Contracts . . . . . . . . . . . 36
(a) Collection by Buyer. . . . . . . . . . . . . . . . . . . .36
(b) Guaranty . . . . . . . . . . . . . . . . . . . . . . . . 36
(c) Assignment . . . . . . . . . . . . . . . . . . . . . . . .36
(d) Post-Assignment Receipts . . . . . . . . . . . . . . . . .36
(e) Collections in Excess of Cost. . . . . . . . . . . . . . .36
(f) Records of Receipts. . . . . . . . . . . . . . . . . . . .37
(g) Inactive Contracts . . . . . . . . . . . . . . . . . . . .37
9.8 Payments for Interim Accounts . . . . . . . . . . . . . . . . .37
ARTICLE X
CLOSING CONDITIONS. . . . . . . . . . . . . . 37
10.1 Mutual Conditions . . . . . . . . . . . . . . . . . . . . . . 37
10.2 Conditions to the Obligations of the Sellers. . . . . . . . . 38
10.3 Conditions to the Obligations of the Buyer. . . . . . . . . . 39
ARTICLE XI
TERMINATION . . . . . . . . . . . . . . . 40
11.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.2 Procedure and Effect of Termination or Failure to Close . . . 41
ARTICLE XII
INDEMNIFICATION . . . . . . . . . . . . . . 42
12.1 Survival of Representations . . . . . . . . . . . . . . . . . 42
12.2 The Sellers' Agreement to Indemnify . . . . . . . . . . . . . 42
12.3 Buyer's Agreement to Indemnify. . . . . . . . . . . . . . . . 43
12.4 Bulk Sales Laws . . . . . . . . . . . . . . . . . . . . . . . 44
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ARTICLE XIII
MISCELLANEOUS PROVISIONS . . . . . . . . . . . . 44
13.1 Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . 44
13.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.3 Amendment and Modification . . . . . . . . . . . . . . . . . 45
13.4 Waiver of Compliance; Consents . . . . . . . . . . . . . . . 45
13.5 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.6 Set-off. . . . . . . . . . . . . . . . . . . . . . . . . . . 46
13.7 Binding Agreement. . . . . . . . . . . . . . . . . . . . . . 46
13.8 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . 47
13.9 Jurisdiction and Venue . . . . . . . . . . . . . . . . . . . 47
13.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 47
13.11 Interpretation . . . . . . . . . . . . . . . . . . . . . . . 47
13.12 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . 47
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EXHIBITS
Exhibit A Escrow Agreement
Exhibit B Opinion of Counsel to Buyer
Exhibit C Opinion of Counsel to Sellers
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement"), dated as of May 23, 1996,
is by and between DUKE ENGINEERING & SERVICES, INC., a North Carolina
corporation (the "Buyer"); VECTRA TECHNOLOGIES, INC., a Washington corporation
("VECTRA"); and VECTRA GOVERNMENT SERVICES, INC., a Delaware corporation (the
"Subsidiary").
BACKGROUND STATEMENT
VECTRA, through its nuclear engineering and power services divisions, is
engaged in the business of providing systems engineering and analysis,
structural engineering and analysis, nuclear engineering, and design and
analysis of instrumentation, electrical and mechanical systems for nuclear
facilities (the "Nuclear Engineering Business") and of providing similar
services for non-nuclear facilities (the "Power Services Business"). The
Subsidiary is engaged in the business of providing engineering analysis,
operations support, environmental support, engineering and design services for
the United States Department of Energy and its prime contractors (the
"Government Services Business" and, together with the Nuclear Engineering
Business and the Power Services Business, the "Businesses"). The Buyer desires
to acquire and assume, and VECTRA and the Subsidiary desire to transfer and
assign to the Buyer, substantially all of the assets relating to the Businesses
and certain liabilities associated with the Businesses, all on the terms and
subject to the conditions set forth in this Agreement. Following the purchase
and sale contemplated hereby, VECTRA will retain business operations in
connection with spent fuel and high level wastes, transportation packaging of
high level radioactive material, and processing and disposal of low level
radioactive waste, as well as related corporate functions (the "Fuel and Waste
Business").
STATEMENT OF AGREEMENT
In consideration of the premises and the mutual covenants herein contained,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto, for themselves, their successors and assigns, agree as follows:
ARTICLE I
GLOSSARY OF DEFINITIONS AND TERMS
DEFINED TERMS. As used in this Agreement, the following terms shall have
the meanings indicated below.
1.1 "ACCOUNTS RECEIVABLE" means, with respect to any Person, any and all
amounts due and owing to that Person, as the term "accounts receivable" is
understood under GAAP, including, without limitation, in the case of either
Seller, all such amounts described for such Person in the Financial Statements
as accounts receivable, notes receivable, or receivables from officers,
employees or shareholders.
1.2 "AFFILIATE" means, with respect to any Person, each of the Persons
that directly or indirectly, through one or more intermediaries, owns or
controls, or is controlled by or under common control with, such Person. For
the purpose of this Agreement, "control" means the possession,
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directly or indirectly, of the power to direct or cause the direction of
management and policies, whether through the ownership of voting securities, by
contract or otherwise.
1.3 "ASSETS" has the meaning set forth in SECTION 2.2 of this Agreement.
1.4 "ASSUMED LIABILITIES" means those specifically identified Liabilities
of the Sellers relating to the Businesses that are to be assumed by the Buyer as
provided in SECTION 2.4 of this Agreement.
1.5 "BALANCE SHEET OF THE BUSINESSES" means, as of any date, a pro forma
balance sheet of the Assets and the Liabilities prepared in accordance with GAAP
as at such date, presenting the Assets and the Liabilities of the Businesses as
if such assets and liabilities were the only assets and liabilities of a single,
stand-alone business entity (excluding intercompany and interdivisional
accounts).
1.6 "BASE PURCHASE PRICE" has the meaning set forth in SECTION 3.1.
1.7 "BUSINESS DAY" means any day excluding Saturday, Sunday and any day
that shall be a legal holiday in either North Carolina or California.
1.8 "BUSINESSES" has the meaning assigned to such term in the Background
Statement to this Agreement.
1.9 "BUYER" means Duke Engineering & Services, Inc., a North Carolina
corporation.
1.10 "CLOSING" means the closing of the transactions contemplated herein.
1.11 "CLOSING BALANCE SHEETS" has the meaning set forth in SECTION 3.6(a).
1.12 "CLOSING DATE" means the day on which the Closing is to occur, as
identified more specifically in SECTION 4.2 of this Agreement.
1.13 "CLOSING PAYMENT" has the meaning set forth in SECTION 3.5.
1.14 "CLOSING PAYMENT ADJUSTMENT" has the meaning set forth in SECTION
3.4(b).
1.15 "CODE" means the Internal Revenue Code of 1986, together with the
regulations thereunder, in each case as in effect from time to time.
1.16 "CONTRACT" means and shall include (a) any legally binding obligation
or agreement to which VECTRA is a party that relates to any of the Businesses
and (b) any legally binding obligation or agreement to which the Subsidiary is a
party, in each case whether or not reduced to writing, and specifically
including without limitation any note, bond, mortgage, lease of real or personal
property, license and other instrument.
1.17 "COPYRIGHT" means the legal right provided by the Copyright Act of
1976, as amended, to the expression contained in any work of authorship fixed in
any tangible medium of expression.
1.18 "DISPUTES" has the meaning set forth in SECTION 13.1.
1.19 "EFFECTIVE DATE" has the meaning set forth in SECTION 4.4.
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1.20 "EMPLOYEES" has the meaning set forth in SECTION 7.3.
1.21 "ENVIRONMENTAL LAWS" means any federal, state or local law, statute,
ordinance, common law, rule, regulation, permit, directive, license, approval,
guidance, interpretation, order, or other legal requirement relating to the
protection of safety, human health or the environment, including, but not
limited to, any requirement pertaining to the manufacture, processing,
distribution, use, treatment, storage, disposal, transportation, handling,
reporting, licensing, permitting, investigation or remediation of materials that
are or may constitute a threat to human health or the environment. Without
limiting the foregoing, each of the following is an Environmental Law: the
Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C.
Section 9601 ET SEQ.), the Hazardous Material Transportation Act (49 U.S.C.
Section 1801 ET SEQ.), the Resource Conservation and Recovery Act (42 U.S.C.
Section 6901 ET SEQ.), the Federal Water Pollution Control Act (33 U.S.C.
Section 1251 ET SEQ.), the Clean Air Act (42 U.S.C. Section 7401 ET SEQ.), the
Toxic Substances Control Act (15 U.S.C. Section 2601 ET SEQ.), the Safe Drinking
Water Act (42 U.S.C. Section 300f ET SEQ.), the Occupational Safety and Health
Act (29 U.S.C. Section 651 ET SEQ.), and the Atomic Energy Act (42 U.S.C.
Section 2011 ET SEQ.), as such laws have been or are in the future amended or
supplemented, and each similar federal, state or local statute, and each rule
and regulation promulgated under such federal, state and local laws.
1.22 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time. References
to sections of ERISA shall be construed also to refer to any successor sections.
1.23 "ESCROW AGREEMENT" has the meaning set forth in SECTION 3.5(b).
1.24 "EXCLUDED ASSETS" has the meaning set forth in SECTION 2.3.
1.25 "EXCLUDED CONTRACTS" has the meaning set forth in SECTION 2.3(e).
1.26 "FINAL PURCHASE PRICE" has the meaning set forth in SECTION 3.1.
1.27 "FINANCIAL STATEMENTS" means a pro forma statement of income of the
Businesses for the fiscal year ended December 31, 1995 and the Balance Sheet of
the Businesses as at December 31, 1995, each prepared in accordance with GAAP as
if the Businesses were owned and operated by a single business entity during
such fiscal year, but excluding any tax liabilities and assets relating to the
Businesses and excluding any long-term indebtedness relating to the Businesses
(including any current portion thereof).
1.28 "FIXED ASSETS" means, in addition to the items included in the
following sentence, (a) with respect to VECTRA, all equipment (including
computer hardware and data processing and telecommunications equipment),
machinery, furniture and furnishings, fixtures, tools and vehicles owned by
VECTRA and used in connection with any of the Businesses; and (b) with respect
to the Subsidiary, all equipment (including computer hardware and data
processing and telecommunications equipment), machinery, furniture and
furnishings, fixtures, tools and vehicles owned by the Subsidiary. In addition
to the foregoing, the term "FIXED ASSETS" also includes each Seller's contract
rights in such equipment (including computer hardware and data processing and
telecommunications equipment), machinery, furniture and furnishings, fixtures,
tools and vehicles that is leased by either Seller from any third party.
1.29 "FUEL AND WASTE BUSINESS" has the meaning set forth in the Background
Statement to this Agreement.
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1.30 "GAAP" or "GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" means generally
accepted accounting principles as recognized by the American Institute of
Certified Public Accountants, as in effect from time to time, consistently
applied and maintained on a consistent basis for the applicable Person (or
Persons on a consolidated basis, as the case may be) throughout the period
indicated and consistent with such Person's (or Persons') prior financial
practices.
1.31 "GOVERNMENTAL AUTHORITY" means any nation, province, state or other
political subdivision thereof, and any agency, natural person or other entity
exercising executive, legislative, regulatory or administrative functions of or
pertaining to government.
1.32 "HAZARDOUS MATERIAL" means any substance or material meeting any one
or more of the following criteria: (i) it is or contains a substance designated
as a hazardous waste, hazardous substance, hazardous material, pollutant,
contaminant or toxic substance under any Environmental Law; (ii) it is toxic,
explosive, corrosive, reactive, ignitable, infectious, radioactive, mutagenic,
dangerous or otherwise hazardous; (iii) its presence at some quantity requires
investigation, notification or remediation under any Environmental Law or common
law; (iv) it constitutes a danger, a nuisance, a trespass or a health or safety
hazard to persons or property; or (v) it is or contains, without limiting the
foregoing, asbestos, polychlorinated biphenyls, petroleum hydrocarbons,
petroleum derived substances or waste, crude oil or any fraction thereof,
nuclear fuel or waste, natural gas or synthetic gas.
1.33 "HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and regulations thereunder.
1.34 "INVENTORY" means, with respect to any Person, all inventories of
goods, materials and supplies of such Person that are held for sale to customers
in the ordinary course of the Businesses.
1.35 "KNOW-HOW" means ideas, designs, concepts, compilations of
information, methods, techniques, procedures and processes, whether or not
patentable.
1.36 "LEASED REAL PROPERTY" has the meaning set forth under the definition
of "REAL PROPERTY."
1.37 "LIABILITIES" means all liabilities or obligations of any nature
whatsoever, whether absolute or contingent, due or to become due, accrued or
unaccrued, known or unknown, direct or consequential or otherwise.
1.38 "LICENSED SHARED ASSETS" has the meaning set forth in SECTION
2.6(b)(i)(a).
1.39 "MATERIAL ADVERSE EFFECT" means any effect that is or could be
materially adverse to the assets, financial condition, results of operations or
prospects of any of the Businesses.
1.40 "PATENT" means any patent granted by the U.S. Patent and Trademark
Office, or by the comparable agency of any other country, and any renewal
thereof, and any rights arising under any patent application filed with the U.S.
Patent and Trademark Office or the comparable agency of any other country and
any rights which may exist to file any such application.
1.41 "PERMITS" means the aggregate of (a) all licenses, permits,
authorizations, registrations, certificates of occupancy, franchises and
approvals of any nature issued by any Governmental Authority to VECTRA or
otherwise obtained by VECTRA from any Governmental Authority that are held by
VECTRA as of the date of this Agreement and that in any fashion are required in
connection with, or
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otherwise relate to, the conducting of any of the Businesses; and (b) all
licenses, permits, authorizations, registrations, certificates of occupancy,
franchises and approvals of any nature issued by any Governmental Authority to
the Subsidiary or otherwise obtained by the Subsidiary from any Governmental
Authority that are held by the Subsidiary as of the date of this Agreement,
except that Permits shall not include security clearances or similar matters
imposed by the United States Department of Defense or the United States
Department of Energy.
1.42 "PERMITTED LIENS" means: (i) liens for current taxes not yet due and
payable, (ii) liens arising in the ordinary course of business for sums not yet
due and payable, but not involving any borrowed money or the deferred purchase
price for property or services and (iii) liens set forth in SCHEDULE 1.42.
1.43 "PERSON" means an individual, partnership, corporation, limited
liability company, trust, decedent's estate, joint venture, joint stock company,
association, unincorporated organization, Governmental Authority or other
entity.
1.44 "PLAN" means any employee pension, retirement, profit-sharing, stock
bonus, incentive, deferred compensation, stock option, employee stock ownership,
hospitalization, medical, dental, vacation, insurance, sick pay, disability,
severance or other plan, fund, program, policy, contract or arrangement, whether
arrived at through collective bargaining or otherwise, providing employee
benefits (including but not limited to any "employee benefit plan" as that term
is defined in Section 3(3) of ERISA and any employee benefit plan that is a
"cafeteria plan" as described in Section 125 of the Code) currently maintained
or previously maintained at any time since January 1, 1994 by, sponsored in
whole or in part by, or contributed to by either Seller, for the benefit of
employees, retirees, dependents, spouses, directors, independent contractors or
other beneficiaries, whether created in writing, through an employee manual or
similar document, or orally.
1.45 "POST-CLOSING PAYMENT" has the meaning set forth in SECTION 3.7.
1.46 "PRE-CLOSING BALANCE SHEET" has the meaning set forth in SECTION
3.4(a).
1.47 "PREMISES SUBLEASE AGREEMENT" has the meaning set forth in SECTION
2.6(a).
1.48 "PROPRIETARY RIGHTS" means Copyrights, Trademarks, Trade Secrets and
Patents.
1.49 "PROPRIETARY SOFTWARE" has the meaning set forth under the definition
of "SOFTWARE."
1.50 "PURCHASE PRICE ADJUSTMENT" has the meaning set forth in SECTION
3.2(a).
1.51 "REAL PROPERTY" means, collectively, (a) any land, building or
premises in which VECTRA has a fee, leasehold or other ownership interest and
that is used in connection with any of the Businesses; and (b) any land,
building or premises in which the Subsidiary has a fee, leasehold or other
ownership interest. That portion of the Real Property that is leased by the
Sellers is referred to herein as the "LEASED REAL PROPERTY." That portion of
the Leased Real Property relating to the office premises leased by VECTRA
pursuant to the agreements listed on SCHEDULE 5.6(b) is referred to herein as
the "SUBLEASED REAL PROPERTY."
1.52 "RETAINED CONTRACTS" means the Contracts (other than the Excluded
Contracts) as to which (a) the Sellers, after exercising their best efforts,
have failed to obtain all required third-party consents to effect their
assignment to the Buyer and (b) the Buyer shall have notified the Sellers in
writing
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of the Buyer's election that the Contract be deemed a "Retained Contract" for
purposes of this Agreement.
1.53 "RETAINED TRADE NAMES" has the meaning set forth in SECTION 7.4(D).
1.54 "SELLERS" means, collectively, VECTRA and the Subsidiary (each, a
"SELLER").
1.55 "SELLERS' DISCLOSURE LETTER" means a document that discloses certain
exceptions and qualifications to certain provisions in this Agreement, which
identifies by section number the section to which each such disclosure relates,
and is delivered by the Sellers to the Buyer and accepted by the Buyer prior to
the execution of this Agreement, subject to such additional changes as may be
mutually agreed by the parties.
1.56 "SELLERS' KNOWLEDGE" means the knowledge of John Holding or John Dong
or any of the following employees of the Sellers: Ray A. Fortney, Thomas B.
Pfeil, Jeffrey W. Cummings, Carol Peterson, Sharon Scharringhausen, Dick Ayres,
Gary Kaplan, John Mageski, Kris Allen or Tom White.
1.57 "SOFTWARE" means:
(a) every computer software program that either Seller uses or has used at
any time since January 1, 1994 in connection with the operation of any of the
Businesses, including without limitation computer software programs purchased or
licensed from third parties;
(b) every computer software program or portion thereof that is embedded
within any telecommunications or other equipment that either Seller currently
uses in connection with any of the Businesses or that either Seller markets to
third parties in connection with any of the Businesses;
(c) every computer software program or portion thereof (including compiled
object code, source code and firmware embedded in any equipment) that either of
the Sellers, in connection with any of the Businesses, has sold, leased,
licensed or otherwise distributed or marketed to third parties at any time since
January 1, 1994, or presently offers to sell, lease, license or otherwise
distribute to third parties, including computer software programs purchased or
licensed by either Seller from third parties;
(d) every computer software program that either Seller (including its
employees and independent contractors), in connection with any of the
Businesses, has designed or created, is in the process of designing or creating
or proposes to design or create, including without limitation any modifications,
enhancements and derivative works of any of the computer software programs
described above in this definition; and
(e) to the extent related to the operation of any of the Businesses, all
written materials that explain any computer software program described above or
were used in the development of any such computer software program or represent
an interim step in the development of any such computer software program,
including, without limitation, logic diagrams, flowcharts, procedural diagrams
and algorithms, and all written materials used by either of the Sellers or
provided to any customer in connection with the installation, customization or
use of any of the computer software programs described above.
That portion of the Software that is owned by either Seller is referred to
herein as the "PROPRIETARY SOFTWARE," and that portion of the Software that is
owned by any Person other than the Sellers is referred to herein as the "THIRD-
PARTY SOFTWARE."
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1.58 "SUBLEASED REAL PROPERTY" has the meaning set forth under the
definition of "REAL PROPERTY."
1.59 "SUBSIDIARY" means VECTRA Government Services, Inc., a Delaware
corporation that is a wholly-owned subsidiary of VECTRA.
1.60 "TAX RETURN" means, with respect to any Person, any report, return or
other information (or any combination thereof) required to be supplied by such
Person to any Governmental Authority in connection with Taxes.
1.61 "TAXES" means all taxes, charges, fees, levies or other assessments
(whether federal, state, local or foreign), including, without limitation,
income, gross receipts, excise, property, estate, sales, use, stamp, value
added, transfer, license, payroll, franchise, ad valorem, withholding, Social
Security and unemployment taxes; and such term shall include any interest,
penalties and additions to such taxes, charges, fees, levies or other
assessments.
1.62 "THIRD-PARTY SOFTWARE" has the meaning set forth under the definition
of the term "SOFTWARE".
1.63 "TRADE SECRETS" means business or technical information of any Person
including, but not limited to, customer lists and Know-how, that is not
generally known to other Persons who are not subject to an obligation of
nondisclosure and that derives actual or potential commercial value from not
being generally known or readily ascertainable to other Persons.
1.64 "TRADEMARK" means any symbol used by a Person to identify its goods or
services, whether or not registered, and any right that may exist to obtain a
registration with respect to any such symbol from any Governmental Authority.
As used in this Agreement, the term "TRADEMARK" includes any service mark.
1.65 "TRANSACTION AGREEMENTS" means this Agreement, the Transition Services
and Shared Assets Agreement, the Premises Sublease Agreement and the Escrow
Agreement.
1.66 "TRANSFERRED TRADE NAMES" has the meaning set forth in SECTION 2.2(m).
1.67 "TRANSFERRED SHARED ASSETS" has the meaning set forth in SECTION
2.6(b)(i)(b).
1.68 "TRANSITION SERVICES AND SHARED ASSETS AGREEMENT" has the meaning set
forth in SECTION 2.6(b)(ii).
1.69 "UPDATED SHARED ASSETS SCHEDULE" has the meaning set forth in SECTION
7.9.
1.70 "VALUATION ASSETS" has the meaning set forth in SECTION 3.2(b).
1.71 "VALUATION BALANCE SHEET" means, as of any date, a pro forma balance
sheet of the Valuation Assets and the Assumed Liabilities prepared in accordance
with GAAP as at such date, presenting the Valuation Assets and the Assumed
Liabilities as if such assets and liabilities were the only assets and
liabilities of a single business entity.
1.72 "WARN ACT" means the Worker Adjustment and Retraining Notification Act
of 1988, and the regulations promulgated thereunder, as amended.
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ARTICLE II
CONTEMPLATED TRANSACTIONS
2.1 PURCHASE OF ASSETS. At the Closing, each Seller shall sell and
deliver to the Buyer, and the Buyer shall purchase from such Seller, the
Seller's Assets (as defined in SECTION 2.2) upon and subject to the terms and
conditions of this Agreement, free and clear of all mortgages, liens, security
interests or encumbrances of any nature whatsoever except Permitted Liens.
2.2 INCLUDED ASSETS. For purposes of this Agreement, the term "ASSETS"
shall mean, with respect to the Subsidiary, all of the Subsidiary's assets,
rights and properties and shall mean, with respect to VECTRA, all of VECTRA's
right, title, and interest in and to the assets, rights and properties that are
currently used or that have been used at any time since January 1, 1994 in
connection with any of the Businesses, or that relate to the operation of any of
the Businesses, in each case excluding the Excluded Assets and including the
following assets, rights and properties:
(a) all Accounts Receivable;
(b) all Fixed Assets;
(c) all interests in any Real Property;
(d) all Inventory;
(e) all Permits that are transferable with or without the consent of any
Person;
(f) all Proprietary Rights;
(g) all Proprietary Software and rights in Third-Party Software, including
all accompanying documentation;
(h) all interests in the Transferred Shared Assets (as defined in SECTION
2.6(b)(i)(b));
(i) all rights under the Contracts (other than Excluded Contracts) of
either Seller, including without limitation those that are scheduled
on SCHEDULE 5.6(a) or SCHEDULE 5.9 (excluding the Excluded Contracts),
and all rights of any nature whatsoever arising out of any such
Contracts so scheduled other than the Excluded Contracts, including
any rights arising as a result of the breach thereof;
(j) all books, job records, time sheets, drawings, proposals,
calculations, minutes of meetings, files, records, documents, data,
plans, proposals and all other recorded knowledge, whether in written,
electronic, visual or other form;
(k) all prepaid items, unbilled costs and fees;
(l) all rights arising out of any occurrence before or after the Closing
including, without limitation, all rights under express or implied
warranties relating to the Assets;
(m) all rights relating to the use of the names "Government Services,
Inc." and "Impell" or any similar names or derivatives thereof (the
"TRANSFERRED TRADE NAMES"); and
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(n) each of the Businesses as a going concern and all of the goodwill
associated with each such Business.
2.3 EXCLUDED ASSETS. The Assets shall not include any of the following
assets, rights and properties of the Sellers (the "EXCLUDED ASSETS"), all of
which shall be retained by the Sellers:
(a) all cash, marketable securities and short-term investments of cash;
(b) intercompany (including without limitation interdivisional)
receivables;
(c) the Licensed Shared Assets (as defined in SECTION 2.6(b)(i)(a));
(d) the Sellers' leasehold interest in the Subleased Real Property (except
to the extent subleased to the Buyer);
(e) the rights arising under those Contracts as to which (i) the Sellers,
after exercising their best efforts, have failed to obtain all
required third-party consents to effect their assignment to the Buyer
and (ii) the Buyer shall not have notified the Sellers in writing of
the Buyer's election that the Contracts be deemed Retained Contracts
for purposes of this Agreement (together with the Contracts listed on
SCHEDULE 2.3(h), the "EXCLUDED CONTRACTS");
(f) the Retained Contracts (except to the extent subcontracted to the
Buyer);
(g) except as specifically provided in SECTION 7.4(d), the rights relating
to the use of the Retained Trade Names;
(h) the rights arising under those Contracts set forth on SCHEDULE 2.3(h);
(i) the assets, rights and properties, if any, set forth on SCHEDULE
2.3(i);
(j) the Patent referred to as "Method and Apparatus for Measurement of
Valve Stem Thrust," the Patent referred to as "Wire Cable Isolator and
Energy Absorbing Restraint" and those Patents referred to as "Pipe
Restraint" on SCHEDULE 5.7(b); and
(k) the bank account related to the item indicated as "PREPAID EXP:Korea
Bank" on the Valuation Balance Sheet included as part of the Closing
Balance Sheets (and the funds contained therein) unless by the Closing
Date (i) the Buyer has received assurances deemed adequate by the
Buyer in its sole discretion that the funds contained in such bank
account may be transferred to the Buyer without difficulty; and (ii)
the Buyer has determined to hire those Employees of the Sellers
working in Korea on the Closing Date and has received assurances
deemed adequate by the Buyer in its sole discretion that such
Employees are willing to become employees of the Buyer following the
Closing Date.
2.4 ASSUMPTION OF LIABILITIES.
(a) ASSUMED LIABILITIES. On the Closing Date, the Buyer shall assume, and
shall thereafter timely pay and perform, the following obligations and
liabilities of the Sellers existing as of the close of business on the Effective
Date (the "ASSUMED LIABILITIES"):
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(i) the current liabilities of VECTRA that relate specifically to,
and arose in connection with, the operation of the Businesses and the
current liabilities of the Subsidiary, in each case as current liabilities
are determined in accordance with GAAP consistent with the Seller's past
practices, but only to the extent they appear on the Valuation Balance
Sheet included as part of the Closing Balance Sheets; and
(ii) the obligations arising after the close of Business on the
Effective Date under the Contracts listed on SCHEDULE 5.9 (but excluding
any Liabilities arising from acts or omissions occurring before the close
of business on the Effective Date) (including the Retained Contracts but
excluding the Excluded Contracts) and the obligations of the Sellers
arising under the lease agreements that are listed on SCHEDULE 5.6(a);
(iii) but excluding in each case (A) the current portion of
any long-term indebtedness; (B) any Liabilities relating to any Taxes,
including without limitation all income Taxes and all personal property
Taxes, but excluding all sales or use Taxes due in connection with the sale
or purchase of assets pursuant to this Agreement, which are the Buyer's
obligations; (C) any Liabilities relating to any breach of contract, breach
of warranty, tort, infringement, or violation of law by either Seller; (D)
any intercompany (including without limitation interdivisional) payables;
(E) any Liabilities arising under the Environmental Laws or any Plan; (F)
any Liabilities arising from or relating to the termination by either of
the Sellers of any Employee (including without limitation those hired by
the Buyer); (G) any Liabilities relating to any Employees; (H) any accrued
Liabilities for paid vacation for periods prior to the close of business on
the Effective Date; (I) (without limiting the effect of the exclusion
provided in the first parenthetical of SECTION 2.4(a)(ii) above) with
respect to any project performed pursuant to any Contract that contemplates
multiple discrete projects being undertaken by one or both Sellers in
accordance with or subject to the terms of the Contract, any liability for
work performed under such Contract on any such project to the extent that
the services to be provided by the Seller or Sellers within the scope of
any such project have, as of the Effective Date, been completed in all
material respects; and (J) any royalty obligations or other Liabilities
relating to the use by any Person of the Patent referred to as "Method and
Apparatus for Measurement of Valve Stem Thrust," the Patent referred to as
"Wire Cable Isolator and Energy Absorbing Restraint" or those Patents
referred to as "Pipe Restraint" on SCHEDULE 5.7(b).
(b) RETAINED CONTRACTS. Notwithstanding that the Retained Contracts may
not be assigned to the Buyer, the parties intend that the Buyer receive the
economic benefits of, and perform the obligations under, the Retained Contracts
as if the Retained Contracts had been assigned to the Buyer; PROVIDED, HOWEVER,
that nothing in this SECTION 2.4(b) shall impose upon the Buyer any Liabilities
relating to any breach of contract, breach of warranty, tort, infringement, or
violation of law by either Seller for acts or omissions occurring prior to the
Closing. Accordingly, the Sellers agree to subcontract the completion of the
Retained Contracts to the Buyer at the price specified in each such contract
without any additional mark-up and on the same terms and conditions, and the
Buyer shall be responsible for the costs associated with the performance of all
Retained Contracts and will be entitled to and shall receive all the revenues
from all Retained Contracts. If subcontracting the Retained Contracts is not
permitted under the Contracts, the Sellers and the Buyer will cooperate with one
another in any reasonable arrangement designed to give the Buyer the benefits of
and obligations under the Retained Contracts.
(c) NO OTHER ASSUMED LIABILITIES. Except as expressly set forth in
SECTION 2.4(a) and SECTION 2.4(b) above, the Buyer shall not assume or become
liable for the payment or performance of any Liabilities of either Seller of any
nature whatsoever, whether accrued or unaccrued, known or unknown, fixed or
contingent. Except for all sales or use Taxes due in connection with the sale
or purchase of assets pursuant to this Agreement (which are the Buyer's
obligations), the Sellers shall be
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responsible for all Taxes arising from the operation of the Businesses prior to
the Closing and all Taxes incurred by the Sellers in connection with this
Agreement, the sale of the Assets and the transactions contemplated hereby.
2.5 OPTIONAL STOCK PURCHASE. Notwithstanding anything in this Agreement
to the contrary, at the option of the Buyer, which option the Buyer may exercise
in its sole discretion by notifying the Sellers in writing at any time prior to
the Closing, the Buyer may purchase all of the issued and outstanding shares of
capital stock of the Subsidiary rather than purchasing the Assets and assuming
the Assumed Liabilities of the Subsidiary as otherwise contemplated by this
Agreement. Should the Buyer exercise this option, then (a) prior to or
simultaneously with the Closing, the Subsidiary shall transfer to VECTRA those
assets, and VECTRA shall assume from the Subsidiary those liabilities, that
would not be included among the assets to be sold to the Buyer and the
liabilities to be assumed by the Buyer pursuant to this Agreement were the Buyer
not to exercise this option, all pursuant to documentation that is in form and
substance satisfactory to the Buyer; (b) the Buyer and the Sellers shall enter
into an amendment to this Agreement that amends the Agreement in such a way
that, to the extent possible, the parties will be in essentially the same
position with respect to each other and the assets and liabilities of the
Businesses as they would have been had this option to purchase stock not been
exercised, which amendment shall include additional representations and
warranties in favor of the Buyer concerning Taxes, employee benefit plans, and
environmental liabilities, among others, and provisions for both the Buyer and
VECTRA typically found in tax agreements entered in connection with the sale of
a subsidiary included in a seller's consolidated returns; and (c) at the further
option of the Buyer or the Sellers, the Buyer and the Sellers shall elect to
treat the sale of the Subsidiary as one of assets rather than stock for tax
purposes pursuant to Code Section 338(h)(10) and Treas. Reg. Section
1.338(h)(10)-1 and shall cooperate in filing all appropriate tax forms to effect
such election.
2.6 ADDITIONAL TRANSACTIONS. At the Closing, the parties shall enter into
the following additional transactions:
(a) PREMISES SUBLEASE AGREEMENT. At the Closing, the Buyer and VECTRA
shall enter into an agreement in form and in substance satisfactory to the
parties (the "PREMISES SUBLEASE AGREEMENT"), pursuant to which the Buyer will
sublease from VECTRA, at VECTRA's actual lease cost per square foot without any
mark-up for VECTRA's overhead, such portions of the San Ramon, California and
Fort Worth, Texas office spaces scheduled on SCHEDULE 5.6(b) that the Buyer may
determine, in its sole discretion, to sublease. Each of the San Ramon and Fort
Worth subleases provided in the Premises Sublease Agreement shall extend for
such terms as provided in the Premises Sublease Agreement.
(b) TRANSITION SERVICES AND SHARED ASSETS AGREEMENT.
(i) Included as SCHEDULE 2.6(b)(i) is a schedule separately listing the
following:
(A) the "LICENSED SHARED ASSETS," which are assets, rights and properties
of the Sellers used in connection with the Businesses as well as other
than in connection with the Businesses, and which are NOT to be
included among the Assets transferred to the Buyer pursuant to this
Agreement; and
(B) the "TRANSFERRED SHARED ASSETS," which are assets, rights and
properties of the Sellers used in connection with the Businesses as
well as other than in connection with the Businesses, and which ARE to
be included among the Assets transferred to the Buyer pursuant to this
Agreement.
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(ii) At the Closing, the Buyer and the Sellers shall enter into an
agreement, in form and in substance satisfactory to the Buyer and the Sellers
(the "TRANSITION SERVICES AND SHARED ASSETS AGREEMENT"), to address the interim
operating services to be provided by the parties to each other in connection
with the transition of the Businesses following the Closing and specifying the
scope and term for such services together with provision for the reimbursement
of the reasonable out-of-pocket costs incurred by the parties in connection
therewith, and pursuant to which the Sellers shall grant a royalty-free,
perpetual, non-exclusive license of their rights in the Licensed Shared Assets
(as defined in SECTION 2.6(b)(i)(a)) to the Buyer and the Buyer shall grant a
royalty-free, perpetual, non-exclusive license of its rights in the Transferred
Shared Assets (as defined in SECTION 2.6(b)(i)(b)) to the Sellers. The licenses
granted by the parties in the Transition Services and Shared Assets Agreement
may or may not be assignable, by the applicable licensee, with regard to certain
of the Licensed Shared Assets and the Transferred Shared Assets, depending upon
the agreement reached by the parties in the Transition Services and Shared
Assets Agreement.
2.7 UNSCHEDULED CONTRACTS. Without limiting any other obligation of the
Sellers hereunder, the Sellers shall promptly notify the Buyer as to the
existence of any Contracts that either Seller becomes aware of after the Closing
that should have been included in SCHEDULE 5.9 but were not so included. With
regard to each such Contract, the Buyer shall have the option (to be exercised
in the Buyer's sole discretion by giving written notice to the Sellers) of
either (i) retaining all rights and interests in such Contract and assuming the
obligations of the Sellers arising after the close of Business on the Effective
Date under such Contract (excluding any Liabilities arising from acts or
omissions occurring before the close of business on the Effective Date and
excluding any Liabilities set forth in SECTION 2.4(a(iii)); or (ii) assigning
the Buyer's rights and interests in such Contract to the Sellers.
ARTICLE III
PURCHASE PRICE; ADJUSTMENTS AND PAYMENT
SUMMARY: (AS IS MORE SPECIFICALLY SET FORTH IN SECTION 13.11, THIS SUMMARY
IS FOR REFERENCE PURPOSES ONLY.) THIS ARTICLE SETS FORTH THE
PROCEDURES FOR THE CALCULATION AND PAYMENT OF THE PURCHASE PRICE
FOR THE ASSETS. BECAUSE THE PURCHASE PRICE IS BASED IN PART ON A
BALANCE SHEET OF THE BUSINESSES AS OF THE CLOSING DATE, WHICH
WILL BE PREPARED AFTER THE CLOSING, THE BUYER WILL PAY AN
ESTIMATE OF THE PURCHASE PRICE AT CLOSING AND THE PARTIES WILL
"SETTLE UP" AFTER THE PREPARATION OF THE BALANCE SHEET AS OF THE
CLOSING DATE.
THE PAYMENT AT CLOSING CONSISTS OF THE BASE PURCHASE PRICE OF
$27,500,000, LESS AN ESCROWED HOLDBACK OF $1,000,000 AND LESS THE
ESTIMATED AMOUNT OF THE BALANCE SHEET ADJUSTMENT TO THE PURCHASE
PRICE (WITH THE ESTIMATE BASED UPON A BALANCE SHEET FOR A DATE
APPROXIMATELY THIRTY DAYS BEFORE CLOSING), IF IT IS NEGATIVE. IF
THE ESTIMATED ADJUSTMENT IS POSITIVE, IT WILL BE ESCROWED WITH
THE HOLDBACK AMOUNT.
AFTER THE CLOSING, THE CLOSING BALANCE SHEETS ARE PREPARED AND,
AFTER APPROVAL BY BOTH PARTIES, THE DIFFERENCE BETWEEN THE
ESTIMATED PAYMENT MADE AT CLOSING AND THE ACTUAL PURCHASE PRICE
IS PAID TO THE APPROPRIATE PARTY AND THE ESCROWED FUNDS ARE
RELEASED.
SECTION 3.1 DEFINES THE FINAL PURCHASE PRICE, WHICH IS COMPUTED
IN PART BASED ON A BALANCE SHEET ADJUSTMENT THAT IS DEFINED IN
SECTIONS 3.2 AND 3.3. THE ESTIMATED AMOUNT THAT IS TO BE PAID AT
CLOSING IS DETERMINED PURSUANT TO SECTIONS 3.4 AND 3.5. SECTION
3.6 PROVIDES FOR THE PREPARATION OF THE CLOSING BALANCE SHEETS TO
BE PREPARED AFTER THE CLOSING DATE, AND THE DETERMINATION OF THE
FINAL PURCHASE PRICE BASED ON THOSE BALANCE SHEETS. SECTION 3.7
DESCRIBES THE PROCEDURE TO
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"SETTLE UP" THE DIFFERENCE BETWEEN THE ESTIMATED PURCHASE PRICE
PAID AT CLOSING AND THE FINAL PURCHASE PRICE DETERMINED AFTER THE
CLOSING DATE BALANCE SHEET IS PREPARED AND AGREED.
3.1 PURCHASE PRICE. In consideration of the transfer to the Buyer of the
Assets and subject to the terms and conditions of this Agreement, the Buyer
shall pay to VECTRA the aggregate amount of twenty-seven million five hundred
thousand dollars ($27,500,000) (the "BASE PURCHASE PRICE"), subject to the
Purchase Price Adjustment to be made pursuant to SECTION 3.2 below (as so
adjusted, the "FINAL PURCHASE PRICE").
3.2 PURCHASE PRICE ADJUSTMENT.
(a) GENERALLY. The Base Purchase Price shall be adjusted as follows (such
adjustment being referred to herein as the "PURCHASE PRICE ADJUSTMENT"):
(i) The Base Purchase Price shall be increased by the dollar amount, if
any, by which (A) the value of the Valuation Assets as of the close of
business on the Effective Date exceeds (B) the sum of (1) the value of
the Assumed Liabilities as of the close of business on the Effective
Date and (2) ten million dollars ($10,000,000).
(ii) The Base Purchase Price shall be decreased by the dollar amount, if
any, by which (A) the sum of (1) the value of the Assumed Liabilities
as of the close of business on the Effective Date and (2) ten million
dollars ($10,000,000) exceeds (B) the value of the Valuation Assets as
of the close of business on the Effective Date.
(b) VALUATION ASSETS DEFINED. For purposes of this Agreement, "VALUATION
ASSETS" means those Assets that are actively being used by the Sellers in the
ordinary course of any of the Businesses, are being sold to the Buyer pursuant
to this Agreement, and that are either
(i) current assets, or
(ii) equipment, machinery, furniture and fixtures and vehicles (excluding
any buildings or other improvements to any Real Property with respect
to which either Seller holds a leasehold interest that is not to be
assumed by the Buyer pursuant to this Agreement).
Notwithstanding anything in this Agreement to the contrary, the term "Valuation
Assets" shall not include any of the following: (i) any Excluded Assets (other
than Retained Contracts); (ii) any intangible assets, including any Proprietary
Rights, Proprietary Software and any goodwill associated with any of the
Businesses; (iii) the going concern value of the Businesses; (iv) any assets or
rights relating to Taxes; (v) any amount relating to the six Contracts scheduled
as "VECTRA Government Services, Inc. Inactive Contracts for Assignment" for
client "WSRC" contained as part of SCHEDULE 5.9; and (vi) any Accounts
Receivable that have been outstanding for more than 120 days past the invoice
date.
3.3 RULES FOR VALUING VALUATION ASSETS AND ASSUMED LIABILITIES.
(a) VALUATION ASSETS. Any reference in this Agreement to the value of the
Valuation Assets shall mean, (i) with respect to the Assets referred to in
SECTION 3.2(b)(i) above, the value of such Assets calculated in accordance with
GAAP consistent with Seller's past practices, except that Accounts Receivable
shall include the full value of the Accounts Receivable without deduction for
the reserves for doubtful accounts and (ii) with respect to the Assets referred
to in SECTION 3.2(b)(ii) above, the net book value of such Assets (after taking
into account all applicable depreciation and amortization), calculated in
accordance with GAAP consistent with Seller's past practices. In each case, any
determination of the
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value of the Valuation Assets on the Effective Date shall be made with regard to
the value of the Valuation Assets as they would appear on the Sellers'
consolidated balance sheet immediately prior to the effective time of the sale
of the Valuation Assets to the Buyer, without regard to the transactions
contemplated hereby or any step-up in basis resulting from such transactions.
(b) ASSUMED LIABILITIES. Any reference in this Agreement to the value of
the Assumed Liabilities shall mean the value of the Assumed Liabilities
calculated in accordance with GAAP, expressed as a positive number. By way of
example, if a portion of the Assumed Liabilities were to include accrued
expenses in the amount of $50,000, then the value of that portion of the Assumed
Liabilities for purposes of this Agreement would be $50,000.
3.4 PRE-CLOSING BALANCE SHEET AND CLOSING PAYMENT ADJUSTMENT.
(a) DELIVERY OF PRE-CLOSING BALANCE SHEET. As soon as is practicable but
in any event no fewer than seven days prior to the Closing Date, the Sellers
shall cause to be prepared and shall deliver to the Buyer a Valuation Balance
Sheet (the "PRE-CLOSING BALANCE SHEET") as of the last day of a fiscal month
ending not more than thirty-five days prior to the Effective Date, together with
a certificate setting forth the Sellers' calculation of the Closing Payment
Adjustment (as defined below). Without limiting any other right of the Buyer to
conduct its due diligence review of the Sellers and the Businesses pursuant to
this Agreement, the Buyer shall have the right to audit the preparation of the
Pre-Closing Balance Sheet and shall have full access to the Assets and the books
and records of the Businesses relevant to such preparation (including the
workpapers of the accountants preparing the Pre-Closing Balance Sheet) and the
Sellers shall direct their personnel to cooperate with the Buyer as may be
necessary for the Buyer to audit such preparation; PROVIDED, HOWEVER, that such
audit by the Buyer shall be conducted in a manner that does not interfere
unreasonably with the operation of any of the Businesses.
(b) CLOSING PAYMENT ADJUSTMENT. The "CLOSING PAYMENT ADJUSTMENT" shall
mean the amount, if any, by which (i) the value of the Valuation Assets as of
the close of business on the date of the Pre-Closing Balance Sheet is less than
(ii) the sum of the value of the Assumed Liabilities as of the close of business
on the date of the Pre-Closing Balance Sheet and ten million dollars
($10,000,000). If the amount set forth in the foregoing clause (i) is NOT less
than the amount set forth in the foregoing clause (ii), then the Closing Payment
Adjustment shall be zero.
(c) DETERMINATION OF THE CLOSING PAYMENT ADJUSTMENT. If the Buyer does
not accept the Pre-Closing Balance Sheet or the Closing Payment Adjustment
calculated by the Sellers, the Buyer shall give written notice to the Sellers on
the later of the third day preceding the Closing Date or the date seven days
after the receipt of the Pre-Closing Balance Sheet, setting forth the basis for
the Buyer's objections. The Buyer and Seller shall attempt to resolve any
dispute and a satisfactory resolution of all issues shall be a condition to the
parties' obligations to close the transactions contemplated by this Agreement.
The Buyer shall be deemed to have accepted the Pre-Closing Balance Sheet and the
Closing Payment Adjustment prepared and proposed by the Sellers at 5:00 p.m.,
Charlotte, North Carolina time on the later of the third day preceding the
Closing Date or the date seven days after the receipt of the Pre-Closing Balance
Sheet if the Buyer has not by then given the Sellers timely written notice of
objection. The acceptance by the Buyer of the treatment of any item in the Pre-
Closing Balance Sheet for the purpose of the Closing Payment Adjustment shall
not bind the Buyer with respect to the preparation of the Closing Balance
Sheets.
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3.5 CLOSING PAYMENT AND DEPOSIT.
(a) At the Closing, the Buyer shall pay to the Sellers, by wire transfer
to an account designated by VECTRA, the amount (the "CLOSING PAYMENT") equal to
(a) the Base Purchase Price less (b) the sum of (i) the Closing Payment
Adjustment, if any, and (ii) one million dollars ($1,000,000).
(b) At the Closing, Vectra and the Buyer shall enter into an escrow
agreement substantially in the form of EXHIBIT A (the "ESCROW AGREEMENT"), and
the Buyer shall pay to the escrow agent, for deposit into the escrow account
established pursuant to the escrow agreement, the sum of (i) one million dollars
($1,000,000) and (ii) the amount, if any, by which (A) the value of the
Valuation Assets as of the close of business on the date of the Pre-Closing
Balance Sheet is greater than (B) the sum of the value of the Assumed
Liabilities as of the close of business on the date of the Pre-Closing Balance
Sheet and ten million dollars ($10,000,000).
3.6 CLOSING BALANCE SHEETS.
(a) DELIVERY OF CLOSING BALANCE SHEETS. Within forty-five days after the
Closing Date, the Sellers shall cause to be prepared and shall deliver to the
Buyer a Valuation Balance Sheet and a Balance Sheet of the Businesses (the
"CLOSING BALANCE SHEETS"), each as of the close of business on the Effective
Date (as if such assets and liabilities were at that time assets and liabilities
of the Sellers rather than having been transferred to the Buyer pursuant to this
Agreement). In connection with the preparation of the Closing Balance Sheets,
the Sellers shall have access to both the Assets and books and records of the
Businesses relevant to the preparation of the Closing Balance Sheets, and the
Buyer shall direct its personnel to cooperate with the Sellers as may be
necessary for the Sellers to prepare such Closing Balance Sheets; PROVIDED,
HOWEVER, that such preparation by the Sellers shall be conducted in a manner
that does not interfere unreasonably with the operation of any of the
Businesses. The Buyer shall have the right to audit the preparation of the
Closing Balance Sheets and shall have full access to the workpapers of the
accountants and other personnel preparing the Closing Balance Sheets, and the
Sellers shall direct such personnel to cooperate with the Buyer as may be
necessary for the Buyer to audit such preparation. Based on the Closing Balance
Sheets, the Sellers shall compute the Purchase Price Adjustment. The Sellers
shall deliver to the Buyer a certificate attached to the Closing Balance Sheets
setting forth its calculation of the Purchase Price Adjustment.
(b) DETERMINATION OF THE PURCHASE PRICE ADJUSTMENT. If the Buyer does not
accept the Closing Balance Sheets or the Purchase Price Adjustment prepared by
the Sellers, the Buyer shall give written notice to the Sellers within thirty
days after delivery thereof. The notice shall set forth in detail the basis for
the Buyer's objections. The Buyer shall be deemed to have accepted the Closing
Balance Sheets and the Purchase Price Adjustment prepared and proposed by the
Sellers at 5:00 p.m. Charlotte, North Carolina time on the 30th day after
delivery thereof if the Buyer has not by then given the Sellers timely written
notice of objection. If the Buyer and the Sellers are unable to resolve the
disagreement within thirty days after delivery of the Buyer's written notice,
the parties shall engage a mutually agreeable independent certified public
accounting firm to resolve the issues. The accounting firm shall apply GAAP
consistent with Seller's past practices to the issues at hand (except it shall
assume that the Valuation Assets and Assumed Liabilities included in the Closing
Balance Sheets were, as of the close of business on the Effective Date, assets
and liabilities of the Sellers rather than having been transferred to the Buyer
pursuant to this Agreement) and shall not have the power to alter, modify,
amend, add to or subtract from any term or provision of this Agreement. The
decision of the accounting firm shall be rendered within twenty days of the
engagement and shall be binding on the parties. The Buyer on the one hand, and
the Sellers on the other, each shall pay one-half of the cost of the accounting
firm.
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3.7 POST-CLOSING PAYMENT.
(a) CALCULATION. If the Final Purchase Price exceeds the amount of the
Closing Payment, VECTRA shall be entitled to receive the amount of such excess
from the funds escrowed in accordance with SECTION 3.5(b) (including any
earnings on the deposited funds, the "ESCROWED FUNDS") and, if the Escrowed
Funds are insufficient, from the Buyer. If the Final Purchase Price is less
than the amount of the Closing Payment, VECTRA shall pay to the Buyer the amount
of such excess and the Buyer shall be entitled to receive all the Escrowed Funds
in accordance with SECTION 3.5(b). In addition, the party that is to receive
any such amount shall receive an additional amount equal to interest at the rate
of five percent (5%) per annum on such amount computed over the period from the
Closing Date until the date on which the Purchase Price Adjustment is finally
determined. Such payment (including the interest accrued thereon) is referred
to herein as the "POST-CLOSING PAYMENT."
(b) PAYMENT FROM ESCROW. Immediately after the determination of the
amount of the Post-Closing Payment, the Buyer and VECTRA shall jointly direct
the escrow agent to pay to VECTRA out of the Escrowed Funds the amount, if any,
payable to VECTRA (including accrued interest) and to pay to the Buyer the
amount of the Escrowed Funds that is in excess of any amount payable to VECTRA.
If the Escrowed Funds are insufficient to pay the full amount owed to VECTRA,
the Buyer shall promptly pay to VECTRA the amount of such shortfall. If VECTRA
owes the Post-Closing Payment to the Buyer, VECTRA shall promptly pay such
amount and VECTRA and the Buyer shall direct the escrow agent to release all of
the Escrowed Funds to the Buyer. All payments made pursuant to this Section
(including those made by the escrow agent) shall be made within three Business
Days after the final determination of the Purchase Price Adjustment by wire
transfer to an account designated by the recipient.
(c) ADDITIONAL PAYMENTS. In addition to those amounts required to be paid
by the parties pursuant to the above provisions of this ARTICLE III, the parties
will be obligated to make certain payments (relating to certain amounts received
by and payments made by the Sellers from the close of business on the Effective
Date through the Closing Date) to the extent provided in SECTION 9.8 hereof.
ARTICLE IV
THE CLOSING; EFFECTIVE TIME AND DATE
4.1 CLOSING. The closing of the transactions contemplated herein (the
"CLOSING") shall take place on the Closing Date at the Charlotte, North Carolina
offices of Robinson, Bradshaw & Hinson, P.A. or at such other location to which
all the parties to this Agreement may mutually agree. At the Closing the
parties will execute and deliver all documents necessary to effect the
transactions contemplated herein.
4.2 CLOSING DATE. The Closing of the transactions contemplated herein
shall occur at 10:00 a.m., Charlotte, North Carolina time, on such date as the
parties to this Agreement may mutually agree (the "CLOSING DATE"). The parties
agree to use their reasonable best efforts to cause the Closing to occur on or
before July 1, 1996 or as soon as possible thereafter.
4.3 EFFECTIVE TIME. The effective time of the transfer of the Assets and
assumption of the Assumed Liabilities shall be deemed to be 11:59 p.m. on the
Effective Date.
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4.4 EFFECTIVE DATE. Unless the Buyer and the Sellers agree in writing to
the contrary, the "EFFECTIVE DATE" shall be the Closing Date. At the Closing,
if the Buyer and the Sellers agree to an Effective Date other than the Closing
Date, the parties shall execute and deliver to each other a certificate setting
forth the date of the "Effective Date," which date shall be considered the
"Effective Date" for all purposes of this Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF THE SELLERS
Each of the Sellers, jointly and severally, represents and warrants to the
Buyer that the statements contained in this ARTICLE V are correct and complete
as of the date of this Agreement and will be correct and complete as of the
Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this ARTICLE V).
5.1 THE SELLERS.
(a) ORGANIZATION AND FOREIGN QUALIFICATION. VECTRA is a corporation duly
organized and validly existing under the laws of its state of incorporation and
the Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation and each of VECTRA and the
Subsidiary is duly qualified and in good standing to do business as a foreign
corporation in each jurisdiction in which the operation of any of the Businesses
makes such qualification necessary, and each such jurisdiction is listed on
SCHEDULE 5.1(a). Each of the Sellers has full corporate power and authority
necessary to enable it to own, lease or otherwise hold its properties and assets
and to carry on each of the Businesses as presently conducted.
(b) COMPLIANCE. Each of the Sellers is in compliance in all material
respects with all applicable statutes, laws, ordinances, rules, orders and
regulations of any Governmental Authority and no facts or circumstances exist
that, with or without the passing of time or the giving of notice or both, might
reasonably serve as the basis for any claim that either Seller is not in
compliance with any applicable statute, law, ordinance, rule or regulation of
any Governmental Authority. Neither of the Sellers has received any written
communication with respect to the Businesses from a Governmental Authority that
alleges that it is not in compliance with any statute, law, ordinance, rule or
regulation of any Governmental Authority.
(c) SHARES AND OWNERSHIP OF THE SUBSIDIARY. The authorized, issued and
outstanding shares of capital stock of the Subsidiary are set forth on SCHEDULE
5.1(c). All issued and outstanding shares of capital stock of the Subsidiary
have been duly authorized and validly issued and are fully paid and
nonassessable. Except as set forth on SCHEDULE 5.1(c), there are no shares of
capital stock or other equity securities of the Subsidiary outstanding. There
are no outstanding warrants, options, agreements, convertible or exchangeable
securities or other commitments pursuant to which the Subsidiary is or may
become obligated to issue, sell, purchase, return or redeem any shares of
capital stock or other securities of the Subsidiary, and there are not any
equity securities of the Subsidiary reserved for issuance for any purpose. The
number of shares of capital stock of the Subsidiary owned by VECTRA as set forth
in the Subsidiary's share transfer records are set forth on SCHEDULE 5.1(c), and
no Person other than VECTRA owns any shares of capital stock of the Subsidiary.
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5.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of the Sellers has full
corporate power and authority to execute and deliver the Transaction Agreements
to which it is a party and to perform its obligations under such Transaction
Agreements and to consummate the transactions contemplated thereby. The
execution and delivery by each of the Sellers of the Transaction Agreements to
which it is a party and the performance by each of its obligations thereunder
and the consummation of the transactions contemplated thereby by each have been,
or prior to Closing will have been, duly and validly authorized by all necessary
corporate action on its part. This Agreement has been duly executed and
delivered by the Sellers, and at the Closing the Transition Services and Shared
Assets Agreement will be duly and validly executed and delivered by the Sellers
and the Premises Sublease Agreement and the Escrow Agreement will be duly and
validly executed and delivered by VECTRA. After approval by the shareholders of
VECTRA of the Transaction Agreements, and upon their execution and delivery,
each of the Transaction Agreements constitutes or will constitute the legal,
valid and binding obligation of each Seller that is a party thereto, enforceable
against each such Seller in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency or other laws
of general applicability affecting creditors' rights and by general principles
of equity that may limit the specific performance of particular provisions.
5.3 CONSENTS AND APPROVALS; NO VIOLATIONS.
(a) Except in connection with the HSR Act, filings required under the
Securities Exchange Act of 1934, as amended, consents and approvals required in
connection with the assignment of Contracts pursuant to this Agreement, and
except as set forth on SCHEDULE 5.3(a), there is no requirement applicable to
either Seller or, to the Sellers' Knowledge, to the Buyer, to make any filing
with, or to obtain any permit, authorization, consent or approval of, any
Governmental Authority as a condition to the lawful consummation of the
transactions contemplated hereby.
(b) The execution, delivery and performance of the Transaction Agreements
by each of the Sellers that is a party thereto and each such Seller's compliance
with the terms thereof will not: (i) conflict with any provision of the articles
of incorporation or bylaws of either Seller; (ii) result in a default (or give
rise to any right of termination, cancellation or acceleration) under any of the
terms, conditions or provisions of any Contract to which either Seller is a
party, except for such defaults (or rights of termination, cancellation or
acceleration) as to which requisite waivers or consents have been obtained or
will be obtained prior to the Closing and except for such defaults (or rights of
termination, cancellation or acceleration) under Excluded Contracts that would
not have any material effect on either Seller's ability to consummate the
transactions contemplated hereby and to carry out its obligations hereunder; or
(iii) violate any statute, law, rule, regulation, order, writ, injunction or
decree of any Governmental Authority.
5.4 PERMITS.
(a) SCHEDULE 5.4(a) to this Agreement lists all of the Permits that are
necessary (i) to enable VECTRA to own, lease or otherwise hold its properties
and Assets used in connection with each of the Businesses; (ii) to enable the
Subsidiary to own, lease or otherwise hold its properties and Assets; and (iii)
to enable the Sellers to carry on the Businesses as presently conducted.
(b) The Permits listed on SCHEDULE 5.4(a) are in full force and effect,
and no material violations of any of the Permits have occurred or, to the
Sellers' Knowledge, have been alleged to have occurred. Furthermore, no
proceedings are pending or, to the Sellers' Knowledge, threatened, that would
have the effect of revoking or materially limiting or affecting the transfer or
renewal of any of the Permits. The Permits listed on SCHEDULE 5.4(a) (i) are
not subject to any restrictions or conditions that would limit any of the
Businesses of either Seller as presently conducted; (ii) may be assigned to the
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Buyer without the consent of any Person other than the Sellers; and (iii) shall
remain in full force and effect immediately subsequent to Closing and shall not
be subject to any additional restriction or condition as a result of their
assignment to the Buyer.
5.5 ASSETS.
(a) TITLE. Each Seller owns and has good, valid and marketable title to
all of its Assets free and clear of all mortgages, liens, security interests or
encumbrances of any nature whatsoever except Permitted Liens.
(b) SUFFICIENCY. The Assets and rights being transferred to the Buyer
pursuant to this Agreement, including the Assets owned by the Sellers and the
assets used by the Sellers pursuant to Contracts to be assigned to the Buyer
pursuant to this Agreement, together with the Licensed Shared Assets, constitute
all of the assets used by Sellers in connection with the operation of the
Businesses and all of the assets necessary to conduct each of the Businesses as
presently conducted by the Sellers.
(c) LOCATION. No tangible Assets of either Seller are located other than
at the locations of Leased Real Property.
5.6 REAL PROPERTY.
(a) LEASED REAL PROPERTY. All of the Leased Real Property other than the
Subleased Real Property and all the lease agreements pursuant to which the
Sellers currently lease the Leased Real Property (excluding the Subleased Real
Property) are identified on SCHEDULE 5.6(a).
(b) SUBLEASED REAL PROPERTY. That portion of the Leased Real Property
that the Sellers will sublease to the Buyer (the "Subleased Real Property")
pursuant to SECTION 2.6(a) and all of the lease agreements pursuant to which
either of the Sellers currently lease any of the Subleased Real Property are
identified on SCHEDULE 5.6(b).
(c) LEASE AGREEMENTS. Without limiting the effect of any other
representation or warranty contained herein, (i) each of the lease agreements
set forth on SCHEDULE 5.6(a) and each of the lease agreements set forth on
SCHEDULE 5.6(b) is in full force and effect and the Seller that is a party to
each such lease agreement has all right, title and interest under the terms of
such lease agreement, free and clear of all liens, claims or encumbrances; (ii)
all rentals due under each such lease agreement as of the Closing Date will have
been paid; and (iii) there exists no default by any Seller under the terms of
any such lease agreement and no event has occurred that, upon the passage of
time or giving of notice, or both, would result in any event of default by any
Seller or prevent any Seller or its assignee from exercising or obtaining the
benefits of any options or other rights contained therein. True and correct
copies of each lease agreement listed on SCHEDULE 5.6(a) and of each lease
agreement listed on SCHEDULE 5.6(b) have been delivered to the Buyer by the
Sellers.
(d) NO OTHER REAL PROPERTY. There is no Real Property other than the
Leased Real Property. The Leased Real Property comprises all the Real Property,
and comprises all of the land, buildings and premises used in, or in connection
with each of the Businesses.
(e) LITIGATION. To the Sellers' Knowledge, there is no pending or
threatened legal action affecting any portion or all of the Real Property,
including without limitation, any condemnation action, and neither Seller knows
of any basis for any such action.
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(f) COMPLIANCE. To the Sellers' Knowledge, the Real Property and the
conduct of each of the Businesses by the Sellers within the Real Property
complies in all material respects with all applicable legal requirements
relating to the Real Property, including without limitation, requirements under
the applicable zoning ordinances, building code requirements and any
requirements under applicable private restrictions. To the Sellers' Knowledge,
all buildings and improvements located on the Real Property are located entirely
within the boundary lines of such Real Property.
(g) CONDITION OF REAL PROPERTY. To the Sellers' Knowledge, the Real
Property, and all components thereof, including without limitation the roofs,
walls, floors, heating, cooling and ventilation systems, electrical and plumbing
systems and structural components, are in good condition except for normal wear
and tear, are operating properly, are not in need of repair and have been
properly maintained. To the Sellers' Knowledge, the improvements on the Real
Property are free of wood destroying insects and damage therefrom.
5.7 PROPRIETARY RIGHTS GENERALLY.
(a) SCHEDULE 5.7(a) separately lists all registered Trademarks and
registered Copyrights owned by the Subsidiary, and all registered Trademarks and
registered Copyrights owned by VECTRA and used in connection with the operation
of any of the Businesses (with respect to any of the foregoing, together with
any applications therefor).
(b) SCHEDULE 5.7(b) separately lists (i) all Patents owned by VECTRA and
used in connection with the operation of any of the Businesses and all Patents
owned by the Subsidiary (together with any applications therefor); and (ii) all
Patents licensed by VECTRA and used in connection with the operation of any of
the Businesses that are specifically referenced in a relevant license agreement,
and all Patents licensed by the Subsidiary that are specifically referenced in a
relevant license agreement.
(c) The Sellers own or license all Proprietary Rights that are material
for the operation of each of the Businesses, free and clear of any lien,
encumbrance or other claim (whether pending, threatened or anticipated). No
Seller has granted any Person any right, license or interest whatsoever in any
Proprietary Rights owned by either Seller, except customers of either Seller in
the ordinary course of business.
(d) Except for Third-Party Software that is commercially available for
less than $1,000, all Third-Party Software that each of the Sellers uses or has
used in connection with each of the Businesses during the two years preceding
the date of this Agreement is listed in SCHEDULE 5.7(d). The Sellers have
perpetual licenses to use all Third-Party Software material to the operation of
each of the Businesses as now conducted, and the Sellers have the legal right to
use all such Third-Party Software in the manner that such Third-Party Software
is currently being used in each of the Businesses, all without the payment of
any royalties or other fees, now or in the future, to any other Person. Neither
Seller, in the ordinary course of any of the Businesses, copies or modifies any
of the Third-Party Software.
(e) All Third-Party Software that each of the Sellers has sold, leased,
licensed or otherwise distributed or marketed to any third party since January
1, 1994, in connection with each of the Businesses, or presently offers to sell,
lease, license or otherwise distribute to any third party is listed on SCHEDULE
5.7(e). The Sellers have possessed the full right and ability to sell, lease,
license, distribute and market all such Third-Party Software to the full extent
so sold, leased, licensed, distributed or marketed by either of the Sellers
without infringing the rights of any Person.
(f) Neither of Sellers has any obligation to make any payments by way of
royalty, fee or otherwise to any Person in connection with any Third-Party
Software.
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(g) Except for that portion of the Software listed as Third-Party Software
in SCHEDULE 5.7(d), and except for Software designed or created by either Seller
for other Persons pursuant to a "work for hire" contract or a contract
obligating either Seller to assign its work to the customer, all of the
following Software that relates to any of the Businesses is owned by one or both
of the Sellers: (i) all Software that either of the Sellers presently uses or
has used during the last year; (ii) all Software that either of the Sellers has
sold, leased, licensed or otherwise distributed or marketed to any third party
at any time since January 1, 1994, or presently offers to sell, lease, license
or otherwise distribute to any third party; and (iii) all Software that either
of the Sellers has designed or created or is in the process of designing or
creating, including modifications, enhancements and derivative works of any of
the computer software programs described in any of the foregoing clauses (i),
(ii) and (iii).
(h) SCHEDULE 5.7(h) lists all Proprietary Software. The Sellers own all
right, title and interest in the Proprietary Software, including all of the
Proprietary Rights therein. Each other Person who has participated in the
development of the Proprietary Software has either: (i) so participated as an
employee of one or both of the Sellers within the scope of his or her employment
obligations; (ii) so participated as an independent contractor pursuant to a
valid and binding agreement that specifically assigns all Copyrights to one or
both of the Sellers, or (iii) otherwise assigned to the Sellers the Copyright in
such Proprietary Software. No Seller has entered into any agreement that limits
or restricts its right to use, copy, modify, prepare derivatives of, sublicense,
distribute or otherwise market all or any part of the Proprietary Software.
(i) No Seller has any obligation to any other Person: (i) to provide,
create, maintain, correct, modify or enhance any Software; or (ii) to obtain,
create, register, or assign any Copyright, Mark, Patent or Trade Secret.
(j) No claim has been asserted in writing, and to the Sellers' Knowledge,
no claim has been asserted verbally by any Person: (i) that such Person has any
right, title or interest in or to either Seller's Proprietary Rights; or (ii)
that such Person has the right to use any of either Seller's Trademarks. No
facts or circumstances exist that, with or without the passing of time or the
giving of notice or both, might reasonably serve as the basis for any such
claim.
(k) The Sellers have taken efforts that are reasonable under the
circumstances to prevent the unauthorized disclosure to other Persons of such
portions of the Seller's Trade Secrets as would enable any such other Person to
compete with the Sellers within the scope of any of the Businesses as now
conducted and as presently proposed to be conducted. No current or former
employee of either of the Sellers has executed a confidentiality agreement
obligating that person not to use any Trade Secrets of either Seller relating to
any of the Businesses except in performing employment duties for the Sellers and
not to disclose any such Trade Secrets to any other Person.
(l) The use by the Sellers of all their Software and Proprietary Rights
does not, and the Buyer's use of all Software and Proprietary Rights transferred
to the Buyer pursuant to this Agreement (to the extent such transferred Software
and Proprietary Rights are employed by the Buyer in a manner consistent with the
operation of the Businesses by the Sellers) will not, infringe the rights of any
other Person.
(m) No claim has been asserted in writing, and to the Sellers' Knowledge,
no claim has been asserted verbally by any Person: (i) to the effect that any
past, present or projected act or omission by either Seller infringes any rights
of such Person to any Proprietary Rights; or (ii) that challenges either
Seller's right to use any of its Proprietary Rights or that seeks to deny,
modify or revoke any registration or application therefor or renewal thereof.
No facts or circumstances exist that, with or without the passing of time or the
giving of notice or both, might reasonably serve as the basis for any such
claim.
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5.8 LIABILITIES. In connection with any of the Businesses, neither Seller
had as of the date of the Financial Statements, nor has either such Person
incurred since that date, any Liabilities, except Liabilities: that are
accrued or reserved against in the Financial Statements; (ii) that were incurred
in the ordinary course of business prior to the date of the Financial
Statements, and are of a type not required under GAAP (including Statement No. 5
of the Financial Accounting Standards Board) to be reflected in the Financial
Statements; or (iii) that were incurred after the effective date of the
Financial Statements and were incurred in the ordinary course of business and
consistent with past practices. To the Sellers' Knowledge, no facts or
circumstances relating to any of the Businesses exist that, with or without the
passing of time or the giving of notice or both, might reasonably serve as the
basis for any other Liabilities. There are no agreements or understandings by
which either Seller has agreed to pay or reimburse any of its Employees for the
costs of any property purchased by any such Employee.
5.9 CONTRACTS.
(a) Each Contract existing as of the date hereof (excluding the Contracts
listed on SCHEDULE 5.6(a), SCHEDULE 5.6(b) or SCHEDULE 2.3(h)), is either (i)
disclosed in SCHEDULE 5.9 or (ii) a Contract that does not require either Seller
to render any services, does not extend for longer than one year from the date
hereof and does not involve the payment of an amount in excess of $10,000. The
aggregate of the amounts required to be paid under all Contracts that are not
listed on SCHEDULE 5.9 in accordance with clause (ii) above is not in excess of
$250,000. True and correct copies of the Contracts listed on SCHEDULE 5.9 have
been delivered or made available to the Buyer by the Sellers prior to the date
of this Agreement.
(b) Each Contract to which a Seller is a party (excluding the Contracts
listed on SCHEDULE 2.3(h)) is a legal, valid and binding obligation of such
Seller and is enforceable by such Seller against the other party or parties to
such Contract in accordance with its terms (except as its enforceability may be
limited by applicable bankruptcy, insolvency or other laws of general
applicability affecting creditors' rights and by general principles of equity
that may limit the specific performance of particular provisions).
(c) There is no event of default or material breach by any Person under
any Contract to which a Seller is a party (excluding the Contracts listed on
SCHEDULE 2.3(h)) and no facts or circumstances exist that with the passage of
time or the giving of notice or both, would constitute an event of default. No
Seller has received written notice that the Seller is in default under or in
breach of any Contract to which it is a party (excluding the Contracts listed on
SCHEDULE 2.3(h)) or received notice of the termination of any such Contract. No
Seller has given written notice to any other party to any of its Contracts
(excluding the Contracts listed on SCHEDULE 2.3(h)) that such other party is in
default thereunder or in breach thereof or given notice of the termination
thereof. No Seller has received written notice of any actual or potential claim
relating to (i) any breach by a Seller of any warranty or any applicable
standard of care; or (ii) any negligence or similar claim arising in relation to
any Contract to which any Seller is a party (excluding the Contracts listed on
SCHEDULE 2.3(h)). To the Sellers' Knowledge, there are no facts or
circumstances that could give rise to any one or more of the claims set forth in
the previous sentence.
(d) With respect to any and all Contracts that consist of agreements with
the United States government or the government of any state or territory
(excluding the Contracts listed on SCHEDULE 2.3(h)) (or any agency of any of the
foregoing), or with any Person that is a prime contractor or subcontractor under
any contract or agreement with any such government or agency: (i) neither Seller
is a party to or has received notice of the commencement of any debarment
proceedings or any governmental investigation or action (including any civil
investigative demand under the False Claims Act
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or Truth in Negotiations Act or otherwise) affecting any Seller or any of the
Businesses (and to the Sellers' Knowledge, no grounds for any such proceeding,
investigation or action exist); and (ii) each of the Sellers is in compliance in
all material respects with all of the terms, conditions and other requirements
of such Contracts and all applicable provisions of law and regulations relating
thereto.
(e) Except as disclosed in SCHEDULE 5.9, the Sellers have the right to
assign to the Buyer each of the Contracts to which one or both of the Sellers is
a party (excluding the Contracts listed on SCHEDULE 5.6(b) or SCHEDULE 2.3(h))
without the consent of any Person and, upon such assignment at Closing in the
manner contemplated by this Agreement, the Buyer shall have all of the rights of
each of the Sellers thereunder, and, with respect to the Leased Real Property
(excluding the Subleased Real Property) upon such assignment the Buyer will own
a valid and insurable leasehold in such Leased Real Property without exception
or encumbrance.
5.10 FINANCIAL STATEMENTS.
(a) True, correct and complete copies of the Financial Statements have
been delivered to the Buyer, and such Financial Statements have been prepared in
accordance with GAAP consistent with the Sellers' past practices (except that
they do not include notes) and fairly present the results of operations and
financial position of the Businesses on a pro forma basis for the periods and as
of the dates set forth therein.
(b) The Sellers have delivered to the Buyer, for purposes of illustrating
the appropriate format and the line items of accounts of a Valuation Balance
Sheet, a true, correct and complete copy of the Valuation Balance Sheet as of
March 31, 1996. The acceptance by the Buyer of such Valuation Balance Sheet
shall not be deemed an acceptance by the Buyer of the accuracy or correctness of
any amount or calculation set forth therein or in the Pre-Closing Balance Sheet
or in the Closing Balance Sheets.
5.11 BOOKS AND RECORDS. All the books and records of the Sellers relating
to each of the Businesses and the Assets have been maintained in the ordinary
course of each such Business consistent with the past practices of the
respective entities and do not contain any material inaccuracies or
discrepancies.
5.12 TAXES AND TAX RETURNS.
(a) Each of the Sellers has duly and timely filed (including within any
applicable extension periods) all Tax Returns required to be filed by it prior
to the date hereof and has duly paid or made provision on its financial
statements, in accordance with GAAP, for the payment of all Taxes that have been
incurred or are due or claimed to be due from it by any taxing authorities at
the time of such statements. All such Tax Returns are true, correct and
complete in all material respects. The Sellers have established on their
financial statements reserves that are adequate for the payment of all Taxes not
yet due and payable. Since December 31, 1995, no Seller has incurred any
liability for Taxes other than in the ordinary course of business. SCHEDULE
5.12(a) sets forth all periods for which the consolidated federal income tax
returns of the Sellers have been examined by the Internal Revenue Service, and
all deficiencies asserted as a result of such examinations (or as a result of
any examination of such returns for earlier fiscal years) have been paid or
finally settled.
(b) Each of the Sellers has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party.
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(c) There are no liens with respect to Taxes (except for liens for taxes,
assessments or other governmental charges not yet delinquent) upon any of the
Assets. No facts exist or have existed that would constitute grounds for the
imposition of any lien with respect to Taxes upon any of the Assets or that
would otherwise obligate the Buyer to pay any Taxes related to or arising out of
the conducting of the business of either Seller prior to the Closing.
5.13 LITIGATION. There are no lawsuits, claims, or legal, administrative
or arbitration proceedings or investigations pending, or to the Sellers'
Knowledge, threatened, by or against or affecting any of the Assets, any of the
Businesses, the Subsidiary or, to the extent relating to any of the Businesses,
VECTRA.
5.14 LABOR AND EMPLOYMENT MATTERS.
(a) The Sellers have delivered to the Buyer complete and accurate copies
of each employment, consulting and similar agreement to which the Subsidiary is
a party and, to the extent relating to any of the Businesses, each employment,
consulting and similar agreement to which VECTRA is a party, all of which are
listed on SCHEDULE 5.14(a). The Subsidiary is not and, to the extent any of the
following relate to any of the Businesses VECTRA is not, a party to or bound by
any written agreement, any employment manual, employment handbook, employment
practice or policy constituting a contractual obligation, or any consent decree,
court order or statutory obligation (i) for the employment of any individual, or
the provision of services by any individual, who is not terminable by the Seller
without penalty upon thirty days notice or less; (ii) with any labor union; or
(iii) relating to the payment of any severance or termination payment, bonus or
death benefit to any employee or former employee or his or her estate or
designated beneficiary.
(b) No Seller is a party to any collective bargaining agreement, nor has
either Seller recognized or received a demand for recognition of any collective
bargaining representative with respect thereto; and during the past three years
there have been no material labor strikes, disputes or work stoppages nor, to
the Sellers' Knowledge, are any such actions threatened against the Subsidiary
or, to the extent related to any of the Businesses, VECTRA.
(c) There are no loans or other obligations payable or owing to Employees,
except salaries, wages, bonuses and salary advances and reimbursement of
expenses incurred and accrued in the ordinary course of business, nor are any
loans or debts payable or owing by any such persons or their Affiliates to
either Seller, nor has either Seller guaranteed any of their respective loans or
obligations.
(d) The Subsidiary is in compliance with all laws and other obligations
relating to employment, denial of employment or employment opportunity and
termination of employment and VECTRA is in compliance with all such laws and
other obligations with respect to the Businesses.
(e) There is no controversy pending or threatened between the Subsidiary
and any of its current or former officers, directors, supervisory personnel or
any group of its employees, and there is no such controversy relating to VECTRA
involving any of the Businesses.
5.15 EMPLOYEE BENEFIT PLANS; ERISA.
(a) LIABILITIES. Neither of the Sellers has incurred (nor has any event
occurred that could result in either Seller incurring) any liability in
connection with any existing or previously existing Plan that could become, on
or after the Closing Date, an obligation or liability of the Buyer.
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(b) MULTIEMPLOYER PLANS. Since January 1, 1990, no Seller has had any
complete or partial withdrawal from any "multiemployer plan" (as defined in
Section 3(37) or 4001(a)(3) of ERISA) ("Multiemployer Plan") that could result,
directly or indirectly, in any withdrawal liability under Subtitle E of Title IV
of ERISA. No Seller participates in or contributes to, nor since January 1,
1990 has either Seller ever participated in or contributed to, any Multiemployer
Plan.
5.16 INSURANCE. SCHEDULE 5.16 lists all of the insurance policies
maintained by each of the Sellers as of the date hereof and relating to the
Assets or any of the Businesses, and for each indicates the insurer's name,
policy number, expiration date and amount and type of coverage.
5.17 BUSINESS RELATIONSHIPS.
(a) GENERALLY. To the Sellers' Knowledge, no material supplier is
reasonably likely to cease supplying goods or services or substantially reduce
its supplies in relation to any of the Businesses as a result of the
consummation of this Agreement, and no material customer of any of the
Businesses is reasonably likely to, as a result of the consummation of this
Agreement, terminate or materially reduce its relationship with any of the
Businesses.
(b) PURCHASES AND SALES FROM OR TO ONE PARTY. Neither more than ten
percent (10%) of the aggregate amount of all the purchases nor more than ten
percent (10%) of the aggregate amount of all the sales of any of the Businesses
are obtained from or to a single supplier or customer (including any Affiliate
of the supplier or customer), and no Seller has received any written or oral
notification from any such Person that such Person intends to terminate its
relationship with any of the Businesses.
5.18 ENVIRONMENTAL MATTERS.
(a) To the Sellers' Knowledge, the Real Property and all other land,
buildings and premises owned, leased or operated by either Seller currently or
at any time since January 1, 1996 (all of which Real Property and other land,
buildings, and premises are listed in SCHEDULE 5.18), and each portion of such
Real Property and other land, buildings and premises, including without
limitation the improvements thereon and the soil and groundwater thereunder (i)
do not contain and are not contaminated by any Hazardous Material; (ii) do not
contain and have not previously contained underground storage tanks; (iii) have
never been used for the generation, treatment, storage or disposal of any
Hazardous Material, or for mining, land filling, dumping, gasoline station, dry
cleaning or commercial petroleum product storage purposes; (iv) have never been
the subject of any activities representing a violation or alleged violation of
any Environmental Law or any report to or action by a Governmental Authority
pursuant to any Environmental Law, and are in full compliance with all
Environmental Laws; (v) do not otherwise contain a condition that is or may be a
threat to the safety or health of the public or to the environment; (vi) have
not had any release of any Hazardous Material from, on, in or upon it and do not
face any risk of contamination by any Hazardous Material from any nearby
property; and (vii) have never been the subject of an environmental audit or
assessment, or remedial action or a lien or encumbrance for an environmental
problem.
(b) The Subsidiary and, to the extent relating to any of the Businesses,
VECTRA: (i) has never sent or disposed of, otherwise had taken or transported,
arranged for the taking or disposal of (on behalf of itself, a customer or any
other party) or in any other manner participated or been involved in the taking
of or disposal or release of a Hazardous Material to or at a site that is
contaminated by any Hazardous Material or that, pursuant to any Environmental
Law, (1) has been placed on the "National Priorities List", the "CERCLIS" list,
or any similar state or federal list, or (2) is subject to or the source of a
claim, an administrative order or other request to take "removal", "remedial",
"corrective" or any other "response" action, as defined in any Environmental
Law, or to pay for the costs of any such action
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at the site; (ii) is and at all times has been in compliance with all
Environmental Laws in all of its activities and operations, and is not liable
under any Environmental Law; (iii) is not involved in (and has no basis to
expect to be involved in) any suit or proceeding and has not received (and has
no basis to expect to receive) any notice, request for information or other
communication from any Governmental Authority or other third party with respect
to a release or threatened release of any Hazardous Material or a violation or
alleged violation of any Environmental Law, and has not received (and has no
basis to expect to receive) notice of any claims from any person or entity
relating to property damage or to personal injuries from exposure to any
Hazardous Material; and (iv) has timely filed every report required to be filed,
acquired all necessary certificates, approvals and permits (all of which are
listed on SCHEDULE 5.18), and generated and maintained all required data,
documentation and records under all Environmental Laws.
(c) All the certificates, approvals and permits listed on SCHEDULE 5.18
shall be transferred, re-issued, or reacquired, as the case may be, to or on
behalf of the Buyer to the full extent necessary or desired by the Buyer in
order for the Buyer to hold the properties and Assets acquired pursuant to this
agreement and to carry on each of the Businesses as presently conducted, and all
such certificates, approvals and permits are capable of being so transferred,
reissued or reacquired, as the case may be, without any material modification of
such certificates, approvals or permits, and without the need for any action,
approval or payment of more than an immaterial application or similar fee.
(d) To the Sellers' Knowledge, the Buyer will be able to hold the
properties and Assets acquired pursuant to this agreement and to carry on each
of the Businesses as presently conducted in compliance with any prospective
requirement adopted or promulgated prior to the date hereof under any
Environmental Law without material cost or change in the operations of any of
the Businesses.
(e) The Sellers have delivered to the Buyer true and complete copies of
all documents, notices, reports, studies, analyses, tests, permits and other
written materials identified in SCHEDULE 5.18.
5.19 ABSENCE OF CHANGES OR EVENTS. Since November 26, 1995, neither Seller
has: (a) conducted any of the Businesses other than in the ordinary course
consistent with past practices in substantially the same manner as presently
conducted, with all reasonable efforts made consistent with past practices to
preserve the goodwill of each of the Businesses and the Sellers' relationships
with the customers, suppliers and others with whom they deal in connection with
any of the Businesses and to keep available the services of its Employees; (b)
entered into any Contract, assumed any Liability or otherwise conducted any of
the Businesses other than in the ordinary course of business consistent with
past practice; (c) suffered any Material Adverse Effect, other than changes
relating to the industry in general and not specifically relating to either
Seller; or (d) done any act or incurred any event that would be or cause a
violation of either Seller's covenants and agreements set forth in SECTION
7.1(b) below were such act undertaken or event incurred at any time after the
date hereof but prior to the Closing Date.
5.20 COMMISSIONS. Except for incentive payments from Seller to certain of
its employees to facilitate completion of this transaction, no broker, finder or
other Person is entitled to any brokerage fees, commissions or finder's fees in
connection with the transactions contemplated hereby by reason of any action
taken by either Seller.
5.21 FULL DISCLOSURE. No statement contained herein or in any document
delivered in connection with the execution of this Agreement or at the Closing
contains or will contain any untrue statement of a material fact or omits or
will omit to state any material fact necessary, in light of the circumstances
under which it was, is or will be made, in order to avoid statements herein or
therein being misleading.
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES
OF THE BUYER
The Buyer represents and warrants to the Sellers that the following
representations and warranties are correct and complete as of the date hereof
and will be correct and complete as of the Closing Date (as though made on such
date).
6.1 ORGANIZATION AND QUALIFICATION. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of its state of
incorporation. The Buyer has full corporate power and authority to enable it to
own, lease or otherwise hold its properties and assets and to carry on its
business as presently conducted.
6.2 AUTHORITY RELATIVE TO THIS AGREEMENT. The Buyer has full corporate
power and authority to execute and deliver the Transaction Agreements and to
perform its obligations under the Transaction Agreements and to consummate the
transactions contemplated thereby. The execution and delivery by the Buyer of
the Transaction Agreements and the performance by the Buyer of its obligations
thereunder and the consummation of the transactions contemplated thereby by the
Buyer have been, or prior to Closing will have been, duly and validly authorized
by all necessary corporate action on its part. This Agreement has been duly
executed and delivered by the Buyer, at the Closing the Transition Services and
Shared Assets Agreement, the Premises Sublease Agreement and the Escrow
Agreement will be duly and validly executed and delivered by the Buyer and, upon
execution and delivery, each such agreement constitutes or will constitute the
legal, valid and binding obligation of the Buyer enforceable against the Buyer
in accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency or other laws of general applicability
affecting creditors' rights and by general principles of equity that may limit
the specific performance of particular provisions.
6.3 CONSENTS AND APPROVALS; NO VIOLATIONS.
(a) Except in connection with the HSR Act, filings required under the
Securities Exchange Act of 1934, as amended, consents and approvals required in
connection with the assignment of Contracts pursuant to this Agreement and
except as set forth on SCHEDULE 6.3(A), there is no requirement applicable to
the Buyer or, to the knowledge of the Buyer, to either Seller, to make any
filing with, or to obtain any permit, authorization, consent or approval of, any
Governmental Authority as a condition to the lawful consummation of the
transactions contemplated hereby.
(b) The execution, delivery and performance of the Transaction Agreements
and the Buyer's compliance with the terms thereof will not: (i) conflict with
any provision of the articles of incorporation or bylaws of the Buyer; or (ii)
violate any statute, law, rule, regulation, order, writ, injunction or decree of
any Governmental Authority.
6.4 LITIGATION. There are no lawsuits, claims, or legal, administrative
or arbitration proceedings or investigations pending or, to the knowledge of the
Buyer, threatened by or against or affecting the Buyer seeking to enjoin the
consummation of the transactions contemplated hereby.
6.5 COMMISSIONS. No broker, finder or other Person is entitled to any
brokerage fees, commissions or finder's fees in connection with the transactions
contemplated hereby by reason of any action taken by the Buyer.
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6.6 INTENT TO HIRE. The Buyer intends to offer employment to
substantially all the Employees (excluding those Employees listed on the final
four pages of SCHEDULE 7.3) on the Closing Date, unless less than substantially
all of the service Contracts of the Businesses are assigned to the Buyer on the
Closing Date, any of the significant customers of the Businesses are unwilling
to continue to procure the services of the Businesses after the Closing or the
operations, financial condition or prospects of the Businesses on the Closing
Date are not substantially the same as on the date hereof.
ARTICLE VII
COVENANTS OF THE SELLERS
7.1 OPERATION OF THE BUSINESSES THROUGH THE CLOSING. The Sellers, jointly
and severally, hereby covenant and agree as follows:
(a) Except as contemplated by this Agreement, at all times from the date
hereof through the Closing Date, each of the Businesses shall continue to be
conducted in the ordinary course consistent with past practices, with all
reasonable efforts made consistent with past practices to preserve the goodwill
of each of the Businesses and the Sellers' relationships with the customers,
suppliers and others with whom they deal in connection with each of the
Businesses and to keep available the services of its officers and employees.
(b) Except as contemplated by this Agreement, the Subsidiary shall not,
and VECTRA shall not with respect to the Businesses, at any time from the date
hereof through the Closing Date do any of the following (without the prior
written consent of the Buyer):
(i) amend its articles of incorporation or bylaws in any manner that
would adversely affect its ability to comply with its obligations under
this Agreement;
(ii) grant to any Employee listed under the definition of Sellers'
Knowledge in this Agreement any increase in compensation or grant to any
Employee any increase in compensation other than increases in the ordinary
course of business, or pay or agree to pay to any such person any bonus,
severance or termination payment;
(iii) incur any Liabilities for borrowed money or guarantee any such
Liabilities, other than in the ordinary course of business consistent with
past practice and other than drawings made under the Sellers' existing
credit facilities;
(iv) incur any material change in its overhead costs, contracted
backlog, Accounts Receivable or accounts payable, except for those changes
that relate exclusively to and affect only those Liabilities not being
assumed by the Buyer pursuant to this Agreement and that do not have a
Material Adverse Effect;
(v) cancel any indebtedness owing to it or waive any claims or rights
of substantial value;
(vi) make any change in any method of accounting or accounting
practice or policy, including without limitation any change in the method
of accounting for the recognition of income and profit with respect to any
Contracts;
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(vii) acquire or agree to acquire a substantial portion of the stock
of, merge or consolidate with, or purchase a substantial portion of the
assets of, any Person or otherwise acquire or agree to acquire any assets
that are material to any of the Businesses;
(viii) sell, lease, license or otherwise dispose of, or agree to
sell, lease, license or otherwise dispose of, any of its Assets;
(ix) take any action that would make any of the representations or
warranties of either Seller contained in this Agreement untrue or incorrect
or would result in any of the conditions set forth in this Agreement not
being satisfied;
(x) enter into, cancel or modify any obligation or agreement (whether
or not reduced to writing and specifically including any note, bond,
mortgage, lease, license or other instrument), or assume any Liability,
other than in the ordinary course of business consistent with past
practices;
(xi) take any action with respect to any Plan, or refrain from taking
any action that is required by law with respect to any Plan, that could
result in a successor liability to the Buyer;
(xii) bill or collect any Accounts Receivable in advance of the
ordinary course of business; or
(xiii) agree, whether in writing or otherwise, to do any of the
foregoing.
7.2 ACCESS TO INFORMATION. Between the date of this Agreement and the
Closing Date, the Sellers shall: (a) give the Buyer and its authorized
representatives reasonable access, during normal business hours and upon
reasonable notice, to the employees, books, records, offices and other
facilities and properties of the Subsidiary, and, to the extent related to the
Assets or any of the Businesses being transferred hereby, of the Seller; (b)
permit the Buyer to perform such inspections thereof and perform such surveys,
environmental assessments and audits, and other inspections, tests and audits as
the Buyer may desire with respect to the Leased Real Property and shall use its
best efforts to obtain the owner's consent thereto; and (c) furnish the Buyer
with such financial and operating data and underlying records and workpapers and
other information with respect to each of the Businesses including, but not
limited to, information relating to intercompany charges and information related
to Taxes, as the Buyer may from time to time request in order to evaluate and
assess the accuracy of the Seller's financial records; PROVIDED, HOWEVER, that
any such investigation by the Buyer shall be conducted in such a manner as not
to interfere unreasonably with the normal operations of any of the Businesses.
The Sellers shall cooperate fully and promptly with the Buyer in connection with
the Buyer's due diligence conducted pursuant to the previous sentence, and shall
promptly make available to the Buyer any records under the Sellers' reasonable
control related to the Businesses requested by the Buyer in connection with such
due diligence.
7.3 EMPLOYEES.
(a) A true and complete list of all the persons employed (including
without limitation individuals employed on a full time, part time, or temporary
basis, and individuals leased from third parties) by VECTRA and performing
services relating to the Businesses, and of all the persons employed (including
without limitation individuals employed on a full time, part time, or temporary
basis, and individuals leased from third parties) by the Subsidiary, is set
forth as SCHEDULE 7.3 (collectively, the "EMPLOYEES"). Except as set forth in
SECTION 7.3, neither Seller shall terminate the employment of any of the
Employees at any time prior to the Closing without the written consent of the
Buyer.
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(b) Before and after the Closing Date, the Sellers shall use their best
efforts (at no additional out-of-pocket cost to the Sellers) to assist the Buyer
in obtaining the employment of those Employees that the Buyer desires to employ,
including without limitation allowing for any communication between the Buyer
and such Employees relating to such employment, and the Sellers shall cooperate
with and shall make available to the Buyer on a prompt basis all information and
documents as may be necessary to assist and coordinate the employment by the
Buyer of any such Employees consistent with any applicable employment laws or
regulations regarding employee privacy rights.
(c) Effective as of the close of business on the Closing Date, the Sellers
shall terminate the employment of all the Employees that the Buyer desires to
employ. The Buyer shall not be liable to any Employees or other Persons for any
severance obligations, benefit obligations or any other similar obligations
owing by either Seller in connection with the termination of any Employee's or
other Person's employment with the Sellers, including without limitation any
obligation (except for those obligations for which the Buyer is responsible
pursuant to SECTION 8.1(a) of this Agreement) imposed under the WARN Act.
(d) Within ten days after the Closing Date, the Sellers shall pay to each
Employee to be employed by the Buyer after the Closing (i) all severance
obligations or other similar obligations (including without limitation
obligations with respect to stock options), if any, owing by either Seller in
connection with the termination of such Employee's employment with the Sellers,
and (ii) an amount equal to any accrued liability for such Employee's accrued
vacation for periods prior to the close of business on the Effective Date. At
least fourteen days prior to the Closing Date, the Sellers shall give written
notification to each Employee of the amount and nature of the expected payment
to be made to such Employee, which notification shall instruct the Employee to
notify the Sellers of the Employee's objections, if any, within 10 days
following the date of the notification to the Employee. The Sellers shall
promptly forward to the Buyer each such objection notice received by the
Sellers.
(e) To the full extent requested by the Buyer, the Sellers shall
terminate, as of the Closing, all obligations of the Employees who become
employed by the Buyer under any noncompetition, confidentiality, or other
employment agreement in effect between such Employee and either Seller, except
with respect to any confidentiality obligations of such Employees with respect
to information relating exclusively to the Fuel and Waste Business.
(f) On and at all times after the Closing Date, each of the Sellers shall
operate and maintain those of its Plans in which any one or more of the
Employees participates in accordance with the terms thereof and with the
requirements of applicable law. Nothing in this provision shall prevent Sellers
in their sole discretion from terminating any such Plan in accordance with the
terms thereof and applicable law.
(g) All Employees who continue to have accounts after the Closing Date in
the Sellers' "401(k)" Plan shall be treated by the Sellers in the same manner
that the Sellers treat their other former employees. The Sellers shall give the
Buyer prior written notice of the date on which the Sellers terminate such Plan.
(h) Nothing in this Agreement, expressed or implied, shall (i) obligate
the Buyer or any Affiliate of the Buyer to employ any Person currently employed
by either Seller, to engage any independent contractor currently engaged by
either Seller or to assume any obligations relating to the employment of any
Person as an employee, independent contractor or otherwise; or (ii) confer upon
any employee or independent contractor of either Seller any right to employment
or to continued employment for any specified period, as an employee, independent
contractor or otherwise.
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7.4 INTELLECTUAL PROPERTY.
(a) NO INCONSISTENT USES. The Sellers agree not to use or license to any
Person any Proprietary Rights in any manner inconsistent with the Proprietary
Rights transferred to the Buyer pursuant to this Agreement or in any manner
inconsistent with law, and agree not to take any action that would compromise
the value of any such transferred Proprietary Rights.
(b) NONDISCLOSURE. The Sellers agree that, throughout the five (5) year
period following the Closing Date, no Seller will use or disclose any Trade
Secrets or other confidential information in any fashion that would compromise
the value of the Trade Secrets or any other confidential information that is to
be transferred to the Buyer pursuant to this Agreement.
(c) TRADE NAMES. The Sellers agree that they will not, individually or
collectively, display, publish or otherwise use any of the Transferred Trade
Names or any trade name confusingly similar to any Transferred Name in
connection with any business that conducts any activities similar to those of
any of the Businesses.
(d) RETAINED TRADE NAMES. For the 90 day period immediately following the
Closing Date, the Buyer shall have the right to use the names VECTRA, VECTRA
Technologies, Pacific Nuclear, Pacific Nuclear Systems and any other similar
names or derivatives (the "RETAINED TRADE NAMES") that are in any manner printed
on, affixed to or incorporated within any of the Assets to the full extent that
such Retained Trade Names were used by the Sellers in the ordinary course of the
Businesses prior to the Closing Date; PROVIDED, HOWEVER, that such use shall be
limited to that reasonably appropriate in connection with the transfer of the
Businesses contemplated hereby or with the consumption or depletion of Assets
such as purchase orders, invoices, sales orders, packaging stock, labels,
letterheads, shipping documents and similar items; PROVIDED, FURTHER, HOWEVER
that nothing in this SECTION 7.4(d) shall prohibit the Buyer from using any of
the Retained Trade Names in attempting to collect Accounts Receivable pursuant
to SECTION 9.7(a) at any time within the five-month period following the Closing
Date. The Buyer agrees that within 90 days after the Closing Date, it will, to
the extent reasonably necessary in order to respect the Sellers' rights in the
Retained Trade Names, eliminate or obliterate the Retained Trade Names and logos
from all signs, purchase orders, invoices, sales orders, packaging stock,
labels, letterheads, shipping documents and other materials to be used by it;
PROVIDED, HOWEVER, that nothing in this SECTION 7.4(d) shall require the Buyer
to eliminate or obliterate any Retained Trade Names from any items the Buyer's
use of which is reasonable in connection with attempting to collect Accounts
Receivable pursuant to SECTION 9.7(a) at any time within the five-month period
following the Closing Date. Notwithstanding anything in this SECTION 7.4(d) to
the contrary, at all times following the Closing Date the Buyer shall be
permitted to use and maintain the Retained Trade Names printed on, affixed to or
incorporated within the Assets for record keeping, archival and any other
internal purposes.
7.5 SEARCHES RELATING TO ENCUMBRANCES. Prior to the Closing and at the
expense of the Sellers, the Sellers shall cause to be obtained and shall deliver
to the Buyer the results of searches, performed in the appropriate offices of
all jurisdictions in which the Assets are located, for any judgments, liens
(including without limitation liens relating to Taxes), security interests, and
encumbrances relating to any and all of the Assets. The searches shall have
been undertaken and be accurate as of a date not earlier than twenty days prior
to the Closing (or shall be updated within such period), and shall be conducted
in a fashion reasonably designed to inform the Buyer of all liens, security
interests, and encumbrances affecting the Assets.
7.6 STOCKHOLDERS' MEETING. VECTRA shall take all action necessary in
accordance with and subject to applicable law and its articles of incorporation
and bylaws to convene a meeting of its
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stockholders as soon as practicable after the date of this Agreement to consider
and vote upon the adoption and authorization of this Agreement. VECTRA, through
its Board of Directors, shall recommend to its stockholders the adoption and
authorization of this Agreement and the transactions contemplated hereby and
shall use all reasonable efforts to obtain the adoption and authorization of
this Agreement and the consummation of the transactions contemplated hereby by
the stockholders of VECTRA; PROVIDED, HOWEVER, that the Board of Directors of
VECTRA shall not be obligated to recommend approval of this Agreement and
related matters to VECTRA's shareholders or use its reasonable efforts to obtain
the adoption and authorization of VECTRA's shareholders if such Board of
Directors, acting with the advice of counsel, determines that such
recommendation would be contrary to the Board of Director's legal obligations as
directors of VECTRA under Washington law.
7.7 EXCLUSIVITY. Without limiting the effect of any other warranty or
representation contained in this Agreement, at no time from the date hereof
through the Closing Date will either Seller, directly or through any agents or
representatives, (i) solicit, initiate, or encourage the submission of any
proposal or offer from any Person relating to the acquisition of any capital
stock or other voting securities, or any substantial portion of the Assets, of
either Seller (including any acquisition structured as a merger, consolidation
or share exchange); or (ii) participate in any discussions or negotiations
regarding, furnish any information with respect to, assist or participate in, or
facilitate in any other manner any effort or attempt by any Person to do or seek
any of the foregoing, except to the extent related to such efforts or attempts
that are not the direct or indirect result of any solicitation, initiation or
encouragement on the part of any of the Sellers or their Affiliates and with
respect to which VECTRA's Board of Directors shall have determined in good
faith, acting with the advice of counsel, that such action is required by the
fiduciary duties of VECTRA's directors under Washington law. The Sellers shall
notify the Buyer immediately if any Person makes any proposal, offer, inquiry,
or contact with respect to any of the foregoing. The Sellers will not be deemed
to have made a "solicitation", "initiation" or "encouragement" in breach of this
SECTION 7.7 by reason of their publication of the provision of SECTIONS 7.6 or
7.7 in a proxy statement distributed to the shareholders of VECTRA in connection
with such shareholders' approval of the consummation of the transactions
contemplated by this Agreement or their filing of any materials with the
Securities and Exchange Commission required in connection therewith.
7.8 TANGIBLE ASSETS SCHEDULE. The Sellers shall deliver to the Buyer, by
June 15, 1996, a schedule (the "Tangible Assets Schedule"), acceptable in form
and substance to the Buyer, listing each item of each Seller's Assets that is
tangible personal property that had an original purchase price in excess of
$1,000, together with its original purchase price, accumulated depreciation, tax
value and office location.
7.9 UPDATE OF SHARED ASSETS SCHEDULE. The Sellers shall deliver to the
Buyer, by June 15, 1996, a schedule (the "UPDATED SHARED ASSETS SCHEDULE"),
acceptable in form and substance to the Buyer, bringing current the schedule of
Licensed Shared Assets and Transferred Shared Assets set forth as SCHEDULE
2.6(b)(i).
7.10 WARRANTY CLAIMS.
(a) The Sellers, on the one hand, and the Buyer, on the other, shall give
immediate written notice to the other party of any Warranty Claim (as
hereinafter defined) received after the Closing that relates in whole or in part
to work performed by any of the Businesses prior to Closing. The Buyer shall
have the option to perform the work required to satisfy or otherwise to address
properly any such Warranty Claims. VECTRA shall reimburse the Buyer for its
Fully Loaded Cost (as hereafter defined) of performing such work to the extent
either Seller would be liable for such Warranty Claim or either Seller would
have, pursuant to the customary business practices of the Businesses prior to
the Closing,
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satisfied or otherwise performed the services necessary to properly address such
Warranty Claim without charge to the customer. The cost of satisfying any
Warranty Claim that involves work performed both before and after the Closing
shall be allocated between the parties based on the percentage of the cost of
the defective work performed before and after the Closing.
(b) Prior to satisfying any such Warranty Claim, the Buyer shall give
written notice to VECTRA of its proposed actions, if any, with respect to such
Warranty Claim. Within ten days of its receipt of any such notice from the
Buyer, VECTRA shall notify the Buyer in writing if it objects to responsibility
for the Warranty Claim or to reimbursing the Buyer for all or any part of the
Buyer's Fully Loaded Cost of satisfying the Warranty Claim. If the Buyer does
not receive any such objection within such ten day period, the Sellers shall be
fully liable for such costs.
(c) For the purposes of this SECTION 7.10, "Warranty Claim" means any
claim or demand arising because of the actual or asserted failure of either
Seller to adequately or properly perform the services rendered in connection
with a Contract, including without limitation any assertion of a breach of the
requirements of any Contract or of any statute, common law, regulation,
ordinance or rule.
(d) For the purposes of this SECTION 7.10, the Buyer's "Fully Loaded Cost"
means the Buyer's fully loaded cost as determined in accordance with its normal
practices for determining such costs when performing services for a regulated
utility, but excluding any profit percentage.
(e) Any dispute between the Sellers and the Buyer with respect to VECTRA's
responsibility for any Warranty Claim or the amount thereof shall be resolved at
the request of any party in accordance with SECTION 13.1.
(f) The Buyer shall have all responsibility for warranty work on Contracts
for work performed by it after the Closing Date, including work performed under
Retained Contracts.
7.11 NOTICE TO TAX AUTHORITIES. Within ten Business Days following the
Closing Date, the Sellers shall provide to each Governmental Authority to which
any Seller is required to pay personal property or comparable Taxes written
notice that after the Closing (a) the Sellers have sold the Assets and will
cease conducting the Businesses, and (b) the address to which the personal
property tax statement for tax liability on the Assets through the Closing Date
should be sent. A copy of each such notice shall be sent to the Buyer at the
same time it is delivered to the appropriate Governmental Authority.
7.12 RELEASE OF LIENS. Without limiting any other obligation of the
Sellers provided herein, at the Closing the Sellers shall (a) deliver to the
Buyer instruments, in form and substance satisfactory to the Buyer, by which
each Person possessing any security interests in the Assets to be transferred to
the Buyer pursuant to this Agreement releases and terminates all such security
interests upon the Closing (except for those items included in clauses (i) or
(ii) of the definition of "Permitted Liens" and except with respect to leased
property), which instruments shall be executed by and binding upon each such
Person; and (b) deliver to the Buyer UCC-3 termination statements, in form and
substance satisfactory to the Buyer and signed by the applicable secured
parties, that may be immediately filed by the Buyer and that will, upon such
filing, terminate all UCC-1 financing statements in every jurisdiction in which
such financing statements are on file with respect to the Assets to be
transferred to the Buyer pursuant to this Agreement (including those filed in
favor of Banque Paribas and Banque Nationale de Paris but excluding those
filings made with respect to leased property).
7.13 QUALITY ASSURANCE PROGRAM TRANSITION. Notwithstanding anything in
this Agreement to the contrary, from the Closing Date through October 1, 1996
the Sellers shall allow the Buyer to perform work for customers of the
Businesses under the applicable quality assurance programs in effect
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between the Sellers and each such customer as of the Closing Date, shall make
available to the Buyer a copy of each such program and shall allow the Buyer to
inform such customers of the use of such programs and to provide copies of such
programs to such customers. Any discussions or other actions taken pursuant to
any such quality assurance programs in connection with work performed by the
Buyer will be directed to the appropriate representatives of the Buyer rather
than of the Sellers. The Buyer does not anticipate that any participation of
the Sellers will be required in connection with the application by the Buyer of
any such quality assurance program; however, the Buyer shall compensate the
Sellers for their fully loaded cost (as determined in accordance with the
Sellers' normal practices for determining such costs in connection with quality
assurance review undertaken in connection with work performed for a regulated
utility, but excluding any profit percentage) incurred in connection with any
such participation that is provided at the Buyer's request. Nothing in this
SECTION 7.13 shall limit the Sellers' ability to engage in any discussions or
take any actions in connection with quality assurance review relating to work
performed by the Sellers prior to the Closing Date.
ARTICLE VIII
COVENANTS OF THE BUYER
8.1 EMPLOYEE MATTERS.
(a) TERMINATION MATTERS. Of those Employees hired by the Buyer after the
Closing in connection with the consummation of the transactions contemplated by
this Agreement, the Buyer shall not terminate the employment of any number of
such Employees to the extent that, when combined with the number of those
Employees that are not hired by the Buyer, such termination by the Buyer would
result in any liability on the part of the Sellers under the WARN Act.
(b) ACCRUED VACATION. The Buyer agrees to provide each Employee hired by
the Buyer as of the Closing Date unpaid vacation (which may be taken only during
the period following the Closing Date through December 31, 1996) to the extent
(i) the Employee accrued rights to receive such vacation for periods from
January 1, 1996 through the close of business on the Effective Date, and (ii)
the Sellers paid the Employee an amount equal to the accrued liability for such
vacation pursuant to SECTION 7.3(D).
ARTICLE IX
MUTUAL COVENANTS
9.1 CONSUMMATION OF AGREEMENT. The parties to this Agreement agree to use
their reasonable efforts to perform or fulfill all conditions and obligations to
be performed or fulfilled by them under this Agreement so that the transactions
contemplated hereby shall be consummated. Except for events that are the
subject of specific provisions of this Agreement, if any event should occur,
either within or outside the control of any party to this Agreement, that would
materially delay or prevent fulfillment of the conditions upon the obligations
of either party hereto to consummate the transactions contemplated by this
Agreement, each party will notify the other of any such event and the parties
will use their reasonable, diligent and good faith efforts to cure or minimize
the same as expeditiously as possible.
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9.2 ALLOCATION OF PURCHASE PRICE.
(a) PRELIMINARY ALLOCATION. Following the delivery of the Pre-Closing
Balance Sheet to the Buyer and prior to the Closing, the parties shall use their
best efforts to agree on an allocation of a portion of the Closing Payment among
the Assets included in the Pre-Closing Balance Sheet (with the remainder of the
Closing Payment being allocated to goodwill).
(b) FINAL ALLOCATION. Following the delivery of the Closing Balance
Sheets to the Sellers, the parties shall allocate the Final Purchase Price among
the Assets included in the Closing Balance Sheets in a fashion consistent with
the agreed-upon allocation of the Closing Payment.
(c) TAX REPORTING. The Sellers and the Buyer agree that each party shall
report the transactions contemplated by this Agreement for income tax purposes
in accordance with the finally determined allocation of the Final Purchase
Price, pursuant to Section 1060 of the Code and the regulations thereunder, and
agree not to take, in any filing with or accompanying any Tax Return reporting
any part of the transaction undertaken herein, a position inconsistent with such
allocations.
9.3 CONSENTS AND AUTHORIZATIONS. The parties agree to use their
reasonable efforts to obtain, deliver and file (as the case may be), at the
earliest practicable date (or, if applicable, at the earliest practicable date
following the expiration of any required waiting period), all consents,
approvals and notices with respect to any Person or Governmental Authority that
may be required in connection with the consummation of the transactions
contemplated hereby. Specifically but without limiting the effect of the
foregoing sentence, upon the determination by the Buyer that such action is
required, the parties to this Agreement shall notify the Department of Energy of
the contract assignments of Subsidiary, and shall promptly file Notification and
Report Forms under the HSR Act with the Federal Trade Commission (the "FTC") and
the Antitrust Division of the Department of Justice (the "Antitrust Division")
and respond as promptly as practicable to all inquiries received from the FTC or
the Antitrust Division for additional information or documentation.
9.4 CONFIDENTIALITY. The Buyer shall hold, and shall cause its
consultants and advisors to hold, in strict confidence all documents and
information concerning the Sellers and their Affiliates furnished to the Buyer
in connection with the transactions contemplated by this Agreement, and each of
the Sellers shall hold, and shall cause its consultants and advisors to hold, in
strict confidence all documents and information concerning the Buyer and its
Affiliates furnished to either Seller in connection with the transactions
contemplated by this Agreement; PROVIDED, HOWEVER, that in each case any party
may disclose any document or information (i) that is already public knowledge
prior to such disclosure or (ii) to the extent that, in the reasonable opinion
of the disclosing party's legal counsel, such disclosure is necessary in order
to conform to the requirements of any applicable securities laws and
regulations, including without limitation the rules of any securities exchange,
but only after the disclosing party has given prior written notice of the
disclosure to the non-disclosing parties.
9.5 PUBLICITY. Each of the parties to this Agreement agrees to negotiate
in good faith with the other parties as to the text, form, content, and timing
of any news release or other public announcement or disclosure concerning or
relating to the transactions contemplated hereby prior to its release for
publication, subject to compliance with all applicable laws, rules and
regulations pertaining to such announcements or disclosures.
9.6 SOLICITATION OF EMPLOYEES.
(a) Without the express written consent of the other, the Buyer on the one
hand and the Sellers on the other shall not, nor shall they permit any of their
respective Affiliates to, (i) at any time
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during the two year period immediately following the Closing Date, directly or
indirectly, solicit, encourage, entice or induce any person who is, at the time
of such solicitation, encouragement, enticement or inducement, an employee of
the other (or the other's Affiliates), to terminate his or her employment with
the other (or the other's Affiliates), or (ii) at any time during the one year
period immediately following the Closing Date, employ any person who is, at any
time during such one year period, an employee of the other; PROVIDED, HOWEVER,
that nothing in this SECTION 9.6(a) shall prohibit the Buyer from employing any
of the Employees.
(b) The parties agree that monetary damages may be inadequate to remedy
any breach or threatened breach of the obligations set forth in this Section and
that each party shall be entitled to equitable relief, including without
limitation the granting of injunctive relief, in addition to any other remedies
available at law.
9.7 ACCOUNTS RECEIVABLE; INACTIVE CONTRACTS.
(a) COLLECTION BY BUYER. The Buyer shall attempt to collect the Accounts
Receivable transferred to the Buyer pursuant to this Agreement after the Closing
in accordance with its normal collection practices and procedures (which do not
include filing suit or hiring collection agencies), but the Buyer shall not be
required to take any other actions to collect such accounts.
(b) GUARANTY. Upon the Buyer's written request at any time at least five
months after the Closing Date, VECTRA shall pay the Buyer an amount equal to (i)
the uncollected amount of all Accounts Receivable that are included in the
Valuation Assets as of the Effective Date and that are not collected within the
five-month period immediately after the Closing Date, other than retention
accounts relating to projects on which work is continuing, less (ii) any amounts
collected by the Buyer on the Accounts Receivable that are not included in such
Valuation Assets. Thereafter, on the Buyer's written request from time to time,
VECTRA shall pay to the Buyer the face amount of any retention account that is
not collected within 60 days after the termination of work on the related
project. With respect to any uncollected retention account that relates to work
performed both before and after the Closing, the Buyer shall give written notice
to VECTRA of the amount the Buyer proposes that VECTRA pay with respect to such
uncollected retention account. Within ten days of its receipt of any such
notice from the Buyer, VECTRA shall notify the Buyer in writing if it objects to
responsibility for the uncollected retention account, or the amount of the
uncollected retention account that the Buyer proposes that VECTRA pay. If the
Buyer does not receive any such objection within such ten-day period, VECTRA
shall pay the Buyer the requested amount. Any dispute between VECTRA and the
Buyer with respect to such uncollected retention account shall be resolved at
the request of either party in accordance with SECTION 13.1.
(c) ASSIGNMENT. Upon receipt of the payment from the Sellers pursuant to
SECTION 9.7(b), the Buyer shall assign to VECTRA all uncollected Accounts
Receivable transferred to the Buyer pursuant to this Agreement (other than
retention accounts relating to projects on which work is continuing).
(d) POST-ASSIGNMENT RECEIPTS. The Buyer shall forward to VECTRA any
amounts received by the Buyer following the assignment of any Accounts
Receivable pursuant to SECTION 9.7(c) above that are payments on such assigned
Accounts Receivable.
(e) COLLECTIONS IN EXCESS OF COST. If the Buyer shall collect an amount
on the Accounts Receivable transferred to the Buyer pursuant to this Agreement
that is in excess of the value of such Accounts Receivable on the Valuation
Balance Sheet included as part of the Closing Balance Sheets, the Buyer shall
pay to VECTRA such excess from time to time as collected.
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(f) RECORDS OF RECEIPTS. The Buyer shall provide to the Sellers, upon the
Sellers' request from time to time, detailed and accurate records of the amount
of all payments received by the Buyer in partial or total satisfaction of any
Accounts Receivable transferred to the Buyer pursuant to this Agreement,
including the date and amount of each such receipt, the name of the payor and
the invoice number to which the payment relates.
(g) INACTIVE CONTRACTS. If the Buyer shall collect any amounts on any of
the six Contracts scheduled as "VECTRA Government Services, Inc. Inactive
Contracts for Assignment" for client "WSRC" contained as part of SCHEDULE 5.9
and transferred to the Buyer pursuant to this Agreement, then the Buyer shall
pay to VECTRA such amounts from time to time as collected. VECTRA shall be
entitled to participate in good faith with the Buyer in any customer discussions
directly relating to the settlement of the amounts owing on such Contracts.
9.8 PAYMENTS FOR INTERIM ACCOUNTS.
(a) Within seven days after the Closing Date, the Sellers shall pay the
Buyer the aggregate amount of all payments that relate to any Assets (including
Accounts Receivable) included in the Valuation Assets and that are received by
either of the Sellers after the close of business on the Effective Date through
the Closing Date. After the Closing Date, the Sellers shall pay to the Buyer
within three Business Days after receipt by the Sellers, the amount of all such
payments that are received by either Seller (including those received in any
lock-boxes maintained on behalf of either Seller). The Sellers shall be the
Buyer's agent with respect to all such payments and shall hold such payments in
trust for the Buyer.
(b) Within seven days after the Closing Date, the Buyer shall pay to the
Sellers the aggregate amount of all payments by the Sellers in partial or total
satisfaction of any Assumed Liabilities made after the close of business on the
Effective Date through the Closing Date. Thereafter, the Buyer shall pay to the
Sellers, within three Business Days of payment by the Sellers, an amount equal
to the amount of all such payments (if any) that are made by the Sellers after
the Closing Date.
(c) Commencing the Effective Date and continuing thereafter for five
months following the Closing Date, the Sellers shall provide to Buyer, upon the
Buyer's request from time to time, detailed and accurate records of the amount
of (i) all payments received by the Sellers after the close of business on the
Effective Date that relate to any Assets included in the Valuation Assets,
including the date and amount of each such payment, the name of the payor and
the invoice number to which the payment relates, and (ii) all payments made by
the Sellers after the close of business on the Effective Date in partial or
total satisfaction of any Assumed Liabilities, including the date and amount of
each such payment, the name of the payee and the obligation to which it relates.
ARTICLE X
CLOSING CONDITIONS
10.1 MUTUAL CONDITIONS. The respective obligations of each of the parties
to this Agreement to effect the transactions contemplated hereby shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) No party to this Agreement shall be subject on the Closing Date to any
order, decree or injunction of a court of competent jurisdiction that enjoins or
prohibits the consummation of this Agreement and no Governmental Authority shall
have instituted a suit or proceeding that is then pending
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that seeks to enjoin or prohibit the transactions contemplated hereby. Any
party who is subject to any such order, decree or injunction or the subject of
any such suit or proceeding shall take any steps within that party's control to
cause any such order, decree or injunction to be modified so as to permit the
Closing and to cause any such suit or proceeding to be dismissed.
(b) VECTRA and Buyer and any other Person required in connection with the
transactions contemplated hereby to file a Notification and Report Form with the
DOJ and FTC pursuant to the HSR Act shall have made such filing, all applicable
waiting periods with respect to each such filing (including any extensions
thereof) shall have expired or been terminated and no actions shall have been
instituted by the DOJ or FTC challenging or seeking to enjoin the consummation
of the transactions contemplated under this Agreement (unless such actions shall
have been withdrawn or terminated).
(c) The Closing of the transactions contemplated by this Agreement shall
be in compliance with all applicable state and federal laws, including without
limitation (i) all laws that would render the transactions contemplated by this
Agreement void or voidable, and (ii) all laws that would subject the Buyer or
any of its Affiliates to any Liability.
(d) The Sellers and the Buyer shall have agreed upon the Pre-Closing
Balance Sheet and the amount of the Closing Payment Adjustment.
(e) The shareholders of VECTRA shall have approved the consummation of the
transactions contemplated by this Agreement in accordance with all applicable
state and federal laws.
10.2 CONDITIONS TO THE OBLIGATIONS OF THE SELLERS. The respective
obligations of the Sellers to effect the transactions contemplated hereby shall
be further subject to the fulfillment of the following conditions, any one or
more of which may be waived by the Sellers:
(a) All representations and warranties of the Buyer contained in this
Agreement shall be true and correct in all material respects as of the Closing
Date as though made as of such date (except as otherwise contemplated by this
Agreement). The Buyer shall have performed and complied in all material
respects with all its covenants and agreements contained in this Agreement
required to be performed and complied with by it at or prior to the Closing.
The Sellers shall have received a certificate to the matters set forth in this
SECTION 10.2(A) signed on behalf of the Buyer by an authorized officer.
(b) (i) All documents required to have been delivered by the Buyer to
either Seller at or prior to the Closing shall have been delivered, (ii) the
Transition Services and Shared Assets Agreement, the Escrow Agreement and the
Premises Sublease Agreement shall have been executed and delivered by the Buyer
and (iii) all actions required to have been taken by the Buyer at or prior to
the Closing shall have been taken.
(c) The Sellers shall have received an opinion from Robinson, Bradshaw &
Hinson, P.A., counsel to the Buyer, dated the Closing Date, in substantially the
form of the opinion attached hereto as EXHIBIT B.
(d) As of the Closing Date, the Sellers shall have received from the Buyer
the following documents:
(i) a certificate of corporate existence of the Buyer from the State
of North Carolina;
(ii) a true and complete copy of the articles of incorporation of the
Buyer and all amendments thereto certified by the State of North Carolina;
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(iii) a true and complete copy of the bylaws of the Buyer certified
by its Secretary;
(iv) a certificate from the Secretary of the Buyer that its articles
of incorporation have not been amended since the date of the certificate
described in subsection (ii) above, and that nothing has occurred since the
date of issuance of the certificate of existence specified in subsection
(i) above, that would adversely affect the Buyer's corporate existence or
good standing;
(v) a true and complete copy of the resolutions of the Board of
Directors of the Buyer authorizing the execution, delivery and performance
of this Agreement, and all instruments and documents to be delivered in
connection herewith, and the transactions contemplated hereby by the Buyer,
certified by its Secretary; and
(vi) a certificate from the Secretary of the Buyer as to the
incumbency and signatures of its officers who will execute documents at the
Closing or who have executed the Agreement.
(e) As of the Closing Date, the Sellers shall have received the Closing
Payment.
10.3 CONDITIONS TO THE OBLIGATIONS OF THE BUYER. The obligations of the
Buyer to effect the transactions contemplated hereby shall be further subject to
the fulfillment of the following conditions, any one or more of which may be
waived by the Buyer:
(a) All representations and warranties of each of the Sellers contained in
this Agreement shall be true and correct in all material respects as of the
Closing Date as though made as of such date (except as otherwise contemplated by
this Agreement). The Sellers shall have performed and complied in all material
respects with all their respective covenants and agreements contained in this
Agreement required to be performed and complied with by them at or prior to the
Closing. The Buyer shall have received a certificate to the matters set forth
in this SECTION 10.3(a) signed on behalf of each of the Sellers by an authorized
officer of each.
(b) (i) All documents required to have been delivered by either Seller to
the Buyer at or prior to the Closing shall have been delivered, (ii) the
Transition Services and Shared Assets Agreement and the Escrow Agreement shall
have been executed and delivered by the Sellers, (iii) the Premises Sublease
Agreement shall have been executed and delivered by VECTRA, and (iv) all actions
required to have been taken by each of the Sellers at or prior to the Closing
shall have been taken.
(c) The Buyer shall have received an opinion from Preston, Gates and
Ellis, counsel to the Sellers, dated the Closing Date, in substantially the form
of the opinion attached hereto as EXHIBIT C.
(d) As of the Closing Date, the Buyer shall have received from the Sellers
the following documents:
(i) a certificate of existence and tax good standing of VECTRA and
the Subsidiary from the respective state of incorporation of each;
(ii) a true and complete copy of the articles of incorporation of
each of the Sellers and all amendments thereto certified by the respective
state of incorporation of each;
(iii) a true and complete copy of the bylaws of each of the
Sellers certified by the respective Secretary of each;
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(iv) a certificate from the Secretary of each of the Sellers that the
articles of incorporation of each such entity have not been amended since
the date of the certificate described in subsection (ii) above, and that
nothing has occurred since the date of issuance of the articles of
existence specified in subsection (i) above, that would adversely affect
such entity's corporate existence or good standing;
(v) a true and complete copy of the resolutions of the Board of
Directors (and if required to consummate the transactions contemplated by
this Agreement, the resolutions of the shareholders) of each of the Sellers
authorizing the execution, delivery and performance of this Agreement, and
all instruments and documents to be delivered in connection herewith, and
the transactions contemplated hereby by each such entity, respectively,
certified by the Secretary of such entity; and
(vi) a certificate from the Secretary of each of the Sellers as to
the incumbency and signatures of any of such entity's respective officers
who will execute documents at the Closing or who have executed the
Agreement.
(e) The Buyer shall have received from each of the Sellers a bill of sale
and an assignment agreement, in form and substance satisfactory to the Buyer,
and such other documents, opinions and certificates that it may have reasonably
requested in connection with the proper and effective conveyance of the Assets
free and clear of all liens, claims, encumbrances, and restrictions whatsoever,
(excluding the Excluded Assets and except for Permitted Liens other than those
Permitted Liens set forth on SCHEDULE 1.42), and the consummation of the other
transactions contemplated by this Agreement.
(f) All consents required of any Person in order to effect the assignment
of all material Contracts to the Buyer and the consummation of the transactions
contemplated hereby shall have been obtained.
(g) As of the close of business on the Effective Date, the Balance Sheet
of the Businesses will not vary in any materially adverse respect from the
Balance Sheet of the Businesses as at December 31, 1995 included in the
Financial Statements.
(h) The Buyer shall have accepted the form and substance of the Tangible
Assets Schedule.
(i) The Buyer shall have accepted the form and substance of the Updated
Shared Assets Schedule.
ARTICLE XI
TERMINATION
11.1 TERMINATION. Notwithstanding anything to the contrary in this
Agreement, the obligations of the parties under this Agreement may be terminated
and the transactions contemplated hereby abandoned at any time prior to the
Closing Date:
(a) by mutual written consent of the parties to this Agreement;
(b) by either the Buyer on the one hand, or the Sellers on the other, if
there shall be any law or regulation that makes consummation of this Agreement
illegal or otherwise prohibited or if any judgment, injunction, order or decree
permanently enjoining the any party to this Agreement from
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consummating this Agreement is entered and such judgment, injunction, order or
decree shall become final and non-appealable;
(c) by either the Buyer on the one hand, or the Sellers on the other, if
the conditions to the obligation to effect the transactions contemplated hereby
of the party seeking termination shall not have been fulfilled or waived by
September 30, 1996, and if the party seeking termination is in material
compliance with all of its obligations under this Agreement;
(d) by either the Buyer on the one hand, or the Sellers on the other, if a
condition to the obligation to effect the transactions contemplated hereby of
the party seeking termination shall have become incapable of fulfillment
(notwithstanding the efforts of the party seeking to terminate as set forth in
SECTION 9.1) and has not been waived;
(e) by the Buyer, if by 5:00 p.m. (San Ramon, California time) on June 1,
1996, the Buyer shall have given notice to VECTRA that in its sole, absolute and
unqualified discretion, the Buyer has determined, based on its due diligence
review of each of the Businesses, not to proceed with the consummation of the
transactions contemplated by this Agreement; and
(f) by the Buyer, if by 5:00 p.m. (San Ramon, California time) on June 5,
1996, the Buyer shall have given notice to VECTRA that the Buyer has determined
in the exercise of its sole, absolute and unqualified discretion that the Buyer
has not received assurances from Commonwealth Edison Co. that it will remain a
customer of the Buyer following the Closing (with respect to existing Contracts
as well as Contracts potentially to be entered following the date hereof and
following the Closing Date) to the extent satisfactory to the Buyer.
11.2 PROCEDURE AND EFFECT OF TERMINATION OR FAILURE TO CLOSE. In the event
of a termination contemplated hereby by any party pursuant to SECTION 11.1, the
party seeking to terminate this Agreement shall give prompt written notice
thereof to the other parties, and the transactions contemplated hereby shall be
abandoned, without further action by any party hereto. In such event:
(a) The parties to this Agreement shall continue to be bound by their
obligations of confidentiality set forth in SECTION 9.4 and all copies of the
information deemed confidential pursuant to SECTION 9.4 shall be returned to the
party from which such information originated immediately upon its request
therefor (or, at the request of such originating party, such information shall
be immediately destroyed);
(b) All filings, applications and other submissions relating to the
transactions contemplated hereby shall, to the extent practicable, be withdrawn
from the Person or Governmental Authority to which it was made;
(c) In the event of a termination by any party pursuant to SECTION 11.1(c)
or SECTION 11.1(d) because of the failure of the shareholders of VECTRA to have
approved the consummation of the transactions contemplated by this Agreement,
the Sellers shall be jointly and severally obligated to promptly pay to the
Buyer by wire transfer to an account designated by the Buyer the amount of five
hundred thousand dollars ($500,000) if (i) the Board of Directors of either
Seller fails to recommend to its shareholders the approval of the transactions
contemplated by this Agreement, or (ii) the Board of Directors of either Seller
recommends to its shareholders the approval of an acquisition of either Seller
or of the Businesses (through a merger, a share exchange or an acquisition of
stock or any substantial portion of the assets of either Seller or the
Businesses) other than the acquisition contemplated by this Agreement or (iii)
within six months after the termination of this Agreement, either of the Sellers
consummates any such transaction.
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(d) None of the parties hereto shall have any other liability or further
obligation to the other party under this Agreement, except that each of the
parties to this Agreement shall be entitled to seek any remedy to which such
party may be entitled at law or in equity for the violation or breach by the
other party of any agreement, covenant, representation or warranty contained in
this Agreement.
ARTICLE XII
INDEMNIFICATION
12.1 SURVIVAL OF REPRESENTATIONS. All representations, warranties,
covenants and agreements made by the parties to this Agreement or pursuant
hereto shall survive the Closing. No warranty or representation shall be deemed
to be waived or otherwise diminished as a result of any due diligence
investigation by the party to whom the warranty or representation was made or as
a result of any actual or constructive knowledge by such party with respect to
any facts, circumstances or claims or by the actual or constructive knowledge of
such person that any warranty or representation is false at the time of Closing.
All claims made by virtue of such representations, warranties, covenants and
agreements shall be made under, and subject to the limitations set forth in,
this ARTICLE XII.
12.2 THE SELLERS' AGREEMENT TO INDEMNIFY.
(a) Subject to the limitations set forth in this SECTION 12.2, the Sellers
hereby, jointly and severally, agree to indemnify, defend and hold harmless the
Buyer and its Affiliates from and against all demands, claims, actions, losses,
damages, liabilities, penalties, Taxes, costs and expenses (including, without
limitation, attorneys' fees, settlement costs, arbitration costs and any
reasonable legal and other expenses for investigating or defending any action or
threatened action) asserted against or incurred by the Buyer or any of its
Affiliates arising out of or in connection with or resulting from (i) a
misrepresentation, breach, or nonfulfillment of any covenant, agreement,
representation or warranty of either Seller contained in this Agreement or in
any agreement or instrument executed and delivered on or prior to Closing
pursuant to this Agreement, (ii) any Liability or alleged Liability relating to
the Businesses or the Sellers that is not an Assumed Liability, including any
Liability or alleged Liability that becomes, or is alleged to have become, a
Liability of the Buyer under any bulk transfer law of any jurisdiction, under
any common law doctrine of de facto merger or successor liability, or otherwise
by operation of law and including, if the Buyer exercises its stock purchase
option provided in SECTION 2.5, any Liabilities or alleged Liabilities relating
in any fashion to the Subsidiary or its Business that would not have been
included among the Assumed Liabilities set forth in SECTION 2.4(a) had the Buyer
not exercised such option or (iii) any Liability or alleged Liability arising
out of or by reason of any violation or alleged violation of any Environmental
Law in connection with the Fuel and Waste Business (collectively, "Buyer's
Damages").
(b) The Sellers shall be obligated to indemnify the Buyer and its
Affiliates (i) for those Buyer's Damages relating to any Liability or alleged
Liability of the Buyer referred to in clause (ii) of SECTION 12.2(a) and as to
which the Buyer has given the Sellers notice within six years after the Closing
Date or as to which the statute of limitations applicable thereto has been
tolled during such six years; (ii) for any Liability or alleged Liability of the
Buyer referred to in clause (iii) of SECTION 12.2(A) without regard to when the
Buyer gives the Sellers notice of such Liabilities; or (iii) for all other
Buyer's Damages as to which the Buyer has given the Sellers notice within two
years after the Closing Date.
(c) The Buyer shall not be entitled to assert any claim under this SECTION
12.2 for Buyer's Damages resulting from breaches of Sellers' representations and
warranties until the cumulative amount
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of such Buyer's Damages exceeds two hundred fifty thousand dollars ($250,000),
but the Buyer shall thereafter be entitled to recover the full amount of such
Buyer's Damages in accordance with the provisions of this SECTION 12.2;
PROVIDED, HOWEVER, that nothing in this SECTION 12.2(c) shall be construed as
limiting the Buyer's ability to recover Buyer's Damages relating to the breach
of any covenant or agreement of either Seller provided in this Agreement or any
Liability or alleged Liability of the Buyer referred to in clause (ii) of
SECTION 12.2(a), regardless of the cumulative amount of such Buyer's Damages.
(d) In the event the Buyer has a claim for Buyer's Damages resulting from
the assertion of liability by a third party, the Buyer will, within thirty days
after receiving notice thereof, give the Sellers notice of any such third-party
claim, and VECTRA may undertake the defense thereof by counsel of its own
choosing if (i) the Sellers provide written notice to the Buyer that VECTRA
intends to undertake such defense and the Sellers will indemnify the Buyer
against all Buyer's Damages resulting from or relating to such third-party claim
pursuant to this SECTION 12.2, (ii) the Sellers provide the Buyer with evidence
acceptable to the Buyer that the Sellers will have the financial resources to
defend against the third-party claim and fulfill its indemnification obligations
hereunder, (iii) the third-party claim involves only money damages and does not
seek an injunction or other equitable relief, (iv) settlement of, or an adverse
judgment with respect to, the third-party claim is not, in the good faith
judgment of the Buyer, likely to establish a precedent adverse to the continuing
business interests of the Buyer and (v) VECTRA conducts the defense of the
third-party claim actively and diligently. The Buyer may, by counsel,
participate in such proceedings, negotiations or defense, at the expense of the
Sellers; PROVIDED, HOWEVER, that the counsel selected by the Buyer is subject to
the approval of the Sellers, which approval shall not be unreasonably withheld.
The Buyer shall furnish to the Sellers in reasonable detail such information as
the Buyer may have with respect to such claim, including all records and similar
materials that are reasonably required in the defense of such third-party claim.
In the event that within ten days after notice of any such third-party claim,
neither Seller has notified the Buyer of its intention to defend the third-party
claim, the Buyer will (upon further notice to the Sellers) have the right to
undertake the defense, compromise or settlement of such claim. The Sellers may
elect to participate in such proceedings, negotiations or defense at any time at
their own expense. The Buyer shall not settle any such third-party claim
without the consent of the Sellers, which consent shall not be unreasonably
withheld. Should one or more but not all of the Sellers agree to defend any
such third-party claim, the indemnifying party or parties not participating in
the defense of the claim shall be bound by the acts and agreements of the other
or others.
12.3 BUYER'S AGREEMENT TO INDEMNIFY.
(a) Subject to the limitations set forth in this SECTION 12.3, the Buyer
hereby agrees to indemnify, defend and hold harmless the Sellers and their
Affiliates from and against all demands, claims, actions, losses, damages,
liabilities, penalties, Taxes costs and expenses (including, without limitation,
attorneys' fees, settlement costs, arbitration costs and any reasonable legal
and other expenses for investigating or defending any action or threatened
action) asserted against or incurred by either Seller or its Affiliates arising
out of or in connection with or resulting from a breach of any covenant,
agreement, representation or warranty of the Buyer contained in this Agreement
or in any agreement or instrument executed and delivered on or prior to Closing
pursuant to this Agreement (collectively, "SELLERS' DAMAGES").
(b) The Buyer shall be obligated to indemnify the Sellers and their
Affiliates for those Sellers' Damages as to which the Sellers have given the
Buyer notice within two years after the Closing Date. The Sellers shall not be
entitled to assert any claim under this SECTION 12.3 for any Sellers' Damages
resulting from any breaches of the Buyer's representations or warranties until
the cumulative amount of such Sellers' Damages exceeds two hundred fifty
thousand dollars ($250,000), but the Sellers shall
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thereafter be entitled to recover the full amount of such Sellers' Damages in
accordance with the provisions of this SECTION 12.3; PROVIDED, HOWEVER, that
nothing in this SECTION 12.3(b) shall be construed as limiting any Seller's
ability to recover Sellers' Damages relating to the breach of any covenant of
the Buyer provided in this Agreement, regardless of the cumulative amount of
such Sellers' Damages.
(c) In the event either Seller has a claim for Sellers' Damages resulting
from the assertion of liability by a third party, the Sellers will, within
thirty days after receiving notice thereof, give the Buyer notice of any such
third-party claim, and the Buyer may undertake the defense thereof by counsel of
its own choosing if (i) the Buyer provides written notice to the Sellers that
the Buyer intends to undertake such defense and the Buyer will indemnify the
Sellers against all Sellers' Damages resulting from or relating to such third-
party claim pursuant to this SECTION 12.3, (ii) the Buyer provides the Sellers
with evidence acceptable to the Sellers that the Buyer will have the financial
resources to defend against the third-party claim and fulfill its
indemnification obligations hereunder, (iii) the third-party claim involves only
money damages and does not seek an injunction or other equitable relief, (iv)
settlement of, or an adverse judgment with respect to, the third-party claim is
not, in the good faith judgment of the Sellers, likely to establish a precedent
adverse to the continuing business interests of the Sellers and (v) the Buyer
conducts the defense of the third-party claim actively and diligently. The
Sellers may, by counsel, participate in such proceedings, negotiations or
defense, at the expense of the Buyer; provided, however, that the counsel
selected by the Sellers is subject to the approval of the Buyer, which approval
shall not be unreasonably withheld. The Sellers shall furnish to the Buyer in
reasonable detail such information as the Sellers may have with respect to such
claim, including all records and similar materials that are reasonably required
in the defense of such third-party claim. In the event that within ten days
after notice of any such third-party claim, the Buyer has not notified the
Sellers of its intention to defend the third-party claim, the Sellers will (upon
further notice to the Buyer) have the right to undertake the defense, compromise
or settlement of such claim. The Buyer may elect to participate in such
proceedings, negotiations or defense at any time at its own expense. No Seller
shall settle any such third-party claim without the consent of the Buyer, which
consent shall not be unreasonably withheld.
12.4 BULK SALES LAWS. The parties to this Agreement hereby waive
compliance by such parties with the bulk sales law and any other similar laws in
any applicable jurisdiction in respect of the transactions contemplated by this
Agreement. The Sellers, jointly and severally, shall indemnify the Buyer from,
and hold the Buyer harmless against, any liabilities, damages, costs and
expenses resulting from or arising out of (a) the parties' failure to comply
with any such laws in respect of the transactions contemplated by this Agreement
and (b) any action brought or levy made as a result thereof.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
13.1 ARBITRATION. (a) Upon demand of any party hereto, whether made before
or after the institution of any judicial proceeding, any dispute, claim or
controversy arising out of, connected with or relating to this Agreement or any
other Transaction Document ("DISPUTES") between or among any parties to this
Agreement which involves an amount that is less than five million dollars
($5,000,000) shall be resolved by binding arbitration as provided in this
SECTION 13.1. Institution of a judicial proceeding by a party does not waive
the right of that party to demand arbitration hereunder. Disputes may include,
without limitation, tort claims, counterclaims, claims brought as class actions,
claims arising from documents executed in the future, or claims arising out of
or connected with the transactions contemplated by this Agreement and the other
Transaction Documents. Arbitration shall be conducted under and governed by the
Commercial Rules of the American Arbitration Association, as in effect from
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time to time. If a Dispute primarily relates to a breach by one or both of the
Sellers of any of the representations and warranties contained in ARTICLE V of
this Agreement, then all arbitration hearings with respect to such Dispute shall
be conducted in Mecklenburg County, North Carolina. If a Dispute primarily
relates to a breach by the Buyer of any of the representations and warranties
contained in ARTICLE VI of this Agreement, then all arbitration hearings with
respect to such Dispute shall be conducted in Contra Costa County, California.
If it is not clear whether a Dispute primarily relates to a breach by one or
both of the Sellers of the representations and warranties contained in ARTICLE V
or a breach by the Buyer of the representations and warranties contained in
ARTICLE VI, or if a Dispute does not primarily relate to any such breach by one
or both of the Sellers or the Buyer, then all arbitration hearings with respect
to such Dispute shall be conducted in Mecklenburg County, North Carolina. All
applicable statutes of limitation shall apply to any Dispute. A judgment upon
the award may be entered in any court having jurisdiction. The number of
arbitrators shall be three, and the panel from which the arbitrators are
selected shall be comprised of licensed attorneys.
(b) No proceedings for arbitration (or any other formal proceedings)
relating to any Dispute may be instituted until (i) the party seeking to
institute such proceedings shall have provided written notice to the other
parties to the Dispute of that party's intent to submit the Dispute to
arbitration; and (ii) VECTRA and the Buyer shall have not resolved the Dispute
within the thirty days after the party seeking to institute proceedings shall
have made members of its senior management available to discuss the issues with
members of the other party's senior management. For purposes of this paragraph,
"senior management" shall include, with respect to VECTRA, its president and
chief financial officer and, with respect to the Buyer, its president and chief
financial officer.
13.2 EXPENSES. Whether or not the transactions contemplated hereby are
consummated, each party shall pay all costs and expenses incurred by such party
in connection with this Agreement and the transactions contemplated hereby.
13.3 AMENDMENT AND MODIFICATION. This Agreement may be amended, modified
or supplemented only by written agreement of all of the parties to this
Agreement.
13.4 WAIVER OF COMPLIANCE; CONSENTS. Except as otherwise provided in this
Agreement, any failure of one party to comply with any obligation,
representation, warranty, covenant, agreement or condition herein may be waived
by any other party only by a written instrument signed by the party granting
such waiver, but such waiver or failure to insist upon strict compliance with
such obligation, representation, warranty, covenant, agreement or condition
shall not operate as a waiver of, or estoppel with respect to, any subsequent or
other failure. Whenever this Agreement requires or permits consent by or on
behalf of any party hereto, such consent shall be given in writing in a manner
consistent with the requirements for a waiver of compliance as set forth in this
SECTION 13.4.
13.5 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given when delivered by hand or a reputable national
over-night courier service or by facsimile transmission, or three Business Days
after mailing when mailed by registered or certified mail (return receipt
requested), postage prepaid, to the parties in the manner provided below:
(a) If VECTRA:
VECTRA Technologies, Inc.
5000 Executive Parkway, Suite 500
San Ramon, California 94583
Attention: Mr. Ray A. Fortney
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With a copy to:
Preston Gates & Ellis
5000 Columbia Center
701 Fifth Avenue
Seattle, Washington 98104-7078
Attention: C. Kent Carlson
(b) If to the Subsidiary:
VECTRA Government Services, Inc.
5000 Executive Parkway, Suite 500
San Ramon, California 94583
Attention: Mr. Ray A. Fortney
With a copy to:
Preston Gates & Ellis
5000 Columbia Center
701 Fifth Avenue
Seattle, Washington 98104-7078
Attention: C. Kent Carlson
(c) If to the Buyer, to:
Duke Engineering & Services, Inc.
400 South Tryon Street
Wachovia Building, 21st Floor
Charlotte, North Carolina 28201
Attention: Mr. John F. Norris, Jr.
With a copy to:
Duke Power Company
422 South Church Street
Charlotte, North Carolina 28242
Attention: Robert S. Lilien
Any party may change the address to which notice is to be given by notice given
in the manner set forth above.
13.6 SET-OFF. Each Seller may, from time to time and upon notice to the
Buyer, set-off and reduce the amount payable by such Seller to the Buyer
hereunder by any amount due such Seller from the Buyer hereunder, and the Buyer
may, from time to time and upon notice to the Sellers, set-off and reduce the
amount payable by the Buyer to the Sellers by any amount due the Buyer from the
Sellers.
13.7 BINDING AGREEMENT. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and their
respective heirs, successors and permitted assigns, and shall not confer upon
any other Person any rights or remedies hereunder. Neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by any
party hereto without the prior written consent of the other parties.
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13.8 GOVERNING LAW. The execution, interpretation and performance of this
Agreement shall be governed by the internal laws and judicial decisions of the
State of North Carolina.
13.9 JURISDICTION AND VENUE. In the event that any party to this Agreement
commences a lawsuit or other proceeding relating to or arising from this
Agreement, the parties to this Agreement hereby consent to the non-exclusive
jurisdiction of both the United States District Court for the Western District
of North Carolina and the United States District Court for the Northern District
of California. If each such court lacks federal subject matter jurisdiction,
the parties hereby consent to the non-exclusive jurisdiction of both the
Superior Court Division of the General Court of Justice of Mecklenburg County,
North Carolina and the comparable State Court in San Ramon, California. Any of
these courts shall be proper venue for any such lawsuit or judicial proceeding
and the parties hereto waive any objection to such venue. The parties hereto
consent to and agree to submit to the jurisdiction of any of the courts
specified in this SECTION 13.9 and agree to accept service of process to vest
personal jurisdiction over them in any of these courts. Nothing in this SECTION
13.9 shall be construed as limiting the effect of the provisions regarding the
resolution of Disputes contained in SECTION 13.1 hereof.
13.10 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13.11 INTERPRETATION. The article and section headings and the
information contained in the opening paragraph of ARTICLE III opposite the
heading "Summary" are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement.
13.12 ENTIRE AGREEMENT. This Agreement, including the Exhibits hereto and
the Sellers' Disclosure Letter and the Buyer's Disclosure Letter, embodies the
entire agreement and understanding of the parties with respect of the subject
matter of this Agreement. This Agreement supersedes all prior agreements and
understandings between the parties with respect to the transactions contemplated
hereby.
[Signatures appear on next page.]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
THE BUYER:
DUKE ENGINEERING & SERVICES, INC.
[CORPORATE SEAL]
By: /s/ John F. Norris, Jr.
ATTEST: --------------------------------
Name: John F. Norris, Jr.
------------------------------
/s/ Title: President & CEO
- - - --------------------------- -----------------------------
Secretary
- - - ----------------
VECTRA:
VECTRA TECHNOLOGIES, INC.
[CORPORATE SEAL]
By: /s/ Ray A. Fortney
ATTEST: --------------------------------
Name: Ray A. Fortney
------------------------------
/s/ Title: President & CEO
- - - --------------------------- -----------------------------
Secretary
- - - ----------------
THE SUBSIDIARY:
VECTRA GOVERNMENT SERVICES, INC.
[CORPORATE SEAL]
By: /s/ Ray A. Fortney
ATTEST: --------------------------------
Name: Ray A. Fortney
------------------------------
/s/ Title: President
- - - --------------------------- -----------------------------
Secretary
- - - ----------------
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REVISED CODE OF WASHINGTON
CHAPTER 23B.13
BUSINESS CORPORATION ACT
DISSENTERS' RIGHTS
23B.13.010. DEFINITIONS
As used in this chapter:
(1) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by merger
or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under RCW 23B.13.020 and who exercises that right when and in
the manner required by RCW 23B.13.200 through 23B.13.280.
(3) "Fair value," with respect to a dissenter's shares, means the value of
the shares immediately before the effective date of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
23B.13.020. RIGHT TO DISSENT
(1) A shareholder is entitled to dissent from, and obtain payment of the
fair value of the shareholder's shares in the event of, any of the following
corporate actions:
(a) Consummation of a plan of merger to which the corporation is a
party (i) if shareholder approval is required for the merger by RCW 23B.11.030,
23B.11.080, or the articles of incorporation and the shareholder is entitled to
vote on the merger, or (ii) if the corporation is a subsidiary that is merged
with its parent under RCW 23B.11.040;
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(b) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the shareholder
is entitled to vote on the plan;
(c) Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all or substantially all of
the net proceeds of the sale will be distributed to the shareholders within one
year after the date of sale;
(d) An amendment of the articles of incorporation that materially
reduces the number of shares owned by the shareholder to a fraction of a share
if the fractional share so created is to be acquired for cash under RCW
23B.06.040; or
(e) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled to dissent
and obtain payment for their shares.
(2) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this chapter may not challenge the corporate action
creating the shareholder's entitlement unless the action fails to comply with
the procedural requirements imposed by this title, RCW 25.10.900 through
25.10.955, the articles of incorporation, or the bylaws, or is fraudulent with
respect to the shareholder or the corporation.
(3) The right of a dissenting shareholder to obtain payment of the fair
value of the shareholder's shares shall terminate upon the occurrence of any one
of the following events:
(a) The proposed corporate action is abandoned or rescinded;
(b) A court having jurisdiction permanently enjoins or sets aside the
corporate action; or
(c) The shareholder's demand for payment is withdrawn with the
written consent of the corporation.
23B.13.030. DISSENT BY NOMINEES AND BENEFICIAL OWNERS
(1) A record shareholder may assert dissenters' rights as to fewer than
all the shares registered in the shareholder's name only if the shareholder
dissents with respect to all shares beneficially owned by any one person and
notifies the corporation in writing of the name and address of each person on
whose behalf the shareholder asserts dissenters' rights. The rights of a
partial dissenter under this subsection are determined as if the shares as to
which the dissenter dissents and the dissenter's other shares were registered in
the names of different shareholders.
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(2) A beneficial shareholder may assert dissenters' rights as to shares
held on the beneficial shareholder's behalf only if:
(a) The beneficial shareholder submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and
(b) The beneficial shareholder does so with respect to all shares of
which such shareholder is the beneficial shareholder or over which such
shareholder has power to direct the vote.
23B.13.200. NOTICE OF DISSENTERS' RIGHTS
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is submitted to a vote at a shareholders' meeting, the meeting notice
must state that shareholders are or may be entitled to assert dissenters' rights
under this chapter and be accompanied by a copy of this chapter.
(2) If corporate action creating dissenters' rights under RCW 23B.13.020
is taken without a vote of shareholders, the corporation, within ten days after
[the] effective date of such corporate action, shall notify in writing all
shareholders entitled to assert dissenters' rights that the action was taken and
send them the dissenters' notice described in RCW 23B.13.220.
23B.13.210. NOTICE OF INTENT TO DEMAND PAYMENT
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights must (a) deliver to the corporation before
the vote is taken written notice of the shareholder's intent to demand payment
for the shareholder's shares if the proposed action is effected, and (b) not
vote such shares in favor of the proposed action.
(2) A shareholder who does not satisfy the requirements of subsection (1)
of this section is not entitled to payment for the shareholder's shares under
this chapter.
23B.13.220. DISSENTER'S NOTICE
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is authorized at a shareholder's meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of RCW 23B.13.210.
(2) The dissenters' notice must be sent within ten days after the
effective date of the corporate action, and must:
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(a) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(b) Inform holders of uncertificated shares to what extent transfer
of the shares will be restricted after the payment demand is received;
(c) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the proposed
corporate action and requires that the person asserting dissenters' rights
certify whether or not the person acquired beneficial ownership of the shares
before that date;
(d) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than thirty nor more than sixty days after
the date the notice in subsection (1) of this section is delivered; and
(e) Be accompanied by a copy of this chapter.
23B.13.230. DUTY TO DEMAND PAYMENT
(1) A shareholder sent a dissenters' notice described in RCW 23B.13.220
must demand payment, certify whether the shareholder acquired beneficial
ownership of the shares before the date required to be set forth in the
dissenters' notice pursuant to RCW 23B.13.220(2)(c), and deposit the
shareholder's certificates in accordance with the terms of the notice.
(2) The shareholder who demands payment and deposits the shareholder's
share certificates under subsection (1) of this section retains all other rights
of a shareholder until the proposed corporate action is effected.
(3) A shareholder who does not demand payment or deposit the shareholder's
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholder's shares under this
chapter.
23B.13.240. SHARE RESTRICTIONS
(1) The corporation may restrict the transfer of uncertificated shares
from the date the demand for their payment is received until the proposed
corporate action is effected or the restriction is released under RCW
23B.13.260.
(2) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until the
effective date of the proposed corporate action.
23B.13.250. PAYMENT
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(1) Except as provided in RCW 23B.13.270, within thirty days of the later
of the effective date of the proposed corporate action, or the date the payment
demand is received, the corporation shall pay each dissenter who complied with
RCW 23B.13.230 the amount the corporation estimates to be the fair value of the
shareholder's shares, plus accrued interest.
(2) The payment must be accompanied by:
(a) The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for that
year, and the latest available interim financial statements, if any;
(b) An explanation of how the corporation estimated the fair value of
the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under
RCW 23B.13.280; and
(e) A copy of this chapter.
23B.13.260. FAILURE TO TAKE ACTION
(1) If the corporation does not effect the proposed action within sixty
days after the date set for demanding payment and depositing share certificates,
the corporation shall return the deposited certificates and release any transfer
restrictions imposed on uncertificated shares.
(2) If after returning deposited certificates and releasing transfer
restrictions, the corporation wishes to undertake the proposed action, it must
send a new dissenters' notice under RCW 23B.13.220 and repeat the payment demand
procedure.
23B.13.270. AFTER-ACQUIRED SHARES
(1) A corporation may elect to withhold payment required by RCW 23B.13.250
from a dissenter unless the dissenter was the beneficial owner of the shares
before the date set forth in the dissenters' notice as the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action.
(2) To the extent the corporation elects to withhold payment under
subsection (1) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full satisfaction
of the dissenter's demand. The corporation shall send with its offer an
explanation of how it estimated the fair value of the shares, an explanation of
how the interest was calculated, and a statement of the dissenter's right to
demand payment under RCW 23B.13.280.
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23B.13.280. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER
(1) A dissenter may notify the corporation in writing of the dissenter's
own estimate of the fair value of the dissenter's shares and amount of interest
due, and demand payment of the dissenter's estimate, less any payment under RCW
23B.13.250, or reject the corporation's offer under RCW 23B.13.270 and demand
payment of the dissenter's estimate of the fair value of the dissenter's shares
and interest due, if:
(a) The dissenter believes that the amount paid under RCW 23B.13.250
or offered under RCW 23B.13.270 is less than the fair value of the dissenter's
shares or that the interest due is incorrectly calculated;
(b) The corporation fails to make payment under RCW 23B.13.250 within
sixty days after the date set for demanding payment; or
(c) The corporation does not effect the proposed action and does not
return the deposited certificates or release the transfer restrictions imposed
on uncertificated shares within sixty days after the date set for demanding
payment.
(2) A dissenter waives the right to demand payment under this section
unless the dissenter notifies the corporation of the dissenter's demand in
writing under subsection (1) of this section within thirty days after the
corporation made or offered payment for the dissenter's shares.
23B.13.300. COURT ACTION
(1) If a demand for payment under RCW 23B.13.280 remains unsettled, the
corporation shall commence a proceeding within sixty days after receiving the
payment demand and petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding
within the sixty-day period, it shall pay each dissenter whose demand remains
unsettled the amount demanded.
(2) The corporation shall commence the proceeding in the superior court of
the county where a corporation's principal office, or, if none in this state,
its registered office, is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the proceeding in
the county in this state where the registered office of the domestic corporation
merged with or whose shares were acquired by the foreign corporation was
located.
(3) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled, parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(4) The corporation may join as a party to the proceeding any shareholder
who claims to be a dissenter but who has not, in the opinion of the corporation,
complied with the provisions
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of this chapter. If the court determines that such shareholder has not complied
with provisions of this chapter, the shareholder shall be dismissed as a party.
(5) The jurisdiction of the court in which the proceeding is commenced
under subsection (2) of this section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers
described in the order appointing them, or in any amendment to it. The
dissenters are entitled to the same discovery rights as parties in other civil
proceedings.
(6) Each dissenter made a party to the proceeding is entitled to judgment
(a) for the amount, if any, by which the court finds the fair value of the
dissenter's shares, plus interest, exceeds the amount paid by the corporation,
or (b) for the fair value, plus accrued interest, of the dissenter's after-
acquired shares for which the corporation elected to withhold payment under
RCW 23B.13.270.
23B.13.310. COURT COSTS AND COUNSEL FEES
(1) The court in a proceeding commenced under RCW 23B.13.300 shall
determine all costs of the proceeding, including the reasonable compensation and
expenses of appraisers appointed by the court. The court shall assess the costs
against the corporation, except that the court may assess the costs against all
or some of the dissenters, in amounts the court finds equitable, to the extent
the court finds the dissenters acted arbitrarily, vexatiously, or not in good
faith in demanding payment under RCW 23B.13.280.
(2) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of RCW 23B.13.20 through 23B.13.280; or
(b) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by chapter 23B.13 RCW.
(3) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded
the dissenters who were benefited.
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